Alert February 01, 2009

Top Advertising and Marketing Legal and Business Issues for 2009

Even at this early stage, 2009 is shaping up to be a very challenging year for advertisers, particularly with the changeover to a new administration and changes to key leadership positions in Congress. Numerous legal and regulatory issues, such as green advertising, behavioral targeting and drug advertising, loom large for advertisers and their agencies. The following are some of the most significant of these issues likely to garner substantial attention this year.

Behavioral Targeting

The ability of advertisers to closely track consumers’ online behavior and to target advertising based on that information has generated hotly debated issues about consumer privacy and the safety of identifiable consumer information collected by advertisers. As more advertising dollars move to the online environment, this may well be the primary legal battleground facing advertisers in the coming years. The issues are likely to be fought on multiple fronts, including the Congress, state legislatures, the courts and the Federal Trade Commission (“FTC”).

Four of the leading advertising industry associations recently announced a self-regulatory initiative aimed at developing a set of principles to govern online behavioral advertising. In addition, expect the FTC to monitor industry practices with respect to: (i) full and clear disclosure about behavioral advertising; (ii) consumer control over the use of behavioral advertising; (iii) obtaining affirmative express consent from consumers; (iv) treatment of sensitive behavioral information; and (v) storage and retention policies regarding consumer information.

Key issues likely to be debated over the coming year will be whether industry self regulation is sufficient, whether “opt-out” or “opt-in” will become the method by which to obtain consumer consent and how the requisite disclosures about the collection and use of consumer information must be written for lay consumers. In addition, expect consumer groups to push for a “Do Not Track” list similar to the “Do Not Call” initiative instituted by the FTC in recent years.

Green Advertising

Following a series of workshops held over the past year, the FTC is expected to announce early in 2009 revisions to its current guidelines (“Guides for the Use of Environmental Marketing Claims”) for green marketing. These guidelines, originally written in 1992, do not have the force of law and are not independently enforceable, but they are quite important as administrative interpretations of the law. The FTC workshops considered advertising claims regarding carbon offsets, renewable energy certificates and green packaging. Other key issues will be (i) the relevance of third-party certifications or other substantiation techniques for environmental marketing claims, and (ii) whether certain types of environmental claims will be prohibited outright or whether definitions will be provided that advertisers must adhere to when making such claims.

The FTC has taken note of the surge of green advertising over the past two years, and has also indicated that it is on the lookout for precedent-setting cases. In addition, expect increasing numbers of challenges by third-party watchdogs of potential “greenwashing” in environmental claims, which is already a very active field in many European jurisdictions.

Drug Advertising

Facing considerable pressure in the form of proposals to impose a multi-year moratorium on prescription drug advertising, in 2008 a group of major drug companies agreed to a six-month moratorium on new prescription drug advertisements, during which time doctors are to be educated about the medication. Notwithstanding the voluntary moratorium, drug advertisers should expect continued scrutiny and more restrictive proposals from congressional and Food and Drug Administration (“FDA”) critics. Likely to resurface are proposals for a three-year moratorium on advertisements for new prescription drugs, pre-clearance requirements for all direct-to-consumer advertising, and the use of symbols to indicate drugs that are new to the market. Also likely is congressional consideration of whether the FDA should be given jurisdiction of over-the-counter drug advertising, and further debate over promotion of off-label uses.

Endorsements and Testimonials

The FTC has proposed significant revisions to its guidelines, last updated in 1980, for the use of testimonials and endorsements in advertising, and is in the process of obtaining public comments on the proposed revisions. The FTC’s proposed revisions address consumer endorsements, expert endorsements, endorsements by organizations and disclosure of material connections between advertisers and endorsers. Among other things, the proposed revisions would heighten requirements for pre-publication substantiation of “generally expected results,” and would eliminate the current safe harbor that allows non-representative testimonial claims so long as the advertisement conspicuously states that the depicted results are not typical. If adopted in their current form, expect a significant First Amendment challenge from advertisers.

Search Engine Advertising Practices

Courts have rendered conflicting rulings regarding the legality of certain search engine advertising practices under trademark law. At issue are practices such as using another party’s trademark as a search term in search engine advertising to drive traffic to one’s own website, or using another’s trademark in one’s own website metadata for the same purpose. It is possible that only Supreme Court review of these issues will provide a definitive answer for advertisers. While a number of courts have held that “purchasing” a competitor’s trademark for use as a search term in search engine advertising implicates federal trademark law, the influential Second Circuit Court of Appeals has held that this practice is not a “use in commerce” of another’s trademark. Because Internet-based search advertising is inherently national in scope, it will be important for the courts to resolve this division of legal authority.

More Domain Names, and More Domain Name Disputes?

In the coming year, the Internet Corporation for Assigned Names and Numbers (“ICANN”) is expected to implement new rules that would substantially expand the availability of generic top level domain names, or “gTLDs.”  These rules will allow advertisers and others to register names in domains with any suffix, not simply, for example, .com or .net. Although this will substantially increase opportunities for advertisers to purchase domain names to expand their brand presence on the Internet, at the same time the process will inevitably spawn trademark-based disputes over such registrations, and will result in increased costs for advertisers to protect against cybersquatting and brand dilution. ICANN is expected this month to respond to concerns raised by advertisers during a public comment period, and to issue a new set of guidelines for implementation of the new rules.

Product Placements or “Embedded Advertising”

The Federal Communications Commission  has published a Notice of Inquiry and Notice of Proposed Rulemaking with respect to product placement and integration practices. Critics of product placement have proposed that disclosure of these practices should occur during the actual programming, for example, in the form of a simultaneous crawl or pop-up, rather than as a disclosure in the end credits. Advertising industry representatives have argued that no persuasive case has been made that additional regulation is necessary.

Children’s Food and Beverage Advertising

In 2008, a long-awaited FTC study regarding food and beverage advertising to children turned up a surprise, namely, that marketers were spending about $1.6 billion on such marketing, which was actually $8.4 billion less than watchdog organizations and congressional critics had believed was the case. And this figure was derived from a period before many advertisers had voluntarily undertaken to cease marketing to children. Nonetheless, some congressional critics of the industry maintained that the $1.6 billion was wrongly spent. Expect Congress to closely monitor industry participation in and compliance with the industry’s self-regulatory initiative (the “Children’s Food & Beverage Advertising Initiative”), and for continued pressure on the industry to do more. However, the industry’s self-regulation, and the possible First Amendment implications of mandatory restrictions, will likely prove enough to ward off anything more than congressional criticism this year.

Legal Ramifications of User-Generated Content

Advertisers have attempted to capitalize on the popularity of social networking sites, twittering and online communities – as well as the proliferation of user-generated content – by inviting consumers to create product and brand-related content. Legal issues can arise, however, such as when an advertisement is seen as disparaging a competitor’s product, or as making false claims about the advertiser’s product. In addition, advertisers need to be mindful that user-generated content may often incorporate trademarks or copyrighted content of third parties. Expect some test cases this year to establish the extent of an advertiser’s responsibility for user-generated content, and for further development of best practices for inviting or permitting consumers to provide such content.

Agency-Client Relationships

Agencies and advertisers will continue to explore alternative compensation models, as well as issues of ownership of creative materials and concepts (e.g., for ideas developed by the agency but not adopted by the advertiser). A recent industry survey identified intellectual property ownership as one of the top issues between agencies and clients and between agencies and production companies. This is particularly so as the vehicles for agency-created content become more diverse and include non-traditional advertising projects such as various forms of Internet advertising and broadband virals. As these issues are hashed out, look for agencies and their clients to also explore alternatives to commission or fee-based compensation models, including having the agency take partial equity ownership, or performance-based incentives to reward increased brand awareness or market share.