Guidance for Online Advertising Under Review by FTC Staff

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC is seeking public comment through July 11, 2011, on its guidance document published in 2000 that advises businesses how federal advertising law applies to advertising and sales on the Internet. The agency is looking for input on how its "Dot Com Disclosures: Information About Online Advertising" should be modified to reflect the dramatic changes to the online world since 2000. The May 3, 2000, FTC staff paper appears at CCH Trade Regulation Reporter ¶50,175.

The FTC staff has identified the following questions on which it has a particular interest in obtaining the public's views:

(1) What issues have been raised by online technologies or Internet activities or features that have emerged since the business guide was issued (e.g., mobile marketing, including screen size) that should be addressed in a revised guidance document?

(2) What issues raised by new technologies or Internet activities or features on the horizon should be addressed in a revised business guide?

(3) What issues raised by new laws or regulations should be addressed in a revised guidance document?

(4) What research or other information regarding the online marketplace, online advertising techniques, or consumer online behavior should the staff consider in revising "Dot Com Disclosures"?

(5) What research or other information regarding the effectiveness of disclosures --and, in particular, online disclosures --should the staff consider in revising "Dot Com Disclosures"?

(6) What specific types of online disclosures, if any, raise unique issues that should be considered separately from general disclosure requirements?

(7) What guidance in the original "Dot Com Disclosures" document is outdated or unnecessary?

(8) What guidance in "Dot Com Disclosures" should be clarified, expanded, strengthened, or limited?

(9) What issues relating to disclosures have arisen from such multi-party selling arrangements in Internet commerce as (1) established online sellers providing a platform for other firms to market and sell their products online, (2) website operators being compensated for referring consumers to other Internet sites that offer products and services, and (3) other affiliate marketing arrangements?

(10) What additional issues or principles relating to online advertising should be addressed in the business guidance document?

(11) What other changes, if any, should be made to "Dot Com Disclosures"?

Comments can be filed until July 11, 2011, at: https://ftcpublic.commentworks.com/ftc/dotcomdisclosures . Alternatively, comments, noted as "Dot Com Disclosures, P114506," can be submitted in paper form to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex I), 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

Facebook’s Advertising Charges Could Violate California Unfair Competition Law

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

Social networking website Facebook PPC could be held liable under the California Unfair Competition Law (UCL) for unfair business practices related to a breach of an advertising contract, but not for fraudulent or unlawful business practices, according to the federal district court in San Jose, California.

Sports website Rootzoo entered into an advertising contract with Facebook that allowed Rootzoo to place advertisements on portions of Facebook’s website with embedded links to external sites.

Facebook gives advertisers the choice between two payment structures: “cost per click” or cost per thousand impressions. In selecting the “cost per click” option, Rootzoo specified the maximum amount it was willing to pay for each click and each day.

Each advertising contract contained a disclaimer stating that third parties may generate clicks that could affect the cost of the advertising and that advertisers accept the risk and cannot hold Facebook liable for those fraudulent clicks.

Despite the disclaimer, Rootzoo alleged that Facebook made representations that it would charge for only certain types of clicks and that it had measures in place to ensure advertisers would be charged only for legitimate clicks. Rootzoo filed the UCL claim after Facebook billed for allegedly invalid clicks.

Unlawful, Unfair, Fraudulent Practices

The UCL prohibits unlawful, unfair, and fraudulent business practices and unfair, deceptive, untrue, or misleading advertising. Each prong applies separately in each case and a party need only meet one of the three criteria—unlawful, unfair, or fraudulent—to state a UCL cause of action.

Rootzoo’s UCL claim under the unfair prong could go forward based on the alleged breach of contract, according to the court. Although California courts have found that systematic breaches of contract may state a claim under the unlawful prong of the UCL, the court determined that the issue was better analyzed under the unfairness prong.

Because Rootzoo’s claims based in fraud were too general, they could not be brought under the unfairness prong. However, the claim based on Facebook’s systematic breach of the advertising contract was not subject to Rule 9(b) and was sufficient to withstand the motion to dismiss.

Heightened Pleading Standard

Because Rootzoo could not meet the heightened pleading standard of Federal Rule of Civil Procedure 9(b) that applies to UCL claims under the fraudulent prong, the court dismissed the claim. Rootzoo alleged that Facebook misrepresented how advertisers were billed, misrepresented the methods in place to protect advertisers from paying for invalid clicks, and failed to disclose that it charged for invalid clicks.

Rule 9(b) requires evidence of the time, place, and specific content of the false representations in order to give defendants notice of the particular misconduct at issue. In this case, Rootzoo’s allegations were too general and lacked any evidence of reliance on the alleged misrepresentations. Thus, the claim was dismissed.

The decision, In re Facebook PPC Advertising Litigation, appears at CCH State Unfair Trade Practices Law ¶32,125. It also will appear at CCH Advertising Law Guide ¶63,980 and CCH Guide to Computer Law ¶50,022.

Further details regarding CCH State Unfair Trade Practices Law appear here.

Online Advertisers’ Data Gathering Could Violate Federal Laws: Report

This posting was written by Thomas A. Long, Editor of CCH Privacy Law in Marketing.

Online advertisers that collect data about consumers through click tracking, capturing search terms, and other methods could be violating federal laws, such as the Electronic Communications Privacy Act (ECPA) and the Communications Act, unless consent is obtained from one of the parties to the communication, according to a report released by the Congressional Research Service.

The report, entitled Privacy Law and Online Advertising: Legal Analysis of Data Gathering by Online Advertisers Such as Double Click and NebuAd, examines the application of federal statutes to online behavioral advertising. It also examines the Federal Trade Commission's self-regulatory principles and standards published by the Network Advertising Initiative.

The ECPA generally prohibits the interception of electronic communications. Concerns have been raised that online advertising providers, websites, and ISPs that agree to collect certain data generated by Internet traffic to behaviorally target advertising may be violating the ECPA.

Although the ECPA could apply to such data collection, the report concludes that online advertising providers, like DoubleClick, that partner to collect data from individual websites generally are not violating the law, because the websites are "parties to the communication" with the ability to consent to interception.

On the other hand, when the partnership is between the ISP and the online advertising provider, neither of the parties to the agreement to intercept web traffic is a party to the communications that are being intercepted. Therefore, consent would have to be obtained from individual customers of the ISPs.

In addition, privacy provisions of the Communications Act could apply to agreements between cable operators acting as ISPs and online advertising providers, according to the report. Section 631 of the Act provides that cable operators must provide notice to subscribers, informing them of the types of personally identifiable information the cable operator collects, how the information is disclosed, and how long it is kept, among other things. Cable operators are prohibited from collecting or disclosing personally identifiable information without a subscriber's prior written or electronic consent.

Online advertising provider NebuAd contends that Sec. 631 does not apply when cable operators are acting as cable modem service providers. Courts have not yet resolved this issue, the report said.

Full text of the report is reproduced at CCH Privacy Law in Marketing ¶60,306.