The Year Of Advertising Dangerously?

Monday, May 4, 2009 - 01:00

As if shrinking advertising budgets, failing business units, and toxic levels of consumer cynicism were not enough to contend with, the changeover to a new administration and at key leadership positions in Congress presage a challenging year for advertisers on legal and regulatory fronts.Numerous issues such as green advertising, behavioral targeting and drug advertising, among others, loom large.One Member of Congress has even introduced legislation directing the Federal Communications Commission ("FCC") to regulate the volume of television commercials.More importantly, however, reliance upon industry self-regulation, an important aspect of the advertising compliance regime, is likely to come under heavy pressure.

Chief among these issues is the behavioral targeting of online consumers, which has generated hotly debated questions about consumer privacy and data security.As more advertising dollars are dedicated to support online activity, this may well be the primary legal battleground facing advertisers in the coming years.

Advertisers should pay particularly close attention to the Federal Trade Commission's recent Staff Report setting forth self-regulatory principles for behavioral targeting.Although the report nominally approves of self-regulation for the time being, the new FTC Chairman admonished that the industry faces a "last clear chance" to avoid regulation and that a "day of reckoning" is fast approaching.Such comments suggest that the FTC does not view industry self-regulation in this area as a success story to date.

While the report takes note of recent industry initiatives, it is replete with open-ended admonitions that the industry needs to do more to make data collection practices transparent and to ensure consumer choice.It seems not that the FTC believes that regulation is unnecessary, but rather it is simply unsure what steps to take in this rapidly developing area.

In addition, the FTC is expected this year to revise its guidelines for green marketing claims and is reportedly looking hard for precedent-setting cases.Advertisers should expect new guidelines for claims regarding carbon offsets, renewable energy certificates, and green packaging, among others.The use of third party certifications or other substantiation techniques for environmental claims will likely be addressed.Advertisers should also expect increased "greenwashing" challenges by third-party watchdogs, which is already a very active field in many European jurisdictions.

There are several other important legal issues this year:

• Drug advertisers should anticipate calls for a three-year moratorium on advertisements for new prescription drugs, preclearance requirements for all direct-to-consumer advertising, and the use of symbols to indicate drugs new to the market.Congress will also likely consider giving the FDA jurisdiction of over-the-counter drug advertising, and will further debate promotion of off-label uses.

• The FTC has proposed significant revisions to guidelines for using testimonials and endorsements.The revisions would heighten requirements for pre-publication substantiation of "generally expected results," and 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.

• Advertisers will continue to litigate search engine advertising practices, such as using another party's trademark as a search term to drive traffic to one's own website, or using another's trademark in one's own website metadata for the same purpose.New rules are expected to substantially expand the availability of generic top level domain names, or "gTLDs."Although this will allow advertisers to expand their brand presence on the internet, the process will inevitably spawn trademark-based disputes and increased costs for advertisers to protect against cybersquatting and brand dilution.

• The FCC will continue its review of product placement and integration practices.Critics 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.

• Advertisers should expect Congress to closely monitor industry participation and compliance with the children's food and beverage advertising self-regulatory initiative, and continued pressure on the industry to do more.

• Advertisers should expect precedent-setting cases pertaining to responsibility for user-generated content, and for further development of best practices for inviting or permitting consumers to provide such content.

As these issues are debated, industry self-regulation would seem to be a hard sell to a public that has just witnessed the financial industry debacle.Just imagine the online advertising industry having its own Bernard Madoff.The industry will need to remind policy-makers that advertising has often posed a unique case justifying self-regulation as a first line of enforcement.Most advertising is by nature a very public act, subject to the scrutiny of the blogosphere, and also subject to First Amendment protection.As Justice Louis Brandeis aptly stated, "sunlight is said to be the best of disinfectants."Further, an advertiser's competitors often have the incentive to use self-regulatory forums such as the National Advertising Division or other venues to challenge misleading advertising.These considerations do not neatly apply, however, with respect to behavioral targeting practices that are highly technical, potentially invisible to the consumer, and for which competitors may have mutually aligned interests.In this year of the "last clear chance," the challenge for advertisers is to provide transparency, clear disclosures, and consumer control, in order to make the case that self-regulation will be effective in this area as well.

David M. Young is a Partner in Goodwin Procter LLP's Washington, DC office where he is a member of the IP Litigation Practice. He focuses primarily on intellectual property counseling, litigation and appellate practice, including patent litigation, and copyright, advertising, trademark, trade dress and counterfeiting counseling.

Please email the author at dyoung@goodwinprocter.com with questions about this article.