Unlike 2004, 2005 was a relatively "scandal-less" year in the realm of advertising, marketing and promotions law. In 2005, more food appeared on television than ever before, as the use of product placement and brand integration campaigns increased at a rapid-fire pace. While much has been written about the complexities of measuring the effectiveness of such campaigns, one may only have to look at the data on the nation's expanding waistline to understand that, at least in the food product category, the marketing tactic is extremely successful and its use will continue to rise. The debate raged as to whether prominent disclosures may soon be necessary in branded entertainment and if self-regulation, or Congressional action, is appropriate to combat the marketing of unhealthy food products. There was a myriad of other interesting legal developments in 2005. Here's a quick rundown.
Some believe the line between advertising and entertainment/editorial content has become so blurred, as networks increasingly integrate products and other commercial messages into entertainment and news programs, that the public needs a government-mandated pair of glasses to see clearly again. Early in the year, it was discovered that conservative pundit Armstrong Williams failed to disclose the fact that he was paid by the DOE to publicly support the No Child Left Behind Act. His failure was found by the GAO to be a clear violation of the federal prohibition on "covert" publicity and propaganda. While the issues surrounding the Williams affair revolved around the government's role in failing to make appropriate disclosures in connection with its marketing efforts, the scandal has clear implications for non-governmental advertisers.
In February, the FTC rejected Commercial Alert's 2003 petition to require prominent disclosures of embedded advertising and product placement on television, opining that, since few objective claims are made about a product's performance in a product placement scenario, disclosures are unnecessary. The FTC did indicate it would continue to evaluate product placement on a case-by-case basis to protect consumers from misleading representations. The FTC also left open the possibility of further action in cases where a celebrity, like Armstrong Williams, is paid to discuss a product or service in news or entertainment programming. Such a payment, without disclosure, could be a violation of the FTC's Endorsement Guides, which are currently in the regulatory review process.
Although Commercial Alert's efforts have not yet led to increased government scrutiny of branded entertainment, some regulators have expressed sympathy for the organization's position. In May, FCC Commissioner Jonathan Adelstein called for "clear and prominent" disclosure of covert commercial pitches on television. Adelstein found the use of "satellite media tours" to be particularly problematic, since it is typically not disclosed that the experts used for such tours are paid. According to Adelstein, because these segments usually air during regular news programs in a way that is indistinguishable from the rest of the show, they mislead consumers into believing that the expert statements are neutral and impartial. In 2006, we can expect the FCC to weigh in on Commercial Alert's complaint.
Marketing Inappropriate Products To Children
In July, it was reported that players of the successful video game Grand Theft Auto: San Andreas could download a modification to enable a character in the game to engage in sexual acts with another character. Senator Hillary Clinton wrote a letter to FTC Chairperson Majoras requesting an investigation into the origins of this modification, and whether the game's rating of "M" (for Mature Audiences 17+) should be changed to "AO" (for Adults Only). In response, the Entertainment Software Rating Board changed the rating to "AO," and made clear to game publishers that all content, playable or not, must be disclosed if it is pertinent to the rating. Both the U.S. Senate and House of Representatives issued resolutions stating that the FTC should investigate the publication of Grand Theft to determine if the manufacturer deceived the ratings board to avoid an AO rating. The manufacturer of Grand Theft is also facing class-action lawsuits in New York and Pennsylvania from consumers claiming that it failed to warn that the game contained the hidden scenes. Senator Clinton is also proposing legislation that would impose a $5,000 penalty on retailers who sell adult-rated video games to underage children.
Legislators this year also reacted to a recent phenomenon called "Chronic Candy" - marijuana-flavored candy being sold in stores and on the web. Although the candy maker states that it is "adult oriented," legislators fear that the product is being marketed to children, with advertisements using phrases like "tell a friend, not a cop" and "every lick is like taking a hit." In New York City, a resolution was introduced calling upon city stores to stop selling pot-flavored candy, and Michigan and Texas legislators proposed bills to amend their state penal codes to ban the sale of candy containing marijuana flavoring. Be sure to look for more legislation in 2006 on this smoky topic.
Obesity And Health Issues
In 2005, weight gain and obesity issues continued to occupy the attention of regulators and the public. In May, Senator Tom Harkin introduced the Healthy Lifestyles and Prevention America Act (or the HeLP America Act). The Act would, among other things, restore authority to the FTC to issue regulations restricting the marketing or advertising of foods to children under the age of 18 and would amend the Food, Drug and Cosmetic Act to require vending machines and certain restaurants to provide nutritional information about food offered. In July, the FTC and Department of Health and Human Services held a joint-workshop on marketing, self-regulation and childhood obesity, with the FTC concluding that it continues to favor self-regulation in this area.
In related news, the court in Pelman v. McDonalds (396 F.3d 508 (2d Cir. 2005)) reinstated a portion of the action involving a claim by obese teenagers that McDonald's advertising was deceptive, in that it lead plaintiffs to believe that McDonald's food was healthy.
In direct opposition to legislators and threatened lawsuits, some marketers continued to buck the healthy menu trend. Following Carl's Jr. Spicy BBQ Six Dollar Burger, promoted by Paris Hilton in a "spicy" never-aired commercial, Burger King introduced its Enormous Omelet Sandwich, boasting 730 calories, 47 grams of fat, 1,860 milligrams of sodium, with eggs, bacon sausage and cheese. Such over-the-top offerings have left many wondering who will win the ongoing obesity wars. The saga will no doubt continue into 2006.
President Bush signed into law the Junk Fax Prevention Act, which allows companies to send unsolicited commercial faxes to people with whom they have an "established business relationship." While the definition of established business relationship under the Act is based on the federal telemarketing laws, there is no limit on the duration of the relationship. This is a significant victory for the marketing industry because, after years of uncertainty, it clarifies the legality of commercial faxing under the established business relationship exemption.
In May, the FTC sought public comment on certain aspects of the CAN-SPAM Act. While most of these proposed rule provisions clarify existing provisions of the Act, the proposed rule provision that shortens the time a sender must honor a recipient's opt-out request from ten to three days, could have an adverse impact on an advertiser's ability to send commercial e-mails, particularly where an advertiser must synchronize multiple e-mail databases, forward opt-out requests to third parties, or manually process opt-out requests. Thus, the industry should be on watch for the FTC's final determination with respect to these rules.
In June, the FTC submitted a report to Congress recommending against a plan that would compel senders of unsolicited commercial e-mail to include specific characters, such as "ADV," in the subject line of messages. In rejecting the plan, the FTC reasoned that it would be extremely unlikely that outlaw spammers would comply.
In what will undoubtedly elicit a huge sigh of relief from sweepstakes sponsors, Florida revised its game promotion statute to require only the "material terms" of a sweepstakes to be printed in sweepstakes advertising copy, provided such copy includes information on how to obtain the full official rules. According to the new regulation, "material terms" means (1) the sponsor name; (2) no purchase necessary language; (3) the start and end dates of the sweepstakes; (4) eligibility requirements; and (5) disclosure of where the sweepstakes is void.
Privacy And Technology
As a direct result of California enacting the nation's first security breach disclosure law in 2003, 2005 saw over 20 states implement similar laws, and numerous bills are pending on the federal level as news stories of security breaches become commonplace. While no general federal laws currently exist which impose a security obligation on all businesses, the FTC strongly implied that such an obligation already exists under Section 5 of the FTC Act. This year, the FTC brought an action against BJ's Wholesale Club alleging that the combination of certain factors, such as BJ's failing to employ sufficient measures to detect unauthorized access or conduct security investigations, amounted to an "unfair practice" under the FTC Act. Therefore, privacy and security are no longer just public relations issues, since they can expose a company to significant legal liability if the failure to properly secure data falls short of expectations or requirements. Look for more states to jump on the privacy bandwagon with new laws in 2006.
Lawmakers and consumer groups began to scrutinize viral, "buzz" and "stealth" marketing more closely in order to ascertain whether these practices can be accomplished legally, while still retaining their effectiveness in the marketplace. The concept of viral marketing was recognized en mass with Burger King's "Subservient Chicken" and other viral campaigns, which have made it clear that the Internet can be used to influence trends and spread product awareness in ways that are more cost-effective and exponential than traditional media.
In October, Commercial Alert sent the FTC a letter requesting an investigation of companies that engage in "buzz marketing," noting that "there is evidence that some of these companies are perpetrating large-scale deception upon consumers by deploying buzz marketers who fail to disclose that they have been enlisted to promote products." The petition singled out Proctor & Gamble's "Tremor," a sales force of more than 250,000 teenagers who are compensated with coupons or product samples and who are not instructed to disclose that they are being compensated. In response to buzz marketing efforts directed at children, a Massachusetts lawmaker introduced a bill that would require advertisers to obtain parental consent to recruit children 15 or younger to participate in online buzz marketing campaigns.
Since it remains to be seen whether the FTC will investigate stealth or buzz marketing techniques and practices, many marketers are erring on the side of caution and disclosing when and where commercial relationships exist.
Though we secretly hope for a scandal-ridden year in 2006, given the 40th Anniversary of the Super Bowl and the Winter Olympics in Torino, expect not scandal, but an aggressive stance on ambush marketing from the NFL and the USOC. Also, with the advent of video on demand and other one-to-one media, branded content as a marketing vehicle will be greater than ever, as will its scrutiny. Expect some form of guidance or regulations from the FTC or the FCC on this topic in 2006.
Joseph J. Lewczak is a partner, and Michael Abitbol is an associate, in the Advertising, Marketing and Promotions Department of New York based Davis & Gilbert LLP. Authors' Note: The authors gratefully acknowledge the assistance of each of the attorneys in the firm who contributed to this article: Allison Fitzpatrick, Jennifer Gutterman, Gary Kibel, Kara Paldino, Ivana Starr and Tiffany Towers.