The Reality Of Virtual Advertising: Legal Issues Abound As Technology Advances

Wednesday, February 1, 2006 - 00:00

Don't look now, but that soda machine in the corner of your favorite episode of Law & Order might not be real. Better yet, it might be a different soda machine the next time you watch the episode. Thanks to high-speed computers, virtual advertising is creeping its way into movies, re-runs, and now many prime-time shows. And, the trend is likely to increase greatly over the next few years as advertisers seek more alternatives to traditional commercials in order to place products in front of consumers. Virtual advertising at one extreme is a creative additional revenue opportunity, but at the other extreme is a wrong in search of a remedy.

"Virtual advertising" generally refers to the insertion of computer-generated images, such as products, logos, brand names, and animation into live or previously recorded television or movies. For example, in Major League Baseball, virtual advertisements have been digitally inserted behind home plate so that the home audience can see the advertisements. Thus, while the television audience sees the advertisement, those in the baseball stadium only see a green board behind the batter. This benefits fans in the stadium by removing distracting advertisements on the baseball field while adding a revenue stream to the broadcasters of the event.

While not likely to replace traditional commercials, virtual advertising can be a major source of revenue for the media industry. Producers and studios can now sell advertising "space" on different versions and mediums of a show. For instance, one can envision a company selling advertising "space" for an original first run series and offering different advertising "space" for subsequent releases. Accordingly, those that go to the movie theater may see a different virtual advertisement than do those who buy a DVD of the same movie.

The Virtual Line Between Opportunity And Illegality

While virtual advertising can create significant revenue, significant legal issues creep in as content is altered to benefit certain players in the production sequence. A specific instance of this occurs when physical advertisements are replaced with virtual ones. For example, given today's technology, a company broadcasting a sporting event could virtually insert a different advertisement over a physical advertisement existing in the sporting arena. Therefore, a network could effectively allow a company to "remove" physical stadium advertisement of competing companies and replace it with their own advertising.

Take, for example, media company CBS's replacement of physical advertisements in Times Square during its coverage of the 2000 New Years celebration. During the celebration, CBS removed Budweiser and NBC advertisements located on billboards in Times Square and replaced them with its own advertisements. OTS Signs, a company that owns and sells the affected billboard space in Times Square (for as much as $1 million per billboard) sued CBS following the event for effectively stealing the advertisement space. Following the event, Dan Rather, the host of the New Year's event, called the decision to remove the advertisements a "mistake." The case was never tried and settled for an undisclosed amount in 2001.

A similar case, also involving OTS Signs as a Plaintiff, was filed against Sony Corporation and others in 2002 alleging violation of federal unfair competition (§ 43(a) of the Lanham Act) along with state law claims of unfair competition, deceptive trade practices, dilution, and trespass.1 The lawsuit alleged that the Plaintiffs, in both the Spider-Man movie trailer and film, replaced an enormous neon Samsung advertisement with a giant billboard for USA Today and digitally erased a 45-foot high by 40-foot wide Samsung billboard and replaced it with a virtual advertisement promoting Cingular Wireless. Further, another sign advertising NBC at 1600 Broadway was also alleged to have been scrubbed out.

Following the pleading stage, the New York federal court granted summary judgment for the Defendants, and the case was appealed to the Second Circuit. The court of appeals found that the case presented an "unsettled question of New York state law, to wit, whether a trespass is committed under New York law when a party's physical contact with another party's personal property diminishes the value of that property without damaging the property." Additionally, the court determined that the First Amendment was not an absolute bar to the case.

Trespass To Chattels

Given the decision by the court of appeals, the legal theory of trespass remains a significant issue as to virtual advertising. To remove an image and replace it with another image, at least in real-time, requires the use of laser technology. The laser beams project on the existing advertisement and form a new image which, in turn, the television or movie audience sees. Thus, laser beams in some way must touch the advertisement, thereby raising the possibility of a trespass claim. This claim must then be addressed by each state where the harm may have occurred. For example, the Second Circuit, in remanding the state law trespass claims filed by OTS Signs and others, cited a recent California Supreme Court case which stated that "the tort [of trespass to chattels] does not encompass, and should not be extended to encompass, an electronic communication that neither damages the recipient computer system nor impairs its functioning."2 Accordingly, this suggests that a trespass to chattels action involving virtual advertisement may require physical damage to property.

Copyright Infringement

While trespass is likely a key area of interest when lasers are used to blot out physical advertisements, many other potential claims may arise out of the direct insertion of digital advertisements. One such claim could be in the form of copyright infringement resulting from the unauthorized altering of copyrighted work. This is especially applicable with advanced technologies such as iPoint. The technology from Princeton Video Image (PVI) - the same company which delivers the yellow virtual first down lines to many football games seen today - allows a cable set-top box to be programmed for the placement of consumer specific advertising. Thus, with this technology, a consumer could see one virtual product in a television show, while another consumer (in the same town or even the same street) could see a different virtual product. The trouble, however, results in the change of the copyrighted work. Because the original content being broadcast (i.e., the originally copyrighted broadcast) is inevitably changed to show new advertisement, if these products are substituted without the consent of the copyright owners, there could be a viable copyright claim. Further, any unauthorized substitution of virtual advertising by a cable company may also find support under Section 111(c)(3) of the Copyright Act, which bans cable television systems from altering the transmission of programming, including substituting commercials, without prior consent.

False Endorsement

In addition to copyright infringement, claims under Section 43(a) of the Lanham Act may arise if a product is placed into movies or television shows without proper authority. For example, a company that virtually advertises a product in a movie or other production without authority from all parties involved may be seen as falsely suggesting the existence of an affiliation with the well-known business, thereby usurping the latter's goodwill and constituting unfair competition.3 Because of this standard, a product substituted directly into a show by a media company through technology such as iPoint may be found to suggest the existence of an affiliation with the company producing the show and, therefore, may constitute a violation of the Lanham Act as false endorsement or reverse passing off.

Conclusion

It is apparent that virtual advertising is here to stay and will continue to grow so long as the viewing audience will tolerate it. From a business perspective, it will be important to draft agreements with an eye toward allocating the risks and rewards of downstream virtual advertising. From a litigation perspective, courts are struggling to find a legal theory to address obvious excesses. While for now the extremes of virtual advertising are a wrong in search of a remedy, existing legal doctrines should provide some protection and can be expected to percolate through the courts.

1 Sherwood 48 Ass'n v. Sony Corp. of America, 76 Fed. Appx. 389, 391 (2nd Cir. 2003).

2 Sherwood, 76 Fed. Appx. at 392.

3 See, e.g., Burger King v. Mason, 710 F. 2d 1480, 1492 (11th Cir. 1983).

Courtland L. Reichman is a Partner at King & Spalding LLP and leader of the firm's global Intellectual Property Group. David S. Moreland is an attorney in the firm's Intellectual Property Group.

Please email the authors at creichman@kslaw.com or dmoreland@kslaw.com with questions about this article.