AT&T Wireless to Pay Over $2.5 Million
to Settle Florida AG Investigation

FLORIDA ATTORNEY GENERAL INVESTIGATION

• The Florida AG’s CyberFraud Task Force received complaints from AT&T Mobility customers concerning the receipt of unauthorized charges for third-party services on their cell phone bills.
• These charges were for services that were advertised as “free,” such as ringtones, horoscopes, wallpaper and other cell phone-related content.
• The Florida AG alleged that customers did not realize that signing up for these services would result in monthly subscription charges.

THE SETTLEMENT TERMS

• AT&T Mobility agreed to adopt and enforce strict standards for Internet advertising as developed by the CyberFraud Task Force.
• The Company will require Internet advertising entities to clearly and conspicuously disclose the true cost of ringtones and other content in all online advertising to potential customers.
• AT&T Mobility will also allow customers to seek refunds even if they are no longer AT&T customers.
• The Company will also enhance its customer complaint resolution process and, upon request, will terminate a customer’s enrollment in any recurring membership program and will issue full credits and refunds without referring the customer to a third party for such resolution.
• AT&T Mobility agreed to pay $2.5 million to the AG’s Office to fund the efforts of the CyberFraud Task Force in seeking similar reforms across the industry.

SUMMARY

• Florida AG Bill McCollum announced that AT&T Mobility will be the first wireless company in the nation to police representations made in Internet advertising for mobile content to ensure fair and full disclosure.
• McCollum is directing the Task Force to investigate Verizon, Sprint/Nextel, Alltel and T-Mobile in an effort to protect Floridians from incurring unauthorized charges.
• McCollum hopes that the cooperative agreement will establish a new model for the advertising and billing of mobile content.

Online Advertiser to Pay $2.9 Million to Settle FTC Charges

U.S. (for the FTC) v. Value-Click, Inc. Hi-Speed Media, Inc., and E-Babylon, Inc.,
Case No. CV08-01711 MMM (RZx), FTC File Nos. 072-3111 and 072-3158

THE FTC CHARGED THAT:

• ValueClick’s advertising claims and email were deceptive and violated federal law; and
• ValueClick and its subsidiaries, Hi-Speed Media and E-Babylon, failed to secure consumers’ sensitive financial information, despite their promise to do so.

FTC’S SPECIFIC CLAIMS:

• ValueClick and Hi-Speed Media used deceptive email, banner ads and pop-ups to drive consumers to its websites.
• These emails and ads indicated that consumers were eligible for “free” gifts (including electronics and gift cards), and presented such language as “Free PS3 for survey,” and “CONGRATULATIONS! Select your FREE Plasma TV.”
• Consumers visiting ValueClick’s websites were “led through a maze of expensive and burdensome third-party offers”… “which they were required to ‘participate in’ at their own expense, in order to receive the promised ‘free’ merchandise.”
• Using “deceptively labeled email offering free gifts” as well as its “failure to disclose that consumers must expend substantial sums of money to obtain the promised ‘free’ merchandise violates the CAN-SPAM Act and the FTC Act.”
• All three (3) companies misrepresented that they would secure customers’ sensitive financial information in accordance with industry standards.
• Further, that the companies’ privacy policies promised that the information would be encrypted when in reality it was not -- or if it was, a non-standard and insecure form of encryption was used.
• Finally, that some of the defendants' e-commerce websites were vulnerable to SQL injection in the face of claims that the companies implemented reasonable security measures to prevent same.

THE SETTLEMENT

• Bars future CAN-SPAM Act violations.
• Requires ValueClick and Hi-Speed Media to clearly and conspicuously disclose in their advertising and on their promotional web pages that consumers have to spend money or incur other obligations to qualify for “free” merchandise.
• The companies must provide in their online advertising a list of the obligations that consumers must incur to qualify for a "free" product.
• The companies are also barred from misrepresenting the use of encryption or other electronic measures designed to protect consumers’ information, as well as the extent to which they protect personal information.
• The companies must also establish and maintain a comprehensive security program, and obtain independent third-party assessments of these programs for 20 years.
• ValueClick and Hi-Speed Media were required to pay a civil penalty of $2.9 million.

SUMMARY

• To date, this is the third case in which the Commission has targeted the use of deceptive promises of free merchandise by Internet-based lead generation companies, and its 18th case challenging data security practices by a company handling sensitive consumer information.

Social Networking Site for Kids Settles COPPA Violation Charges

U.S. v. Industrious Kid, Inc., N.D. Cal., No. CV-08-0639, 1/30/08

BACKGROUND INFORMATION:

• Industrious Kid, Inc., and owner Jeanette Symons, operated imbee.com, a social networking site specifically designed for children ages 8 to 14.
• Defendants indicated that the site was “purposely designed to ensure the greatest level of safety and satisfaction for young members,” and as “safer than other social networking sites.”

THE FTC CHARGED THAT:

• Imbee.com collected and maintained personal information from children under the age of 13 without first notifying parents and obtaining their consent in violation of the Children’s Online Privacy and Protection Act (“COPPA”).

CHILDREN’S ONLINE PRIVACY AND PROTECTION ACT

• COPPA prohibits unfair or deceptive acts or practices in connection with the collection, use or disclosure of the personally identifiable information (“PII”) of children on the Internet.
• Under the statute, parents have the power to determine whether and what information is collected online from children under the age of 13, and in what manner the information may be used.

THE FTC’S COMPLAINT:

• Imbee enabled more than 10,500 children to create imbee.com accounts by submitting their first and last names, dates of birth, email addresses and other PII, before providing notice to parents or obtaining their consent as required by COPPA.
• Once a child registered with imbee.com, the site sent an email to the child’s parent asking the parent to complete the registration process that would allow the child to obtain full access to the imbee site.
• However, even if a parent did not complete his/her child’s registration process, imbee.com maintained the child’s PII.

THE FTC ALLEGED THAT DEFENDANTS VIOLATED COPPA BY:

• not securing verifiable parental consent before the collection of PII from children;
• failing to provide sufficient notice of:
1. what information imbee.com collected online from children; and
2. the site’s information use and disclosure practices; and
• failing to provide sufficient notice of the kind of personal information that the site would collect from children prior to obtaining verifiable parental consent.

CONSENT ORDER

DEFENDANTS WERE --

• Required to pay a $130,000 civil penalty;
• Prohibited from violating any provision of COPPA;
• Required to delete all improperly obtained PII;
• Required to distribute to imbee.com personnel a copy of the Order and the FTC’s “How to Comply with the Children’s Online Privacy Protection Rule;”
• Required to adhere to standard compliance, reporting and record- keeping provisions; and Required to link from the imbee.com website to certain FTC consumer education materials forthe next five (5) years.

SUMMARY

• According to the FTC, imbee.com’s email notice to parents provided general information about the website, but failed to disclose that it had already collected their child’s name and other personal information.
• The email notice also failed to inform parents of their rights concerning the PII collected on the site.
• The imbee.com privacy policy was insufficient and lacking for information necessary for parents to understand imbee.com’s PII collection and use practices.
• The FTC is paying close attention to those social networking sites that target children as members. It is extremely important for interactive websites to review their information collection and use practices and policies to ensure compliance with COPPA and other relevant regulations.

Court Denies Right of Publicity Claim in Guitar Hero Case

The Romantics v. Activision Publishing, Inc., 532 F. Supp.2d 884 (E.D. Mich. 2008)

FACTS

• At issue in this proceeding were the rights to create, distribute and sell the video game “Guitar Hero Encore: Rocks the 80s” (the “Game”), that employed the identities, persona and the allegedly distinctive sound of plaintiff.
• Defendants, distributor and publisher of the Game, had obtained a non-exclusive synchronization license from EMI Entertainment World, Inc. – the owner of the copyright in the musical composition “What I Like About You” (the “Song” -- originally written and recorded in 1979 by the Romantics).
• The synch license allowed defendants to make a new recording of the underlying song and to use it in synchronization with visual images in digital media, such as the Game.
• During the Game, the Song is identified by title and the words “as made famous by The Romantics” informing players that The Romantics are not actually performing the Song.
• Defendants have not otherwise used the Song for marketing or advertising purposes and neither the name of plaintiff’s band, nor any of its members, appears on the product’s packaging.

MOTION FOR PRELIMINARY INJUNCTION

• Plaintiff sought a preliminary injunction to prevent the manufacture, distribution, sale and/or marketing of the Game pending the outcome of the civil action for claims involving the right of publicity, Lanham Act, unfair competition and unjust enrichment.

COURT DECISION

• The Court held that plaintiff was not entitled to a preliminary injunction.

No likelihood of success on the merits:
• Michigan law (which applies in this case) has never recognized a right of publicity in the sound of a voice or for a combination of voices.
• The First Amendment protects commercial actors’ use of a song in a work where the use is related to the content of the work and is not a disguised commercial advertisement for the misleading sale of the commercial actors’ goods or services.
• The Copyright Act preempts plaintiff's state law publicity claim as the rights asserted by plaintiff are “rights equivalent” to those protected by the Act under Michigan Law.
• Plaintiff's claim for false endorsement in violation of the Lanham Act also fails. Defendants have made no trademark use of the name “The Romantics.” The only use of the name is in the body of the Game in order to accurately identify the group that made the Song famous.
• The Court also stated that a musical composition -- the Song -- cannot be protected as its own trademark under the Lanham Act.
• The Game is described by the Court as a tangible good and, as such, protection of the underlying “sound” exceeds the scope of the Act.
• Finally, reference to the name “The Romantics” during the play of the Game was found to be a non-infringing fair use of the name.
• Plaintiff’s unfair competition claims failed as well.

SUMMARY

• The synchronization license protected defendants’ use of the Song under Michigan Law.
• Further, the Court noted that plaintiff failed to show that it, as artist, had been implicated in the Game, or that people playing the Game would think that the band played the Song, or that the band was used externally – as in advertising the Game.
• Under these specific circumstances, defendants were permitted to continue creating, selling and distributing the Game. The decision spells out parameters that appear fairly narrow and limiting. Companies considering the use of another’s music, identity or persona would do well to pay close attention to the details of this decision.

Court Grants FTC’s Motion Ordering Marketers to Pay More Than $2.5 Million for Violations of FTC Act and CAN-SPAM Act

FTC v. Sili Neutraceuticals, LLC, 2008 WL 474116 (N.D. Ill. 1/23/08)

FTC COMPLAINT

• The FTC filed a complaint against defendants Sili Neutraceuticals and Brian McDaid seeking injunctive and other equitable relief.
• Specifically, the FTC charged defendants with CAN-SPAM violations and making false and unsubstantiated claims about hoodia weight-loss products and HGH anti-aging products.
• According to the FTC’s complaint, the unsolicited commercial email that was sent by defendants directed traffic to its websites.

US DISTRICT COURT AGREES WITH FTC

• Judge David H. Coar ordered defendants to stop misrepresenting the health or weight-loss benefits of any products or services, including hoodia, and to stop sending unsolicited commercial email.
• The Court found that defendants had violated the FTC Act by making false claims regarding the effectiveness of the hoodia products.
• Specifically, defendants represented that hoodia products cause rapid, substantial and permanent weight loss, and that the use of HGH products will result in a clinically-meaningful increase in growth hormone levels and/or will turn back, or reverse, the aging process.
• The Court ruled that the defendants had violated the CAN-SPAM Act by sending unsolicited commercial email messages that:
  1. have misleading header information;
  2. fail to provide clear and conspicuous notice of the opportunity to decline to receive further commercial email from the sender, and/or a functioning return email address; and
  3. fail to include the sender's valid physical postal address.

SUMMARY

• The Court ordered defendants to pay over $2.5 million for making false advertising claims and for sending illegal email messages in violation of the FTC Act and the CAN-SPAM Act.
• In this rapidly changing regulatory marketplace, online advertisers should pay close attention to the FTC’s efforts to police the industry to ensure that they are in compliance with current Internet regulations.

Use of Another’s Virtually Identical Mark as Sponsored Link
Violates Lanham Act

Palantir Technologies, Inc. v. Palantir.net, Inc., 2008 WL 152339 (N.D. Cal. 1/15/08)

FACTS

• In 1996, Palantir.net began providing Internet site design and development services nationwide under the name Palantir.
• Between 1997 and 2006, the domain name Palantir.net was acquired, the company was incorporated, and the service mark “Palantir” was registered with the United States Patent and Trademark Office.
• In early 2007, Palantir.net first learned of the existence of Palantir Technologies, Inc. (“PTI”) and its use of the word “Palantir.”
• PTI was created in 2004.
• Palantir.net also learned that PTI had used the Google AdWords service to pay for sponsored search results for the word “palantir.”
• Palantir.net sent a cease and desist letter to PTI. PTI responded by filing a declaratory judgment action seeking a decision that it is not infringing upon Palantir.net’s trademark.
• Palantir.net filed counterclaims for trademark infringement and a motion for preliminary injunction.
• In its pleadings, PTI tried to distinguish its business from Palantir.net by admitting that it customizes software for clients, but denying that it develops customized software for clients as Palantir.net does.
  

THE COURT DECISION

The Court granted the preliminary injunction under the following two-part test:

The Likelihood of Success on the Merits:
• The Court found that PTI’s use of the “Palantir” mark is likely to cause confusion.
• In so finding, the Court weighed eight (8) items established in AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979), and determined that “the virtual identity of the marks, the relative strength of Palantir.net’s mark, the relatedness of the services and goods offered by the parties, and the fact that both use the Internet to provide information about their businesses, all support a finding of probable success on the infringement claim….”

Balance of Hardships:
• The Court also found in favor of Palantir.net on this second prong of the test, noting Palantir.net’s “long-time use of the mark, the importance of the mark to word-of-mouth referrals, and PTI’s recklessness in adopting the mark for its young business without first searching for any similar trademarks.”

SUMMARY

• This decision emphasizes the need to conduct a search of terms before settling on a name for your company’s products or services, especially if you plan to advertise online.