Microsoft, Google and Yahoo to Pay $31.5 Million to U.S. For Past Promotion of Illegal Gambling

THE INVESTIGATION

• The United States Attorney of the Eastern District of Missouri, along with the IRS and FBI, began its investigation in 2000.
• Hanaway’s office claims that between 1997 and June 2007, Microsoft, Google and Yahoo received payments from online gambling businesses for advertising online gambling in violation of the Federal Wire Wager Act, federal wagering excise tax laws, and various state statutes and municipal laws prohibiting gambling.
• Each of the three organizations agreed to pay a combined $31.5 million to settle the federal civil allegations.
• Microsoft, Google and Yahoo neither contest nor admit that they received payments from online gambling businesses for advertising online gambling.

THE SETTLEMENTS

• The Microsoft settlement totals $21 million and consists of $4.5 million payable to the United States and a $7.5 million contribution to the International Center for Missing and Exploited Children.
• Microsoft also agreed to provide a $9 million, online public service advertising campaign to inform and educate college level and younger people that on-line gambling enterprises are illegal under United States law.
• The Google settlement totals $3 million.
• The Yahoo settlement totals $7.5 million, of which $3 million is payable directly to the United States and $4.5 million is allotted for an online public service advertising campaign.

SUMMARY

• The U.S. Attorneys Office has indicated that because online gambling companies are very profitable, they have a lot of money to spend on marketing. Hanaway expects the settlements to have a major impact going forward on their ability to market in as many channels as they once had.
• The U.S. Attorney went after three (3) of the largest online players in this case and focused its investigation on the companies' marketing practices.
• Companies that engage in online marketing should carefully evaluate the legality of the products/services for which they agree to provide marketing services. As evidenced by recent regulatory action, marketers are increasingly responsible for their advertisers' creative claims and the underlying products/services featured in the advertising. As always, we advise that you consult with counsel prior to launching any new campaigns.

New Jersey Enacts First Online Dating Law:
Internet Dating Safety Act

(S.1977)

THE LAW

• The new law requires Internet dating service companies to disclose to New Jersey members whether it conducts criminal background screenings of its members.
• The law provides methods by which this disclosure can be made.
• If a service runs criminal background screenings on all of its members, it must disclose that fact on the Web pages used by New Jersey members at the time of signing up for the service.
• If the dating service conducts the screening, then it must also indicate whether it has a policy allowing a member with a criminal conviction to communicate with any New Jersey member via its service.
• The law also requires Internet dating services to provide a list and description of safety measures reasonably designed to increase awareness of safer dating practices.

PURPOSE OF LAW

• According to the law, “[t]here is a public safety need to disclose whether criminal history background screenings have been performed and to increase public awareness of the possible risks associated with Internet dating activities.”
• New Jersey Senate President, Richard J. Codey, explained, “Internet dating companies bear a responsibility to their customers to provide basic screening to weed out threatening individuals.” He further added that “[a]t the very least, Internet daters should at least know whether or not their chosen Web service provides such screening. This will open a lot of people’s eyes to the dangerous aspects of Internet dating.”

SUMMARY
This is the first law of its kind in United States. Online dating services offering services to New Jersey members need to comply with safety notice requirements specified in the law.

NEW YORK D.A.s ACT

• New York City prosecutors endorsed the United States’ first proposed law to ban registered sex offenders from social-networking sites such as Facebook and MySpace.
• NY State Attorney General, Andrew Cuomo, proposed to ban thousands of the State’s sex offenders from communicating with minors online.
• The initiative would force sexual predators to register their instant messaging screen names and enable sites like MySpace and Facebook to block their access.

Online Marketers of Prepaid Debit Cards Settle FTC Charges

FTC v. EDebitPay, LLC, C.D. Cal., No.: CV-07-4880 ODW (AJWx), 1/17/08

THE FTC’S COMPLAINT

• Defendants, EdebitPay, LLC, EDT Reporting, LLC, EDP Technologies Corp., Secure Deposit Card, Inc., Dale Paul Cleveland, and William Richard Wilson, marketed Visa and MasterCard-branded prepaid debit cards to subprime consumers.
• The FTC claimed that defendants marketed these bank-issued prepaid debit cards under a variety of names through websites and pop-up and email advertisements that directed consumers to sites for the individual cards (including Acclaim Visa, Impact Visa, Sterling Visa, VIP Advantage Visa, Vue Visa, Elite Plus MasterCard, Impact MasterCard, Secure Deposit MasterCard, VIP MasterCard and Vue MasterCard).
• They also marketed unrelated short-term loans on websites such as www.SuperAutoSource.ocm and www.SuperCashSource.com
• The FTC alleged that defendants debited, without authorization, a $159.95 “application and processing” fee from consumers’ bank accounts, including from consumers that did not submit an online application for the prepaid cards or that had applied for an unrelated short-term loan.

THE SETTLEMENT

• Defendants agreed to pay more than $2.2 million to settle the FTC charges.
• The settlement prohibits defendants from debiting a consumer’s account or causing billing information to be submitted for payment without first obtaining the consumer’s express informed consent.
• In all future marketing, defendants are required to clearly and conspicuously disclose:
1. the costs to obtain and use any prepaid, debit, or credit card;
2. that the defendants will use consumers’ personally identifiable information to impose such costs, in close proximity to any instruction to provide such information and to statements such as “No Annual Fees” or “No Security Deposit” that represent that a card can be obtained “free,” without obligation, or at a reduced cost.

• The order prohibits defendants from misrepresenting any fact material to a consumer’s decision to apply for or purchase any product or service.
• Defendants are required to clearly and conspicuously disclose certain material information before a consumer applies for or purchases any product or service such as:
1. any charge that will be assessed against the consumer’s bank account;
2. any method that will be used to debit the account;
3. that the consumer’s personally identifiable information will be used to debit the account;
4. that such information will be sold or transferred to third parties for marketing purposes;
5. the material attributes of the product or service being offered; and
6. if a representation is made about a refund or cancellation policy, a statement of all material terms and conditions associated with the policy.

Online Retailer Settles FTC Charges of Failing to Safeguard Consumers’ Sensitive Information

In re Life is good, Inc., FTC, File No. 072-3046, 1/17/08

THE FTC COMPLAINT

• Life is good designs and sells retail apparel and accessories.
• The FTC alleged that through its website, www.lifeisgood.com, the company collected sensitive consumer information, including names, addresses, credit card numbers, credit card expiration dates and credit card security codes.
• The Life is Good Privacy Policy stated:

  “We are committed to maintaining our customers’ privacy. We collect and store information you share with us – name, address, credit card and phone numbers along with information about products and services you request. All information is kept in a secure file and is used to tailor our communications with you.”

• The FTC alleged that Life is good failed to provide reasonable and appropriate security for the sensitive information stored on its computer network.

Specifically, the FTC alleged that Life is good:

1. unnecessarily risked credit card information by storing it indefinitely in clear, readable text on its network, and by storing credit security card codes;
2. failed to assess adequately the vulnerability of its website and corporate computer network to commonly known and reasonably foreseeable attacks, such as SQL injection attacks;
3. failed to implement simple, free or low-cost, and readily available security defenses to SQL and similar attacks;
4. failed to use readily available security measures to monitor and control connections from the network to the Internet; and
5. failed to employ reasonable measures to detect unauthorized access to credit card information.

As a result of these failures, the FTC alleged that a hacker was able to use SQL injection attacks on Life is good’s website to access the credit card numbers, expiration dates, and security codes of thousands of consumers.

THE SETTLEMENT

• Life is good is barred from making deceptive claims about its privacy and security policies.
• The company is required to establish and maintain a comprehensive security program reasonably designed to protect the security, confidentiality, and integrity of personal information that it collects from consumers.
• The program must contain administrative, technical, and physical safeguards appropriate to Life is good’s size, the nature of its activities, and the sensitivity of the personal information that it collects.
• The settlement also requires Life is good to retain an independent, third-party security auditor to assess its security program on a biennial basis for the next 20 years.
• The settlement includes bookkeeping and record keeping provisions allowing the agency to monitor compliance with its order.

SUMMARY

• Internet companies must be sure to craft comprehensive privacy policies for their websites that accurately reflect their privacy practices. Failure to carefully follow and uphold privacy policy representations can result in regulatory action and fines.

Email Exchange Containing Settlement Terms is Binding

Basis Technology Corp. v. Amazon.com, Inc.,
71 Mass. App. Ct. 29, 878 N.E.2d 952 (2008)

FACTS

• Plaintiff is a company that creates software and provides related technical services.
• Defendant sells books and other products online. The parties entered into a “Services Agreement” under which plaintiff was to render technical services enabling defendant to create an electronic commerce system in Japan for the sale of books and other products. Plaintiff brought an action claiming breach of fiduciary duty, quantum meruit, and other violations for non-payment for “out of scope” work.
• During the trial, the parties appeared to agree upon settlement terms by an exchange of email messages between counsel.
• Counsel reported the settlement orally and on the record to the trial judge.
• The Court then entered an order of dismissal nisi directing the parties to file an agreement for judgment or stipulation of dismissal within 30 days.
• The parties disagreed about certain terms, engaged in communications, received an extension and reached an impasse.
• Plaintiff moved to enforce the settlement agreement; defendant opposed.
• The trial judge ruled the email settlement terms to be a valid and binding agreement.
• Defendant appealed arguing that the email exchange was incomplete, ambiguous, and that it did not intend to be bound by the email terms at the time the emails were exchanged.

COURT OF APPEALS

• The Court held that the email containing the settlement terms constituted a sufficiently complete and unambiguous statement as a matter of law and that both parties intended to be bound by that communication.
  
• Specifically, the Court pointed to plaintiff’s email that stated:

This email confirms the essential business terms of the settlement between our respective clients…Basis and Amazon agree that they promptly will take all reasonable steps to memorialize in a written document to be signed by individuals authorized by each party, the terms set forth below, as well as such other terms that are reasonably necessary to make these terms effective…

• The email contained settlement terms agreed to earlier by the parties and further requested defendant’s counsel to get in touch the next morning if the email did not accurately summarize the settlement terms reached earlier in the day.
• Plaintiff’s counsel further stated that they would see each other in the morning upon reporting the matter settled to the Court.
• Defendant’s counsel replied, “correct.”
• The Court found that the email exchange was “a present agreement awaiting a later document.”

SUMMARY

• In the electronic age, it makes perfect sense that agreements reached via email will be found enforceable under the proper circumstances. Take heed of this decision and be careful of what you put in writing and communicate via email.

FTC Hosting Town Hall Meeting to Explore The Mobile Marketplace

May 6-7, 2008

THE FTC TOWN HALL MEETING

• The meeting is titled, “Beyond Voice: Mapping the Mobile Marketplace.”
• It will take place over two (2) days in early May, 2008.
• The event follows up on the FTC’s November 2006 forum, “Protecting Consumers in the Next Tech-Age,” which examined important technological and business developments that will influence consumers’ core experiences over the next ten years.

WHY EXPLORE THE MOBILE MARKETPLACE?

• The FTC recognizes that wireless devices are now being used for much more than originally intended, i.e., voice telephone service.
• Wireless devices are being used for sending text messages, taking pictures, browsing the Internet, listening to music, viewing shows, playing games via the Internet and much more.
• The FTC in its press release announcing the Town Hall meeting indicated that wireless devices also connect consumers with advertisers and marketers in many ways.

TOPICS FOR DISCUSSION AT THE TOWN HALL MEETING

• The use of mobile-messaging services as instruments of M-commerce;
• Consumers’ ability to control mobile applications;
• The adaptation of advertising to mobile devices, including the challenges presented by small screen disclosures;
• M-commerce practices targeting children and teens;
• Industry best practices in preventing fraud, disclosing costs, and resolving billing disputes;
• Evolving security threats and solutions; and
• Next-generation products and services.

FTC WELCOMES COMMENTS OR ORIGINAL RESEARCH

• Parties may submit written comments or original research by March 17, 2008.
• More information and details regarding the Town Hall meeting can be found at www.ftc.gov/bcp/workshops/mobilemarket/index.shtml.

SUMMARY

• One of the principal topics for discussion at the Town Hall meeting is advertising to mobile devices.
• Companies that currently, or intend to, advertise or market products and services to mobile devices may want to take part in the Town Hall meeting to stay abreast of trends, concerns and possible future action.