Contents I. PROMOTIONS

March 2011

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This issue contains news on the following topics: Contents I. PROMOTIONS ...... 1 CA RETAILERS CANNOT COLLECT ZIP CODE DURING CREDIT CARD TRANSACTION ...... 1 FEDERAL LAW ENACTED RE POST-TRANSACTION, DATA PASS AND NEGATIVE OPTION MARKETING ...... 2 FTC REACHES SETTLEMENT FOR MISLEADING CONSUMER ENDORSEMENTS ONLINE ...... 2 COURTNEY LOVE SETTLES LAWSUIT FOR $430,000 REGARDING TWEETS ...... 3 II. ADVERTISING ...... 3 FTC REACHES FIRST ONLINE BEHAVIORAL ADVERTISING SETTLEMENT, OPT OUT TO LAST FIVE YEARS ...... 3 PLAINTIFFS DECEIVED BY FALSE LABELING CLAIMS HAVE STANDING TO SUE FOR VIOLATION OF CALIFORNIA’S UNFAIR COMPETITION LAW AND FALSE ADVERTISING LAW ...... 4 WASHINGTON STATE PUBLICITY LAW DOESN'T EXTEND TO CELEBRITIES WHO DIE ELSEWHERE ...... 5 FTC SETTLES WITH COMPANY OVER ALLEGED DECEPTIVE GREEN CERTIFICATION ...... 5 NAD RECOMMENDS CHANGES TO "GREEN" CLAIMS ...... 6 FIJI WATER SUED FOR ALLEGED MISLEADING ENVIRONMENTAL CLAIMS ...... 6 COMPANY ASKED TO REVISE ADVERTISING TO MORE CLEARLY INDICATE THE BASIS OF ITS CLAIMS ...... 7 NAD FINDS TESTS TO PROVE GYM SHOE PERFORMANCE CLAIMS INSUFFICIENT ...... 8

I. PROMOTIONS CA Retailers Cannot Collect Zip Code During Credit Card Transaction The California Supreme Court ruled yesterday, in a long awaited decision, that requesting and recording a cardholder's zip code, without more, violates the Song-Beverly Credit Card Act. The Act prohibits retailers from collecting personally identifiable information during a credit card transaction. In the case, the court reasoned that a cardholder's zip code constitutes personally identifiable information within the meaning of the statute. The defendant took the customer's name and zip code, which it recorded, and performed reverse searches through various databases to fill out the rest of the information. It then used the customers' full mailing addresses to market products and sell that information to other businesses.

TIP: California retailers should use caution if considering collecting personally identifiable information in a retail environment, in particular if the collection is from a shopper who is making a credit card purchase. This case underscores how broad the definition of personal information can be. You should review your current practices to make sure that they do not run afoul of the Song Beverly Credit Card Act, or similar laws that exist in some other jurisdictions.

Federal Law Enacted re Post-Transaction, Data Pass and Negative Option Marketing Restore Online Shoppers' Confidence Act ("Act") was recently enacted, which sets forth specific requirements for certain Internet-based sales, including post-transaction sales by third parties, data-pass procedures, and negative option marketing. Under the Act, a post-transaction third- party seller is an entity that offers for sale goods or services to the consumer through an unaffiliated initial merchant with whom the consumer has initiated a transaction (a practice also known as "third party upselling"). A "negative option" feature is defined as an offer or agreement for the sale or provision of any goods or services, where the consumer must take an affirmative action to reject goods or services or to cancel the agreement.

Under the federal law, post-transaction third-party sellers are required to clearly and conspicuously disclose the following, prior to charging a consumer for any good or service: (1) the description of the goods or services; (2) that the seller is not affiliated with the initial merchant, which may require disclosure of the seller's name in a manner that clearly differentiates the seller from the initial merchant; and (3) the cost. A post-transaction third-party seller must also obtain the consumer's express informed consent prior to charging the consumer by requiring the consumer to perform an affirmative action, such as checking a consent box and by collecting either the consumer's full account number that is to be charged or the consumer's name and address. The new law also prohibits the initial merchants from disclosing a consumer's billing information to a post-transaction third-party seller for use in the seller's sale of goods and services over the Internet to the consumer.

For entities offering plans with a negative option feature, such entities must: (1) clearly and conspicuously disclose all material terms of the transaction prior to obtaining the consumer's billing information; (2) obtain the consumer's express informed consent prior to charging the consumer for any goods or services; and (3) provide the consumer with a simple mechanism to stop recurring charges.

TIP: Companies that engage in post-transaction sales through unaffiliated third-party merchants on the Internet should review their sales procedures to ensure that they are no longer engaging in data pass and are adequately securing consumer consent. Entities that use a negative option feature in their offers should review their procedures to ensure that they are adequately disclosing all material terms, obtaining the proper consent and have a simple cancellation method available to consumers. FTC Reaches Settlement for Misleading Consumer Endorsements Online The Federal Trade Commission recently reached a $250,000 settlement with Legacy Learning Systems, Inc. for failure to disclose material connections when using endorsements or reviews. According to the FTC, the company hired an online affiliate program to recruit affiliates to promote the guitar-lesson course by writing articles, blog posts, and other online materials, each with a link to the company's Web site. The affiliates received a commission for any sales resulting from the referrals, which resulted in more than $5 million in sales revenue for Legacy

2 Learning Systems. The FTC alleged that these online reviews and blog posts were deceptive and misleading in that they represented that they were the views of ordinary consumers or independent reviewers and failed to disclose that they were in fact paid for each referral sale. According the FTC Guidelines on Endorsements and Testimonials, advertisers must disclose material connections the advertiser may have with a reviewer or blogger, and ensure that the reviewer adequately discloses such a connection, if such a connection would influence the weight a consumer would give to the review.

Under the proposed settlement, Legacy Learning Systems will be fined $250,000; must monitor and submit monthly reports to the FTC regarding their top 50 revenue-generating affiliate marketers and another random sampling of 50 other affiliate marketers; must ensure that affiliates are disclosing that they earn a commission per sale and are not otherwise misrepresenting themselves as independent reviewers or consumers. The FTC commented that advertisers who use affiliate marketers would be wise to establish a reasonable monitoring program to verify that the affiliates are complying with the principles of truth in advertising.

TIP: If a company uses affiliates as part of word of mouth marketing to advertise its products or services, the company should have a sufficient practice in place to assure that its affiliates are disclosing the fact that they are receiving compensation, monetary or non- monetary, in connection with their opinions or reviews. Companies should also ensure that they are monitoring affiliates and causing them to take down any materials that are not in compliance or otherwise violate company policy. Courtney Love Settles Lawsuit for $430,000 Regarding Tweets Musician Courtney Love reportedly settled a defamation lawsuit with fashion designer Dawn Simorangkir regarding comments made by Love on her Twitter account. The lawsuit is a result of Love's tweets on her Twitter account, including one claiming that Simorangkir was a "drug- pushing prostitute with a history of assault and battery" and another stating, "@sswipe nasty lying hosebag thief." In response to the lawsuit, Love argued that she was expressing her opinions and beliefs, and that Simorangkir's business did not suffer as the result of the dispute between her and Love. However, Love agreed to settle the case with Simorangkir for $430,000.

TIP: Advertisers should encourage their endorsers and employees to exercise caution when posting to social media Web sites.

II. ADVERTISING FTC Reaches First Online Behavioral Advertising Settlement, Opt Out to Last Five Years The FTC announced yesterday that it has settled with Chitika, Inc. over the company's online behavioral advertising techniques. Chitika serves as an intermediary between advertisers and third party companies on whose websites the advertisements appear. To place its clients advertisements, Chitika uses a relatively common online behavioral advertising practice of placing cookies on users computers and tracking the users' behavior to serve targeted advertising. According to the complaint, from February 2008 to May 2010, the company told consumers that

3 if they wanted to opt out of being tracked for the purposes described here, the needed only to select a button on the Chitika website that read "opt out." Although the user would then see a message that read "you are opted out," in fact – the FTC complaint alleged – the opt out only lasted for ten days, after which time new cookies were placed on users computers and the users were tracked again and again served with targeted ads. The FTC alleged that this practice was deceptive in violation of the FTC Act. In the settlement, Chitika agreed to delete all "identifiable user information" collected during the time that the opt out did not function, and to provide consumers with an opt out ability in each targeted ad that allows users to opt out for at least five years. Chitika has also agreed to notify consumers who previously tried to opt out that the opt out was ineffective, and that they need to opt out again.

Of note, the settlement also included information about how to give notice of online behavioral advertising activities both on the website and within a behaviorally-served ad. In particular, Chitika agreed to put a statement on its home page that reads "we collect information about your activities on certain websites to send you targeted advertisements. To opt out of Chitika's targeted ads, click here." When the user selects "here," the user would be directed to an opt out page where additional disclosures would be made. These additional disclosures include that by opting out, Chitika would not use that information to serve targeted ads, the status of the user's opt out (i.e., if the user is currently opted out or in), that opt out is specific to the user's browser, and that the opt out will need to be repeated if the user switches to another browser. In addition, Chitika agreed to place a link within any advertisement that reads "Opt Out?" and that contains an interstitial (text that appears when a user's cursor hovers over the link) that reads "Opt out of Chitika's targeted ads." The "opt out?" link in the ad would take people to the mechanism described above.

TIP: This decision is the first from the FTC after its issuance of notice and choice principles for those who participate in online behavioral advertising. This decision underscores the FTC's believe that lack of notice and consent in the OBA context is a deceptive practice. As such, if your company uses vendors to help serve targeted ads, or your website serves targeted ads, now is the time to make sure that you are taking the steps necessary to effectuate notice and choice, and to explore if you have not done so already the self regulatory program offered through aboutads.info.

Plaintiffs Deceived by False Labeling Claims Have Standing to Sue for Violation of California’s Unfair Competition Law and False Advertising Law In 2000, a class action lawsuit was filed against Kwikset Corporation alleging that Kwikset falsely labeled certain locksets as "Made in U.S.A.," when the product contained foreign-made parts or involved foreign manufacturing. After the trial court entered judgment for the plaintiffs for unfair business practices and false advertising, California enacted Proposition 64, which requires that a plaintiff suing for violations of California unfair competition and false advertising law have "lost money or property" in order to establish standing. Although the plaintiffs alleged that they would not have purchased Kwikset's locksets but for the "Made in U.S.A." labeling, the Court of Appeal concluded that this was not sufficient to establish standing under Proposition 64. The Court of Appeal reasoned that although the plaintiffs spent money on the lockets, the plaintiffs received lockets that were neither overpriced or defective, and therefore did no lose

4 money or property. In January 2011, the California Supreme Court reversed the Court of Appeal's decision, holding that "plaintiffs who can truthfully allege they were deceived by a product's label into spending money to purchase the product, and would not have purchased it otherwise, have 'lost money or property' within the meaning of Proposition 64 and have standing to sue."

TIP: It is important to take great care when developing advertising and labeling claims to ensure the accuracy of those claims. In California, a plaintiff has standing to sue a company for a false statement on a product label without alleging that the product was overpriced, defective, or of inferior quality.

Washington State Publicity Law Doesn't Extend to Celebrities Who Die Elsewhere Because Jimi Hendrix died intestate in New York State, his rights of publicity died with him and the Washington Personality Rights Act, which purported to create a national right of publicity was unconstitutional, according to the federal district court for the Western District of Washington in a decision issued February 8. Most courts which rule on rights of publicity apply the law of the state in which the deceased person resided to determine whether the right exists and whether it descends. Judge Thomas Zilly wrote that Washington state's attempt to create a nationwide standard disregarded the laws of the other states which may have explicitly ruled that such a right does not exist, and therefore was unconstitutional under the due process, full faith and credit and commerce clauses.

The case arose when Experience Hendrix LLC, a company which holds certain Hendrix copyrights and trademarks, filed a trademark suit seeking to enjoin the sale of posters and novelty items by HendrixLicensing.com Ltd. The lawsuit as filed did not include a claim under Washington's right of publicity law, but the judge determined that it should nonetheless rule on its constitutionality.

TIP: Because many states do recognize descendible rights of publicity, national advertisers must continue to be cognizant of those rights when developing advertising around deceased celebrities.

FTC Settles with Company over Alleged Deceptive Green Certification The FTC recently settled its claims that Nonprofit Management LLC's environmental certification program, "Tested Green," was false and deceptive. For example, the Tested Green website contained claims that the certification was "endorsed by the National Green Business Association and the National Association of Government Contractors," but the FTC alleged that both business are owned and operated by Nonprofit Management. The FTC's complaint further alleged that every person that applied for the Tested Green Certification and paid the required amounts were given a Tested Green Certification without any scrutiny, testing, or evaluation of the applicants' green activities. The FTC also alleged that the respondents' Tested Green Certification falsely represented that the certification had been independently and objectively evaluated. The proposed settlement prohibits the respondents from engaging in the challenged conduct, including misrepresenting: the fact that, or degree to which, respondents evaluated a

5 product or service based on its environmental benefits or attributes; that respondents have the appropriate expertise to conduct such an evaluation; the number of certifications issued; and that a product or service is endorsed by an independent person or organization.

TIP: Take care before applying for "green" certifications from unknown third parties. Potential liability could flow to the advertiser for using a "green" certification from a third party where it is clear that there were no standards or legitimate requirements in place to receive such a certification. Additionally, be sure to discuss the risks with your counsel before creating your own green certification program.

NAD Recommends Changes to "Green" Claims The National Advertising Division ("NAD") recently concluded that an advertiser had insufficient evidence to support "biodegradable" claims made in connection with its packing peanuts. The challenged claims appeared on packaging, labeling, and print materials, and included "Biodegradable Super 8 Loosefill Environmentally Friendly Packaging" and Super 8 Loosefill Packaging "will decompose completely within 9 to 60 months…whether it is sent to a landfill or ends up as litter in the soil." In recommending changes to the advertising, NAD relied on the proposed Revised Green Guides, which provide, "it is deceptive to make an unqualified degradable claim for solid items if the items do not completely decompose within one year after customary disposal." The Revised Green Guides indicate that environmental claims should be "qualified clearly and prominently to the extent necessary to avoid deception about: 1) the product or package's ability to degrade in the environment where it is customarily disposed; and 2) the rate and extent of degradation."

The NAD concluded that the advertiser was making an unqualified biodegradable claim and recommended that the advertiser discontinue the use. NAD also recommended that the advertiser discontinue its claim that its material would biodegrade within nine to 60 months, because the advertiser's evidence did not constitute reliable evidence that the product would biodegrade when disposed of in landfills.

TIP: Even though the FTC's proposed Revised Green Guides have not yet been finalized, it is important to consider modifying your advertising to comply with the general tenants of the Guides' requirements at this time.

Fiji Water Sued for Alleged Misleading Environmental Claims A consumer recently filed a class action lawsuit against Fiji Water Company LLC, alleging that Fiji falsely and deceptively made environmentally beneficial claims about its bottled water. Specifically, Fiji allegedly claims that its bottled water is “carbon negative,” and that it is the “first and only major bottled water company to make this commitment, under which [it] will continue to offset 120% of [its] emissions.” Some of these claims are made on its package, as set forth below:

The plaintiff alleges that Fiji’s “carbon negative” claim is deceptive because consumers believe it to mean that Fiji’s current operations remove more carbon from the atmosphere than they release into it. According to the complaint, Fiji uses an accounting method called “forward crediting,” whereby carbon credits are purchased to represent carbon reductions that may or may not take place up to several decades in the future.

TIP: Companies should take care to properly qualify their carbon offset claims. The FTC’s proposed revisions to the green guides advise marketers to disclose if the carbon offset will not occur for two years or longer.

Company Asked to Revise Advertising To More Clearly Indicate the Basis of its Claims In a recent challenge, the National Advertising Division recommended that The Gillette Company modify its claims regarding the tug and pull created by its Proglide product. Gillette advertised that the ProGlide's thinner, finer blades resulted in less tug and pull, using the qualifying disclaimer "leading blades vs. Fusion." Energizer Personal Care challenged the claim, alleging that consumers could interpret the claim to mean that all of the blades in the ProGlide product are the Gillette's thinnest blades ever when in fact only the first four out of the five blades were thinner that Gillette's Fusion razor. Energizer also alleged that the use of the phrase "leading blades" in the disclaimer was not sufficient to clarify the claim because it could be interpreted as "leading product" and not as the first blade in a series on the razor.

The NAD found that in the context of the advertising, where the claim "thinner, finer blades" and the disclaimer "leading blades vs. Fusion" were used along with a picture of the entire razor and in some iterations a circle around all five blades, the consumer could reasonably interpret the claim to mean that all of the Fusion ProGlide blades were Gillette's thinnest and were thinner than the leading product. The NAD further found that consumers could interpret "leading blades" to mean "leading product," particularly where the advertiser refereed to the "leading product" in the same advertisements. Where data showed the both Gillette's Fusion and Energizer's Hydro were leading products during the relevant time periods, the NAD found that

7 the advertisement could be interpreted as making a comparison between the thinness of the Fusion ProGlide versus the Hydro razor.

While the NAD found that the advertisers claims were supported when they were limited to a comparison between the Gillette's ProGlide product and its own Fusion products, the NAD found that the claims were not supported when made in comparison to the Hydro razor. The NAD recommended that Gillette modify its claim to make it clear that "leading blades" refers only to the first four blades in its cartridge and limit the comparison to its Fusion product to avoid unsupported comparative claims to competing razors, such as the Hydro.

TIP: Advertisers making comparative claims should clearly disclose the basis of comparison and the products which are being compared in a manner meaningful to consumers. If claims are limited in any manner, such limitations should be clearly and meaningfully disclosed.

NAD Finds Tests to Prove Gym Shoe Performance Claims Insufficient As part of its routine monitoring program, NAD requested substantiation for certain performance and establishment claims made by Reebok International, Ltd. in print and Internet advertising for its EasyTone women's footwear. NAD inquired regarding the following claims: "It's the shoe proven to work your hamstrings and calves up to 11% harder and tones your butt up to 28% more than regular sneakers just by walking;" "Discover up to 28% more of a workout for your butt. And up to 11% more toning in your hamstrings and calves;" and "Better legs and a better butt with every step." Reebok supplied a study of five subjects who were randomly assigned to wear EasyTone shoes, regular walking shoes, or no shoes on an indoor treadmill at a freely chosen pace for five minutes. The study concluded that EasyTone shoe condition suggest the potential exists for both greater muscle force generation and greater metabolic energy expenditure.

NAD determined that this was a very small scale study both in number of participants and duration of the study, and therefore was not reliable or representative of the target audience. Additionally, NAD found that the study results that suggest potential toning were insufficient to support unequivocal claims that consumers will "tighten and tone with EasyTone" and "get a better butt." Therefore, NAD recommended that the claims be discontinued.

TIP: Companies should establish product tests that are statistically significant at a high confidence level so as to assure its results are reflective of the audience that is targeted by the claim.

8 If you have any questions about items that appeared in this bulletin, or would like to learn more about any of these topics, please contact one of the following attorneys: CHICAGO Thomas P. Lane (212) 294-6869 Monique Bhargava (312) 558-3732 Michael J. Friedman (212) 294-2608 Brian D. Fergemann (312) 558-8024 Joe DiBenedetto (212) 294-6709 Jason W. Gordon (312) 558-6145 Virginia R. Richard (212) 294-4639 Brian L. Heidelberger (312) 558-5897 PARIS Robert H. Newman (312) 558-8125 Emmanuel Drai 33 (0) 1 53 64 82 09

Mary Hutchings Reed (312) 558-5721 Patrick Dunaud 33 (0) 1 53 64 82 12

Ronald Y. Rothstein (312) 558-7464 Nathalie Hadjadj-Cazier 33 (0)1 53 64 81 50

Sara B. Skinner (312) 558-7406 SAN FRANCISCO Liisa M. Thomas (312) 558-8121 David S. Bloch (415) 591-1452

Marc H. Trachtenberg (312) 558-7964 Andrew P. Bridges (415) 591-1482

Kimberly Eckhart (415) 591-6805 LOS ANGELES David Aronoff (213) 615-1866 Jennifer A. Golinveaux (415) 591-1056

Steven D. Atlee (213) 615-1827 Becky L. Troutman (415) 591-1401

NEW YORK WASHINGTON, D.C. Michael S. Elkin (212) 294-6745 Anthony E. DiResta (202) 282-5782

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