Social Media & Games Law Blog

On March 12th, the Federal Trade Commission issued a report updating its mobile and online advertising guidelines.  The recently issued report was a follow-up to the year 2000 "Dot Com Disclosures" to address the marked technical and legal changes that have occurred in the past 13 years.  The FTC guidelines emphasize that no matter how technology changes the delivery of content, consumer protection laws continue to apply equally "across all mediums, whether delivered on a desktop computer, a mobile device, or more traditional media such as television, radio, or print."  The intent of the report is to assist advertisers to better identify when a disclosure is needed in connection with social media ads and how best to ensure that any disclosures are conspicuous and not deceptive.  In order to maximize its usefulness, the report used more than 20 mock ads to illustrate the updated principles.

The FTC report advises that advertisers should ensure that clear and conspicuous disclosures are made on all devices and platforms that an advertisement can be accessed on and if the disclosure cannot be made clearly and conspicuously on a particular device or platform, then that device or platform should not be used.  Not only does the new report take into account the space limitations inherent in certain social media sites, like Twitter, but also the growing user viewing habits of content make available on small screen smartphones.  "The new guidance points out that advertisers using space-constrained ads, such as on some social media platforms, must still provide disclosures necessary to prevent an ad from being deceptive, and it advises marketers to avoid conveying such disclosures through pop-ups, because they are often blocked," the FTC said.  In order to accomplish this in a better form the report suggests that an advertiser can include "Ad" or "Sponsored" before the message itself.  Additionally, the report admonished advertisers to consider whether a consumer will be able to view any disclaimers if it is required to "zoom-in" to read any part of the ad.  However, the new report is slightly more flexible when dealing with smaller screens by, allowing advertisers to make sure disclosures are "as close as possible" to the ad claim instead of the original guidelines which discussed having disclaimers "near or on the same page" as the advertisement.

If you have any questions about the new FTC guidelines and how they may affect your business Pillsbury would be happy to speak with you about them.  

Thank you to everyone who joined us in both New York and Washington, DC for our Social Media Week events - Game On!

Special thank you to all of our panelists: Randy Leibowitz, Mike Scafidi, Tim Ettus, Lou Kerner, Peter Corbett, Jim Gatto, Sean Kane, Lauren Lynch Flick and Tina Kearns (many featured in the picture and video below).  

As promised, we recorded our DC program Social Media Promotions, Contests and Sweepstakes and Social Media Audits. Check it out!

(Part 1) Emerging Legal Issues in Social Media: Social Media Contests, Sweepstakes, and Promotions please click here
http://youtu.be/_Uts2BT542M

(Part 2) Social Media Audits please click here http://www.youtube.com/watch?&autoplay=1&v=_Uts2BT542M#t=2489s

User endorsements are becoming a more and more popular form of "advertising" as the use of social media and user-generated content continues to increase.  These endorsements often take the form of reviews via blogs or Yelp, but can also include other less conspicuous communications. These endorsements can be quite powerful. As a result some companies will compensate users for giving them.  In some cases, the compensation can bias the endorsement. While this is not illegal, it creates issues that need to be considered.

In some cases, user endorsements leverage social media features.  For example, a company's website may include a button that, when clicked by a user, causes a positive message about the company to be posted via the user's Facebook, LinkedIn, Twitter, or other social media account. When there is compensation for that endorsement--even soft compensation such as through loyalty program points or virtual goods--federal laws may come into play.

The Federal Trade Commission's endorsement guidelines impose requirements on both the endorser and the advertiser if there is a "material connection" between the two parties.  A material connection exists when there is a commercial link that consumers would not expect.  A commercial link may arise when an endorser is compensated for the endorsement, for example, by payment, free samples, coupons, or other benefits.  Several factors must be considered when determining whether there is such a consumer expectation to trigger the FTC requirements.

One of the requirements identified by the FTC is that any material connection must be "clearly and conspicuously" disclosed.  The advertiser has affirmative duties to advise the endorser regarding the disclosure requirement and to have procedures in place to monitor compliance by the endorser.  While both the endorser and the advertiser are subject to liability, the FTC has indicated that its enforcement activities will generally focus on advertisers.

Contact us for more information on compliance with the FTC guidelines.

Resolving a conundrum faced by every business that has entered the world of consumer texting, the FCC has ruled that businesses are not violating the federal Telephone Consumer Protection Act ("TCPA") by sending a confirmation text to consumers who have just opted out of receiving further texts. However, the FCC did impose limitations on the content of such confirmation texts to ensure compliance with the TCPA. The threshold requirement is that the purpose of the reply text be solely to confirm to the consumer that the opt-out request has been received and will be acted on. The FCC then enumerated several additional requirements that businesses must observe when sending confirmation texts to avoid violating the TCPA. For those affected, which is pretty much every business that uses texts to communicate with the public, we have released an FCC Ruling Client Alert on Texting Opt-Outs.

To many, sending a confirmation text to a consumer who has previously opted in to receiving a company's text messages would appear to be nothing more than good customer service and an extension of the common practice of sending a confirmatory email message when a consumer has chosen to unsubscribe from an email list. Indeed, many wireless carriers and mobile marketing and retail trade associations have adopted codes of conduct for mobile marketers that include sending confirmation texts to consumers opting out of future text messages.

However, the TCPA, among other things, makes it illegal to make a non-emergency "call" to a mobile telephone using an automatic telephone dialing system or recorded voice without the prior express consent of the recipient. The FCC's rules and a decision in the U.S. Court of Appeals for the Ninth Circuit define a "call" as including text messages. As a result, many businesses have had class action lawsuits filed against them by consumers arguing that, once they send a text message opting out of receiving future texts, their prior consent has been revoked, and the business violates the TCPA by sending ANY further texts, even in reply to the consumer's opt-out text.

Seeking to avoid facing such lawsuits and the potential for conflicting decisions from different courts, businesses sought the FCC's intervention. After reviewing the issue, the FCC rejected the fundamental argument raised by the class action suits, noting that the FCC has never received a single complaint from a consumer about receiving a confirmatory text message. The FCC did note, however, that it had received complaints from consumers about not receiving a confirmation of their opt-out request. The Commission therefore held that when consumers consent to receiving text messages from a business, that consent includes their consent to receiving a text message confirming any later decision to opt out of receiving further text messages.

To avoid creating a loophole in the TCPA that might be exploited by a business, the FCC proceeded to set limits on confirmation texts designed to ensure that they are not really marketing messages disguised as confirmation texts. First and foremost, the implied permission to send a confirmation text message only applies where the consumer has consented to receiving the company's text messages in the first place. Next, the confirmation text message must be sent within five minutes of receiving the consumer's opt-out request, or the company will have to prove that a longer period of time to respond was reasonable in the circumstances. Finally, the text of the message must be truly confirmatory of the opt-out and not contain additional marketing or an effort to dissuade the consumer from opting out of future texts. You can read more about the FCC's decision and these specific requirements in the firm's Client Alert.

By providing clarity on the relationship between confirmation texts and the TCPA, the FCC's ruling provides marketers and other businesses with some welcome protection from class action TCPA suits. In an accompanying statement, Commissioner Ajit Pai stated that "Hopefully, by making clear that the Act does not prohibit confirmation texts, we will end the litigation that has punished some companies for doing the right thing, as well as the threat of litigation that has deterred others from adopting a sound marketing practice." Businesses just need to make sure they comply with the FCC's stated requirements for confirmation texts to avail themselves of these protections.

Please see the original post on Pillsbury's CommLaw Center blog.

The self-imposed guidelines, detailed below, were developed jointly by the Distilled Spirits Council of the United States (DISCUS), the national trade association representing America's leading distilled spirits companies and nearly 70% of all distilled spirits brands sold in the United States, and the European Forum for Responsible Drinking (EFRD), an alliance of Europe's leading distilled spirits companies.

The guidelines consist of a set of "basic principles" together with definitions and directions for implementing those principles. They aim to protect consumers' information while urging responsible marketing practices in the context of digital media such as websites, social networks, blogs and mobile apps. Furthermore, the issuance of these guidelines reflects the fact that digital marketing is increasingly a valuable and appropriate tool for reaching consumers who are legally old enough to purchase distilled spirits.

Per the guidelines, distilled spirits companies should:

1. intend their digital marketing communications for adults of legal purchase age;

2. place their digital marketing communications only in media where at least 71.6% of the audience is reasonably expected to be of the legal purchase age (and DISCUS notes that Nielsen online syndicated data from August 2011 disclosed that 82.22% of the Facebook audience, 86.86% of the Twitter audience, and 80.96% of the YouTube audience, was 21 years of age or older);

3. require age affirmation (full date of birth to determine if a user is of legal purchase age) when a user first reaches the companies' interactive webpages;

4. display, on their webpages that permit the posting of user-generated content, a disclaimer stating that all inappropriate user-generated content will be removed;

5. monitor and moderate, preferably every business day but no less than every five business days, user-generated content on the companies' webpages and promptly remove inappropriate material;

6. instruct users that digital marketing communications should not be forwarded to individuals below the legal purchase age;

7. respect user privacy in their digital marketing communications;

8. ensure that their digital marketing communications and product promotions are identified as brand marketing;

9. include social responsibility statements in their digital marketing communications where practicable; and

10. display, follow, and encourage users to read before submitting their information, a privacy policy that provides for the following: age affirmation will be used prior to the collection of any other information; user information can only be collected from people who are of the legal purchase age; an "opt-in" mechanism will be used before the user receives a direct digital marketing communication, and an "opt-out" mechanism will be available if a user wants to discontinue receiving such communications; clear information must be provided about the collection and use of personal data; information collected shall never be sold or shared with unrelated third parties; and steps will be taken to keep user information secure and protected from loss or theft.

The full text of the official guidelines can be viewed here.

Although the guidelines are self-imposed and do not constitute a legal regulation, law or statute, failure to comply with these guidelines may have adverse consequences. DISCUS, for example, has said that it will (i) investigate U.S. distilled spirits companies that are reported to be not in compliance with the guidelines and (ii) disclose the results of such investigations on its website. Consequently, we recommend that distilled spirits companies in the United States and/or Europe review the new guidelines and seek counsel on how they might impact current company practices.

BIA/Kelsey Forecasts Social Media Ad Spending to Reach $8.3 Billion in 2015

Social media advertising revenues will grow from $2.1 billion in 2010 to $8.3 billion in 2015, representing a compound annual growth rate of 31.6 percent, according to BIA/Kelsey's U.S. Local Media Annual Forecast (2010-2015).

YetiZen Starts an Incubator for Game Startups

The game industry is hot, with lots of companies chasing the success of social game darlings such as Zynga and mobile game successes such as Ngmoco. That's why YetiZen is forming a new incubator to help launch game startups.

Gamification: Hype or Game-Changer?

Gamification is already shaping up to be one of the buzzwords of 2011. Educators, brands, charities and government are all looking at how to use gamification to improve engagement, make money or change behaviors.

Virtual Currency Lifts Social TV Guide to New Heights

With new startups jumping into the fray, the social TV space is suddenly very competitive. But one site is celebrating its third anniversary today with two big milestones. The internet TV guide Yidio said it hit 1.5 million registered users and 500,000 Facebook fans, making it the most popular social TV guide on Facebook.

Network Breaches, Social Media, Smartphones Worry Administrators: Survey

In the latest What Keeps Network Administrators Up at Night survey from Amplitude Research, 41 percent of respondents named security breaches to their network and another 40 percent said they are worried about what their end users are doing.

How to Use Game Mechanics to Reward Your Customers

Your customers hoard airline miles and covet their status-symbol black American Express. What was once called "consumer incentives" is now known as "gamification"--and here's how to integrate it into your company and win consumers' hearts and minds while you're at it.

U.S. Military Finds More Uses for Video Games, Virtual Worlds and Smartphones

Video games, virtual worlds and smartphones are an excellent way to train U.S. troops, say advocates of the technology within and outside of the military. Evidence of the growing interest in the technology can be seen from a recent GameTech convention held in Orlando, Fla. GameTech had 775 participants and 29 vendors.

Using digital technology, PepsiCo's Social Vending System enables any user to gift a friend by selecting a beverage and entering the recipient's name, mobile number and a personalized text message. There's also the option to further personalize the gift with a short video recorded right at the machine. The gift is delivered with a system code and instructions to redeem it at any PepsiCo Social Vending system. When the recipient redeems his or her gift, they're given the option of either thanking the original sender with a gift of their own or paying it forward and gifting a beverage to someone else.

A promotional video is available. 

This innovative approach to integrating social media into everyday activities and to devices and appliances is part of a growing trend that is resulting in social media going well beyond just Facebook and other internet sites.

Judging from the patent filings that we monitor in this area, there is much more to come!. Many companies are filing patents for innovative uses of social media integrated into everyday activities and to use of social media for innovative advertising and brand engagement concepts.

A Wall Street Journal article today touts an upcoming book by Harry Hurt III, which recounts a cross-country road trip with an impressive list of encounters with notable figures including former President Bush. But more notably, this book includes a plethora of product-placement deals and other sponsorships. This approach, while innovative, may raise issues in connection with the FTC Endorsement Guidelines. If applicable, the guidelines may create legal issues for Mr. Hurt and the sponsors. A prior post highlights some recent enforcement actions for those who have not complied. This is an issue that journalists and advertisers need to pay heed to because additional enforcements are likely.

The range of sponsorships include deals that range from companies agreeing to:  promote his book through e-mail, Twitter, Facebook and other electronic blasts in exchange for advertising within the book; supply travel gear (e.g. Coleman Co. providing sleeping bag, tent and $2500 cash) for which Mr. Hurt endorses Coleman's products saying things such as "the Coleman engineers have done a remarkable job..."; and $1,000 in monthly credits from Best Western International in exchange for filming videos showcasing the hotels' amenities. Interestingly, a hotel spokesperson called this deal "standard industry practice" for bloggers and free-lancers.

Kudos to Mr. Hurt and his sponsors for the innovative approach that enabled him to self fund and self publish this e-book. However, as the article notes, his dual role as both an ad salesman and a journalist strikes "an unholy alliance." The issue is whether an author, beholden to such sponsorships, can be objective in his or her writings. In the article, Mr. Hurt stated that the book is "mainly the truth," but recognized that it may raise questions as to his objectivity. He added that he doesn't believe his objectivity was compromised because he only struck deals with companies he already patronized and asked readers to trust his judgment and integrity.

I have no reason to doubt Mr. Hurt's judgment or integrity. However, this scenario raises some interesting legal issues. A growing number of bloggers and other journalists have come under fire for touting products for which they received some undisclosed financial benefit. While these practices are hopefully the exception rather than the norm, they caused the FTC to take action.

In 2009, the FTC implemented guidelines that addressed the use of endorsements and testimonials in advertising. The main stream press highlighted the part of these guidelines that require disclosure by bloggers of compensation received for recommending a product or service. However, the guidelines include some lesser known provisions, which apply more broadly, and may be relevant to the types of deals that Mr. Hurt struck.

The guidelines are not limited to bloggers, but cover "any advertising message" that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of the endorser (or any party other than the sponsoring advertiser). This includes testimonials endorsing a product or service on any social media site, not just blogs.

When a connection exists between the endorser and the seller of an advertised product that might materially affect the weight or credibility of the endorsement, such connection must be fully disclosed. For example, the FTC says that if a blogger gets a free video game to evaluate and review, he must clearly and conspicuously disclose that he received the game for free. Other examples refer to the dissemination of information through other "consumer-generated media." Presumably, a self-published e-book  could be a form of "consumer-generated media." For at least these reasons, self-publishers of blogs, e-books or other media should become familiar with these FTC guidelines. Failure to comply can result in liability for the endorser.

However, the burden of compliance and risk of liability do not fall just on the journalists/endorsers. Rather, the FTC guidelines impose significant obligations on the part of advertisers, too.

The FTC guidelines require advertisers to advise the "endorser" that their connection needs to be disclosed. Additionally, the guidelines state that advertisers should have procedures in place to monitor the endorsements for compliance. Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers. 

Another aspect of the guidelines relates to "expert" endorsements. Whenever an advertisement represents, directly or by implication, that the endorser is an expert with respect to the endorsement message, then the endorser's qualifications must in fact give the endorser the expertise that he or she is represented as possessing with respect to the endorsement.

The guidelines also address endorsements by organizations, especially expert ones. According to the guidelines, such endorsements are viewed as representing the judgment of a group whose collective experience exceeds that of any individual member, and whose judgments are generally free of the sort of subjective factors that vary from individual to individual. Therefore, the FTC requires that an organization's endorsement must be reached by a process sufficient to ensure that the endorsement fairly reflects the collective judgment of the organization. Moreover, if an organization is represented as being expert, then, in conjunction with a proper exercise of its expertise in evaluating the product it also must comply with various provisions regarding experts.

In order to comply with these FTC guidelines, journalists, advertisers and other organizations should seek legal counsel to become familiar with these requirements and, as many companies are doing, develop policies and procedures for complying.

Originally posted on the Gamification Blog.

Many people are aware that in 2009, the FTC implemented guidelines that addressed the use of endorsements and testimonials by bloggers. The main stream press highlighted just the part of these guidelines that require disclosure by bloggers of compensation received for recommending a product or service. However, the guidelines include some lesser known provisions which apply more broadly to consumer generated media and relate to gamification.

• The guidelines are not limited to bloggers, but cover any advertising message, including consumer-generated media, that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of the endorser. This includes consumer testimonials, such as reviews or recommendations endorsing a product or service on any social media site, not just blogs.

• When a connection exists between the endorser and the seller of an advertised product that might materially affect the weight or credibility of the endorsement, such connection must be fully disclosed. In one example, the FTC says that if a blogger gets a free video game to evaluate and review, he must clearly and conspicuously disclose that he received the game for free. In another example, it states that if someone receives redeemable points each time they tell friends about a product, this fact needs to be clearly and conspicuously disclosed.

• In these examples, the FTC also states that the company needs to advise the consumer giving the testimonial that this connection should be disclosed, and it should have procedures in place to try to monitor the consumer's postings for compliance.

• Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers. Endorsers may also be liable.

• Whenever an advertisement represents, directly or by implication, that the endorser is an expert with respect to the endorsement message, then the endorser's qualifications must in fact give the endorser the expertise that he or she is represented as possessing with respect to the endorsement. This raises potential gamification issues with leader boards, badges and expert status to the extent that this implies an "expert" status that the user does not actually posses.

Why Groupon and Foursquare Should Mate

Each company has its flaws and strengths.  The beautiful thing is they both have strengths where each other lacks.  To say it simply:

Groupon has many businesses on board off the start and they give great deals for consumers.  But customers don't come back after they have used a Groupon.  Leaving businesses completely upset and losing money. Foursquare motivates people to come back to establishments for mayorships and badges but leaving consumers wanting more for their efforts.  Plus the lack of involvement from venues is hindering the process.

Venezuela and Ecuador Make Trade Using New virtual Currency

Ecuador sent Venezuela an initial shipment of crude palm oil under a new trade currency regime known as the Unified System for Regional Compensation, or Sucre, the Ecuadorian government said.

Social Gaming Market to Pass $1 Billion in 2011

The social gaming market is expected to pass $1 billion this year, thanks to a rising number of users and a projected increase in advertising, according to research group eMarketer.

Non-profits Ride Social Gaming Trend Too

It is not surprising non-profits are entering this space: social gaming is expected to become a billion dollar business this year, eMarketer estimates. Nearly 62 million US internet users, or 27% of the online audience, will play at least one game on a social network monthly this year, up from 53 million in 2010, it said. As these numbers increase, so will the money spent on virtual goods, lead-generation offers and advertising.

One to Watch: Caped Koala Studios

Caped Koala Studios has stormed into 2011, ready to launch what it believes will become the world's top online education and entertainment destination for kids. The firm has developed an online 3D virtual world called Pora Ora (www.poraora.com), which combines games, education and social networking. Pora Ora made its public debut in London on 12 January at BETT 2011, the UK's largest educational technology trade show.

Next Stop: OpenSim!

An emerging virtual world platform is the destination of droves of emigrant avatars, as a price hike and the shutdown of the teen-only grid have prompted an educator exodus away from Second Life.

Social Gaming Ads to Soar - But Virtual Goods Still Lead Revenue

With the still rising popularity of social media games like Zynga's Farmville and Mafia Wars, advertising is naturally beginning to follow. But at least for the next few years, despite a major growth spurt, ad dollars will continue to lag virtual goods when it comes to making money in the social gaming. "Understanding the popularity of social gaming is simple," said eMarketer senior analyst Paul Verna.

A weekly wrap up of interesting news about virtual worlds, virtual goods and other social media.

6 Reasons Why Social Games Are the Next Advertising Frontier

Ad spending on social gaming increased 60% since 2009, according to eMarketer. No doubt advertisers have noticed that 56 million Americans are playing social games and that the branded virtual goods market is booming. But more than just social gaming's growing popularity has gotten attention from advertisers. Social games also represent an environment that is largely conducive to advertising.

Singer Files $250-Million Lawsuite Over Video Game

A backup singer with the Cypress Hill rap group has hit the makers of the "Grand Theft Auto" video game series with a 250-million-dollar lawsuit. According to documents obtained by Courthouse News, Michael "Shagg" Washington claims a friend introduced him to the developers of "Grand Theft Auto" in 2003, who asked him about his life on the streets.

Renren, China's Social Network Giant Gears up for IPO

Renren, China's largest social networking site is gearing up for an initial public offering (IPO) in the United States in the first half of 2011, the Reuter reported. Oak Pacific Interactive, Renren's parent company had hired Credit Suisse and Deutsche bank to underwrite the IPO.

How to Price Your Virtual Currency

One of the key early decisions to game design or creating a virtual currency platform is designing the price and exchange rate of virtual currency. Unfortunately after it's been released, it's also one of the most difficult to change, because the change impacts the userbase and economy of the system as a whole. So if you're starting out, how do you decide how to price your virtual currency?

Winklevoss Twins Launce Another Lawsuit Against Facebook

Even though the first lawsuit ended with a $65 million settlement, the Winklevosses now claim that Zuckerberg lied to them about the value of Facebook and is guilty of securities fraud, demanding an unspecified amount of (extra) money.

Legal 'like': Ohio judges can friend via Facebook

The Ohio Supreme Court said Wednesday that judges on Facebook can be a "friend" to lawyers appearing before them but must be careful not to violate ethics rules. The opinion issued by the court's Board of Commissioners on Grievances and Discipline says that following its guidelines for social networking "will require a judge's constant vigil."

First Screenshot of Google's Social Network, Google +1, Leaks

Google's ultra-secret social project is slowly becoming less and less secret. Last week, a Quora posting revealed a new internal codename for the social initiative, as well as the affirmation that it's being tested. Yesterday, TechCrunch got its hands on a screenshot exposing a "share" button and also reaffirmed a possible new name, Google +1.