fall 2015 advertising midterm memo - web viewmidterm in advertising law. ... in most cases, ... and...

Midterm in Advertising LawProfessor Rebecca Tushnet

Question 1: Venmo

Venmo is a popular app that allows people to send money to other people, even if they don’t have standard merchant accounts. Consider the following story from Alison Griswold, in Slate:

Kyle didn’t think twice about the buyer’s request. It was mid-June, and he had posted four tickets to Game Four of the NBA Finals on Craigslist. When the buyer, Michael, said he preferred to pay the $4,800 through Venmo, Kyle wasn’t bothered. He had only recently signed up for the mobile payments service, but his friends assured him that it was fast, easy, and reliable. Over the phone, Michael asked to Venmo half the money that day and half the following. “I said ‘OK, that’s perfect,’ ” says Kyle, a 32-year-old sales rep in South Florida.

As promised, the first $2,400 installment arrived on the evening of Wednesday, June 10, from Alice, whom Michael identified as his spouse. (“for cavs!” read the accompanying note.) The second, from Michael, “for go lebron!!” followed Thursday morning, the day of the game. Kyle promptly transferred the funds from Venmo to his personal bank account, and satisfied with Venmo’s notification (“You cashed out!”), he emailed the tickets to Michael.

On Thursday, the money from Alice showed up in Kyle’s bank account. But by the evening, the second payment, from Michael, still hadn’t come through. The same was true on Friday. And on Saturday. “I’m waiting after I transfer the tickets, and the money wasn’t in there, it wasn’t in there, it wasn’t in there,” says Kyle. “And all of a sudden I get a little [Venmo] notification saying, ‘Your transaction has been reversed.’ ” Panicked, he fired off a message to Venmo’s customer support via email, then another via Twitter. Days passed with no response….

As soon as he approved Michael’s request to buy the NBA tickets through Venmo, Kyle unwittingly stepped into a scam that has played out repeatedly on Venmo’s platform. It’s a scheme that has stripped users like Kyle—four of whom spoke to me for this article—of hundreds or thousands of dollars, leaving them little recourse for recovering their funds or their goods. How exactly these scammers manipulate their funds isn’t always clear. But the upshot in each case—a loss to the user of a product, money, or both—hinges on a single line in Venmo’s user agreement: “Business, commercial, or merchant transactions may not be conducted using personal accounts.”

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Screenshot from Kyle’s account

These Venmo scams work so well because the scammers know a few things that you don’t. They are taking advantage of your assumption that because transacting on Venmo is simple and quick, it is also always safe. They are gambling that in Venmo’s murky realm of “merchant transactions,” the businesslike act of “sending your roommate half the rent” might be kosher, but collecting their money for “event tickets and Craigslist items” probably won’t be. Most importantly, they are exploiting the little-known fact that funds flickering onto our phone screens with a perky green plus sign and a couple emojis are not really ours as instantaneously as they may seem. In short, these scammers are slipping into the gap between what Venmo has taught us to expect and the reality of what both the company and America’s underlying financial infrastructure are actually able to handle, and they’re blowing it wide open.

… For Mark Kwan, a 36-year-old event planner in New York City, it wasn’t tickets but a laptop—also advertised on Craigslist and purchased by a woman, Rosalyn, who asked to pay through Venmo. They met in mid-July on the Upper West Side, where she’d arrived in a blue van. “I received the Venmo payments, so everything should have been fine,” Kwan says. “About 20 minutes later, she’s like, actually, can you help me buy some iPhones?” She made more payments via Venmo, and he went to buy the four gold iPhone 6 Pluses that she’d requested. (Didn’t this seem a little sketchy to you, I asked Kwan when he relayed the story. “Yes and no,” he told me. “I’ve helped people buy phones before. The thing is that the money was in my Venmo account before I bought them.”) In total, Rosalyn sent Kwan $5,739.98 via two different Venmo accounts. He handed off the devices once he got Venmo’s payment notifications, then later attempted to withdraw the funds into his bank account. They never showed up.

… On Dec. 15, 2014, from a customer support representative [to another victim]: “We have no way of retrieving payments once [they] have been reversed.” From a support supervisor on Jan.

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1: “the bottom line is that your transactions violated the User Agreement … your only option is to contact your friends Eric and Cindy and arrange for a payment outside of Venmo.” Finally on Jan. 22, from Eran Kimchi, Venmo’s head of fraud, whom Movassaghi emailed directly in a final attempt to recover his money and alert the company to what he saw as a dangerous and pervasive scam: “Venmo has a complete understanding of the scam plot you fell victim to … there is nothing Venmo can do to comfort you. … You made an innocent mistake, and you paid for it.”

… To deliver on smooth, fast, and easy, Venmo has attempted to keep its interface and signup process as fun and “frictionless” as possible.

… What separates friend-of-friend from stranger-I-probably-shouldn’t-transact-with and personal from merchantlike quickly becomes very blurry. If I buy a pair of New York Rangers tickets and resell one to my friend, who Venmos me the balance, it’s probably fine. But what if I sell that ticket to my brother’s friend? To someone I find on Facebook? When does that become a “merchant” exchange, one that Venmo doesn’t allow?

… When … trust gets misplaced, it’s partially due to a fundamental misunderstanding of how Venmo works. Contrary to many users’ assumptions, sending money on Venmo does not instantaneously transmit funds from Person A to Person B. So, if I Venmo you $20 for Chipotle, the “+ $20.00” notification you get isn’t actually reflecting a transfer from me to you. Rather, in most cases, Venmo is floating you the money until it can come out of my account. The actual mechanics of the transaction are much more complicated; the point is that Venmo is just the top layer with which you interact. “The current systems that [the United States has] in place for consumers don’t allow for real-time payments or instant payments, but instead just create this illusion that the funds are good and immediately available,” says Jordan Lampe, director of policy at mobile payments network Dwolla and a member of the Federal Reserve committee tasked with improving America’s payments infrastructure. “We send emails, they get delivered instantly. We send text messages, they get delivered instantly. … So when these things continue to run up against the expectations of a business or an economy, it creates real problems and concerns.”

Once you understand that, you can see why Venmo doesn’t want users to make merchant transactions, by which it really means payments outside their networks of close acquaintances. (“Merchant transactions,” Vaughan tells me, “is sort of the catchall for the things that we can’t predefine.”) The analogous real world example is that you wouldn't leave a pair of tickets in a mailbox just because someone sent you a note promising to drop off an envelope of cash at a later date. The money could be fraudulent. Or your contact might just never deliver it at all. Similarly, if the buyer wrote you a personal check, you might not give up the tickets until it had cleared your bank.

When people accept Venmo payments from strangers on the Internet, they are doing something most of us wouldn’t do offline. But you can also see why [victims] and others don’t think that way. They don’t understand that Venmo isn’t PayPal and doesn’t offer the same kind of buyer and seller protections. They don’t realize that getting an on-screen notification from Venmo about a transaction, with its cheery green plus sign, isn’t the same as actually receiving those

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funds from the sender. And they don’t know that if the underlying transaction gets tangled up in fraud, they could be the ones eating the cost when Venmo eventually unwinds it.

Venmo, for all its stated efforts to educate consumers about safe online payment practices, has done little to correct these misperceptions. Doing so could mean dispelling the most essential elements of the Venmo mystique. “There are certain laws of time and space around the banking infrastructure that we try to smooth over for our customer,” Vaughan says. “The intention—and the expectation of our customers, and the way we treat that—is that when you send the payment it is instantly in your balance. You can use that money.” That’s what makes Venmo Venmo—the frictionlessness, the ease, the speed. But it’s also what makes Venmo risky, especially when transacting outside your network. “There are going to be these rare cases where the money that you received in this case may have been from someone who was using a card that didn’t belong to them,” Vaughan says, “and then you have that ripple effect.”

… “This is a situation where I got scammed, I’m not going to sit here and lie,” Kyle says. “But, I feel, their process is absolutely horrible,” he adds. “They say hey, do business with people you know on Venmo. But how many people are really doing business with people they know? Maybe a good majority of them, but I guarantee there’s a lot of transactions going on that need to be backed by some type of backing to make sure that if something happens they still get their money.”…

As Venmo’s advertising law counsel, explain to Venmo the advertising law-related risks indicated by this story and advise Venmo on next steps.

There were many solid approaches to this question, and the word limits meant that even good answers might not cover all the issues discussed below.

Some important issues were: (1) the evidence the article provides, in the form of admissions, that Venmo understood the misunderstandings its claims were generating, which could allow negative inferences against it in any resulting lawsuit; (2) possible unfairness claims by the FTC/unfair or abusive claims by the CFPB if Venmo fell under its jurisdiction as a financial service (I didn’t expect you to take a position on who had jurisdiction, but noting the substantive standards for unfairness/abusiveness was good);1 (3) the implication of Venmo’s insistence that it couldn’t define prohibited transactions in advance—if that’s really true, telling the client to “create a definition” is unlikely to help, and you need another solution targeted at the problem that is being created, namely vulnerability to fraud. Some people also mentioned that consumer protection lawsuits from consumers could be warded off by mandatory arbitration provisions in the terms of service (ToS)—this is true, and protective of the client, so it’s useful advice, but it’s 1 As to unfairness: the statute requires that "the act or practice causes or is likely to cause substantial injury toconsumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition." (15 U.S.C. §45(n)). Venmo could certainly argue that scams are not likely to substantially injure consumers, that consumers could easily avoid scams by using Venmo according to the user agreement, and that the countervailing benefits of a "frictionless" Venmo outweigh any chance of harm. Specifically, Venmo could argue that users like Mark who bought several iPhones for a stranger were not acting reasonably. That could work, but given the affirmative claims about money being in consumers’ accounts—which in other circumstances, such as real bank accounts, would be enough to justify the conclusion that a stranger had indeed paid the promised money—the injury might not be “reasonably” avoidable by consumers themselves in the FTC’s eyes. Moreover, the CFPB's abusiveness standard doesn't require consumers to act reasonably.

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important to recognize that the AGs, the FTC, and competitors won’t be bound by the ToS, so you’re not out of the woods.

Advertising/commercial speech: Are Venmo's user communications ads, subject to legal requirements? When a company makes statements of fact about its operations, products, or services to its customers for the purposes of promoting sales, these communications are considered commercial speech and are subject to advertising law. (Kasky). Another threshold issue that some people discussed was whether the screenshots represented “commercial advertising or promotion” under the Lanham Act. An argument for “no”: To qualify as commercial advertising or promotion, speech must be “disseminated sufficiently to the relevant purchasing public to constitute advertising or promotion within that industry.” (Gordon & Breach Sci. Publishers v. Am. Inst. of Physics). Because users don’t see Venmo’s misleading statements until after completing a transaction, the statements might not fall under the more narrow Lanham Act definition of commercial advertising.

An argument for “yes”: Because Venmo wants to get consumers to use its service again and again, its statements about immediate transfers are also advertisements to return and get the same convenience. Given Venmo’s marketplace success, current users are sufficiently numerous to qualify as enough of the relevant consuming public; these aren’t individualized sales pitches.

Similarly, some people mentioned the issue of whether the message screens were “false advertisements” under the FTCA’s definition. I realized that the casebook was at best unclear about this, for which I apologize—for future reference, the general prohibition on unfair or deceptive acts or practices in or affecting commerce still applies even if it’s not an “advertisement,” and also it’s extremely unlikely, given the FTCA’s generally broad aims, that being like labeling is enough to make an app screen “labeling.”

Some of Venmo’s claims, standing alone, are likely to be puffery (“smooth,” “fast,” “easy,” and “reliable”). But context matters. Here’s an example of a solid analysis:

A. “Send money for free”: This is a factual claim that is not literally false, since Venmo does allow transfers of money with no fee. B. “Money credited to your Venmo balance”This factual claim is not literally false, because a credit does get added to a user’s Venmo account. However, it could be ambiguous what exactly is meant by “Venmo balance.” Taking account of the fact that money is not immediately transferred, the “Venmo balance” must refer to the amount that Venmo is “floating” you, rather than being money you actually own.C. “Cash out overnight”This is the most problematic statement in Venmo’s messaging. Venmo prominently and repeatedly claims that you can “cash out [to your bank] overnight,” but, as the story reveals, it cannot actually guarantee this. Scams like the ones described in the story appear to occur with some regularity. In cases like these, not only users not “cash out overnight,” but they can never “cash out,” because the money they expected to receive is not there. This omission is more than just a failure to correct a popular misconception about Venmo, which is not liable under the Lanham Act; Venmo itself is actually

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creating this misconception (Avon Prods., vs. S.C. Johnson & Son). When a sizeable portion of transfers will not go through to completion, "A disclaimer might suffice," but the Lanham Act prohibits an advertisement that implies that the transaction is fully completed (Tiffany v. Ebay).D. The green plus arrow also indicates a successful transfer.E. The term "merchant transactions," Venmo's "catchall for the things that [they] can't predefine," according to their representative, is deceptive. The word "merchant" brings to mind a store and not necessarily an individual on Craigslist. The average customer may not think of a person-to-person transaction as being a "merchant transaction," even if that is the lawyerly understanding of the word (similar to "soluble" vs. "instant" in Suchanek v. Sturm Foods).F. “See our disclosures for more information”Venmo’s user agreement says that “Business, commercial, or merchant transactions may not be conducted using personal accounts.” There is no reason for a consumer to deduce this from any other message from the service. In fact, the frictionless money exchange of Venmo seems so uniquely suited to merchant transactions that it would be reasonable for consumers to assume the exact opposite of what the user agreement says.Lack of knowledge of Venmo’s full user terms is, therefore, likely to make communications misleading. Linking to information that would clarify the message is not sufficient disclosure of a material fact. In this situation, Venmo should include a clear and prominent disclaimer that it cannnot guarantee a user’s money. See Tiffany v. eBay.Because Venmo is a free service and no particular sophistication can be assumed for its users, contrast with Core-Vent Corp, Venmo should take care that its disclaimers are clear and conspicuous. The small screen size of the phones on which Venmo is used is no excuse for not including a disclaimer. See McCarthy article, quoting FTC advertising division associate director (“if you can’t make the disclosure, you can’t make the ad.”).Including the line of the user agreement--“Business, commercial, or merchant transactions may not be conducted using personal accounts”--would probably not be sufficient disclosure. Although this is the pertinent term for contract purposes, it is unlikely to be understood by consumers. Even a disclaimer that contains a literal truth may be too complicated for consumers to understand. See Kraft (holding that equation in superscript was too complex). In this case, “Merchant transactions” is not an objectively defined term but a “catchall for the things that [Venmo] can’t predefine,” so consumers couldn’t possibly be expected to understand such a disclaimer. Adding a line, “Venmo cannot guarantee completion of all transactions” might suffice. Some adaptation of their line “We have no way of retrieving payments once [they] have been reversed” could also be enough.

Assuming there’s no arbitration requirement in the ToS, then consumers, AGs, the FTC, and competitors could all sue. Consumers and the FTC/CFPB are the most likely/worrisome. Competitors might face difficulty showing literal falsity (since money is transferred into a user’s Venmo account; it’s just that Venmo can claw it back out if the transaction fails) and would have to invest in an expensive consumer survey. Given the statements in the article, however, that survey might well produce results that are bad for Venmo, so competitors can’t be discounted, especially if one of them can prove that it’s a likely alternative if consumers weren’t attracted by Venmo’s promise of instant transfers. Moreover, a court might be willing to find falsity by

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necessary implication (the money is there and will stay there) under the circumstances. The FTC can presume materiality when statements are intended or explicit; other plaintiffs are likely to be able to show materiality because the security of a financial transaction is likely to be an important feature to anyone.

Possible fixes: there were a number of good suggestions. Something indicating that the transfer was incomplete is probably the most important fix. E.g.,

Venmo could at least clarify what is actually happening: "+$2,400 on the way" or "pending +$2,400", with additional language describing that the money is not yet fully transferred, when it will be, and the risks of completing a transaction before the money has arrived.

On the confirmation screen and email, below the green "+$2,400" there should be a note that says, "Funds pending."

Additional possibilities: Create a warning dialog when a transaction amount exceeds a usual amount, saying "This is a large transaction. Only accept large amounts from a person you trust. Proceed at your own risk." Possibly also require the user to check a box affirming that they understand the risks of using Venmo for large amounts.

Establish an escrow model where large sums must be prepaid to Venmo before the transaction, allowing the money to be exchanged without big risks to either side.

Venmo's sign-up and confirmation emails could explain that accepting payment is analogous to a personal check, a domain that most people understand. Customers are more likely to understand the risk associated with a personal check (the other party does not have funds in their account), which is similar to the risk on Venmo. The "cashed out" email needs to explain that there is still risk of the payment "bouncing." A popup after hitting "accept payment," requiring the customer to confirm that they understand the mechanics of the transaction would help.

Disclosures about merchant transactions:Start with the FTC’s Four Ps. “Disclosure” or “important disclosure” isn’t enough. Can the disclosure be qualified? Venmo insists that the term can’t be predefined, and if it’s serious (because it wants to capture some transactions on the edge, like rent), then we need to do something else to warn consumers. Since the problem seems to be the interaction of the “no merchant transactions” rule with the risk of fraud from the fact of non-instantaneous money transfer, we might try to target fraud-prone transactions. Some suggestions:

Clearly state before making a transaction that "transactions with strangers and businesses, including Craigslist transactions” are banned. I’m not sure this is the best option, because Craigslist might be where two roommates got their start, but it moves towards the trust-based model Venmo wants.

A warning like, "Funds will remain pending until friend's payment processes. If payment does not process, transaction can be canceled."

Question 2: FTC Endorsement Guidelines

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Review the following information from the FTC:

Suppose you meet someone who tells you about a great new product. She tells you it performs wonderfully and offers fantastic new features that nobody else has. Would that recommendation factor into your decision to buy the product? Probably.

Now suppose the person works for the company that sells the product – or has been paid by the company to tout the product. Would you want to know that when you’re evaluating the endorser’s glowing recommendation? You bet. That common-sense premise is at the heart of the Federal Trade Commission’s (FTC) Endorsement Guides.

The Guides, at their core, reflect the basic truth-in-advertising principle that endorsements must be honest and not misleading. An endorsement must reflect the honest opinion of the endorser and can’t be used to make a claim that the product’s marketer couldn’t legally make.

In addition, the Guides say if there’s a connection between an endorser and the marketer that consumers would not expect and it would affect how consumers evaluate the endorsement, that connection should be disclosed. For example, if an ad features an endorser who’s a relative or employee of the marketer, the ad is misleading unless the connection is made clear. The same is usually true if the endorser has been paid or given something of value to tout the product. The reason is obvious: Knowing about the connection is important information for anyone evaluating the endorsement.

Say you’re planning a vacation. You do some research and find a glowing review on someone’s blog that a particular resort is the most luxurious place he has ever stayed. If you knew the hotel had paid the blogger hundreds of dollars to say great things about it or that the blogger had stayed there for several days for free, it could affect how much weight you’d give the blogger’s endorsement. The blogger should, therefore, let his readers know about that relationship.

Another principle in the Guides applies to ads that feature endorsements from people who achieved exceptional, or even above average, results. An example is an endorser who says she lost 20 pounds in two months using the advertised product. If the advertiser doesn’t have proof that the endorser’s experience represents what people will generally achieve using the product as described in the ad (for example, by just taking a pill daily for two months), then an ad featuring that endorser must make clear to the audience what the generally expected results are.

Here are answers to some of our most frequently asked questions from advertisers, ad agencies, bloggers, and others….

Isn’t it common knowledge that bloggers are paid to tout products or that if you click a link on a blogger’s site to buy a product, the blogger will get a commission?No. Some bloggers who mention products in their posts have no connection to the marketers of those products – they don’t receive anything for their reviews or get a commission. They simply recommend those products to their readers because they believe in them. Moreover, the financial arrangements between some bloggers and advertisers may be apparent to industry insiders, but

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not to everyone else who reads a particular blog. Under the law, an act or practice is deceptive if it misleads “a significant minority” of consumers. Even if some readers are aware of these deals, many readers aren’t. That’s why disclosure is important….

Does the FTC hold online reviewers to a higher standard than reviewers for paper-and-ink publications?No. The FTC Act applies across the board. The issue is – and always has been – whether the audience understands the reviewer’s relationship to the company whose products are being recommended. If the audience understands the relationship, a disclosure isn’t needed.

If you’re employed by a newspaper or TV station to give reviews – whether online or offline – your audience probably understands that your job is to provide your personal opinion on behalf of the newspaper or television station. In that situation, it’s clear that you did not buy the product yourself – whether it’s a book or a car or a movie ticket. On a personal blog, a social networking page, or in similar media, the reader might not realize that the reviewer has a relationship with the company whose products are being recommended. Disclosure of that relationship helps readers decide how much weight to give the review….

What if all I get from a company is a $1-off coupon, an entry in a sweepstakes or a contest, or a product that is only worth a few dollars? Does that still have to be disclosed?The question you need to ask is whether knowing about that gift or incentive would affect the weight or credibility your readers give to your recommendation. If it could, then it should be disclosed. For example, being entered into a sweepstakes or a contest for a chance to win a thousand dollars in exchange for an endorsement could very well affect how people view that endorsement. Determining whether a small gift would affect the weight or credibility of an endorsement could be difficult. It’s always safer to disclose that information.

Also, even if getting one free item that’s not very valuable doesn’t affect your credibility, continually getting free stuff from an advertiser or multiple advertisers could suggest you expect future benefits from positive reviews. If a blogger or other endorser has a relationship with a marketer or a network that sends freebies in the hope of positive reviews, it’s best to let readers know about the free stuff.

Even an incentive with no financial value might affect the credibility of an endorsement and would need to be disclosed. The Guides give the example of a restaurant patron being offered the opportunity to appear in television advertising before giving his opinion about a product. Because the chance to appear in a TV ad could sway what someone says, that incentive should be disclosed….

Several months ago a manufacturer sent me a free product and asked me to write about it in my blog. I tried the product, liked it, and wrote a favorable review. When I posted the review, I disclosed that I got the product for free from the manufacturer. I still use the product. Do I have to disclose that I got the product for free every time I mention it in my blog?It might depend on what you say about it, but each new endorsement made without a disclosure could be deceptive because readers might not see the original blog post where you said you got the product free from the manufacturer….

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I share in my social media posts about products I use. Do I actually have to say something positive about a product for my posts to be endorsements covered by the FTC Act?Simply posting a picture of a product in social media, such as on Pinterest, or a video of you using it could convey that you like and approve of the product. If it does, it’s an endorsement.

You don’t necessarily have to use words to convey a positive message. If your audience thinks that what you say or otherwise communicate about a product reflects your opinions or beliefs about the product, and you have a relationship with the company marketing the product, it’s an endorsement subject to the FTC Act….

A famous athlete has thousands of followers on Twitter and is well-known as a spokesperson for a particular product. Does he have to disclose that he’s being paid every time he tweets about the product?It depends on whether his followers understand that he’s being paid to endorse that product. If they know he’s a paid endorser, no disclosure is needed. But if a significant portion of his followers don’t know that, the relationship should be disclosed. Determining whether followers are aware of a relationship could be tricky in many cases, so we recommend disclosure….

I am an avid social media user who often gets rewards for participating in online campaigns on behalf of brands. Is it OK for me to click a “like” button, pin a picture, or share a link to show that I’m a fan of a particular business, product, website or service as part of a paid campaign?Using these features to endorse a company’s products or services as part of a sponsored brand campaign probably requires a disclosure.

We realize that some platforms – like Facebook’s “like” buttons – don’t allow you to make a disclosure. Advertisers shouldn’t encourage endorsements using features that don’t allow for clear and conspicuous disclosures. However, we don’t know at this time how much stock social network users put into “likes” when deciding to patronize a business, so the failure to disclose that the people giving “likes” received an incentive might not be a problem.

An advertiser buying fake “likes” is very different from an advertiser offering incentives for “likes” from actual consumers. If “likes” are from non-existent people or people who have no experience using the product or service, they are clearly deceptive, and both the purchaser and the seller of the fake “likes” could face enforcement action.

Evaluate the consistency of the FTC’s statements about the Guide’s requirements with the requirements of the First Amendment. Please do not consider issues of ripeness, standing, or any other issues not directly related to the First Amendment.

Some answers covering the key issues:

Whether the FTC's statements comport with the First Amendment ("FA") depends on what type of speech the FTC is attempting to regulate. Content-based regulation of speech typically receives strict scrutiny (regulation must be narrowly tailored to compelling state interest; exacting standard). Regulation of non-misleading commercial speech receives intermediate

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scrutiny under Central Hudson ("CH") (regulation permitted if (1) state's asserted interest is substantial; (2) regulation directly advances that interest and (3) is no more extensive than necessary). For mandatory disclosures, if the speech is inherently or potentially misleading without the disclosure, a rational-basis-type review is required under Zauderer; if the government's interest is not preventing deception, courts differ on whether to apply Zauderer or CH, but the majority rule is Zauderer.

All "Endorsements" Commercial Speech?[Note: I’m including arguments both ways, but I preferred you to indicate where you came out. At a minimum, some of what the FTC wants to regulate is commercial speech, though not all of it may be.]

Commercial speech has been defined in various ways, such as speech that proposes a commercial transaction, or speech that is related to the economic interest of the speaker and its audience. (CH). The test from Nike (Cal.), based on Bolger, states that the speaker will be someone engaged in commerce or their representative; the audience actual or potential buyers or customers, and content representations of fact about the business operations, products, or services of the speaker (or the company that the speaker represents), made for the purpose of promoting sales of, or other commercial transactions in, the speaker's products or services.

While the FTC claims that its disclosure requirement is based on common sense, theinitial example it gives - that of a company employee surreptitiously giving productreviews - is far more cut and dried than the real-world examples it gives later on. Whilethe corporate employee's product recommendation is inarguably commercial speech,other examples that the FTC gives are not so obvious.

Some speech that the FTC purports to reach may not be commercial under any of these definitions. A blogger reviewing a free product (no strings attached) or choosing to "like" "follow" or "pin" certain content (etc.) would not seem to propose a commercial transaction. Under Nike, the "made for the purpose of" aspect may not be met; sometimes a "like" is the only way to follow a Facebook page, for example. However, as to the advertiser, the action may be commercial speech if the advertiser’s purpose is to make sales. It may be that the FTC can constitutionally demand that advertisers follow certain rules, such as telling endorsers to disclose and refusing to give further freebies to endorsers who don’t disclose, when it could not constitutionally punish the endorsers directly.

The Kasky requirement that commercial speech include "Representations of fact" may fail if the statements are opinion, or if it’s not clear what message a pin sends. [The key question is whether, without disclosure, the opinion sends a factual message that the speaker was not compensated economically for offering that opinion.] Economic motivation is said to be an important factor, but in some of the FTC's examples (e.g., the hope of future free things), such motivation seems attenuated.

Some modern situations are far from what was originally commercial speech (some are very similar, however, such as paid celebrity endorsements) and look more like what has traditionally been fully protected. It's hard to distinguish new media from the NYT, which runs

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advertisements and creates content based on free products (like book reviews) - that readership "knows" NYT gets stuff for free is a big assumption. If the speech is not commercial, strict scrutiny applies to content-based regulations and any attempts at regulation would probably be struck down.

The reasons for giving less First Amendment protection to commercial speech may also be less persuasive for endorsers. Unlike more traditional ads, endorsements are likely not hardier than average speech. With profit potential far less than that of the commercial players (if there is any profit potential at all) endorsements are more likely to be chilled. Endorsers may also not be in a good position to verify statements about things like conditions of production.

Nonetheless, the intended audience of endorsements is always actual or potential consumers andendorsements arguably always consist of some factual representation of the product/service. It gets somewhat murky if the endorsement is mere puffery or is simply a photo of the endorser with the product or a "like", but at a minimum, it still conveys the fact that the product is something the endorser is willing to associate himself with.

False Commercial Speech

Assuming that the speech at issue is commercial speech, the government is free to prevent the dissemination of commercial speech that is false or misleading. CH. Thus, requiring that commercial speech in the form of endorsements be "honest" and "not misleading" is consistent with the FA (but see Alvarez, although not a commercial speech case).

Similarly, that an advertiser cannot buy fake "likes" is also a prohibition on false or misleading commercial speech and consistent with the FA (saying that X number of people "liked" your product when they did not is a false statement of fact).

Mandatory Disclosures

The FTC is also mandating certain disclosures. The FTC requires that if (1) there's a connection between an endorser and the marketer that consumers would not expect, and (2) it would affect how consumers evaluate the endorsement, the connection must be disclosed.

The first question is whether the failure to disclose is inherently or potentially misleading. Because the FTC's interest is in preventing consumer deception (consumers thinking endorsement is objective when other factors may have influenced), Zauderer applies. Zauderer is interpreted to require that (1) the mandated disclosure provide truthful/factual information, (2) the information be noncontroversial, and (3) the disclosure not be unduly burdensome. It's more lenient than CH because disclosure requirements impose less on advertisers than an outright ban on speech; disclosures must be reasonably related to interest in preventing deception of consumers. This mandated disclosure requirement appears consistent with the FA. For example, in the context of free product, what is must be disclosed is factual and truthful information: the product was provided for free. The information provided is noncontroversial: the parties agree that the product was provided for free. Undoubtedly, disclosure of consideration will impact the

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way a consumer would use the information in a review or other online promotion and reduce potential deceptiveness. There is an "immediate connection" between the regulations and thegovernment interest (Central Hudson).

In a world with extremely popular online bloggers, clever advertisers and rapidly changing media platforms, the government has an interest in letting consumers know a reviewer has received consideration to avoid consumer deception. Even Lillian BeVier (known for her laissez faire view of advertising), may admit that there is substantial government interest in letting a consumer know that a reviewer has received consideration. If consumer reviews, one of her antidotes to false advertising, can be hijacked by the advertisers themselves, the market loses an important punishment mechanism (Chapter 2).

Finally, it is not very burdensome to type at the beginning of a blog post: "Note: Acme provided this vacuum for free in exchange for my unbiased review."Although bloggers could argue that there are burdens (disclosure interferes with the content of the message, disclosure creates a bad corporate connotation, discredits the review even when objective, etc.), the "burden" has been held to be the burden of actually inserting the disclosure, not other related burdens such as finding out where an animal is raised. Am. Meat. The athlete who is paid to endorse a product could potentially argue that it is burdensome to disclose the connection every time he or she tweets something; this may have more weight since the disclosure is a larger percentage of the text in a 140-character tweet.

However, the FTC recommendation that if you cannot disclose within a tweet, you should not tweet about it at all (McCarthy, Yes, New FTC Guidelines Extend to Facebook Fan Pages), necessarily means that some speech will be suppressed. Since thereis clearly some amount of suppression, the question becomes whether the government's interest can be protected by more limited regulations (Central Hudson). Considering the cunning of advertisers and consumer lack of familiarity with the current endorsement landscape, it seems necessary to protect consumers from being served promotions unknowingly. Creating strict guidelines now, will help educate consumers during this relatively early phase of online content.

A counterargument on burden: There may be an argument that the regulations are too extensive/create a chilling effect on speech valuable to consumers (if bloggers find it onerous to make disclosures, if advertisers don't want to monitor every blog they send a coupon to, fewer reviews).

Zauderer also applies to disclosures about “results not typical,” as the goal is avoiding misleading consumers that they can expect the endorser's results. The disclosure requires truthful, factual, noncontroversial information (the average results that the consumer should actually expect), and the disclosure is not likely to be unduly burdensome (as above). (Note: the requirement that the advertiser cannot make the claim unless it is substantiated is a restriction on speech and would be evaluated under CH).

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fall 2015 advertising midterm memo - web viewmidterm in advertising law. ... in most cases, ... and...

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