Online Marketing & the Law - Part II

Posted: 1/2004

Online Marketing & the Law - Part II
BEST PRACTICES, PROTECTING YOUR INTELLECTUAL PROPERTY
By David O. Klein and John T. Um

The first part of this two-part series covered the legal landscape governing online marketing. The second segment discusses some best practices to consider when conducting online marketing campaigns and the importance of intellectual property protections to safeguard your telecom business.

BEST PRACTICES

Some of the more popular advertising vehicles available to enhance and expand your companys marketing reach are e-mail campaigns, newsletters, search engines and pop-up advertisements, as well as sweepstakes and other online promotions (see the April, May and June 2003 editions of PHONE+ for a synopsis of the laws regulating promotional games). Regardless of the method chosen, the most important step toward complying with the myriad laws regulating online marketing is to set forth clear and conspicuous advertising disclosures associated with the telecom products and services you offer. For this reason, each piece of advertising copy should be reviewed thoroughly by an attorney prior to publication. Competent counsel can advise you as to whether the terms contained in an advertisement comport with laws regulating deceptive and misleading business practices, such as Section 5 of Federal Trade Commission (FTC) Act and each states unfair trade practices statute.

Generally speaking, the body of the advertisement should disclose every material term of your telecom product or service offering, including clear disclosure of any free or promotional period after which charges will be incurred. Aside from the copy itself, the placement of disclosures should be reviewed, as well. To the extent possible, where the copy appears on a Web site, in an e-mail or as part of a popup window, the material terms should be readily accessible, and in a legible font size, without requiring the consumer to scroll down to access them. In other words, placing material terms only in the small print at the very bottom of an advertisement is not a recommended practice.

In addition, every Web site should contain a clear and comprehensive set of terms and conditions and a privacy policy specifically tailored to your business practices. Hyperlinks to these disclosures also should appear on all advertising copy. Although one may argue the general public has become desensitized to Web site disclosures, resulting in a failure to read and/or comprehend them, these disclosures are fundamental to establishing the terms under which you may collect and use customer data, as well as detailing how a consumer may access and use your Web site(s). Your privacy policy should clearly disclose how personal information is collected, used and whether this information will be shared with third parties.

E-MAIL MARKETING

As we discussed in Part 1 of this series, email marketing is a popular but highly regulated advertising vehicle. The following is a list of guidelines collected from most of the state-specific e-mail statutes in effect. However, the list is not meant to be all-inclusive and does not encompass the new California anti-spam law, effective as of January 2004, which is narrowly tailored to restrict the transmission of all unsolicited commercial e-mail.

• Ensure that your e-mail list consists of recipients with whom you have a business relationship or have otherwise opted-in to receive your e-mail.
• No spoofed information should be used in the header/transmission data.
• Put ADV: in the subject line; no false or misleading to/from and/or subject lines should be used. For example, using Re: or Fwd: unless actually responding or forwarding correspondence might misleadingly imply that the email arises from a previous contact.
• Indicate where the e-mail address was obtained (i.e., we are sending you this e-mail because you purchased a product from us).
• Have a functional unsubscribe button; honor all unsubscribe requests by removing those e-mail addresses from your mailing list within 72 hours; have a separate file for those unsubscribed e-mail addresses.
• Put the senders true company name and physical address in the e-mail.
• Do not send e-mail to recipients known to be under the age of 13.
• If there are any strings attached to your offer or if the offer is a free-to-pay conversion, this must be made clear in the copy.
• Trademark/copyright protections for your own trademarks and copy should be used.

ONLINE LOAs

One of the great benefits of online marketing is the ability for consumers to immediately respond to an advertisement and expeditiously apply for and obtain telecom services. This provides convenience for the customer and might lead to higher conversion rates for you. Fortunately, authorization can be obtained via an electronic signature in an online letter of agency (LOA), efficiently integrated into your advertising copy. Where potential customers could be lost during the lengthy process involved with use of traditional written LOAs, practically instantaneous sign-ups can be accomplished through use of online LOAs.

Authority for employing electronic signatures in online LOAs comes from either state statutes regulating changes in telecom carriers and/or the billing of telecom services, state statutes specifically enacting the Uniform Electronic Transactions Act (UETA), and/or the Electronic Signatures in Global and National Commerce Act (E-Sign). UETA is model legislation intended for adoption by each state. Presently 43 states have adopted UETA in some form. Congress enacted E-Sign to preempt all state laws that do not recognize electronic signatures, thereby ensuring in every state the validity of electronic signatures to enter into a legally binding transaction.

Bear in mind that online LOAs must comply with local requirements, which can vary from state to state. Accordingly, any assumption that one LOA would satisfy every states requirements is incorrect and counsel should review each form LOA before use. For example, certain states, such as Texas and Maine, explicitly restrict an LOA from appearing on the same Web page or screen as an inducement (such as a promotion, sweepstakes or other associated offer).

PROTECT YOUR BRAND AND CONTENT

Beyond ensuring that you comply with the laws regulating online advertising, the protection of intellectual property is fundamental to strengthening and expanding a business presence both online and offline. What exactly is intellectual property? Intellectual property is generally defined as an idea, invention, trade secret, process, program, data, formula, patent, copyright, or trademark or application, right, or registration relating thereto.

Some of the more common forms of intellectual property that arise in marketing telecom products and services are trademarks and copyrights. Essentially, trademark rights protect your brands from others that might seek to infringe upon them. The terms trademarks and marks are used interchangeably to describe both goods and services. Trademark rights can vest through use in commerce or by registration with a state agency or the U.S. Patent and Trademark Office (USPTO). Some examples of trademarks are: the name of a company, the name of a telecom product, service and associated slogans and logos.

According to the U.S. Copyright Office (USCO), a copyright protects original works of authorship, including literary, dramatic, musical, artistic, and certain other intellectual works. This protection is afforded to the actual expressed form as soon as it is fixed to a tangible medium. Although copyrights are secured as soon as the work of authorship is created, registration does afford further important rights. Some examples of copyrightable material are: advertising copy, and calling card or Web site designs.

The practical protections afforded by these intellectual property rights are manifold. One great benefit of federal trademark registration is the power to enjoin a competitors subsequent use of the same, or confusingly similar, trademark. With respect to copyrights, the holder can obtain actual damages for any infringing use. With a registered copyright, however, a copyright holder may also seek statutory damages (up to $150,000) and attorneys fees from the infringer.

At this point, these legal concepts might not seem clear, but the following example can aid in clarifying their importance.

Telecom A successfully markets a prepaid calling card dubbed the X-Card on a nationwide basis. Telecom A offers the X-Card through pop-up ads, in e-mail and through its Web site. Telecom A considered federal registration of its mark, X-Card, along with the associated advertising copy, but decided against it because of cost considerations. Subsequently, Telecom B, a competitor, begins selling a competing product named Xcard, which is deceptively similar to X-Card. In addition, Telecom B sues Telecom A to enjoin its use of X-Card after receiving registration for Xcard from the USPTO. Telecom A now faces a costly battle to determine its relative common law trademark rights, whereas prior registration of X-Card would have prevented registration of the mark Xcard altogether. To compound its problems, Telecom A discovers that another company has stolen its ad copy and is using it to sell its own telecom product. After suing the company for copyright infringement, Telecom A is only awarded its actual damages, and Telcom A must pay for all of its own legal fees. If Telecom A had registered the ad copy with the USCO prior to the infringing use, it could have pursued statutory damages and recovery of its legal fees.

In the preceding example, by foregoing both types of registration, Telecom A was forced to expend valuable resources to defend its use of the mark X-Card and severely limited its copyright infringement remedies. Had Telecom A made the relatively nominal investment to protect its intellectual property rights, this unfortunate eventuality could have been avoided.

SAMPLE CASES

Fortunately, learning from the examples of others can be a painless way to obtain direction as to the possible dangers and pitfalls inherent in online marketing. The following are a few representative cases.

In a case highlighting the interconnection between privacy practices and deceptive acts and practices under Section 5 of the FTC Act, the FTC settled an action against online toy retailer Toysmart.com in July 2001. The FTC alleged that Toysmart.com violated its privacy policy where the company attempted to auction its database of customer personal information in a bankruptcy proceeding. Toysmart.coms privacy policy provided that such personal information would never be shared with third parties. Pursuant to the terms of the settlement, severe restrictions were placed upon the sale of the Toysmart.com database, thereby greatly decreasing the value of the database  possibly Toysmart.coms greatest asset.

More recently, in October 2003, retailer Victorias Secret settled a case brought by the New York State Attorney Generals office involving violations of their privacy policy. The Attorney Generals office claimed that for approximately three months, customer personal information, including names, addresses and actual items ordered from Victorias Secret, could be accessed by the public through the Victorias Secret Web site in spite of Victorias Secrets claim the personal information submitted at the site would be maintained in private files on [its] secure Web server and internal systems. Victorias Secret settled with the Attorney Generals office and paid $50,000 in costs and penalties. Victorias Secret also was forced to implement changes to its privacy procedures and practices to safeguard against a similar occurrence in the future.

The exponential growth of e-mail marketing has resulted in the filing of a substantial number of spam lawsuits. Although media headlines may create the appearance that only the most wanton spammers are subject to these suits, the reality is conservative marketers attempting to comply with applicable e-mail marketing laws are being sued, as well.

For example, in Utah a duo of collection firms commenced hundreds of actions against legitimate marketers alleging violations of Utahs antispam law. Though the law limits statutory damages to $10 per violation, it permits an award of reasonable attorneys fees which, arguably, provides an incentive to bring these actions, even when only a nuisance settlement can be obtained. Although settling a single case with such spambulance chasers might seem palatable, over time the aggregate cost of accumulated nuisance settlements could result in substantial business costs.

The preceding cases should serve as a warning to companies that market telecom products and services online. Failure to heed the numerous laws, rules and regulations, on both a federal and state level, could result in considerable costs and legal liabilities. Therefore, it is recommended that you consult with experienced regulatory counsel before rolling out any online marketing campaign.