In the last few years, as advertising has followed consumers from legacy media such as television to online video and social media platforms, the Federal Trade Commission has been attempting to ensure that participants in this new advertising ecosystem understand the importance of complying with the FTC’s “Guides Concerning the Use of Endorsements and Testimonials in Advertising,” or the endorsement guides. The endorsement guides require advertisers and endorsers (also referred to as influencers) to, among other things, clearly and conspicuously disclose when the advertiser has provided an endorser with any type of compensation in exchange for an endorsement.

A failure to make appropriate disclosures may be a violation of Section 5 of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices. In recent enforcement actions, press releases, guidance, closing letters and letters sent directly to endorsers (including prominent public figures), the FTC has made clear its belief that: (1) appropriate disclosures by influencers are essential to protecting consumers; and (2) in too many instances, such disclosures are absent from celebrity or other influencer endorsements. Continue Reading The FTC’s Quest for Better Influencer Disclosures

In U.S. copyright law circles, one of the hottest topics of debate is the degree to which the fair use doctrine—which allows for certain unauthorized uses of copyrighted works—should protect companies building commercial products and services based on content created by others, especially where such products or services are making transformative uses of such content.

This debate is likely to become even more heated in the wake of the Second Circuit Court of Appeals’ issuance last week of its long-awaited decision in the copyright dispute between Fox News and TVEyes, in which the court sided with the copyright owner over the creator of a digital “search engine” for identifying and viewing television content. But regardless of which side of the debate you are on (or if you are just standing on the sidelines), the court’s decision provides important guidance on the scope of the fair use doctrine as applied to commercial products and services.

The Dispute

Using the closed-captioning data that accompanies most television programming, TVEyes provides a searchable database of video clips. TVEyes’ subscribers—who pay $500 a month—can search the database for keywords in order to identify and view video clips from the service; such video clips may be as long as ten minutes in duration.

In July 2013, Fox sued TVEyes for copyright infringement and, in August 2015, Judge Hellerstein of the U.S. District Court for the Southern District of New York held that the key features of the TVEyes service are protected under the fair use doctrine. Continue Reading All Eyes on Fair Use: The Second Circuit Delivers a Victory for Copyright Owners

As we have noted previously, YouTube users sometimes object when the online video giant removes their videos based on terms-of-use violations, such as artificially inflated view counts. In a recent California case, Bartholomew v. YouTube, LLC, the court rejected a user’s claim that the statement YouTube posted after it removed her video, which allegedly gave the impression that the video contained offensive content, was defamatory.

Joyce Bartholomew is a musician who creates what she calls “original Christian ministry music.” Ms. Bartholomew produced a video for the song “What Was Your Name” and posted the video on YouTube in January 2014. YouTube assigned a URL to the video, which Ms. Bartholomew began sharing with her listeners and viewers. By April 2014, she claims that the video had amassed over 30,000 views.

Shortly afterwards, however, YouTube removed the video and replaced it with the image of a “distressed face” and the following removal statement: “This video has been removed because its content violated YouTube’s Terms of Service.” The removal statement also provided a hyperlink to YouTube’s “Community Guideline Tips,” which identifies 10 categories of prohibited content: “Sex and Nudity,” “Hate Speech,” “Shocking and Disgusting,” “Dangerous Illegal Acts,” “Children,” “Copyright,” “Privacy,” “Harassment,” “Impersonation” and “Threats.” Continue Reading California Court Holds That YouTube’s Removal Notice Is Not Defamatory

The music industry came out on top in one of its first attempts to hold an internet service provider liable for its subscribers’ unauthorized peer-to-peer file sharing.

The decision, handed down by the Fourth Circuit Court of Appeals in a dispute between BMG Rights Management and Cox Communications, outlines the obligations an ISP must fulfill to receive safe harbor protection under the Digital Millennium Copyright Act for a subscriber’s infringement. It also explains when an ISP can be held contributorily liable for its subscribers’ actions.

Read my full analysis here.

Companies that offer services, whether online or offline, to consumers on a subscription or other automatic renewal basis should be aware that such offers are heavily regulated at both the federal and state levels. A recent amendment to Section 17602 of California’s Business and Professions Code provides a good opportunity for businesses that make subscription offers to review their practices. As of July 1, 2018, the obligations under California law will expand in two ways that may require businesses to update those practices.

The first change relates to the information that businesses must provide to consumers regarding the terms of a subscription offer. The current law already requires a business to provide certain information about the renewal process—such as the amount of the recurring charges, the length of the renewal period, and the cancellation policy—both before the consumer accepts the agreement, and afterwards in an acknowledgement. The amendment provides that, as of July 1, 2018, if the offer includes any free trial or gift component, the information provided to consumers must also include a “clear and conspicuous explanation of the price that will be charged after the trial ends or the manner in which the subscription or purchasing agreement pricing will change upon conclusion of the trial.” Continue Reading Amended California Law Expands Requirements for Consumer Subscriptions

Last year we covered a wide range of online legal and business subjects intended for readers ranging from Internet entrepreneurs to social media marketers, from online shoppers to e-tailers, from networkers to influencers (and the brands that pay them).

The topics of our blog posts covered a myriad of cutting-edge subjects, including a new federal law limiting a business’s ability to stop patrons from posting negative online reviews and a court opinion that gave online retailers some cause for celebration.

As interesting as those topics are, they weren’t the subjects of Socially Aware’s most widely read articles from last year. Here are the most popular posts that appeared on Socially Aware in 2017.

  1. Second Circuit Clarifies “Repeat Infringer” Policy Requirement for DMCA Copyright Safe Harbors
  2. N.Y.’s New Cybersecurity Regulations: What Financial Services Companies Need to Know
  3. The Hague District Court’s WhatsApp Decision Creates Concerns for Mobile App Developers
  4. Google Ordered to Comply with Warrant for Foreign-Stored User Data
  5. Limiting Statutory Damages in Internet Copyright Cases
  6. Court Orders Google to Turn Over Foreign-Stored Data
  7. Zazzle Fizzles: Website Operator Denied Copyright Safe Harbor Protection for Its Sale of Physical Products Featuring User-Generated Images
  8. Delaware Paves the Way for Blockchain Technology
  9. Brands Beware: FTC Continues Campaign on Social Media Influencer Disclosures
  10. FTC Report Reinforces the Rules for Cross-Device Tracking

This post is a bit meta. It is about an event that I attended that was about an event that I didn’t attend.

Let me explain. I missed the Consumer Electronics Show (CES) this year, but was fortunate to attend the Paley Center for Media’s (PCM) “Best of CES 2018” event last Thursday night. Every year, immediately following CES, PCM (a Morrison & Foerster client) convenes a panel of well-known tech industry commentators to discuss the most interesting technologies and technology trends that they discovered at CES. For attendees of PCM’s event, it feels like getting all of the benefits of CES without having to deal with the crowds and long lines (or even booking a flight to Las Vegas).

This year’s PCM panel members, all of whom had spent the prior week at CES, consisted of Joanna Stern of the Wall Street Journal, Dana Wollman of Engadget, Shelly Palmer of the Palmer Group and Advancit Capital’s Jon Miller, who served as the moderator.

Normally this is the sort of event that I would have live tweeted via our @MoFoSocMedia Twitter account—but I’m a slow typist and the panelists had way too many interesting insights per minute for me to keep up. On the other hand, it seems selfish not to share what I learned, so I’m writing this informal summary of the event—essentially, the best of the “Best of CES 2018.” Continue Reading The Best of the Best of CES 2018

As Socially Aware readers know, social media is transforming the way companies interact with consumers. Learn how to make the most of these online opportunities while minimizing your company’s legal risks at Practising Law Institute’s (PLI) 2018 Social Media conference, to be held in San Francisco on Thursday, February 1st, and in New York City on Wednesday, February 14th; both events will be webcasted. The conference will be chaired by Socially Aware co-editor John Delaney, and our other co-editor, Aaron Rubin, will also be presenting at the event.

Topics to be addressed will include:

  • The new business opportunities—and legal risks—that social media is providing for businesses
  • What every company should know about online contractual eco-systems
  • How to avoid running afoul of the law when employing social media influencers and using marketing tools like user-generated content, hashtags and native advertising online
  • The privacy-related developments that have arisen in connection with geo-location tracking and interest-based advertising
  • How to minimize the risks that accompany social media use in the workplace

In addition, an in-house panel will provide creative solutions to real-world social-media-related issues and address emerging social media trends.

Don’t miss this opportunity to get up-to-date information on the fast-breaking developments in the critical area of social media so that you can most effectively meet the needs of your clients.

For more information or to register, please visit PLI’s website here. We hope to see you there!

The European Union (EU) has made reform of the e-commerce rules in Europe one of its main priorities for 2018.

The European Commission has already published two proposed Directives relating to cross-border e-commerce but legislative progress has been slow—a situation that the Commission plans to correct in 2018.

The Commission’s stated aim is to establish a more harmonised set of rules for the supply of digital content and sale of online goods across the EU, and to make it easier and less costly for businesses to engage in cross-border commerce. But what most e-commerce providers will focus on is the increased rights for EU consumers, particularly in the context of defects. The new rules will apply to online e-commerce providers, whether EU-based or not.

These changes are part of a wider programme of reform affecting all businesses operating in the Technology, Media and Telecoms (TMT) sectors in Europe.

Background

The European Union’s 2018 Work Programme sets out a challenging agenda of legislative and regulatory change for the TMT sectors, to be delivered in conjunction with the EU’s Digital Single Market (DSM) strategy. The Work Programme includes a list of the pending legislation that the Commission wants to have delivered most swiftly to European citizens as part of the DSM strategy. Any business with digital or technology operations in the EU will need to monitor and react to the EU’s planned changes.

The Commission launched its DSM strategy in May 2015. We have written a number of articles following the DSM’s progress: at its inception, one year in and in 2017 following a mid-term review. With the Commission still waiting for a number of its proposals to be delivered, 2018 is a key year in the life of the DSM.

The DSM strategy is broken down into three “pillars” and 16 Key Actions. The first “Key Action” is to develop rules to make cross-border e-commerce easier, including harmonised rules on contracts with consumers and other consumer protection when buying online. Two proposed Directives relating to cross-border e-commerce were issued relatively quickly – firstly, a proposed Directive on the supply of digital content (Digital Content Directive) and, secondly, a proposed Directive on online and other distance sales of goods (Online Goods Directive) (together, the “Proposed Directives”).

In a 2016 blog post we explored the scope, content and likely impact of the Proposed Directives across the EU generally (and in the UK and Germany specifically). In this alert, we review the progress that has been made so far and look ahead at the likely impact of these Directives in 2018.

The Digital Content Directive

At present, some EU Member States (such as the UK, the Netherlands and Ireland) have introduced legislation to govern the sale of digital content to consumers; other member states apply existing rules on the sale of goods or services that were not intended for digital content. That makes it very hard to apply EU-wide principles on the sale of digital content. Depending on the member state, the sales contract could be considered as a sales contract, as a services contract or as a rental contract. And then there’s the question of whether consumer sales law is applicable to digital content: in Germany and in Italy, a consumer is protected under consumer sales law when it comes to digital content, and the courts qualify intangible goods as a moveable object; whereas in Norway, the online supply of digital content is considered a service contract, and consumer sales law is not applicable.

The draft Digital Content Directive will harmonise the rules that apply to the provision of digital content to EU consumers, including rules on the remedies to which consumers are entitled for allegedly defective content. If any digital content is defective, firstly the EU consumer will be able to request that the defect be fixed – with no time limit on the ability to make that request—and, secondly, the burden of proof is reversed so that it will be the supplier’s responsibility to prove that the defect did not exist at the time of supply. See a more detailed summary here.

The rules would apply: (i) regardless of the method of sale, and (ii) to both digital content sold to the consumer (i.e., licensed on a perpetual basis) and digital content supplied under a temporary licence on a subscription basis. Currently, most EU Member States do not have national consumer protection legislation specifically concerning sales or subscription of digital content to consumers (the issue tends to be covered by sales of goods or services rules).

European Council: General Approach

After the Commission issued the draft Digital Content Directive in December 2015, there was steady progress through 2016 and various committees debated or “took stock” of the proposal.

In March 2017, the European Data Protection Supervisor raised concerns with the proposal – namely that the provision of data as “counter-performance” was problematic (as discussed further below) and that there was a potential overlap in scope with the incoming General Data Protection Regulation.

However, the first major development on the Digital Content Directive took place in June 2017, when the European Council clarified the EU’s position on the proposal as follows:

  • Scope. The scope of the Digital Content Directive includes so-called “over-the-top” interpersonal communication services (such as voice and video calling, text messaging, email and social networking), bundle contracts and the processing of personal data. However, the Council recommended that embedded digital content (meaning, digital content or services that are pre-installed in goods such as smart fridges) should be excluded, leaving these issues to be governed by the rules on the sale of goods. Additionally, the Council explicitly stated that the proposal would not affect existing national and EU laws on copyright and related rights.
  • Non-conformity. The Digital Content Directive, as initially drafted, allowed subjective conformity criteria (i.e., criteria that are agreed in an individual contract) to prevail over objective conformity criteria (i.e., criteria that are stipulated by law). The Council rejected the idea that subjective conformity takes priority, requiring compliance with both subjective and objective criteria for conformity, unless the latter is expressly waived in advance by the consumer.
  • Remedies. The Council suggests that suppliers should have a second chance to supply the digital content or service in certain situations and proposes eliminating the strict hierarchy of remedies for lack of conformity that were initially proposed by the Commission.
  • Time limits. The Council proposes both that there should be a one-year time limit in relation to the reversed burden of proof on suppliers and also that any warranty or limitation period relating to the liability of the supplier must be at least two years under applicable domestic law. It stopped short of suggesting that warranty periods should be mandatorily harmonised across the EU.

European Parliament: Joint Report

The next key development took place in November 2017 when the two committees within the European Parliament that are responsible for progressing the proposed Digital Content Directive (being the Internal Market and Consumer Protection Committee (IMCO) and Legal Affairs (JURI)) adopted a joint report on the proposal. A number of compromise amendments to the draft Digital Content Directive were prepared on the basis of the report, of which the main ones were:

  • Emphasis on data protection. The provisions on data protection in the draft Digital Content Directive should be prioritised over the contract law provisions.
  • Provision of data as counter-performance. The Digital Content Directive was drafted to cover digital content that is provided for non-monetary consideration, such as when a consumer provides his/her data to a supplier in exchange for access to content. The compromise amendment suggested in the report is to limit the provision of data as counter-performance to only personal data.
  • Latent defects. The draft provisions on a supplier’s liability for latent defects were removed, allowing Member States to retain or introduce domestic laws on liability for such defects.
  • Non-conformity. Consistent with the Council’s approach, the report suggests that all subjective and objective criteria for conformity must be met, unless the consumer expressly consents to waive compliance with such objective criteria in advance.
  • Time limits. Also in keeping with the Council’s approach, a time limit was introduced in connection with the proposed reversal of the burden of proof. However, the report suggests a time limit of two years (rather than the Council’s proposal of one year) and introduces an additional time limit relating to trader liability for defects of one or two years.
  • Embedded digital content. The scope of the draft Digital Content Directive was expanded to cover digital content embedded in tangible goods, in contrast to the amendment proposed by the Council.

Next Steps

The report was referred to the European Parliament, Council and Commission to commence informal trialogue talks, which are now expected to take place in the first part of 2018.

The Online Goods Directive

The draft Online Goods Directive will apply new rules to goods sold online or otherwise at a distance to EU consumers. Face-to-face sales are not covered, nor are contracts for the supply of services.

The key provisions of the Draft Online Goods Directive include a reversal of the burden of proof (i.e., the onus will be on the seller to prove that any defect didn’t exist at the time of sale) for two years; consumers won’t lose their rights if they don’t inform the seller of a defect within a certain period of time (as is currently the case in some Member States); if the seller is unable or fails to repair or replace a defective product, consumers will have the right to terminate the contract and be reimbursed also in cases of minor defects. See a more detailed summary here.

The draft Directive replaced the Commission’s previous attempt at harmonisation, which took the form of a proposed Regulation on a Common European Sales Law. The EU Parliament’s IMCO published its draft report on the Directive in November 2016, supporting the full harmonisation measures envisaged, but suggesting an expansion of the scope of the Directive to cover offline sales. This was driven by the desire for consistency – the idea that a common set of rules across Member States would be valuable for online, distance and face-to-face sales alike, rather than having a fragmented legislative framework that would vary depending on the method of sale.

After publishing its draft report, IMCO tabled over 200 amendments to the draft Online Goods Directive during a committee meeting in January 2017, and more in July 2017 (mostly relating to the expansion of the scope of the draft Directive to offline sales).

The Commission subsequently released an amended proposal on 31 October 2017. Although the main elements of the Online Goods Directive were unaltered, the amended proposal did provide for the following noteworthy changes:

  • Offline sales. In alignment with the suggestions in the draft report, the scope of the proposed Directive was expanded to cover offline sales. As a result, Directive 1999/44/EC on consumer sales and guarantees would be fully repealed (whereas before, it would have been only partially amended).
  • Second-hand goods. Member States will have the option of narrowing the scope of the Online Goods Directive to exclude contracts for the sale of second-hand goods sold at public auction.

Next Steps

The amended proposal has been resubmitted to the European Parliament and Council. We await a decision from the European Economic and Social Committee, after which the European Parliament will need to vote on the proposal at first reading.

What Should We Expect in 2018?

We will be keeping tabs on the Proposed Directives as they progress under the ordinary legislative procedure, although, because there is no time limit on the first reading stage, it is difficult to predict exactly when we will see movement.

It is also difficult to predict the impact of the Proposed Directives on the UK. The UK is, of course, due to leave the EU in March 2019, which is likely to be before the Proposed Directives are implemented. It will therefore be for the UK to decide the extent to which it wishes to reflect the provisions of the final Proposed Directives in national law, if at all. The commercial benefits of harmonisation with EU Member States will need to be weighed carefully against the drawbacks of overhauling consumer laws so soon after the changes introduced by the UK Consumer Rights Act 2015.

“My Google Home Mini was inadvertently spying on me 24/7 due to a hardware flaw,” wrote a tech blogger who purchased Google Inc.’s latest internet of things (IoT) device. Following the incident, a pact of consumer advocacy groups insisted the U.S. Consumer Product Safety Commission (CPSC) recall the Google smart speaker due to privacy concerns arising when the device recorded all audio without voice command prompts.

The CPSC is charged with protecting consumers from products that pose potential hazards. Traditionally, this has meant hazards that may cause physical injury or property damage. But as internet-connected household products continue to proliferate, issues like the “always-on” Google Home Mini raise an important question: Where does cybersecurity of consumer IoT devices fit within the current legal framework governing consumer products?

The Explosion of IoT

Forecasts predict that by 2020 IoT devices will account for 24 billion of the 34 billion devices connected to the internet. According to a recent Gemalto survey, “[a] hacker controlling IoT devices is the most common concern for consumers (65%), while six in ten (60%) worry about their data being stolen.”

The rapid growth of the IoT market and continued integration into daily life raises the question of which regulatory body or bodies, if any, should be responsible for consumer safety when it comes to cybersecurity for consumer IoT devices.

The Intersection of Consumer Product Safety, Privacy and Cybersecurity

The CPSC’s jurisdiction has traditionally been limited to physical injury and property damage. It is “charged with protecting the public from unreasonable risks of injury or death associated with the use of the thousands of types of consumer products under the agency’s jurisdiction.” Continue Reading Connected Devices Bring New Product Liability Challenges