Online Marketing & the Law - Part I

Posted: 12/2003

Online Marketing & the Law - Part I
Understanding Disclosure, Privacy and Anti-spam Requirements
By David O. Klein, Esq., and John T. Um, Esq.

Until recently, effective marketing consisted of direct mail, telemarketing, and print and television advertisements. Although these advertising methods have proven effective over the years, the Internet offers a fresh, new, cost-effective and global marketing vehicle. Online marketing can be used to complement existing marketing strategy or entirely replace your present methods of marketing. The greatest benefit of online marketing is the vast market reach and associated low cost it affords to you. Where traditional marketing can reach a limited audience, online marketing permits you to employ a much lower marketing budget to reach a far greater, worldwide audience.

There are several types of Internet marketing tools that can greatly aid in advertising your company and the products and services that you offer. Most importantly, you should begin by creating an interactive Web site that highlights your company and the products and services that you offer. In addition to your Web site, you also an advertise through email campaigns, pop-up and pop-under windows, banner advertisements and paid targeted search engine listings. Whichever method you choose to market your telecommunications business, take care to create advertisements that fully comply with your obligation to disclose the material terms of every offer. Properly drafted prominent disclosures can help satisfy these requirements.

This two-part series, Online Marketing & the Law, seeks to educate and inform you of a number of legal concerns you should be aware of when conducting online marketing campaigns.

In the field of marketing, it seems that the legal side and business side of things are continually at odds with each other. The business side desires to be as aggressive as possible in marketing its products and services, while the legal side considers the potential liability associated with such marketing. Although appearing to be in conflict, these interests are not mutually exclusive. In the final analysis, good business sense dictates that freedom from lawsuits and regulatory investigations ultimately benefits a companys bottom line.

Unfortunately, the prospect of lawsuits is very real and can come from several different fronts: the Federal Trade Commission (FTC), state attorneys general, state regulatory agencies, local prosecutors and even individual citizens. Here are some of the more common legal issues that should be considered when crafting your online marketing campaigns. The list is far from comprehensive or complete and is intended only as a general overview of the legal arena. In addition to specific laws targeting online advertising, there are a host of laws on both the federal and state levels governing the sale and marketing of telecom products and services.

CLEAR AND CONSPICUOUS DISCLOSURES

The FTC is empowered to prevent unfair or deceptive acts or practices in commerce, under Section 5 of the Federal Trade Commission Act. Violations of the act can result in fines of up to $11,000 per violation. Most states also have their own fair trade practices enforceable by their respective Attorneys General. Fortunately, most of the laws are similar in scope and purpose to Section 5.

The definition of unfairness is organic and develops over time through FTC enforcement actions. As the regulatory landscape is in a constant state of flux, what is considered fair today may not be so tomorrow. Accordingly, marketing pieces should be carefully scrutinized by regulatory counsel on a regular basis to ensure you do not violate the provisions of Section 5 of the Act.

According to the FTC Bureau of Consumer Protection publication Rules of the Road, the FTC has determined that a representation, omission or practice is deceptive if it is used to: mislead consumers and affect consumers behavior or decisions about the product or service. In addition, an act or practice is unfair if the injury it causes, or is likely to cause is: substantial, not outweighed by other benefits and not reasonably avoidable.

So how does a company keep from running afoul of the FTCs unfairness test? According to the FTC, the best method is clear and conspicuous disclosure of all material terms of an offer prior to purchase. Although there are no hard and fast rules for determining what is clear and conspicuous, in its publication Dot Com Disclosures, the FTC has set forth some guidelines, such as: the proximity of the disclosure to the claim it is qualifying; the visibility of the disclosure; whether the disclosures may be obscured or distracted by other elements of the advertisement; and whether the length of the advertisement warrants repeating the disclosures.

In determining what would be clear and conspicuous, you should adopt the perspective of a reasonable consumer. In other words, if a reasonable consumer were to read the advertising piece, would they grasp the important elements of the offer?

Beyond having the appropriate disclosures, the FTC has indicated that certain types of advertising will be scrutinized more strictly than others. For example, the FTC grew tired of the misuse of the word free in advertising and issued an official guide on the subject called the Guide Concerning Use of the Word Free and Similar Representations. Why has the word free engendered such controversy? The problem, according to the FTC, is the consuming public is highly attracted to promotional offers and the word free could be misleading and deceptive without the appropriate disclaimers and conditions clearly set forth in the advertisement.

Likewise, the FTC views free to pay conversions with a cautious eye. A free to pay conversion involves some short duration of time where the goods or services offered are free. Unless the consumer notifies the company of their desire not to be charged for the goods or services, the consumer is automatically charged or billed when the free period expires. Therefore, where a telecom product or service is free to use only for a restricted period of time or is tied to some paid product or service, the details must be clearly disclosed and displayed in the advertisement.

With respect to telecom products and services, in general, clear disclosures should be made regarding the rates and restrictions on plans, especially when promotional rates are advertised.

PRIVACY CONCERNS

In addition to the preceding general advertising disclosures, the specific privacy practices of your company should be fully disclosed on your Web site and in all of your advertisements. Full disclosure of what personal information is collected and how it is used is very important so that consumers know what to expect when they submit personal information at your Web site. After intense media focus and several cases involving the misuse of consumers personal information, the use  and abuse  of personal information by online marketers has captured the public eye. According to the FTC, online collection of personal information is so easily accomplished that full disclosure is needed to prevent abuse in the manner that such information is both collected and used. The best way to make clear disclosures regarding your collection and use of personal information is through posting a comprehensive privacy policy at your Web site.

As a practical suggestion, your Web site and every piece of advertising copy should be carefully analyzed by regulatory counsel to determine if they could be reasonably construed as deceptive or misleading. In addition, if a third party is creating the advertising copy for you, their work should also be reviewed prior to publication. By following these suggestions, you will be on the road to complying with the various consumer protections laws and, with advice from counsel, avoiding the marketing of misleading offers.

ANTI-SPAM LAWS

The topic of unsolicited commercial email, or spam, is one of the most debated issues in both public and legal arenas today. From companies providing targeted e-mail advertising services, to anti-spam software businesses, it seems everyone is getting his or her piece of the spam pie. How can you maximize your returns from e-mail marketing while complying with the various anti-spam laws?

It is a common misconception that all unsolicited commercial e-mail is unlawful to send. Be mindful of this prejudice when deciding how to use e-mail marketing. Presently, there are no federal anti-spam laws. This likely will change soon as Congress has found a universal rallying cry behind spam (the Senate unanimously passed in late October the CAN SPAM act). Even in the absence of a federal antispam law, there are several laws in effect today that can be used to target the senders of unsolicited commercial e-mail.

On the federal level, the FTC has displayed its willingness to bring Section 5 actions based on deceptive and unfair email marketing practices. With respect to the individual states, many jurisdictions have laws regulating unsolicited commercial e-mail, along with consumer protection statutes enacted to address consumer fraud and unfair trade practices.

A thorough analysis of each states antispam law is beyond the scope of this article and the following is merely a brief synopsis of existing regulations. There now are 36 states with laws regulating spam. These include Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, New Mexico, North Carolina, North Dakota, Nevada, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin and Wyoming. More states are considering such legislation.

Unfortunately, for the cautious marketer, there is no uniformity among the various state laws. Indeed, in many cases there are serious inconsistencies. However, the states laws generally address one or more of the following issues: misrepresentation or fraud contained in e-mail content; labeling of email advertising; false routing information; the ability of an e-mail recipient of unsolicited commercial e-mail to remove himself/herself from an e-mail list; and private rights of action for ISPs and individuals to bring direct suit for violations of anti-spam laws.

Please note most state anti-spam laws have exceptions carved out for pre-existing business relationships. These relationships afford companies the opportunity to deliver unsolicited e-mail to their own customers without complying with the various anti-spam laws.

This article presents a brief overview of some of the more significant issues that you will be faced with when conducting online marketing campaigns. As briefly addressed above, there are numerous federal and state laws, rules and regulations that you must comply with. We, therefore, recommend that you consult with an experienced regulatory counsel before rolling out your online marketing campaign.

In next months article, we will cover online letters of agency, practical tips and best practices that should be followed in conducting online marketing in compliance with the laws presented in part one. We will also discuss how to protect your brand and advertising copy. In addition, we will address some of the contemporary legal battles exemplifying what to do  and what not to do  when you advertise your products and services online.