General Advertising Industry News & Updates

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The Second Circuit Court of Appeals returned a favorable ruling for major record companies in a copyright infringement case on December 12, 2018.  The ruling came down in Capitol Records, LLC v. ReDigi Inc., a lawsuit involving an online platform (“ReDigi”) designed to enable the lawful resale of purchased digital music files.  The Second Circuit concluded that ReDigi infringed the record companies’ exclusive rights under Section 106 of the Copyright Act.

ReDigi is an online platform created to enable the lawful resale of lawfully purchased digital music under the first sale doctrine.  ReDigi hosts a space online that allows users, who lawfully purchased files from iTunes, to resale those same files online.  In order to resale the files, the user who owns the digital music must first download and install ReDigi’s Music Manager software program (“Music Manager”).  After installation, Music Manager analyzes the digital file intended for resale, verifies that the file was originally lawfully purchased from iTunes, and scans it for indications of tampering.  If the file was lawfully purchased, Music Manger considers it an eligible file that may be resold.  Once the file has been verified, the user transfers the eligible file to ReDigi’s server.  While the file is being transferred, ReDigi breaks the music into small blocks of data, creates a temporary copy of each block, and then sends a command to delete the block of data of the digital file from permanent storage on the initial user’s device.

ReDigi tries to guard against a user’s retention of duplicate digital music files after they are sold through ReDigi by continuing to search the user’s connected device for duplicate.  Major record companies pointed out that ReDigi’s protections do not prevent the retention of duplicates after resale through ReDigi.  According to the record companies, prior to resale, a user could retain duplicates of the digital music file on devices not linked to the computer that hosts Music Manager, and access those duplicates post-resale.  ReDigi’s efforts were not sufficient to prevent the user from retaining sold files.

The US District for the Southern District of New York concluded that ReDigi’s online platform infringed the record companies’ copyrights by unauthorized reproduction and distribution of copyrighted works.  In June 2016, the district court entered a stipulated judgment awarding damages to the record companies for $3.5 million and permanently enjoining ReDigi from operating their online platform.  ReDigi appealed the judgment, but the Second Circuit affirmed the district court’s decision.

In its decision, the Second Circuit found that ReDigi’s temporary copy of the digital file created a new phonorecord which was an unauthorized reproduction.  The Court also found that the making of the reproduction was not a fair use under Section 107 of the Copyright Act where the creators made no change to the copyrighted sound recordings, the system made identical copies of the whole of the recordings, and the reproductions were made for the purpose of resale in competition with the record companies.  The Court made no decision whether ReDigi also infringed the record companies’ exclusive rights under Section 106(3) to distribute their works.

Earlier this month, the European Court of Justice ruled that the taste of a food product is not eligible for protection under EU copyright laws.

The ruling by European Union’s highest legal authority, which is binding on all EU member states, came in a lawsuit brought by the Dutch manufacturer of a popular spreadable cheese dip in which the manufacturer accused a rival company of copyright infringement after it began producing a similar product.

The Court explained that to be eligible for copyright protection, the subject matter must be expressed “in a manner which makes it identifiable with sufficient precision and objectivity.”  Unlike works of literature, art, or music, which offer “a precise and objective expression,” a food’s taste “is identified primarily on the basis of subjective sensations and experiences which depend on factors particular to the subject person, such as age, food preferences and consumption habits, as well as on the environment or context in which the food is consumed.”

The Court also noted a lack of any technical means for precisely and objectively identifying the taste of a food product which enables it to be distinguished from other tastes.

This post is authored by Fox Rothschild associate Paul Fling:

Met with widespread support, the Music Modernization Act was signed into law on October 11, 2018. The Music Modernization Act (“MMA”) largely came about as a reaction to music streaming services’ domination of the music consumer market. In fact, streaming services such as Spotify and Pandora have more than doubled in revenue since 2015. As a result, a new system for distributing royalties was sorely needed.

So what does the MMA do? Generally, the MMA will set up a new, and (hopefully) more efficient way of paying mechanical royalties to songwriters when a musical composition is reproduced. Prior to the MMA, no central database or organization existed to facilitate music services filing for and obtaining a mechanical license to use a particular song. Because the growth of streaming services has led to a drastic increase in entities seeking mechanical licenses, the pre-MMA system no longer met the needs of songwriters/owners and streaming services alike. Essentially, services claim it is too difficult to find and pay the correct author for every song, while song owners claim services use such an excuse to avoid paying royalties.

To address these issues the MMA will set up a centralized entity to collect royalties and distribute them to the proper songwriter or owner. This group, for the time being, is called the Mechanical Licensing Collective. To participate in this system, digital services will pay the MLC and receive a blanket license allowing them to use any song without threat of infringement. In turn, the MLC will then seek to find the proper owner of songs that are played and pay those owners in accordance with the volume services have used the owner’s song.

Ultimately, musicians and music consumer services are hoping the MMA succeeds in creating an efficient and fair way of providing mechanical licenses and distributing royalties to the proper owners.

You can read the act in its entirety here.

The General Data Protection Regulation, or GDPR, took effect May 25, 2018. As predicted, the GDPR has complicated access to WHOIS information (commonly used to look up the contact information for website domains for, among other things, stopping others from infringing IP rights) and given ICANN (the corporation that manages WHOIS data) a headache.

ICANN (Internet Corporation for Assigned Names and Numbers) continues to struggle to identify a proposal that bridges the gap between the requirements of the GDPR and access to WHOIS information. On the day the GDPR took effect, ICANN passed a Temporary Specification, which attempted to facilitate GDPR compliance while also preserving parts of the WHOIS system of domain name registration data. This temporary guideline states the registrar and registry operator must provide reasonable access to personal registration data to third parties for: (1) legitimate interests, except where those interests are overridden by the interests or fundamental rights and freedoms of the registrants or (2) when the specified request is deemed lawful by the European Data Protection Board (EDPB), a court having jurisdiction, or applicable legislation or regulation.

First, these temporary specifications have not prevented the brand enforcement problems I previously discussed. For example, some European domain name service registrars have decided to no longer collect WHOIS information. Furthermore, Brian Winterfeldt has reported that a California-based registrar has declined a data access request related to a specific enforcement effort of intellectual property rights and that other registrars are responding to such requests on a “case-by-case basis with no transparent or predictable criteria.” More alarming is the report that at least one global company has estimated its ability to enforce trademark rights against infringing domains may drop 24%.

Second, the EDPB still has problems with ICANN’s proposal. On July 5, 2018, the EDPB urged ICANN to develop new legal justifications for why it asks for the data that makes up the WHOIS database and provided further guidance in developing a GDPR-compliant WHOIS model. ICANN appears to be taking the EDPB’s guidance to heart and is hopeful they can create a GDPR-compliant-model that satisfies their purpose of providing WHOIS data to those who need it.

Unfortunately, only time will tell if a GDPR-compliant WHOIS database will emerge. In the meantime, it has become more difficult to determine who is in charge of websites infringing on intellectual property rights making brand enforcement more challenging.

The FTC has amended its Jewelry Guides (formally, the “Guides for the Jewelry, Precious Metals, and Pewter Industries”) which aim to help prevent deception in jewelry marketing by providing clear standards.

The Jewelry Guides, like other industry guides published by the FTC, are intended to help marketers understand their responsibilities with respect to avoiding consumer deception.  The Guides themselves are not binding law, but instead offer the FTC’s interpretation of how Section 5 of the FTC Act applies to certain practices within the industry.

For those in the jewelry industry, the issuance of these changes suggests it may be a good time for a compliance check.  Some noteworthy changes include:

  1. No more thresholds for describing alloys as “gold” or “silver.”

Under the old Guides, marketers were prohibited from using the terms “gold” and “silver” to describe a product made of a gold or silver alloy (combination of gold or silver and one or more other precious metals) unless the ratio of gold/silver to other metals met certain minimum thresholds.

The revisions eliminate these requirements.  From now on, any gold alloy may be marketed as “gold” as long as the marketing contains “an equally conspicuous, accurate karat fineness disclosure.”  The same goes for silver alloys as long as the marketing contains a conspicuous and accurate disclosure of the parts-per-thousand measurement.

  1. New requirements for describing silver- and platinum-coated products.

A preexisting rule advises against using the term “gold” to describe a product that is merely gold-coated.  The revised Guides extend this rule to silver and platinum products.

  1. New rule prohibiting the use of incorrect varietal names to describe gemstones.

The FTC now expressly prohibits the use of incorrect varietal names like “yellow emerald” or “green amethyst” to describe gemstones.  Instead, marketers should use scientifically-correct terms like “heliodor” and “prasiolite.”

  1. Relaxed rules for lab-grown diamonds and gemstones.

The revisions make several changes to the rules for marketing lab-grown diamonds and gemstones.  For the most part, these changes benefit the lab-grown sector.  For instance, the FTC now cautions marketers not to use the terms “real, genuine, natural, or synthetic” to imply that a lab-grown diamond “is not, in fact, an actual diamond.”

The Guides still prohibit the use of terms like “real” and “natural” to describe lab-grown diamonds and gemstones, but the FTC indicated that it might be willing to reconsider this position.

We do it all the time, but is it legal? Maybe. Maybe not.

Embedding content from one source, e.g., a website, into another source, e.g., another website, is not uncommon. News sites embed photographs from Instagram, twitter messages, and videos into their content. Businesses embed videos and photographs of their products into their websites. Embedding also occurs when we post a link from a website into our social media accounts. For instance, after copying and pasting a website link into a social media post, an embedded version of the website automatically generates. This auto embedding typically consists of the formation of a small box or window which may include a reference to the website, an article name or title, and/or an image or video from the website. But is such use of embedded content copyright infringement?

Under the Copyright Act, the owner of a copyright has the exclusive right to “perform…. [or] display the copyrighted work publicly.” 17 U.S.C. §§ 106(4)-(6). Under the act, to” perform or display a work publicly” includes “to transmit or otherwise communicate a performance or display of the work… to the public, by means of any device or process.” 17 U.S.C. § 101. The Act further defines “display” as “to show a copy of it, either directly or by means of a film, slide, television image, or any other device or process.” Id.

In Perfect 10 v. Google the Ninth Circuit established the “server test.” In this 2007 decision, it was held that Google’s presentation of images in its search results via in-line linking did not infringe another’s copyrights because Google did not make a copy or store a copy of the image on its servers. That is, the court found that Google wasn’t displaying a “copy.” For many, this settled the issue: as long as the content was hosted on third-party servers, an in-line or embedded link showing the same content elsewhere would not infringe. But in the last several months, something unexpected happened.

Two district courts recently rejected the holding in Perfect 10 to the extent it required actual possession (e.g., a copy on the accused infringer’s server) as a prerequisite for infringement because neither could find any such requirement in the express language of the Copyright act.

First, the Northern District of Texas held that when one website displays content from another’s website through embedding, it can publicly display copyrighted works of another “by ‘showing a copy’ of the works via a ‘process’” in violation of the Copyright Act. In effect, the court held, this was a live stream of another’s copyrighted content and no different than if a movie goer live streamed a movie via the internet to the public – actions that clearly constitute infringement even if the infringer does not possess a copy. Next, the Southern District of New York similarly held that embedding content into a website such that it displays content from another source could violate a copyright holder’s display rights, even if the website’s server did not store a copy of the work.

Thus, the law on embedded content may not yet be as settled as some believed. Of course, there are always defenses to copyright infringement to consider, like fair use. In the meantime, however, it may be wise to think twice before posting embedded content.

Yesterday the United States Supreme Court announced that it was granting the petition for writ of certiorari in the copyright infringement case previously discussed on this blog here and here.  The case is Fourth Estate Public Benefit Corp. v. Wall-Street.com LLC and involves the question of when a copyright holder can properly file a copyright infringement lawsuit.

34126235 - copyrightCurrently there is a circuit-split as to whether the term “registration” as used in the Copyright Act includes the mere filing of a registration application or whether it requires that the Copyright Office have actually approved or denied the registration application.  The plaintiff in the case, Fourth Estate Public Benefit Corp., filed suit before the Copyright Office had approved or denied its application, and the Eleventh Circuit affirmed the lower court’s dismissal of its complaint on that basis.  The United States Solicitor General, who the Supreme Court invited to weigh in earlier this year, urged the Court to take the case and uphold the Eleventh Circuit’s position.

The Supreme Court is now poised to resolve the dispute and to give copyright holders clarity as to whether they may file suit merely after filing an application for a copyright registration.

The FTC filed a lawsuit earlier this month in the U.S. District Court for the District of Utah charging telemarketers with violating the FTC Act and the Telemarketing Sales Rule.  The FTC alleges that defendants deceptively claimed their “business coaching” would help consumers earn thousands of dollars a month by starting a home-based Internet business.

According to the complaint, the defendants’ telemarketing operation relied on “leads” supplied by other companies.  Typically, these were consumers who had purchased some work-from-home-related product or service online for less than $100. For a fee or a percentage of defendants’ sales, the company that sold the product or service would encourage the buyer to contact an “expert consultant” or “specialist” to see if they qualify for an “advanced” coaching program.  However, when the consumer called to speak to a “specialist” they were merely routed to defendants’ telemarketers.

According to the lawsuit, the defendants then charged consumers up to $13,995 for their purported business coaching program, which merely provided information that was already freely available on the Internet.  Ultimately, most people who bought the service did not develop a functioning business, earned little or no money, and ended up deeply in debt.

Although they may not immediately connote a traditional form of advertising, food menus and labels serve as a form of advertising in the minds of many consumers and are regulated by Food & Drug Administration (“FDA”).  Read below for two important updates/reminders in the food-related space.

62909081 - calorie dessert for each piece. problem with obesity. popular dessert menu.Menu Labeling:  As a follow up on a prior blog post and as detailed in today’s Consumer Update from the FDA, the FDA is requiring this month that certain types of food establishments post calorie information on menus and menu boards and provide nutrition information upon request in order to help consumers make informed choices in ordering food items.  The FDA’s requirement applies to chain restaurants as well as eating establishments with more than 20 locations, and the FDA’s Consumer Update provides examples of the types of locations where consumers should expect to now see calorie posting, if they don’t already.

Nutrition Facts Label:  Following up on another prior blog post, the FDA recently announced that it is extending the deadline to comply with its Nutrition Facts Label rule and its Serving Size rule by 18 months.  Instead of requiring compliance by certain manufacturers this summer, the FDA will now require compliance by January 1, 2020 for larger food manufacturers and January 1, 2021 for smaller food manufacturers.  This extension is intended to provide sufficient time to ensure industry compliance.

The FTC filed a lawsuit this week against Lending Club, a peer-to-peer lending company that operates an online marketplace for personal loans.  The lawsuit accuses Lending Club of luring consumers to its website with online advertisements promising “no hidden fees,” only to go ahead and deduct significant “up-front” origination fees from the loan proceeds.  As a result, customers were surprised when the amount that actually showed up in their bank account was less than the “Loan Amount” they thought they had signed up for.

According to the FTC, this deception is made worse by the fact that Lending Club never adequately discloses the up-front fee to consumers during the entire online application process.  The fee is only mentioned once—inside an explanatory “pop-up bubble” that only appears if the applicant happens to click or tap on a relatively small and inconspicuous icon. Because applicants are not required to click or tap on the icon in order to move forward with their loan application, many applicants never saw the disclosure at all.

“This case demonstrates the importance to consumers of having truthful information from lenders, including online marketplace lenders,” said Reilly Dolan, acting director of the FTC’s Bureau of Consumer Protection, in a statement. “Stopping this kind of conduct will help consumers make informed choices about loan offers.”

This case is a reminder of advertisers’ responsibility to ensure that advertisements are honest and forthcoming, especially in the ever-changing landscape of online advertising.  Some key takeaways:

  • If a disclosure is needed to prevent an online ad from being deceptive or unfair, it must be clear and conspicuous. This rule applies to all forms of online advertising, including paid blog posts or ads on social media platforms.
  • The “clear and conspicuous” rule also applies across all devices and platforms that consumers may use to view the ad. Advertisers must therefore ensure that required disclosures function properly on all programs and devices.
  • Putting necessary disclosures in hyperlinks or “pop-up bubbles” is strongly discouraged, particularly where the disclosure involves important information like additional costs or consumer safety. Where they are used, ensure the link is labeled accurately and that it functions properly regardless of device or platform.