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.