Interview with Advertising and Internet Law Attorney Richard Newman

The following interview is thanks to Richard Newman.  You can visit his site at http://www.hinchnewman.com/

[Mark] 1. Why is it that networks can get away with “closing their doors” and not paying out their required debt to debtors (i.e. advertisers/publishers), but then start new ventures immediately afterward as if nothing ever happened?

[Richard] Corporations and LLCs are legal entities. They are separate and distinct from the individual shareholders or members who create and own them. By definition, owners and managers have limited personal liability for corporate debts. In fact, that is the key reason why business owners choose to form a corporation or a limited liability company, so that they will not be held personally liable for debts should the business be unable to pay its creditors. However, there are exceptions to this general rule where courts can disregard corporate status and hold officers, directors, shareholders or members personally liable. This is what is known as “piercing the corporate veil.” Closely held corporations owned by just a few people and small LLCs are more likely to have their veils pierced. As a general rule, courts will pierce the corporate veil by assessing numerous elements and factors, including whether: the corporate entity is just the owners’ alter ego – no real separation between business and personal financial affairs; there has been a commingling of assets; corporate formalities have been disregarded; the entity has been inadequate capitalized; and whether a shareholder or owner uses the corporation as a mere shield for the perpetration of a fraud. Fraud cases are, more often than not, discovery intensive and expensive. Proving up actual intent to hinder, delay or defraud creditors involves a heightened standard. The mere fact that the creditor would not be paid absent piercing of the corporate veil is not enough. Starting a new business, by itself, is not indicative of fraud.

[Mark] 2. What are some things that you can tell us that affiliate marketer’s MUST KNOW moving forward about the new FTC .com Disclosures?

[Richard] On March 12, 2013, the FTC unveiled its what has been long-awaited revised guidance, compiled, in part, due to the technological and industry changes since its previous 2000 guidance. In short, the revised disclosures are intended to provide marketers with specific insight on regulatory requirements regarding clear and conspicuous disclosures across digital platforms with limited display capabilities, including mobile phones. The FTC has laid out six main factors to consider in making an online disclosure clear and conspicuous. Proximity and placement, prominence, other distracting factors in the ads, repetition, multimedia messages and campaigns, and understandable language. A lot of the focus in the revised guidance is on evaluating proximity and placement for online disclosures to consumers. Perhaps the key takeaway is that if space constraints and small screens do not lend themselves to compliant, clear and conspicuous disclosures, then you cannot advertise in that particular medium or platform. Period. While many of the general principles regarding what constitutes clear and conspicuous disclosure remain relatively unchanged, there are a number of new warnings that may require a legal audit of specific digital campaigns. For example, websites should be optimized for devices with limited real estate so that disclosures are clear and conspicuous, regardless of the type of device on which they are displayed. Also, as a general rule, pop-ups as a method of disclosure are frowned upon. Hyperlinks must be in close proximity to the triggering claim and should be properly labeled to convey the specific information being linked to. They should not be used to disclose information pertaining to safety, health, pricing or information that is integral to the truthfulness of the claim. Marketers are also encouraged to monitor click-through rates to ensure that hyperlinks are indeed effective. Click-throughs may be quite relevant in future investigations and enforcement actions. Regulatory actions based upon the revised guidance are coming at some point in the near future. Do not be a target. Additionally, advertisements should be designed so that “scrolling” down a screen is not necessary to find disclosures. If scrolling is necessary, use text or visual cues to encourage consumers to read the disclosure. Scroll bars are not a sufficiently effective visual cue. The updated guidance also indicates that required disclosures should be made before the consumer commits to the purchase. Now, a compliant disclosure will be made earlier in the path and before the consumer makes the decision to buy. The FTC interprets this to be before the consumer places the item in the shopping cart. Marketers should be certain to consult with advertising compliance counsel to stay abreast of these developments and assess marketing activities in light of recent regulatory changes.

[Mark] 3. In your opinion, what are some recent and upcoming regulatory trends that you anticipate in the coming months?

[Richard]To begin with, those in the marketing community are wise to take note of the dramatic increase in the magnitude of monetary relief being ordered by the FTC. Last year figures amounted to more than $200 million dollars in disgorgement and redress, and almost $10 million dollars in civil penalties. Compliant claim substantiation must be taken seriously. Why? The FTC no longer permits advertisers who “merely” fail to substantiate claims to skate with just a consent order. More likely, are hefty injunctive provisions and payment of a severe penalty. It should come as no surprise that the FTC will continue to remain active with regard to marketers that make false and misleading claims about the benefits and performance of their products. Marketers of products with health or safety claims must be certain to support claims with proper studies. If you want to fly by the seat of your pants and just hope for the best, I suggest that you duck. Consumer privacy and data security will also almost certainly remain a top priority. Discussed in more detail below, marketers should be wary of overstating security capabilities and ensure that data collection and use practices accurately reflect privacy representations. The Commission will also continue to target misleading mortgage ads, payday lenders and debt collection practices. Lead generators are presently on the FTC’s radar, in a big way across high-risk verticals. As has always been the case, any financial relief product or service can expect a high level of scrutiny. Do Not Call, Robocalls and marketing to children are not going anywhere, either. Regulatory compliance and investigation counsel can assist you if you find yourself the subject of a regulatory dance invitation, as well as with respect to gaining a better understanding of how regulators think and whether your marketing practices run a high risk of an investigation or enforcement action, in the first place.

[Mark] 4. What can you tell us about the manner in which a company should convey data security and privacy practices to consumers?

[Richard]Be proactive with respect to reviewing data security and privacy practices. Perhaps the best illustration of the importance of ensuring that claims made in privacy policies accurately reflect how a company actually collects, shares and protects consumers’ personal information is a recent FTC settlement that involved allegations of violations of the FTC Act’s prohibitions against unfair and deceptive practices. More specifically the FTC’s position was that because the company’s security practices were inconsistent with claims made in its online privacy policy regarding the security of personal information it collected, the claim was deceptive and therefore violated Section 5 of the Act. The FTC also believed that improper procedures were in place to protect the security of the personal information it collected and maintained, and that unnecessary risks to consumer’s personal information were created by failing to take sufficient measures to ensure that personal information was not vulnerable to theft. The settlement included, in part, submission to security audits every other year for twenty years. It is clear that the FTC can and will take action to make sure that companies live up to the privacy promises they make to consumers, particularly when it comes to highly sensitive information. Bottom line? Live up to the level of protection claimed in your privacy policy. Additionally, deliberately assess internal data security policies to determine whether they are actually being adhered to, company-wide. Lastly, develop a plan for handling a data breach in advance of any security breach. This will help minimize damage to consumers and ensure that required disclosures are made to the appropriate authorities in a timely manner.

Richard Newman is an Advertising Law Attorney at Hinch Newman LLP specializing in advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state attorneys general, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.

Information conveyed in this interview/article is provided for information purposes only and does not constitute, nor should it be relied upon as legal advice. This information is not intended to substitute for obtaining legal advice from an attorney. No person should act or rely on any information in this article without seeking the advice of an attorney.