While California Governor Arnold Schwarzenegger initially signed the Act in 2005, it has yet to be enforced.  In a lawsuit challenging the constitutionality of the law brought by the Video Software Dealers Association and Entertainment Software Association the , the United States District Court for the Northern District of California in August 2007 granted plaintiffs’ motion for  summary judgment and permanently enjoined enforcement of the Act.  We have previously written about that decision.

On February 20, 2009, the U.S. Court of Appeals for the Ninth Circuit affirmed the District Court’s decision.  The Court of Appeals held that the Act violates rights protected by the First Amendment because California failed to demonstrate a compelling interest supporting its regulation of protected speech, and even if it had a compelling interest did not narrowly tailor the restriction to that alleged interest.  Furthermore, less-restrictive alternatives exist that would further the State’s interests.  Finally, the Court held that because the Act is unconstitutional, the labeling requirement is also unconstitutional as the required labels would not disclose purely factual information but rather the State’s content-based opinion. 

The State of California  petitioned the United States Supreme Court for a writ of certiorari, which the Supreme Court granted on April 26.  The State filed its brief on the merits on July 12.  On July 19, eleven states filed an amicus brief in support of the California law, as did a number of other organizations.  The Respondents’ brief is due on September 10.  The Firm’s amicus brief on behalf of the ECA is due by September 17; several other organizations (including the Motion Picture Associaiton of America (MPAA), the National Cable & Telecommunications Association (NCTA), National Association of Broadcasters, the National Association of Theater Owners and the ACLU) have expressed their intent to file amicus briefs in opposition. 

The ECA is a non-profit membership organization that represents consumers of interactive entertainment in the US and Canada.  The primary policy of the ECA is to oppose legislative efforts that unconstitutionally restrict access to interactive entertainment. 

Bill Stein, Dan Weiner and Dan Doeschner of the Firm are representing the ECA.

It is not yet clear what the rationale is behind Apple’s new policy, how Apple plans to implement the policy and what it means for consumers and other players in the mobile advertising space.  Whether the policy will act as a blanket prohibition on development of geo-spam apps used primarily as tools for serving ads (i.e., ad-serving engines) remains to be seen.  In light of Apple’s acquisition of Quattro, some have surmised that Apple could be trying to curtail competition with its own products as its integrated advertising strategy evolves.  On the other hand, perhaps Apple’s intention is simply to protect its customers from apps designed solely to deliver possibly unwanted ads. 

The updated terms of Apple’s iPhone Developer Program License Agreement give Apple the right to “revoke the digital certificate of any of Your Applications at any time” meaning it can essentially kill an app.  This is not uncommon for end-user license agreements but could have widely felt ramifications for the more than 100,000 developers of iPhone apps.  Steve Jobs confirmed in 2008 that there is an iPhone ‘kill switch’ which allows Apple to remotely disable apps already installed on a device.  The terms of this latest developer agreement seems to allow that.  So while the language of the Apple Store Tip leaves open some ambiguity about how Apple will apply its policy regarding mobile apps, it now appears that the agreement every developer of apps must sign gives Apple the right to reject any app, including location based apps if it “has reason to believe that such action is prudent or necessary.”

Although this sector of mobile-advertising is still currently a nascent business, it is quickly growing as the use of GPS-enabled smartphones and other similarly equipped mobile devices become increasingly popular.  Companies, particularly smaller, local businesses, could increase their ability to reach potential in-market consumers and consumers may be better served by an improved user-experience.  Mobile advertising spending was estimated at just $416 million in 2009, compared with $24 billion spent overall on online adverting, but is expected to reach $1.56 billion by 2013and possibly more with the synergies of smartphones and mobile advertising companies. 

Excitement in the mobile ad space is tempered by the scrutiny of the Federal Trade Commission (“FTC”) and various consumer protection groups trying to balance privacy challenges and protection of consumers against the beneficial uses of new technologies such as geo-targeted ads.  A complaint filed last year with the FTC by the Center for Digital Democracy and the U.S. Public Interest Research Group asks for an immediate investigation into mobile advertising and certain practices in particular, which include location-based targeting. 

Currently, behavioral advertising in the mobile space, including location-based advertising, is subject to self-regulation.  But the FTC is continuing to look into whether, how, and to what extent more formal regulations may be needed to regulate emerging technologies.  To that end, it has scheduled a series of public roundtables to discuss proposals for regulations, including for mobile marketing. 

The FTC has long been interested in trying to regulate consumer privacy in the online behavioral advertising space by establishing guidelines.  The 2009 FTC Staff Report, titled “Self-Regulatory Principles for Online Behavioral Advertising” (which was the subject of a previous post in connection with online behavioral tracking technology), updates the FTC’s 2007 guidelines and emphasizes principles of “transparency and consumer control”; “reasonable security, and limited data retention for consumer data”; “affirmative express consent for material changes to existing privacy promises” and “affirmative express consent to (or prohibition against) using sensitive data for behavioral advertising”.  The FTC has said that the first principle of transparency and user control, which requires companies to notify consumers and give them the opportunity to opt-out of data collection practices, also applies to mobile technologies.  In addition the FTC’s efforts in the mobile advertising space, industry groups like the Mobile Marketing Association have established policies and guidelines and consumer best practices guidelines in connection with mobile advertising as well.

As the FTC continues to grapple with defining the parameters of mobile marketing guidelines and turning them into industry standards, key market players like Apple and Google will likely shape the mobile ad experience for service providers, advertisers and consumers alike.  At stake in this growing mobile-advertising sector is the potential for big money for service providers and advertisers and improved user experience for consumers weighed against possible privacy concerns.  We will continue to follow the legal and economic developments in this mobile-ad space and its implications for our clients.

The ”Act To Prevent Predatory Marketing Practices against Minors“, prohibits companies from collecting personal information–such as name and e-mail address–from minors without receiving verifiable parental consent.  The restrictions are considerably broader than the federal Children’s Online Privacy Protection Act (“COPPA”), applying to information related to everyone under 18 (COPPA is limited to children under 13) and extending to such information collected offline as well as on.  

If enforced, it would have compelled sites with broad appeal to teenagers, like Facebook and MySpace, as well as news, education and other sites requiring registration, to verify the ages of users from Maine and then obtain permission from the parents of minors from the state.  In addition, the Maine Independent Colleges Association, argued that the law would prevent Maine colleges from sending marketing materials to prospective students without first obtaining consent from their parents.

Before the attorney general decided to not to enforce the law, a group of companies including online advocacy coalition NetChoice (whose members include AOL, eBay, IAC, NewsCorp and Yahoo!, among others), challenged it in federal court, alleging that it violated the First Amendment and Commerce Clauses of the US Constitution and is preempted by COPPA.  The suit was dismissed last week on consent of the parties when the AG announced her decision.  However, prior to granting the dismissal, the federal judge to whom the case was assigned indicated that he agreed with the plaintiff’s that the law is likely unconstitutional.

The law was originally focused on protecting the health-related information of those under 18 in an attempt to prevent pharmaceutical companies from using such information to market drugs to minors.  As the proposed bill passed through the Maine legislature, “personal information” was included in the marketing prohibitions. 

While the potential upheaval to many companies that would result from enforcement of the Maine law was real, it does not appear that this law is signaling a trend by the states to dramatically expand the coverage of their privacy laws.  In fact, the law’s author, Maine state senator Elizabeth Schneider, admitted that she intended the law to be limited to health-related information.  Apparently, the broader coverage was added with little notice or debate.

The Maine Senate’s judiciary committee is planning on reviewing the bill in the upcoming legislative session in order to enact amendments to address the concerns that have been raised.  However, while the attorney general’s office will not be enforcing the law until then, the private right of action remains on the books.  It is unclear whether any such suits brought could survive a constitutional challenge on the same grounds as those brought in the dismissed lawsuit.  But the specter of incurring costs to defend any such suits hangs over any company conducting business online since doing so on the internet means doing business in Maine.

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• Late last week,  Judge Louis Stanton of the US District Court for the Southern District of New York ruled that plaintiffs in the high-profile copyright class action case against YouTube could not seek statutory damages for videos that are not registered under US copyright law.   Judge Stanton also dismissed plaintiffs’ punitive damages claim, but did permit claims based on live broadcast footage, which were brought by the English Premier Football League, the lead plaintiff in the case, to proceed. 
• After a lengthy battle, record labels and online radio stations reached an agreement on new royalty rates for music streaming.  The new agreement treats web sites differently based on their size and model.  It only applies to sites making most of their money from streaming music, excluding webcasters that run online music services as a small portion of their total business.  Pure-play internet radio providers will have to pay the greater of 25 percent of revenue or a fee each time a listener hears a song.  The new per stream fees start at .08 cent for each song streamed in 2006 and increases to .14 cent in 2015.  Smaller sites will pay 12 to 14 percent of revenue in royalties.  The new agreement replaces a 2007 royalty rate decision. 
• Rosetta Stone, maker of the popular foreign language software programs, filed a trademark infringement suit against Google alleging that its AdWords program, which lets companies buy advertisements that show up as “sponsored links” next to search results, results in consumer confusion.  The complaint alleges that Google is letting companies attach their ads to trademarked words they do not own, as well as allowing companies to use those trademarked terms in the headlines of their ads.  As a result, a search for a trademarked company name may bring up that company, but it may also bring up results for the trademarked company’s competitors.  In recent years Google has been facing other similar lawsuits over its AdWords program but in April, the 2nd Circuit provided trademark owners with some clarity when it held that Google’s use of the trademarks were “acts of commerce”, reversing a trial court’s ruling and permitting trademark owners to proceed with their suits.