Affiliate Legal Issues: Three Immediate Action Items

AFFILIATE LEGAL ISSUES:

3 IMMEDIATE ACTION ITEMS

January 19, 2014

PANELISTS

THE LAWYERGary A. KibelPartnerDavis & Gilbert LLP

THE MODERATORCarolyn KmetCMOAll Inclusive Marketing

THE MERCHANTGerri-Lynn BeckerPresidentThe California Wine Club

THE TM SPECIALISTSam EngelMarketing ManagerBrandVerity

AGENDA

Action Item #1: Affiliate Nexus Tax

Action Item #2: Online Disclosures in Interactive Marketing

Action Item #3: Trademark Protection

Getting It Done

Moderated Discussion

Q&A

AFFILIATE NEXUS TAX

What is it?

History

Debate


AFFILIATE NEXUS TAX

PERFORMANCE MARKETING ASSOCIATION v. ILLINOIS

PMA vs. Illinois Department of Revenue (2011)

PMA prevailed at Circuit Court

Illinois Supreme Court upholds Circuit Court ruling –October 18, 2013

AFFILIATE NEXUS TAX

UNITED STATES SUPREME COURT: Overstock.com & Amazon v. New York State Department of Taxation and Finance (2013)

Petition for review of decision from the New York Court of Appeals

Appeal rejected – December 2, 2013

Result - New York law remains in tact

NY Attorney General – “validates New York’s efforts to treat both online and brick-and-mortar retailers equally and fairly by requiring all retailers with a presence in our state to collect sales taxes”

Overstock – “[this] functionally abrogates the physical-presence requirement”

AFFILIATE NEXUS TAX

STATES WITH ACTIVE LEGISLATION

ArkansasCaliforniaColoradoConnecticutGeorgiaIllinoisKansasMaine

» Minnesota» Missouri» New Jersey» New York» North Carolina» Pennsylvania» Rhode Island» Vermont» West Virginia

AFFILIATE NEXUS TAX

COMMON ELEMENTS IN STATE LAWS

Manner in which marketing activities are defined

Annual dollar thresholds

Prohibition on solicitation

Work arounds

AFFILIATE NEXUS TAX

STATES WITH BILLS PENDING

Florida (withdrawn)HawaiiIndianaMassachusettsMichiganSouth CarolinaTennessee

AFFILIATE NEXUS TAX

CONGRESS – MARKETPLACE FAIRNESS ACTStatus Passed Senate – May 6, 2013 (69-27 vote) Not voted on in the House

Summary States authorized to require all remote retailers to collect and remit sales and use taxes.

A single entity in the state is responsible for all state and local sales and use tax administration; A single audit and tax return for all state and local jurisdictions; and Uniform sales and use tax base for all state and local taxing jurisdictions.

Remote retailers with less than $1 million in remote sales in the preceding calendar year are exempt from collecting the sales and use taxes.

ONLINE DISCLOSURES

DEFINITIONS

Endorsement/Testimonial = “Any advertising message which message consumers are likely to believe reflects the opinions, beliefs, findings, or experience of a party other than the sponsoring advertiser.”

Must be honest and not deceptive

Disclosure of material connections: “When there exists a connection between the endorser and the seller of the advertised product which might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed.”

ONLINE DISCLOSURES

FTC’S REVISED ENDORSEMENT GUIDES

A blogger/word-of-mouth marketer has a duty to disclose any “material connections” with an advertiser (e.g., payments or free products that the consumer would not expect)

Celebrities have a duty to disclose their relationships with advertisers when making endorsements outside the context of traditional ads, such as on talk shows, blogs or in social media

Employees who promote their employer’s products or services in

ONLINE DISCLOSURES

TWITTER EXAMPLES

50 Cent (Curtis Jackson) Tweeted (Jan. 2011) –

“HNHI is the stock symbol for TVG. there (sic) launching 15 different products. they are no joke get in now”

Curtis Jackson owns 7.5 million shares & warrants for 22.5 million more

“(My) own HNHI stock thoughts on it are my opinion. Talk to (a) financial advisor about it. HNHI is the right investment for me it may or may not be right for (you)! Do ur (sic) homework”

ONLINE DISCLOSURES

PINTEREST EXAMPLES

ONLINE DISCLOSURES

PINTEREST EXAMPLES

Pinterest board entitled “Real Consumers. Real Success”

Consumer testimonials about weight loss

No disclosures about likely results

ONLINE DISCLOSURES

HOW TO MAKE A DISCLOSURE IN SOCIAL MEDIA

#paidad

#paid

#ad

ONLINE DISCLOSURES

WORD OF MOUTH MARKETING ASSOCIATION

#spon, #paid, #samp

Guide to Disclosure in Social Media Marketing http://womma.org/ethics/disclosure

Quick Guide to Designing a Social Media Policyhttp://womma.org/ethics/Quick-Guide-to-Designing-a-Social-Media-Policy.pdf

http://womma.org/ethics/disclosure

ONLINE DISCLOSURES

FTC v. COLE HAAN (March 2014)

#Wanderingsole Contest - $1,000

FTC – “We believe that participants' pins featuring Cole Haan products were endorsements of the Cole Haanproducts, and the fact that the pins were incentivized by the opportunity to win a $1000 shopping spree would not reasonably be expected by consumers who saw the pins”

ONLINE DISCLOSURES

DISCLOSURES AND RIGHT OF PUBLICITY

ONLINE DISCLOSURES

DISCLOSURES AND RIGHT OF PUBLICITY

ONLINE DISCLOSURES

THE NEW FRONTIER: NATIVE ADVERTISING

Sponsored Stories

Promoted Tweets

Outbrain

Branded playlists on Spotify

Huffington Post “brand newsroom”

Yahoo Stream ads

BuzzFeed

ONLINE DISCLOSURES

ONLINE DISCLOSURES

SPONSORED STORIES

ONLINE DISCLOSURES

PRIVACY DISCLOSURES - DON’T BE CREEPY!


BRAND PROTECTION

WHAT WE DO AT BRANDVERITY:

Provide brand protection andcompliance solutions

Goal: more transparency in affiliatemarketing (elevate the industry)

Monitor and protect hundreds of brands across the web

BRAND PROTECTION

AFFILIATES SHOULD ENHANCE YOUR BRAND

Add value

Support your brand message

Comply with regulations and limit your risk

BRAND PROTECTION

ENSURING THAT AFFILIATES LIMIT YOUR REGULATORY RISKS

Industry-specific regulations

Disclosure

What are the risks?

Who’s responsible?

BRAND PROTECTION

ENSURING THAT AFFILIATES STRENGTHEN YOUR BRAND MESSAGE

How do affiliates promote your brand?

Is their message consistent with yours?

How do you keep track of this at scale?

BRAND PROTECTION

ENSURING THAT AFFILIATES ADD VALUE

Carefully evaluate affiliates who apply to your program

Have a trademark bidding policy – and enforce it

Focus on incremental sales

BRAND PROTECTION

TAKING ACTIONSTEP 1: APPROVAL PROCESS

Avoid auto-approval at (nearly) any cost

Ask tough questions

Understand how each affiliate will: Drive traffic

Represent your brand

BRAND PROTECTION

TAKING ACTIONSTEP 2: ONGOING PROCESS

1. Develop regulatory and brand guidelines for affiliates

2. Create a reasonable process to support guidelines

-Monitor for changes after affiliate is approved-Review brand placement on affiliate websites

3. Follow process and enforce compliance

BRAND PROTECTION

WHAT’S A REASONABLE PROCESS? —SMALL/MEDIUM BUSINESS

Review websites of top-producing affs at regular intervals (quarterly, annually)

Quarterly searches for brand name variations

Check on suspicious conversion rates

Quarterly review of Twitter activity

Random audits

BRAND PROTECTION

WHAT’S A REASONABLE PROCESS? —HIGHLY REGULATED INDUSTRY

Review all affiliate websites weekly

Review every time an offer changes

Monthly searches for brand name variations

Monthly examinations of social media activity (Twitter, Facebook, etc.)

BRAND PROTECTION

HOW DO I ENFORCE COMPLIANCE?

Affiliate Hijacking: immediate removal from program

Other Paid Search Violations: 3 strike system

Inappropriate or Off-Brand Content: depends on severity

Regulatory Issue: propose a fix, disable aff link


GETTING IT DONE

THE CALIFORNIA WINE CLUB BY THE NUMBERS

1990: Year established

161 featured wineries each year

10,000+ members across the country

5 on-site customer service and sales reps

3,261 affiliates

ShareASale Top 100 Power Rank Merchant

GETTING IT DONE

GETTING IT DONE

GETTING IT DONE

STAYING FTC COMPLIANT:Affiliate Instructions

Clear - Language must be specific (i.e. the connection), and easy to understand

Conspicuous - The location of the disclosure should be placed close to your endorsement or review

Require no action - The user shouldn’t need to click, hover or scroll to locate or understand the nature of your disclosure

GETTING IT DONE

GETTING IT DONE

TERMS OF SERVICE AGREEMENT TO INCLUDE:

Trademark and Brand Use

Limitations (if any) on paid search

Use of coupons and discounts

Consequences for breach of terms

MODERATED DISCUSSION

How much of a priority should this be?

How can retailers stay informed with latest developments?

Some tips to get it done? Enforcement and compliance in reality

Sharing information with other merchants


Q&A





CONCLUSION

Drop your card off for more information, and for a chance to receive:

3-month membership to The California Wine Club

30-minute discussion with Gary Kibel

30-minute consultation with any digital marketing expert at All Inclusive Marketing

Culinary treats from Seattle, Vancouver and more!

Business

Affiliate Legal Issues: Three Immediate Action Items