Advertising Law Blog

While mobile marketing continues to develop significantly given the primary importance consumers place on the devices coupled with their tremendous advances in technology, the law in this area continues to lag. Marketers and their lawyers are finding that the regulatory guidance and enforcement relating to this technology is emanating not out of Washington, but rather out of the state of Florida and through the workings of a few class action attorneys who are otherwise establishing nationwide standards.

The Florida Carrier Settlements

Regulatory enforcement relating to mobile marketing continues to emanate primarily from the state of Florida, who has now inked settlements with all the major wireless carriers - AT&T, Verizon, T-Mobile, and most recently, Sprint. While these settlements are directly with the wireless carriers and not the marketers and are limited to Florida, because the carriers bill for the content, their terms essentially establish the standards by which industry must operate.

The first settlement - reached in February 2008 - with A&T (as well as the formerly known as Cingular Wireless) agreed to resolve the states objections with respect to the sale of third-party mobile content purchased over the Internet and billed to a consumer's wireless account. AT&T agreed to pay $3 million to the Florida Attorney General's office as well as provide refunds to consumers.

Among the terms of the settlement, set forth in an Assurance of Voluntary Compliance ("AVC"), AT&T is required to include in its contracts with third-party marketers, the following restrictions:

• Ban on the word "free" unless costs are clearly disclosed with the initial representation;
• Ban on the use of "pre-checked" boxes;
• Ban the inclusion in any offer of a term or condition necessary to its acceptance in a separate email unless otherwise consented to by the consumer;
• Mandate disclosure of any network or device limitations;
• Require disclosure of the price of the recurring charge and billing period disclosed immediately adjacent to the cell phone and pin submit field (i.e., $9.99 per month);
• Require clear and conspicuous disclosures of any additional charges; any negative option aspect; how to cancel; how will be charged; must be authorized by account holder; and how to cancel on the cell phone number and pin code submit web page; and
• Provide an Internet hyperlink to the terms and conditions of the offer on every cell phone-number submit page and PIN-code-submit page in the Internet order path.

The AT&T settlement was later followed up with a settlement with Verizon, which was reached in June 2009. Under the terms of the settlement, Verizon agreed to pay $1.5 million dollars to refund consumers. Similarly, Verizon agreed to adopt a series of best practices standards relating to third- party charges, although the terms of which are much more specific than agreed to by AT&T. For example, under the Verizon settlement, in addition to the restrictions set forth in the AT&T settlement, Verizon agreed to adopt a "Zone" system. Under the Zone system, Verizon agreed to require in its third-party billed content contracts, that advertisements shall disclose the price and billing period disclosure in 12 point type and a minimum color contrast value of 125. In addition, the price must be stated in a numeric and dollar sign - i.e., $9.99 (Zone 1). Moreover, the negative option aspect of the program, including the fact that it is a recurring charge of a specified amount will be billed on a specified basis automatically unless the consumer cancels as well as how it will be charged and how the consumer can cancel, must be disclosed on the cell submit and PIN submit page a minimum of three lines above the fold. The Verizon AVC terms have become the standard for third-party content.

Most recently, in October 2010, the Florida Attorney General announced an $800,000 settlement with Sprint, in which the carrier agreed to continue using the standards previously established by the Attorney General for advertising on websites, price and requiring all content providers and advertisers to clearly and conspicuously disclose the cost of cell phone. Sprint will also continue its practice of issuing credits and refunds to consumers for unauthorized charges for third-party mobile content subscription purchases.

Given the broad restrictions placed on the carriers who act essentially as the billing agent for third-party service providers, companies that wish to provide paid content must be sure that they are in compliance with the detailed requirements of the Florida settlements.

Class Action Settlements

In addition to the Florida regulatory actions, the other great challenge facing mobile marketers is the class action bar, particularly as being initiated by plaintiff's firms in Chicago, Illinois. Recently, two major settlements have been reached - one relating to mobile content and the other relating to sms messaging - brought by the same firm - Edelson McGuire.

On June 19, 2009, the Ninth Circuit ruled that the District Court had erred in ruling in Simon & Schuster's favor in a class action suit brought by Laci Satterfield. In Satterfield v. Simon & Schuster, the Court of Appeals reversed the lower court's decision which had vindicated the company of violating the Telephone Consumer Protection Act (TCPA), 47 U.S.C. §227, et seq., when it sent text messages to promote Stephen King's novel "The Cell". Satterfield v. Simon & Schuster, Inc., 569 F.3d 846 (9^{th Cir. 2009).} The Ninth Circuit decision raised serious questions as to the reliance on opt-ins for third-party marketing in both short message service (SMS) campaigns and in other marketing channels. Although the plaintiff agreed to receive promotions from Nextones "affiliates" and "brands," the Ninth Circuit found that Simon & Schuster was not an affiliate of Nextones based on a formal analysis of the meaning of the terms. Nextones neither owns nor controls Simon & Schuster. Furthermore, Simon & Schuster was not a brand of Nextones. Therefore, Simon & Schuster could not rely on the consent that Ms. Satterfield provided to receive messages because it was not a brand or an affiliate of Nextones. The court remanded the action to the trial court to continue the litigation.

Although the amount of damages for a single unauthorized message may be small (i.e. $500), when all of the messages are combined the amount of liability is extraordinary. Therefore, rather than risk up to $90 million dollars in liability, defendants in the Satterfield action have sought to settle the matter. Under the terms of the settlement, defendants agreed to set up a $10 million cash settlement fund. Approximately $7.7 million will be used to make payments of up to $175 to each claimant who received the text message at issue, and $2.275 million in attorneys fee will be paid, in addition to payments to the class representatives.

Plaintiff brought a class action lawsuit in the Circuit Court of Cook County, Illinois, on behalf of a proposed class of wireless subscribers, alleging that certain defendants were involved in charging wireless subscribers for mobile content that they did not authorize. Over 10 similar lawsuits were filed against Motricity, the wireless carriers, third-party merchants and marketers, and other companies, and are pending in state and federal courts throughout the country. The defendants included the carriers Nextel, Sprint, Verizon Wireless, Virgin, as well as third-party merchants and service providers including Motricity, Inc., Flycell, Inc., Glispa, LLC, Thumbplay, Inc., R&D Media North Americas B.V. d/b/a Glomobi, Mobilefunster, Inc., CSW Group Ltd., and WebAMG Holdings Limited.

The proposed nationwide settlement will resolve the Williams actions and ten similar actions pending around the country. Under the terms of the settlement, defendants agree to establish a redress fund of $9 million, as well as attorneys' fees of up to $1.835 million. In addition, defendants also agreed to adhere to certain standards for the sale, marketing, and refunding of unauthorized mobile content. A fairness hearing is scheduled for December 2, 2010.

Conclusion

Mobile remains a channel still in its infancy without clear guidance by federal or state authorities. Instead, mobile marketers are faced with trying to comply with laws enacted long-before the development of the channel as it currently stands, and enforcement by private plaintiffs, instead of federal regulators who can establish a balanced nationwide industry-public approach.