how to act as a business in a world in which user feedback and reviews are critical to your...

How To Act As A Business In A World In Which User

Feedback And Reviews Are Critical To Your Reputation

And Business Lisa Borodkin, A.orney at Law

Bennet Kelley, Internet Law Center

SOCIAL COMMERCE BY THE NUMBERS

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64% Consumers who search for reviews before making purchase

5-‐9% Revenue Increase for addiBonal Yelp Star

89% Consumers who find online reviews to be

trustworthy

13, 34, 53%

Likelihood of prime Bme sell out for 3, 3.5 and 4-‐star restaurants

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•  Unfair Business Prac.ces Court rejected claim that Yelp pracBces were extorBon since that requires that liBgant have “a pre-‐exisBng right to be free from the threatened harm, or that the defendant had no right to seek payment for the service offered.” Yelp’s acBons were not a “wrongful use of economic fear”. Boris Y. Levi., et al. v. Yelp Inc., No. 11-‐17676, 2014 U.S. App. LEXIS 17079 (9th Cir. Sept. 2, 2014)

•  Sec.on 230 Immunity Challenge Fact that Yelp created star raBng based on reviews, did not “transform an interacBve computer service into a developer of the underlying misinformaBon” for purposes of SecBon 230 of the CDA. Kimzey v. Yelp Inc., 2014 WL 1805551 (W.D. Wash. May 7, 2014).

•  False Adver.sing Cal. Court of Appeal judge reversed a SLAPP dismissal of a False AdverBsing acBon based on Yelp’s claims that each review “passed through a ‘filter’ that gave consumers the most trusted reviews.” Demetriades v Yelp!, 2014 WL 3661491 (Cal. App. Ct. July 24, 2014).

•  FTC Inves.ga.on Closed without comment.

FIVE-STAR LITIGATION*

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ADDRESSING BAD REVIEWS

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COPYRIGHT AS A SHIELD •  Medical Jus.ce Created paBent contracts assigning IP in consumer reviews to doctor. Abandoned in 2011.

•  New York v. Network Associates, 758 N.Y.S.2d 466 (N.Y. Sup. Ct. 2003) – violated consumer protecBon laws.

•  US Dep’t of Health and Human Services prohibited doctor from condiBoning privacy compliance with consent to review prohibiBon.

•  Small Jus.ce Acquired copyright in defamatory post on RipOffReport.com

•  Small JusQce LLC v. Xcentric Ventures, LLC, No. 13-‐CV-‐11701, 2015 WL 1431071 (D. Mass. Mar. 27, 2015), appeal pending.

•  Click wrap agreement sufficient to transfer exclusive copyright. “By posBng this report/rebu.al, I a.est this report is valid. I am giving Rip-‐Off Report irrevocable rights to post it on the website. I acknowledge that once I post my report, it will not be removed, even at my request.”

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CONSUMER GAG AGREEMENTS

Kleargear.com’s Self-‐inflicted Wound Improper a.empt to enforce non-‐disparagement clause (established ajer transacBon at issue) becomes cause célèbre, resulBng in judgment of $354K for consumer. Palmer v. Kleargear.com, No. 13-‐cv-‐00175 (D. Utah May 5, 2014).

Kleargear Fallout •  California Passes AnE-‐Kleargear Law (Civil Code

SecEon 1670.8(a)(1)): A contract for the sale or lease of consumer goods or services may not include a provision waiving the consumer’s right to make any statement regarding the seller or lessor or its employees or agents, or concerning the goods or services.

•  Kleargear has not scared off others, penalty clauses sBll in use

•  Arizona, New York Courts Indicate Gag Agreements May Be Enforceable

•  FreeLife Int'l, Inc. v. Am. Educ. Music PublicaQons Inc., No. CV07-‐2210-‐PHXDGC, 2009 WL 3241795 (D. Ariz. Oct. 1, 2009)(gag agreement not procedurally or substanBvely unconscionably under AZ law).

•  Gallard v Johnston, No. 1:2014cv04411 1290775 (SDNY March 19, 2015) (refusing to dismiss claim under gag agreement).

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RESPONDING TO REVIEWS

•  Rule #1: Be Aware of Your Reviews •  Own Your NegaBve Reviews

•  Wisdom of the Masses •  Increase Overall Reviews

•  IniBate contact prior to posBng reviews (Anonymous VenBng)

•  Direct Users to Review Sites You Approve •  Unfair Review ConsideraBons

•  Does it violate site terms? •  Is it defamatory? •  Is it material (Streisand Effect)? •  Can more content/SEO bury it?

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POLICING SITE REVIEWS • Community verificaBon, flagging, reporBng

• User authenBcaBon (Angie’s List)

• User stack up-‐voBng for quality • RaBng consumers (Uber, EBay)

•  Tolerance for online culture (Amazon fake reviews)

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APPENDIX 1: REFERENCE •  5 FascinaBng Yelp Facts, Local Vox (Jan. 22, 2014). •  Crowd-‐sourced online reviews help fill restaurant seats, study finds, UC Berkley News Center (Sep. 4, 2012).

•  Harvard Study: Yelp Drives Demand for Independent Restaurants, Yelp Official Blog (Oct. 5, 2011).

•  David S. Ardia, Free Speech Savior or Shield for Scoundrels: An Empirical Study of Intermediary Immunity under SecBon 230 of the CommunicaBons Decency Act, 43 Loy. L.A. L. Rev. 373 (2010).

•  Michael Anderson and Jeremy Magruder, Learning from the Crowd: Regression DisconBnuity EsBmates of the Effects of an Online Review Database, The Economic Journal (Oct. 5, 2011).

•  Cyrus Farivar, Emba.led retailer KlearGear fights back against online review defeat, Ars Technica (May 20, 2014).

•  Eric Goldman, Consumer Reviews of Doctors and Copyright Law, University of Houston Law Center, InsBtute for Intellectual Property & InformaBon Law (“IPIL”) Advisory Board Dinner, Houston (Jan. 2011).

•  Caroline Myer, The Perils of PosBng Scathing Reviews on Yelp and Angie's List, Forbes (Jan 7. 2013).

•  Lucille M. Ponte, “ProtecBng Brand Image or Gaming the System? Consumer “Gag” Contracts in an Age of Crowdsourced RaBngs and Reviews,” William & Mary Business Law Review (2015).

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APPENDIX 2: LISA BORODKIN

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Principal and Founder of Lisa Borodkin, A.orney at Law Entertainment and IP PracBce in Los Angeles RepresentaBve cases: Metallica v. Napster; Williams v. Bridgeport Music; SEO and defamaBon liBgaBon Recurring guest, THIS WEEK IN LAW on TWiT.TV Op-‐Ed columnist, San Francisco Chronicle, The Guardian §  Harvard University, A.B. 1990 §  Columbia University School of Law, J.D. 1995 §  Law Clerk, Hon. Diane P. Wood, 7th Circuit Court of Appeals (1996-‐97) §  Law Clerk, I. Leo Glasser, U.S. District Court, E.D.N.Y. (1995-‐96) Website: lisaborodkin.com Twi.er: @lisaborodkin

APPENDIX 3: BENNET KELLEY Founder of the INTERNET LAW CENTER in Santa Monica Host of CYBER LAW AND BUSINESS REPORT Broadcast through Webmaster Radio and Podcast Channels Nominated for LA Press Club Award for Best Public Affairs Talk Radio Show in 2014 Honors: §  Named One of Most InfluenBal Lawyers in Digital Media and

E-‐Commerce by Los Angeles Business Journal (2014)

§  Past Co-‐Chair of the California Bar Cyberspace Commi.ee

§  Selected By US Dep’t of Commerce to Present on U.S. E-‐Commerce Law as part of 2012 U.S.-‐China Legal Exchange

Website: InternetlLawCenter.net Blog: ILCCyberReport.wordpress.com Tw: @InternetLawCent

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Slides on Reward Programs Stanford 6-‐8-‐15

Edward B. Chansky Shareholder

Greenberg Traurig, LLP

Three Types of Programs

•  TradiBonal “Rewards” • Gij Cards • Groupon-‐Style Discounts

•  TradiBonal Rewards •  Credit Card and Airlines as the model •  Reserve the Right to Terminate/Modify •  How to give noBce and reserve right to change a contract while maintaining a binding contract. GIVE NOTICE!

• Gij Cards •  Front end restricBons on expiraBon dates and dormancy fees. •  Back end escheat compliance

•  With address of record for holder •  Without address of record for holder •  See Texas v. New Jersey, 379 U.S. 674 (1965) •  Single Purpose EnBty to administer program from a non-‐escheat state? Make sure it is not a sham.

•  50-‐state chart of gij card & escheat laws: h.p://www.ncsl.org/research/financial-‐services-‐and-‐commerce/gij-‐cards-‐and-‐cerBficates-‐statutes-‐and-‐legis.aspx

• Hybrid Groupon-‐Style Program •  Pay $10 for the right to obtain a $20 extra-‐large pizza with double cheese. •  Offer expires if not used in 30 days. • What’s lej ajer the 30 days?

•  Nothing? Full value? $10 gij card? • Who has the escheat duty?

•  Groupon? Pizzeria? For how much? $20? (promoBonal value) $10? (“gij card” value) $5? (amount merchant received)

Best Practices for Recommendation Engines

Laurence Wilson, Yelp Inc.

More Obvious

Less Obvious

Legal Question

v.

Editorial Discretion

Transparency

How to Protect Valuable Data June 8, 2015

Reed Freeman

WilmerHale

FTC In a Nutshell •  Nation’s Consumer Protection Agency •  Authority over most of economy (except, in general, banks, common

carriers, and nonprofits). •  Uses Section 5 of the FTC Act (Statute is in equity)

•  Deception: A representation or omission regarding a material fact likely to mislead a reasonable consumer under the circumstances.

•  Unfairness: An act or practice that causes substantial consumer injury that is not reasonably avoidable by consumers and not outweighed by benefits to consumers or competition.

•  Remedies: Injunctive, restitution, disgorgement, recision. No civil penalties for Section 5 violations (yet).

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WilmerHale

FTC Data Security Standard The FTC takes the position (being tested now in litigation) that Section 5 of the FTC Act requires “Reasonable Security” under the circumstances: that companies have reasonable controls against reasonably foreseeable risks to the security, confidentiality, and integrity of personal information, taking into account the size of the company and the sensitivity of the information it holds. •  Tort standard •  NOT strict liability •  What does this mean in practice?

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WilmerHale

1. Written Information Security Program •  Have a comprehensive security program that is reasonably designed to:

(1) address security risks related to the development and management of new and existing products and services for consumers, and

(2) protect the security, integrity, and confidentiality of covered information, whether collected by respondent or input into, stored on, captured with, or accessed through a computer using respondent’s products or services. •  Such program, the content and implementation of which must be fully documented in writing,

must contain administrative, technical, and physical safeguards appropriate to respondent’s size and complexity, the nature and scope of respondent’s activities, and the sensitivity of the covered information, including:

•  Responsible Employee or Employees for Program: •  Designate an employee or employees to coordinate and be accountable for the security program;

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WilmerHale

2. Identify Reasonably Foreseeable Risks •  Identify material internal and external risks to the security, confidentiality, and integrity of covered

information that could result in the unauthorized disclosure, misuse, loss, alteration, destruction, or other possession or is input into, stored on, captured with, or accessed through a computer using respondent’s products or services, and assess of the sufficiency of any safeguards in place to control these risks.

•  Assess Existing Safeguards to Address Identified Risks:

•  At a minimum, the risk assessment should include consideration of risks in each area of relevant operation, including, but not limited to, 1.  employee training and management, including in secure engineering and defensive programming; 2.  product design, development and research; 3.  secure software design, development, and testing; 4.  review, assessment, and response to third-party security vulnerability reports, and 5.  prevention, detection, and response to attacks, intrusions, or systems failures;

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WilmerHale

3. Add Controls for Identified Risks Where Necessary; then Test and Monitor: •  Design and implement reasonable safeguards to control

the risks identified through risk assessment, and regular testing or monitoring of the effectiveness of the safeguards’ key controls, systems, and procedures, including through reasonable and appropriate software security testing techniques.

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WilmerHale

4. Manage Service Providers Carefully:

•  Develop and use of reasonable steps to select and retain service providers capable of maintaining security practices consistent with this standard, and require service providers by contract to implement and maintain appropriate safeguards.

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WilmerHale

5. Update Security Program As Necessary:

•  Evaluate and adjust your information security program in light of the results of your testing and monitoring, any material changes to your operations or business arrangements, or any other circumstances that you knows or have reason to know may have a material impact on the effectiveness of your information security program.

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Francine Ward is a business and intellectual property attorney, with a focus on copyrights, trademarks, publishing, entertainment, and social media legal issues. A 1989 graduate of Georgetown University Law

Center, Francine is admitted to practice in New York, California, and the District of Columbia. Additionally, she is admitted to the Bar of the U.S. Circuit Court of Appeal for the 2nd and 9th Circuits; as well as the U.S. District

Courts for the Central District of California and the Southern District of New York.

Ward is a member of the ABA-IPL Section’s CLE Board, Chair of the ABA-IPL Terms of Use Subcommittee of the Copyright & Social Media Committee, and Vice Char of the Copyright Interest Group of the IP Section of the

California State Bar. Francine is also a Commissioner on the ABA’s Commission on Lawyer Assistance Programs. Find her (http://francineward.com/category/legal-blog/), LinkedIn Profile (http://www.linkedin.com/in/trademarklawyer), Facebook Law Fan

Page (https://www.facebook.com/Francineward), and her Twitter Law Page (https://twitter.com/Francineward).

Copyright 2015 Francine D. Ward All Rights Reserved.

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About Francine D. Ward, Esq.

¨  The FTC Guides Concerning Use of Endorsements and Testimonials in Advertising - originally written in the 1970s; amended 1980; amended October 2009. (16 C.F.R. § 255).

¨  Endorsement -- a claim that consumers are likely to believe as reflecting the opinion, belief, experience of someone other than the advertiser

¨  FTC definition embraces celebrity, expert, and consumer testimonials

Endorsements & Testimonials


1.  Endorsements can be made explicitly or implicitly by words, demonstrations, signatures, likenesses, or any other identifying characteristic of the endorser

2.  Regardless of the manner of the endorsement, advertiser must have substantiation for the: n validity of the endorsement n validity of the underlying claim being endorsed.

Substantiation


1.  Endorser MUST be real person 2.  Clearly & conspicuously disclosed 3.  Accurately reflects endorser’s belief/experience at all times 4.  Endorser must have reasonable basis for claims 5.  Claim that endorser uses product must be true at all times 6.  Advertisers need not disclose that a celebrity or expert was paid UNLESS

the existence of the relationship is not reasonably expected by the audience and such discovery might materially affect the weight or credibility of claim

Key Endorsement Requirements

Copyright 2015 Francine D. Ward

All Rights Reserved.

¨  Customer Identification. Advertisers use consumer testimonials to gain customer trust because customers identify with endorsers.

¨  No Expertise Required. Testimonials are largely anecdotal and subjective evidence as to the quality of a product/service.

¨  Additional Requirements Needed. Generalizing anecdotal experiences may be deceptive if the selected customers’ experience is atypical.

Testimonials


¨  Advertiser must have reasonable basis and proof that ¤  endorser uses product ¤  endorser’s claim reflects their claimed experience ¤  endorser’s claim is typical of what other consumers can reasonably expect

¨  “Results Not Typical” NOT acceptable language ¨  As with other forms of endorsement, any atypical relationship between the advertiser

and endorser must be disclosed ¨  Advertisers may use actors so long as it is clearly and conspicuously disclosed in the

advertisements that the actors are not actual consumers

Testimonials: Additional Requirements


1.  Read and understand the Guidelines 2.  Endorsements can be made by words or deeds 3.  Don’t ask your employees to advertise for you 4.  Don’t hide disclosures 5.  Compensation is not just money 6.  Endorsements must reflect the truthful experience of the

endorser 7.  Don’t make claims that require proof you don’t have 8.  Clearly disclose any material connection between the endorser

and advertiser

Take Aways


Francine D. Ward, Esq.

Business & Intellectual Property Attorney Trademarks | Copyrights | Book Contracts | Social Media Law

Helping small business entrepreneurs protect what’s theirs—their valuable products, content, brand,

and business structure

www.fwardattorney.com www.twitter.com/francineward

www.facebook.com/francineward

[email protected]

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THANK YOU! Copyright 2015 Francine D. Ward. All Rights Reserved.