10 advertising legal issues for 2004

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1. Privacy (Do Not Call, Do Not Mail, Do Not Spam; Opt in/Opt out)

As elections approach and the concerns over privacy rise, regulators and legislators are empowering consumer choice. Their challenge is to enact regulations that balance marketplace efficiencies with the increasing desire of consumers to control the use of personal data for marketing purposes.

2. Jurisdictional problems in Internet marketing

The Internet, as a global media, presents considerable conflicts in the regulatory approach throughout the world. Many jurisdictions take a far more restrictive view of marketer rights than the U.S. To complicate matters, where a marketer can be sued creates nightmares for global sellers. It's virtually impossible to be certain that an offer complies with every jurisdiction in the world.

3. Licensing and protection of intellectual property rights in Internet marketing

Pop-ups, pop-overs, metatags, Gator and other ambush Internet marketing practices interfere with legitimate marketing efforts and dilute their effectiveness. Traditional theories of intellectual property do not work. Does Gator have the right to cover other ads? Do competitors have the right to co-opt key words through metatags and undermine another marketer's trademarks? The cases are inconsistent and there are no clear rules.

4. First Amendment, bans, and disclosure mandates (obesity, DTC, SPAM, alcoholic beverages, etc.)

Reminiscent of the 1970s, legislators and political candidates, under the justification that consumers are either (a) improperly influenced by advertising (obesity via fast foods or undeage drinking), (b) lack the requisite understanding of risks to make an intelligent decision (DTC advertising), or (c) just plain don't like it (spam, telemarketing, fax) are enacting controls and restrictions and sacrificing robust information to consumers. Are consumers really that influenced and ignorant?

5. California 17200 class actions

Under a unique statute in California that allows any California resident to sue as if they were the State Attorney General, Nabisco was sued for failing to disclose the trans-fatty content of Oreos, Nike was sued for its efforts to defend itself against attacks that it engaged in unfair labor practices in the Far East, and the California Milk Board was sued for claiming happy cows make good cheese.

6. Consumer Watch (Ralph Nader) attack on product placement

As marketers look to innovative ways to advertising in the face of channel surfing, countless media choices, and technology controls that eliminate traditional commercial messages, product placement has become a major new initiative. Nader's new group, however, is challenging the practice as inherently deceptive, e.g., program length commercials. The petition filed by Consumer Watch seeks disclosure requirements and prohibitions that would severely undermine the new initiatives.

7. Increase in comparative advertising suits and role of self-regulation (NAD/NARB)

The advertising industry enjoys one of the nation's best self-regulatory regimes, but the system is overworked and understaffed. As a result, advertisers have increasingly turned to expensive litigation to resolve differences. This public display and attendant publicity increase the already existing negative impression of advertising and hurt brand image.

8. Taxes on advertising services

With over 30 states operating under deficits, legislators are looking for revenue sources unlike ever before. Dozens of states have proposed a variety of taxes on advertising practices or limits on the deduction of advertising expenses (via amortization of a portion of spending). This could cost the industry millions of dollars annually, all of which will eventually be pushed down to the consumer or result in major cuts in ad spending.

9. Media Integrity

Responsibility for integrity of media measurement, under attack in the 4A's suit against Nielsen and severely undermined through the admissions of Gruner & Jahr in the Rosie O'Donnell case, will be shifted to media buying companies and advertising agencies. Advertisers will simply not accept bad science and inflated data when spending billions of dollars to reach consumers.

10. Squeeze on agency compensation

What was once appreciated as the "magic" of advertising by brand managers when considering compensation for agencies, what and how advertising agencies are paid is shifting to procurement departments, the same people who watch costs of all suppliers. Some argue that this has undermined the "partnership" relationship between advertisers and agencies and put more pressure on already challenged agency profitability. Others argue that such discipline is long overdue as boards look for more accountability and proof of ROI.

By Doug Wood, Partner at Hall Dickler and General Counsel of the Association of National Advertisers

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