Be Mindful of the Legal Restrictions on Mobile Ads

Cellphone Advertising May Be the Next Frontier, but Proceed With Caution

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Lynn R. Charytan
Lynn R. Charytan
Samir Jain
Samir Jain
For years, mobile advertising has been touted as the next frontier. Its day may finally have arrived. Recent reports suggest that almost 60 million consumers were exposed to mobile advertising in just one month, and there are predictions that the market will reach almost $3 billion within the next four years. That said, mobile advertising still faces unique regulatory constraints that advertisers and their carrier customers will have to navigate in developing mobile-ad strategies.

The most critical problem for advertisers and carriers is that some types of mobile advertising -- including those that may be most effective and therefore most lucrative -- require express customer consent, either to receive the ads in the first place, or for use of the customer data in developing or targeting the ad. Yet the rules for obtaining such consent can be uncertain, and even when they are not, they may be difficult to meet in the context of a mobile device.

The rules of text-message ads, for example, may be limiting. To begin with, under the current regulatory regime, parties typically pay for the calls or text messages they receive; many customers are therefore hostile to advertising messages.

Even more important, in most if not all cases, the law requires customer consent before text ads can be sent. The concern is, of course, that without such consent, text messages could qualify as spam, which the law restricts in certain circumstances. The Telephone Consumer Protection Act prohibits the use of auto dialers to call cellphones without consent -- a prohibition that the Federal Communications Commission (FCC) has said extends to text "calls."

In most cases, the way around these issues would be for the advertiser (or the carrier) to obtain customer consent. This can be done directly, or may be implied, in some cases, by a pre-existing business relationship. For example, an offline marketing campaign might encourage users to dial a short code for information or to participate in a contest, and that transaction could establish the basis for the advertiser to follow up with text-based advertising. Whether that suffices will depend on the particular circumstances, of course -- and reputable marketers will always permit customers to opt out of future text messages.

The 'killer application'
Targeting advertisements based on users' online behavior, meanwhile, is one of the hottest trends in advertising. Combining behavioral data (as well as any available demographic data) with wireless users' current location may be the ultimate "killer application" in mobile advertising: For example, if a user has shown an interest in coffee, serving an ad with a coupon for a coffee shop when the user is located nearby could produce a significant, instantaneous return. But this entire area of advertising also raises regulatory challenges.

Lynn R. Charytan is a partner in WilmerHale's regulatory and government-affairs department and chair of the communications practice group.
Samir Jain is a partner in WilmerHale's regulatory and government-affairs department and a member of the communications practice group.
The communications laws generally prohibit carriers from using or disclosing for marketing purposes information about their customers' use of the service except with express, opt-in consent. And the laws impose a stricter standard of consent for the use of location information for anything other than emergency services. Furthermore, obtaining consent in the mobile context can be difficult: The FCC's rules provide that notice of how and what information will be used must be given "proximate" to the consent. In many cases, this may require devising a way to provide meaningful notice over the small screen of a mobile phone.

The latest trend in targeted advertising is behavior-targeted advertising based on all of a customer's online activities -- which gives advertisers a more comprehensive profile of the customer than a "cookie-based" model that captures a user's clicks on certain groups of affiliated sites or ads. This newest form requires the cooperation of the customer's carrier or ISP. This advertising model does not appear to have moved into the wireless world yet, though there is no reason to think that it could not. The debate -- and any consumer consent models that develop as a result -- are thus worth watching.

All these issues will likely be resolved as mobile device-based advertising grows more prevalent. Advertisers can and should have a role in shaping the debate so as to ensure that the substantial benefits of mobile advertising are not lost. And, in the interim, advertisers and carriers need to navigate these uncertain waters carefully to avoid legal and reputation issues.
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