By Lindsay M. Schoen

Historically, advertisers have been left to regulate their own conduct in advertising and marketing products to children. However, criticism of the effectiveness of self-regulation has increased over the years—especially as the waistlines of American children have grown. The latest evidence of a possible shift away from self-regulation to federal regulation of children’s advertising comes with the Federal Trade Commission’s request for public comments regarding the food industry’s child-directed advertising and marketing practices.

Currently, there is only minimal governmental regulation of children’s advertising. For example, the Federal Communications Commission limits the number of minutes of television commercials that can air during children’s programming and prohibits certain practices, such as program-length commercials and host selling. For the most part, however, children’s advertising is left to industry self-regulation. Many advertisers agree to voluntarily comply with self-regulatory guidelines issued by the Children’s Advertising Review Unit of the Council of Better Business Bureaus, Inc., which encourage the promotion of truthful, clear, and appropriate messages to children under 12. In addition, the Center for Science in the Public Interest developed Guidelines for Responsible Food Marketing to Children, which encourage the promotion of nutritious products and healthy eating habits.

There has been much debate about whether the advertising and marketing of food and beverage products to children and adolescents has contributed to the increasing obesity problem among American children. This debate intensified in 2001 when the Surgeon General issued a report finding that obesity has become an “epidemic” in the United States. According to the Centers for Disease Control and Prevention, the number of overweight children aged 6-11 has doubled over the past several decades and the number of overweight adolescents has tripled in the same time period.

Since then, a number of private and public organizations have examined whether advertising towards children affects their purchasing and eating habits. Although no conclusive link has been found, various organizations suggest that such advertising appears to be at least one factor that contributes to childhood obesity in this country. For example:

• In 2004, The Kaiser Family Foundation found that a typical child views about 40,000 television commercials per year. The Foundation further found that the majority of television advertising directed towards children is for candy, cereal, and fast food.
• According to a 2004 report by the Institute of Medicine, food and beverage advertisers spend $10 billion-$12 billion dollars a year on commercial messages targeted to children, including television commercials, promotions (such as sweepstakes and contests), public relations, and specially designed packaging. The Institute observed that more than half of child-directed television advertising is for food and beverages with high calories and low nutritional value, such as candy, fast food, snack foods, and sweetened breakfast cereals.
• In 2004, the World Health Assembly endorsed marketing practices and policies that encourage the promotion of healthy foods and beverages to children.
• In 2006, the National Academy of Sciences’ Committee on Food Marketing and the Diets of Children and Youth found that only about 20 percent of the over $11 billion spent on advertising food and beverage products to young Americans was devoted to television, radio, print, billboards, and the Internet. The majority of the expenditures were for nontraditional advertising methods, such as product placement, in-school activities, and “advergames.” The Committee concluded that such advertising and marketing activities influence youth preferences and consumption choices, especially for children 2-11 years old.

These organizations do not recommend a ban on such advertising; rather, they recommended an industry-wide shift in advertising and marketing practices as well as public relations campaigns to educate the public about childhood obesity and to promote healthy eating and exercise habits.

Although many advertisers point to lack of exercise as the key cause of childhood obesity, a number of advertisers have begun to voluntarily change some of their advertising and marketing strategies as well as the composition of some of the food products targeted towards children. In fact, many large companies have developed internal guidelines on this issue. Despite advertisers’ desires to keep children’s advertising in the self-regulatory arena, however, polls show that public sentiment seems to be in favor of federal regulation.

The Federal Trade Commission and the Department of Health and Human Services held a jointly sponsored workshop in July 2005 to explore whether there is a link between food and beverage marketing to children and childhood obesity and to examine whether self-regulation in this area is effective. The FTC is now required to submit a report to Congress by July 1, 2006, regarding the food industry’s marketing practices towards children and adolescents, which will influence whether Congress votes to formally regulate this area. The FTC has requested public comments to help it shape its report. In particular, the FTC is seeking specific information about the nature and extent of marketing activities and related expenses targeted towards children, how the food and beverage industry tracks such marketing activities and related expenses, and how the industry tracks child-directed advertising on television and radio, in print, and in other media. Comments are due by April 3, 2006.

Any food or beverage marketer concerned with its future ability to advertise and market these products to children should consider making its opinions known. There is still time left to submit comments and help shape the future of this as yet unregulated area.

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The Joint Policy Committee on Broadcast Talent Union Relations of the Association of National Advertisers and the American Association of Advertising Agencies is proposing that it and the Screen Actors Guild and American Federation of Television and Radio Artists jointly fund and undertake a study through an independent consultant regarding alternate methods of compensation for principal performers appearing in TV commercials.

The proposal arises from an earlier proposal to SAG and AFTRA that the groups meet and discuss an alternate method of compensation pursuant to paragraph 64 of the 2003 SAG Commercials Agreement and paragraph 65 of the 2003 AFTRA Television Commercials Agreement, which provide that the parties agree to meet prior to the October 29, 2006, expiration date of the contracts to explore such alternate methods of compensation. Following a January 20, 2006, meeting with the unions, the Joint Policy Committee proposed the independent study.

In pertinent part, the proposal suggested:

1. The joint retention of an independent qualified consultant to study the concerns of the parties over the current method of compensation and issues each side has over compensation for “new media”;
2. Working together to establish parameters of the study, qualifications of the consultant, content of an RFP, and solicitation of proposals; and
3. Submitting a proposal to the SAG Producers Industry Advancement & Cooperative Fund for funding the study.

According to the Joint Policy Committee, the unions have expressed some interest in such a study, but the Committee is prepared to negotiate should the process short-circuit. In the meantime, the Joint Policy Committee plans to issue an initial request for credentials from third parties interested in being considered to run such a study.

Significance: The industry remains optimistic that the negotiations will conclude without a strike. However, signatory employers, both agencies and advertisers, are advised to take precautionary steps should such a work stoppage occur. The last strike lasted six months. Please contact Alan Brunswick of Manatt’s Los Angeles office at (310) 312-4213 or by e-mail at abrunswick@manatt.com for additional information.

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New York State Attorney General Eliot Spitzer on March 8, 2006, announced a lawsuit against Entercom Communications Corp., alleging that the radio broadcast chain illegally traded “airtime” for payments.

The suit against Entercom is the latest development in Spitzer’s ongoing crusade against alleged “payola” in radio broadcasting. As reported in the November 29, 2005, and the August 1, 2005, issues of AdvertisingLaw@manatt, last year Spitzer reached settlements with two major record labels, which agreed to halt the practice, adopt reforms, and pay fines. Entercom, based in Bala Cynwyd, Pennsylvania, owns and operates 105 radio stations, including seven stations in Buffalo and four in Rochester. It is the first company to be sued as part of the probe.

Payola is the practice by which record labels and some independent promoters offer money and other gifts in exchange for broadcast airtime for particular songs or artists. The purpose of the payments is to increase airtime for chosen songs and artists and manipulate the popular music industry charts. The lawsuit alleges that Entercom solicited and accepted gifts, promotional items, trips, and other payments from record labels for airtime, and instituted management-supported corporate programs that sold airtime to record labels in order to manipulate the music charts.

The complaint cites evidence that Entercom executives were working with independent promoters and record labels to increase airtime and chart position for various artists, including Jessica Simpson, Avril Lavigne, and Liz Phair. It seeks a halt to the practice, as well as appropriate reforms and fines. In support of the allegations, the complaint cites various documents and e-mails in which Entercom executives discussed strategies for supplementing radio station budgets with payola.

For example, in an e-mail to an Entercom executive, a station manager described how he preferred to deal with record companies instead of independent promoters because the record companies were more generous, writing, “As of this date I choose not to work with an ‘indie.’ My program director Dave Universal is vehemently opposed to working with an indie. . . . Dave generates $90,000+ in record company [sic] annually for WKSE. I receive a weekly update of adds and dollars from Dave . . . . Forcing Dave to work with an indie at this time is the wrong move.”

In another e-mail exchange, a program director at one radio station complained about the practice of using a CD previews program to generate payola: “The cd preview load for this weekend is crazy!! (...) people are hearing the same songs every hour or two. Are the few dollars earned with the CD previews worth killing our TSL [time spent listening] on the weekends?”

An Entercom executive responded: “These are not optional. They come from corporate and generate millions of dollars for Entercom.”

The Attorney General again criticized the Federal Communications Commission for not doing enough to stop payola. “Almost a year after payola was exposed in significant detail, the FCC has yet to respond in any meaningful way,” Spitzer said. “The agency’s inaction is especially disappointing given the pervasive nature of this problem and its corrosive impact on the entertainment industry.”

In response, FCC Commissioner Jonathan Adelstein said that the Commission began its own payola probe a year ago. “Given the voluminous documents pointing to major, systematic violations of FCC rules, the penalties should be commensurate with the crime. We can’t let any violators get away with a slap on the wrist,” Adelstein said.

Significance: As promised, Spitzer’s anti-payola crusade continues apace. In the past, Spitzer’s lawsuits have invariably produced quick settlements with the targets, who fold under the dual pressure of the Attorney General’s significant power and the adverse publicity generated. It’s not clear why this investigation didn’t settle, but it may still settle as the others have.

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The Federal Trade Commission has announced its decision to retain, without changes, the Children’s Online Privacy Protection (COPPA) Rule, which implements the Children’s Online Privacy Protection Act.

The FTC rule imposes requirements on Web site operators whose services are directed at children under 13 years old, as well as operators with “actual knowledge” that they are collecting data from children. In a Federal Register notice to be published soon, the Commission will present its full findings retaining the rule’s sliding-scale approach to obtaining parental consent to the online collection of kids’ personal data, which takes into account how such information can be used.

As required by COPPA, the Commission began reviewing the rule, seeking public comment on the costs and benefits, and on whether it should be modified. The FTC also sought input on the rule’s effect on children’s ability to access information online, the availability of Web sites directed to children, and the collection and disclosure of information related to children.

According to the FTC, the comments received uniformly stated that COPPA has succeeded in providing greater protection to children’s personal information online, that there is a continuing need for the rule, and that it should be retained. Specifically, many comments emphasized that the rule provides Web site operators with a clear set of standards and that operators have received few, if any, complaints from parents.

The comments also said that the operators’ primary response to the rule has been to limit the personal information they collect from children, and that the rule’s requirements have struck the right balance between protecting children’s personal data and preserving their ability to access content. They also said that operators have successfully maintained popular and viable Web sites in the five years since the rule was implemented.

Finally, the Commission sought comments on each of the rule’s specific provisions. The comments generally agreed that the rule’s provisions are clear and effective. In particular, most stated that the terms “website or online service directed to children” and “actual knowledge” are sufficiently clear. They also did not find that screening for visitors’ age has become a problem, and they supported the FTC’s continued approval of using a credit card with a transaction as a method of obtaining verifiable parental consent to the collection of children’s personal information. Most comments also supported the continued use of the rule’s sliding-scale approach. Accordingly, the FTC determined that no changes were needed to the rule’s substantive provisions.

The FTC adopted a sliding-scale approach for parental consent when it issued the COPPA rule in 1999. Under this approach, the measures required to obtain parental consent depend on how the operator of a Web site intends to use the collected data. If the operator intends to disclose information to the public or a third party, then it must use more reliable methods for obtaining parental consent. If the operator intends to use information for its internal use only, then it also may obtain parental consent by an e-mail from the parent if it confirms the consent through a message to the parent by delayed e-mail, fax, or telephone.

Based on the comments received and its own experience in implementing the rule, the FTC determined that the risk to children’s privacy from an operator collecting personal information for internal use only remains relatively low. The Commission also determined that more secure technologies that might be used to obtain parental consent for information collection and internal operator use are not yet widely available at a reasonable cost. It further determined that the sliding-scale approach has worked well, and that its continued use may foster the development of children’s online content. Based on this evaluation, the FTC decided to retain the sliding-scale approach indefinitely while it continues to monitor technological developments.

Significance: The findings are good news for the agency and the online community affected by the rule. Considering how much Internet technology has changed in the past seven years, and the explosive popularity of the Internet with children, it is rare—and encouraging—that a rule aimed at protecting children online is actually working well.

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Thousands of New Yorkers who bought cigarettes on the Internet without paying taxes will be contacted and told to pay up, the city said on March 7, 2006.

Mayor Michael Bloomberg announced that under a settlement with Virginia-based eSmokes, the reportedly bankrupt online retailer is providing the names and addresses of New York customers from 2000 to 2003, when a state ban on Internet sales took effect. The Department of Finance said those 12,500 customers will receive letters demanding they pay back cigarette taxes, about $3 per pack, or $33 million total.

A number of states and cities around the country are doing the same thing as New York, relying on a federal law known as the Jenkins Act, which requires Internet cigarette sellers to turn over their customer information. The settlement and upcoming mailings are not the city’s first, but they are the largest. The Finance Department has sent letters to about 3,700 people in previous mailings, based on lists compiled from a series of smaller settlements.

Finance Department spokesman Owen Stone said the city has collected about 65 percent of the taxes, or about $750,000, from those mailings. Buyers who ignore the letters or refuse to pay the taxes face $100-per-carton penalties. City officials said they would prefer the companies to shoulder the punishment rather than the consumers, who can be misled by tax-free claims on the Web sites. But when companies have no money to pay settlements, collecting taxes from the customers is the only option.

Significance: Under current law, Internet retailers are not responsible for collecting taxes on goods sold to out-of-state customers. Customers are theoretically responsible for paying the taxes themselves, but in practice few do, unless it’s a purchase that requires documents to be filed with the state, such as a car. But cash-strapped states like New York are increasingly going after customers to collect on the unpaid taxes.

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A Massachusetts judge ordered two out-of-state telemarketing firms and their principals to stop doing business in the state and pay about $1 million in fines, State Attorney General Tom Reilly said on March 10, 2006.

The lawsuit alleged that the companies used deceptive telemarketing tactics to scam consumers out of hundreds of dollars, usually by withdrawing the funds directly from their bank accounts. The telemarketers allegedly told consumers that they had been approved for a government grant, typically for as much as $8,000. The consumers were persuaded to authorize withdrawals from their bank accounts to cover processing fees of $249 to $259. But the consumers received only a booklet with listings of government grant programs. At least 1,600 Massachusetts consumers were targeted, Reilly’s office said, and more than 600 lost money. The court found a pattern of unfair and deceptive practices that violated state consumer protection and telemarketing laws.

Defendant Consumer Grants USA and its principals are the subject of lawsuits or investigations by several other states, including Florida, Illinois, and North Carolina. In March 2005, North Dakota won a $95,000 judgment against Consumer Grants.

The Massachusetts judgment results from a lawsuit filed in October against Florida-based Consumer Grants, along with president James T. Lovern and vice president Leo J. Corrigan; Nevada-based Freedom Grants Inc., and president/director Evelyn Hernandez; and Wyoming-based Your Choice Inc. The judgment was entered after five of the defendants failed to answer Reilly’s lawsuit. Your Choice answered the suit, and that case is proceeding. The court order requires the five defendants to pay $158,767 in restitution to consumers who were victimized and a penalty of $800,000. Each of the five defendants is barred permanently from conducting any business, telemarketing or otherwise, in Massachusetts.

Significance: According to experts, government grant scams are widespread and flourish especially around tax season. Since most of the defendants did not even bother to answer the lawsuit, it is unclear whether the state will actually collect the judgment, although it serves as an opportunity for the state to warn consumers to beware of such scams.

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Mickey had better keep his ears peeled for the telltale roar of a Harley Davidson engine coming up fast on his tail.

Hell’s Angels, the legendary California-based motorcycle club, is suing Walt Disney for using the group’s logo and trademarked name in a film which has not even started production. The movie in question is Wild Hogs, starring John Travolta and Tim Allen, and filming starts in the fall for a release in 2007.

Disney describes it as a story about a group of budding motorcyclists who set out on a road trip, during which they run into a chapter of Hell’s Angels. The real group says characters in the film are specifically identified as its members, wearing the organization’s famous death’s head logo. They have accused Disney of not providing them with a copy of the Wild Hogs screenplay. A Disney spokesman dismissed the legal action as “without merit.”

The Hell’s Angels Motorcycle Corporation was founded in Fontana, California, in 1948, and now has chapters all over the world. The origins of the name are debatable. It first appeared in the 1930 film Hell’s Angels, directed by Howard Hughes and starring Jean Harlow. Others claim the group was started by former members of the Hell’s Angels B-17 bomber group after World War II. Today, the group is an indelible symbol of a biker counterculture. The tussle with Disney is only the latest of many cases in which the organization has crossed paths with the U.S. entertainment industry, including the notorious incident at Altamont, during a 1969 Rolling Stones concert, where a Hell’s Angel, who had been hired for crowd security, stabbed a concertgoer to death.

Today, many Hell’s Angels members are well into middle age, and ride their bikes with beer bellies flapping and tiny helmets hiding their bald spots. In the United States and Canada in particular, Hell’s Angels have also been linked with crime and racketeering. The Angels say any such activities are the work of individual members, but in the Canadian provinces of Quebec and Ontario, the Angels have been accused of widespread involvement in organized crime.

Significance: Hell’s Angels have been featured in films before, but without controversy. This time, apparently, they are not happy with how they are being portrayed. Stung by ongoing allegations of drug trafficking and involvement in organized crime, they have been striving to paint themselves as a kinder, gentler version of the old Hell’s Angels, just out for a nice ear-shattering ride in the country.

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