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Regulatory Rumblings

Comprehensive Tax Reform More Likely Now Than Ever Before

Posted: Jul 25, 2014 12:00am ET

Corporate tax inversions are grabbing headlines.  Inversions are an international tax strategy where a company relocates its headquarters to a lower tax nation while maintaining its primary operations in a country with a higher tax burden.  The U.S. tax code allows for an inversion if the acquired foreign company maintains a 20% interest in the U.S. acquiring company.  More and more prominent U.S. companies, such as drug-maker AbbVie and medical device maker Medtronic, are making multi-billion dollar purchases of foreign competitors and re-incorporating abroad.  Walgreens is also considering an inversion, and recently Pfizer made an unsuccessful bid for foreign based Astra-Zeneca.  There were 47 tax inversions in the last decade – twice as many as in the previous two decades – and the trend is accelerating.

The uptick of inversions now has caught the full attention of policymakers in Washington.  This week, the Senate Finance Committee, led by Chairman Ron Wyden (D; OR), held a major hearing focused on improving the current U.S. system of international taxation.  The United States currently has a nominal corporate tax rate of 35%, which is the highest compared to other major industrialized countries.  

President Obama and a number of members of the Senate Finance Committee expressed outrage that corporate inversions are occurring at such a rapid pace.  As Chairman Wyden put it, inversions are a “virus” that seems to “multiply every few days.”  The Senate Finance Committee, however, was split over whether immediate remedial legislation would be effective or was an appropriate response to the inversion challenge.

All of the Senators in attendance and the witnesses on the panel, nevertheless, wholeheartedly agreed that comprehensive tax reform is critical to the continued success of the United States as a global competitor and making sure the impact of inversions is nullified.  

Chairman Wyden stated that he is committed to working on a bipartisan basis, with particular support from Ranking Member Orrin Hatch (R; UT), to rapidly overhaul the tax code and reform the system.  As he stated, “The longer we wait, our tax base will keep eroding, cash piles overseas will continue to grow, and investment dollars will be driven overseas.“

In another signal that tax reform efforts are starting to be reenergized, the House Ways and Means Committee’s Subcommittee on Select Revenue Measures (Tax) has announced a hearing on the economic impact of Chairman Camp’s tax reform proposal.

Clearly, a major tax reform push is appearing increasingly inevitable.  What the ad community needs to continue to be on guard against is that, in the effort to cure the inversion threat and other tax problems, the healthy parts of the tax code, like the ad tax deduction, which has been estimated to promote as much as $5.8 trillion in economic activity and to generate 21.1 million jobs annually in the U.S., are not severely harmed.

Proposals to amortize 50% of advertising expenses over five or ten years continue to be pending in both the House and Senate tax committees.  It has been estimated that this amortization proposal would cost the ad community more than $169 billion in additional taxes over 10 years.  These proposals would not further the expressed goal of strengthening the economy and bolstering companies in the United States.  By substantially increasing the cost of doing business and burdening the selling process, amortization would defeat the clear purposes of comprehensive reform.

At ANA, we believe that overhauling the tax code to lower corporate tax rates is extremely important and must be accomplished as quickly as possible.  This effort must be done, however, with great care and forethought.  Any proposed legislation must not undermine economic activity and the selling effort in the United States by threatening the viability of advertising in the tax code.

Bot Fraud: Scamming Advertisers and Damaging the Internet

Posted: Jul 17, 2014 12:00am ET

On Monday, ANA announced the launch of a major new industry push to reduce bot (web robot) fraud.  For this new initiative, ANA is partnering with White Ops, a fraud detection firm, to conduct a study of over 30 member companies’ advertising campaigns.  By analyzing these campaigns, clearer data will be available to help advertisers reduce bot fraud and improve marketing ROI.  The companies in the study make up “The Marketers’ Coalition,” which will gain insights from a wide range of industries and brands and provide a clearer picture of the status of bot fraud and its impacts on the advertising business.  

Bots — computer-generated signals designed to mimic human web traffic in order to trick advertisers to pay for phony visits to websites — are a significant problem for digital marketers.  They cause serious damage in terms of CPM, revenue, and reputation.  Bots find their way onto premium content Internet sites and into premium content ads.  These sites and networks are the most severely injured by this fraud.  However, bots are not evenly or predictably distributed, making them exceedingly difficult to track. The most sophisticated bots which cause the most damage cannot be caught by traditional methods.  It has been estimated that as much as 25-50% of money spent on digital advertising is wasted because of these criminal bots, translating into multi-billions of dollars of wasted expenditures annually.  

In May, ANA held a legal and regulatory webinar on bot fraud.  For that webinar, Michael Tiffany, cofounder and CEO of White Ops, spoke about the dangers bots pose to advertisers.  Many advertisers don’t realize the severity of the bot fraud issue, and if they do, they don’t necessarily believe the problem applies to them. However, as was discussed in this webinar, all advertisers need to be aware of this issue and actively work to combat bots to protect their money and their brands.

To highlight the unfortunate significance bots have in today’s world, the Senate Judiciary Committee held a hearing on Tuesday on botnets and cybercriminals.  As if the destruction bots cause to the advertising industry was not enough, bots are also used by criminals to take over individual computers using malware.  Once the malware has been installed, criminals set up networks of bots which gain access to personal information and bank accounts, completely shut down business operations, and even use webcams to spy on individuals.  

Tuesday’s hearing was led by the Chairman of the Crime and Terrorism Subcommittee, Sen. Sheldon Whitehouse (D, RI), who has taken a key role in the push to eradicate cybercrime and cyberterrorism.  During the hearing, the witnesses from the Department of Justice and the Federal Bureau of Investigation stated that improved laws are needed to adequately take down bots.  The laws in place today are antiquated and have not been revised to keep up with the exponential growth of these new technologies.  Witnesses from the private sector noted that the Internet of Things is presenting additional challenges to those trying to combat bots.  Mobile phones and other devices that can access the Internet are turning into the newest hot spots for bots, but the current efforts by law enforcement are still mainly geared toward desktop computers.  Sen. Whitehouse, along with Sen. Lindsey Graham (R, SC), stated a firm commitment to either crafting new legislation or improving the current laws to make the take down and prosecution of cybercriminals operating bots a more seamless and effective process.

As can be seen from the new ANA initiative and the Senate Judiciary Committee hearing, bot fraud is gaining heightened attention across the board.  That attention is well deserved.  Around the world, the Internet is used daily by billions of people who trust that what they say or do while online is safe and protected.  However, it is increasingly coming to light that this is not the case.  It is essential – especially for online advertisers – for these fraudulent bots to be taken down so the Internet can continue to flourish and maintain its reputation as a safe and lucrative place to conduct business.  The ANA initiative will assist in this effort by helping to develop means to dry up a significant portion of bot fraud funding presently being siphoned from the advertising community.  The damage from bots will continue to occur unless a substantive method for combatting this fraud is generated and the business community fully gets on board to tackle this growing challenge.

The Bumpy Road to Patent Troll Reform

Posted: Jul 11, 2014 12:00am ET

The effort to combat patent trolls, until recently, has been one of the few bipartisan initiatives in the Congress this year.  There has been general consensus that Patent Assertion Entities (PAE’s) often dubbed patent trolls, who do not produce or manufacture products, increasingly have been asserting broad and often highly questionable patent infringement claims that cost large and small companies across the U.S. multi-billions of dollars annually.

Earlier this year, the House of Representatives passed a bipartisan anti-patent troll bill with a vote of 325-91.  The bill required patent holders to disclose more information in their demand letters and provided defendants greater tools to combat patent trolls during litigation.  The Senate Judiciary Committee then also took up a broad patent troll bill.  The Judiciary Committee held hearings and again, bipartisan support emerged.  However, as the Committee prepared to move the bill forward for a vote, it was suddenly taken off the table.  This shift in momentum stunned many lawmakers and sent a clear message that the many stakeholders involved were no longer fully in consensus.   

Yesterday, the House Energy and Commerce Committee’s Subcommittee on Commerce, Manufacturing and Trade passed a far more limited and focused proposal 13-6 that specifically addresses issues posed by demand letters from patent trolls.  

This most recent bill, titled, “Targeting Rogue and Opaque Letters (TROL) Act of 2014”, is sponsored by the Chairman of the Subcommittee, Rep. Lee Terry (R, NE).  It states that certain types of patent demand letters that fail to have adequate specificity are unfair or deceptive acts or practices under the FTC Act.  It also clarifies the authority of the FTC and state attorneys general to prosecute those sending abusive demand letters, while preempting the increasing number of patent troll state laws already in place.  

Yesterday’s Subcommittee vote highlighted a seeming growing split between Republicans and Democrats on this issue.  One main point of contention is the preemption of current state laws.  Rep. Welch (D, VT), during the debate on the bill, asserted that the Attorney General’s office in his state uses a stricter set of laws than this new bill would provide, and therefore preemption should not be required.  Another issue Democrats on the Subcommittee stressed is their claim that the FTC, state AG’s, and other relevant stakeholders were not fully invited to participate in discussions on the final version of the legislation.  However, those on the other side of the aisle, in particular the Chairman of the Subcommittee, Rep. Terry, maintained that this bill is the product of very divergent interests coming together to solve the problem.  It now remains to be seen whether the full committee will act on the bill.

The ANA believes that the patent troll issue needs to be resolved quickly.  The ANA has many members who are the largest patent holders in the U.S.  Many of our members also have been the victims of patent trolling, highlighting the need for balance in this process.  The ANA is working with the SPAN (Stop Patent Abuse Now) Coalition, particularly focusing on the issue of demand letters.  Through this industry coalition, we are seeking to find consensus in this area to assure that legitimate patent holders’ rights are protected, while developing means to combat patent trolls.  Also, the ANA and the American Association of Advertising Agencies (4A’s) are working together on a program that gives our members the opportunity to confidentially come to us if they are facing problems from a patent troll.  The Patent Assertion Information Aggregation and Dissemination Program (PAID) aggregates and combines the information from members and relevant marketing-related patent information. This information is then disseminated to members of the marketing community via periodic Patent Assertion Landscape Summary (PALS) updates. These updates provide association members with a strategic advantage in monitoring and assessing patent assertion demands by Patent Assertion Entities (PAEs).  ANA and 4A’s members can monitor PALS information updates by going to the 4A's Patent Forum Website.

We also have launched a series of meetings to be held all across the country to provide a forum for our members and hear their stories on patent issues.  Through these efforts, the ANA will continue to work toward a consensus that can provide clarity for lawmakers in the policymaking process.

Proof that Facts are Needed in the Discussion on Obesity and Advertising

Posted: Jun 25, 2014 12:00am ET

Last week, Mark Bittman wrote an article in The New York Times titled, “Parasites, Killing Their Host.” (6/17/14) The article hurls a wide range of serious charges at the food industry and its advertising.  Bittman claims that, “Even a mindless parasite knows that if it kills its host the party’s over, and by pushing products that promote ‘illth’ — the opposite of health — Big Food is unwittingly destroying its own market.”  

Yesterday, The New York Times ran a letter to the editor I wrote in response to this article, because Bittman’s totally unsubstantiated assertions deserve to be addressed.  

For starters, it is a widely accepted fact that there are multiple causes driving obesity in the United States.  Bittman unfortunately ignores this reality to solely focus on advertising.  One of these key factors is geographic location within the country.  According to CDC data from 2012, there was a 14.2 percentage point difference between the states with the highest and lowest obesity rates.  Colorado was the lowest with a 20.5 percent obesity rate and Louisiana was the highest at 34.7 percent.  The states with the highest rates were found in the South and the Midwest.  If, as Bittman claims, food advertisers actually were only in the business of hurting their customers for profit, there would be evidence that they are using different advertisements to target the consumers in these areas with the highest obesity rates.  However, this is simply not the case.

The CDC has also released data that suggests the obesity epidemic is getting better for at least one age group.  In a recent study, the numbers showed that obesity rates had dropped 43% among children 2-5 years old.  This progress was praised by many, including First Lady Michelle Obama.  This step forward was especially lauded because children under the age of 5 who are overweight are five times as likely to be overweight or obese when they become adults.  If it were true that advertising was the driving cause of obesity, then this shift should not be taking place.  Advertising is not generally directed to children of this age group and parents clearly are making the purchasing decisions.  

Another key piece of evidence Bittman chose to belittle is the force of the marketplace.  Bittman states, “Some profitable corporations nibble at the edges of [change] already, but — as a piece in the current Harvard Business Review points out — American capitalists have become poor innovators.”  Clearly Bittman is blind to all of the innovations food companies have carried out recently to provide a vast array of new and improved products consumers want to buy.  

In response to a call for healthier offerings, food companies in the last few years have made over 20,000 reformulations to products to make them lower in calories, fat, sugar and sodium.  

The food industry has also taken on major self-regulatory efforts to address concerns about advertising to children.  The Children’s Food and Beverage Advertising Initiative (CFBAI) shifted the content of ads directed to children 12 and under to better-for-you food offerings.  The 17 participants in the CFBAI represent over 80% of child-directed TV food advertising.  The FTC has supported the industry’s self-regulatory efforts and in a 2012 report commended the industry for making improvements.  Bittman claims that, “Only the naïve, however, would believe that Big Food is generally working toward [change].”  But only those who willfully ignore the billions of dollars spent in the effort by the food industry to meet consumers’ demands in regard to healthier food offerings and the major changes in advertising to children could possibly make these patently false changes and allegations.  

Food Advertising Under Attack Yet Again

Posted: Jun 20, 2014 12:00am ET

Recently, there has been a major resurgence of efforts to substantially change the status quo of food advertising in the U.S.  In mid-May, Senator Richard Blumenthal (D-Conn.), Chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee, and Senator Tom Harkin (D-Iowa) introduced the Stop Subsidizing Childhood Obesity Act of 2014.  This legislation would end the federal tax deduction for advertising foods of “poor nutritional quality” to children, “children” being defined in the bill as anyone under 14 years of age.  The change would include marketing for beverages, candy and chewing gum, along with other foods.  The bill would also require the Institute of Medicine (IOM) to develop procedures to identify which foods and brands should be included under the new limitation.

This effort would be in addition to proposals pending in both the House and Senate tax writing committees to amortize 50% of all advertising expenses for either 5 or 10 years.  This one-two advertising tax punch would clearly have a devastating impact on food, beverage, and restaurant marketers.

If this new effort was not enough, a recently released documentary entitled “Fed Up” attempts to uncover why generations of American children will now live “shorter lives than their parents.”  The film, led by TV journalist Katie Couric, producer Laurie David (who also produced the Academy Award-winning film “An Inconvenient Truth”), and director Stephanie Soechtig, claims the food industry is almost single-handedly responsible for America’s obesity epidemic due to advertising of sugar-laden foods.  It suggests that people will stop trusting advertisements once they become aware of what manufacturers are actually putting in food.  What “Fed Up” fails to acknowledge are recent CDC studies that found that obesity for children under 5 years of age has been reduced by as much as 43 percent.  

All of the attacks also ignore several positive initiatives by the food advertising industry to combat obesity.  The industry, for example, has cut more than 6.4 trillion calories from foods in the last four years.  Many major companies have reformulated 20,000 products and now offer lower calorie, lower fat, lower sodium, or lower sugar options.  The self-regulatory efforts of the Children’s Food and Beverage Advertising Initiative (CFBAI) have shifted the content of ads directed to children 12 and under to healthier foods.  The 17 participants in the CFBAI represent about 80% of child-directed TV food advertising. Healthy meals and products with lower sodium, sugar, or fat content are now the focus of the majority of advertising on child-directed media.

Obesity, especially childhood obesity, is a major problem.  Fortunately, the food and ad communities are systematically carrying out major programs to combat these dangers and provide healthy options for consumers.

Senate Finance Committee Reexamining Tax Reform

Posted: Jun 9, 2014 12:00am ET

On Thursday, Senate Finance Committee Chairman Ron Wyden, D-Ore., and Ranking Member Orrin Hatch, R-Utah, confirmed that they are still committed to overhauling the nation’s broken tax code through comprehensive reform.  In a joint statement, Wyden and Hatch announced three upcoming hearings on issue areas that are “essential to a modern, effective tax code.”  These hearings include education, ID theft, and corporate tax reform topics and are slated for June and July, although no definitive dates have been set yet.

Wyden and Hatch stated, “When it comes to tax policy, comprehensive tax reform is our ultimate objective, and we are committed to using these hearings as the building blocks to that goal.”  Chairman Wyden has been a longtime supporter of comprehensive tax reform and has already pushed forward on this goal several times during his four months as Chairman.  Most notably, he worked to pass out of his committee a major tax extender package that included 56 provisions not part of the permanent tax code.  Following this vote, he stated unequivocally that as long as he was Chairman, these provisions would not pass again without being part of a major tax reform package.

While ANA is strongly in favor of tax reform and the lowering of the corporate tax rate, we believe this effort must be done carefully and thoughtfully.  Furthermore, it must not undermine the generation of jobs and economic activity in the U.S.

Unfortunately, the proposals to amortize advertising over five or ten years, which have been put forward in both the House and Senate tax committees, seriously fail to meet these criteria.  These proposals, by burdening the effort to sell, would place a substantial drag on the economy.

ANA will continue to fight to protect the viability of advertising.  While a comprehensive reform package is unlikely to be passed this year, these new hearings are directed toward creating the foundation for the final tax reform package, and therefore need to be very carefully monitored.

Advertisers’ Role in Protecting Location Data Privacy

Posted: Jun 5, 2014 12:00am ET

Yesterday, the Senate Judiciary Committee’s Subcommittee on Privacy, Technology, and the Law held a hearing on location data privacy. The hearing focused on a bill sponsored by Senator Al Franken (D-MN) called the “Location Privacy Protection Act of 2014.”  This bill addresses voluntary location tracking of electronic communications devices, especially “stalking apps” on cellphones.  Senator Franken’s goal is to help victims of stalking and domestic abuse and to give consumers control over their sensitive information.

While the hearing mainly focused on these so-called “stalking apps,” Lou Mastria, Executive Director of the Digital Advertising Alliance (DAA), was given the opportunity to testify on behalf of advertisers and the DAA.  While online advertisers do collect data from individuals for interest-based advertising, which allows ads to be targeted to specific interests, Mr. Mastria made the distinction that this data is far different from data collected by “stalking apps” and should be carefully and completely differentiated from it.  In regard to location data for commercial purposes, Mr. Mastria stated, “For the collection of precise location data, the DAA program requires consent prior to collection and the provision of an easy to use tool to withdraw such consent.”  

The centerpiece of Mr. Mastria’s testimony was the self-regulatory efforts of the DAA.  The DAA was founded by the ANA and a number of other major industry associations to administer and promote self-regulatory principles for online data collection and use.  The DAA’s principles have already been adopted by a large number of advertisers and others in the ad community for the desktop arena, and the Mobile Guidance program for addressing data practices on mobile or other devices is currently in the roll out process.  

There is proof the DAA’s efforts are working.  The DAA icon is served more than a trillion times a month to alert consumers to the use of interest-based ads.  Over 30 million unique Internet users have gone to the DAA website to learn about the program and to have the opportunity to opt-out of having interest-based ads served to them if they don’t desire to receive this information.  After examining these options, only 3 million people have opted out of the program.

There is a strict enforcement arm to the program as well.  To date, the DAA has pursued over 30 investigations against entities engaging in practices that do not adhere to the self-regulatory principles; in the one instance where there was not voluntary compliance, this information was forwarded on to federal regulators for further action.

For our information-driven economy to survive, self-regulation led by industry codes of conduct is the ideal way to balance privacy and innovation.  Accountability and enforcement, both key tenets of the DAA program, are best handled through industry self-regulation.  Federal legislators must be careful not to stifle the success and growth of online advertising in the push for greater safeguards against unrelated illegal activities.  

ANA Joins in Support of Federal Data Breach Legislation

Posted: May 22, 2014 12:00am ET

ANA has joined with fifteen other industry groups to call for Congress to pass federal data breach legislation this year.  The industry letter is available here.

High-profile data breaches recently have increased the focus of policymakers and consumers on data security and privacy issues.  Several data security bills have been introduced in the Congress and at least five congressional committees have held hearings this year on the most recent breaches.  The White House report on “big data” which was released on May 1st called for federal data security legislation.  The time has come for Congress to approve a clear federal standard.  Data security bills have been introduced for several years and jurisdiction is spread across several congressional committees, however no decisive action has taken place.  ANA firmly believes the time for Congressional action is now on this increasingly critical issue.  A unified, federal law that preempts the patchwork of 47 inconsistent state laws would help businesses better comply with data breach standards and ensure the safety of customer data.

European Court of Justice Establishes “Right to Be Forgotten” Online

Posted: May 15, 2014 10:30am ET

A surprising and potentially landmark decision dealing with the future of online privacy was handed down by the European Court of Justice in Luxembourg earlier this week. The case involved a Spanish national who filed a complaint alleging that when his name was entered into Google, the search results displayed links to two articles from 1998 that discussed the auction of his home, which had been repossessed. He contended that Google should be required to remove or hide the links from appearing in a search request, as the cases were resolved and therefore “irrelevant.”

A 1995 EU directive established privacy protections regarding how personal information is processed. It allowed for consumers to request that this data be erased in certain situations.  Based on this directive, the European Court of Justice found that Google is a processor and controller of personal information based on its search function and is therefore required, if asked, to remove links to web pages relating to a person from search results, even if the material contained in those links is true.

In determining when such request should be honored, the court found that a “fair balance” should be sought between the interests of free access to information and the privacy rights of individuals. This balance, the court determined, should be tilted towards the individual’s right to privacy, except in specific cases based on the nature of the information and the interest of the public having the information (such as if it concerns a public figure). If it is found that the inclusion of such links in a search result is incompatible with the rights of the individual, then a right to be “forgotten” exists and the links should be removed.

The case could have major implications on freedom of expression. It lets individuals determine what is presented in a search request online without regard for truth or falsity. It also interferes with the free expression rights of search engines and online publishers to allow legitimate information to pass to end users. Instead, it would require companies like Google or Twitter to serve basically as censors and remove data whenever the subject of the information asks, even if the information about them is true and lawfully published. The information would still exist, but search providers would be prevented from delivering it. It requires the search engines to determine whether to block access to third-party information to which they are merely providing links, asking them to use their judgment rather than any legal process.  

This case also starkly demonstrates the different paths the European Union and the United States are taking on privacy issues. In the United States, such a ruling would most likely never happen due to the strong constitutional protections provided by the First Amendment in favor of free expression. Signals such as these from Europe indicate that the EU may be in the process of taking more strident positions on privacy issues across the board. Advertisers are likely to be drawn in to the debate as the EU moves forward in regard to data privacy and security.

This decision puts many online companies, not just Google, in a precarious position. Will they have to honor European requests to delete information that was lawfully published in the United States? Will Facebook need to “untag” persons in photos that show them engaged in activity they would now prefer to be hidden? How long a period will there need to have passed to make information “irrelevant?” These Solomonic decisions are far from simple. What this decision means for companies that do business in Europe remain to be seen, but is likely to be time consuming, expensive, highly burdensome, and undermine free speech values.

ICANN Delegates First New English Language Top Level Domains

Posted: Nov 11, 2013 12:00am ET

ICANN has released the first nine English-language new Top Level Domains (TLDs). These are not the first new TLDs to be delegated, as four non-Latin script TLDs have been delegated previously. ICANN has said the list of new names will be updated, “as the measured rollout of the new gTLDs progresses over the coming years.” Now is the time for brand holders to take action to protect themselves within the limited trademark protections that have been approved by ICANN. Information about the Trademark Clearinghouse, which will allow brand holders to protect their names, is available here.

We encourage all brand holders to be proactive in protecting themselves in the beginning of this unprecedented expansion of Top Level Domains.


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About This Blog

Focuses on all federal and state government and legal initiatives that threaten national advertisers' freedom of commercial speech. The blog is penned by Dan Jaffe, the ANA's Group Executive Vice President, Government Relations, who also heads the trade association's Washington office.