Regulatory Rumblings

Update: New TLD “.sucks” Creates Further Uproar

Posted: Apr 20, 2015 10:55am ET

By Clark W. Lackert, Reed Smith LLP

In our previous post last month on this hot issue, we urged ANA members to protest this new money-making scheme by ICANN which creates price gouging of brand owners and at the same time price subsidies for so-called protest sites. A new wrinkle in this debate has created additional furor, namely, ICANN would receive up to an additional $1 million for granting the registry agreement to the current registrar, Vox Populi. How was this done? The registry agreement creates a one time “registry access fee” of $100,000, and then a $1 “registry administration fee” for each of the first 900,000 domain names registered. This arrangement is truly unique and creates additional concerns about how ICANN is currently being managed.

In response to overwhelming negative community feedback to ICANN, and a strongly worded letter from the Intellectual Property Constituency (“IPC”) of ICANN, ICANN decided it needed to respond to these accusations. It directed its outside counsel to write to both the U.S. Federal Trade Commission and the Canadian Office of Consumer Affairs to determine if Vox Populi has violated any laws or regulations. It is also possible that these agencies may find ICANN itself in violation. ICANN also instructed their Chief Contract Compliance Officer, Allen Grogan, to investigate this issue further to determine if any contractual obligations have been breached. Finally, ICANN responded to the IPC in which they defended their actions but also indicated they were investigating any possible illicit activity further. Importantly, they encouraged ICANN community members to share any information on the “.sucks” rollout with ICANN to determine Vox Populi’s compliance.

Tax Day and the Threat to Advertising

Posted: Apr 15, 2015 12:00am ET

In an apparent symbolic gesture, the Senate Finance Committee chose April 15th as the day for the business community and other groups to provide their comments in regard to tax reform. The advertising community in particular has reason for extreme concern because of proposals put forward in the last Congress in both the Senate and House that threaten to radically transform the tax treatment of advertising.

These proposals would require advertisers, for the first time in this country’s history, to amortize or write off 50% of their advertising expenditures over 5 or 10 years. This change from the longstanding ability of advertisers to write off advertising expenditures immediately would impose an at least $169 billion in additional tax burdens on advertising over 10 years.

Recent data from IHS Global Insight, a world-renowned economic think tank, demonstrates that advertising annually creates multimillions of jobs and generates trillions of dollars for the U.S. economy.

Here are a few of the key findings:
•    Advertising supports 18.7 percent of U.S. GDP and 20.8 million of the 147.5 million jobs in the country
•    Each dollar spent on advertising expenses generates nearly $19 of economic output
•    Every $1 million spent annually on advertising supports 28 American jobs
Importantly, IHS Global Insight’s studies have found that advertising has profound positive job and economic stimulus impacts in every state and congressional district in the U.S.

In its filing today to the Senate Finance Committee, ANA noted that the vast majority of our major free-market economic competitors, including those with far lower corporate tax rates than the rates presently imposed in the U.S., have not saddled advertising efforts with these types of severe economic burdens.

On Tax Day, ANA once again is calling on the Congress to maintain the present tax treatment of advertising in order to support the continued vigor and viability of this crucial sector of our economy.

Our detailed filing can be found here.

Important Changes at the FCC Bring New Challenges for Advertisers

Posted: Apr 6, 2015 9:15am ET

At last week’s Advertising Law & Public Policy Conference, dozens of knowledgeable and informative speakers addressed a variety of important legal, legislative, and regulatory topics for advertisers. One of our speakers, FCC Commissioner Michael O’Rielly, addressed the increasingly significant role the FCC plays in the daily functioning of the advertising community.

According to Commissioner O’Rielly, the convergence of technology – particularly mobile technology – has created a new place for advertisers at the FCC. As the FCC oversees the mobile space, the role of advertising in communications media has become more important to the agency. This is a change from the past when advertisers were largely unregulated by the FCC and received scrutiny almost solely from the FTC on unfairness and deception issues. Now, advertisers and others may be susceptible to FCC regulation without a clear roadmap as to what is/is not permitted or expected.

The FCC’s recent foray into broadband regulation with new net neutrality rules demonstrates that it intends to be an extremely active player in the way that messages are communicated and received online. Privacy regulation, oversight of data security and breaches, and enforcement of various FCC rules and regulations will be the new reality for advertisers. The broadband rules will be subject to court challenge and possible legislative intervention, but as Commissioner O’Rielly pointed out, court decisions could be years away and the passage of legislation is still far from certain. So, advertisers will need to proceed as if the rules are in effect, at least until there is a stay issued by the courts or some other limit on their application.

This enhanced FCC participation may result in concurrent jurisdiction between the FCC and the FTC in some areas. In other ways, FTC regulation may be preempted and the FCC may emerge as the more dominant regulatory authority operating under very different regulatory standards. The exact lines of demarcation between the two agencies is very unclear at this point, so as Commissioner O’Rielly warned, marketers must be vigilant in keeping track of what is being done at the FCC.

Furthermore, the FCC is showing itself to be far more aggressive in regard to privacy, data security, and data breach issues. FCC regulators are not nearly as familiar with the business of advertising as are regulators at the FTC, since there has been a far longer history regarding FTC jurisdiction in our area.  It’s incumbent on advertisers to educate the FCC members and staff about our business, including challenges, opportunities and limitations that advertisers face.

2015 Advertising Law & Public Policy Conference Raises Key Questions for Advertisers

Posted: Mar 24, 2015 11:00am ET

ANA’s Advertising Law & Public Policy Conference takes place March 31-April 1 in Washington, DC this year. The conference focuses on the collision of law and policy in the advertising world. The slate of knowledgeable and influential speakers will address many key questions facing senior lawyers and business executives responding to the rapidly changing marketing ecosystem.

Among the key questions to be covered at the conference are:

New gTLD “.sucks” is Continuing to Cause Trouble for Brands

Posted: Mar 20, 2015 11:30am ET

By Clark W. Lackert, Reed Smith LLP

Now that the U.S. Senate hearing on the proposal by the Department of Commerce to transition the U.S. government’s roles overseeing ICANN’S authority over Internet governance has been completed, ICANN is preparing for the upcoming Buenos Aires meeting in June and needs to deal with another uproar over domain name gouging: “.sucks”. This new generic top level domain (“gTLD”) was roundly condemned by former Sen. Jay Rockefeller a year ago as “little more than a predatory shakedown scheme.” The new “Products and Suggested Retail Pricing” fee schedule just published by the “.sucks” registry Vox Populi has created a firestorm of criticism from brand owners and advertisers alike because it will generate huge costs for many parties. Nevertheless, ICANN has always said that domain name pricing is not within its control.  

The price tag of $2,499/YEAR for Sunrise Premium domain names, which are trademarks registered in the Trademark Clearinghouse (“TMCH”) and are designated by the registry as “premium” due to wide registration across other new gTLDs, is setting new pricing horizons. The registry’s expansive definition of premium domain names (i.e., premium names from other lists among other criteria) could sweep in a huge number of existing trademarks to create a significant windfall.

Although the fee is only a suggested retail price for registrars, it sends a strong message that the sky is the limit for this new gTLD. Also, there is a sliding scale of pricing for Premium domain names depending on how “premium” a domain name is using the registry’s classification system, as well as a charge ($199/YEAR) for a “block” (i.e., placing a domain name on the reserved list). “Consumer advocates” may need to pay as little as $9.95 later on in the registration timeline using a subsidy system, though it is still uncertain what the eventual costs will be. Thus, a brand owner of XYZ brand who wants to register “xyz.sucks” may well spend $2,499 per year or more for the life of the domain name to control the “.sucks” domain name for its brand. Other so-called complaint gTLDs, such as “.gripe”, are also cashing in on the new territory.

Brand owners and advertisers should be very concerned about this development. Not only do they now need to police almost 500 new gTLDs concerning use of identical or confusingly similar domain names, they must also review all the complaint gTLDs (such as “.sucks”) to police them and possibly register in them as well. Brand owners should communicate their objections to ICANN about this new way to abuse the domain name system merely to create quick profits.  Although ICANN states it does not interfere with pricing issues, it says it does welcome “community feedback”. To communicate to ICANN, you can contact the ICANN Ombudsman at ombudsman@icann.org or chris.lahatte@icann.org.  Concerns may also be submitted via the Ombudsman Complaint Page located at https://omb.icann.org/portal/complaint.php.

Reed Smith LLP is the ANA’s General Counsel.

Senate Finance Committee Requesting Comments on Tax Reform

Posted: Mar 12, 2015 11:00am ET

The Senate Finance Committee is requesting ideas on how to fix the nation’s broken tax code to make it simpler, fairer, and more efficient. In a statement released Wednesday, Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) said, “By opening up our bipartisan working groups to public input, we hope to gain a greater understanding of how tax policy affects individuals, businesses, and civic groups across our nation. In doing so, we will also equip our working groups with valuable input, and we hope these suggestions will help guide the groups through the arduous task of putting forth substantive ideas to reform the tax code in each of their areas.”

The Finance Committee’s goal is to obtain additional input, data, and information for the bipartisan tax working groups, which are currently analyzing existing tax law and examining policy trade-offs and available reform options within each group’s designated area. The five working groups include: Individual Income Tax, Business Income Tax, Savings & Investment, International Tax, and Community Development & Infrastructure. Interested parties can email suggestions to each group at the email addresses provided on the Committee website. Submissions will be accepted through April 15, 2015, and made public at a later date.

ANA will be sending comments to the Business Income Tax working group to highlight the importance of protecting the full tax deductibility of advertising in the tax reform process. Proposals have been put forward to dramatically change the present ad deduction approach, which allows advertisers to write off 100% of their ad expenditures in the year in which they are made. In its place, these proposals would require that 50% of advertising expenditures be written off over either 5 or 10 years, potentially costing the ad community at least $169 billion in additional taxes over a 10 year period. Amortizing advertising unfortunately would only serve to hurt businesses trying to stimulate the economy and provide jobs for hardworking Americans. We look forward to working with the Senate Finance Committee and Congress as a whole to find a tax reform solution that works for everyone and continues to spur economic investment by businesses in our country.

Business Community Wins Important Supreme Court Victory on State Tax Challenges

Posted: Mar 3, 2015 1:00pm ET

The U.S. Supreme Court issued a unanimous decision today which protects the ability of business groups to challenge state tax laws. Last fall, ANA joined with several other industry groups to file an amicus (friend of the court) brief with the Court.

The case, Direct Marketing Association v. Brohl, (U.S. Supreme Court Docket No. 13-1032) involves a challenge to a Colorado law that requires out-of-state merchants to disclose confidential information about their Colorado customers to the state’s revenue department.

DMA filed a lawsuit challenging the Colorado law, but the U.S. Court of Appeals for the Tenth Circuit ruled that the federal courts had no jurisdiction over the case because of the federal Tax Injunction Act (TIA). That act generally prohibits federal courts from blocking state tax collections. DMA argued that the Tenth Circuit’s interpretation of the TIA creates a serious restriction on the access of businesses to federal courts to challenge the constitutionality of state laws. ANA fully agreed with this position.

We are very pleased that the Supreme Court unanimously overturned the Tenth Circuit, allowing the challenge to the Colorado law to proceed. We think this is an important victory for the ad community.   

The Consumer Privacy Bill of Rights is Wrong

Posted: Mar 2, 2015 12:00am ET

President Obama’s recent announcement of a Consumer Privacy Bill of Rights unfortunately is a major step in the wrong direction. It will divert attention and energy from critical data security legislation and will not materially aid the privacy debate.

The Obama Administration appears, either consciously or unconsciously, to have realized this fact as the release of the draft was carried out in a manner almost certain to bury the proposal. The Administration released the Consumer Privacy Bill of Rights on a late Friday afternoon in the middle of an extremely busy news cycle focusing on the FCC’s recent net neutrality vote and a Department of Homeland Security funding crisis in Congress. If the Administration truly was trying to publicize an effort in which they had confidence, they certainly would have waited until this week to do so.

Nevertheless, opposition to the proposal came swiftly from all directions, including business, consumer groups, and both sides of the aisle in the Congress. Even the FTC, who would have taken the lead under this draft proposal, raised serious questions about it. The FTC stated, “We have concerns that the draft bill does not provide consumers with the strong and enforceable protections needed to safeguard their privacy.”

Senator Ed Markey (D-MA) chimed in emphasizing that the draft “falls far short of what is needed to ensure consumers and families are squarely in control of their personal data.” House Energy and Commerce Committee Chair Fred Upton (R-MI) and House Commerce, Manufacturing and Trade Subcommittee Chair Michael Burgess (R-TX) also issued a statement, emphasizing that the comprehensive draft bill went too far and that it should be more narrowly focused on data breach legislation. “Data breaches threaten consumers’ credit and pocketbooks and they are an annual drag on our economy of tens of billions of dollars. We hope that Congress and the administration can finally work together to address this growing problem before another decade of data breaches passes by.”

ANA encourages the Obama Administration rather than to attempt to develop a whole new sweeping privacy regime to recognize the broad number of existing federal privacy laws including Gramm-Leach-Bliley, the Health Insurance Portability and Accountability Act (HIPAA), the Children’s Online Privacy Protection Act, among many others, that already provide broad protection to consumers. These privacy laws are substantially supplemented by self-regulatory efforts carried out by the Digital Advertising Alliance to protect consumer online privacy. Just this last week, the DAA program was substantially expanded to cover mobile and mobile apps.  

Instead, lawmakers should focus for now on one area where there is growing consensus that something must be done quickly and effectively, and that is the creation of a national data breach notice and data security regime. ANA strongly believes that it is long past time to end a situation where there are more than 47 inconsistent and conflicting state data breach and data security laws. We must have one strong law for the country as a whole to protect consumers, businesses, and interstate commerce.

New Internet Regulation Rules Hold Great Significance for Advertisers

Posted: Feb 27, 2015 12:00am ET

Yesterday’s approval by the Federal Communications Commission of new Internet rules is a landmark change in the Internet regulatory landscape. It is almost certain to turn out to hold great significance for ANA’s members. The “devil still is in the details” of the 300-plus page document just approved. Although it’s not yet been posted by the FCC for public review, a few observations are already possible. In short, the FCC has now classified broadband services under Title II of the 1934 Communications Act, which means that high-speed services – previously largely unregulated -- will now be regulated in a similar manner to telephone companies (e.g., they must charge “just and reasonable” rates, they can’t unreasonably discriminate in charges or services, etc.). The FCC also relied on section 706 of the 1934 Communications Act (which permits the FCC to accelerate broadband deployment) and on certain other legal provisions that apply to mobile services, as the rules apply to wireless carriers as well. This is the FCC’s third attempt to adopt Internet regulations, since the two previous efforts were overturned by the courts.

Under the new rules, companies will be prevented from blocking access to content and services; they can’t impair or degrade traffic based on content/service; and they can’t give priority to particular traffic or content over others in return for payment. The FCC also will now be enforcing privacy policies, enabling the construction of new broadband pipes, and protecting those with disabilities. The FCC decided today to forbear for now (though not relinquish authority, so future changes could occur) from applying rate regulation, requiring automatic contributions to the Fund that ensures universal service for consumers, and applying Internet taxation.

Several new legal standards appear to be included in the new regulations, including an Open Internet conduct standard that precludes carriers from harming consumers, as well as a prohibition on unreasonable interference with Internet use. Both of these new standards will require additional interpretation and application in particular cases, so it’s unclear just now precisely what they mean and how far they will go. Also, until we see the actual language of the new rules, it’s not clear what will be the relationship between the FCC’s regulation and that carried out by the Federal Trade Commission. Under the FTC Act, the FTC cannot regulate an entity that is otherwise regulated as a common carrier by the FCC. The FCC’s action today seems to be partial common carrier application, so it’s quite possible that the FCC and FTC will now share some jurisdiction, with two potential “cops on the beat” for broadband. That could very well make it more difficult to ascertain where regulation by one agency starts and the other ends, as well as create potential compliance conflicts when and if the agencies impose differing requirements. So, we could have two privacy regulators, two entities determining what is unfair or unreasonable, and the like.  

Supporters claim the regulation is necessary to ensure against a world of Internet “haves” and “have-nots,” and point to the fact that some entities have been operating under Title II, continuing to invest in their infrastructure, and doing just fine. Critics complain that the Internet doesn’t need heavy-handed regulation, that this action will stifle innovation in products and services, and that this is just the beginning of ever-increasing regulation of the Internet. What seems certain is that the new rules will face substantial challenges in court. Furthermore, as was stated in a Washington Post article, “Other groups and companies are contemplating whether to ask for a stay of the rules — a legal order that would temporarily prevent the FCC’s regulation from taking effect.” Clearly, it is likely there will be several years of litigation yet to come. This time period would allow Congress ample time, if it so chose, to craft a proposal to supersede the FCC’s regulation. House Speaker John A. Boehner (R-Ohio) and Majority Whip Steve Scalise (R-La.) have already signaled that they plan to work on an alternative approach to net neutrality that doesn’t allow for broadband to be classified as a utility service.

Stay tuned; we’ll be reviewing the details of the new rules and closely consulting with our members as the issues raised by this new major initiative begin to become clearer.

Digital Advertising Alliance Launches Valuable Tools to Protect Consumers’ Privacy

Posted: Feb 25, 2015 12:00am ET

The Digital Advertising Alliance (DAA) today launched two new mobile tools for consumers – "AppChoices" and the "DAA Consumer Choice Page for Mobile Web." These innovations mirror the programs currently available on desktop browsers, which provide mechanisms for consumer choice and enhanced privacy controls. This evolution in the DAA's choice platforms adapts consumer-friendly, independently enforceable privacy controls to the fast-growing mobile medium, and is a large step in the right direction – towards tailored marketing and privacy protections.

The ANA supports these simplified means to control data collection and use across websites and mobile apps. As a member of the DAA Self-Regulatory Program, the ANA is committed to developing effective self-regulatory solutions for online data alongside its industry partners.  These tools are a representation of that mission, and were developed to provide a consistent user experience across these channels, the DAA reports. The two new mobile enhancements will help ensure that users have access to simple control mechanisms for mobile browsers and in-mobile applications. Starting today, AppChoices is available as a free download from major online mobile app storefronts, Google PlayTM, Apple App StoreSM, and Amazon Store.

Bob Liodice, President and CEO of the ANA, noted that “Mobile media has become foundational to the growth and effectiveness of consumer marketing. By launching a suite of new mobile privacy tools, DAA gives consumers comprehensive control over the interest-based advertising that they experience across the Internet. Marketers know consumers have become increasingly mobile. DAA’s important innovations ensure that consumers can confidently manage how they receive interest-based ads across all desktop and mobile media. We are very proud of this major step forward – a step that improves the quality and trustworthiness of our self-regulatory system."

The DAA also announced that it expects its independent accountability programs – the Council of Better Business Bureaus (CBBB) and the Direct Marketing Association (DMA) – to commence enforcement under the Mobile Guidance by late summer.

Based on the same self-regulatory principles underlying the DAA’s existing Consumer Choice Page for desktop Web browsers, AppChoices provides an easy-to-use interface to allow users to set their preferences for data collection and use across apps for interest-based advertising and other applicable uses. The DAA Consumer Choice Page for Mobile Web is an updated, mobile-optimized version of the desktop Consumer Choice Page already used by millions of consumers; and which will allow consumers to set their own preferences for data collection and use easily across the mobile sites they visit. The ANA will continue to support the innovative developments of the DAA, and the overarching goal to protect the privacy of consumers everywhere.

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About This Blog

Penned by Dan Jaffe, the ANA's group executive vice president of government relations, this blog focuses on advocacy initiatives and key legal/regulatory issues that threaten national advertisers' freedom of commercial speech.