October 27, 2006
Sports Litigation Alert
Sports-related brand integration is appearing in more and more places including endorsements and sponsorships of sporting events, co-promotions with service providers and entertainment companies and insertion of sports footage or sports-related props into television shows and movies.
Examples of this include:
1. The NBA partnered with Paramount Pictures to promote the release of "Mission Impossible III." The movie was the exclusive advertiser on the NBA web site on the day the movie opened and the movie was heavily promoted during NBA playoff coverage on TNT and on NBA TV Broadband distributed to wireless devices.
2. Sporting News magazine promoted the NASCAR movie "Talladega Nights" by packaging a single issue in a fake cover showing the Will Ferrell character, publishing a column written by the Will Ferrell character. It included an article written by a Sporting News editor about his experience as an extra in the movie.
3. The NFL and Sprint entered into a five-year, $600 million dollar deal that will allow Sprint cell phone subscribers to access NFL audio and video highlights.
4. T-Mobile USA announced a deal with the NBA and the WNBA, believed to be worth more than $100 million over at least three years, offering news, statistics and participation in All-Star voting.
5. ESPN signed six category-exclusive sponsors for its branded mobile service, Mobile ESPN. Each sponsor will be able to run three to five minute ads before content is played.
6. Footage from Canadian Football League games has been seen on "The Sopranos," "The West Wing," "Las Vegas" and several other television shows and movies. Licensing fees are usually lower than fees to use NFL footage.
7. Nike partnered with singer-dancer Rihanna to promote its fitness apparel and her latest single. Visitors to her web site can click on links to learn dance and workout moves and to get information about Nike products.
Legal Landscape of Brand Integration and Product Placement
Right now, the primary legal issue relating to brand integration and product placement deals centers on disclosures and fair advertising concerns.
Brand integration and product placement are part of a larger trend in the blurring between advertising and editorial content which are treated differently. The First Amendment does not protect commercial speech to the same extent as non-commercial speech. For example, if branded integration content constitutes advertising rather than editorial content, it must not only be truthful, but any claims contained in such content must be substantiated and comply with other advertising guidelines.
Magazine publishers have come under increased criticism and scrutiny for not having clear demarcations between editorial and advertising content.
Federal Communications Commission - Sponsorship Identification Laws and Regulations
Section 317 of the Communications Act of 1934, as amended, 47 U.S.C. § 317, requires broadcasters to disclose to their viewers and listeners if material has been broadcast in exchange for money, services or other valuable consideration.
The FCC's rule relating to section 317, found at 47 C.F.R. § 73.1212, spells out how broadcasters should comply with this requirement:
"(a) When a broadcast station transmits any matter for which money, service, or other valuable consideration is either directly or indirectly paid or promised to, or charged or accepted by such station, the station, at the time of the broadcast, shall announce:
(1) That such matter is sponsored, paid for, or furnished, either in whole or in part, and
(2) By whom or on whose behalf such consideration was supplied: Provided, however, That "service or other valuable consideration" shall not include any service or property furnished either without or at a nominal charge for use on, or in connection with, a broadcast unless it is so furnished in consideration for an identification of any person, product, service, trademark, or brand name beyond an identification reasonably related to the use of such service or property on the broadcast."
47 C.F.R. § 73.1212.
These sponsorship identification provisions were also incorporated into the FCC's rules governing cable television system operators in September, 2000 (47 C.F.R. § 76.1615).
The FCC rules do not specify the actual language that must be used state that "reference must be made to the sponsor or his product in such a manner as to indicate clearly not only that the program is paid for, but also the identity of the sponsor." Many television shows have complied with this requirement by providing notice at the end of a broadcast that "promotional consideration was provided by XYZ Company."
Challenges to Product Placement and the FCC Sponsorship Identification Rules
There have been some challenges to product placement and the FCC sponsorship identification rules. Commercial Alert, a consumer watchdog group, filed a formal complaint, a request for investigation and a petition for rulemaking with the FCC in September of 2003. Specifically, Commercial Alert claimed that the television networks were failing to comply with the sponsorship identification requirements. The organization asked the FCC to initiate a rulemaking to require television networks and stations to clearly and conspicuously identify and disclose product placements at the beginning of a program and each time a product placement occurs. Commercial Alert claimed that existing FCC rules (that require a single notice at the end of a program) do not adequately address new forms of advertising such as product placement. The FCC has not yet responded to Commercial Alert's complaint or petition.
FCC Commissioner Jonathan Adelstein gave a speech in May of 2005, in which he said that undisclosed promotions are "payola" and are illegal. This applies "to product placements, video news releases, or anything for which payment is made but not disclosed," he said. He went on to say that the FCC should investigate Commercial Alert's claims that product placement violates sponsorship identification laws and step up enforcement in this area. Adelstein suggested that the FCC should require clear and conspicuous disclosures and should define what is meant by that term. However, Mr. Adelstein's comments are his own and may not reflect the FCC's position on product placement.
Federal Trade Commission Guidelines on Endorsements
The use of endorsements and testimonials in advertising is governed by the FTC Guides Concerning Use of Endorsements and Testimonials in Advertising (16 CFR Part 255) and case law. All testimonials must reflect the genuine, honest and current opinion of the person speaking. If the advertisement implies that the endorser is a regular user of the product, the advertiser must verify that the endorser is, in fact, a bona fide user of the product and believes what is said about the product. An essential quality of a testimonial is that it must be unbiased. Therefore, the advertiser must take certain steps in soliciting the testimonial to prevent bias.
Challenges to Product Placement and the FTC Act
Commercial Alert asked the FTC to investigate the growing practice of product placement in television shows and asked the agency to issue guidelines that would require, among other things, an on-screen disclosure every time a product placement appeared and a disclosure at the beginning of each program containing product placement. Commercial Alert argued that consumers are misled about whether a product placement is an ad unless consumers are told that an advertiser paid for the placement.
The FTC responded to Commercial Alert by letter (available at http://www.ftc.gov/os/closings/staff/commercialalertletter.htm.), saying that the Commission would not propose rules requiring advertisers or television networks to disclose product placements in a clear and conspicuous manner or require them to specifically identify product placements when they appear on screen. The FTC explained that failing to tell consumers that a product placement is an advertisement does not violate the FTC Act. The FTC also said that most product placements do not contain any objective claims about the product, and if such claims were made and those claims were deceptive or misleading, the FTC could take action against the advertiser under existing laws. Regarding spokespersons appearing on television shows who may praise certain products, the FTC noted that its' Guides Concerning the Use of Endorsements and Testimonials already require the disclosure of any "material connection" between an endorser and an advertiser.
FTC Response to Search Engine Practice of Paid Placement
In 2001, Commercial Alert asked the FTC to investigate search engines' practice of displaying certain search results based on payment. Commercial Alert claimed that some search engines had begun to display search results not based on relevancy, but based on whether web site owners had provided payment or other consideration for having their web site listed prominently on the results page. Commercial Alert claimed that such paid placements should be considered ads and that consumers were being deceived if the search engines did not provide clear and conspicuous notice that some results are displayed in exchange for placement.
Although the FTC declined to issue any formal rule regarding search engines' practice of paid placement, it did send letters to search engines including guidelines for clear and conspicuous disclosures of paid placement. Search engines should convey that the sites listed are placed higher, or otherwise presented more prominently, because they have paid for their ranking or position, rather than solely based on some objective criteria relating to the probable relevance of their content to any particular search request.
The FTC also stated that paid placement listings may be denoted by segregating them from non-paid listings. The FTC approved of using terms such as "Sponsored Links" or "Sponsored Search Listings," but said that terms such as "Products and Services," "News," "Resources," "Featured Listings," "Partner Search Results" or "Spotlight" could be misleading.
The FTC encouraged search engine companies to make changes to their paid-ranking search results to clearly delineate them as such, whether they are segregated from, or inserted into, non-paid listings. Factors to be considered in making such a disclosure clear and conspicuous are prominence, placement, presentation and proximity to a claim that it explains or qualifies.
Douglas N. Masters is the co-chair of the Intellectual Property Group at Loeb & Loeb, LLP. He helps sports leagues, athletes and advertisers protect and exploit their branding, marketing and other intellectual property assets.
This article first appeared in Sports Litigation Alert Volume 3, Issue 18 on October 27, 2006 (www.sportslitigationalert.com).