As 2023 draws to a close, advertising lawyers are thinking about the major developments over the course of the year. We're also figuring out which marketing agreements and practices should be prioritized for review and possible updates in light of those developments. Here's what we and our colleagues are recommending:
Create AI policies: We asked Chat GPT for a metaphor to describe the impact that artificial intelligence is having on the world. Its answer:
AI can be likened to a sophisticated navigator guiding humanity through uncharted waters. Just as a skilled navigator helps a ship navigate turbulent seas, AI assists us in navigating the complexities of vast data sets, guiding decisions, and uncovering insights that would otherwise remain hidden. It steers industries, governments, and societies toward more informed and efficient paths, helping them traverse the unknown.
A rosy perspective, but what did you expect from a chatbot powered by a large language model?
If you managed to avoid crafting AI guidelines for your company, now it's time. If you already have an AI policy, you should revisit it early and often given the speed at which AI technology and the regulatory landscape is changing. So, after the holidays are over, gather stakeholders from across your company – from the C-Suite, legal, privacy, compliance, IT, HR, operations, and marketing – so you can get diverse perspectives on whether, when, and how AI can be used to improve your company's business, on the ethical guardrails for using AI (including fairness, transparency, and accountability), on how to balance the benefits of AI (efficiency, speed, cost) against risks (questions about ownership of AI-generated material, risks of infringement, etc.), and on proper data governance to ensure privacy, security, and responsible data handling practices. You may be surprised on what you will learn – and how interesting (and yes fun) the process of creating an AI policy can be.
Audit Your Online Interfaces: We heard a lot from the regulators about dark patterns again this year. It's time for marketers to re-examine their consumer-facing websites, particularly e-commerce sites, to see if they employ any functionality or graphics that could be considered "dark patterns," i.e., ones that encourage consumers to unwittingly make decisions, like purchase or privacy choices, that favor the marketer but not themselves. For example, are there bright colors or animated graphics that distract from or obscure important disclosures, or buttons that are labeled in a confusing way; are items added to the shopping cart without the consumers affirmatively putting them there? Marketers would be well-advised to clean up these features before regulators tell them to.
Make Sure Your Subscription Flow Is Compliant: One very frequent example of a dark pattern cited by regulators is in the area of negative option and automatically renewing agreements. These are also the subject of more and more, and stricter and stricter, state statutes, as well as pending FTC rule-making. We may not know the ultimate outcome of the FTC's rule-making yet, but we already know that certain features are critical in any subscription flow: clear (unavoidable) disclosures that the subscription is ongoing and the consumer's payment method will continue to be charged automatically unless and until she cancels (and how); a mechanism for capturing the consumer's affirmative consent to those future ongoing charges; receipt of the purchase and periodic notices of renewal; and an easy and effective method of cancellation. Without these basics in place, a marketer's subscription program is vulnerable.
Pay Attention to Ambush Marketing Issues: In 2024, many major events will cause advertisers to need to keep a close eye on ambush marketing rules. It's all about playing fair and not stepping on the toes of those who've paid big bucks to be official sponsors. So, when shaping your campaign, be careful not to use the intellectual property of the events or other official sponsors.
Update Your Endorser/Influencer Agreements: The FTC issued updated Endorsement Guides and FAQs this year. The changes were significant enough to warrant a review of existing social media policies and agreements. The FTC's recent enforcement actions on endorsements underscore both the FTC's continued interest in influencer marketing and its focus on getting disclosures right. New points to consider include: the unavoidability of disclosures (in the caption, on screen and in audio?), identifying the sponsor of the advertising, adding specific affiliate disclosures when an influencer stands to earn revenue from sales of the product promoted, and more!
Review Your Product Review Collection and Use Practices: Collecting and maybe actively soliciting reviews from customers? And then aggregating your star ratings to make advertising claims? Or picking out reviews to highlight? Who isn't. In light of ongoing regulatory concerns with the review eco-system, not to mention the FTC's proposed rulemaking, it's critical for marketers to review their review hygiene to ensure that they are collecting, responding to, and using reviews, in a transparent way that communicates truthful messages about the marketer's products and services and what consumers think of them.
Revisit Your Green Claims: In recent years, California has passed two new important laws related to environmental marketing claims, SB 343 and AB 1305, and marketers should be thinking about each of them as we enter 2024. The newest one, AB 1305, requires companies that market carbon offsets, or make certain carbon emissions claims, to include certain disclosures on their website. If you're making these sorts of claims, you should prioritize collecting necessary information so you can get those disclosures up on your website. Similarly, SB 343 will rear its head in 2024. That law prohibits the use of recyclability claims (including the chasing arrows symbol) unless the product or packaging meets state recyclability requirements or qualifies for an exemption under the law. We'll learn more about what those state recyclability standards are when California publishes its first material characterization study, expected in spring 2024, and marketers will need to bring their claims into compliance within 18 months after that study is released.
We are also awaiting the FTC's revisions to its Guides for the Use of Environmental Marketing Claims (Green Guides), and to see whether the Commission engages in rulemaking to codify (some or all of) the standards set forth in the Green Guides. It's not easy being green!
Take a Good Hard Look at Any Add-On Fees You Charge: The FTC issued proposed rule-making on "junk fees" this year and a few states are already following suit. Marketers who charge fees on top of their base prices (whether for shipping, delivery, service, or otherwise) should be examining their pricing practices, and their advertising, to determine whether these fees can and should just be built into the cost of their products and services or, if not, if they are appropriately characterized and sufficiently well disclosed in their advertising. It's important to keep in mind that the FTC has characterized "junk fees" not just as "hidden and undisclosed" fees but also "unfair or deceptive fees that are charged for goods or services that have little or no added value to the consumer, including goods or services that consumers would reasonably assume to be included within the overall advertised price."
Review The Flow and Substance of Your Terms of Service: Online contract formation has been a hot litigation topic in 2023. Recent cases have challenged the enforceability of companies' online contracts because they failed to either give clear notice of terms binding the consumer or get an explicit action from the consumer (like their clicking a button) to show assent to the terms. Thus, in 2024, companies looking to enforce online terms should focus on using language, font, and formats that a reasonably prudent Internet user would notice and understand, and on getting explicit consent from consumers rather than relying on passive methods like a browse-wrap agreements or email.
Companies should also review the substance of their terms of service in 2024. There has been an uptick in cases alleging violation of California Civil Code 1670.8, which (among other things) prohibits including provisions in terms that waive a consumer's right to comment on a seller or its products/services. Thus, 2024 would be a good time to review terms of service for any language that could violate this CA law. We've also seen a recent move by plaintiffs to file "mass arbitrations," which can quickly saddle companies with huge sums in fees just to start the arbitration process. Thus, it would be prudent for companies with arbitration provisions in their terms of service to review their dispute resolution provisions to mitigate against the risk of mass arbitrations.
Support Your Health Claims: Last December, the FTC released its Health Products Compliance Guidance, which provides guidance on how to ensure that claims about the benefits and safety of health-related products are truthful, not misleading, and supported by science. Since that release, the FTC has pursued a variety of allegedly unsubstantiated health claims—from anti-virus claims, to representations about alcohol craving reduction and addiction treatment, to health and safety claims about sugar and aspartame. This enforcement activity underscores the need for "competent and reliable scientific evidence" supporting any health-related claims you make in your advertising.
Review Your Cybersecurity Practices: Breaches led the headlines in 2023, and cybersecurity regulatory enactment and enforcement is going to lead in 2024. The SEC's Cybersecurity Rules for public companies are causing significant confusion, and public companies need to develop enhanced cybersecurity disclosure controls. Investment advisers and broker dealers should expect the SEC to issue substantive cybersecurity Rules as well. The New York Department of Financial Service's revised Cybersecurity Regulation increases the compliance requirements for covered entities. California is poised to finalize for comment a broad Cybersecurity Audit Regulation. And, breach response will remain uncomfortably active. Focusing on the design of the cybersecurity program, testing the effectiveness of controls, and cybersecurity regulatory compliance will help companies address these risks.
Build Your Data Governance Program: Five new comprehensive state privacy laws took effect in 2023, and businesses should expect regulators to start enforcing these laws in 2024. It is crucial for businesses to stay ahead: understand these laws (and new state privacy laws taking effect in 2024), especially around AI, automated decisions, SDKs, and health data, and make sure your practices are up to par. Building a data governance program will go a long way toward accountability and demonstrating compliance.
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