United States: Socially Aware: The Social Media Law Update - Volume 5, Issue 3

Last Updated: May 28 2014

Edited by John F. Delaney, Gabriel E. Meister and Aaron P. Rubin

In this issue of Socially Aware, our Burton Award-winning guide to the law and business of social media, we analyze a groundbreaking FTC complaint alleging deceptive practices online that could turn website Terms of Use into federal law; we summarize a U.S. Supreme Court copyright case that could impact existing technologies and future technological innovation; we discuss a ruling from Europe's highest court that will aid copyright owners in the fight against illegal streaming sites; we report on new SEC guidance on social media use by investment advisers as it relates to testimonials; we take a look at the development of the Internet of Things and the many regulatory, privacy and security issues that go along with it; and we highlight a recent class action decision that potentially impacts any company that hosts videos on its website.

All this—plus a collection of thought-provoking statistics about digital music...


By D. Reed Freeman, Jr., John F. Delaney and Adam J. Fleisher

The Federal Trade Commission's (FTC) announcement that it had filed a complaint against Jerk, LLC and its websites like "jerk.com" ("Jerk") looks at first glance like a run-of-the-mill FTC Section 5 enforcement action involving allegedly deceptive practices online. But hidden in the facts of Jerk's alleged misbehavior is a potentially significant expansion of the FTC's use of its deception authority.

According to the FTC's complaint, Jerk allegedly led consumers to believe that the profiles on its websites were created by other users of the website. The company also allegedly sold "memberships" for $30 a month that supposedly included features that would enable consumers to alter or delete their profiles, or to dispute false information in the profiles. Jerk also charged consumers a $25 fee to email Jerk's customer service department, according to the FTC's complaint.

The FTC alleges that Jerk created between 73.4 million and 81.6 million unique consumer profiles primarily using information such as names and photos pulled from Facebook through application programming interfaces, or APIs. The complaint states that "[d]evelopers that use the Facebook platform must agree to Facebook's policies," such as obtaining users' explicit consent to share certain Facebook data and deleting information obtained from Facebook upon a consumer's request.

These alleged facts lend themselves to a straightforward violation of Section 5 of the FTC Act for deceptive acts or practices. Jerk allegedly represented that the content on its websites was user-generated, while it was in fact primarily pulled by Jerk from Facebook, making Jerk's representation false and misleading. The FTC, however, has gone well beyond this straightforward deceptiveness accusation here. Rather than simply alleging that Jerk's representations were false and misleading because the content was not generated by users, but rather from Facebook information, the complaint goes much further in alleging that Jerk "populated or caused to be populated the content on the vast majority of Jerk profiles by taking information from Facebook in violation of Facebook's policies...." The fact that the information was pulled from Facebook in violation of Facebook's policies does not seem to be material— let alone essential—to the deceptiveness allegation. Nonetheless, the complaint only alleges that "the representation [regarding the source of the content] was, and is, false or misleading" after stating that Jerk took information from Facebook in violation of Facebook's policies.

The FTC is breaking new ground here. Jerk is not the first time the FTC has brought a case based (in part) on an alleged violation of another company's terms or policies, but it is the first time the FTC has alleged that the violation of another company's terms or policies can be part of a violation of Section 5 in its own right. In January 2000, the FTC brought a complaint against ReverseAuction.com ("Reverse Auction"), an auction website that was attempting to compete with eBay. The FTC's complaint was based, in part, on the allegation that Reverse Auction obtained and used email addresses and user IDs of eBay customers "after registering as an eBay user and agreeing to comply with and be bound by eBay's User Agreement." Like Facebook, eBay requires users to adhere to its applicable policies. In both the Reverse Auction and the Jerk matters, the FTC charged that the applicable website operator failed to comply with the policies that applied to such website operator's actions. The crucial difference between the cases is that, in Reverse Auction, the FTC's theory of deception was that Reverse Auction "represented to eBay" that Reverse Auction would comply with eBay's policies. In light of this precedent, Jerk is significant because the FTC's complaint alleges only that Jerk made false representations about the source of its information, not about its compliance with Facebook's policies per se. In other words, the FTC's complaint can be read to suggest that simply using information pulled from Facebook in violation of Facebook's policies is a deceptive act or practice, without any alleged misrepresentation to Facebook regarding the use of the information.

The FTC's Jerk action thus breaks away from Reverse Auction by characterizing actions inconsistent with a third party's policies as deceptive in their own right, as opposed to finding any representation regarding compliance with those policies to be deceptive. In that light, the FTC appears to have taken a case with ugly facts (including, allegedly, public availability on Jerk's websites of photos of children that had been tagged as "private" on Facebook) and leveraged such case to allege that noncompliance with Facebook's policies themselves is part of a violation of Section 5 in its own right. If the FTC continues to pursue this theory, it would essentially be turning Facebook's policies into "federal law," with compliance effectively enforced by the threat of Section 5 enforcement simply for using Facebook content in violation of Facebook's policies.


By Craig B. Whitney and Whitney E. McCollum

In a case that could have a broad impact on how companies deliver content to consumers, the Supreme Court heard oral argument on April 22 in American Broadcasting Companies, Inc. v. Aereo, Inc. (No. 13-461). At issue is whether Aereo's service engages in public performances under the Copyright Act in transmitting broadcast television content to its subscribers' wired and wireless devices. While the Justices questioned both parties on a variety of issues, a clear focus for the Court was the potential impact of its decision on other technologies not at issue in this case.


Aereo provides broadcast television streaming and recording services to its subscribers, who can watch selected programing on various Internet-connected devices, including televisions, mobile phones and tablets. Aereo provides its service through individual antennas that pick up local television broadcast signals and transmit those signals to a server where individual copies of programs embedded in such signals are created and saved to the directories of subscribers who want to view such programs. A subscriber can then watch the selected program nearly live (subject to a brief time-delay from the recording) or later from the recording. No two users share the same antenna at the same time, nor do any users share access to the same stored copy of a program.

In 2012, various broadcasting companies sued Aereo for copyright infringement in the Southern District of New York claiming, among other things, that Aereo's transmission of the plaintiffs' copyrighted content to Aereo's subscribers violated the copyright owners' exclusive right to publicly perform those works. That public performance right, codified in the 1976 Copyright Act, includes (1) any performance at a place open to the public or any gathering with a substantial number of people outside the "normal circle of family and social acquaintances," and (2) the transmission of a performance to the public whether or not those members of the public receive it in the same location and at the same time. This latter provision, commonly referred to as the Transmit Clause, was added to the Copyright Act by Congress in part to overturn prior Supreme Court precedent that had previously allowed cable companies to retransmit broadcast television signals without compensating the broadcaster.

The district court denied the broadcast companies' preliminary injunction requests, finding that, based on Second Circuit precedent, Aereo's transmissions were unlikely to constitute public performances. The Second Circuit affirmed the decision, relying on the court's earlier decision in Cartoon Network LP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008) ("Cablevision"), which found that a cable company's remote-storage DVR system did not run afoul of the public performance right because each transmission was sent only to an individual user. The Second Circuit held that Aereo does not engage in public performances because, as in Cablevision, Aereo's system makes unique copies of every recording, and each transmission of a program to a customer is generated from that customer's unique copy.

Aereo has been sued by other broadcasters in other jurisdictions as well. The District of Massachusetts reached the same result as the Second Circuit, while the District of Utah came to the opposite conclusion. Further, both the D.C. District Court and the Central District of California have issued preliminary injunctions against FilmOn X, a company that offers a service similar to Aereo's.

Supreme Court Oral Argument

A recurring theme during the oral argument was the impact the Court's decision would have on other technologies and industries. The Justices' questions focused heavily on how their decision would affect other technologies, such as cloud computing and storage, how to balance technological innovation versus pure circumvention of copyright laws, and on how a decision against Aereo, were the Court to make such a decision, could be squared with the Second Circuit's Cablevision opinion.

Effect on Other Technologies

Justices Stephen Breyer and Sonia Sotomayor led off the discussion over the expected impact of the Court's decision on other technologies. Justice Breyer plainly stated: "And then what disturbs me on the other side is I don't understand what a decision for [Aereo] or against [Aereo] when I write it is going to do to all kinds of other technologies." Justice Samuel Alito echoed this sentiment when he remarked: "I need to know how far the rationale that you want us to accept will go, and I need to understand, I think, what effect it will have on these other technologies."

Neither party had a clear response that seemed to ease the Court's concerns. The broadcasters sought to distinguish Aereo's technology from cloud storage by pointing out that the cloud storage companies provide a "locker" for users to store their own rightfully owned content, and at times urged the Court to avoid the issue of cloud storage altogether—although the Court seemed unsure of how to accomplish that. Aereo stirred the pot by pointing out that a decision finding that the performance of content stored by a third party constitutes a public performance could result in "potentially ruinous liability" for the cloud storage companies. Several other companies and technologies were identified by name during the arguments, including Netflix, Hulu and Roku.

While the early discussion seemed to focus on how the Court could find Aereo's service a public performance without broader ramifications to the industry, most of the Court's questions did not portend how the Court would ultimately rule. The Court, however, was undoubtedly cognizant that the decision could have an impact beyond the dispute at issue.

Questioning the Merits of the Technology

Chief Justice John Roberts questioned both parties on the technological aspects of Aereo's service, first pointing out to the broadcasting companies that "[y]ou can go to Radio Shack and buy an antenna and a DVR or you can rent those facilities somewhere else from Aereo. They've— they've got an antenna. They'll let you use it when you need it and they can, you know, record the stuff as well and let you pick it up when you need it."

The broadcasters responded that allowing Aereo to take "a performance off the airwaves and transmit it to all the end-users" contradicts Congress's specific intent when it enacted the Transmit Clause in response to cable providers' prior transmissions of content without compensating the content owners.

Chief Justice Roberts then questioned Aereo as to the motive behind Aereo's multi-antenna set-up, stating: "I mean, there's no technological reason for you to have 10,000 dime-sized antenna, other than to get around copyright laws." Justice Antonin Scalia followed up with, "Is there any reason you did it other than not to violate the copyright laws?"

According to Aereo, "All Aereo is doing is providing antennas and DVRs that enable consumers to do exactly what this Court in Sony [Corp. of America v. Universal City Studios, Inc.] recognized they can do when they're in [their] home and they're moving the equipment . . . ." Aereo distinguished itself from cable providers by the scope of content they provide (only content available over public airwaves) and how it is provided (upon a user's initiation).

Distinguishing Cablevision

The Court also inquired as to how Aereo's service differs, if at all, from the remote-storage DVR service provided in Cablevision. Justice Anthony Kennedy, in particular, seemed reluctant to reach a decision that effectively overruled Cablevision, even asking the broadcasting companies to "assume that Cablevision is our precedent." The broadcasting companies attempted to distinguish Aereo's service from the service in Cablevision by pointing out that the defendant in Cablevision paid royalties to carry programming in the first instance, whereas Aereo does not pay any royalties.

In any event, while the outcome of the case is as yet undetermined, it remains to be seen how any decision will impact other existing technologies and serve as a guide to innovators on crafting future technologies to avoid copyright infringement liability.

A decision is expected by the end of June.

To read this Newsletter in full, please click here.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions