New Jersey Law Journal VOL. 211 - NO 13 APRIL 1, 2013

Existing Law Promotes Internet Advertising -- Why traditional means of promotion and marketing are at a disadvantage

by Jonathan Bick Bick is of counsel at Brach Eichler LLC in Roseland. He is also an adjunct professor at Pace and Rutgers law schools, and the author of 101 Things You Need to Know About Internet Law (Random House 2000).

Internet advertising is more effective than traditional advertising for both business and legal reasons. From a business standpoint, Internet advertising is less expensive, faster to produce and deliver and thus more effective than traditional advertising. Internet advertising, from a legal perspective, is less encumbered than traditional advertising because statutes regulating advertisement were enacted prior to the existence of the Internet and is consequently more effective than traditional advertising. Additionally, recent enacted advertising regulations favor Internet advertising over traditional advertising.

Internet search engines have supplanted manual search of hard copy documents as the search method of choice. Consequently, Internet advertising content has replaced traditional information sources, such as the yellow pages. Unsolicited commercial entailment on the Internet is generally only subject to FTC rules because federal advertising law overrides state advertising laws. Consequently, the compliance cost for Internet advertisements in this case is less for Internet advertisements than traditional advertisements.

Federal law currently restricts innovations in traditional advertisements but not Internet advertising. Consider the application of federal law to traditional advertising such as telemarketing, and then compare it to federal law which regulates Internet advertising, such as unsolicited commercial email. In particular, consider the FTC’s Telemarketing Sales Rule which gives new and additional protection to consumers from fraudulent telemarketing calls as well as new and additional rights under the National Do Not Call Registry rules and regulations.

Additionally, the FTC Mail or Telephone Order Rule requires sellers to have a reasonable basis for stating or implying shipping will occur within a certain time and if no shipment is made within 30 days a refund must be given unless customer consent for delay is secured.

On the other hand, federal law protects Internet advertisement innovations. For example, the CAN-SPAM Act of 2003 (15 U.S.C. 7701), which confirms that spam is lawful, also bars state and local governments from regulating spam and proscribes individuals who receive spam from litigating as a result.

Spam-related regulations do not limit selling personal data, whereas traditional businesses may only sell information for the purpose for which it was collected. For example, credit bureaus can’t sell credit report information for noncredit purposes. The Telephone Records and Privacy Protection Act (TRP- PA) of 2006 (18 USC §1039) makes it a crime to access customer accounts via the Internet without prior authorization from the customer. But spam customer accounts are not protected.

Moreover, federal law favors Internet advertising over traditional advertising by allowing Internet advertisers to better monetize advertising data. While the FTC Bureau of Consumer Protection recommends ways that Internet advertisers in the mobile marketplace, including mobile platforms, developers, advertising networks, analytics companies and trade associations, can better inform consumers about their data practices, the FTC does not regulate them.

No comprehensive federal law exists that governs consumer privacy as it relates to Internet advertising. In addition to the lack of a comprehensive federal law with respect to Internet advertising, the courts have also suggested that such legislation, if enacted, might be a violation of the First Amendment.

The Supreme Court in Sorrell v. IMS Health Inc., 131 S. Ct. 2653 (2011), found that a state statute restriction of a pharmaceutical marketer’s access to and use of prescription data for advertising purposes violated the First Amendment. Such a finding is directly applicable to any statute that regulates targeted Internet advertising and seemingly places the courts as a staunch defender of Internet advertising, immunizing Internet advertisers from consumer privacy litigation costs.

Federal law also allows Internet marketers to lawfully engage in dynamic advertising, which is tantamount to trespass to chattel, whereas traditional advertisers are barred from this activity. Dynamic advertising is the use of distinct data collection methods resulting from the lawful but unauthorized placement of property owned by the advertiser on property owned by recipient of the advertisement. Dynamic advertising is allowed by federal law for Internet advertising, on the theory that such advertising is a function of the user’s online activities rather than the advertiser’s.

When an Internet user views a banner, the user’s computer has loaded all the software associated with the banner, including cookies, if any. Once a cookie is on a user’s computer, it has the capability of collecting data and sending it. So, for example, Google Ads can track a user across the Internet through banner advertisements. Additionally, Internet Service Providers (ISPs) do not change the Internet Protocol (IP) addresses they allocate to users. Other ISPs, who did change the IP addresses, maintain sufficient records to associate an IP address to a user. For example, Sprint assigns mobile telephone users a single, static IP address for their data connection. Any website operator or advertisement server that encounters the user’s IP address can be certain that it is interacting with the same person as the last time, and can also identify the user as the same person who used that IP address on other websites.

The principal method of dynamic advertising is achieved by Internet sites that generate data for behavioral targeting by “tracking” users with program applications known as cookies. Cookies enable websites to track and remember users’ page visits, products stored in the user’s cart, and other information, such as an individual’s username and billing address. Data generated through the use of cookies is used to generate inferences about a user’s receptiveness to a particular advertising message based on that user’s online behavior. Cookies can also be shared between sites and used to track users from site to site. Cookies also allow a dynamic advertising technique known as retargeting.

Retargeting occurs when an Internet advertiser sends a new and additional advertisement to a recipient of a previous advertisement, when said prior advertisement did not result in a sale. When a user views a product on a website, and then leaves the website, marketers can target the user with ads that feature that very product for days that follow with little or no additional cost due in part to the use of advertisement recipient’s own computer, due to the cookie.

Certain industry-specific federal laws, which were enacted to protect individual privacy, could be used to limit Internet advertising but have not been so used. In particular, the Health Insurance Portability and Accountability Act, Pub. L. No. 104-191 (2006), the Right to Financial Privacy Act, 12 U.S.C § 3401-3422 (2006), and the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (CFAA), were designed for one purpose and might be used to limit Internet advertising. But courts have consistently refused to use these statutes to protect individual privacy with respect to Internet advertising technological invasion, despite the fact that either health-care or personal financial information was involved.