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www.winston.com

October 31, 2007

This issue contains news on the following topics:

I. PROMOTIONS

II. ADVERTISING

III. PRIVACY

I. PROMOTIONS

1. Fantasy Sports Leagues Not Considered Gambling

   A federal court recently held that certain fantasy sports games played for pay and run by major sports web sites do not constitute illegal gambling. A fantasy sport is a game, played by an estimated 16 million adults in the U.S., in which users build a fantasy sports team. In the leagues at issue, users were required to pay a fee in order to participate and a prize is awarded to the winning team manager-users. However, the prizes offered were not based upon the payments received by the sponsors, rather the prizes were offered without regard to how many people played and how much money was generated. The federal court ruled that the entry fee payments in the fantasy games at issue are not considered wagers or bets, and as a result, fantasy sports games do not constitute illegal gambling. The court held that "entry fees do not constitute bets or wagers where they are paid unconditionally for the privilege of participating in a contest, and the prize is for an amount . . . that is guaranteed to be won by one of the contestants." In particular, the court noted that the element of risk, a necessary element to constitute gambling, was missing from the fantasy sports leagues. In the court's view, the fact that each contestant was required to pay an entrance fee, where the entrance fee did not specifically make up the purse or premium contested for, did not convert the contest into a wager, and thus, the element of risk necessary to constitute betting or wagering was missing.

   TIP: All promotions or offers, even if they do not appear to resemble typical gambling or lottery games, should be analyzed to ensure they do not constitute illegal gambling.

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2. Promotions Agency Files for Declaratory Judgment Regarding Anticipated Promotions Patent Lawsuit

   ePrize, a provider of Internet-based interactive promotions, recently filed suit against Applied Interact, LLC, requesting declaratory relief with respect to an anticipated patent infringement suit to be filed by Applied Interact. Under certain of its client agreements, ePrize indemnifies its promotion-sponsor customers against suits for patent infringement resulting from its promotions. Applied Interact sent letters to numerous ePrize promotion-sponsor customers, alleging that use of ePrize-administered sweepstakes infringed patents to which Applied Interact claims the exclusive right to license. The patents at issue involved technologies for the offering or operation of online sweepstakes, product searches, and downloadable coupons. Specifically, the patents are alleged to cover technologies for the verification of participants, authentication of responses, redemption of sweepstakes coupons, and the administration of skill/knowledge contests involving sequential questioning in which a previous response determines the content of the subsequent question. The letters gave recipients the choice of paying for a license for use of the patents, terminating use of ePrize sweepstakes, or Applied Interact would pursue litigation. Because certain of ePrize's client agreements would obligate it to indemnify its customers in the event of any patent infringement liability, ePrize filed for a declaratory judgment of non-infringement and invalidity of the patents at issue.

   TIP: Be aware that there are various patents registered that relate to various promotional techniques. Consult with your counsel to determine whether your concept may implicate such patents and whether such patents are valid.

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3. Leading Media And Internet Companies Establish Copyright Principles For User-Generated Content

   On October 18, 2007, a group of leading commercial copyright owners and Internet service providers announced the establishment of a set of principles regarding user-generated audio and video content. The stated goal of these principles is the elimination of infringing content on user-generated content web sites, while not discouraging the uploading of legitimate original content. These principles include: implementation of state-of-the-art filtering technology, including blocking infringing uploads before they are made available to the public; cooperation in developing procedures for promptly addressing claims that content was blocked in error; regularly using the technology to remove infringing content that was uploaded before the technology could block it; and identification and removal of links to sites that are clearly dedicated to, and predominantly used for, the dissemination of infringing content. These principles are not a legally binding agreement, and compliance with these principles by a user-generated content service provider does not preclude a copyright owner from filing a complaint for copyright infringement. However, these principles appear to represent an attempt by copyright holders and user-generated content service providers to reach some common ground in this area. View the User-Generated Content Principles.

   TIP: The use of user-generated content is exploding, but the technologies for screening out copyrighted materials are still being developed. Most advertisers currently rely primarily on the protections provided by the Digital Millennium Copyright Act, which insulates certain web site providers from liability for copyright infringement based on user-generated content posted to its web site, provided certain procedures are followed when notice of the infringement is received. However, more advanced screening technologies are being developed and adopted by major Internet service providers.

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4. Fantasy Sports Provider Wins Right to Use Player Names and Statistics

   A federal court of appeals recently held that a fantasy sports operator could use the names and statistics of players to operate a pay-to-play fantasy sports league. In the case, the fantasy sports operator has previously licensed the right to use players names and statistics from the Major League Baseball Players Association. However, when that agreement expired, the players' association denied the fantasy sports operator another license, as it had granted an exclusive license to a third party. The fantasy sports operator filed a declaratory judgment action to ask a court to decide whether it had the right to use the names and likenesses of the players without obtaining a license, under the theory that the use was permissible under the First Amendment. The federal court of appeals reviewed and agreed with the lower court's finding that the fantasy sports operator's use did not violate the player's right of publicity. The appellate court held that while the state right of publicity law was implicated since the players' identities were used for a commercial advantage, the First Amendment rights of the fantasy sports operator in offering its fantasy baseball products superseded the players' rights of publicity. In explaining its decision, the appellate court held that all the information used by the fantasy sports operator was readily available in the public domain; that because the fantasy games depend on the inclusion of all players it cannot create a false impression that some particular player is endorsing the fantasy sports operator and that protection is not lost by the fantasy sports operator, merely because the use of the information is to entertain.

   TIP: This case may provide some flexibility when using a person's name or likeness for a quasi-commercial purpose. However, any such use shall be made with caution, as liability in this area could be extensive and legal fees to defend yourself would be expensive.

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II. ADVERTISING

1. JPC Files Arbitration Against SAG on Pension and Health Issue

   The ANA-AAAA Joint Policy Committee on Broadcast Talent Relations (the "JPC") recently filed an arbitration request against the Screen Actors Guild with respect to the SAG Producers Pension and Health Funds' issuance of new Multi-Service Commercial Allocation Guidelines, which was an attempt to increase the basis for which pension and health contributions is made by advertisers to SAG. The JPC claims that SAG has violated the 2003 Commercials Contract between SAG and the JPC by unilaterally issuing these Guidelines. The JPC is seeking an arbitration award that would declare the Guidelines to be void, declare that the pension and health contribution amount may not be changed by the SAG Producers Pension and Health Funds (who is not a party to the 2003 Commercials Contract) and ordering SAG to engage in collective bargaining with the JPC on these issues.
   
   TIP: The JPC's demand for arbitration on this issue is an attempt to level the playing field on which advertisers negotiate with SAG and prevent SAG from unilaterally dictating how much should be allocated to union-related services in multi-service talent agreements.

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2. Wham-O Awarded $6 Million for Infringement of its Trademark Rights in Color Yellow

   Slip 'N Slide manufacturer, Wham-O Inc., was recently awarded $6 million by a jury, which found that rival ToyQuest willfully infringed its federally registered trademark for the color of its water slides. Wham-O has a federally registered trademark for yellow or gold water slide toys. Color can be protected under trademark law, subject to certain limitations. The case originated when ToyQuest sued Wham-O for trademark infringement, alleging that the Slip 'N Slide infringed ToyQuest's products. Wham-O countered by bringing claims against ToyQuest for infringement, trademark dilution and false advertising. The jury in the U.S. District Court for the Central District of California found in Wham-O's favor on all three counts, awarding $3.6 million in damages and the jury awarded an additional $2.4 million based upon the willful nature of the infringement.

   TIP: Beware of bringing an infringement action against someone, because if you do, they may attempt to bring a counterclaim against you for your own actions. Furthermore, while it is not often that damages are awarded in a trademark infringement action, they can be extensive when awarded. Keep in mind also that colors in some circumstances can be protected under trademark law.

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3. Jury Awards Photographer $1.3 Million in a Copyright Infringement Claim

   A professional photographer in Seattle recently was awarded $1.3 million in a copyright infringement claim against a shoe company for which he originally had worked. The photographer had worked for the company for six years, shooting shoes for the shoe company's advertising at day rates between $1,800 and $2,000. When the shoe company terminated its relationship with the photographer, the photographer asked it to pay him for allegedly using certain photographs outside the scope of the usage agreement. The shoe company then sued the photographer to have a court determine that it had the rights to use the images. The jury determined that infringement had occurred, and while the actual damages from the copyright infringement only amounted to $12,800, the jury awarded the photographer $500 for the shoe company's removing the copyright management information on the images (which is prohibited under the Digital Millennium Copyright Act), $303,000 for failure to return the images and $500 in statutory damages.

   TIP: Beware of using images outside the scope of the original license period. Photographers are notoriously litigious. Also, don't remove any copyright data from digital files of creative material you do not own, as it is prohibited under federal copyright law.

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4. Australian Advertiser Sued For Use Of Photo From Online Photo Sharing Web Site
   
   A family in the United States filed suit against an Australian advertiser over an advertising campaign featuring a photo of the family's teenage daughter. The suit alleges that the advertiser or its agency obtained a copy the photo from the online photo sharing web site, Flickr, but failed to get permission to use the girl's image. The photo was apparently posted to the Web site by the person who took the photograph, the girl's counselor, and the counselor released the photograph for use under the Web site's Creative Commons copyright policy, which permits reuse of photos for any purpose. However, the suit alleges that the advertiser failed to obtain consent from the girl who was the subject of the photo, which is required for commercial use of an identifiable model under Australian law (as well as in the U.S. under U.S. right of publicity laws).
   
   TIP: We recommend against using images from free online photo sharing services in advertising. The person who submitted the image likely does not have authority to grant you the necessary rights for use of the likeness of an individual featured in one of these images. In addition, you can't be certain that the person who uploaded the image is the copyright holder, and these web sites do not offer any protection against claims of copyright infringement if the person who uploaded the image is not the photographer.

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5. Copyright Deposits May Not Be Constructed from Memory
   
   

   In October, the First Circuit ruled that the deposit requirement for copyright registration must reference the original work; a re-creation from memory is not sufficient. In a case brought by Fernando Torres- Negrón against J&N Records and Antonio Rivera, the plaintiff composed the merengue song "Noche de Fiesta" in 1993, and received royalties from the defendant for the song's inclusion on a CD. After discovering that the song was used by defendant in later CDs, Torres-Negrón attempted to register the song with the Copyright Office, but he no longer possessed the original composition or recording. The plaintiff re-recorded the song from memory, citing 1993 as the creation date in his copyright application. The First Circuit held that the re-creation of the original based on memory fell short of the deposit requirements laid out in Section 408(b) of the Copyright Act, which requires a creator to submit "a complete copy or phonorecord of any work it wishes to protect." Any copy deposited as part of a copyright application, the court held, must be virtually identical to and produced in reference to the original. The court noted that this rule encourages artists to register their works and helps to avoid disputes regarding a work's creation date.
   
   TIP: It is important to register promptly all works eligible for copyright protection, particularly those that tend to evolve (Web sites, for example). After a dispute arises, and registration becomes necessary to receive statutory damages under the Copyright Act, it may be difficult to locate an original composition of the work to serve as a deposit. As this case demonstrates, using a re-creation of the original may be inadequate.

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6. Gardens May Be Protected by Copyright or VARA
   
   In an action brought by an artist against the Chicago Park District, the Northern District of Illinois recently allowed the issue of whether a plaintiff's wildflower display can be considered a protected visual work to proceed to trial. For 16 years, the plaintiff, a known artist, annually tended to and maintained the wildflower display in a Chicago Park. In 2004, the Chicago Park District removed the plantings and fenced the area formerly occupied by the wildflower plantings, without notifying the plaintiff. The plaintiff argued that removal of the plantings constituted copyright infringement as the plantings could be considered a sculpture protected by Copyright. Furthermore, the plaintiff argued that the plantings fell under the scope of the Visual Artists Rights Act because the wildflowers were "intended for exhibition use only" or "applied art." The court expressed doubt in response to both the copyright and the VARA arguments, but stated that it would not "conclude that such an arrangement of living plants can never be a sculpture per se." Both the copyright and the VARA questions will proceed to trial for a full evidentiary hearing.
   

   TIP: When purchasing or commissioning photographs and images to include in your advertisements or products, be sure to examine the various elements that have been photographed to ensure those elements are not themselves subject to protection (and if so, be sure to obtain necessary rights and permissions).

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III. PRIVACY

1. Social Networking Site Settles With NYAG Over Online Child Safety

   A month after the New York Attorney General's office subpoenaed Facebook, an online social networking Web site, it reached a settlement with the company regarding Facebook's safety standards with respect to children. The settlement has been referred to by the NYAG and Facebook as "precedent setting." Mayor Mario Cuomo's office had opened an investigation after it found that underage users were being targeted by predators. Facebook has agreed that it will accept complaints about threats to children — harassment, unwelcome contact, nudity, or pornography — and within 24 hours will respond and begin addressing the complaint. Within 72 hours, Facebook will let the complaining party know what steps have been taken to address the threat. Facebook will also retain an independent safety and security examiner (to be approved by NYAG), which will review complaint handling and recommend any other security steps that might be appropriate. Parents and children will be given direct access by Facebook to this examiner, and the examiner will prepare biannual reports to NYAG about Facebook's performance. Facebook will also make a rather lengthy public disclosure on its site that includes disclaimers about Facebook's inability to "guarantee that its site is entirely free of illegal, offensive, pornographic or otherwise inappropriate material." The statement begins that children under 13 are not permitted to access the site.

   TIP: This settlement suggests that operators of social network web sites should implement measures to protect the safety of children on their Web sites. The Facebook terms can serve as a guide for what types of measures to implement. We will be monitoring this settlement to see how the requirement that the site is not open to children under 13 will be balanced against COPPA's prohibition on asking leading age questions.

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2. FTC To Host Identity Theft Workshop

   The FTC will host a public workshop December 10 and 11 in Washington, D.C. regarding private sector use of social security numbers (SSNs), and the use of those numbers to commit identity theft. The FTC is looking for input regarding whether use of SSNs is necessary, whether there are alternatives to private-sector use of SSNs, and the challenges that might be faced if those in the private sector moved away from using SSNs.

   TIP: Companies that continue to collect and use SSNs should consider participating in the FTC workshop.

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If you no longer wish to receive Advertising & Promotion Law News from Winston & Strawn LLP's Intellectual Property practice, please e-mail us at ipupdate@winston.com or write us at Winston & Strawn LLP, Attention: Business Development Clerk, 35 West Wacker Drive, Chicago, IL 60601.

These materials have been prepared by Winston & Strawn LLP for informational purposes only, and are not intended as, nor should they be used as a substitute for, legal advice which turns on specific facts. Receipt of this information does not create an attorney-client relationship. Along with this newsletter, a library of all the Winston & Strawn LLP newsletters and briefings published to date can be accessed by visiting the Publications section of Winston & Strawn LLP's Web site (www.winston.com).

Along with this newsletter, a library of all the Winston & Strawn LLP newsletters and briefings published to date can be accessed by visiting the Publications section of Winston & Strawn LLP's Web site (www.winston.com).