The Social

It looks like the brouhaha surrounding social-app moneymaker Offerpal Media is bigger than founder Anu Shukla's "sh*t, double sh*t, and bullsh*t" response to the accusation that its business is built on scamming consumers. It's got upcoming developments in two lawsuits, one in which it's the plaintiff and one in which Shukla is a defendant.

VentureBeat's Dean Takahashi reported Thursday that a lawsuit was filed in an Alameda County, Calif., superior court against Shukla and co-founder Michael Liu on behalf of Kevin Halpern, who alleges that he helped found the company and was then shut out. In a court complaint, Halpert says that in exchange for offering his social-networking expertise to what would become Offerpal, Shukla promised him a 15 to 20 percent stake in the company that never came to fruition.

The defendant's motion to dismiss the breach-of-contract suit is scheduled for November 24, according to public court documents. On Wednesday, Offerpal had announced that Shukla would be leaving her post as CEO and would be replaced by digital-ad veteran George Garrick.

But that's not the only legal dispute that Offerpal is in. There's a judicial settlement conference scheduled for Friday in the trademark infringement lawsuit that Offerpal filed against Kickflip, a former customer that went on to create a competing business, called Gambit, according to a person familiar with the court details. The suit was originally filed in April, and the status of a potential settlement is currently unclear because most of the events thus far, as well as Friday's scheduled meeting, have been behind closed doors.

But the reason why Offerpal has been in the news so much as of late has been because of Shukla's public altercation with TechCrunch's Michael Arrington at last month's Virtual Goods Summit in San Francisco. In response to Arrington's allegations that Offerpal's profitable business, used by many social-gaming companies as a way for users to earn virtual goods in-game, actually misleads players into signing up for paid offers and subscriptions.

Following the Arrington-Shukla spat, a number of high-profile names in the gaming and social-networking world came out against developer-app scams and misleading ads. Offerpal maintains that it runs a legitimate business. But it's clear that this company's issues run quite a bit deeper than a single PR fiasco.

(Credit: Josh Lowensohn/CNET)

Prominent users of Twitter and Facebook won't be exempt from controversial new Federal Trade Commission guidelines that keep tabs on blogger freebies and giveaways, according to Richard Cleland, associate director for the FTC's advertising division. The agency absolutely plans to keep tabs on social networks as well as blogs in accordance with revised regulations that could see violators fined up to $11,000, he said.

Here's a sample scenario: a celebrity or other prominent figure with loads of friends on Facebook receives free hotel says from Hotel Chain X in exchange for running Hotel Chain X ads on his or her blog. If that person then signs up as a Facebook fan of Hotel Chain X--which, remember, could mean that the person's name can show up for his or her Facebook friends alongside Hotel Chain X display ads on the social network--he or she could be held liable by the FTC.

"It would be the same thing if you were going to pay the celebrity a thousand dollars to go register as a fan," Cleland said. "In that case, there wouldn't be any question about it."

Facebook spokesman Barry Schnitt told CNET News that the social network doesn't have anything concrete to say in reaction to the new regulations just yet. "I don't think we have anything to say other than that we've had an ongoing dialogue with the FTC and we'd love to talk to them more about what this means," Schnitt said. "I think we're already consistent with the spirit of it."

Schnitt added that some of the practices that may be encompassed by the new FTC guidelines are already banned by Facebook. "We say in our statement of Rights and Responsibilities, and people actually applauded this when we added it in a few months ago, that you will not use your personal profile for your own commercial gain such as selling your status to an advertiser." This is contained in section 4.2 of the document, he said.

As for Twitter, the FTC isn't letting you get a pass with the excuse that 140 characters--Twitter's famous text limit--is simply too short. "There are ways to abbreviate a disclosure that fit within 140 characters," Cleland said. "You may have to say a little bit of something else, but if you can't make the disclosure, you can't make the ad."

The question still remains as to exactly how the new guidelines will be enforced, given the sheer scope of online media--not to mention the millions upon millions of active Twitter and Facebook users.

"As a practical matter, we don't have the resources to look at 500,000 blogs," Cleland said. "We don't even have the resources to monitor a thousand blogs. And if somebody reports violations then we might look at individual cases, but in the bigger picture, we think that we have a reason to believe that if bloggers understand the circumstances under which a disclosure should be made, that they'll be able to make the disclosure. Right now we're trying to focus on education."

That's worth highlighting. Small-time bloggers freaking out over whether the FTC will really crack down on them may be pleased to know that the FTC at least claims its aim is to make everyone aware of what's right and wrong rather than to hunt down every Twitter user who may have been given a free toaster or something. Unless, that is, somebody rats them out--and at least one blogger is already raising concerns that angry readers may use the regulations to attempt to get back at blogs they don't like.

Industry blogger Peter Feld of Brandchannel thinks he can see another outcome. "A safe prediction for 2010: some big scandal when the first celebrity to run afoul of the new rules, by promoting a product on Twitter or a talk show, gets fined by the FTC."

This post was updated at 5:13 p.m. PT with comment from Facebook.

Independent bloggers who fail to disclose paid reviews or freebies can face up to $11,000 in fines from the Federal Trade Commission, according to revisions to the agency's "Guides Concerning the Use of Endorsements and Testimonials in Advertising" published Monday.

This marks the first time that the Guides document has been updated since 1980.

From an FTC-issued release:

"The revised Guides also add new examples to illustrate the long standing principle that 'material connections' (sometimes payments or free products) between advertisers and endorsers--connections that consumers would not expect--must be disclosed. These examples address what constitutes an endorsement when the message is conveyed by bloggers or other 'word-of-mouth' marketers. The revised Guides specify that while decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement. Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service."

The FTC also has its eye on celebrities. "Celebrities have a duty to disclose their relationships with advertisers when making endorsements outside the context of traditional ads, such as on talk shows or in social media," the release explaining the revisions explained.

That means, theoretically, that if a celebrity gushes about a new car on his or her Twitter account and it turns out that the car was given away for free, the celebrity could be fined by the FTC.

Word of the FTC's crackdown on blogger endorsements first broke in June and set off a wave of chatter in communities of bloggers who are well used to receiving and keeping free products from marketers and PR agencies--most notably the thriving "mommy blogger" sector.

It's going to be hard to police--there are a lot of bloggers out there, not to mention a lot of different kinds of bloggers, and a lot of marketers. And as some media critics have pointed out, undisclosed endorsements of freebies have plagued some sectors of the magazine industry for decades now.

It's finally over for Beacon, the ill-fated advertising program that the social network initially launched with splashy Madison Avenue fanfare nearly two years ago.

The social network has settled a year-old class action lawsuit that targeted the social network's alleged failure to provide adequate information and privacy controls to users with regard to Beacon, which shared information about users' information on third-party partner sites in Facebook news feeds.

One of the terms of the settlement? Any last vestiges of Beacon, which failed to gain traction amid a barrage of negative press stemming largely from advocacy groups like MoveOn.org, will be shut down completely.

Also as part of the settlement, which is still pending approval from a judge, a $9.5 million "settlement fund" has been established to set up an independent foundation to "fund projects and initiatives that promote the cause of online privacy, safety, and security," according to a release. Up to a third of that fund, however, can potentially be recovered by the plaintiffs' lawyers.

"We look forward to the creation of the foundation and its work to educate Internet users on how best to control their privacy; engage in safe social-networking practices; and, generally, enjoy themselves more online by having knowledge that gives them a greater sense of control," a statement from Facebook representative Barry Schnitt read. "We fully expect the foundation to team with other leading online-safety and privacy experts and organizations that have been working diligently in these fields."

The suit was filed in August 2008 on behalf of 20 plaintiffs, most of whom were Texas residents. Named as defendants were Facebook, along with current and former Beacon participants Blockbuster, Fandango (owned by Comcast), Overstock.com, STA Travel, Zappos, Hotwire (owned by InterActiveCorp), and GameFly. Another, earlier Beacon-related lawsuit had been filed against Blockbuster several months earlier, claiming that its participation in the advertising program violated the Video Privacy Protection Act of 1987. Facebook was not named as a defendant in that suit.

Shortly after the negative buzz about Beacon started, Facebook began tweaking and modifying the program to allow more user control over the feature. But it was too late: advocacy groups claimed that it still wasn't enough, some existing partners pulled out, and others were likely deterred from participating because of the unsavory implications. Surprisingly, a "small number of customers" were still using it; Facebook will work to transition them out of it.

Facebook's experiments in social-media advertising turned instead to "engagement ads," which have come under some scrutiny themselves, and the "fan pages" that it encourages brands, organizations, and celebrities to create.

The irony behind Friday's news is that the thinking behind Beacon ultimately evolved into the phenomenally successful Facebook Connect, the universal log-in standard that, among other things, shares third-party activity on members' Facebook profiles.

The privacy controls on Connect are clearer and more extensive, but perhaps more crucial to Facebook Connect's success has been the fact that it's been marketed as a utility for ordinary members rather than an advertising tool for paying clients. It's free for third-party sites to implement, and with only a few exceptions, sites working with Facebook Connect code it in through the social network's application programming interface, or API, rather than ink a formal partnership.

And offering Facebook users the chance to register and log in to external sites without separate usernames and passwords gives Facebook Connect's marketing a slant of user convenience--and security, as some Web users may be more comfortable hitting a "Connect with Facebook" button than registering for an account with a new Web service.

"We learned a great deal from the Beacon experience," the statement from Facebook's Schnitt read. "For one, it underscored how critical it is to provide extensive user control over how information is shared. We also learned how to effectively communicate changes that we make to the user experience. The introduction of Facebook Connect--a product that gives users significant control over how they extend their Facebook identity on the Web and share experiences back to friends on Facebook--is an example of this."

One of the issues when you create something simple, easy to use, and phenomenally popular is that there will invariably be some folks who come along and say that it was their idea first.

Naturally, that's started to happen to Twitter. Earlier this month, a patent lawsuit was filed against Twitter on behalf of a Texas-based company called TechRadium, which has a patent to "allow a group administrator or 'message author' to originate a single message that will be delivered simultaneously via multiple communication gateways to members of a group of 'message subscribers' over e-mail, text message, or another platform.

More specifically, TechRadium's technology has been applied to a product called Iris, which is designed to be able to send out mass messages for emergency response purposes. The lawsuit claims that Twitter's service amounts to "offering for sale or use, or selling or using these products without license or authority from TechRadium."

TechRadium claims it has "suffered actual and consequential damages," the suit reads, but isn't very specific beyond that. "Plaintiff does not yet know the full extent of such infringement and such extent cannot be ascertained except by discovery and special accounting." As for damages, the company seeks "an amount not less than the maximum amount permitted by law."

I'm not really sure what TechRadium's aim is here, because, as Wired put it, similarities between the two companies seem like "a ridiculously obvious use of modern technology." Remember when "microblogging" wasn't just Twitter, but also Jaiku (sold to Google and effectively shelved), Pownce (sold to Six Apart and shut down), and Plurk (still around, but we haven't heard a peep out of it recently)? There have also been, in the mass-messaging space, Yahoo's , Google's ill-fated Dodgeball, and Microsoft's still-experimental Vine--which also has an emergency-management angle.

And beyond that, the concept of short, pithy messages is nothing new. (Telegraphs? The short-form diaries of John Quincy Adams? Those funny banners with short messages on them that you sometimes see flying behind propeller planes at the beach?) My guess is that TechRadium is hoping the language in its patent is vague enough so that, at the least, it can get some recognition or (less likely) compensation.

So it's no shock that Twitter is going to get slapped with repeated accusations of "hey, we got there first." The same thing happened to Facebook, a far more complicated and less open-ended service, when the founders of ConnectU, a failed social network that had originated around the same time at Harvard University, claimed Facebook founder Mark Zuckerberg had pilfered their business plan in creating his now-billion-dollar company.

And, as Wired points out, Twitter is well aware of this: leaked internal documents say that "We will be sued for patent infringement, repeatedly and often." Earlier this summer, the company hired its first general counsel right out of Google's legal ranks.

As for TechRadium, unless they can basically prove that Twitter's founders snuck into their offices and went hogwild with a photocopier and some stolen documents, this is one case that probably won't get off the ground.

A 17-year-old from Michigan has filed a lawsuit against e-commerce powerhouse Amazon after it deleted a book he had purchased for his Kindle device.

The high school student, Justin D. Gawronski, filed suit in a Seattle court along with California resident Antoine J. Bruguier, and they are seeking class action status.

Amazon forcibly (and ironically) recalled copies of George Orwell's "1984" and "Animal Farm" earlier this month after it was revealed that they were unauthorized. Justin Gawronski's complaint alleges that he was reading "1984" as summer reading for an advanced-placement class and had to turn in "reflections" on each hundred pages. With the loss of the digital book, Gawronski claims his page count was thrown off and his notes were "rendered useless because they no longer referenced the relevant parts of the book."

Amazon has declined to comment on the lawsuit, which appears was first reported late Thursday by The Wall Street Journal's Digits blog.

While buyers received refunds for the recalled copies of the Orwell books, the fact that no advance notice was given threw many customers off and created an uproar against Amazon. The lawsuit, for one, alleges that Amazon did not make it clear enough to customers that remote book deletions were a possibility. It also alleges, as do critics, that the company violated its own terms of use.

"The power to delete your books, movies, and music remotely is a power no one should have," the lawsuit quoted Slate's Farhad Manjoo as saying in an opinion piece following the book deletions.

Amazon founder Jeff Bezos put out a public apology shortly after the fiasco unfolded, but it's not clear how the company's policies will (or won't) change in the future.

eBay wants to spin off telephony service Skype into a separate publicly traded company, but something's standing in the way: Skype's founders are threatening to take back some of the technology amid a licensing dispute.

The auction giant's solution, according to a Bloomberg report on Thursday: build a new one.

This was revealed in a 10-Q regulatory filing with the Securities and Exchange Commission; eBay is not commenting beyond the filing. You can decide whether "Frankenskype" or "Skypenstein" is a better name for the hypothetical creation.

Here's what has happened: Skype's founders have established a company called Joltid Ltd., which still owns the rights to some of Skype's technology. Joltid has made the accusation that eBay doesn't have the right to do everything it wants with all of Skype's code as a result; eBay is suing Joltid to get that technology back. (Is this like the Silicon Valley equivalent of body-snatching?) But the catch is that the trial isn't scheduled until next June, which could put a big roadblock in the way of eBay's plans for a Skype IPO.

So that's why eBay is working on a total rebuild of Skype's software.

There is, however, this little issue. "The new software will be expensive and might not work," Bloomberg's article summarized. "The company said it might have to shut down Skype if the dispute with the founders isn't resolved."

eBay purchased Skype in 2005 for $2.6 billion, but it hasn't proven to be the best fit for the company. Rumors circulated that it was looking to sell Skype, possibly to Google, but then opted to take the company public instead.

Download Skype for Windows | Mac | iPhone | Windows Mobile from CNET Download.com.

Alexander Macgillivray's farewell message on Twitter.

(Credit: Twitter)

Google lawyer Alexander Macgillivray has joined Twitter as its general counsel, according to posts on Sunday from Macgillivray's personal blog and Twitter account.

"Working in Google Legal has been a dream job," Macgillivray wrote on his blog. "The people at Google are phenomenal. In every part and at every level of the company there are great people with multiple useful talents in addition to those that got them the job. For a lawyer, the issues we dealt with every day were fascinating, the real-world impact of our work was humbling, and the ethical compass of the place remained true."

At Google, Macgillivray had served as associate general counsel for products and intellectual property, and had most recently been one of the company's voices in its tussle with publishers over their rights to link and reprint content.

We're not ones to sound the alarms over an alleged rush of Googlers fleeing the company for the likes of Facebook and Twitter (these things ebb and flow), but this one is a notable departure. With Twitter communication playing an increasingly prominent role in international news and affairs, the small company clearly needs to have solid legal counsel on board. For Macgillivray, it's undoubtedly more responsibility with fewer resources than the likes of Google--but a bigger space in Silicon Valley's spotlight at the moment.

Updated at 1:25 p.m. PDT.

Google-owned video-sharing site YouTube is silencing music videos in the U.K. after negotiations with the country's Performing Right Society (PRS for Music), which collects licensing fees for artists and labels, failed.

"Our previous license from PRS for Music has expired, and we've been unable so far to come to an agreement to renew it on terms that are economically sustainable for us," a statement from YouTube read. "There are two obstacles in these negotiations: prohibitive licensing fees and lack of transparency. We value the creativity of musicians and songwriters and have worked hard with rights-holders to generate significant online revenue for them and to respect copyright. But PRS is now asking us to pay many, many times more for our license than before."

The YouTube statement continued: "The costs are simply prohibitive for us--under PRS' proposed terms we would lose significant amounts of money with every playback. In addition, PRS is unwilling to tell us what songs are included in the license they can provide so that we can identify those works on YouTube--that's like asking a consumer to buy a blank CD without knowing what musicians are on it."

But a statement from PRS for Music claimed that Google doesn't want to pay enough for licensing fees.

"PRS for Music is outraged on behalf of consumers and songwriters that Google has chosen to close down access to music videos on YouTube in the U.K.," read a statement from the industry group, which noted that Google rakes in billions of dollars in revenue. "Google has told us they are taking this step because they wish to pay significantly less than at present to the writers of the music on which their service relies, despite the massive increase in YouTube viewing."

A report from the BBC suggests that the change will take effect later on Monday.

Royalty fees in the U.K. reportedly caused streaming music service Pandora to pull out of the country (along with other non-U.S. markets) two years ago, and many smaller players in digital media are currently feeling the pain. PRS for Music has also targeted small businesses in the U.K. for playing radios publicly, which the group says is a form of piracy.

Since it only pertains to music videos, this won't affect, say, Queen Elizabeth's royal YouTube channel. But U.S. digital media companies, particularly when it comes to music, have repeatedly encountered rough seas abroad.

One of the most high-profile has been Apple's iTunes, which several years ago came under scrutiny from one European government after another, typically concerning digital rights management restrictions in its iTunes Store. But music videos have been contentious both in and outside the U.S., with labels apparently unclear as to whether the best strategy would be to ink deals with YouTube--where they have less control--or go at it on their own. Much of the controversy comes from the fact that the music industry says it just doesn't profit much from having its videos on YouTube.

Sources told CNET News earlier this month that YouTube was working with Universal Music Group to create a standalone site "closely linked" to YouTube, a shadowy project that has been described as a Hulu for music videos. And Viacom has created its own hub, MTVMusic.com. It's complicated enough in the U.S.; bringing overseas players and viewers into account opens many new cans of worms.