The Internet Advertising Bureau has come out against new guidelines proposed by the Federal Trade Commission that would require bloggers to disclose their affiliations with sponsors, marketers, and free giveaways. The reason? The IAB claims that the rules unfairly regulate online media more than offline.
"What concerns us the most in these revisions is that the Internet, the cheapest, most widely accessible communications medium ever invented, would have less freedom than other media," IAB president and CEO Randall Rothenberg wrote in an open letter to FTC chairman Jon Leibowitz. "These revisions are punitive to the online world and unfairly distinguish between the same speech, based on the medium in which it is delivered. The practices have long been afforded strong First Amendment protections in traditional media outlets, but the Commission is saying that the same speech deserves fewer Constitutional protections online."
He illustrated it with a personal example:
So there I was last Saturday, about to send out on my Twitter feed--which automatically updates my Facebook page and links to my personal blog--a photograph of this wonderful baked halibut dish I'd just made as a surprise for my wife. I was in the middle of typing a rave review of the recipe, which I'd pulled from my favorite cookbook, "Delicioso! The Regional Cooking of Spain" by Penelope Casas. But before I could press the 'post' button, I stopped and canceled the whole thing.I remembered that the book was a freebie, sent to me by an editor at the Alfred A. Knopf publishing house 13 years ago. And I didn't want you guys to haul me into court and fine me for violating the rules you've just promulgated to muzzle social media.
The FTC has said that the rules, which stipulate that violations may face up to $11,000 in fines, are designed for education rather than punishment. But Rothenberg isn't buying it.
"The Guides do allow you to pursue bloggers," he insisted. "They do hold individuals more liable than larger corporations. They do explicitly say online social media have less protection than offline corporate media. They do obstruct online companies' opportunities to drive cultural conversation more than offline companies'. They do threaten with prosecution book publishers, movie producers, and other companies that supply products to individual social media conversationalists."
The bigger problem is that offline media isn't subject to the same restrictions, he explained. And, according to the letter, clamping down on one medium but not another constitutes a First Amendment violation.
The FTC has not yet responded publicly.
(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.
"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.
Sweden's Economic Crimes Bureau has begun an investigation into some of the events surrounding the planned acquisition of The Pirate Bay by Global Gaming Factor X.
Swedish newspaper SvD reported Saturday that authorities are looking for possible insider trading after Global Gaming's stock rose sharply a week before the company announced plans to acquire The Pirate Bay--the best known BitTorrent tracker in the world, which was used by millions to pirate films.
Trading of Global Gaming shares was halted by AktieTorget, a Swedish exchange, on Friday after officials there requested proof that Global Gaming had enough money to complete the sale. Global Gaming has yet to produce the required documentation. Until officials get more proof, they said they won't allow trading in the stock to resume. The investigation and Friday's trading interruption were unrelated, SvD reported.
The news of the criminal investigation comes as several of the people involved with Global Gaming have cast doubts on the company's ability to pay for The Pirate Bay or, at minimum, get the site up and running anytime in the near future.
Separately, SvD also called into question the veracity of some of Global Gaming's press releases. Global Gaming issued a release on July 31 and claimed that it had rejected an informal $10 million bid for The Pirate Bay from John Fanning, who along with nephew, Shawn Fanning, founded Napster. Fanning presumably would buy the site after Global Gaming purchased it, but Global Gaming said that it had rejected Fanning's overture.
Again, Global Gaming's stock rose in the days before the company released that information, according to SvD.
According to the press release issued by Global Gaming, Fanning's offer had come via Wayne Rosso, who worked for Hans Pandeya, Global Gaming's CEO, for three weeks before leaving. Rosso said that when he walked away, he did so because of doubts about whether Global Gaming had the financing to pull off a Pirate Bay sale.
Rosso said late Friday evening that he never delivered such a message from Fannning.
"The press release was patently false," Rosso told CNET News. He said he told managers at AktieTorget the same thing and said he would testify in court if asked.
Fanning also denied that he ever gave Rosso any offer to deliver to Pandeya, according to SvD's report. So why didn't Fanning come forward when the press release was first circulated?
"I thought it was harmless, but misleading," Fanning told the Swedish newspaper.
Pandeya called Fanning a "liar" in an interview with SvD. He said in an interview with CNET News that the insider trading investigation had nothing to do with him and that no one he knew had done anything wrong. He said the acquisition would go ahead. Global Gaming's leaders apparently will decide on Thursday whether to go ahead with the acquisition.
Update, 3:10 p.m. PDT: To include new statements from Global Gaming CEO that he was being facetious about the company going out of business. Update, 1:45 p.m. PDT: To include new statements from Global Gaming CEO that company may go out of business.
The Pirate Bay has always attracted a lot of controversy, but now scrutiny and criticism has been directed at the company bidding to take over the famed BitTorrent tracker.
The Stockholm-based company that whipped the media into a frenzy in June by announcing it would acquire The Pirate Bay, is being eyed with suspicion after numerous questions were raised about its ability to complete the transaction. The personal financial dealings of the company's CEO have also caused concern among many of those involved.
Global Gaming Factory X is the Swedish software company that has said since June it plans to acquire The Pirate Bay for $8 million and turn it into a "legitimate site." On Friday, trading in Global Gaming's stock was halted by Aktietorget, a Swedish stock market, while it investigates whether Global Gaming possesses enough money to complete the purchase.
Separately, Swedish newspaper SvD said authorities are investigating possible insider trading involving Global Gaming's stock.
The uncertainty hovering over The Pirate Bay's would-be acquirer appears to make it unlikely that a new version of the site will launch anytime soon.
Pandeya denied that anything will get in the way of The Pirate Bay acquisition.
"It is too late to damage the acquisition," Pandeya wrote in an e-mail. "Aktietorget stock exchange has been in touch with the investment bank that is managing the investors and they have confirmed the $60 million Swedish crowns (which was latest claim of being a hoax). We honored the investors requests that we would not disclose their personal details until after the acquisition, and we will discuss with the investment bank how the information can be revealed."
A couple hours after sending CNET that statement, Pandeya sent another long and rambling e-mail. This time he sounded less sure that the Pirate Bay acquisition would go through and also suggested that claims made by his former CTO Johan Sellstrom, and a manager at one of Sweden's pension funds were part of a conspiracy against him. Some of them (or maybe all, it wasn't clear in his e-mail) he says are part of a plot to make a competing bid to buy The Pirate Bay. He also said that as a result, Global Gaming may go bust. (More on this at the bottom of the story.)
A statement released by Aktietorget regulators said they have spoken with someone claiming to represent the investors, but officials have asked for more proof. Apparently, they are waiting for Pandeya to provide that.
Last month, Rosso, the former president of Grokster hired by Pandeya to secure licensing deals with content owners, pulled out of the operation after only working with Pandeya for three weeks. He said then that he departed because of questions he had about Global Gaming's financing and Pandeya's character.
Since then, Pandeya has claimed to have all the money needed to complete the deal and on Wednesday made news when he revealed details about his plan to turn The Pirate Bay from the world's biggest tracker of unauthorized movie and music files into a legal service.
But Pandeya has always declined to provide the media with important details, such as the name of his backers. He has been just as secretive with business partners, including the managers of Peerialism, the company that was supposed to provide the P2P technology on which a new Pirate Bay would run.
On Thursday, Peerialism CEO Johan Ljungberg told CNET that Pandeya has allegedly refused to share with him the names of the backers, a business plan, or even technical specs. He also said that Pandeya had allegedly not come up with the money to pay Peerialism for work Pandeya contracted the company to do two months ago.
Big debts
Sellstrom on Friday said he has filed a claim with a Swedish government agency to help him collect nearly $900,000 he says Pandeya owes him. According to several Swedish newspapers, Pandeya was citing Sellstrom, a popular and respected figure from the tech community there, as proof his deal was sound.
Pandeya is also behind in paying his taxes and allegedly owes the government more than $100,000, according to a report in SvD. Rosso has said that Pandeya owes him money as well.
Sellstrom said that it was Ljungberg's comments to CNET about his staff not getting paid and that work has not begun on preparing a new Pirate Bay that has shocked those in Sweden's technology circles.
"What that means is that there isn't a credible alternative to launching the site for a week from now," Sellstrom said. "If they haven't even started building the site, that says something about credibility."
Sellstrom, who was also a board member at Global Gaming, said he quit the company soon after Pandeya announced his plans to buy The Pirate Bay. He said at the time of his departure, he saw nothing to lead him to believe that Pandeya possessed the money to pull off a deal. But the reason for his leaving was that he disagreed on the direction Pandeya wanted to take The Pirate Bay.
Sellstrom said he and Pandeya went to college together and have been involved in running several companies since then. In 2006, one of the companies the two men worked on together was interested in buying a Danish firm, he said, but their company was short of cash. To complete the deal, each board member agreed to pony up $360,000, he said.
According to Sellstrom, Pandeya couldn't come up with his share so he borrowed it from his old college friend. Sellstrom said he loaned the money on the condition that it be paid back in three months. Sellstrom said he hasn't seen a cent since.
Pandeya also allegedly borrowed money from a company that he and Sellstrom owned a stake in. When it came time to dividing up the profits in the company, Sellstrom said it was discovered that Pandeya hadn't repaid the loan to the company.
"The reason why I haven't claimed the money earlier is he has kept telling me he had financial troubles," Sellstrom said. "Then he told me 'I'll pay you next week.' He owns property and he told me 'I sold this property and you're going to get this much next week.' Nothing ever came."
Pirate Bay backups, lots of them
Meanwhile, fans of The Pirate Bay have been moving to create backup versions of the site.
Earlier this week, TorrentFreak, a popular blog that covers file-sharing news, reported that someone had copied the entire Pirate Bay index and made it available for download. According to some reports, the file has been downloaded more than 2,000 times.
"I suppose I want us to have assurances," the person who uploaded the file told TorrentFreak. "If the Pirate Bay deal disappoints us, we can just put it up again."
Some in the film and music industries said Pirate Bay clones have been around for years and said copycats may not be game changers.
"This is not unexpected," said a spokeswoman from the Motion Picture Association of America. "We'll continue to evaluate and take appropriate actions against sites offering unauthorized copies of our member companies' works."
Update on Pandeya's statements
In an e-mail to CNET, Pandeya lashed out at his accusers and claimed that almost everybody that has said he owes them money is part of a conspiracy to defame him and grab The Pirate Bay for themselves.
He suggested that neither he nor Global Gaming owed Sellstrom money and said he will take the company's former board member to court. He also said that his claims against the company could do irreparable harm to the company.
"He is filing for the bankruptcy of GGF, as he claims that GGF owes him millions," Pandeya wrote. "So, GGF is now going to go bust!! But before this will happen, the law enforcement will take a closer look."
Hours after sending this e-mail, however, Pandeya said he was being facetious about Global Gaming going out of business.
It should be noted that there are no reports of any government investigations into anything or anyone beyond Global Gaming. Sellstrom was not available to comment to Pandeya's recent allegations.
As for the tax issue, Pandeya said he's been so busy overseeing the acquisition of the Pirate Bay he simply overlooked the payment.
"I gave instruction for payment but due to matters related to the TPB acquisition it wasn't processed," he said. "So I have to get the late payment out of the system."
One of the new twists in this saga is that Pandeya said someone at Sjatte AP Fonden, one of biggest pension funds in Sweden, told Pirate Bay founder Peter Sunde Kolmisoppi that Pandeya was not to be trusted. Pandeya said he has filed a police complaint against the Sjatte official.
"I am looking forward to the police investigation," Pandeya said.
A much more detailed update be found here.
Update 9:00 a.m. PDT: Clarified the reason why regulators stopped trading.
The authorities that govern one of Sweden's stock markets has halted trading in Global Gaming Factory X, the software company that is due in less than a week to complete an acquisition of The Pirate Bay.
Swedish authorities said Friday that they stopped the trading because of questions about Global Gaming's financing and its ability to complete the acquisition.
"Global Gaming Factory has not provided information showing that the full amount is secured," Aktietorget, the market where Global Gaming's stock trades, said in a statement. "Aktietorget found that the conditions for an effective trading is not present and decided to suspend trading in (Global Gaming) shares until the requested information was provided."
SVD, one of Sweden's largest newspapers, reported that regulators had begun an investigation into possible insider trading involving Global Gaming's stock back in June, when the company first announced the potential acquisition. Aktietorget said in its statement that Friday's halt of trading in the company had nothing to do with insider trading.
"It is our duty to examine trade in the context of large price-sensitive news," Peter Gönczi, vice president of Aktietorget, the stock market where Global Gaming's shares are traded, told SVD. "We saw that there was a risk that information had leaked."
News of the investigation comes a day after one of the main players in the proposed new Pirate Bay expressed doubts about Global Gaming's ability to carry on with a new Pirate Bay site.
Johan Ljungberg, CEO of Peerialism, told CNET News that his company has not received money from Hans Pandeya, Global Gaming's CEO, since being contracted to start some of the production work on the new site two months ago. In June, when Pandeya announced his intention to buy The Pirate Bay, he also said he would acquire Peerialism, a Swedish maker of software that improves the transferring and storage of data over peer-to-peer networks.
Pandeya did not respond to repeated interview requests.
Mark Cuban
A U.S. District judge in Dallas has thrown out the insider-trading lawsuit filed against Mark Cuban, the Broadcast.com co-founder and owner of the HDNet channel.
Cuban, who also owns the Dallas Mavericks of the National Basketball Association, may not be in the clear just yet, according to a report in Bloomberg. While U.S. District Judge Sidney Fitzwater on Friday granted Cuban's request to dismiss the suit, filed in November, he will allow the U.S. Securities and Exchange Commission to refile charges if it meets a certain criteria.
One of the biggest celebrities to come out of the technology sector, Cuban is accused of promising to keep confidential a private stock sale after being told of the sale by the CEO of Mamma.com, an Internet search firm in which he held a large stake. On the same day in 2004, when Cuban learned of the sale, he sold his shares before news of the stock sale became public and avoided a $750,000 loss.
Cuban has maintained that he did not promise to keep the information confidential and sold his shares because Mamma.com's stock sale was at a lower price and would have diluted his holding. The judge said in his order that the SEC didn't accuse Cuban of promising not to trade, and that meant he couldn't be held liable for insider trading.
The SEC can refile, but it must allege that Cuban made the promise not to trade on the information.
On Friday, Cuban posted a note to Twitter: "It's been a great day so far, and it's only going to get better."
Correction at 2:50 p.m. PDT: This story initially misquoted Kent Walker. He confirmed that Google was aware of a "pending FTC discussion" into Schmidt's board seats.
MOUNTAIN VIEW, Calif.--Google confirmed that the Federal Trade Commission plans to hold discussions with the company over a possible conflict of interest due to CEO Eric Schmidt's participation on both Google and Apple's board of directors.
In response to questions posed by reporters during a lunch meeting with Google executives--including Schmidt--Google vice president and general counsel Kent Walker confirmed that Google was aware of a "pending FTC discussion" into Schmidt's board seats, which was reported earlier in the week by The New York Times.
Google does not believe Schmidt's role on Apple's board presents a problem, and encourages company members to participate on boards, said David Drummond, Google's chief legal officer and senior vice president for corporate development.
Schmidt reiterated that he recuses himself from discussions inside Apple that involve areas in which the companies overlap, such as the iPhone. When asked if he recuses himself from any other discussions inside Apple, he said "not that I recall."
Netflix, the Web's No. 1 video rental service, and Wal-Mart are being accused in a class-action lawsuit of unfairly setting prices for their rental services.
According to the Web site of Video Business, the suit was filed earlier this week in U.S. District Court, Western District of Arkansas. The lead plaintiff, Marci Badgerow, alleges that Wal-Mart agreed in 2005 to exit the online rental business in exchange for Netflix's termination of DVD sales, according to Video Business.
The plaintiffs argue that the agreement promotes unfair trade and is illegal. They assert that the pact harmed customers because it allowed Netflix to raise its monthly subscription price from $14.99 to $17.99, according to the report. Wal-Mart denied any wrongdoing.
"We made our own independent decision to exit the DVD rental business and our subsequent agreement with Netflix is entirely proper," said Michelle Bradford, a Wal-Mart spokeswoman. "We intend to defend vigorously our decisions regarding the products and services offered to our customers."
A Netflix spokesman declined to comment.
The two companies were accused in a similar suit filed in Northern California earlier this month of conspiring to restrict competition and unfairly control pricing.
With so many czars running around trying to solve the nation's problems in tech, auto and drugs, perhaps Sony should consider hiring a common-sense czar.
Is there any major consumer company around that seems to understand basic customer relations less than Sony? Isn't rule No.1 in the CR manual, "Don't spy on customers?" If so, then rule 1-A must be: "Take extra care to avoid spying on customers' children."
The latest example of Sony's disconnect with the masses came this week when the company's music division was fined for surreptitiously collecting information on children under 13-years old.
On Thursday, Sony agreed to pay $1 million to the Federal Trade Commission for collecting information on 30,000 children without obtaining parental consent. According to the Associated Press, Sony violated the Children's Online Privacy Protection Act when it collected the data from hundreds of fan sites, including those of such musical acts as Kelly Clarkson, Britney Spears and Christina Aguilera.
Sony representatives declined to comment.
Sony's growing list of scandals raises the question of whether anyone at the conglomerate has an ounce of public relations savvy. If they don't, the company should find someone fast and that person's mission should be to smack down overly zealous marketing types who come up with lamebrain ideas like this one.
Or how about the one for last year's promotional party for the PlayStation 2 game God of War II that turned into an international embarrassment for Sony. In keeping with the video game's Greek mythology theme, comely women were hired to prance around topless and feed grapes to partygoers as part of the "theatrical dramatization." If that wasn't over the top enough, the centerpiece of the festivities was a butchered goat that was dressed up to look like the animal's entrails were falling out.
Across the world, animal activists howled and critics blasted the company's "bad taste." Sony apologized and yes, returned the goat carcass to the butcher. (I'm not kidding, that was their response).
Then there was the company's supreme blunder, which also came from the music division.
Before Sony, even some hardcore techies were unfamiliar with rootkits. Now, the two are synonymous. In 2005, Sony loaded MediaMax CD 3 and Extended Copy Protection (XCP) software on music CDs to help boost copy prevention. The software loaded a rootkit malware onto the PC of anyone who loaded the discs. Rootkits are programs designed to hijack control of a computer.
Texas' attorney general filed suit against the company and accused it of loading spyware onto computers. Class action suits were also filed in New York and California. The fallout lasted years.
The rootkit debacle makes this latest child-spying case all the more mind-boggling. Even if you give Sony the benefit of doubt and discount the possibility the company is evil, then what are you left with? Yes, that's right: incompetence.
I have met a lot of smart people from Sony and I have to believe that some of them realize the company is developing a nasty reputation as an enemy of consumer privacy.
