Adapt Promotions to Legal Issues

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This year has seen major legislative and judicial developments in online marketing and promotions. Commerce on the Internet is booming. Recent figures show 90 million Americans now use the Internet regularly and nearly 60 million people shopped online in the third quarter of 1999. Estimates place total U.S. online retail sales for 1999 between $20 billion and $33 billion.


According to the U.S. Commerce Department, online retail purchases in 2000 rose 15.3 percent from the second quarter to the third quarter. There also has been an exponential increase in online advertising during the same period. U.S. online advertising revenue rose from $301 million in 1996 to $4.6 billion in 1999 and is projected to reach $11.5 billion in 2003. Meanwhile, laws that govern privacy, advertising, disclosures, trademarks and copyrights are being redefined to address this new market and its rapidly evolving technologies.


Privacy concerns.


The technological developments that have made e-commerce possible also have enhanced the ability of companies to collect, store, transfer and analyze vast amounts of data about consumers who visit their Web sites. Information can be collected in ways that are not always obvious to online consumers through the use of cookies, Web "bugs" and tracking software, which enable companies to follow consumers' online activities and gather detailed information about their personal interests and preferences. The use of such techniques to gather information has increased concern about online consumer privacy.


In response to these concerns, the Federal Trade Commission recently set forth four Fair Information Practice Principles. These principles encourage companies to provide notice of the type of information being collected; choice regarding the collection of personal information and how that data may be used; access to review information collected; and security to ensure that the information is secure from unauthorized use. In addition, there are numerous bills pending in Congress concerning Internet privacy, including the Consumer Internet Privacy Enhancement Act. This act would require commercial Web sites to provide notice and an opt-out provision when collecting personal information.


Globally, the European Commission's directive on data privacy prohibits the transfer of personal data, including names and addresses, to non-European Union nations that do not meet the European "adequacy" standard for privacy protection. In response, the United States agreed in July to a "safe harbor" system that will allow data to flow between the United States and the EU, while ensuring the protection of personal information.


The FTC also has enacted regulations aimed at protecting the privacy of children. The Children's Online Privacy Protection Act became effective April 21. In general, COPPA requires commercial Web site operators that collect personal information from children younger than 13 to provide notice of what information they collect and how the information is used and to obtain verifiable parental consent for the collection, use or disclosure of such personal information.


Unsolicited e-mail.


The Unsolicited Commercial Electronic Mail Act of 1999, which passed the House of Representatives on July 18 by a vote of 427-1, would make it illegal to send an unsolicited commercial e-mail message unless the message is identified as such and contains instructions for the recipient on how to opt out of receiving further messages. In addition, though the use of unsolicited commercial e-mail is not currently prohibited in any state, there is enacted or pending legislation in more than 30 states that provides similar regulations regarding the transmission of unsolicited e-mail.


Dot-com disclosures.


In May, the FTC issued guidelines regarding the applicability of its advertising rules to advertising and sales on the Internet. These guidelines focus on the clarity and conspicuousness of disclosures in Internet advertisements and indicate that the FTC will apply general prohibitions on "unfair or deceptive acts or practices" to Internet advertising, marketing and sales.


Domain name and trademark issues.


On Nov. 16, the Internet's governing body, the Internet Corporation for Assigned Names and Numbers, made a big change by approving seven new top-level domains to add to the current TLDs, such as .com, .org and .net. ICANN chose .biz, .info, .name, .pro, .museum, .aero and .coop. These new TLDs are expected to become available to businesses and consumers by the mid-2001.


ICANN also recently adopted a new policy to address disputes regarding the ownership of a domain name. The Uniform Domain Name Dispute Resolution Policy, adopted by ICANN on Aug. 26, 1999, provides for mandatory arbitration of trademark-based domain name disputes through one of several approved dispute resolution services. In addition, this policy was incorporated into the application for registration of domain names, which requires the registrant to warrant that it does not believe its registration of the domain name violates any other party's trademark rights.


On Nov. 29, 1999, Congress enacted the Anticybersquatting Consumer Protection Act, which provides for civil liability for any person who registers a domain name with bad-faith intent to profit from such registration. This act also restricts the registration or use of a domain name that is identical or confusingly similar to a distinctive mark, or that dilutes a famous mark.


Other cyberspace developments.


There have been recent developments with respect to the use of Internet technologies such as framing, the use of meta tags (keywords that are embedded in Web sites to describe the content of the Web site), banner ads and deep linking. Each of these technologies offers unique promotional and marketing opportunities, as well as new challenges to the application of traditional principles from trademark and copyright law. As use of the Internet continues to grow, the bounds of permissible use for these technologies will need to be more clearly addressed.


The developments of the past year affecting promotions and marketing in cyberspace are only the beginning of the process of applying traditional laws to the new, online world. As the importance of the Internet in commerce continues to grow, so too will the need for clear rules governing the use of the constantly evolving technologies that drive e-commerce.


• Stephen Durchslag is chairman of the intellectual property department at the law firm of Winston and Strawn, Chicago. Reach him at sdurchsl@winston.com.
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