Archive for the 'eCommerce' Category

New rules on payment surcharges in consumer contracts

At the end of last year, the Government implemented Article 19 of the Consumer Rights Directive through the new Consumer Rights (Payment Surcharges) Regulations 2012. These regulations aim to address ‘above-cost’ payment surcharges made by traders.

Payment surcharges (where a trader imposes a fee on customers depending on the type of payment method they choose to use) have become a popular way for traders to reduce the headline cost of goods or services when trading in a competitive market. Payment surcharges are particularly notorious in the budget airline industry (where substantial charges are often imposed for using a credit card), but in recent years have become increasingly common in both on and offline consumer contracts.

The new laws are aimed at ensuring that any surcharges are note used by traders as a mechanism for generating additional revenue for the trader.

So what do these regulations actually change?
The new regulations prohibit traders from imposing payment surcharges on customers where the charge exceeds the cost to the trader of using the payment method – in other words, ‘above cost payments’. They are payment method agnostic – that means they apply not just to surcharges imposed when using a credit or debit card, but also other methods such as cheques, cash and direct debits.

In addition to payment charges, the regulations are also applicable to discounts offered for paying using particular methods (for example, direct debit).

The regulations apply to all consumer contracts (both on and offline) in sales or services, digital content and most utilities, and also extend to package holidays, which is beyond the scope of the Directive. The rationale for including package holidays is that a failure to extend the prohibition would produce inconsistencies between packages holidays and individual, separately purchased, components of a holiday (for example air travel).

The regulations detail some excluded contracts including certain financial service and social services contracts.

Charges that do not vary depending on the payment method (and therefore apply to all payment methods) are not affected by the regulations.

How do you calculate what charges are reasonable?
Neither the regulations nor the Directive define what the “cost to the trader” is for the purposes of determining what charge is appropriate. In its guidance (see link below) the Department for Business Innovation and Skills states that only direct costs are relevant, but that these will vary depending on the size of the trader.

In relation to card payments, the guidance lists the following types of costs as being relevant:

  • The Merchant Service Charge, which traders pay to their acquiring bank
  • IT and equipment costs used for particular means of payment such as card terminals, for example point of sale devices
  • Risk management – active fraud detection and prevention measures which vary depending on their business and whether transactions take place face to face or remotely
  • Processing fees such as charges for reversing or refunding a payment
  • Any operational costs that can be separately identified as internal administrative costs arising from activities dedicated exclusively to card payments. For example, where traders opt to buy in services from intermediaries who provide equipment, fraud detection and processing services (especially online payments) for card payments, they should be able to recover the costs they incur through a payment surcharge.

When does this change come into effect?
The regulations come into force on 6 April 2013 and apply to all contracts entered into on or after this date, although new businesses (which begin trading between 6 April 2013 and 12 June 2014) and micro-businesses (less than 10 employees) are given until 12 June 2014 before the regulations apply.

Do the regulations have any other powers?
In the event of non-compliance trading standards are provided with powers to investigate.

Trading standards can also seek undertakings from traders or apply for injunctions in the event of non-compliance. The regulations can also be enforced under the Enterprise Act 2002 (Part 8 Domestic Infringements) Order 2013. Specified enforcers can apply to the courts for enforcement orders if they become aware that a trader has or is likely to engage in conduct which constitutes an infringement.

What do traders need to do now?
Any trader that currently imposes payment surcharges should review their charges to ensure that they are compliant with the new regulations.

Further information…
The Department for Business, Innovation and Skills has published helpful guidance including Q&A’s on the new Regulations whith can be accessed on the BIS website (PDF).

Martin Sloan

European Parliament approves new consumer dispute resolution procedures

The European Parliament recently confirmed its adoption of the European Commission’s Alternative Dispute Resolution (ADR) and Online Dispute Resolution (ODR).

The ODR is intended to establish an EU-wide online platform to quickly and efficiently handle consumer disputes arising from online transactions, avoiding the need to go to court.

Tonio Borg, Commissioner for Health and Consumer Policy explained that

ADR and ODR are a win-win for consumers, who will be able to resolve their disputes out-of-court in a simple, fast and low-cost manner, and also for traders who will be able to keep good relations with customers and avoid litigation costs.

Astoundingly, the Commission claims that the a well-functioning and transparent ADR could save consumers €22.5bn a year.

Online Dispute Resolution – the basics
ADR aims provide an alternate route to resolving disputes by using non judicial entities – for example, a conciliator, mediator, arbitrator, or ombudsman.

The ADR entity proposes a solution or brings the parties together to find a solution. Entities operating fully online are called online dispute resolution entities and will be utilised in the new ODR platform.

With more online and cross border European trade the ODR platform will allow the resolution of disputes when traders and consumers are in geographically different locations. The nature of the platform will (hopefully) speed up procedure to the benefit of both consumers and traders.

It is intended that the new procedure will be available to resolve all consumer contract disputes other than contracts for health and education, regardless of what they purchased, and whether the purchased it domestically or across borders. The ADR process will apply to contracts purchased both online and offline.

When will the regulations come into force?
Member States will have 24 months, after the entry into force of the Directive, to transpose the regulations into national legislation i.e. midway through 2015. The ODR platform will become operational six months after the end of the transposition period.

What should traders do now?
A trader who commits or is obliged to using ADR will need to inform consumers about ADR on their website and in their general terms and conditions. Although the changes are not intended to come into force for some time, traders should start to think about their process changes now.

Traders will be obliged to inform consumers about ADR when a dispute cannot be settled between the trader and consumer. Traders should also provide a link to the ODR platform on their websites.

How will it work in practice?
The platform will link all national alternative dispute resolution entities. A set of common rules will be published detailing the functions of the ODR platform, including the role of national ODR advisors.

Consumers will be able to submit a complaint online using the ODR platform. The platform will notify the trader a complaint has been made. The consumer and trader will then agree upon the appropriate ADR entity to determine the dispute. The new rules provide that ADR entities should settle disputes within 90 days.

We will post more information on the new procedures when they become available.

Martin Sloan

CNIL v Google – one directive and 27 data protection laws

Today’s announcement from the French data protection regulator, CNIL, highlights one of the problems with the current Euroopean data protection regime for businesses that operate across the EU.

One data protection directive; 27 data protection laws
Whilst European data protection laws are derived from a single EU-wide directive, implementation of those laws is done at a national level, with each country having its own data protection regulator. This means that some countries have a more onerous implementation than others, and/or have a regulator that takes a more pragmatic approach than others. Or to put it another way, some countries are more business friendly than others.

These variations cover issues ranging from rules on international data transfers (the UK implementation of the directive is noticably more business friendly as it permits data controllers a degree of discretion in determining whether or not a proposed outsourcing arrangement provides sufficient guarantees in relation to the protection of personal data) to data subject consent (the UK ICO embraces the concept of “implied consent” (in particular, in relation to information collected online), whereas other member states reject that concept).

This means that businesses trading across Europe are being given mixed messages as to what is expected. Witness the recent issues with businesses grappling with different national implementations of the cookie law to see the sorts of problems that this can cause.

In relation to Google’s new privacy policy, the Article 29 Working Party (a grouping of representatives from each of the national data protection regulators) agreed to collaborate on a single response to Google, rather than provide Google with 27 different responses.

From a data controller’s perspective, that is to be welcomed.

However, it’s interesting that it is the French data protection regulator that led this investigation. French data protection laws (and the French regulator) are considered to be more onerous than those in many other member states, and CNIL has historically led the complaints against Google’s new privacy policy.

Whilst CNIL’s decision is apparently endorsed by all the national EU data protection regulators (with the exception of Greece, Romania and Lithuania), the approach is very much consistent with what might be expected by CNIL under French data protection law. Had the investigation been led by another data protection regulator then the report may have been different.

Does this matter? Well yes – if the effect of the report is that a national data protection regulator’s requirement is more onerous than the requirements under the national data protection laws in a particular member state (or that regulator’s previous guidance and practice), then the data controller may feel a bit agreived.

Will this change under the new data protection regulation?
Ultimately, these problems arise because of the different approaches in each member state. Under the proposed data protection regulation this is likely to change. In particular:

  • The new laws will be set out in a regulation, not a directive. That’s important as a regulation has direct effect under EU law and does not need to be implemented nationally by each member state. This means that there will not be any varations between member states in relation to the statutory laws.
  • A requirement for explicit consent to the processing will apply (it cannot be implied). This should help ensure that organisations take a common approach to consent across the EU.
  • Data controllers operating in multiple countries will be able to elect a “home” regulator, rather than be subject to up to 27 different regulators. Issues raised by data subjects in other member states will be referred for resolution by the data subject’s data protection regulator to the home regulator of the data controller.

This last point is directly aimed at ensuring that the processing activities of a data controller are subject to a consistent approach across the EU.

Of course, the fact that there will still be 27 data protection regulators means that there could still be 27 implementations of the regulation, as each regulator will interpret the regulation in its own way. How will disagreements in interpretation of the regulation between the national regulators be resolved? Will we see a sink to the bottom where businesses choose as their home regulator the most business-friendly regulator (and if so, how will that regulator be funded)?

That remains to be seen. But I bet Google doesn’t choose CNIL as its home regulator.

Consumer law – where can I sue?

In a recent case the European Court of Justice (ECJ) has ruled that consumers can sue in the member state in which they are domiciled, where the party that they are suing is domiciled in another member state, and the contract was not “concluded at a distance.”

This latter phrase was given a surprisingly wide interpretation by the court, and has consequences for any business that promotes its services online, even if it concluded contracts offline.

The facts
In this case, the individual raising the action, Ms Muhlleitner (who resided in Austria) had bought a car from a company based in Germany. She had come across the German company on the internet, but did not buy the car online, instead she travelled to Germany to conclude the contract and collect the car.  

When Muhlleitner arrived back in Austria, she discovered that there was a problem with the car, but the company that she bought it from refused to repair it. She then raised an action in the Austrian courts to seek to annul the contract of sale. The Austrian courts then had to consider whether or not they actually had the jurisdiction to hear a dispute against a German trade, in relation to a contract that hadn’t been ‘concluded at a distance’ (by internet or by phone).

The law
The ECJ considered the issue, and decided that, under the Brussels Regulation, the contract did not have to be concluded at a distance for the consumer to be given the additional protection of being able to sue in their home state.  

Instead they found that, in order for a consumer to raise an action in their own member state (rather than the state of the business they are suing):

  • the business must pursue commercial or professional activities in the member state in which the consumer was domiciled, or in anyway direct such activities to that member state; and
  • the contract  in question must relate to those activities.

What this means
This decision will be welcomed by consumers, making it much easier (and cheaper) to raise legal proceedings against a supplier in another member state. As can easily be imagined, the concept of ‘directing’ or ‘pursuing’ commercial interests in a particular EU state is not that limiting when you consider that online marketing and the use of websites will bring into scope many businesses. The decision is consistent with the EU’s aims of protecting consumers and encouraging cross-border trade.

However, the decision may not be welcomed by businesses, who now need to be aware that rules governing jurisdiction of disputes now have a wider application than previously thought, bringing offline transactions into scope. Businesses that promote their services outside their member state should therefore be aware that exclusive jurisdiction clauses in their standard terms and conditions may not be effective.

Leigh Kirktpatrick

IPR infringement and mobile apps – why Apple provides an online reporting tool

Last week’s iOS Dev Weekly email contained an item on the online facility provided by Apple to allow you to report alleged IPR infringement issues with apps on the App Store:

…If you are having copyright or trademark issues [or in fact any other IPR] with your app Apple now have a dedicated App Store process for dealing with this. What I found interesting about the description of this is that it states that it will put you directly in contact with the provider of the disputed app. Surprising.

From Apple’s perspective, this actually makes a lot of sense. Here’s why.

Pretty much anyone can publish an app for distribution by Apple through the App Store. However, whilst Apple does do some quality control on apps that are submitted, it doesn’t have the resources (or time) to carry out an indepth analysis of whether the submitted app infringes any third party IPR. It simply isn’t cost effective for Apple to do so, given the global nature of the App Store – researching whether a particular app infringed third party copyright, patents or trade marks in various countries around the world would cost many, many, thousands of dollars.

This means that there is a very real risk that apps available for sale on the App Store might infringe a third party’s IPR – whether through deliberate infringement, unintended copying, being unaware of a pre-existing patent (whether in the same territory or abroad) or simply the sale of an app by, say, a British registered trade mark holder in a country where the trade mark in question is already owned by someone else.

The dispute process
When an IPR infringement claim does come to light, for the reasons given above it is not practical for Apple to investigate it. It just isn’t worth its while as there’s no financial benefit to Apple from doing so, and Apple is unlikely to have the information required to respond to the complaint. So, instead, it makes much more sense for Apple to provide a facility for complainers to submit a claim straight to the person or organisation that submitted the allegedly infringing app so that the two parties can sort out the dispute directly.

In the meantime, in my experience Apple will suspend (or threaten to suspend) the allegedly infringing app. This keeps Apple in the clear in terms of any alleged infringement by Apple (remember, Apple is simply an agent (or Commissionaire) – it doesn’t licence/sublicence non-Apple apps to end users) and its obligations under the DMCA, as it has taken action as soon as it became aware of the issue, and puts the onus on the recipient of the infringement claim to sort it out so that it can get its app back on the market.

Of course this approach isn’t without its problems – particularly for those on the receiving end of an infringement claim, as the online reporting tool is open to vexatious and frivolous claims, with the onus on the recipient to then demonstrate to Apple that there isn’t an issue. But for aggrieved rights holders it provides an effective way of raising IPR infringement issues directly with the alleged infringer.

Be prepared
It also emphasises the importance of thinking about your IPR before you launch your app.

Are you comfortable that your chosen brand won’t infringe that of a third party? Have you thought about who owns IPR in foreign jurisdictions before you launch an app globally? Are you sure that any third party code utilised in your app is properly licensed? Have your developers assigned across ownership of any code they create? Have you taken steps to register any regiserable IPR that you create?

To learn more about protecting your IPR, download our free guide.

PS It’s not just Apple. A quick check reveals similar facilities on Google Play for copyright infringement and trade mark infringment (although on the latter it appears that Google will actually carry out some investigation itself).

iHard: Bruce Willis and ownership of downloaded content

It seems that last week’s widely-repeated story that Bruce Willis was preparing to sue Apple for ownership of songs downloaded from iTunes was unverified and probably untrue.

Journalists can be forgiven for hedging their bets however, as resale of digital assets a complex subject. In fact, you could say it is pretty “iHard” to understand.

A licence to use
When you buy a music download you are actually paying for a contractual right – a licence – to permit you to do something with that copyright work that would otherwise be contrary to the author’s copyright. (For further discussion of the bundle of rights which protect songs, read this Tech Blog from last September.) 

The licence will set out what you can do with the copyright work, e.g. listen to it in private, burn it to CD/download it to other devices up to a set number of times etc. If what you are doing is not expressly permitted under the licence then you are probably infringing copyright.

In this respect the rights obtained by a purchaser of a music download from iTunes are no different to the rights acquired by a purchaser of a CD from a high street store. If you buy a CD you own the physical CD, but you don’t own the songs on it.

The practical differences are that:

  1. the licensed products are embodied in a physical CD, permitting easy transfer; and
  2. the first-sale doctrine applies to CDs.

The first-sale doctrine provides that once copyright products embodied in a physical object are introduced in the market in a given territory, the right holder loses control of them, and they can be freely resold, lent, or given away by the purchaser. In other words, the purchaser of a CD containing songs has the right to resell, lend or give away their copy of the songs (although not copies of their copy – which is an important distinction.)

The first-sale doctrine
There are various historical justifications for the first-sale doctrine (market failure; the free movement of goods; the impossibility of controlling the uses of a purchased copyright work; enhancing the circulation of culture), and a very similar concept called “exhaustion of rights” exists in the EU.

The catch is that the World Intellectual Property Organization Copyright Treaty (the international treaty on copyright law adopted by the member states of the World Intellectual Property Organization, including the US and, through the Council of the European Union, the EU) limits application of the first-sale doctrine to “fixed copies that can be put into circulation as tangible objects- not intangible content distributed over the internet”.

This means that if the licence for a digital copyright work prevents making copies of it, or prevents transfer of the licence, then reselling, lending or giving away that work is forbidden. (The degrees to which major players such as Amazon and Apple explicitly forbid such transfer is a matter of licence interpretation, and tends to be debated amongst lawyers and academics.)

Posited potential “workarounds”, particularly in the case of death of the owner, include: creating a legal trust (though this seems far-fetched – you can’t change a licence through a trust); burning your media onto a device and bequeathing that device in your will; or writing down the password. As noted above, the legality of these methods will depend on interpretation of particular licence terms.

The distinction between physical and digital content appears increasingly untenable
The European Court of Justice recently ruled that, in relation to a computer program, the rights of the copyright owner Oracle in relation to a copy of is software had been exhausted – even though the software had been downloaded from the internet. 

The judgment addressed the distinction between tangible or intangible forms of the computer program, concluding (via a rather circuitous route that deeemed the Computer Program Directive to be a lex specialis of the Copyright Directive):

it must be considered that the exhaustion of the distribution right under [the Computer Program Directive] concerns both tangible and intangible copies of a computer program”

In theory therefore, although the judgment’s treatment of the tangible/intangible issue is far from the most robust reasoning you will ever read, this suggests that in certain circumstances exhaustion of rights in “used” digital content may be possible.  (If resale of software is an issue of particular interest to you, please read my colleague Martin Sloan’s in-depth summary of the judgement and his key points.)

Similarly, there is forthcoming litigation in the US regarding the legality of reselling of “used” digital songs. Capitol Records is suing ReDigi, a Massachusetts start-up which runs an online marketplace where individulas can resell music files. The legality of ReDigi’s business model will probably turn on whether it is making a copy of the song when it moves the “used” files it to its cloud servers. Capitol has insisted in its filing that copies are being made, claiming: 

While ReDigi touts its service as the equivalent of a used record store, that analogy is inapplicable: used record stores do not make copies to fill up their shelves”

As discussed above, making copies of copies isn’t protected by the first-sale doctrine, so ReDigi will have to prove that only a single copy of a song is being used throughout its entire sales process (as well as finding its own way around the tangible/intangible goods issue).

Hudson Hawk
In the meantime, I appreciate you may have been lured to this blog post on the promise of Bruce Willis, and been subjected to law instead.  So, in a wonderful scene from the unfairly maligned Hudson Hawk, let’s round things off by enjoying Swinging on a Star.

ICO investigation highlights importance of information security to brand reputation

The story earlier this week about the Information Commissioner’s (ICO) investigation into concerns over the security of user passwords for the website is a timely reminder that information security is an evolving area, and one that organisations need to keep under constant review.

The law
The Data Protection Act (DPA) states that:

Appropriate technical and organisational measures shall be taken against unauthorised or unlawful processing of personal data and against accidental loss or destruction of, or damage to, personal data

In determining what measures are appropriate, organisations have to ensure that the level of security is appropriate to the level of harm that might arise from unauthorised access or disclosure and the nature of the data in question.

So, the greater the potential damage to users, the greater the level of protection should be. Importantly, the organisation also has to have regard to technological development.

This means that information security measures need to be kept under constant review as technology (and the cost of that technology to the organisation) evolves. In this case, the question appears to be whether or not Tesco is following industry best practice, and whether its current approach to password security is sufficient, given the technological developments that allow for a more secure way of storing and providing access to passwords.

Brand reputation
However, the story also a reminder that information security is now about more than just legal compliance. It’s also about brand reputation.

Whether or not Tesco’s website falls short of the requirements of the DPA will be a matter for the ICO to come to a view on.

Yet, the very fact that the ICO is investigating the information security procedures of one of the UK’s largest retailers is enough to make front page news. There hasn’t actually been a security breach in relation to the Tesco website, but the possibility that Tesco’s site is may be more vulnerable than others is sufficient for it be reported by the media.

e-Commerce is a notoriously brand fickle industry, with websites being in fashion one minute and not the next. An information security leak can be highly damaging to the brand. For that reason, organisations that trade online should ensure that information security is kept constantly under review, and that they respond to technological developments that help to keep the data of their users secure.

Practical steps
So what should you be doing? In practice, this means ensuring that your internal policies are kept under review and that someone is responsible for information security compliance.

Where you rely upon external suppliers, it’s essential that information security is properly addressed in your software development and hosting contracts through reference to appropriate standards. It’s also important that you are able to audit and review the information security of your websites and systems and ensure that the measures in place continue to be fit for purpose, and mandate that changes can be made where vulnerabilities are identified.

Law Commissions launch consultation on reform of consumer protection laws

The Law Commission and the Scottish Law Commission have today launched a joint consultation on proposals to protect consumers from “unfair terms hidden in small print.”

The law in this area was last substantively updated in 1999, when the Unfair Terms in Consumer Contracts Regulations were passed. These regulations implemented a European directive on consumer protection.

Any business the trades with consumers should take an interest in the consultation, as the recommendations made by the Commissions will impact on the terms that businesses can include in their consumer contracts (and the way that they publicise their goods and services), and the rights and remedies of consumers in relation to terms that are unfair.

The proposed reforms
The 1999 regulations include exemptions from the right to challenge unfair terms in relation to price and subject matter (what you are buying). Notably, the Commission is proposing that the pricing and subject matter may only be exempt from challenge “only if they are transparent and prominent in the original contract.”

The proposals are intended to address misleading pricing on websites and the fact that many consumers simply don’t read terms and conditions that are longer than a Shakespearean play.

Part of this is ensuring that the price provided up front is clear, and that further charges are not hidden in the small print.

The Commissions are also looking for confirmation that the recommendations in their last review of this area of the law (in 2005) remain valid.

BIS proposals
The consultation also coincides in with plans announced by BIS last week to strengthen and clarify consumer rights.

You can access the consultation papers on the Law Commission website.

The consultation closes on 25 October 2012.

Reselling “used” software licences – what does the Oracle decision allow you to do?

Last week, the European Court of Justice (ECJ) published its decision in a long-running German case between a company called UsedSoft and the US software giant Oracle.

The case hit the headlines because the ECJ held that a software company such as Oracle could not stop a licensee from reselling his “used” licences for software distributed by means of a download from a website.

If you have already read a summary of the decision, or aren’t interested in the background facts, then skip down to the key points below.

The background
Under the directive on the legal protection of computer programs, the licensor of a computer program loses his right to control onward distribution of a copy of that program when that copy is first sold in the EU. This is known as the principle of exhaustion.

So, if I go to PC World and buy a copy of a Microsoft product on a CD, then Microsoft cannot stop me subsequently selling that copy on to someone else. This has led to a bouyant market for, amongst other things, second hand computer games, where national retailers sell second hand games alongside “new” games.

UsedSoft’s business provided a means of users selling unused licences for Oracle software.

Under the licence granted by Oracle for its client server software, licensees download the computer prgram from the Oracle website. The user is then licensed to store that program permanently on a server and allow up to 25 users to access it, downloading it onto their workstations.

Oracle argued that UsedSoft’s business breached the terms of its licence, as the licence contractually restricts the licensee from transferring its rights to a third party, and that the provisions in the EU software directive did not apply to downloads.

The ECJ’s decision
The ECJ disagreed with Oracle’s argument, holding that the principle of exhaustion applies regardless of the means by which software is distributed.

In other words, the licensor of a computer program (whether on CD or a download) cannot stop a user in the EU from “selling” on his licenced copy to a third party, and any licence term purporting to vary that right is invalid.

The principle behind the decision is good news for those that buy computer programs online (pretty much anyone these days). Remember – this applies not just to enterprise software like Oracle, but also to games, consumer software and mobile apps.

Key points to note
There are some key points to note from this decision:

  • The decision only applies to software that is licensed on a perpetual basis – this point appears to have been overlooked in many commentaries. In other words it applies only to licences that are not limited in duration. So this decision does not apply to any software that is, say, subject to renewal by payment of an annual licence fee.
  • This means that many organisations’ Microsoft licences may fall outside its scope – for example, where those products are licensed under Microsoft’s Software Assurance model, as the licence under SA only becomes a perpetual licence at the end of the SA contract and upon satisfaction of certain conditions.
  • The principle established by the court applies to the copy of the program “as corrected and updated”. So the copy that may be transferred is the version as updated under any maintenance agreement, even if that agreement has now expired.
  • The principle does not extend so as to allow a licence for multiple users to be subdivide a licence (such as the block of 25 licences sold by Oracle) and resell only part of it, but depending on how the licence is structured you may be able to sell a number of seats where the software is licensed on a per seat basis.
  • Once you have sold your licence for a downloaded program to a third party, you have to delete it from your device and stop using it. This should go without saying (and applies equally to software that has been installed from a CD that is subsequently resold), but it’s worth re-emphasing the point. It may be easier said than done. How will software companies manage the risk that licensees just skip this step and sell on the licence regardless?
  • This decision has no impact on applications provided on a SaaS or cloud basis, even where the user has locked into that cloud vendor's service for a fixed period of time.

Will software companies change their licensing/distribution models?
The move to providing software through website downloads allowed vendors to try and avoid some of the legal issues associated with distributing a copy of their software in a tangible form, such as a CD or DVD. Restricting the ability of users to sell on licences for downloaded software has provided vendors with another revenue stream.

With this ruling, it will be interesting to see whether software vendors once again restructure their distribution models to try and regain control over the rights of users to dispose of surplus licences.

For that reason, I wouldn’t be surprised if perpetual licences for enterprise software become a thing of the past for some vendors, with a move towards combined licence and maintenance agreements that are subject to ongoing payments.

Will the decision affect the price of software?
It will also be interesting to see what impact this has on the price of both “new” and “second-hand” licences.

I remember attending a talk a few years ago by the chief economist at the PRS, who highlighted the impact that Amazon’s marketplace had on the price of new CDs on Amazon, as the (cheaper) price of the second-hand CD was displayed alongside the cost of buying the CD new. From a user’s perspective, there is no degradation in quality, so why buy the more expensive “new” copy? Conversely, the cost of the new CD included the artist’s royalties, production costs and other commissions for the record label, which did not need to be factored into the cost charged by the seller of a second-hand CD.

Could similar economics impact upon the cost of software?

Running a sponsored advertising campaign on social media – how do you avoid falling foul of the ASA?

Earlier this year, the ASA dismissed a complaint about a Twitter based advertising campaign run by Mars. Under the campaign, Jordan and Rio Ferdinand, tweeted a series of out of character messages (including Jordan tweeting about world economics) culminating in the following tweet:

You’re not you when you’re hungry @snickersUk #hungry #spon …

…and a photo of the celebrity holding a Snickers bar.

Fast forward a couple of months, and last week the ASA upheld a complaint about a Twitter based advertising campaign run by Nike in January of this year (around about the same time as the Mars campaign). This campaign featured the following tweet from Wayne Rooney:

My resolution – to start the year as a champion, and finish it as a champion…#makeitcount

…and this from Jake Wilshere:

In 2012, I will come back for my club – and be ready for my country. #makeitcount

So why was one complaint upheld and the other dismissed?

The ASA’s rules
The relevant section of the ASA’s CAP code is section 2, which states the following:

  • Marketing communications must be obviously identifiable as such.
  • Unsolicited e-mail marketing communications must be obviously identifiable as marketing communications without the need to open them (see rule 10.6).
  • Marketing communications must not falsely claim or imply that the marketer is acting as a consumer or for purposes outside its trade, business, craft or profession; marketing communications must make clear their commercial intent, if that is not obvious from the context.
  • Marketers and publishers must make clear that advertorials are marketing communications; for example, by heading them “advertisement feature.

The second requirement makes it clear that the statement identifying the message as an advert can’t be hidden in, say, a webpage linked to from a tweet, and needs to appear in the body of the tweet itself. Nike argued that it had satisfied the “obviously identifiable” requirement by including a link to a Nike url and the “#makeitcount” hashtag, which was the tagline for a new Nike advertising campaign. Nike also argued that the two players were well known for being sponsored by Nike, and therefore their followers on Twitter were unlikely to be misled by the relationship between the footballers and Nike.

The ASA dismissed these arguments.

It considered that Twitter users will follow many users and will scroll through messages quickly. The ASA also considered that Twitter followers would not necessarily have been aware of the “Make it Count” ad campaign, and would not therefore associate the #makeitcount hashtag with Nike. The test under the Code is not just that the advert be “identifiable” but “obviously identifiable”. In the absence of anything obvious in the tweets to indicate that they were Nike marketing commuications, the ASA held that the Tweets breached the Code.

The Mars approach
In its decision on the Nike case, the ASA gave the example of the inclusion of a “#ad” hashtag as a way of identifying the tweet as a marketing communication.

This is exactly what Mars did in the Snickers tweets issuued by Ferdinand and Jordan, which each contained the “#spon” hashtag. In that case, the ASA accepted Mars’s argument that this was sufficiently prominent to make the tweet obviously identifiable as a marketing communication.

Whilst both of these cases involved major international brands and celebrities, the ASA’s rulings are relevant to all organisations regardless of size.

Social media is becoming an increasingly important marketing tool. If you are planning to promote your business using third party endorsements on social media then it’s essential that your communications comply with the CAP Code.

Under the CAP Code, it is the advertiser (not the endorser) that is responsible. It’s therefore also important that you either pre-approve the communications or ensure that your endorser has been given clear guidance on the format of messages being issued. Whilst there might not be much space for regulatory compliance wording in a 140 character message, as the ASA’s latest decision shows all it takes is three characters: #ad.

PS Just to rub salt in the wound, Rooney didn’t make even manage to achieve his resolution, with Manchester City taking the title. But Nike will be happy – the tweet got a quite ridiculous 2,200 retweets.

Twitter: @BrodiesTechBlog feed

December 2017
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