In this episode, Stacy sits down with business lawyer Richard Chapo to discuss all things legal. They’ll explain the “hot” topic in 2019, the new California Consumer Privacy Act, and how it will impact the majority of online businesses that gather personal data from residents of California.

EP125- Law And Privacy Order with Richard Chapo | Business Lawyer

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Transcripts:

Stacy:                           00:00 

  • Welcome to Marketing Mistakes and how to Avoid them. I’m Stacy Jones, the founder of influencer marketing and branded content agency Hollywood Branded. This podcast provides brand marketers a learning platform for top experts to share their insights and knowledge on topics which make a direct impact on your business today. While it is impossible to be well versed on every topic and strategy that can improve bottom line results, my goal is to help you avoid making costly mistakes of time, energy, or money. Whether you’re doing a DIY approach or hiring an expert to help. Let’s begin today’s discussion.

Recorded Voice:         00:31      

  • Welcome to marketing mistakes and how to avoid them. Here’s your host, Stacy Jones.

Stacy:                            00:36

  • I’m so happy to be here with you all today and want to give a very warm welcome to Richard Chapo, a business lawyer with 27 years of experience specializing in internet law based in San Diego. Richard helps entrepreneurs avoid copyright infringement letters and other threats when operating online, including the new Digital Millennium Copyright Act and best practices for using it collecting contact information.

Stacy:                             00:55    

  • Today we’re also going to talk about the hot topic in 2019 the new California Consumer Privacy Act that goes into effect this next January and has been described as GDPR light for the United States and how it’s going to impact the majority of online businesses that gather personal data from residents in California. We’ll learn what Richard advises to keep you legally compliant today, what maybe should be avoided and where other companies are missing the mark. Richard, welcome.

Richard:                         01:21   

  • Thanks for having me on.

Stacy:                              01:22     

  • Greatly excited to have you here. I have so many questions about internet copyright law and how to keep our business protected and other businesses protected. So I’d love to have you start off talking about how long you’ve been doing what you’ve been doing, a little bit more about your background, which is quite interesting? Where you’re at and what got you to what you’re doing today?

Richard:                          01:45     

  • Sure. I became a licensed attorney in 1992. I grew up in Southern California. It was horrible. And I’ve been practicing law since then. Originally, focused on litigation, primarily complex litigation, an area of law called bad faith insurance, wrongful death. I used to defend the hospitals and doctors and things of that sort.

Richard:                          02:07

  • Like many attorneys, I burned out on it. And so on 1999 went to Siberia for a year, of all places, to teach law and just generally contemplate my navel, if you will, figure out what I wanted to do with my life. And so upon return, decided to, instead the litigation, focus more on helping small businesses basically grow and avoid some of the common problems that they run into.

Richard:                          02:31  

  • I had a friend who was working as a CEO of an internet company. Now keep in mind this is 1998 so everybody was a CEO of an internet company. And he needed some legal work done and didn’t know the field, neither did I, quite honestly. But nonetheless, we decided to have a go at it. And I’ve been doing it ever since.

Stacy:                               02:50 

  • That is awesome. And I’m sure Siberia was quite an interesting break from California life.

Richard:                          02:57 

  • It was definitely a change. Yeah, it was a good one. It was a great experience. You know, you don’t often get a chance to spend a year somewhere and really dive down into the people and the culture there. So it was a good time. It’s definitely good time.

Stacy:                               03:09 

  • That’s great. So to start off, I know I want to go into some deeper dive subjects on some content usage and influencers and a lot of different topics along those lines. But can we start off chatting a little bit more about the whole California consumer Privacy Act? Since we spent the last two years almost listening to what’s happening in Europe and how everything’s changed with compliance there. And now it’s coming over to United States, and businesses who don’t actually put in some safeguards are opening themselves up to some definite issues.

Richard:                          03:43

  • Sure. So the situation obviously, we had in Europe was the GDPR, which went into effect in May, 2018, that was the general data protection regulation. And from the business perspective, it’s a killer regulation. It is the kind of regulation that even people that work at the DMV look at it and go, “Hmm, that might be a bit much.” And as extensive requirements record keeping, tech changes, and things of that sort that you have to make.

Richard:                          04:08  

  • However, it did have… what I think most people would agree is probably an acceptable goal, which was to try to give individuals a better idea of what information is being collected about them online, and how it’s being used, who it’s being shared with. And so the California Consumer Privacy Act is basically shooting for the same thing.

Richard:                          04:27 

  • Now, unfortunately, once you actually start reading the act, it gets rid of a lot of the sharp elbows that you see in the GDPR. And instead, it really works to give people again, the ability to understand what’s being collected about them. Because I think when most of us think of personal data, we think of perhaps our name, our email address, maybe our phone number. But technology has become so sophisticated that even just to your IP address or indirect identifiers like geolocation, the devices you’re using could be used to create profiles and sell information. I mean, all you have to think about it as if you’re on Google, and you do a search for something the next week you see ads for something related to that topic. And that’s essentially what’s going on. There’s basically no behavioral profiling and what have you.

Richard:                          05:12

  • The CCPA basically tries to address that and it gives people a number of different rights. One is the right to know what personal information is being collected about you. And so you could contact whatever site. Obviously Facebook would be kind of the classic site that we look at. The right to know where the personal information is sold or disclosed. And so they’re going to have to provide you that information. And then you’re going to have the right to tell them to stop.

Richard:                          05:37  

  • That’s a different aspect that we don’t even see in the GDPR, which is considered pretty extensive regulation. So that’s an interesting new twist. Then you’re going to have the right to access your personal information so that means that you’re going to be able to say to companies online, “I want to know what you’ve collected about from me over the last 12 months.” That’s going to give you a look back period and you’ll get a better idea of what people are grabbing, what they’re doing. If you’ve ever done an advertising on Facebook, you can really drill down into a lot of the data they have. It’s amazing some of the information that they have, and how you can filter it this way in that. So I think a lot of people would be very surprised to learn what this information is.

Richard:                          06:19    

  • And then you’re going to have a right to equal service and price. So what that means, essentially, is that if you express any other area, you exercise any of the other rights under the CCPA, people can’t discriminate against you. So if you make a request for your data, they can’t suddenly raise your prices or do anything of that sorts. It’s an equalization effort.

Richard:                        06:40  

  • Then from the business side, obviously you’re going to have to implement procedures to deal with all of those issues. But you’re also going to have to amend your contracts with your vendors, anybody who’s having access to information through your sites. So that could be plugins, cookies, any of these groups. And you’re going to have to make sure that they are compliant with the CCPA as well. And so that’s somewhat mirrors what we see with the GDPR.

Richard:                          07:03    

  • So what does all this mean? What about penalties? So the penalties are basically … the California Attorney General’s in charge of enforcing the Act from a governmental perspective. And the penalties can be up to $7,500 per intentional violation. So if you don’t do anything to comply, or you take some type of action to circumvent, $7,500 per violation. And a violation can often be interpreted as a single person who you’ve collected information from and not complied with the CCPA. If you’ve done that with one person, you’ve probably done it with many. And so that number grows pretty quickly. If it’s an unintentional violation, you just were negligent and you messed it up and it drops to $2,500 per violation.

Richard:                          07:45    

  • Now the interesting thing is the Act also includes a class action … well, not even just class action, but a right of private lawsuit. Basically, any individual who’s impacted can sue you, but the damages are limited between $100 to $750. However, they can bring class action lawsuits. So that’s going to be a problem for some of the larger companies that are out there. And the interesting thing about this is that the CCPA has a saving grace and that is, it has a 30 day cure period. We’re still waiting for regulations to be issued, but it appears as though the California Attorney General and even private parties will have to give you a notice of whatever it is they’re complaining about. And then you have 30 days to cure it. If you don’t cure it in that 30-day period, then they can go forward with penalties and lawsuits.

Stacy:                               08:35     

  • Okay. So that’s a lot of information. If we can break it down, and it’s great information to have, what does that mean to a company? Does that mean that the email lists that they have and that they’re blasting away at are now going to need to be scrubbed or changed or anything altered with that, at all?

Richard:                          08:56          

  • Not necessarily. Not from what we’re seeing so far. The difference between that and the GDPR … a lot of people ran into that with the GDPR. The problem is the GDPR requires you to have a legal basis before you can collect personal data. And there are six different types and the most common type was consent. And so if you’ve developed an email list, you didn’t have an affirmative consent where somebody’s essentially check the box saying, “Yes, you can email me promotional materials”, well, you pretty much had to scrape those people off your list. At least certainly, that was one common interpretation.

Richard:                          09:27

  • The CCPA doesn’t have a consent provision, it doesn’t have a legal basis requirement. And so that’s not in there. So if you have an email list, you’re probably in good shape. Now, if you are meeting certain thresholds, you’re going to have to comply with the CCPA regardless of where you are. So whether you’re in Maine or you’re in Brazil.

Richard:                          09:45   

  • Those thresholds are essentially, if you bring in more than $25 million in revenues, if you make more than 50% of your revenues from the sale of personal data or the rental of it. So for instance, if you have a lead generation company, that would be a situation where that would apply. Or if you receive, sell, or share data of more than 50,000 individuals or devices. And those are individuals, from what we can tell so far, that are natural residents of California, so not 50,000 individuals around the world. So we’re looking at … We have those thresholds that will protect smaller businesses. But as your business grows in size, and as you move around more data, you’re probably going to have to face some of this. But email list, actually, you probably are going to come through with this through this law without being too hurt, I would say.

Stacy:                               10:41     

  • Then does this really impact more businesses and companies that are targeting a private consumer? Or does this also carry over to if you operate on a B2B level and you are capturing data of a business user that your target is? Is there a differentiation?

Richard:                          11:01       

  • It focuses on natural residents or natural persons who are residents of California. So it includes consumers but also B2B, it actually also includes your employees.

Stacy:                               11:11               

  • Interesting, employees even.

Richard:                          11:12        

  • Yes, it’s going to be a surprise for some businesses. One of the things about this law and the reason why there’s some hesitation with the answers is the origins of the CCPA are somewhat bizarre. It was actually going to be brought as an initiative in California. And so you can have initiatives put on the ballot and you can bypass the legislature and the governor. If people voted in a specific way to approve something, then it just becomes a law. And so this was initially an initiative that was brought by a real estate investor up in San Francisco and a couple of other people. And it was written in such a way that as soon as it passed, it would have gone into effect businesses would have not been able to comply. Just there wasn’t enough time and then it was also going to violate other laws, like HIPAA and some other different provisions out there that are federal laws. So it would have caused all kinds of problems.

Richard:                          12:01           

  • So the bizarre thing that happened was in the summer of 2018, it became apparent that it was going to pass. The polls were just very much in favor of it. We were having the Cambridge Analytica issues with Facebook. And so people were fired up about privacy. And so politics being what it is in California, the legislature just made a deal with the people who were behind the initiative and they said, “What we’ll do is we’ll basically create this law. A lot of it mirrors the initiative, but we’re going to make some changes.”

Richard:                          12:33   

  • They went through and they negotiated out what that was going to be, but they did it on seven days. And so they enacted the law in those seven-day period. The reason they did it so fast was the initiative had to be taken off of the ballot by a certain date, and they were running up to a deadline. So the GDPR in Europe took four years to draft, and the California Consumer Privacy Act was drafted in seven days. So as you can imagine, there are parts of it that are a mess that conflict with itself. There are things like what’s a device? Is it your smartphone, is it your tablet? Is it your PC at home? What about a TV? What about Alexa? There are all these kinds of questions. And so we’re seeing a series of amendments coming along, trying to fix those problems with the law. But yeah, from what we’re seeing right now, it’s going to be everybody; consumers, business, employees, it’s going to be pretty pervasive.

Stacy:                               13:23           

  • Now, that’s really interesting. I had no idea state could actually operate that quickly. That’s even more amazing.

Richard:                          13:29 

  • It does. It is a very amazing. And sometimes the government’s you know, it’s interesting, some of the things they will get together on and have a go at. Now, the interesting side note to this is, there’s a question now about whether we will see a national privacy law. As hard as that is to believe that Washington DC that would get anything done. The concern is that we’re going to see every different state basically passing their own laws and they’re all going to have different requirements, at which point of course, there’s no way for businesses to comply with everything. So there’s a thought that there may be a big push for a national law. And you’re seeing groups like Google and Facebook starting to get behind that concept. So it’ll be interesting to see how that develops.

Stacy:                               14:07    

  • And two things that you mentioned earlier, one, you just briefly touched on it, that they’re trying to decide what constitutes an actual device. Because you mentioned that there was a total device number that played into those metrics, I believe?

Richard:                          14:21       

  • Yes. So we’re looking at 50,000 visits from individuals or devices or households in a year. Now, if you think about that number, that’s actually pretty low. We’re talking about … if you’re looking at a website, we were just talking visitors, we’re talking about maybe, I don’t know, 4,200 people a month. So that’s pretty low threshold. A lot of sites are going to hit that.

Richard:                          14:44         

  • The complaint that we’re seeing and we actually have had a number of different professors who teach internet law written letters to the legislature saying this number is way too low. Because you’re going to pick up even maybe small bloggers as groups of that sort, and the cost of compliance is going to be so deadly. And so the question is, well, how are we going to define household and device? What does a cell share rent mean? You know, these are the kinds of legal topics a lot of people hate lawyers about. But you need a definition of them so that we know, because if that 50,000 number doesn’t grow from a practical standpoint this law is going to capture quite a few different companies. I think really their intention is they’re looking at the bigger data brokers. But if they set that number at 50,000, oof. I’m not sure how many visits you get in a month. It’s a pretty low number.

Stacy:                               15:39

  • Even with our agency on our blog, I mean, we’re getting at least 20,000 or so reads on our blogs on a monthly basis. And it grows each month, there’s more and there’s more. So that would impact us greatly. We use software like HubSpot. We don’t manage, we don’t sell our lists of people, but it does track IP addresses. It does track cities and all sorts of things if we really want to dive in there.

Stacy:                               16:04               

  • So for a company like ours, we’re not selling the list, we’re not distributing the list. We’re using a software company like HubSpot, which is … obviously, they’re going to, hopefully, be compliant, not selling less than doing things along those lines. We would expect that. What risks am I opening up as an agency potentially?

Richard:                           16:25      

  • Well that’s an interesting question. So traditionally what we would expect is that HubSpot is going to be viewed as a vendor. So they’re going to or you’re going to have to essentially grab what are called Data Protection agreements. They might be called something different under this, but an agreement from them. They’ll have a written contract that basically says that they are compliant with the CCPA. And if they’re not compliant with the CCPA, then the question is, what’s your liability versus their liability? And that’s not clear yet in the law.

Richard:                            16:52     

  • The California Attorney General is charged with these regulations and those regulations are going to detail a lot of these issues. But under the GDPR at least, which is this trying to mirror you had joint liability. So if you’re in Europe and you have a website, each of your vendors who has access to any of that personal information, via cookies or plugins or HubSpot, or whoever, you’re supposed to be getting a data protection or data processing agreement from. And they have to put forth all these regulations or all of these warranties and guarantees. They’re complying with the GDPR. There are many questions about whether that’s actually happening. But if you get audited at that point, they can come after you as the website. They can go after the processor, and it’s very draconian.

Richard:                            17:39         

  • Now, what we’re actually seeing in the GDPR as far as enforcement actions and what have you, there’s not a lot of that just simply because they’re overwhelmed with breach notices. In the last eight months, there’s something like, I would say, 85,000 a breach notifications that were submitted to the supervisory authorities. So under the GDPR, if you’re a business and you’re hacked, you have to voluntarily come forward within 72 hours and notify the supervisory authority in the country that, “Hey, I was hacked.” The fact that they’ve had 85,000 notices on that is rather staggering. It gives you [crosstalk 00:18:16]. I would say the hackers are winning at this point. Then it gives you some a little bit of lack of confidence in some of the security programs out there.

Stacy:                                18:26      

  • Right. I mean, gosh, I think the hacking is just going to grow and grow and grow. That’s not going away.

Richard:                           18:32      

  • Well, that’s the irony of this. Really, the people who really abused privacy information, you have the big data companies, and you have maybe the Facebooks and Googles of the world, depending on what you think of how they use the data. But those companies are not really going to be deterred by any of this, because they have the resources.

Richard:                           18:50               

  • If you’re talking about somebody who’s “illegally” using the data, so hackers or somebody who’s spamming; if somebody has a mailing list of 100 million emails and they’re spamming them, you know, 10 million today, well, they don’t care what the laws are out there. That’s built into their business model. Their server is in the Ukraine, they’re living in Singapore or wherever. And so some of these laws, some of the intent behind them, I think, misses the point completely. Because there’s somewhat of a utopian view as to what the impact these laws are going to have. And a lot of them are very burdensome on small businesses. There’s a reason why there aren’t a lot of big internet companies in Europe because the regulations are just so brutal.

Stacy:                                19:33    

  • Well, all of that is incredibly a little bit scary, but thank you for sharing that.

Richard:                           19:40  

  • Well, here’s a key point with the California Consumer Protection Act. It’s February 2019, as we’re chatting now, it doesn’t go into effect until January 1st, 2020. So you’ve got 10 months to see what happens with it. We’re not actually expecting enforcement by the California Attorney General until the summer of 2020. Because they have to issue regulations and they’ve indicated that’s not happening anytime soon. So it’s not like this is happening tomorrow, but you definitely want to start paying attention to it.

Stacy:                               20:05    

  • And I’m assuming also that most of the smaller and mid-sized businesses who are listening, if the software solutions that they’re using, they’re most likely above board and they’re going to be offering solutions to this and contractual sign offs and forms and documents to help safeguard their clients as well.

Richard:                          20:24

  • Right. And that’s what we saw the GDPR, as we’ve gotten up to the deadline people started panicking and realizing all of a sudden they had to deal with this thing. And it’s a lot of the CMS systems and what have, had already developed solutions because, frankly, they didn’t have a choice. They had to or they would lose all of their clients. Certainly, there’s a hope that that’s going to happen here.

Richard:                          20:43    

  • Again, the major focus is really on the bigger companies. Even with the GDPR, The Article 29 Working Party who drafted it, they were pretty upfront about, “We hate Google, we hate Facebook,” and they’re pursuing them. You saw the French last week, I think it was last week, maybe the week before, fined Google $57 million for GDPR violations. So you can see where that’s all headed.

Stacy:                               21:08  

  • Well, it definitely seems like the countries, and I’m assuming the states, are going to be targeting the bigger concerns versus trying to source and find the smaller companies to penalize in this, right? At least right away?

Richard:                          21:23   

  • That’s generally what we see. Now, of course, Murphy’s law, “This is not a warranty or guarantee that your site will not be hit.” But yes, generally they try to hit that. They do that for two reasons; one, because they can make an example of those people. And so that when a Google or a Facebook gets hit then people pay attention and will modify their behavior accordingly. At least that’s the theory.

Stacy:                               21:53

  • Then on to another topic. You know, brands fail in using content they don’t have rights to on their social and digital platforms, often. We see it all the time. We try to protect our clients the most we can. We get asked new requests of, “Hey, we did this campaign. Do you think they mind? Can we feature it?” And if it’s not the contract, we always say no. But just because you’re doing a partnership with someone, whether it’s an influencer or a celebrity or a TV show, it doesn’t mean you really have absolute rights to the whole partnership, unless it’s been spelled out in the contract. So are there any helpful words of advice here or words of caution or best practices that you can share, case studies or anything along those lines?

Richard:                          22:41  

  • Well, I think you’re right in two counts. One, yes, it is a problem and it’s becoming a bigger one. Two, the contract; all of this is negotiable when you’re dealing with influencers, but it’s important for brands to have an idea, a plan, if you will, as to the campaigns that they’re considering and the expanse of those campaigns. A common situation you’ll see is, content will be created for a specific situation, and then they want to use it in another platform or another media that’s not detailed in the agreement. And then that causes all kinds of aggravation, because basically the brand’s thinking, “Well, you know, I got ripped off.”

Richard:                          23:24

  • But no, the default provision with a lot of these contracts, particularly when you’re dealing with influencers is that you don’t own that content. Or maybe you own just specific parts of it. And so, going through a contract in detail is critical. What we see, unfortunately is … The beautiful thing about the internet is there’s a lot of free information out there. The negative thing is there’s a lot of free documents out there and so people will often sign influencer agreements or partnership agreements or however you want to classify it, and they’re terrible. The problem that you run into is, and what the parties [inaudible 00:23:59] the agreement.

Richard:                          24:01 

  • So groups that aren’t taking those steps, they run into problems. So you need to look at things like, who owns the content? How long is the content going to appear? Where’s it going to appear? What type of clothing is the person going to have to wear? What are they going to have to put into the message? Because if you’re a conservative company selling suits, do you want somebody standing there with a nude model? Probably not. You know, these different variations.

Richard:                          24:30    

  • The key is really thinking through the campaign and what it is that you want to achieve. What is the look that you want to have? And then what do you want to be able to use that content for? Because if you want to own that content as a brand, you should expect to pay more for it, particularly if you want to use it in other media. You see a lot of problems with that.

Richard:                          24:50  

  • You also need to take into account … and this is particularly true with influencers. Sometimes influencers, they’re not particularly not so much educated on the law, but they don’t really think of it that way. So you have cases that we see popping up on influencers who sign a contract and they get paid a significant amount of money up front and then they don’t follow through on all the requirements.

Richard:                          25:14   

  • I think his name is Luka Sabbat’s, Snap Spectacles. Allegedly, they paid him 45,000 bucks up front on a $60,000 contract. And then allegedly, he didn’t fill the requirements, the specifics that they had called out in the contract. They needed to do this number of shoots and wear the glasses this number of times and what have you. And that lawsuit, as far as I know, it’s still ongoing. But they put a lot of money into that and his response is been … He did a subsequent campaign I think, where he may well have marked them as well as other groups. So that’s obviously not the result that one is hoping for. There needs to be a practical understanding of these people that you’re working with.

Richard:                          26:04         

  • The other thing that I see often that drives me a little nuts is jumping around from influencers to influencers. If you find somebody that produces a positive response for you, looking for long-term relationships is often better with them because you’re going to have a certain stability there. The expectations on both sides, both sides understand exactly what they are and so you run into fewer problems with that.

Richard:                          26:25       

  • But there are different aspects of it including things like non-disparagement clauses, termination clauses, maybe prorating payments. That’s trend that we’re seeing now, where people or where companies are trying to do that with brands, where they’ll only pay after certain milestones are met. And that way you avoid situation with influencers being paid up front then doesn’t actually produce content. So there are different ways to approach it, but the key is have a contract and be very, very specific in it. And you’re probably going to get off a much better result than if you just go into it with some vague goals.

Stacy:                               27:03           

  • I counsel our clients on this. There’re certainly things that you can safeguard against. You know, it takes experience to be able to put the contract together and know that. But sometimes along the way things are always going to pop up because influencers, I love saying, they’re like herding cats because they are the least business like out there on a norm. Not every influencer but most. And they surprise you. It’s kind of amazing. And you’re like, “How did that slip through the cracks? Because that’s not something I’ve ever seen from someone before.” So that’s just a reality of the world wild west of doing influencer marketing too. You almost can’t safeguard yourself from every unknown, but you can safeguard yourself from the vast risks that are out there.

Richard:                          27:49               

  • You’re absolutely correct. And that’s where the prorated payments can be helpful because it helps, as we like to say, focus the influencer on getting the actual project done. Many influencers, I equate them to artists and artists are not … they create some amazing art, but they don’t do it on a particular schedule. And if you’re dealing with a larger brand, particularly one that is used to a traditional corporate structure, that’s a hard mesh because you have the, the expectations; the corporate management and employees versus the person who, “Maybe I’ll go to the beach today.” You’re absolutely right.

Richard:                          28:33

  • That’s why as many details as possible can help. But yeah, there’s a practical aspect to it. You have to understand if you’re working with an influencer and you’re, I don’t know, an alcohol brand or something of that sort and they’re known for partying nonstop 24/7, well, the chances of them hitting the actual requirements that you put in the contract or maybe you hope they get close, and call it a day.

Richard:                          28:59               

  • The other aspect of this is, I’ve had corporate clients who have said, “Well, I want to sue them.” We say, “Well, okay, let’s think about this. You entered in agreement with this group because you wanted the influence that they have because they have millions of followers. Well, if sue them, what’s the potential negative ramifications of that?” These are obviously situations that involved minor issues. With bigger issues, you’ve seen companies move forward. But with Sabbat case, it’s actually, I think, the PR agency that sued him. And Snapchat Spectacles, the actual client that he was supposed to be promoting said, ”No, we didn’t sue him and we’re not part of this.” And that’s an interesting tat for them to take.

Stacy:                              29:42  

  • Well, it’s less risky one because they’re trying to make sure that they don’t have any negativity associated with themselves, which makes sense.

Richard:                         29:50       

  • Yeah, absolutely. Although I think from a legal perspective, that may make sense, but practically, I think people I’m probably going to associate the Snap Spectacles with the lawsuit, unfortunately.

Stacy:                              30:03 

  • Yeah. And also as being, in future partnerships, a little weak

Richard:                         30:07  

  • Yes.

Stacy:                              30:07   

  • So that’s the risk of, do you want to actually pull out the boxing gloves and give it a fight? Or do you just want to cower and wander away?

Richard:                         30:17 

  • Yeah. There’s certainly a major practical debate that goes on in those situations because that’s the nature of influencers. It’s going to be interesting to see how internet based influencers, how that all develops out because influencers have been around forever on traditional media. We think of them as something new, but it’s not really the case. It’s just that online presents a whole different environment because there are quite a few more measurables. I mean, you know how many followers somebody has, how many of them are actually there, how many of them are fake and what have you, but you can do a lot of analytics. And so it’s interesting to see how it’s going to play out.

Stacy:                              30:54    

  • That it will. And I will say that our agency has been looking into and found some different escrow services that we can work with now to combat the issue that you were mentioning. Because a lot of influencers will say that they want to be paid up front, they want a guarantee. And it’s because of I’ve worked with brands and the brands haven’t paid once they’ve delivered. It’s a risk for an influencer just as much as it’s a risk for a brand because they’re putting in their time, their creativity. They’re actually acting as the entire creative team for that brand to do the shoot. If it’s a video or take the photos, be the actor or modeling them to be the stylist, to be the set decorator, the creative producer, the writer, the director, all these things that it actually takes their time. And then they get burned on occasion where the brand just doesn’t pay and doesn’t pay ever.

Richard:                         31:47            

  • No, absolutely. No, it’s definitely a two-way street. I’ve had influencers where the brand is a very large corporate entity and their attorneys want the influencer to add them to their insurance policy as an additional insured and all this type of thing. And I’m kind of laughing like, “Oh, insurance policy really? Okay.” This guy, he’s traveling the world in the VW bus, yes, his multimillion dollar insurance policy.

Stacy:                              32:16

  • Yeah. And he probably doesn’t even have health insurance.

Richard:                         32:18      

  • Exactly. Like, “Really? Wake up, have you actually looked at this person?” Again, that’s the problem that you run into with brands. And if an influencer is in that situation they always have the remedy of going back and pursuing that brand legally, certainly for publicity claims and probably copyright claims as well.

Stacy:                               32:38        

  • Yeah. But it’s something that influencers who are starting to charge more and more and sometimes it’s very questionable about what the dollars are that they’re charging for, probably need to really take some time and think about. Because it’s very easy to say for an influencer who’s getting paid a couple of hundred dollars, maybe even a couple thousand dollars, but when you start working with an entity who is getting that $45,000 fee or a $100,000 fee, that’s a true business. And so at that stage of the game is the influencer actually creating the business for themselves, putting the safeguards, putting the insurance and putting all those things to allow them to actually be on a level measure of being considered a business and deserving of the dollars besides just having the base. Which is an interesting thing to think about.

Richard:                          33:26   

  • Absolutely. There are a lot of variations to it. It’s going to be interesting to see how it develops. But I think yes, as you’re talking about the larger contracts that certainly at that point people need to start treating it as business. And in some ways I can understand why influencers maybe you’re naturally against that because they’re looking at it more from developing their brand and having to deal with the technical details and contracts and lawyers and things of that sort. It’s probably not high on their happy to-do list.

Stacy:                               33:55 

  • I will tell you as an agency owner, it’s not happy on my to-do list either.

Richard:                          33:59

  • I can imagine.

Stacy:                               34:01          

  • I don’t think there’s any brand out there who is like, “I can’t wait to sit down with my lawyer and my insurance agent and figure out how to protect myself and how to buy more policies.” I’m sure no one does. So what else should brands be thinking about and corporations be thinking about in order to better safeguard themselves with content players? I mean, this even goes into … we see it with music. Someone will make a sizzle reel, they’ll put together this great beat. They think that it’s for an internal meeting and then all of a sudden they’re sharing it at trade shows or they’re sharing it on their socials and their website. What are brands not thinking about that they should be?

Richard:                          34:45               

  • Well, certainly the content of a particular campaign is an area that’s really ripe for exploitation, at least from a legal perspective. Because you’re exactly right, people put things into videos and then to photos or whatever, and they don’t really think it through from a legal perspective. Again, that’s pretty understandable. But there are issues there.

Richard:                          35:08         

  • The most infamous case was I think Michelle Phan, who was the YouTube influencer of beauty products. She had allegedly created a bunch of videos and there was background music from different musicians, different artists. And they were all, I think, with a record company called ultra records or something of that sort. And they sued her for copyright infringement. The case eventually settled so we don’t know exactly what happened. But there were allegations on her part that she had actually contacted them and they had received permission to use the videos and essentially had an oral license. And who knows how it played out.

Richard:                           35:50       

  • It did raise the issue that the content in the video or in any kind of a shoot or any kind of content production, you have to look at it carefully. For brands, it’s an interesting situation. We haven’t really seen cases on it yet, but I can tell you, they’re coming. Because if we look at like copyright, for instance, there are two types of secondary copyright infringement liability one is vicarious liability and the other is contributory. With vicarious liability, basically what we’re looking at is a situation where a defendant had the right to control the infringing activity and the defendant drives a financial … it’s called a commercial benefit from the infringement.

Richard:                           36:31     

  • Now, if you think about some brands, some brands are becoming very, very hands on. And so if there is a video that meets their specifications and they review that video before it goes up, and then it just shared on let’s say, their own social media accounts, then you’re starting to get pretty close to a vicarious liability situation. You could certainly see [inaudible 00:36:53] trying it.

Richard:                          36:54      

  • I’m not aware of any of these cases coming up yet, but I wouldn’t be surprised at all to see it happen. Because at that point, obviously, some influencers are going to have significant assets and what have you, but most probably aren’t. So being able to get through to the brand, it certainly gives the plaintiff a much more fruitful target, if you will. And so you could see that certainly becoming the case. So with brands there kind of a catch-22 situation where you’re trying to control basically how the content is being created, making sure that it’s going to reflect whatever your specific message is. But without getting too much control where you went into a situation where you might be held liable for copyright complaint.

Richard:                          37:39               

  • The other side of that, which is interesting is that if you have a long-term relationship with a particular influencer and you’re showing quite a bit of control as to what they’re producing, does the IRS eventually come knocking on your door and claim that the influencer is not an independent contractor, but they’re an employee? That would raise all kinds of back tax issues and things of that sort. We’re in a virgin territory here with a lot of these issues, but those are two that I could definitely see coming along here in the not too distant future.

Stacy:                               38:09        

  • I had not even thought of the employee issue. That could definitely be a problem for some brands.

Richard:                          38:16    

  • Yes, a lot of people think of employees and the IRS, they don’t really understand the test. The test is much more pervasive than I think a lot of people realize. There’s actually a 20-factor test that the IRS will generally use. And some of the issues are; control, the content produced by the person. How long is the person with you? Is the person only working for you? So if you are the only client of the influencer, that certainly doesn’t help you.

Richard:                          38:46   

  • What we see in other fields, like in the medical field, for instance, a lot of hospitals will require doctors and other medical professionals to go out and actually form their own business entity, an LLC or whatever, depending on the state. So that they can clearly say, “Look, this is another company.” And so you may see brands start requiring influencers form a business entity. Which goes back to what we were talking about, is, as you get bigger, you need to really start treating your personal brand, your influencer situation as more of a business than just something that’s fun and you can make money off of.

Stacy:                               39:25  

  • And then of course there’s the wonderful world of the FTC and all the guidelines they have there for revealing the fact that you have an influencer partnership versus just allowing people to assume that influencer loves your brand. Can you chat a little bit more about that?

Richard:                          39:43 

  • Sure. So basically, what the FTC is looking at as a situations where somebody has material connection. If a brand is paying you or if they’re giving you swag or whatever it is, if there’s some kind of an influence there that if you are third party you would want to know about, then you have to disclose that. We see a lot of effort to get around that, which I think is a mistake. You’ll see people, they’ll … So for instance, maybe they cut a YouTube video and then they’ll put it way down in the description. Well, that’s not going to work because people don’t read the descriptions quite often. And if they do, they usually don’t get all the way to the bottom. You need to mention it in your video. If you’re on Instagram video or whatever, it needs to be in the top of the line so that’s not below the fold.

Richard:                          40:32        

  • A better way to approach this is, instead of trying to hide them is to be upfront about them. You know, “I really like this company. In fact, I talked to them and they gave me this free product,” whatever it is. Or, “I became a brand sponsor for them because I really like what they’re doing.” Or, “I like this product or what have you.” And so you can turn it into a benefit and it helps your credibility because one, you’re disclosing, but two, you’re also essentially stating your belief in whatever the product is.

Richard:                          41:02     

  • Now, the other side of that is that endorsements, they have to be true. I mean, if you’ve never used the product in your life, you can’t really be out there endorsing it and saying it does this, this and this, because you don’t know that. And so it’s an area that’s the FTC likes to … they like to scream into the microphone, if you will. I’m sure a lot of people are aware that they’ve issued warning letters and things of this sort, but we haven’t actually seen that many actions.

Richard:                          41:32

  • Until recently, we had the situation with the boxer, Floyd Mayweather and Dj Khaleed, I think, where the FTC looked at them and there was a settlement in that situation. The PewDiePie, the video game gentlemen on YouTube, I think it was Microsoft that it was giving him free games and maybe paying him, and he had put a disclosure in his description and the FTC wasn’t happy with that. But again, they were pretty light as far as penalties. I don’t even think there were any penalties. I think it was mostly just a slap on the wrist. They wanted to see more transparency, more of a compliance with what they’ve put up there.

Richard:                          42:12  

  • If you do a search online for FTC endorsement guidelines, they actually have, I believe, an FAQ page that’s pretty good. And it gives you examples of what they want to see. So you definitely want to comply with that. If you don’t comply at all, if you make no effort whatsoever, FTC violations can be expensive. Because the penalty per violation is something like … they just raised it recently and I think it’s like $41,000. And your insurance policy would not cover something like that if you have one. They tend not to cover government fines or regulatory fines. And so it is a serious subject and I assume here at some point they’re going to start getting aggressive with it because quite frankly, influencers and brands have had plenty of time to understand what the rules are and to comply with them.

Stacy:                               42:57  

  • I went through this last year when we got an FTC investigation actually, on behalf of one of our clients. And in the end it was all good, but it was scary to go through it. Then as an agency, what you need to understand is that if they investigate for one, they’re going to look at everything. They’re going to look at literally every single solitary campaign you’ve done, just to make sure that everything’s on the up and up. No one ever wants to get a letter from the IRS, FTC, the FDA, whomever. So it’s better just to avoid and make sure that you are safeguarded and know that even if you do safeguard yourself, you still may get a little bit of a prodding just to make sure you really are above board and your clients are.

Richard:                          43:45  

  • Yes, absolutely. You put out an excellent point which is, even if you come out of the investigation in good shape, you still spent the time, energy and emotional energy going through it. It’s definitely not a lot of fun event.

Stacy:                               44:00    

  • No, I think my entire team saw my face go green when I was opening up that FedEx letter. I think a lot of brands are very concerned still that if someone reveals that it’s in #Ad, #Sponsor, if it’s a video and they’re saying the FTC actually wants to, in a video, not only at the beginning for you to say it and also interspersely throughout the video to bring up the fact that this was indeed something paid in case someone missed that first mention that you did.

Stacy:                               44:36   

  • How fans are interacting with the influencers that they follow, they’re assuming everything’s paid. I mean, everyone also assumes everything on TV that has a product placement is paid. There’s a lot of assumptions out there. And so if the assumptions are there, why not just go with it and say, “Yes, indeed, they think so highly of our product and I think so highly of that product.” That, “Yes, we have an absolute brand partnership here. They pay me, they give me free things. I love them. The reason I’m partnered with them is because it’s an authentic product for me to actually use and have in my everyday life.” And if you just embrace it, you’re going to have a lot more success overall.

Richard:                          45:18    

  • Yes, absolutely. I think that’s definitely the best approach. And the FTC approach to some of these issues is a bit of a head scratcher. I do understand the repeated disclosures during longer videos, but there’s also … you know what I mean, there’s also the editorial [inaudible 00:45:33] side of the ad that becomes a bit bizarre. That if you’re throwing this in the face of viewers all the time it’s a bit much I would say, but that’s what they want to see. And so unfortunately, you have to comply with it.

Richard:                          45:46      

  • I think the frustrating thing for a lot of brands and for a lot of influencers is that you see a lot of people who are not complying and they say, “Well, why should I have to, if others aren’t. And the problem is, is if you get into an investigation or you’re in court, ‘others were doing it’ is not a defense. Unfortunately, that’s just the way the game works.

Stacy:                             46:06 

  • No. And in the reality of it is, I think the United States is still a little more calm on things along those lines than a lot of other countries. Especially in the lines of, if we flip over again, to product placement in TV shows. I mean, in Germany, they actually have to have a pop up on a screen stating the fact that anything in that content was actually paid for, it is an advertisement. And the UK was following suit on that, and United States was looking at it. The United States decided that was taking it too far. So we actually are a little bit less aggressive in many cases than some of our other western counterparts.

Richard:                         46:47   

  • Well, absolutely. As much as we complain about the FTC and what have you, it’s a whole different world over there. And the irony, particularly in Europe, Europe, they’re just completely out of control, in my opinion. The irony of it is, those warnings, they become the warning on your mattress. Whoever reads them, and even if they pop up in front of you, all you’re doing is trying to get them off the screen, “Yes, yes, yes,” whatever, just get it off.

Richard:                         47:13

  • The irony of it is that the EU knows this. When they were drafting they were looking at the new IEP privacy directive, which is kind of stalled right now. It’s going to deal with email and some of these other issues. But they recognized and there was a big report and everybody agreed that the little cookie popups that you see on websites, and you’re seeing them all the time now because of the GDPR, but there was a regulation that existed before that most EU based sites had them up already. They don’t work, nobody reads them. People are just hitting whatever buttons they need to to get them off.

Richard:                         47:45  

  • There’s this mentality that people are idiots, and that we need to put all of these warnings up. Literally, if you followed every internet law in the world and you complied with everything when people landed on your website or your app, they wouldn’t see it. They would just see this field of warnings and popups. And there are all these different little rules. States have bizarre little rules. There’s just all these different things that are out there.

Richard:                         48:15

  • Unfortunately, when the internet started in late … well not started, but when it started to become a commercial medium in late 1990s, we had this utopian view of the World Wide Web. That’s kind of gone by the wayside. Now, we’re in an ’empire strikes back’ era, and a lot of people are looking at a concept called splinter net. From an economic perspective, the internet’s going to start dividing up. We’re already seeing it. If you’re in London right now and you’re trying to pull up the Los Angeles Times website, you can’t see it because they chose not to comply with the GDPR because it didn’t work with their monetization of data. Newspapers are unique because they have some such a difficult time making money. But that’s rather astounding if you think about it. That’s a major newspaper in the world, and to be unable to view it in some place like London, which, you know, democracy, it’s a little disturbing.

Stacy:                            49:07   

  • Absolutely. Well, Richard, do you have any last bits of advice for our listeners today?

Richard:                       49:13 

  • Not particularly. If you’re looking at an area where we’re going to see a lot of developments, privacy law is definitely something to keep an eye on. Even if you just go create a Google Alert for privacy, you’ll see a lot of laws rolling through there. If you have a website and you think that you’re bringing in more than 84,000 unique visitors a month, you need to start paying attention to the California Privacy Law, because it’s going to get here sooner rather than later.

Richard:                       49:38   

  • Then if you’re in the influencer field, if you’re a brand or even if you’re an influencer, start paying a lot more attention to your contracts. Make sure everything that you want is detailed in there. And make sure you understand what it is that you want, not just specific to that campaign, but how you might reuse it in other ways. And it’ll help get rid of a lot of the problems that people run into.

Stacy:                            50:00  

  • Richard, if any of our listeners want to get ahold of you and want some help on some legal advice that they need to implement or have looked into, how can they reach out to you?

Richard:                       50:11   

  • You can always find me on my website. It’s socal, like Southern California, socalinternetlawyer.com. I’m also on LinkedIn quite a bit, so you can catch me there. Yeah, just mention the show and I’ll be happy to give you free counsel.

Stacy:                            50:25      

  • Well, Richard, thank you so much for being on today. I absolutely got tremendous value out of it. I know our listeners did as well, and I really do appreciate your time.

Richard:                       50:33 

  • Thanks for having me on. It was good experience.

Stacy:                            50:36 

  • And have a great afternoon, everyone.

 

 

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