Do you have what it takes?: Detailed information on topics covering the SEC, Sarbanes-Oxley Act, Reg FD, Insider Trading, Selective Disclosure and the new role that Social Media Plays.

Do you have what it takes?: Detailed information on topics covering the SEC, Sarbanes-Oxley Act, Reg FD, Insider Trading, Selective Disclosure and the new role that Social Media Plays.

            Knowing the ins and outs of trading is incredibly important. Not only because of the financial benefits but because there is an infinite amount of legal matter involved that it is crucial to know the laws.

            In 1934 the Securities Exchange Act was created. Along with this act congress created the Securities and Exchange Commission (SEC). The Securities Exchange Act of 1934 gives power to the SEC “with broad authority over all aspects of the securities industry.” The powers that the SEC hold include the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies, in addition to our nation’s securities self regulatory organizations (SROs). (NYSE and NASDAQ  are examples of SROs). One of the most essential components of this Act is that it prohibits any type of unethical or immoral conduct in the market and gives the SEC disciplinary power when deemed necessary. The SEC holds the most power when it comes to publicly traded firms. They are considered the “parental figure” and no one wants to upset their parents.

            On July 30, 2002, President George Bush passed the Sarbanes-Oxley Act of 2002. He was quoted explaining that this Act is “the most far reaching reforms of American business practices since the time of Franklin Delano Roosevelt.” This Act ordered a certain number of reform to improve corporate responsibility, financial disclosures, and to fight corporate and accounting fraud. Along with this Act the Public Company Accounting Oversight Board (PCAOB) was founded in order to oversee all auditing actions.

            The Sarbanes-Oxley Act of 2002 wasn’t the only step the U.S.  government took in order to protect American businesses. The United States also introduced Fair Disclosure or more commonly referred to as Reg FD (Regulation Fair Disclosure). On August 15, 2000 the SEC implemented Reg FD in order to deal with the “selective disclosure of information by publicly traded companies.”

Regulation FD provides that when an issuer discloses material nonpublic information to certain individuals or entities—generally, securities market professionals, such as stock analysts, or holders of the issuer's securities who may well trade on the basis of the information—the issuer must make public disclosure of that information. In this way, the new rule aims to promote the full and fair disclosure.

http://www.sec.gov/answers/regfd.htm

As I mentioned in the introduction the importance of this knowledge is not only for financial benefit but to avoid the dark side of the law, that holds most true for this next topic; Insider Trading. As I conducted my research for this post, I Googled Insider Trading and “Financial Crime”, “Illegal acts”, and “Illegal Trading” were of the top related topics to my search. Insider Trading is defined as the illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information. Insider trading is highly risky because the majority of the time the information being used has not been made public by the company. However, with that being said, according to Investopedia.com, “Insider trading is legal once the material information has been made public, at which time the insider has no direct advantage over other investors.” The SEC also plays an important role in Insider Trading. In order to protect companies and their investors, the SEC mandates that all insiders report their personal transactions. Again, remember that the SEC is the parent in this field.

Going hand in hand with illegal trading is the topic of Selective Disclosure. Selective Disclosure is defined as:

When a public company discloses material information to a selected group of people, usually analysts and institutional investors, before making the information known to the public. This practice creates the opportunity for a form of insider trading and also creates conflicts of interest for securities analysts.

http://www.investorwords.com/4458/selective_disclosure.html

Selective Disclosure can be just as dangerous if not more so than insider trading and much of the danger has to do with the old saying “safety in numbers.” Many people feel as though if they are in a group than they have the support of each other to not get found out. However, it is quite the contrary, and seemingly obvious; the more people involved in the illegal act the more likely you are to be discovered.            

            What I find most Ironic about this topic is even with all of the safety measures that these companies take and that the SEC takes in order to protect companies an their investors they have recently approved using Facebook and Twitter for official company disclosures. I find this ironic because Facebook and Twitter are two of the top websites involved with the most hacking schemes every year, yet the SEC still approved the postings on April 2, 2013.

“Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don’t know that’s where they need to turn to get the latest news,” George Canellos, acting director of the SEC’s enforcement division, said in a statement.

-Gallu, J.

Though this seems ideal for the era that we live in, a time when most people spend a majority of their day on the internet as opposed to in front of the television (my, how times have changed) not everyone is happy with the merge of social media and company disclosure. A Bloomberg article reports that investors over the age of 50 are not happy. They feel as though they are not a part of this “Twitter era” and are being forgotten about.

“Many investors, especially those over 50, who in the aggregate have the most invested, still do not use social media,” Turner said in an e-mail. “Telling someone who does not use Twitter to go to Twitter for significant investment information is one of the dumber ideas I have heard.”

-Gallu, J.

My question for you all is: What do you think about social media and how it plays a part in company disclosure? Do you agree or disagree?

I learned so much about this topic by conducting the research for this blog posting and I hope you find it someone insightful as well. There is a high possibility that at some point in your life you will be an investor and it is so important to know the ins and outs of the trading world.

References:

·      Securities and Exchange Commission Government Website: SEC History http://www.sec.gov/about/laws.shtml

Date Obtained: November 27, 2013

·      Securities and Exchange Commission Government Website: Fair Disclosure http://www.sec.gov/answers/regfd.htm

Date Obtained: November 27, 2013

·      Investopedia Website: Insider Trading http://www.investopedia.com/terms/i/insidertrading.asp

Date Obtained: November 27, 2013

·      InvestorWords Website: Selective Disclosure http://www.investorwords.com/4458/selective_disclosure.html

Date Obtained: November 27, 2013

·      Protiviti. “SEC Okays Use of Social Media for Company Announcements if Investors are Alerted”. Web. http://www.protiviti.com/en-US/Documents/Regulatory-Reports/SEC/SEC-Flash-Report-Social-Media-Approved-Company-Announcements-040513-Protiviti.pdf April 5, 2013. Date Obtained: November 27, 2013

·      Gallu, Joshua. “SEC Approves Using Facebook, Twitter for Company Disclosure.” Web. http://www.bloomberg.com/news/2013-04-02/sec-approves-social-media-use-for-companies-material-disclosure.html. April 3, 2013. Date Obtained: November 27, 2013. 

Public Relations Economics: Anti-trust, Restraint of Trade, Price Fixing, and Unfair Competition

Having a relatively open/free market is what sets the U.S. apart from say North Korea where the government strictly regulates the economy. This is considered a pro-competition market because the more businesses that compete for your money mean the better the product. However, as a relatively open/free market, the U.S. government must have laws to protect its citizens from letting the market take advantage of them, claiming that it is in the public’s best interest.

These competitive market laws include anti-trust, restraint of trade, price fixing and unfair competition…which is a lot of lawyer talk!

So as I am not an expert on law, I have some great examples to help me explain what these all mean…

ANTI-TRUST

While Milton Friedman (a Nobel Prize winning economist) might think that anti-trust laws do more harm than good, it is not to the agreement of the U.S. government. Anti-trust laws were established in order to promote and protect competition (Law Offices of William Markham).

The below brochure from the FTC gives a great history and explanation of Anti-Trust laws:

So basically, anti-trust laws protect the open/free market based upon two interests - Public Interest and Economic Interest. By ensuring that prices never get too low (or to high), the anti-trust laws help stabilize the economy.

According to the FTC, since the Sherman Act is a criminal law, punishment can be severe, to include penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison (Federal Trade Commission).

 

RESTRAINT OF TRADE

Section one of the Sherman Act provides that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations is hereby declared to be illegal" (Legal Dictionary). Going further, the Supreme Court rules that this only applies to unreasonable restraint of trade, also known as the Rule of Reason, as determined in Standard Oil Co. of New Jersey vs U.S. in which Standard Oli Co. essentially bought all oil refining companies and was turning into a monopoly. The Court identified three such consequences: higher prices, reduced output, and reduced quality (Wikipedia - Standard Oil Company of New Jersey vs U.S.).

PRICE FIXING

In 2012, the U.S. Department of Justice hit Apple with an anti-trust lawsuit for the conspiracy of price fixing e-book sales (Bosker, 2012). The claim is that Apple was telling the five largest publishers that it would charge more per e-book with the launch of its ipad than the e-books had been selling for previously on other e-readers like Amazon’s Kindle, with Apple getting 30% of the sales (Bosker, 2012). This meant that as a consumer, you were not able to get cheaper prices for your ipad e-books. In this case, the Department of Justice is defending the American people.  

Here are some news clips describing it further:

Shorter version – 2 minutes

http://www.youtube.com/watch?v=QL9yB7i__As

Longer version – 5 minutes

http://www.youtube.com/watch?v=0u5dB3OZoNw

UNFAIR COMPETITION

...is pretty much just what it sounds like. Unfair competition is compromised of torts that cause an economic injury to a business through a deceptive or wrongful business practice (Cornell Law). The first being a tort that is meant to confuse consumers as to the source of the product, and the second being all other forms of unfair trade practices (Cornell Law). Similarly to what we learned about last week, unfair competition can include trademark infringement and misappropriation. However, unfair competition is separate from ant-trust or competition laws because it is not just about monopolies, but rather this is based upon individual cases, the action, and the facts.

http://limblogger.wordpress.com/2011/03/28/unfair-competition/

http://www.legalteamusa.net/tacticalip/2012/11/29/unfair-competition-how-does-it-relate-to-trademark-infringement/

 

So there you have it -- competition laws in the realm of anti-trust, restraint of trade, price fixing, and unfair competition.

It is important for public relations professionals to understand these laws as their clients may be involved in one of these industries and/or violate some laws.

But, what about maneuvering markets??

And the plot thickens...

Maneuvering markets is not illegal, yet it seems like it should be…the Feds are looking into it. But in the mean time, this is precisely what Goldman Sachs does with its aluminum. In order to make the market more desirable, the corporation has a constant flux of aluminum coming and going from one of their warehouses to another of their warehouses down the street. This is just enough movement to keep the aluminum difficult to track, making the prices go up.

Here is an excerpt from New York Times article ‘A Shuffle of Aluminum, but to Banks, Pure Gold’

“Before Goldman bought Metro International three years ago, warehouse customers used to wait an average of six weeks for their purchases to be located, retrieved by forklift and delivered to factories. But now that Goldman owns the company, the wait has grown more than tenfold — to more than 16 months, according to industry records.

Longer waits might be written off as an aggravation, but they also make aluminum more expensive nearly everywhere in the country because of the arcane formula used to determine the cost of the metal on the spot market. The delays are so acute that Coca-Cola and many other manufacturers avoid buying aluminum stored here. Nonetheless, they still pay the higher price.” (Kocieniewski, 2013)

What do you think of maneuvering markets? Does it fall under the competition laws or should it be protected? As a consumer, do you feel that you are being duped?

 

References

Bosker, Bianca (2012). “Apple's Antitrust Lawsuit Might Be A Big Deal For You -- But Not For Apple” Retrieved from http://www.huffingtonpost.com/2012/04/11/apple-antitrust-lawsuit_n_1418764.html

Cornell University Law School: Unfair Competition. Retrieved from http://www.law.cornell.edu/wex/unfair_competition%20

Federal Trade Commission Guide to Antitrust Laws. Retrieved from http://www.ftc.gov/bc/antitrust/antitrust_laws.shtm

Federal Trade Commission Fact Sheet – Antitrust Laws: A Brief History. Retrieved from http://www.ftc.gov/bcp/edu/microsites/youarehere/pages/pdf/FTC-Competition_Antitrust-Laws.pdf

Kocieniewski, David (2013). A Shuffle of Aluminum, but to Banks, Pure Gold. Retrieved from http://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html?_r=1&

Legal Dictionary: Restraint of Trade. Retrieved from http://legal-dictionary.thefreedictionary.com/Price+Fixing%20

Markham, William (2006). “Why Antitrust Laws Matter” Retrieved from http://www.markhamlawfirm.com/law-articles/why-antitrust-laws-matter/

Wikipedia: Standard Oil Company of New Jersey vs. United States. Retrieved from http://en.wikipedia.org/wiki/Standard_Oil_Company_of_New_Jersey_v._United_States

The United States Department of Justice: Antitrust Division. Retrieved from http://www.justice.gov/atr/about/antitrust-laws.html

 

 

 

Intellectual Property Laws, Their Rights, Responsibilities, and Infringement

There are three main areas of intellectual property law: copyright, trademark, and patent. These rights are protected by the Federal government; although, if the copyright, trademark, or patent is not registered with the proper office, it can be difficult to sue a person for infringement, plagiarism, or misappropriation.

Most people have heard the term “copyright;” however, probably only a few know that Article I, Section 8 of the Constitution provides for copyright protection.  The laws of copyright are outlined in Title 17 of the U.S. Code and in the 1976 Federal Copyright Act. Copyright protects an individual or group’s original work or expression of ideas. If created after 1978, the copyright protection lasts for 70 years after the death of the owner. Copyright covers original works such as music, literature, art, movies, architecture, etc. and protects against unauthorized use of these works by others and also gives the owner express rights of reproduction, distribution, etc. Whether or not the work is registered, affixing the copyright symbol (©), the date, and the name of the author on works that others see will make them aware of the copyrights.

Trademark law is similar in concept to copyright law in that prevents others from unlawful use; however, trademark protects a company’s brand name and reputation, and prevents others from taking advantage of or misrepresenting a brand. A trademark is a distinctive identifier of a product, which is not easily confused with another brand – think McDonald’s golden arches, the Nike swish, Starbuck’s coffee goddess, etc. Trademarks become protected once they are used by a business – such as on letterhead – and can be renewed indefinitely. The rights to a trademark are abandoned once the company stops using the brand/logo or for ten years after the date of registration. But, again, they are not easily defended in a lawsuit unless they have been registered. As with copyrights, affixing the trademark symbol (™ or ^SM) will make others aware of trademark ownership. Registered trademarks enjoy the privilege of extra legal protection and should always be accompanied by the symbol for a registered trademark: ®.

With regard to patent law, inventions are protected by the Constitutional provisions as copyrights and give the owner the right to make, use, and sell their inventions. Patent protection is good for 20 years from the date of the patent application.

Fair Use is governed by the Copyright Act and allows use of copyrighted material for limited purposes such as comment, news reporting, teaching, research, etc. depending on the purpose of the use. In general, Fair Use can be considered when only a small portion of a copyrighted work is used, or if it is for critical commentary, news reporting or parody.

Plagiarism occurs when a person uses another person’s copyrighted work (words, thoughts, or ideas) and represents it as their own without authorization or acknowledgment of the owner and misappropriation of personality refers to using another person’s image for financial gain – such as using a celebrity’s image on a product because an association will help sell more products.

As public relations professionals, we need to be vigilant about copyright and trademark laws and protecting the rights of our clients as well as making sure the practices of our client do not infringe on the rights of owners of other copyrights or trademarks. A good example of how this is not could occur is the 2010 Oprah Winfey “Own Your Power” trademark infringement lawsuit in which she was sued by a motivational speaker for the use of her trademarked (and registered) catchphrase, which she used for her business.  At first, a judge dismissed the lawsuit, ruling that Oprah had a right to the “fair use” of the catchphrase; however another judge remanded the lawsuit for further proceedings requiring Winfrey to prove the catchphrase was used descriptively only and in good faith, which is not likely to prevail since the Winfrey camp used the catchphrase, essentially, like a campaign slogan, for their corporate-sponsored event in conjunction with a magazine cover and episode of the show.  Was it fair use when it was so widely used? Certainly Oprah’s Oprah Winfrey Network general counsel is familiar with the ins and outs of trademark law and knew they were courting infringement. Did they reasonably expect that the phrase was not registered or was it really only descriptive and motivational? If it was just random and descriptive, why the repetition?  Additionally, it is worth note that Oprah bought the rights to her OWN (network) at the same time the registration application was filed for the motivational speaker in this lawsuit and it was noted that if a search had been done for “OWN,” “Own Your Power” would have popped up as well.

Additionally, in 1997, Oprah was sued by two of her former staff photographers over copyright of photographs they shot over almost a decade of the show. The lawsuit originated from Winfrey’s use of photographs that were individually copyrighted to her production company in a weight-loss book. They both wanted control of the photos. Oprah wanted them to be sure they did not land in tabloid magazines and the photographers wanted to have access to the photos, as it was the whole of their work for ten years and was defined by one, somewhat understandably, as his “legacy.” Under copyright law, the two exceptions to ownership are: when work is done under the employ of another or corporation or when the work is contracted by an individual or a corporation. In this case, it is clear that Oprah paid these photographers as staff and had the reasonable expectation that the pictures would remain the property of her corporation, Harpo Productions, Inc.; however, the judge ruled they would share the use of the photos. The photographers would retain creative rights of the photographs and would be able to go forward with publication of a book featuring photos from the show’s early years, but Winfrey has ensured, through the court, that none of the photos will be leaked to tabloids. That right is now court-protected.  This suit was settled amicably for both parties, but it could have been a very disastrous and expensive loss for the photographers since, according to the law, it was evident they were employed by Harpo Productions and were only taking these photographs at the direction of their employer, so they really should have lost the rights of ownership.

Public relations professionals have a responsibility to follow the letter of the law with regard to intellectual property, but they should also be aware of how other people or organizations are using the ideas of their clients to make sure they never cross the line from fair use to infringement and, if they do, that proper legal action is sought to protect the business and reputation of the client.

References:

"Canada: Fleeting Reference To Starlet In Song Not A Misappropriation Of Personality." Mondaq Business Briefing. (April 5, 2013 Friday ): 285 words. LexisNexis Academic. Web. Date Accessed: 2013/11/10.

 “Copyright: Fair Use.”copyright.gov.U.S. Copyright Office, June 2012. Web. 09 November 2013.

http://www.copyright.gov/fls/fl102.html

 “Copyright Law and Regulations.”copyright.gov. U.S. Copyright Office, n.d.Web. 09 November 2013.

http://www.copyright.gov/laws/

 “Copyright Law of the United States and Related Laws Contained in Title 17 of the United States Code.”copyright.gov.U.S. Copyright Office, n.d. Web.09 November 2013.

http://www.copyright.gov/title17/

Gower, Karla K. Legal and Ethical Considerations for Public Relations, 2^nd Edition. Illinois: Waveland Press, Inc., 2008. Print.

“Oprah Winfrey Must Once Again Defend ‘Own Your Power’ Lawsuit.”hollywoodreporter.com.The Hollywood Reporter, 2013.Web.09 November 2013.

http://www.hollywoodreporter.com/thr-esq/oprah-winfrey-once-again-defend-561194

Posner, Richard A. “Misappropriation: A Dirge.” Houston Law Review Volume 40 (01/2008): pp. 621-1455. Web. 09 November 2013.

“Professional Standards Advisory PS-14: Expropriation of the Intellectual Property of Others.”prsa.org.Public Relations Society of America.2010.Web.09 November 2013.

“Professional Standards Advisory PS-16: Plagiarism.”prsa.org.Public Relations Society of America. September 2010.Web. 09 November 2013.

“United States Copyright Office- A Brief Introduction and History.”copyright.gov. U.S. Copyright Office, n.d. Web. 09 November 2013.

 http://www.copyright.gov/circs/circ1a.html

“Winfrey, Photographers Settle Copyright Suit.”chicagotribune.com.Chicago Tribune, 17 August 2000.

So Much Damned Money!: Political PR, Lobbying and Campaign Finance

Between July and September, oil and gas industry lobbyists and public relations consultants spent lavishly to convince California lawmakers to approve a bill that could drastically weaken environmental regulations and pave the way for hydraulic fracturing, or “fracking” operations to get underway in the state.

Documents released last week revealed that among the many perks was a $13,000 lobster dinner for a dozen lawmakers and their staff at one of Sacramento’s snootiest venues, just before the vote hit the Assembly floor.

Greased by nearly $5 million in oil company cash, the measure eventually slid through the Senate and was signed by Gov. Jerry Brown, according to the Sacramento Bee.

Is this what the founding fathers meant when they talked about free speech, or is this kind of influence a perversion that is dooming American democracy, as many critics suggest?

Lobbying and other corporate and special interest influence on the legislative system draws just such drastic distinctions today especially as wealth distribution in America reaches levels of disparities more indicative of Third World countries than those of the developed world.

“At least in America, I no longer think we live in a democratic society,” said Jeffery Hollender, co-founder of natural products company Seventh Generation and author of the book How to Make the World a Better Place, A Beginner’s Guide. “I mean we live in a society where politics is controlled by money, wealthy individuals and big businesses. And until we deal with campaign finance reform to take money out of politics; until we overturn Citizens United to take money away from big corporations; it’s a challenge. We need to deal with these systemic underlying issues.”

The system that Hollender -- who is also president of the 200,000-buinsiness strong Sustainable Business Council -- decries is the result of a steady erosion of reforms since the 1970s that has allowed wealthy individuals and special interests to deal directly with lawmakers on legislation, in essence skipping the people in the process.

Technically, lobbying is defined as direct contact with local, state or national lawmakers or officials with the intention of influencing policy. Lobbyists are defined as individuals who make more than one “contact” to such an end on behalf of a client. They must be registered as such if they spend 20 percent of their time on such activities over six months and make more than $5,000 for their services or, as in-house specialists, their organizations spend $20,000 or more to on direct influence activities. These activities are regulated to varying degrees at all levels of government and are protected as “free speech” when done within the law.

Using public relations to influence public opinion about an issue with the goal of influencing public influencing government policy on an issue is known as “grassroots lobbying,” and is not considered lobbying or subject to regulation.

In reality, though, lobbying is like the Wild West and is in no way limited to Washington. In fact, its most effective practitioners peddle influence in state assemblies.

Another way corporations and other individuals and special interest groups such as unions influence policy is through campaign contributions. With certain diminishing limitations from the Federal Election Commission, this money is constitutionally protected free speech as well.

Individuals can give up to $2,600 to each candidate, $32,000 to national parties, and $10,000 to state or local party committees. Corporations can’t give anything directly to a candidate, but can give $15,000 to a national party. To get around the ban on direct contributions to candidates, corporate-affiliated individuals, often CEOS, have devised a system known as “bundling” by which they convince other individuals affiliated with their organization to combine contributions into a “bundle” that is tagged as being affiliated with that corporation or entity, giving the bundler a seat at influential events.

In 2010, however, the conservatively-stacked Supreme Court changed the game in favor of corporations, in effect giving them free speech right and deeming their money as free speech. The ruling, known as Citizens United, allowed corporations to form Super PACS and spend unlimited amounts of money on ads and media campaigns for or opposed to a candidate or issue as long as they are not coordinated with the candidate’s campaign.

Nobel Laureate economist Robert Solow called its effect, “The redistribution of wealth in favor of the wealthy and or power in favor of the powerful.” (Moyers, 2012)

The ease of opening super PACS makes it possible for corporations to spend billions to shape policy, set priorities and frame the issues, which many say comes at the expense of the American people.

“Corporate influence is tainting the legislative process, particularly out across the states,” said the late Bod Edgar, executive director of the media group Common Cause. “And the average Americans are paying the price.”

A good recent example of the power of super PACS came Tuesday when corporate sponsors far outspent proponents of a Washington State bill to require labeling for genetically modified food products (GMOs). According to the Center for Democracy’s PR Watch, a coalition of corporations including Monsanto, DuPont, Pepsi, Nestle, Coca-Cola and Dow spend more than $17 million on ads to convince voters that the bill was a bad idea. Just before the vote, the corporations laid down another $5 million in last minute ads. The money won.

Citizens United “opened a Pandora’s box,” says Quinnipiac University Public Relations professor and former Fortune 300 PAC organizer Patricia Whalen. It “raises all kinds of questions about the future of our democratic system and whether our government’s ever going to be able to work again….” (Whalen, 2013).

A couple good books on the subject of lobbying, Citizens United and money in politics include:

Clements, Jeffery D. (2012) Corporations Are Not People: Why They Have More Rights Than You Do and What You Can Do About It. San Francisco, CA. Berrett Koeller.

Kaiser, Robert G. So Much Damned Money: The Triumph of Lobbying and The Corrosion of American Government. (2009) New York. Vintage Books.

Hacker, Jackob S., and Paul Pierson. (2010) Winner-Take-All-Politics: How Washington Made The rich Richer – and Turned its Back on The Middle Class. New York. Simon & Schuster.

Other References:

Capitol Alert Blog, Sacramento Bee. Nov. 4, 2013. Captured Nov. 5 at 10 p.m.

http://blogs.sacbee.com/capitolalertlatest/2013/11/oil-industry-treated-legislators-to-13k-dinner-as-fracking-bill-loomed.html

Center for Public Integrity. www.publicintegrity.org

Center for Media and Democracy. www.prwatch.org

Gower, Carla. (2008) Legal and Ethical Considerations for Public Relations. Long Grove, IL. Waveland Press, Inc.

Moyers, Bill. (2012) From the Introduction to So Much Damned Money: The Triumph of Lobbying and The Corrosion of American Government. (2009) by Robert G. Kaiser. New York. Vintage Books.

Public Citizen. www.citizen.org

Whalen, Patricia. (2013) Course lecture for PRR Public Relations 504, Public Relations Law and Ethics, Quinnipiac University, Fall 2013.

FTC, FDA, & Social Media Regulations

John and Sherry Petersik run a very successful DIY & home improvement blog called, "Young House Love." Since 2007 they have opened up their home and their family for the internet, chronicling their wedding, the birth of their first child, and their first book deal, all while completing projects throughout three houses that are affordable and unique. They receive over 5 million blog hits per month and have become the golden standard by which all other DIY blogs are based upon.

Can you even imagine what their reviews do for a product? Thankfully, the Petersiks post disclaimers at the beginning of every blog post even remotely connected to an endorsement. However, many bloggers don't.

The corporate advertising world is no different. Many companies use false testimonials and other similar tactics, including:

• unfairness
• omitting information
• making insignificant information seem significant
• substantiation

The Federal Trade Commission (FTC) was created to regulate this type of untrue influence that advertisers try to have on consumers. It was originally created in 1914 to "police unfair methods of business competition," but has since evolved into a commission "primarily concerned with commercial speech that misleads the public"(Gower, 2008).

Substantiation, perhaps the most frequently targeted use of deceptive advertising, can be detailed by the FTC's case against POM Wonderful. The latest fad beverage in anti-aging/anti-wrinkle/anti-every-disease-ever hit the shelves a few years ago with advertisements proclaiming that "just 8oz. a day can cure prostate cancer, erectile dysfunction, and heart disease!" The FTC ruled their advertising was misleading and they had no scientific studies to prove the claims. POM Wonderful tried to argue the ruling, saying that it violated their First Amendment rights, but was swiftly rejected.

The Food and Drug Administration (FDA) works similarly to the FTC, but is "concerned with the promotion of prescription drugs through the mass media, whether via advertising or PR activities" (Gower, 2008). Through the Federal Food, Drug, and Cosmetic Act, the FDA can "seek injunctive relief, seize offending products, and issue criminal penalties" (Gower, 2008).

For example, in 2011, the FDA issued a warning to food manufacturers that any food labeled "natural" or "all-natural" would be considered false or mis-branded if it contained anything other than natural ingredients. In today's Whole Foods-obsessed society, this warning is a major blow to food manufacturers who claim to be all-natural. Many have filed class action suits against the FDA, but thus far, the courts have upheld many of their rulings. In the continuing battle against the obesity epidemic in this country, the FDA has introduced a new weapon.

So how does all of this apply to bloggers? FTC guidelines say that any connection between an endorser or seller requires full disclosure, but there is no specific definition of "connection," nor is there any specific example of "full disclosure." And while there hasn't been a major lawsuit between the FTC and bloggers, there is a belief that there is "no significant distinction between a major brand and a blogger." It is only a matter of time before the worlds of the FTC, FDA, and the blogosphere collide and the means of online advertising in changed forever.

As PR professionals, the only absolute way that we can protect ourselves, our clients, and our companies is to tell the truth. Don't try to unnecessarily exaggerate, leave out important information, or lie about secondary connections. Our job is to maintain positive relationships rooted in trust. If our publics - which includes consumers - feel as if they have been lied to or cheated in any way, the relationship is broken.

Remember when your mother used to say, "I'm not mad, I'm disappointed?" When it comes to deceptive advertising, consumers, the FTC, and the FDA are your mother, and you will most certainly go to bed without dinner.

References

Federal Trade Commission. (2013). FTC Commissioners Uphold Trial Judge Decision that POM Wonderful, LLC; Stewart and Lynda Resnick; Others Deceptively Advertised Pomegranate Products by Making Unsupported Health Claims. [Press release] Retrieved from http://www.ftc.gov/opa/2013/01/pom.shtmhttp://www.ftc.gov/opa/2013/01/pom.shtm

Gower, Karla. (2008). Legal and ethical considerations for public relations. Long Grove, IL. Waveland Press, Inc.

PRLOG: Press Release Distribution. (2011). FDA Rules against False "All Natural" Food Claims as Class Action Law Suits Multiply. [Press release]. Retrieved from http://www.prlog.org/11743506-fda-rules-against-false-all-natural-food-claims-as-class-action-law-suits-multiply.html

Social Media Examiner. (2011, October 4). Are You Disclosing? What You Need to Know About FTC Rules and Social Media. Retrieved from http://www.socialmediaexaminer.com/are-you-disclosing-what-you-need-to-know-about-ftc-rules-and-social-media/

Young House Love. Retrieved from http://www.younghouselove.com/

Privacy Laws and Social Media Ethical Issues in Public Relations

“Invasion of privacy is the intrusion into the personal life of another, without just cause, which can give the person whose privacy has been invaded a right to bring a lawsuit for damages against the person or entity that intruded. It encompasses workplace monitoring, Internet privacy, data collection, and other means of disseminating private information” (uslegal.com). Since 1960 there are four torts of privacy invasion which have been determined in order to protect citizen’s rights to privacy; Intrusion, appropriation, false light and public disclosure of embarrassing private facts. Even though public relations professionals so not have any formal laws or regulations for the field, in order to avoid any violations of privacy laws it is imperative for public relations professionals to fully understand these torts and other privacy regulations which could cause law suits.

Intrusion can come in the form of physical, electronic or mechanical intrusion on another’s privacy. The defense to intrusion is consent, given either explicitly or implied. Explicit means that the property owner gave permission for others to be on the property and implied is inferred permission, but not stated.

Appropriation is the use of the name or the likeness of someone without consent for commercial exploitation or purpose. The use of names in a news story is not considered commercial so for appropriation to apply, the name or likeness must be used in an ad or a promotional piece. The best way to avoid violating this is to obtain consent from subjects being used in campaigns or other promotional events, which protects professional from appropriation lawsuits, unless the use exceeds the consent given.

False light is information that puts an individual into a false light that is highly offensive to a reasonable person. It is an inoffensive false statement. False light most often arises in fictionalized situations. Plaintiffs involved in matter of public concern must prove actual malice to win false light actions. False light is very close to libel, so the defenses are the same with consent, truth and qualified privilege.

Public disclosure of embarrassing private facts requires disclosure of such private information that its violates the average person’s sensibilities. Publication to a broad audience is required for this tort and newsworthiness is a strong defense. Although public disclosure of private facts usually involves journalists because it requires publication for a public audience, public relations professionals need to keep the tort in mind when preparing materials involving sensitive issues.

Laws that require professionals to uphold the rights to privacy are those like FERPA and HIPAA. The Family Educational Rights and Privacy Act is a Federal law that protects the privacy of student educational records. These rights transfer to the student when he or she reaches the age of 18 or attends a school beyond the high school level. Generally, schools must have written permission from the parent or students in order to release any information from a student's education record. Schools may disclose"directory" information such as a student's name, address and telephone number. However, schools must tell parents and eligible students about directory information and allow parents and eligible students a reasonable amount of time to request that the school not disclose directory information about them.

The Health Insurance Portability and Accountability Act (HIPAA) provides rights and protections for individual's health insurance records. You have the right to access your medical records at any time, and HIPAA laws prevent those without your permission from gaining access to your records. Medical providers must protect your privacy and keep your medical records secure. Your health information cannot be used or shared without your written permission.

In order to gain access to these examples of protected records for students and patient information in an ethical way, professionals must determine the newsworthiness of stories or collaborate with a the proper authorities in order to protect the patient’s privacy. Understanding the privacy torts and regulations like FERPA and HIPAA will help you avoid activities that are likely to trigger complaints.

Public relations professionals will most often be faced with issues over appropriation and informational privacy. Professionals must also be conscious when working with internal relations. An employee should always be asked before information about that employee is used in the newsletter, published in an external publication or posted on a company Web site. Just because a person is an employee of your organization it does not dismiss their right to privacy. Generally employee information that may be made public without the employee’s consent is confirmation of employment, job title, job description, date hired, and date employment terminated.

Violation of privacy laws are not the only violations public relations professionals must be aware of when conducting business. In the midst of the rise of the internet age, a new level of unethical behavior has arisen. A number of Web sites and deceptive social networking postings have surfaced such as the use of false identities and misleading information by organizations to better their image and their campaigns. These examples of unethical conduct have ranged from, “A public relations firm is hired to post favorable comments on Wikipedia about a number of clients. She 
poses as a neutral, third-party to post the comments”, to “an agency creates a fake identity and uses the identity to post favorable comments about a client’s social responsibility activities on a number of blogs and social networking sites” (prsa.org). "PRSA members should not engage in or encourage the practice of misrepresenting organizations and individuals through the use of blogs, viral marketing, social media and anonymous Internet postings" (prsa.org).

As an unaccredited field it is up to professionals to not only adhere to governmental laws but to also uphold our field's code of ethics. Professional values to always have in mind in order to avoid invading any privacy issues are, honesty, fairness and advocacy (PRSA). It is our job to provide a voice for our clients in their various industries in order to present ideas, facts, and messages to inform the public. Practicing ethical public relations will help reduce the likelihood of harming others through violating their privacy's, damaging their reputation or supporting the presentation of false information.

Sources:

Gower, Karla. "Legal and Ethical Considerations for Public Relations". Chapter 4: pg. 81 - 93

http://www.ed.gov/policy/gen/guid/fpco/ferpa/index.html

http://www.hhs.gov/ocr/privacy/hipaa/understanding/index.html

http://www.prsa.org/AboutPRSA/Ethics/ProfessionalStandardsAdvisories/Documents/PSA-08.pdf

http://definitions.uslegal.com/r/right-to-privacy/