22 State AGs Settle Data Passing to Negative Option Marketer Claims for $11 Million

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May 28, 2015

negative-optionAttorneys General from 22 states reached agreement with Classmates, Inc., Florists’ Transworld Delivery, Inc. and FTD.com (the “Settling Parties”) to settle allegations that the Settling Parties sold consumer information to negative option marketers. Of the $11 million settlement sum, $8 million will be paid by the Settling Parties directly to the various state attorneys general, while a $3 million fund will be established for consumer restitution. The settlement agreement also contains terms which will prevent the Settling Parties from knowingly transmitting consumer information to negative option marketers in the future.

What are “data passing” and “negative option marketing”?

Data Passing to Negative Option Marketers

Negative option marketing is a practice in which a seller treats a consumer’s failure to take an affirmative action, either rejecting an offer or canceling an agreement, as assent to be charged for future goods or services. The Settling Parties were accused of selling consumer information to third-party marketers who subsequently billed those same consumers for goods or services that were never affirmatively ordered. The Settling Parties obtained consumer information when consumers visited their respective websites to order products/services. The consumers were unaware, and the Settling Parties did not disclose, that consumer information would be sold to third-party marketers. This practice, known as “data passing,” has been prohibited in Internet transactions since Congress passed the Restore Online Shopper’s Confidence Act in 2010.

Along with paying $11 million to settle the allegations, the Settling Parties have also agreed that before sending consumer information to third-party marketers, they must obtain consumer consent. The Settling Parties and their marketing partners also cannot state that an offer is “free” or “risk free,” if the offered program will ultimately convert to a paid subscription. Additionally, the Settling Parties can only present third-party offers after the consumer’s transaction with the Settling Party has been completed in order to ensure that consumers understand that they are receiving a separate and distinct offer from a company other than the Settling Parties.

Protect Yourself

We recently blogged about Sirius XM Radio’s $3.8 million settlement with 45 state attorneys general concerning Sirius’ automatic subscription renewal policy. Companies that engage in automatic renewals or negative option marketing, and even those who work in association with them, have come under close scrutiny by the various states. Businesses must ensure that clear and conspicuous disclosures concerning subscriptions and/or renewals are made to consumers or face the prospect of responding to attorney general inquiries.

If you are interested in learning more about this topic or if you have been served with process concerning your marketing practices, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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David O. Klein

David O. Klein

David Klein is one of the most recognized attorneys in the telemarketing, technology, Internet marketing, sweepstakes and telecommunications fields. Skilled at counseling clients on a broad range of technology-related matters, David Klein has substantial experience in negotiating and drafting complex licensing, marketing and Internet agreements.

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