September 18, 2017
The Federal Trade Commission (“FTC”) has announced that ten online marketers of cooking and golf-related products have agreed to settle claims alleging violations of the FTC Act and the Restore Online Shoppers’ Confidence Act, based on the marketers’ alleged improper use of two types of negative option offers: (i) continuity plans, where consumer credit cards are billed on a recurring basis until consumers cancel their subject plans; and (ii) purportedly “free” trial offers, where consumers receive goods or services for a trial period for free (or for a nominal fee), and are charged after the trial period ends unless the consumers return the products or cancel the plan. The complaint alleged that the defendants failed to include clear and accurate disclosures concerning the terms and conditions associated with their negative option plans.
Why Did the FTC Take Issue with the Subject Continuity Plans and “Free” Trial Offers?
Continuity Plans and “Free” Trial Offers Must Always Be Accompanied by Clear and Conspicuous Disclosures
The FTC alleged that the defendants’ advertisements contained misleading and/or hidden disclosures about the continuity plans, specifically:
[Certain] Defendants place material terms –such as the length of the trial period, an initial shipping charge, and the charge for keeping the product after that period ends– “below the fold” of the first page, and provide no visual cue to consumers to scroll down to look for those material terms of the offer. When consumers click the “Add to Cart” button, their browser goes to a new webpage where they continue the checkout process. Thus, consumers would not see this disclosure unless they scroll to the bottom of the page, before clicking that button.
The complaint sought, inter alia, a permanent injunction barring the defendants’ advertising practices and damages, including rescission or reformation of consumer contracts, restitution, refunds of monies paid by consumers and disgorgement of monies obtained in connection with the subject marketing practices.
The Settlement
On September 13, 2017, the FTC announced a settlement with the defendants, pursuant to which the defendants:
- Are permanently retrained and enjoined from hiding or misrepresenting the terms and/or costs of continuity plans or “free” offers;
- Are subject to strict requirements for obtaining informed consent from consumers before enrolling them in any negative option plan; and
- Must pay fines totaling more than $2.5 million.
Are Your Marketing Practices Compliant?
As demonstrated by this FTC lawsuit, the FTC continues to aggressively prosecute claims of deceptive marketing practices involving continuity plans and/or “free” offers. Any hidden, potentially misleading or insufficient disclosures may place marketers at serious risk of legal action. As such, marketers who wish to avoid a potential lawsuit or regulatory investigation should carefully review the FTC’s Guide Concerning Use of The Word “Free” and Similar Representations and consult with experienced counsel regarding their marketing practices. If you are interested in learning more about continuity plans, or need to review your marketing practices or disclosures, please email 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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