April 3, 2017
The Federal Trade Commission (the “FTC” or “Commission”) recently sued six California businesses and their respective owners and officers in federal district court in connection with the defendants’ allegedly deceptive free marketing practices.
What should sellers and marketers know before offering free or risk-free trials?
Free Marketing Campaign
According to FTC court records, five corporations, a limited liability company and four individuals have operated in various combinations as common enterprises since 2010 in or around Vista, California. The defendants allegedly sold cooking- and golf-related products via websites, which were advertised through infomercials and email marketing.
The Commission claims that the defendants used “negative option” free marketing techniques by delivering goods or services to consumers for a trial period at no cost, and subsequently charging them after the trial period ended. Likewise, the defendants purportedly offered a 100% money back guarantee and informed consumers that their trial offers were “risk-free.”
On March 23, 2017, the Commission commenced legal action against the defendants in the U.S. District Court for the Southern District of California (Case No. 17-cv-575), claiming that their free marketing practices violated the FTC Act and the Restore Online Shoppers’ Confidence Act (“ROSCA”).
The FTC alleges, among other things, that the defendants:
- failed to obtain consumers’ express informed consent before charging their credit cards;
- misrepresented that consumers could receive free trial shipments;
- failed to adequately disclose the terms of their offers; and
- made it difficult for consumers to return trial products, cancel subscription plans and obtain refunds.
The lawsuit seeks injunctive relief, as well as damages in the form of disgorgement of the defendants’ profits.
Make Sure Your Free Marketing Practices Don’t Cost You Big
As we have previously blogged, federal authorities and state attorneys general alike have been active in investigating and prosecuting marketers for deceptive advertising practices. This case reinforces the notion that businesses should be vigilant in gathering verifiable, scientific evidence to substantiate their health benefit claims. With specific regard to free marketing claims, prior to launching such a campaign, the best advice is to make sure that the entire campaign is vetted by knowledgeable advertising counsel.
The material contained herein is provided for information 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.