This month, the Federal Trade Commission ("FTC") announced a settlement with San Francisco-based food delivery service UrthBox, Inc. and its principal, Behnam Behrouzi, regarding the company's failure to adequately disclose key terms of its "free trial" automatic renewal programs and its misrepresentation of customer reviews.
According to the FTC's complaint, from October 2016 to November 2017, UrthBox offered consumers a "free trial" of its snack boxes for a nominal shipping and handling fee. However, upon checkout, consumers were automatically enrolled in a six-month negative option subscription plan for the same box, with associated costs ranging from $77 to $269 depending on the snack box size, unless consumers cancelled prior to the program's subscription date. The FTC alleged that UrthBox violated Section 5 of the FTC Act for failing to disclose key terms of the "free" snack box offer, as well as the Restore Online Shoppers Confidence Act ("ROSCA") by failing to adequately disclose the material terms of the free trial offer before obtaining consumers' billing information and receiving their informed consent before charging the consumers' credit or debit card.
The FTC's complaint also alleged that UrthBox conducted an incentive program to induce customers to post positive reviews about its snack boxes on the Better Business Bureau ("BBB") website, amongst others, by offering a free snack box and other incentives to customers in exchange. These reviews did not comply with the FTC Endorsements and Testimonials Guide because, among other things, these reviews failed to disclose a material connection between the reviewers and UrthBox.
The proposed order settling the FTC's charges prohibits UrthBox from misrepresenting that an endorser is an independent consumer of the product and requires UrthBox to clearly and conspicuously disclose any material connection with a consumer, reviewer, or endorser in close proximity to the representation. Furthermore, the order prohibits UrthBox from misrepresenting the terms of a free trial, requires them to make certain disclosures relating to the negative option feature, and provide consumers with a simple mechanism to avoid charges for products with a negative option feature. Lastly, the order requires UrthBox to pay $100,000, which the FTC can use to provide refunds to affected customers.
TAKEAWAY: This case serves as a reminder that this FTC will be looking to obtain real money damages against advertisers.
This article is presented for informational purposes only and is not intended to constitute legal advice.