United States: Mobile Marketing Companies Settle FTC Mobile Cramming Lawsuit For $150 Million

Last Updated: June 19 2014
Article by David O. Klein

As a result of the  increased regulatory focus on the mobile marketing space, another group of mobile marketing companies has settled a lawsuit brought against them, and their principal individually, by the Federal Trade Commission (FTC).  The FTC complaint alleged that Tatto, Inc.; Shaboom Media, LLC; Bune, LLC; Mobile Media Products, LLC; Chairman Ventures, LLC; Galactic Media, LLC; Virtus Media, LLC; and Lin Miao (collectively the "Defendants") engaged in mobile telephone bill "cramming" in violation of the FTC Act and other applicable laws.  For those that are unfamiliar with the term, "cramming" is the act of placing unauthorized charges on a consumer's telephone bill – in the case of the Defendants, it involved placing charges on consumers' mobile telephone bills.  In order to avoid going to court and risk even greater liability, the Defendant's decided to settle with the FTC.

Details of Alleged Mobile Cramming

According to the FTC complaint, the Defendants allegedly billed consumers for premium text message services that offered "love tips," "fun facts" and celebrity gossip alerts, and placed charges for these services – typically $9.99 a month – on consumers' bills without their permission.

The FTC claims that the Defendants and its personnel have taken advantage of the fact that consumers may not expect their mobile phone bills to contain charges from third parties.  As a result, the FTC alleged that many consumers did not notice or understand the Defendant's charges, and thus made uninformed decisions to pay their bills. Furthermore, the FTC alleged that to the extent that consumers did notice the charges, the process of obtaining refunds from Defendants was difficult and often unsuccessful.

Mobile Cramming Settlement Terms

The proposed settlement order contains the following requirements that the Defendant's must abide by:

  1. Permanently refrain from placing any charges on consumers' telephone bills or assisting anyone else in doing so;
  2. Cease using any other method to charge consumers for goods or services without ensuring that the consumers are aware of the terms of the purchase and have expressly agreed to be charged; and
  3. Pay a monetary judgment of more than $150 million, which will be partially suspended based on the Defendants' inability to pay the full amount.

The Defendants will also be forced to surrender approximately $10 million in assets, including:

  • the contents of fourteen (14) bank accounts and one life insurance policy;
  • five (5) real estate properties, including three (3) in Chicago and one in each of Los Angeles and Beverly Hills;
  • four (4) vehicles, including a 2013 Mercedes SUV, a 2014 Range Rover SUV, a 2011 Audi and a 2008 Bentley; and
  • numerous items of jewelry, including three (3) Patek Phillippe watches, a Tiffany watch, two (2) Tiffany rings, a pair of Tiffany earrings, and a Tiffany necklace and diamond bracelet.

The complaint against the Defendants is part of a larger trend of regulatory action within the mobile marketing space.  In light of this action, and the general regulatory trend, mobile service providers that bill for services by and through consumers' mobile telephone bills should immediately review their marketing practices (and those of their affiliates) and associated disclosures in order to ensure compliance with applicable law and FTC consent decrees.  Entities that fail to comply with applicable law in this vertical could find themselves facing regulatory action, which could result in significant fines and penalties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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