United States: First Circuit Affirms FTC Social Media Order: Jerk.com Users Jerked Around By Material Misrepresentations

Last Updated: May 31 2016
Article by David A. Kluft

In Fanning v. Federal Trade Commission, the First Circuit affirmed a summary decision of the Federal Trade Commission (FTC), which found that Jerk LLC, the operator of Jerk.com, materially misrepresented both the source of its content and the nature of its membership benefits, in violation of the Federal Trade Commission Act. However, the Court also curtailed certain monitoring provisions ordered by the FTC, finding that they were not reasonably related to the violations.

"Welcome to Jerk"

Jerk.com was started in 2009 by John Fanning, co-founder of the original internet bad boy, Napster.  Styled as both a social media site and a "reputation management" tool, Jerk.com contained 85 million profiles of individuals. The site allowed viewers to add a new profile by "post[ing] a jerk," to vote on whether each individual was a "Jerk" or "not a Jerk," and to publish anonymous comments. Most of the comments – surprise! – were derogatory.  Jerk LLC promoted Jerk.com with the offer: "Find out what your 'friends' are saying about you behind your back."

Although the site didn't exactly take the world by storm, those who did visit it were horrified to find that they were listed amongst the jerks.  "Who listed me as a jerk," they wondered; and more importantly,  "how can I remove myself from that list?"  For these troubled souls, Jerk.com offered a solution. A "remove me" button led to a subscription page: for $30, they could become a member and "join the millions of people who already use Jerk for important updates for business, dating and more." Membership, purportedly, would allow users to "manage [their] reputations and resolve disputes" with the people who identified them as jerks. According to an unfortunate internal communication between Fanning and one of his business partners, "the only negative of the jerk.com business plan is the blackmail-feeling revenue model."

Any questions? Just contact Jerk.com's customer service department for an additional $25 fee.

The FTC Complaint

In 2014, the FTC enforcement arm (referred to at the administrative level as "Complaint Counsel") filed a two-count administrative complaint against Jerk LLC and Fanning, alleging "deceptive acts or practices in or affecting commerce," in violation of Section 5(a) of the FTC Act.  Specifically, Complaint Counsel charged Jerk LLC and Fanning with two deceptions.  First, Complaint Counsel alleged that Jerk.com tricked users into thinking that their profiles were generated by other users, when in fact almost all of them were simply scraped from Facebook.  Second, Complaint Counsel alleged that Jerk.com promised users that they would receive services in return for the $30 subscription fee, when in fact no services were provided.

The facts were largely undisputed, so Complaint Counsel moved for a summary decision. The FTC Commissioners granted the motion, finding that Jerk LLC was liable for each alleged deception because (1) Jerk made the representations alleged; (2) the representations were false or misleading; and (3) the representations were material. Fanning himself was found individually liable because he both directly participated in and had authority to control the deceptive acts.  As a remedy, the FTC issued a cease and desist order against future misleading speech. The FTC also instituted certain monitoring requirements, including that Fanning report to the FTC any consumer complaints he receives related to an online service for a period of five years, and that he notify the FTC of any new business affiliations or employment in which he is engaged over the next ten years.

Jerk.com was more or less abandoned by the time the order issued, and Jerk LLC did not bother to appeal, but Fanning appealed to the First Circuit Court of Appeals. Fanning's appeal focused not on his personal liability, but rather on the FTC's underlying findings about the deceptive nature of Jerk.com.

The First Circuit Affirms on the Merits

On May 9, 2016, the First Circuit issued an opinion affirming most of the FTC's summary order. The First Circuit agreed that, although Jerk.com never expressly claimed that the jerk profiles were generated by users, its various statements falsely implied (or gave the "overall net impression") that this was the case.  Jerk.com created this impression through the "Post a Jerk" button, by boasting of its "millions" of users, and by displaying disclaimers that it was not liable for the profiles because they reflected the views of its users. Thus, even though almost all of the profiles were automatically generated using information lifted from Facebook, users were duped into believing that someone out there hated them.

The First Circuit also agreed that users were tricked into thinking that a $30 paid membership would give them the chance to remove or correct their profiles. The Court found that, by linking the "Remove Me" button directly to the membership billing page, and by stating that only members could "create a dispute" about the content of their profile, Jerk.com had expressly represented that the $30 membership fee would allow them the opportunity to contest or remove profiles or negative reviews, when that was not the case.  On the contrary, both the FTC and First Circuit found that members received no services. Both misrepresentations, the Court held, were material because they affected whether a user would purchase a membership.

The First Circuit Curtails the Scope of the Remedy

The First Circuit rejected Fanning's argument that the cease and desist order violated his First Amendment rights.  However, the Court found certain aspects of the monitoring provisions to be "problematic." Most troubling to the Court was the requirement that Fanning report his business affiliations and employment to the FTC for ten years, whether or not the affiliation or employment had anything to do with the subject matter of the case. During oral argument, FTC counsel admitted that this would "require Fanning to report if he was a waiter at a restaurant." The FTC argued "that it has traditionally required such reporting," but the Court found that the FTC's justification was "almost entirely bereft of analysis that might explain the rationale for such a requirement." Therefore, this portion of the order was vacated and remanded.

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