United States: FTC Settles Another Free Trial Law Investigation

Last Updated: June 18 2019
Article by David O. Klein

Last week, the Federal Trade Commission ("FTC") announced that it had settled a free product trial lawsuit brought against Triangle Media Corp., Jasper Rain Marketing LLC, Hardwire Interactive Inc., Global Northern Trading Ltd., Brian Phillips, and Devin Keer (collectively, "Defendants"). The FTC's free trial law complaint and amended complaint both alleged that Defendants violated Section 5 of the FTC Act (i.e., for unfair or deceptive acts or practices), the Restore Online Shoppers' Confidence Act (i.e., for failure to conspicuously disclose material terms prior to enrolling a consumer in an automatic renewal), and the Electronic Fund Transfer Act ("EFTA") (i.e., for failure to obtain consumer consent for an electronic funds transfer), by using "risk-free" trial offers to enroll consumers in negative option programs without their consent. The FTC's free trial law complaint sought a permanent injunction, restitution, disgorgement, and costs.

How did misuse of the word "free" (combined with other misstatements) result in Defendants being named in an FTC Complaint?

The FTC's Allegations

According to the FTC's complaint, the Defendants operate websites that advertise, market, and sell certain products, such as skin creams, electronic cigarettes, and dietary supplements. Defendants drove consumers to their websites through blog posts, banner ads, third-party websites, and surveys. The FTC claimed that Defendants' websites offered consumers "risk free" trials and also created a sense of urgency by warning consumers that there was a "limited supply" or "only 'x' number of trials available." Consumers were informed, according to the FTC, that they would only have to pay a one-time fee for shipping and handling, typically $4.95 or less, to receive Defendants' products. However, the FTC alleged that either 15 or 18 days after consumers submitted orders for their risk-free trials, Defendants would charge the consumers the full price of the products (as much as $98.71). The FTC claimed that Defendants then enrolled these consumers in continuity programs and, thereafter, charged consumers the full product price every month. In addition, at the end of the ordering process, consumers were taken to another page which read, "Wait! Your Order is Not Complete!" On that page, another free trial of a separate product was offered, which, Defendants recommended, should be paired together with the prior trial offer. As we have previously blogged, these automatic renewal and upsell practices are aggressively policed by the FTC.

The FTC found that Defendants' disclosures relating to enrollment in negative option plans and notice on how to cancel were inadequate because they: (1) were buried in the hyperlinked terms and conditions; and/or (2) appeared below the continue/order button on the respective websites.

The Free Trial Law Settlement

Approximately one year after filing the free trial law complaint, the FTC settled the charges brought against Defendants in two separate orders (here and here) which involved both groups of Defendants agreeing to certain settlement terms and the payment of monetary damages. With respect to both orders, the Defendants agreed to:

  1. disclose all material terms relating to any negative option transactions that they offer, including the cost of goods, as well as the terms of any refund, cancellation or exchange policies;
  1. obtain express consent from consumers prior to enrollment in negative option programs, such as by checking an unpopulated checkbox;
  1. advise consumers of the date by which they must act to avoid receiving charges; and
  1. implement a simple cancellation method that consumers can use to stop the recurring billing.

The monetary component of the settlement terms includes payments of $399,795.00 and $3,027,388.36, respectively, as well as agreement to allow the court-appointed receiver to turn over $4 million of Defendants' assets.

How to Avoid FTC Investigations

Free trial offer and negative option program marketers are often the subject of investigation by the FTC and state attorneys general. As demonstrated by this FTC free trial law settlement, the FTC continues to actively pursue claims against advertisers that engage in false and/or deceptive marketing practices, including those that provide free trial offers and negative option programs without employing proper notice and consent procedures. Incomplete or misleading disclosures may place marketers at risk of FTC and state attorney general investigation. Given the foregoing, marketers should consult with experienced counsel prior to launching any advertising campaign.

Related Blog Posts:

Automatic Renewal Law Awaiting Mayor Approval in Washington D.C.

Spotify's Automatic Renewal Problem Continues

eHarmony Agrees to Settle Automatic Renewal Lawsuit

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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