On September 8, the FTC’s Chief Administrative Law Judge (“ALJ”) issued an initial decision finding that a company providing tax filing software services engaged in deceptive advertising practices in violation of Section 5 of the FTC Act. In March of 2022, the FTC filed an administrative complaint alleging that the company’s advertisements misled consumers into believing that any user could file their taxes for free on the company’s platform, when in reality, the free service offerings were only available to approximately one third of tax filers.

In its initial decision, the ALJ sided with the FTC in ordering that the company cannot represent that any good or service that it offers is free, unless: (1) it is free for all consumers; (2) it clearly and conspicuously discloses any terms that would limit the offer and might be misunderstood by consumers; and (3) if the good or service is not free to a majority of taxpayers, that must also be disclosed in a clear and conspicuous manner. In addition, the ALJ’s initial decision prohibits specific misrepresentations by the company regarding the tax preparation and filing services it offers, requires that the order be distributed to relevant parties for the next 20 years, and provides for strict recordkeeping and reporting requirements to ensure the company’s compliance.

The ALJ’s initial decision is subject to automatic review by the full FTC, which will conduct a de novo review of the entire record and any further briefing on the matter. The company has further indicated its intent to pursue an appeal at the federal district court level if the FTC upholds the ALJ’s initial decision.

Putting it into Practice: A key takeaway from the ALJ’s initial decision is that merely including a disclosure indicating the terms and conditions of an offer for “free” goods or services is insufficient to satisfy the requirements of Section 5 of the FTC Act. Such disclosures must “clearly and conspicuously” apprise consumers of the terms and conditions such that the advertisement as a whole does not leave consumers with false impressions. Accordingly, companies with similar advertisement campaigns should review the ALJ’s initial decision and consider whether they are compliant with the standards described therein. Anyone in the advertising arena should take time to review the FTC’s accompanying “nine takeaways” from the initial decision in the above action.