The Federal Trade Commission (“FTC”) recently filed a Complaint in the Southern District of California against six entities and four individuals, accusing them of deceiving customers with their use of “free” and “risk-free” trial period advertising related to cooking products, golf-related products, and online subscription services on their websites, in TV infomercials, and via email.
The FTC’s Complaint alleges that the defendants violated section 5(a) of the FTC Act, which prohibits unfair or deceptive acts, by misrepresenting the trial offers applicable to their products. Specifically, the FTC accuses the defendants of advertising their products as having a “risk-free” trial period when, in reality, the consumers are required to return the product at their expense before the trial period ends in order to avoid being charged additional amounts for the product. The FTC also accuses the defendants of failing to adequately disclose the material terms and conditions of the trial offer, of their continuity/subscription plan offers, and of their refund and cancellation policy. For example, the FTC takes issue with the defendants’ failure to clearly disclose that they would start charging the consumer if he/she did not cancel the trial period or return the product.
In addition to violations of the FTC Act, the FTC’s Complaint also alleges violations of the Restore Online Shoppers’ Confidence Act (“ROSCA”). The FTC describes ROSCA as an act that “prohibits any post-transaction third party seller (a seller who markets goods or services online through an initial merchant after a consumer has initiated a transaction with that merchant) from charging any financial account in an Internet transaction unless it has disclosed clearly all material terms of the transaction and obtained the consumer’s express informed consent to the charge.” The FTC’s Complaint against the defendants focuses on section 4 of ROSCA, which prohibits the sale of products through an improper “negative option” feature. A “negative option” feature is a provision in an offer to sell goods or services under which the consumer’s silence is taken as an acceptance of the offer. It is improper to utilize a “negative option” feature unless the seller satisfies the following requirements: (1) clearly and conspicuously disclose all material terms of the transaction before obtaining the consumer’s billing information, (2) obtain the consumer’s express written consent before charging the consumer, and (3) provide a simple mechanism for the consumer to stop recurring charges. The FTC’s Complaint alleges that, in violation of section 4 of ROSCA, the defendants did not meet any of those three requirements with respect to their cooking and golf-related goods and services.
The FTC seeks an injunction preventing future violations of the FTC Act and ROSCA as well as other relief necessary to redress injury to consumers. It is clear that the FTC looks closely at advertisements claiming to offer “free” and “risk-free” trial periods and that companies should make sure to adhere to the FTC’s and ROSCA’s requirements.
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