FTC Takes Tough Action Against ‘Scareware’ Tactics

by Ifrah PLLC
Contact

A great way to make money is to develop a product or service that responds to a consumer want or demand, and then to stay ahead of prospective competitors by offering better pricing or quality. A not-so-great way to make money is to convince consumers to buy a product or service that they don’t really want or need, at inflated rates. A highly dubious way to make money is to trick consumers into paying for something they didn’t want and didn’t mean to buy.

Businesses operating in this third category, which may include a scareware marketer or two, have to consider risk versus reward. Is the reward of temporary profits worth the risk of legal action; what is the likelihood of legal action; and what is the potential cost of such action?

Someone who operates on tricks over treats, or by pure scareware tactics, may expect business to dry up as consumers learn to avoid their traps. Such an operator must also face the looming threat of consumer legal action, government intervention, or run-ins with credit card companies alarmed by high chargeback rates.

For these types of businesses in the mobile marketing space, the cost of potential government intervention is going up. A recent settlement between the Federal Trade Commission and Jesta Digital LLC points to the severe penalties a business may face for operating on the sidelines of fair play. The consequences include a hefty fine, consumer refunds, restricted billing practices and stringent compliance measures for years to come.

Jesta (which also does business as Jamster) is known mostly for its marketplace of ringtones, photos, videos and apps. Starting in 2011, it ran a scareware campaign, purportedly for anti-virus software, that the FTC asserts crossed the line into deceptive advertising. The ads ran on the free version of the Angry Birds app for Android. Using a graphic that looks like the Android robot logo, the banner ad displayed a warning that viruses had been detected on the device – even though no virus scan was conducted. According to the FTC, when the consumers clicked on the “remove [virus]” button, or similar “warning” buttons, Jesta directed them through a number of pages about virus protection that left to very fine print a monthly service fee for ringtones and other content.

The FTC alleges that consumers were even charged at the instant of pressing a “Protect Your Android Today” button. Through the use of Wireless Access Protocol (WAP) billing, the company was able to charge consumers through their cell phone numbers without needing to obtain express authorization. (It may be that the use of the billing practice actually spurred the FTC into action as wireless carriers initiated their own penalties against Jesta for the large number of consumers demanding refunds.) The FTC also alleges that the anti-virus software often failed at download (apparently at one point, only 372 people out of 100,000 subscribers actually received some sort of anti-virus app download link).

The FTC describes numerous deceptive practices: mimicking the Android logo to confuse consumers into believing the virus warnings were credible, charging consumers without their knowledge or consent, failing to provide services charged for. The company apparently was aware that its scareware tactics crossed the line, as an email correspondence among company executives noted that the chief marketing officer was “anxious to move our business out of being a scam and more into a valued service.”

So now the company must pay the FTC a $1.2 million penalty and offer to refund consumers. The process of identifying and notifying consumers of their refund options and tracking all this to show to the FTC will be a costly undertaking. Another major cost will be the stringent and detailed billing practices that the company – and all participants, including principals and agents – must adhere to, disclosures it must make, and compliance monitoring and recordkeeping requirements it must adhere to, for 20 years. The settlement agreement is far more than a hand slap; its terms keep Jesta (and its principals!) beholden to the FTC for the foreseeable future.

Mobile marketers who may calculate risk versus reward and decide that a get-rich-quick scheme is worth the risk should think again. The FTC is making deceptive marketing tactics, like many scareware campaigns, a priority. We have seen strong action from the agency in the recent past, including hefty penalties for the company Innovative Marketing and its principal Marc D’Souza. Moreover, the newly-appointed head of consumer protection at the FTC, Jessica Rich, has noted that the FTC is expanding digital enforcement, increasing the risk of getting caught in the agency’s cross-hairs.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ifrah PLLC | Attorney Advertising

Written by:

Ifrah PLLC
Contact
more
less

Ifrah PLLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!