Electronic Retailer - July 2012 - (Page 41)

BY GREG SATER FTC Describes What it Wants to See in Negative Options CHANNEL CROSSING: LEGAL The Federal Trade Commission (FTC) has settled a case brought against Green Millionaire, LLC and other defendants who had offered products by means of a negative option, which was allegedly deceptive and thereby violated the FTC Act. The settlement includes a consent decree that lays out what the defendants need to do in the future in order to avoid committing further violations. For that reason, the settlement is instructive for all marketers who use or wish to use a negative option. (As many of you know, the FTC likes to enter into consent decrees and publicize their terms in order to create “precedent,” even if technically those terms only affect the parties to the settlement.) The reason this particular consent decree is so instructive is that it is highly detailed in what it requires. As defined in the consent decree, a “negative option” offer means one “under which the customer’s silence or failure to take an affirmative action to reject goods or to cancel is interpreted by the seller as acceptance of the offer.”  This can include, for example, free or introductory price trial offers as well as continuity plans involving automatic recurring shipments and billing. Under the consent decree, the defendants are prohibited when deploying future negative option offers from using billing information in order to obtain payment from a consumer unless, prior to using such information to obtain payment, they have obtained that consumer’s “express informed consent.” The decree lays out in great detail what that means for written offers – which includes offer made on the internet – and oral offers. For written offers, the consumer must provide a signature or affirmatively check a box accepting the negative option. The consent decree goes on: “Immediately adjacent to such check box, signature, or substantially similar method, the defendants shall disclose all costs associated with the negative option feature, that the consumer is agreeing to pay such costs, the length of any trial period, and that consumers must cancel to avoid being charged.” In addition: “This disclosure shall contain no additional information and shall be clear and conspicuous in relation to any other information provided on the page related to costs, risks, or obligations ... including terms such as ‘free’ ‘discounted’ ‘risk free’ ‘no risk’ ‘trial’ or ‘no obligation.’” For oral offers, there must be a recording of the entire transaction, including the sales representations, evidencing the consumer’s agreement to the negative option feature and demonstrating that he or she has provided billing information “specifically for the purpose of participating in the negative option feature.” But wait, there’s more ... Under the consent decree, the defendants, when shipping out the first shipment of a product, must provide written confirmation of the transaction that includes a “clear and conspicuous statement of the procedures by which the consumer can cancel or obtain a refund” and also includes the following disclosures: all fees and costs, including shipping and handling or processing fees; the amount of any subsequent charges and the dates or frequency of any subsequent charges, including renewals; how the charge will appear on consumers’ billing statements; and the specific billing information to be used. So what is a “clear and conspicuous” disclosure? The consent decree says that, if it’s in writing, a disclosure “shall be of a type size and location sufficiently noticeable for an ordinary consumer to read and comprehend the disclosure, in print that contrasts with the background.” If it’s on the internet, the disclosure absolutely has to be made in writing. Even if it’s already made in an audio or video presentation on the site, it has to be “unavoidable,” and it must be on the same web page and located “in close proximity to” the triggering representation and “viewable without requiring the consumer to scroll up, down, or sideways.” The decree specifically says that disclosures that are accessed or displayed through hyperlinks, pop-ups, interstitials or similar means are not considered by the FTC to be “in close proximity.” Finally, if a communication contains both audio and video, then the disclosure to be made therein must be “presented simultaneously in both the audio and visual portions” in order to qualify as “clear and conspicuous.”  In conclusion, for any marketer offering a negative option, the Green Millionaire settlement is now on your “must read” list, along with prior FTC settlements in the area and laws of states such as California, which also now imposes its own particular disclosure requirements on negative options. Greg Sater is an advertising attorney with Venable, LLP. He can be reached at gjsater@Venable.com or (310) 229-0377. 41 July 2012 | electronicRETAILER http://www.naylornetwork.com/era-nxt

Table of Contents for the Digital Edition of Electronic Retailer - July 2012

Calendar of Events
Your Association Your Bottom Line
Industry Reports
FTC Forum
eMarketer Research
IMS Retail Rankings
Jordan Whitney's Top Categories
From the Executive's Desk
Cover Story: Could You Sell Like Amazon?
Counterfeiting: Why We Should Care and What We Can Do
All Media Are Not Created Equal
Guest Viewpoint
Inventor's Corner
Advertiser Spotlight
Bulletin Board
Advertiser Index
Rick Petry

Electronic Retailer - July 2012