May 2009 – Column: Legal Notes

Things Online Marketers Should Keep in Mind

By Jeffrey D. Knowles and Thomas A. Cohn

On February 9, 2009, the Federal Trade Commission (FTC) issued a staff report summarizing its Negative Option workshop held in January 2007, as well as the comments received from consumer groups, the electronic retailing industry and other interested parties. The staff report concluded with five points to guide electronic retailers using online negative option offers.

Given the large amount of attention the 2007 workshop paid to negative option programs offered via the Internet, the report’s focus on online offers should not be a surprise. This is especially true since the FTC went out of its way during the workshop, and in the report, to cite the distinct issues online negative offers present concerning the form, content and timing of disclosures.

FIVE POINTS TONEGATIVE OPTION

“Negative option” covers a variety of offers, including pre-notification negative option plans, continuity plans, free trial conversion plans, automatic renewal plans and membership or club programs. Many in the electronic retailing industry also refer to these programs as “advance consent” plans.

A recurring theme throughout the five points is that to secure consumers’ advance consent, marketers must provide consumers with clear and complete information about the offer and its costs. The five principles to the guidelines include:

• Make disclosures understandable;
• Make disclosures clear and conspicuous;
• Disclose terms and costs before payment;
• Secure the consumer’s informed, affirmative consent; and
• If they want to leave, let them.

These points outlined in the FTC’s staff report serve as a guide to help marketers comply with Section 5 of the FTC Act.

In the current political climate, increased activity by legislators, as well as law enforcement and agency officials, will almost certainly result in increased regulation and enforcement. The FTC has signaled a willingness to pursue companies it feels are not complying with Section 5. At the same time the FTC issued the negative option report, the FTC announced two consent orders concerning allegedly deceptive online negative option offers.

These orders went beyond the five points and enjoined any representations: “that a product or service is offered on a ‘free,’ ‘trial,’ or ‘no obligation’ basis, or words of similar import, denoting or implying the absence of any obligation on the part of the recipient of the offer to affirmatively act in order to avoid charges if, in fact, a charge will be assessed pursuant to the offer unless the consumer takes affirmative action to cancel.”

By paying careful attention now to the drafting of online negative option offers–as well as the requisite disclosures–and discussing your specific situation with legal counsel having relevant experience, you may avoid unwanted regulatory scrutiny down the road.

Jeffrey D. Knowles manages Venable LLP’s Government Division and heads the firm’s Advertising and Marketing Practice Group. He can be reached at (202) 344-4860. Thomas A. Cohn is of counsel in Venable LLP’s New York, N.Y., office. He can be reached at (212) 370-6256.