Are There Adequate Disclosures on Your Website?8 Nov, 2011 By: Cathy Polisoto, Jeffrey Richter
The Federal Trade Commission (FTC) recently won a motion for preliminary injunction against defendant Jesse Willms and 10 companies he controls for allegedly deceiving consumers with “free trials” and negative options in the online sale of various products, such as Acai weight-loss supplements, work-at-home schemes, government grants and penny auctions. The thrust of the FTC’s argument was inadequate disclosure of the terms and conditions of the offers on Willms’ websites. The Court noted that Willms buried the key terms by using font size, white spaces, color, boxes and arrows to emphasize the purported benefits of the products and services, while minimizing information about the upfront costs and recurring fees, and placing information about costs below the "fold" of the page, which is unreadable unless the viewer scrolls down to the next webpage.
Although Willms’ companies modified websites after the FTC came calling, the Court found that the sites are still likely deceptive. Willms argued that the current websites are indistinguishable from a website operated by Intelius Inc., which website the district court determined was not deceptive. Intelius Inc. markets an identity protection product, among other things. Willms’ argument backfired when the Court determined that the disclosures on Intelius’ website are far superior to those on Willms’ websites.
The Court stated that, for the following reasons, the Intelius website merely highlights the reasons why Willms' websites still likely violate the FTC Act, which broadly prohibits deceptive practices in advertising:
1. The Intelius website contains a standalone page explaining the terms of the offer, including the continuity plan and negative option, without any requirement to input information.
2. There is a separate box on the same page labeled "Remove Identity Protect Trial" that the consumer may select to avoid enrolling in the continuity plan before making the purchase. Willms’ websites do not permit the purchase of the services without the continuity plan.
3. The font size, placement of text, and overall display of the page is entirely different. The font size on the Intelius page appears roughly the same throughout the page disclosing the continuity plan, while Willms’ webpages minimize the font size and prominence of the disclosures.
4. On the Intelius site, two successive pages disclose to the consumer that he or she is being enrolled in a continuity plan before he or she arrives at the page where he or she has to input credit card information. Willms' websites disclose the negative option continuity plan only on the same page where the consumer is required to input credit card information. There is no opportunity to un-enroll from the trial plan before purchasing the service.
5. Even if a solicitation contains truthful disclosures, it may still leave a net impression that is misleading and violates the FTC Act.
Given the FTC’s ongoing crackdown on online fraud, it is essential to properly craft your online disclosures. If you don’t, you could wind up like Willms, who is now subject to a temporary restraining order freezing his assets and banning him from marketing products or services using a negative option, free trial or bonus. For more detailed information on how to make conspicuous disclosures on a website, review the FTC’s staff working paper entitled “Dot Com Disclosures: Information about Online Advertising.”
Jeffrey Richter is a partner and Cathy Polisoto is an associate at Los Angeles-based Finestone & Richter. They can be reached at email@example.com and firstname.lastname@example.org, or at (310) 575-0800.