FTC v. DirecTV: Negative Options, ‘Info-Hovers,’ Icons, and More11 Apr, 2017 By: William I. Rothbard
In 2010, DirecTV settled a 49-state enforcement action over its advertising practices, including free-trial “negative option” offers (so-called because they lead to recurring charges unless the customer cancels), the terms of which were alleged to be inadequately disclosed. While the Federal Trade Commission (FTC) was not a party, it worked with the states. Having put that matter to bed and with no allegations of a settlement breach in the ensuing years, DirecTV might have been permitted to think its regulatory troubles were behind it, right? Wrong!
In 2015, the FTC sued the company over what DirecTV says were essentially the same disclosures that had been resolved in the multistate action. The FTC claimed that DirecTV’s disclosures of certain free trial continuity offers were not “clear and conspicuous,” in violation of Section 5 of the FTC Act, which prohibits deceptive business practices, and the Restore Online Shoppers’ Confidence Act (ROSCA), which specifically requires clear and conspicuous disclosure of negative options before consumer billing information is received, and express informed consent to the offers. Understandably chagrined and feeling blindsided, DirecTV dug in its heels and prepared for round two in court.
At issue was a 90-day free offer of HBO, Showtime, and Cinemax to new subscribers. DirecTV disclosed the terms of the offer, including the right to cancel and recurring charges, in “info-hovers” and hyperlinks that were positioned in “close proximity” to the locations in the web flow promoting the offer. The hyperlinks were in the same font color and used the same icon to signal that additional information was available. When the hyperlinks were clicked, disclosures appeared that revealed the length of the free trial and the price the consumer would have to pay for the channels afterward if they didn’t cancel. Disclosures about the negative option feature were made in this fashion on every page of the signup process and in the “Terms and Conditions,” which the consumer had to agree to prior to placing an order. Only after that consent was provided could the customer complete the order and only then did DirecTV receive the billing information.
DirecTV contended the disclosures complied with ROSCA’s “clear and conspicuous” and “express informed consent” requirements and with the FTC’s own Dot-com Disclosures Guidelines, which permit use of hyperlinks where the details of some disclosures may be too complex to describe on the web page adjacent to the claim. Considerations for evaluating the effectiveness of hyperlinks include “the labeling or description of the hyperlink;” “consistency in the use of hyperlink styles;” “the placement and prominence of the hyperlink on the webpage or screen;” and “the handling of the disclosure on the click-through page.” The Guidelines state that “Consumers should be able to tell that they can click on a link to get more information … getting to the disclosure on the click-through should be easy,” and the disclosure “should be easy to understand.” DirecTV maintained that its hyperlinked disclosures were consistent with the Dot-com Disclosures guidance.
After the FTC produced no consumer evidence to support its claim that the negative option disclosures were not clear and conspicuous, DirecTV moved for summary judgment, arguing the disclosures were ROSCA- and Dot-com Disclosures-compliant and that there was no extrinsic evidence of consumer deception to the contrary. The FTC cross-filed, contending the disclosures were not effective because they were not on the web page itself, such that a consumer could navigate the entire web flow and never see them unless he noticed the icons, info hovers, and hyperlinks (which the FTC said failed to call adequate attention to the disclosures “inside”) and took the extra step of hovering or clicking. It said the court had the legal authority to make a facial determination, without extrinsic evidence, that the disclosures were unclear and inconspicuous and thus deceptive as a matter of law under Section 5 and ROSCA. Both motions were denied, with the court stating that while there was no material factual dispute over the physical presentation and content of the disclosures, there was a heated difference over the “inferences” to be drawn with respect to their legality.
With dueling summary judgment motions shot down and emotions running high, trial seemed inevitable. The day before it was set to go last month, however, the parties stepped back from the brink to file a notice of settlement, which is not yet public. However, in an unusual move, FTC Commissioner Terrell McSweeny notified the court that she couldn’t support the settlement because the consumer redress is “insufficient” and the injunctive relief is too weak. With three vacancies at the five-member agency, a single nay vote is enough to kill a deal.
With scant case law on ROSCA and the “clear and conspicuous” standard, this DirecTV case seemed poised (and may still be given the present settlement deadlock) to provide much needed judicial guidance on what exactly is required for negative option disclosures to pass legal muster. For now, and until and unless there is a final result here, continuity sellers will have to continue to rely on whatever tea leaves can be divined from FTC negative option consent orders. The latest, in FTC v. Nutraclick last September, settled charges that negative option disclosures that were on the checkout page, above the fold, and close to the submit button, still were not clear and conspicuous because they didn’t stand out well enough in densely-packed verbiage and were next to an allegedly distracting money-back-guarantee symbol. Post-settlement, Nutraclick now has this simple standalone disclosure immediately above the submit button, next to a box which must be checked by the consumer to signify assent to the negative option:
I understand that unless I cancel within 18 days by calling 1-877-869-3304, I will be sent a one-month supply of Peak Life Prostate for just $29.99 + $4.99 S&H and applicable sales tax beginning 18 days from now and every 30 days thereafter.
While the FTC never officially blesses disclosures, it is reasonable to assume that this disclosure was discussed during settlement negotiations, and the FTC did not shoot it down. At least until the DirecTV outcome becomes final, it is thus the most up-to-date road map of a presumably compliant form of negative option disclosure for those offering free trial continuity wishing to lower their FTC risk.
William I. Rothbard is a former FTC attorney and practices in Los Angeles, specializing in advertising and marketing law. He can be reached at (310) 453-8713, Rothbard@FTCAdLaw.com, and www.ftcadlaw.com.