Legislating Through Litigation: Why ROSCA Suddenly Matters3 Mar, 2015 By: Rachel Hirsch
Frequently, the Federal Trade Commission (FTC) announces enforcement initiatives it seeks to undertake at the beginning of the year. In 2014, the FTC announced the launch of “Operation Failed Resolution” — a strategy aimed to crack down of fraudulent products and marketing campaigns, as well as educate the media on how to identify false claims.
This year, however, did not start with any type of similar pronouncement, begging the question: what is on the FTC’s agenda?
That question is probably best answered by looking at the settlement and litigation activity that occurred at the end of 2014 — the first two cases ever to be litigated under the once little-known statute called the Restore Online Shoppers Confidence Act (ROSCA). Both cases stem from allegations that the advertisers offered consumers “free” products and services that did not clearly disclose the terms of sales, including that consumers would incur automatic monthly recurring charges on their credit cards for continued shipment of products and services.
The first ROSCA case, stemming from allegations brought against advertisers of health and dietary supplement products, continues to be litigated. The second case, brought against a credit score and monitoring company, One Technology LP, was settled within a couple of days of the FTC’s announcement that a complaint had been filed. At the end of 2014, the FTC also settled with a dating site for violations of ROSCA, following a non-public investigation, for posting fake user profiles in an effort to persuade customers to sign up for premium and continuing services.
For the FTC, these cases are a way to short circuit normal rulemaking processes. Rather than issue new guidelines or rules, the FTC uses litigation as tool to accelerate rulemaking, and, indeed, to legislate through outcomes that work in its favor.
Indeed, many of these cases are won by the FTC through sheer pressure tactics, such as cutting off defendants’ access to funds to pay for legal representation by seizing assets — often on an ex parte basis. When this occurs, the outcome almost always favors the FTC. The result? Settlements that do not accurately reflect the true merits of the case and that will be used by the FTC as precedent in future enforcement actions.
While the monetary penalties certainly hurt — as in the case of One Technology, which settled for a whopping $22 million — the long-term effect of its binding provisions and prohibitions can be even more devastating, not only to the named defendants, but also to those industry members who follow in their footsteps.
Continued enforcement of ROSCA, it would seem, is at the top of the FTC’s list of priorities for 2015. However, there is little known about this statute and how the resolution of these cases will ultimately impact online merchants who rely on this type of recurring billing.
Although garnering recent attention, ROSCA is not a new statute. It was enacted in January 2011 to prohibit retailers from charging consumers’ financial accounts unless they have clearly disclosed all material terms associated with their products and services and obtained consumers’ express informed consent to bill for those products and services. What we do not know — at least not yet — is how a court of law will ultimately determine what constitutes “clear and conspicuous” disclosure of material terms. What online marketers do not want is for the FTC to be dictating, in the context of an ex parte temporary restraining order (TRO) or an unbalanced proceeding, what constitutes clear and conspicuous disclosures under the confines of ROSCA.
These types of settlements, however, are not the decisive factors as to how ROSCA will be ultimately interpreted and implemented. The true test will come if these cases are actually litigated — fully and fairly. For now, companies advertising trial offers, automatic subscriptions or negative-option offers are best served by obtaining legal advice from skilled attorneys who are familiar with their sales practices and can guide them through the ever-evolving statutory minefield. If you’d never heard of ROSCA before, you will now.
Rachel Hirsch is a senior associate at Ifrah PLLC, a law firm in Washington, D.C., focusing on advertising and marketing law. She can be reached at (202) 524-4140, via e-mail at email@example.com, and online at www.ftcbeat.com. Hirsch is currently lead counsel in the first-ever ROSCA case to be litigated, which is currently ongoing in federal court in Nevada.