Federal Trade Commission Act
Last week the Ninth Circuit Court of Appeals ruled in favor of a California federal court decision that imposed an $18.2 million award for restitution against Charles Gugliuzza, the former president of Commerce Planet, Inc. for violating section 5 of the Federal Trade Commission Act.
Commerce Planet first landed in hot water when the FTC filed suit against the company for deceptive marketing practices. The issue involved one of the company’s products, OnlineSupplier, marketed as a hosting platform where people had the opportunity to earn income by buying and selling products over the Internet. However, consumers never saw the OnlineSupplier brand on the Commerce Planet website. Instead, they saw an ad for a “free kit” to help you make money buying and selling wares on eBay.
Here’s where it gets a bit tricky and where Commerce Planet ran afoul of the law.
This “free starter kit” required customer to supply a shipping address and credit card number to cover the shipping costs. While many who ordered this product assumed it was “free” as stated in the ad, the fine print informed people that it was free for only a trial period of 14 days. Then it was up to the customer to take the necessary time and steps to cancel the service if they did not wish to go forward. If not cancelled, the process of billing customer credit cards on a monthly basis began.
This sleazy tactic, referred to as a “negative option,” means that the seller of a product or service interprets the lack of “affirmative action” taken by customers to reject or cancel an offer as an explicit agreement to be charged for goods or services offered.
The Court ruled that Commerce Planet did not take adequate steps to disclose the negative option and was thus in violation of federal law. (§ 5(a) of the FTC Act) Furthermore, the court held then president, Charles Gugliuzza accountable and personally liable for the conduct of Commerce Planet.
This is not, by far, the first time companies have been sued by the FTC for their negative option practices. Unfortunately, this practice remains in effect with unethical companies who feel the risk of the FTC coming down on them is worth the reward they receive out of making millions of dollars. Hopefully this latest ruling where the corporate leadership was held personally accountable may help to finally put a stop to this.
What are a few takeaways for anyone employing continuity agreements or negative option agreements?
2. Know what you are signing up for.
3. Drill into your brain that nothing is truly free.
Please remember that knowledge and vigilance is power when it comes to safeguarding your money and finances and avoiding scams.
Until next time, I’m attorney Francine ward helping you stay out of trouble.