March 14, 2013

Spam Sham Slammed by FTC

Consumer Advertising Law Blog

The Federal Trade Commission (FTC) has had it with affiliate marketers sending unwanted text messages to unwitting consumers. In eight separate complaints filed around the US, the agency has charged 29 defendants with sending more than 180 million unauthorized text messages in violation of Section 5 of the FTC Act. The FTC alleges that not only were the text messages unsolicited, but in many instances, the consumers had to pay for receiving them, or, if the texts caused them to go over their allotted texts for the month, pay extra fees for reading them. The FTC claims that these actions constitute "unfair practices" under the FTC Act because the defendants caused substantial injury that the consumers couldn't reasonably have avoided and the harm was not outweighed by any benefit from the text messages.

Beyond the costs of paying for the text messages, the FTC is also upset over the mechanisms used by the marketers to extract sensitive information from these consumers through deceptive messages about "free gifts." The schemes allegedly worked like this: consumers get a text message telling them they are the lucky winners of a free prize like a gift card to a big name retailer like Best Buy or Target. After clicking on the link in the text to claim the gift, consumers are plunged into a confusing morass of offers and sign-ups. After being sent to a third party site (which still promised the amazing prize), consumers were forced to participate in various other offers, many of them requiring sensitive personal information, or even a credit application. According to the Agency, consumers were often required to sign up for over 10 other offers in order to qualify for the ultimate prize. In some situations, in order to get their gift card, consumers had to find three other people to sign up for the same offers. In most instances, it wasn't possible for people to access the promised gift without paying money for some other, unaffiliated offer.

The Agency is alleging that these marketers violated the FTC Act by not telling consumers about the various conditions required to access their "free" gift, including the fact that they might actually have to spend their own money. The sensitive information gathered by the third party site was, according to the FTC, sold to other entities for marketing purposes, meaning consumers were allegedly further deceived as to the actual use of the information collected. None of this information was disclosed in the original text message.

One of the defendants, Philip Flora, was previously barred for life from sending spam text messages like these. The FTC is pursuing a separate contempt action against him for allegedly being part of this current scheme as well.

According to the FTC, the defendants who sent the texts were paid by those that run the "free gift" websites based on how many people actually entered their personal information. These operators were paid by the businesses who gained subscriptions or customers through the various offers consumers signed up for in order to try to claim their prize. As noted in this blog previously on multiple occasions, those who offer "free" merchandise or services need to take care to follow FTC guidelines on making such offers, on pain of possible unfair practice charges. These complaints also point out the importance of living up to promises made about how consumers' information is used.

© Arnold & Porter Kaye Scholer LLP 2013 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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