On February 23, 2012, the U.S. Federal Trade Commission (“FTC”) announced that it had obtained a USD $359 million settlement order against an Alberta online marketer (Jessie Wilms) and related defendants.
In making the announcement, the FTC said:
“The Federal Trade Commission has stopped an Internet scheme that allegedly used bogus “free” product offers that deceived consumers in the United States and other countries and charged them for products and services they did not want or agree to purchase. A settlement order, reached as part of the FTC’s ongoing efforts to stamp out online marketing fraud, permanently bans Jesse Willms and his companies from using ‘negative-option’ marketing, a practice in which the seller interprets consumers’ silence or inaction as permission to charge them. The Willms settlement order imposes a judgment of $359 million that will be suspended upon Willms’s surrender of bank account funds and proceeds from the sale of his house, personal property, and corporate assets, including a Cadillac Escalade, fur coat, and artwork.
‘The fact that almost four million consumers fell prey to the lure of these ‘free trial’ offers is a stark reminder that ‘free’ offers can come at a huge price,’ said David Vladeck, Director of the FTC’s Bureau of Consumer Protection. ‘The FTC has stopped about $1 billion in online marketing fraud during the past two years by shutting down operations like this. But consumers still need to beware, because scam artists are constantly coming up with new ways to deceive people online.’”
According to the FTC, it worked with Canadian law enforcement officials, including the Alberta Partnership Against Cross-Border Fraud and Competition Bureau.
The FTC’s case against the defendants included allegations that they lured consumers with false “free” trial offers for a variety of products, including weight-loss pills, teeth whiteners, health supplements, access to government grants and other products (after which consumers were charged for the false “free” trial, a monthly recurring fee and additional charges for so-called “bonus offers”).
Under the terms of the settlement order obtained by the FTC, the defendants are prohibited from: (i) debiting consumers’ bank accounts without first obtaining their express verifiable authorization; (ii) misrepresenting any product or service or the terms and conditions associated with any offer, specifically including claims of “free,” “risk-free,” or “trial offer;” (iii) failing to clearly disclose the terms and conditions of any offer, including refund terms, before requesting consumers’ payment information; (iv) making misleading or unsubstantiated disease-prevention, weight-loss, and other health-related claims; (v) using false or deceptive endorsements and testimonials; (vi) failing to monitor the activities of marketing affiliates and affiliate networks involved in the marketing of any Willms product or service; and (vii) making misrepresentations in order to obtain services from payment processors, banks, and other third parties.
The FTC first brought this case in May, 2011 (see: FTC Charges Online Marketers with Scamming Consumers out of Hundreds of Millions of Dollars with “Free” Trial Offers).
In Canada, the federal Competition Act contains both civil and criminal misleading advertising provisions that apply to false or misleading claims made to promote the supply or use of products (including services).
Penalties in Canada for misleading advertising include “administrative monetary penalties” or “AMPs” (essentially civil fines) of up to $750,000 (for individuals) and up to $10 million (for corporations) and orders to stop the activity or compensate consumers harmed by misleading claims. The penalties for criminal misleading advertising include fines of up to $200,000 and/or imprisonment for up to one year (on summary conviction) or fines in the discretion of the court and/or imprisonment for up to 14 years (on indictment).
A few key points about the misleading advertising provisions of the Competition Act include: (i) they are broad enough to apply not only to false claims relating to products, but also any “business interest”, (ii) claims to a single person may be caught, (iii) both the literal meaning and the “general impression” of a claim are relevant in determining whether a claim is false or misleading (e.g., literally true claims can be false or misleading if, for example, they fail to disclose important information, qualifications, limitations, etc.) and (iv) it is not necessary to prove that any person has actually been deceived or misled as a result of a false claim.
As is also starkly illustrated by this recent U.S. case brought against an Alberta marketer, it is not necessary to show that misleading claims are made to Canadian consumers (although the enforcement efforts in this case were made by U.S. enforcement officials, rather than the Canadian Bureau, though the Bureau could have taken carriage of the enforcement in this cross-border case).
In addition to the “general” misleading advertising provisions, the Competition Act also contains a number of other criminal and civil provisions that prohibit or regulate specific types of marketing practices, including deceptive telemarketing, deceptive prize notices, double ticketing, multi-level marketing, pyramid selling schemes, representations not based on adequate and proper tests, false or misleading ordinary selling price claims, misleading or unauthorized use of tests and testimonials, bait and switch selling, the sale of a product above its advertised price and promotional contests.
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