February 7, 2019
Last week, the Federal Trade Commission (“FTC”) announced that it will be mailing over $6 million dollars in checks to consumers who purchased certain health-related products and services. This money will be returned to consumers per the terms of a settlement that the FTC reached with three individuals and 19 companies that they control, collectively known as Tarr, Inc. (“Tarr”). The underlying free trial law complaint alleged that Tarr violated Section 5 of the FTC Act, the Restore Online Shoppers’ Confidence Act, and the Electronic Fund Transfer Act (“EFTA”), by using “free” trial offers to enroll consumers into negative option programs without their consent. The FTC’s free trial law complaint sought a permanent injunction, restitution, disgorgement, and costs.
How did the misuse of the word “free” result in Tarr being named in an FTC Complaint?
The FTC’s Allegations
Tarr, with its vast network of online marketers, offers products and services touting muscle-building, wrinkle-reduction, and weight-loss benefits. In the FTC’s free trial law complaint, the FTC alleged that Tarr’s offer of “free” or “risk free” trials for nominal shipping fees was deceptive because Tarr did not adequately disclose certain material terms and conditions associated with the offers, including that consumers would be charged full price for the products/services (usually around $87.00) if they did not cancel within a short period of time. The FTC claimed that Tarr paid affiliates who directed consumers to its websites $45.00 for each consumer who signed up for a free trial, which, according to the FTC, indicated that Tarr anticipated that most consumers would be charged full price for the products/services.
In order to induce consumers into signing up for the subject free trial offers, the FTC alleged that Tarr used bogus celebrity endorsements (such as from Jennifer Aniston and Jason Statham), fake news websites (such as menshealth.com—ilink), and unsubstantiated claims (such as increasing muscle growth by 700%).
The FTC seeks to protect consumers by enforcing laws meant to prevent unfair, deceptive, and fraudulent marketing practices. The FTC has issued a guide on the use of the word “free” (and similar cost-free nomenclature) in advertising. The FTC advises advertisers to exercise caution when marketing “free” trial offers to avoid misleading consumers. Indeed, as we have previously blogged, the FTC is particularly active in enforcing its free trial law.
The Free Trial Law Settlement
The FTC and Tarr entered into a settlement agreement in which Tarr agreed to a suspended judgment of $179 million, while paying over $6 million to the federal government to be used for customer refunds. In addition, Tarr agreed to a permanent injunction enjoining it from:
- offering negative option programs in the following categories: Cosmetics, Food, Dietary Supplements, Drugs, and where the product or service is for a diet or weight-loss service or program;
- using the words: free, trial, gift, sample, bonus, and no obligation, where such words imply that a consumer does not have to affirmatively act to avoid charges; and
- misrepresenting that products or services are clinically proven to cause muscle growth, wrinkle reduction, or weight loss.
In addition, where Tarr markets any products or services in the future, Tarr has agreed to: (1) comply with the EFTA; and (2) provide consumers with:
- the total cost, including price per unit, of the advertised product or service;
- the amount, timing, and manner of all product/service fees;
- a mechanism for consumers to stop recurring charges;
- specific means to request refunds or to cancel, including the provision of a customer service phone number and email address; and
- the deadline by which consumers must act before a free trial will convert to a paid recurring subscription program.
How to Avoid FTC Investigations
Online marketers offering “free” trial offers and/or negative option programs are often targeted by the FTC. As demonstrated by this FTC free trial law settlement, the FTC continues to aggressively pursue claims against advertisers that engage in false and deceptive marketing practices, including those that provide free trial offers and negative option programs without employing proper notice and consent practices. Incomplete or misleading disclosures may place marketers at risk of FTC and state attorney general enforcement actions. Given the foregoing, marketers should consult with experienced counsel prior to launching any advertising campaign.
If you are interested in learning about this topic or need to review your current subscription program practices and/or disclosures, please email us at email@example.com, or call us at (212) 246-0900.
The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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