1225932_53183171On November 6, 2013, the Attorney General for the State of Texas filed a lawsuit in Texas state court against five mobile content providers and an aggregator, alleging mobile telephone “cramming” by the defendants.   The action is yet another example of state and federal regulatory agencies pushing to rein in the advertising practices of mobile content providers.

The defendants find themselves facing regulatory action from the State despite their disclosures and double opt-in procedures.  Now, more than ever, it is important that mobile content providers review their business models to help avoid regulatory scrutiny and litigation.

Allegations of Deceptive Advertising and Inadequate Disclosures

The subject complaint alleges that, among other things, the subject mobile content providers used search engine advertising in a fashion meant to mislead consumers into believing, for example, that by clicking on an advertisement consumers would obtain free coupons.  Instead, the complaint alleges, by clicking on the advertisements, consumers were unwittingly taking the first step in a process of signing up for a completely unrelated product, for example, horoscopes, that resulted in the placement of monthly billing charges on their mobile telephone bills.

In addition to misleading consumers with respect to the product they would obtain, the complaint alleges that the marketing materials used by the mobile content providers were designed to confuse and mislead consumers.  For example, under the content provider website “continue” buttons, the defendants included a clock that counted up in tenths of a second.  According to the Texas State Attorney General, the clock was designed to “create a false sense of urgency and to discourage the consumer from reading the rest of the website.”  Additionally, the price point and other product disclosures were written “in very small font” and located at the bottom of the web page.  The complaint states that the disclosures appeared even smaller when viewed on a consumer’s mobile telephone.

The complaint also alleges that information concerning the product that the consumers were actually signing up to receive was deceptively placed a distance away from the advertised product that had initially lured consumers to the website.  Therefore, while consumers entered personally identifiable information for the product that they sought to receive (for example, a coupon), they were in fact purchasing, at a monthly recurring cost, an entirely different product (for example, horoscope information).  The complaint details that the defendants’ websites separated disclosures from the product consumers thought they were registering to receive (for example, a coupon) in such a manner that would lead consumers to believe the disclosures concerned an unrelated product (for example, a horoscope).

Double Opt-In and Typosquatting

Although the defendants purported to use a “double opt-in” sign up process, where the consumer signs up online and then re-enters a PIN sent to their mobile telephones via text message, the Texas State Attorney General nevertheless alleges that this practice was fraudulent.  Both the web page seeking confirmation of the consumer’s mobile number and the text message containing the PIN failed to provide adequate disclosures.  The text message containing the PIN number did in fact contain disclosures, but according to the Attorney General, “Defendants have designed the message such that they often provide the PIN well before there is any disclosure of the price.”

The complaint further alleges that the defendants used subdomains as a form of “typosquatting,” whereby a mobile content provider obtains and uses a domain name that is confusingly similar to the domain name of a legitimate website.  The subdomains were created, according to the complaint, to intentionally mislead consumers into believing that they were visiting a well-known commercial website rather than that of defendants.

All of these practices, according to the Texas State Attorney General, lead to the invalid and fraudulent billing of products on the mobile telephone bills of consumers.

Protect Yourself

We have previously noted that the Federal Trade Commission has been increasingly scrutinizing the business practices of mobile content providers.  (See, FTC Crackdown on Unsolicited Commercial Text Message Spamming Continues, Jamster Settles FTC Cramming Lawsuit for More than $1 Million).  In addition, consumer protection agencies and industry organizations have been revising the regulations governing how mobile content is advertised to consumers.  (See, July’s New COPPA Requirements and Their Effect on Mobile Apps, BBB Will Enforce New Consumer Disclosure Requirements).  It is clear that state regulators are also turning their focus toward mobile content providers.  (See Are You Prepared for California’s Strict New Internet Data Privacy Laws?).  Therefore, it is critical that mobile content providers seek competent counsel in order to prevent becoming a named defendant in a state or federal regulatory action.

If you are interested in learning more about this topic, or if you have been served with legal process relating to your provision of mobile content services, please e-mail us at info@kleinmoynihan.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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