On July 1, 2014, the Federal Trade Commission (“FTC”) commenced an action against T-Mobile USA, Inc. (“T-Mobile”) for unlawfully “cramming” third-party content provider charges on consumer telephone bills. In a press release issued by the FTC on Tuesday, the FTC noted that the filing of this lawsuit is consistent with its ongoing “significant efforts to end mobile cramming.” As a result of the FTC’s lawsuit, numerous third-party content providers can expect to receive indemnification demands from T-Mobile, putting content providers on notice that they may incur financial liability as a result of this action. Please note that the cramming lawsuit will likely affect how reserve funds are distributed by T-Mobile to its third-party content providers.
Allegations of Cramming
The FTC’s complaint alleges that T-Mobile “has continued to charge consumers for Third-Party Subscriptions even after large numbers of consumers complained about unauthorized charges. Refund rates for the subscriptions were high – in some cases as high as 40%.” The FTC has also alleged that T-Mobile effectively hid charges on its bills, both in electronic and hard copy form. Particularly, the FTC charges, T-Mobile’s electronic telephone bills simply listed third-party charges as “Premium Services,” but provided no detail as to what those particular charges were for. With respect to hard-copy bills, “[t]hird-party charges are not broken out separately in the summary [on the bill], but have been lumped together under the generic description ‘Usage Charges,’ which may include both third-party charges and other charges, such as for texting.” Instead, the detail associated with the charges typically does not appear until the end of the customer’s T-Mobile bill, which can be upwards of 50 pages long. The FTC found it especially troubling that T-Mobile continued “cramming” third-party charges onto its telephone bills despite industry auditor alerts, lawsuits and news articles detailing the deceptive practices of some industry third-party content providers.
The FTC’s lawsuit against T-Mobile, filed in the United States District Court for the Western District of Washington, has been big news. Given the scope of the allegations, and the public nature of the action, a swift settlement is unlikely. T-Mobile may be compelled to fund part of its defense of the lawsuit with third-party content provider funds, including reserve funds. It will be important in the upcoming months for third-party content providers who billed consumers through T-Mobile to be prepared to face a number of legal challenges themselves.
The FTC’s press release noting its aggressive targeting of cramming is nothing new to us. We have consistently alerted our readers to the FTC’s enforcement actions with respect to mobile cramming. (See Mobile Marketing Companies Settle FTC Mobile Cramming Lawsuit for $150 Million, FTC Brings New Lawsuit against 10 Companies and Individuals Charged with Mobile Cramming). Whether targeting telecommunications service providers or the content providers themselves, the FTC has been vigilant in enforcing anti-cramming legislation and rules, and third-party content providers would be best served by consulting legal counsel affirmatively, rather than waiting until they receive an investigative demand from a regulatory agency, or an indemnity demand from a third-party.