In a victory for the Federal Trade Commission, the First Circuit Court of Appeals affirmed a Commission ruling that website Jerk.com, a self-described reputation management website, ran afoul of Section 5 of the Federal Trade Commission Act by misrepresenting the source of its online profiles and the benefits of membership.

Jerk.com posted profiles of persons for which users could cast a "jerk" or "not-a-jerk" vote. Although Jerk.com maintained that users created the profiles, in reality, the site swiped data and pictures from other social networks to create the majority of the "jerk" profiles and promised that individuals could "manage [their] reputation and resolve disputes" by purchasing a subscription for $30, the FTC said. The agency moved for summary decision and the Commission granted the motion on both counts, finding founder John Fanning personally liable for Jerk's misrepresentations.

The Commission entered an order enjoining the defendants from making certain misrepresentations and imposing monitoring and recordkeeping requirements. Fanning appealed.

While the First Circuit agreed with Fanning that portions of the Commission's order were overbroad, it affirmed the finding of liability as well as the recordkeeping and order acknowledgment provisions.

The appellate panel considered the "overall net impression" of the claim that Jerk.com's profile pages were user-generated, and found the claim to be material and deceptive. For example, the site referenced its "millions" of users, and Jerk.com contained a disclaimer that it could not be held liable for content because it reflected the views of those users. Combined with other statements made throughout the site (describing it as "a vibrant source of user participation and social interaction" with an open invitation to post profiles of other individuals), the court agreed with the Commission that consumers could be misled.

"[E]ven if Jerk.com never expressly represented that its profile pages were created exclusively by users, it never expressly stated how the pages were created," the First Circuit wrote. "Given Jerk.com's emphasis on user-generated content and the lack of information to the contrary, reasonable consumers could conclude other Jerk.com users created their profile pages."

The court similarly affirmed the Commission's holding with regard to the second count. "Two FTC investigators paid the $30 membership fee and never received any communication from Jerk," the panel said, adding that the FTC received numerous complaints to the same effect. "[T]he record is bereft of any evidence that Jerk.com provided even one paid member the opportunity to contest information on a profile page," despite the defendants' promises to the contrary.

The court also said it found no merit in Fanning's objections to the injunction against making any misrepresentations about the "source of any content on a website" and "the benefits of joining any service." The First Amendment does not protect misleading commercial speech, the panel said, and found a "reasonable fit" between the FTC's restriction on the misleading speech and the government interest it served.

Recordkeeping provisions requiring Fanning to "maintain" and "make available" advertisements and promotional materials for a five-year period and notify the Commission of any complaints or inquiries relating to any website or other online service were also reasonably related to the defendants' FTC Act violations, the court determined. Both were tied to "misrepresenting the source of Jerk.com's content and the benefit of its membership subscription," the court wrote, particularly given the ease with which Jerk.com's practices could be transferred to other websites.

However, the First Circuit agreed with Fanning that the compliance monitoring requirement—mandating that he notify the Commission of "his affiliation with any new business or employment" for a period of 10 years—was not reasonably related to his violation. "Fanning must notify the Commission of all business affiliations and employment—regardless of whether or not the affiliate or employer has responsibilities relating to the order," the panel said. While the FTC told the court that it has traditionally required such reporting, the Commission also conceded that the provision would require Fanning to report if he were a waiter in a restaurant.

Affirming the other parts of the order, the First Circuit vacated and remanded the compliance monitoring requirements.

To read the opinion in Fanning v. FTC, click here.

Why it matters: The FTC hailed the First Circuit opinion. "This ruling makes it clear that the defendant's misrepresentations in this case were harmful to consumers," Jessica Rich, Director of the agency's Bureau of Consumer Protection, said in a statement about the decision. "We are pleased with the ruling, and will closely monitor the defendant's compliance with the order, as we do in all our cases." For advertisers, the decision reiterates that the FTC can find deception based on the "overall net impression" presented by a website and not simply express claims.