Commish: Online marketing operation was shining bottom line with negative option agreements

False Teeth

Back in July 2017, the Federal Trade Commission launched a suit in the United States District Court of Nevada against three individuals who operated a massive network of more than 75 companies, which, in turn, boasted more than 80 websites and numerous bank accounts. The defendant list alone takes up more than eight pages of the complaint.

The entire business scheme, the FTC maintains, centered on the sale of personal care products, including tooth-whitening “systems.” The products were allegedly pushed through a draconian negative-option scheme, starting at a low “trial” price of around $1 and ballooning up to as much as $200 if cancellations did not take place within a few days.

According to the FTC, the group misled consumers with the aforementioned array of websites, which received streams of traffic from affiliate networks piggybacking on blog posts and surveys. In some cases, the affiliates would create applications that purported to be “customer satisfaction surveys” for well-known vendors. The potential consumer target was offered the discounted first offer for the whitening product, which would lead the consumer into the negative option scheme.

The Takeaway

The defendants were charged with misrepresenting the price of trial offers, violations of the Restore Online Shoppers’ Confidence Act (ROSCA) and illegal negative option marketing.

On April 16, 2018, the individual defendants − company officer Danielle Foss, officer Jennifer Johnson and company owner Blair McNea − settled the charges with the FTC. McNea’s settlement encompassed his charges with the charges of the corporate entities under his control. The individual defendants have been ordered to cease negative-option sales or assisting others in such endeavors. As part of the settlement, the defendants agreed to a fine upwards of $92 million − roughly the amount lost by consumers.

This FTC action and subsequent settlement is another example of the FTC’s attention to ROSCA and potentially misleading negative option cases. Companies seeking to use negative option marketing should always follow the FTC’s guidance by conspicuously disclosing all material terms of the transaction before collecting the consumer’s billing information, obtaining the consumer’s express informed consent to be charged, and providing a simple mechanism to stop recurring charges.