The subject of "free" offers is something I’ve discussed previously in the iLegal column, and circumstances have once again pointed me in this direction. As I’ve stated before, one of the FTC’s current hot buttons is investigating advertisers who are running offers for all things "free." It seems that this issue is getting hotter and hotter with regulators both in and outside of the FTC. Recently they have turned their guns on incentivized sites and offers.
The inside word is that the FTC is going to really turn up the heat in the next several weeks, and intends to launch actions against multiple entities which it believes are running incentivized offers without appropriate disclosure. Industry buzz says that several major companies who have seen tremendous growth from running this sort of offer are being scrutinized and are at risk.
Attorney Linda Goodman of the Goodman Law Firm in San Diego specializes in compliance matters for internet marketers. Having helped many companies deal with investigations and enforcement actions by the FTC, she has a long term perspective on the approach of the FTC to our industry. Ominously, she states that she has recently seen a significant change in the posture of the FTC in regard to these matters. According to Ms. Goodman, who just returned from Washington D.C., the FTC’s current interpretation of Section 251.1 of the Regulations "poses a grave threat to the incentivized business model in online marketing." Several companies are already under investigation, and Ms. Goodman expects to see more actions by the FTC announced soon.
Section 251.1 of the Regulations reads in part, as follows:
"(b) Meaning of “Free”. (1) The public understands that… an offer of “Free” merchandise or service is based upon a regular price for the merchandise or service which must be purchased by consumers in order to avail themselves of that which is represented to be “Free”. In other words, when the purchaser is told that an article is “Free” to him if another article is purchased, the word “Free” indicates that he is paying nothing for that article and no more than the regular price for the other(emphasis added). Thus, a purchaser has a right to believe that the merchant will not directly and immediately recover, in whole or in part, the cost of the free merchandise or service by marking up the price of the article which must be purchased, by the substitution of inferior merchandise or service, or otherwise…"
"c) Disclosure of conditions. When making “Free” or similar offers all the terms, conditions and obligations upon which receipt and retention of the “Free” item are contingent should be set forth clearly and conspicuously at the outset of the offer so as to leave no reasonable probability that the terms of the offer might be misunderstood…"
http://ftc.gov/bcp/guides/free.htm
It appears that the FTC is in the process of expanding its disclosure requirements in regard to incentivized offers. Various enforcement officers now state that in order to be "clear and conspicuous" such disclosures must be immediately contiguous to the offer (no footnotes or hyperlinks), and be in the same font size and color as the offer itself. The disclosures must include statements, where applicable, that a purchase is necessary to claim a "free" item, and must also disclose the average purchase price.
The shift by the FTC is being noticed by various internet business watchers and is showing up in industry blogs and newsletters. A great example is here at The Internet Outsider. http://www.internetoutsider.com/2007/04/rohan_valueclic.html Something is happening at the FTC, and many people are noticing.
The legal sands are rapidly shifting for the incentivized portion of our industry. If you operate in this space, now is the time to make sure that your sites and offers are 100% compliant, to the best of your ability. After the FTC contacts you, it’s too late, and the FTC is going to extract their pint of blood, in addition to forcing you to comply.
If you’re unsure of how to interpret the Regulations and how to read the latest movements by the FTC, contact your attorney, and get some guidance. However, before you take an attorney’s advice in this area, make sure you are talking to someone who has dealt with the FTC, and understands the ins and outs of the agency. It’s not enough to just be able to read the Regulations. The Regulations are often vague, and the documents that purport to interpret them (Dot.com Disclosures) contain inherent contradictions.
As always, remember to use common sense and don’t be blinded by the chance to increase your revenues. Incentivized offers may help conversions, but unless you are extremely careful, they may also help convert the attention of the FTC into an enforcement action against you.
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Come back to the iLegal column every week as we get specific about the rules, regulations, laws and trends that affect the online advertising industry. Each week we discuss important legal issues, talk about how to avoid the pitfalls, and cover the breaking legal and regulatory advertising industry news.
Legal Disclaimer: Information conveyed in this column is provided for informational purposes only and does not constitute legal advice. These materials do not necessarily reflect the opinions of Digital Moses, and is not guaranteed to be complete, correct, or up-to-date. The column is provided for "information purposes" only and should not be relied upon as "legal advice." This information is not intended to substitute for obtaining legal advice from an attorney. No person should act or rely on any information in this column without seeking the advice of an attorney.
Mark Meckler is the General Counsel for UniqueLeads.com, Inc., and Unique Lists, Inc.
Copyright 2007 Mark J. Meckler
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