Your mother was right: the FTC confirms you don't get a second chance to make a first impression

Written by Cynthia and Michele

So you thought that if you made "full disclosure" in your online agreements with customers, you'd be OK -- well, it's time to think again.

The FTC recently confirmed in In re Sears Holdings Management Corp that even full disclosure of company practices in an end user license agreement (“EULA”) or terms of service (“TOS”) may be no defense to fraud claims. Nearly all online service providers require users to agree to terms of use. And, typically these terms of use are enforceable. However, the FTC’s recent order makes it clear that the adequacy of the disclosures in a EULA or TOS will be determined not by the completeness of the disclosure itself, but on a case-by-case basis in light of all of the other representations made to consumers. Thus, burying the use of marketing software with behavioral tracking capabilities, even though ultimately disclosed fully, in a multi-step sign-up and download process as Sears did will not necessarily shield a company from a fraud claim.

Requiring online service providers to obtain express consent before employing marketing software is nothing new. For example, in a consent order reached with a company called Zango, the FTC said that express consent is required before employing tracking software with pop-ups --- and tagged Zango for $3 million. In another case, In re DirectRevenue LLC, the FTC required express consent before installing what they called “lureware,” along with a fine of $1.5 million.

What is notable about Sears, however, is the shift in focus from the completeness of disclosure itself to its completeness in light of all other representations. While a EULA disclosure may be complete in itself, it is now clear that even a full and complete disclosure will correct other representations if the overall impression is misleading. In short, service providers will not get a second chance to make a good first impression.

Practical advice -- take another look at your EULA or TOS and make sure that it is not just complete, but it is accurate.

FTC to Hold Data Privacy Roundtables

Here’s an important notice from the Federal Trade Commission -

The FTC will host a series of day-long public roundtable discussions to explore the privacy challenges posed by the vast array of 21st century technology and business practices that collect and use consumer data. Such practices include social networking, cloud computing, online behavioral advertising, mobile marketing, and the collection and use of information by retailers, data brokers, third-party applications, and other diverse businesses. The goal of the roundtables is to determine how best to protect consumer privacy while supporting beneficial uses of the information and technological innovation.

The roundtable discussions will consider the risks and benefits of information collection and use in online and offline contexts, consumer expectations surrounding various information management practices, and the adequacy of existing legal and self-regulatory regimes to address privacy interests. Roundtable participants will include stakeholders representing a wide rangeof views and experiences, such as academics, privacy experts, consumer advocates, industry participants and associations, technology experts, legislators, international representatives, and others.

The Privacy Roundtables are free and open to the public. The first will be held Monday, December 7, 2009, at the FTC Conference Center at 601 New Jersey Avenue, N.W., Washington, DC. Pre-registration is not required. Members of the public and press who wish to participate but who cannot attend can view a live Webcast at FTC.gov. The Commission plans to convene additional roundtables in subsequent months, and will post information regarding these events at a later date.

Links:
FTC to Host Public Roundtables to Address Evolving Consumer Privacy Issues

Lawsuit Filed to Block New Maine Marketing Law

As expected, a lawsuit was filed yesterday in U.S. District Court for the District of Maine seeking to block enforcement of the controversial new Maine marketing law we discussed in this blog last month. The plaintiffs are the Maine Independent Colleges Association, Maine Press Association, NetChoice, and publisher Reed Elsevier, Inc. NetChoice is a coalition of trade associations and e-commerce businesses, including AOL/TimeWarner, Yahoo! and eBay. The law takes effect September 12, 2009.

Major Consumer Protection Actions at FTC

There is increased activity at the Federal Trade Commission on the consumer protection front. David Vladeck, the FTC's new director of the Bureau of Consumer Protection is wasting no time in getting down to business. With less than a month on the job, Vladeck announced two major enforcement actions: one involving a nationwide crackdown against scammers, and the other resulting in a $3.7 million penalty for CAN-SPAM violations.

Mintz Levin colleague Farrah Short writes that "Director Vladeck was named to the position in April and began his new role in June, after a handful of consumer watchdog groups called for the FTC Chairman to appoint someone with “a track record as a genuine champion of consumer rights.” If these early announcements are any indication, Director Vladeck may be on his way to fulfilling that wish."

For more:

CAN-SPAM action
FTC scammer action