November 2022 – Duane Morris TechLaw

The Federal Trade Commission protects e-commerce consumers from “dark pattern” tactics which prevent consumers from cancelling their services. Vonage agreed to pay $100 million – a record-breaking settlement amount – to the FTC to settle charges that it created a series of obstacles for its customers – both residential and business consumers – to cancel their service which included hidden termination fees.

In its Complaint filed in the United States District Court for the District of New Jersey on November 3, 2022, the FTC alleged that Vonage made it very easy to sign up but much harder to cancel a subscription contract, including by:

- Eliminating cancellation options: Since 2017, Vonage allegedly made the decision to force customers to speak with a live “retention agent” in order to cancel service. In contrast, customers could sign up for services online, over the phone, and through other venues.
- Making cancellation process difficult: The company allegedly: (1) made it difficult to find the phone number for the “retention agent” on the website, (2) failed to consistently transfer consumers to that number from the normal customer service number, (3) offered reduced hours the line was available, and (4) failed to provide promised callbacks.
- Surprising customers with expensive fees when attempting to cancel: Vonage allegedly charged early termination fees (“ETFs”) that were not clearly disclosed when the customer initially signed up for service. At times, these ETFs were hundreds of dollars.
- Charging customers who already cancelled service: Vonage allegedly continued charging customers and then only provided partial refunds when customers complained.

In its Complaint, the FTC alleged that these actions violated Sections 13(b) and 19 of the Federal Trade Commission Act, 15 §U.S.C. 53(b), 57(b), and Section 5 of the Restore Online Shoppers’ Confidence Act (“ROSCA”), 15 U.S.C. § 8404.

ROSCA was passed and effective in 2010 in order to help promote consumer confidence for online commerce and thus requires the Internet to provide accurate information and give sellers an opportunity to fairly compete with one another for consumers’ business. Section 2 of ROSCA, 15 U.S.C. § 8401.

Section 4 of ROSCA, 15 U.S.C. § 8403, generally prohibits charging consumers for goods and services sold in transactions effected on the Internet through a negative option feature, as that term is defined in the Commission’s Telemarketing Sales Rule (“TSR”), 16 C.F.R. § 310.2(w), unless the seller, among other things, (1) provides text that clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information, (2) obtains the consumer’s express informed consent for the charges, and (3) provides simple mechanisms for a consumer to stop recurring charges. The TSR defines a negative option feature as a provision in an offer or agreement to sell or provide any goods or services “under which the consumer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.” 16 C.F.R. § 310.2(u).

In the Complaint, the FTC alleged that Vonage violated ROSCA by failing to:

- provide required disclosures, including disclosing all material transaction terms such as the methods of cancelling services,
- obtain express informed consent before charging the consumer’s credit card, debit card, bank account, or other financial account for products, and
- provide a simple mechanism for stopping recurring charges.

Federal Trade Commission v. Vonage Holdings Corp., et al., No. 3:22-cv-06435 (D.N.J. Nov. 3, 2022). The FTC will use the $100 million settlement to provide refunds to Vonage consumers.

ABCmouse – disclosure membership terms: Similarly, in an earlier case, the FTC filed a Complaint against Age of Learning, Inc., which operates the children online learning program ABCmouse. Federal Trade Commission v. Age of Learning, Inc., a corporation also d/b/a ABCmouse and ABCmouse.com, No. 2:20-cv-7996 (C.D. Cal. Sept. 1, 2020). In that case, the FTC asserted that Defendant failed to disclose membership terms which led to consumers being charged without their consent, and the FTC settled with Defendant for $10 million.

Swifties and concertgoers – petition against Ticketmaster: As recently as last week, Taylor Swift fans (a/k/a Swifties) and concertgoers petitioned for an investigation regarding fees charged and processes of the website operated by Ticketmaster. Stay tuned!

In sum, companies should evaluate their e-commerce disclosures, fee structures, and process for providing/ending service.

The Ninth Circuit reviewed a website disclosure form – for a marketing website that generates leads – to determine when consumers assent to terms through interacting with a website. The Ninth Circuit analyzed the factors of: (1) reasonably conspicuous notice, (2) manifestation of assent, and (3) use of the word – arbitration – in the notice itself. Berman v. Freedom Financial LLC, 30 F.4^th 849 (9^th Cir. 2022). Many similar federal court rulings concern websites in which the consumer is engaging in a transaction – such as buying a product – so Berman has a different factual basis because the marketing website was giving away free items as a means of obtaining leads for other companies.

In the facts underlying this case, Fluent is a digital marketing company that generates consumer leads for its clients by collecting information about consumers who visit Fluent’s websites. Fluent offers free items via its websites such as gift cards and free product samples as an enticement to get consumers to provide their contact information and answer survey questions. Fluent then uses the information it collects in targeted marking campaigns conducted on behalf of its clients.

Fluent asked the first plaintiff to: (1) “confirm her zip code” by clicking a button and then (2) click on a large button stating “this is correct, continue!” Fluent asked the second plaintiff to: (1) confirm “gender” by clicking a large button and then (2) click the “continue” button. Significantly, located in between these two buttons were two lines of text – in small gray font which was partially underlined – stating: “I understand and agree to the Terms and Conditions which includes mandatory arbitration and Privacy Policy.”

Defendants used the contact information provided by consumers like plaintiffs to conduct a telemarketing campaign on behalf of defendants.

Plaintiffs filed a TCPA class action on behalf of consumers who received unwanted calls or text messages from defendants during the telemarketing campaign. Defendants filed a motion to compel arbitration which was denied. The Ninth Circuit reviewed the denial of the motion.

The Ninth Circuit noted that the Federal Arbitration Act (“FAA”) limits the court’s role to determining whether a valid arbitration agreement exists and, if so, whether the agreement encompasses the dispute at issue. Plaintiffs did not contest that the arbitration provision on the websites’ terms and conditions encompasses their TCPA claims. Thus, the only legal issue was whether either plaintiff assented to the terms, including the arbitration agreement.

The Ninth Circuit first discussed whether New York or California law governs, and the result would be the same under either state’s law because both states require mutual consent. Absent a showing of “actual knowledge” of the contract terms by the consumer-plaintiff, inquiry notice will result in a contract only if: (1) the website provides “reasonably conspicuous” notice and (2) the consumer makes an “unambiguous” manifestation of assent. The Ninth Circuit ruled that neither condition is satisfied and analyzed:

Reasonably conspicuous notice: Website users are entitled to assume that important provisions – such as those that disclose the existence of contractual terms – will be prominently displayed. The Ninth Circuit looked at:
- Font size: the size of the text in the disclosure was smaller than the font in the surrounding website elements
- Color: the gray color of the text containing the hyperlink to the full terms and conditions made the disclosure hard to read
- Phrase: the specific phrase used on the button that users click to agree to the terms and conditions was generically phrased as “continue”
- Underlining: the underlining for the hyperlinks to the arbitration agreement did not sufficiently denote the hyperlink
Manifestation of assent: The “continue” button did not indicate to the user what action would constitute assent to those terms and conditions. Further, the text of the button itself gave no indication that it would bind plaintiffs to a set of terms and conditions.
Including “arbitration” in the notice: Merely because the notice references the word “arbitration” is not enough because the key question is whether the plaintiffs can be deemed to have manifested their assent to the terms.

The Ninth Circuit affirmed the denial of the motion to compel arbitration.

In sum, websites should comply with the three bullet-point analysis – reasonably conspicuous, manifestation of assent, and use of “arbitration” in the notice – to create enforceable contracts via website disclosures.

Month: November 2022

FTC Asserts ROSCA Claims Against Vonage Over Process To End Subscriptions & Vonage Settles For $100M

TCPA Class Action: Website Disclosure and Lead Marketers