FTC Cracks Down on Free Trial Offers

Chances are you've gotten offers to try a product or service through a "free trial." Companies use these offers to sell a variety of items, from books and CDs to videos, magazines, and pills. But as part of a trial offer, a company also must tell you if any conditions are attached to the deal.

The Federal Trade Commission carefully monitors the marketing practices in this area. Trial offers can be a great way to try new products or services without making a long-term commitment to a membership, subscription or extended service contract. But by accepting the free trial offer, you may be agreeing to buy additional products and services; if you don't cancel.

In January of 2007 the FTC conducted a workshop on Negative Option Marketing. The workshop brought together consumer representatives, academics, and industry leaders, and addressed the pros and cons of such offers, discussed online marketing of such offers, and explored ways to make effective disclosures when such offers are made online.

Recent Enforcement

The FTC has been very active against Internet companies that offer products on a negative option. In January 2007, the FTC charged Think All Publishing that it's Web site offered consumers a free CD containing computer software if they agreed to pay a shipping and handling fee of $1.99 to $2.99. Consumers provided their names and addresses to receive the CD and a credit or debit card number to cover postage and handling. Consumers who signed up for the free CD were then offered three more free software CDs with no additional shipping or handling fees. Before they completed the transaction, they checked a box saying they agreed to the "terms of use." The "terms of use" detailed computer software licensing arrangements and usage rules, and many consumers checked the box without clicking on the hyperlink or reading the form. Buried in the seventh paragraph of the single-spaced document was language that contradicted the free software claim. It stated that consumers would be required to send back two of the four "free" CDs within 10 days or they would be charged a fee of $39 to $49. It also stated that consumers would be enrolled in a software continuity program, would receive additional CDs in the future, and would be charged $39 to $49 for those CDs unless they returned them within 10 days.

In June 2008, the parties settled the litigation, which bars the defendants from making misrepresentations, including misrepresenting that items are "free" when they aren't. It requires that the defendants disclose all the terms and conditions of any negative option offer. It bars the defendants from charging consumers for products or services without their consent, and without first disclosing the terms of any refund or cancellation policy. It also bars future violations of the Unordered Merchandise Statute. In addition, the settlement prohibits the defendants from sharing their customer lists, and contains bookkeeping and record keeping provisions to allow the agency to monitor their compliance. Finally, under the terms of the settlement, the defendants will pay approximately $2,167,500 in consumer redress.

In May of 2008 the FTC sued NextClick Media alleging that the trials weren't free, the patches didn't work as claimed, and the operation was illegally debiting consumers' bank accounts without their authorization. As previously reported on this blog, the parties entered into a Stipulated Preliminary Injunction where the defendants have agreed to abide by a federal court order that bars them from making deceptive claims, restricts their ability to dissipate assets, requires them to preserve records and other evidence, and account for the money they made from their venture.

The Basics

A company may claim its free trial offer has no risk or obligation for the consumer. And that may be true, but only if you take timely action to avoid future obligations. For example, you may have to contact the company to cancel during the trial period to avoid receiving additional goods or services or to pay for what you've already received. By not canceling, you may be agreeing to let the company enroll you in a membership, subscription or service contract, and to charge the fees to your credit card.

Companies must clearly and prominently disclose the "material" terms of their trial offers before you give your consent. Material terms may include: 1) the fact that by accepting the trial offer, you're actually agreeing to be enrolled in a membership, subscription or service contract or paying for additional products and services if you don't cancel within the trial period; 2) how much time you have to cancel before you incur charges; 3) the cost or range of costs of goods or services you'll receive if you don't cancel during the trial period; 4) how to cancel during the trial period; 5) whether you'll be charged a non-refundable membership fee if you don't cancel within the trial period; 6) whether fees will be charged automatically to the credit card you used to buy other goods or services.

Moreover, some states, such as Utah, have specific affirmative disclosure obligations relating to negative option programs that must be utilized in conjunction with the enrollment process and disclosure of the program terms.

In light of the recent FTC activity, companies marketing products or services using a negative option need to ensure proper disclosures are provided.

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