FTC Action Against International Sweepstakes Reporter Mailings

The FTC recently announced a settlement with defendants Crystal Ewing and David Ewing along with affiliated companies relating to the marketing of sweepstakes reporters to residents of the United States, Canada, and the UK. The FTC alleged in its complaint that defendants mailings, which incorporated an "everybody wins" as part of an offer for a sweepstakes newsletter, created the impression that consumers had won the large prize instead of the nominal $1 prize. As part of the settlement, defendants agreed to pay $1.375 million to the FTC and $125,000 to the Postal Service and accepted a ban from any involvement in prize promotions.

The settlement is noteworthy based on the fact that the FTC included as part of the charging conduct mailings to foreign citizens. The FTC jurisdiction over marketing to foreign residents is questionable. Section 5 of the FTC Act prohibits "unfair or deceptive acts or practices in or affecting commerce." 15 USC § 45. Admittedly, Congress does possess the power to regulate the extraterritorial acts of U.S. citizens. However, determining whether Congress has chosen to exercise such power is a matter of statutory authority, and courts and even the FTC's own administrative law court is divided on whether the law applies extraterritorially.

For example, in the Federal Trade Commission's Administrative Court's decision in Matter of Telebrands Corp., Docket No. 9313 (FTC, February 25, 2004), the FTC's own administrative court rejected the FTC's attempt to obtain discovery as to international sales of defendants exercise products. Specifically, the FTC sought the following information regarding the defendants exercise product: 1) document and information regarding the promotion and sale of the Ab Force in countries other than the Unites States; 2) information as to all countries where the Ab Force has been sold; 3) information regarding diet and exercise disclaimers in Ab Force advertisements aired in the United Kingdom; 4) information regarding all versions of the Ab Force device and its packaging, labels, and instructional manuals used in countries other than the United States; and 5) all documents, constituting or referring to technical specifications for the Ab force device marketed or sold in countries other than the United States.

Moreover, under any statute, including the FTC Act, there is a presumption against the exercise of extraterritoriality. Indeed the FTC's has requested that Congress amend the FTC Act to allow jurisdiction over foreign sales by supporting legislation in Congress that would expand the FTC Act to include the very powers over foreign transactions. Despite the FTC's candid recognition before Congress that such powers are unclear, the FTC takes the position in Court that it otherwise has such powers.

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