Webloyality.com Settles Class Action and Agrees to Payments Up to $10,000,000

There is a proposed Settlement of a consolidated class action lawsuit known as In Re: Webloyalty.com, Inc. Marketing and Sales Practices Litigation, MDL No. 07-01820-JLT, Lead Case No. 06-11620 JLT, that is pending in the U.S. District Court for the District of Massachusetts. The proposed Settlement is with Webloyalty.com, Inc. and its subsidiaries ("WLI"), Fandango, Inc. d/b/a Fandango.com, Priceline.com, Inc. d/b/a Priceline.com, Nelson Shane Garrett, individually and d/b/a Justflowers.com and Giftbasketsasap.com, Maxim O. Khokhlov, individually and d/b/a Justflowers.com and Giftbasketsasap.com, ValueClick, Inc., E-Babylon, Inc., Kraft Foods Global, Inc. and Vict. Th. Engwall & Co., Inc. d/b/a Gevalia.com concerning consumers' enrollment and payment for membership programs offered by WLI.

Allegations in the Complaint

The lawsuit alleges that the Defendants enrolled consumers in certain Programs in the course of online retail transactions without obtaining sufficient authorization or consent, and thereafter wrongly charged fees for membership benefits.

The lawsuit claims that after consumers make a purchase at one of 75 or more e-commerce partner sites-including movie tickets from Fandango.com-a pop-up window appears promising a $10 cash savings from the partner site for their next purchase. When consumers click the window to redeem the offer, their personal information, including credit or debit card number, is automatically transferred to Webloyalty; described as "Coupon Click Fraud". Webloyalty then automatically bills consumers' credit cards a $10 monthly fee for membership in its Reservation Rewards program on a 30-day trial basis. The complaint further alleges that Webloyalty then engages in a "bait and switch" tactic informing consumers via e-mail that they can only cancel their membership by contacting the company within 30 days or be charged the recurring monthly fee.

The Proposed Settlement

The proposed Settlement provides for the payment of up to $10,000,000 to eligible consumers.

The proposed Settlement also provides for comprehensive changes to the enrollment page used for the Programs, along with other changes to the Programs, as follows:

  1. To not use the words "award" or "reward" when referring to an offer or solicitation to join a Program (other than in reference to the brands Reservation Rewards and Shoppers Discounts and Rewards, other Program brands, or benefits offered through a Program);
  2. To include "See Details," or substantially similar words in all banner advertisements displayed on a client purchase confirmation page containing hyperlink(s) to enrollment page(s);
  3. To include on all enrollment pages the following disclosures: 1) To include on all enrollment pages the following disclosures; 2) The price of the Program in at least two (2) Locations in addition to the offer and billing details; 3) In any graphic depicting a coupon that includes a money-saving incentive on a consumer's next transaction with the WLI partner, such as "Save $10 on your next purchase" ("Coupon Graphic"), "See Billing Details" or substantially similar words; 4) Proximate to any Coupon Graphic, information regarding (a) the cost of the Program, (b) the term of the free trial program, if any, and (c) method of billing; 5) proximate to any direction to proceed directly to the enrollment button where consumers enroll for a Program membership and take action (e.g., "Click YES Below"), other than in a Coupon Graphic, information regarding the cost of the Program; and 6) a statement that the Program is being offered by WLI.
  4. WLI shall display the entire offer and billing details for the Programs on the enrollment page without use of a separate box that requires members to scroll through the offer and billing details and in a location proximate to where consumers enroll for a Program membership;
  5. WLI shall display all terms contained in the offer and billing details in a font that is at least the same size as a majority of the copy size of all other text on the enrollment page, with the exclusion of header and footer text;
  6. WLI shall ensure that information regarding the cost of the Program, billing method and cancellation of membership in a Program contained in the offer and billing details on the enrollment page are in bolded font;
  7. WLI shall include, on all regularly scheduled emails sent to Program members thirty (30) days or more after enrollment, a toll-free telephone number that may be used to contact customer service and cancel a Program membership;
  8. WLI shall include on all regularly scheduled emails sent to Program members thirty (30) days or more after enrollment, a link and reference to a member's billing detail so that a member can click the link to view (1) the method of payment that the member will be or is being billed for the Program and (2) the fee for the Program membership;
  9. WLI shall include on all regularly scheduled post-enrollment emails sent to Program members a link that may be used to contact customer service and cancel a Program membership; and

For eighteen (18) months after the proposed Settlement becomes final, WLI shall send a first class mailing to every member of a Program for whom WLI has determined after the first thirty (30) days of the member's join date that WLI does not have a valid email address (a "Reminder Mailing"). A Reminder Mailing shall include the following: (1) information regarding the specific Program in which the member enrolled, including the website of the Program; (2) a toll-free telephone number and email address which the member may use to contact WLI's customer service to cancel his or her membership in the Program; (3) a method that the member may use to obtain his or her billing information; and (4) the use of word "member," "membership," or substantially similar terms to indicate that the member is enrolled in the Program. WLI shall send the Reminder Mailing at least every four (4) months from the discovery of the invalidity of the email address, to those members for whom WLI has a valid postal mail address.

Although this proposed settlement is not binding on companies not involved in the litigation, it sets forth many requirements that other online marketers should consider.

For more information on Internet Law, please click here.

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