FTC Release Date for this was For Release: June 11, 2008, but I thought it was important enough to repeat here as many of you will likely run into many forms of these “negative option” offers.

Defendants who allegedly offered “free” software CDs that weren’t free, and billed unsuspecting consumers for a software continuity program they didn’t know they were enrolled in, have agreed to settle FTC charges that their practices violated federal law. The settlement bars the illegal practices in the future and requires the defendants to give up more than $2 million for consumer redress.

In January 2007, the FTC charged that the defendants’ 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.

The FTC alleged in its complaint that most consumers did not know about these charges or the continuity plan until they were billed. According to the agency, because the defendants did not adequately notify consumers, they could not avoid the charges.

The FTC charged the defendants with unfair and deceptive practices that violate the FTC Act. The agency also charged them with violating the Unordered Merchandise Statute, which prohibits billing recipients for merchandise they did not order. The FTC asked the federal district court to order a halt to the unfair and deceptive practices and to order the defendants to give up their ill-gotten gains.

The settlement announced today ends the litigation.

The settlement 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.

Defendants named in the FTC complaint are Think All Publishing, L.L.C., successor company to Manay Software, L.L.C., and Yuri Mintskovsky.

The Commission vote to authorize staff to file the stipulated final order was 4-0. The stipulated final order for permanent injunction was filed in the U.S. District Court for the Eastern District of Texas Sherman Division.

NOTE: This stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

MEDIA CONTACT:

Claudia Bourne Farrell,
Office of Public Affairs
202-326-2181

STAFF CONTACT:

Deanya T. Kueckelhan,
Southwest Region
214-979-9374

Gary D. Kennedy,
Southwest Region
214-979-9379

(manay settlement)
(Civil Action No. 4:07CV11)