March 15, 2011
Intelius May be Liable for Deceptive Online Marketing Practices Based on Third Party Transaction at Checkout -- Keithly v. Intelius
[Post by Venkat Balasubramani]
Keithly v. Intelius, No. C09-1485RSL (W.D. Wash.; Feb. 08, 2011)
A district court judge in Washington held that Intelius could potentially be held liable for allegedly deceptive marketing practices based on its making available third party services as part of the online checkout process.
Background: Intelius offers "background check" and look-up services to customers on the web. Customers brought a putative class action alleging that they were deceived during the online check-out process into buying third party subscription services.
The plaintiffs' experiences varied slightly, but some of the plaintiffs alleged that after they selected the desired services from Intelius, they were offered these services for $49.95, but were also presented with an option to enroll in a "mysterious 'Identity Protect'" service and pay $39.95 (i.e., get a $10 discount on the product which they ordered). These customers were taken through several pages which mention the basic and add-on services, and in one of the pages, the customer was informed that enrolling in 'Identity Protect' would result in the customer's credit card being billed monthly (if the customer did not cancel after the seven day free trial).
At this point the customers could complete the order, but another group of customers were told that they could take a "Community Safety Survey," and receive $10.00 cash back, when they tried the "Family Safety Report." Customers who responded favorably to this were then presented with a survey - one of the questions is related to community safety, and the other question is billing related. Here, the customer is again presented with (what the court describes as) confusing options, one of which allows the customer to complete his or her order, and the other which sends the customer further down the path which ultimately results in the purchase of the "Family Report" service. As the court describes it, "[n]o information is provided regarding the company that is offering this service."
As alleged by plaintiffs, the services are offered after the customer has input his or her payment information and were offered by third party defendant Adaptive Marketing. [Intelius settled with the Washington AG's office in late 2010 around marketing practices that look similar to those alleged here. Adaptive parent's company was also recently hit with a big ($32.6 million) judgment in Iowa: "Judge hands down $32.6 million consumer protection verdict; hundreds of thousands of Iowans could receive restitution."]
Washington Consumer Protection Act: Defendants argued that the complaint failed to adequately allege deceptiveness. In order to satisfy the deceptiveness element, a plaintiff "need not show that defendants intended to deceive or defraud, but only that the practice had the capacity to deceive a substantial portion of the purchasing public." Additionally, deception (which is evaluated by the "net impression" created by the solicitation) "may result from the use of statements not technically false or which may be literally true." Under this standard, the court finds that two of the three marketing techniques were deceptive.
Identity Protect Plaintiffs: This group of plaintiff selected the background report for purchase. They had to click two different "continue" buttons to complete the transaction, and in between the two steps, "Identity Protect" was added to their orders, "without any meaningful disclosure regarding the service or its price." At some point down the road (in step 4), the pricing details of "Identity Protect" were revealed, but they were the least conspicuous elements on the page. As described by the court:
[t]he elements that are most noticeable at Step 4 convey the impression that the consumer is purchasing a background report for $39.95 (a savings of $10.00) and that Identity Protect costs nothing. A reasonable consumer in Keithly's position could believe that clicking the red "Continue" button would answer his every need: it would allow him to purchase the product he wanted for a total of $39.95. Nothing about the key design elements would suggest that Keithly should be hunting for other terms and conditions and, and even if he did, the details of the offer blend in with the description of "Identity Protect Benefits" and the site security information to such an extent that he could miss them. The consumer could reasonably believe that clicking "Continue" would complete the order he had initiated at least four screens ago.
After step four, these consumers were not presented with any opportunities to remove Identity Protect, despite the transaction running the course of "ten screens." Similarly, after step four, there were no other disclosures regarding the pricing or terms for the Identity Protect service. In fact, "every order summary presented between Step 4 and the end of the transaction indicated that Identity Protect would cost $0.00." The court does note that not everyone would be fooled by this marketing technique:
[s]ome individuals would understand that obtaining something for nothing is a rare event and, at Step 3, would decline the offer of a $10.00 discount on the assumption that there was a catch. Others would take the time to read every word of the screen shot labeled Step 4 and realize that the advertised $0.00 price tag for Identity Protect would jump to $19.95 per month after the first seven days. But not everyone is so wary and/or detail-oriented, nor is the CPA designed to protect only those who need no protection. The capacity of a marketing technique to deceive is determined with referenced to the least sophisticated consumers among us. The FTC has noted that on-line consumers do not read every word on a webpage and advises advertisers that they must draw attention to important disclosures to ensure that they are seen.
In other words, online retailers should not hide the ball as to what is being purchased, or as to the terms of the purchase. This applies to the text of the webpage, but also applies to the checkout process itself. If the process is confusing, it does not matter is the text is technically accurate! Consumers should be able to assume that they can "safely complete an uncomplicated internet transaction without fear of being swindled or saddled with unwanted goods and services if her reviews the order summary and clicks on the link or button that purportedly completes the purchase."
The court ruled with respect to a second group of Identity Protect plaintiffs that the practices were - as a matter of law - not deceptive because there was a disclosure on every screen that Identity Protect could be cancelled any time, but that "[a]fter [the] trial, [the consumer] will be billed $19.95 per month."
Family Safety Report Plaintiffs: The court similarly finds that the Family Service Report transactions could be deceptive. After the consumer bought the report from Intelius (and after the consumer clicked on the "show my report button") the consumer is presented with an option to "take the 2008 Community Safety Survey and claim $10.00 CASH BACK when you try Family Safety Report." Here the consumer is presented with a choice to try the Family Safety product or not, but the option to try the Family Safety Report is more prominently presented. If the customer clicks on the "Yes" button and provides his or her email address, the customer actually authorizes Intelius to "transfer" the customer's account information to the undisclosed third party who is offering the service. The court points to the design elements on the page that all fail to highlight that the consumer is actually signing up for something that he or she will be on the hook for:
None of the normal cues related to a consumer transaction are presented: no product is selected, no order summary is provided, no payment information is exchanged, and no confirmation of the transaction is generated. By providing an email address and clicking the red button, the consumer will have purchased an on-going service from an undisclosed entity. Unless the consumer had the forethought to print the webpage before moving on, he will have no idea how to contact the purveyor of the service once the subscription fee starts showing up on his account statement.
I blogged about the VistaPrint case where the plaintiffs argued that they were improperly signed up for a rewards program. There the district court and Firth Circuit both found that a disclaimer and the language of the transaction effectively undermined the claims. The court in this case disagrees with the approach in VistaPrint, noting that such "a truncated analysis is improper under Washington [law]" because the court should look at the transaction as a whole. Aside from the deference given to any disclaimers or disclosures, the processes in VistaPrint and in this case appear fairly different. There the customers had to check the box saying they agreed to the terms, enter their email address twice, and most importantly, the rewards program offer was presented after the transaction with VistaPrint.
In contrast, in this case, the court intimates that the merchant was doing everything it could to thwart the effective completion of the transaction, and the consumer is guided through a maze of steps where the merchant or third party tries to add an unwanted product into the consumer's shopping cart at each step. A big takeaway is that the flow of the transaction and overall impression to the consumer is equally as important to the text, and if the overall process is viewed as deceptive, a few disclaimers will not save you. Here, it was obvious that (taking the plaintiffs' allegations as true), customers were being put through a maze of a checkout process, with numerous traps along the way.
The practice of injecting third party service (with recurring billing) into a transaction has drawn the ire of regulators. State AG's have gone after companies, and recently President Obama signed the Restore Online Shopping Confidence Act. (Here's an interesting background article on this statute: "How an Oil Baron's Heir Cleaned Up a $1.4 Billion Internet Scam.") The act covers sales by "third party sellers," and prohibits the data pass that the plaintiffs are complaining about here. The act requires the third party seller to disclose the terms, and the fact that the third party seller is not affiliated with the merchant. The act also requires the third party seller to obtain "the express informed consent" for the charge by obtaining the account number, name and address, and a means to contact the consumer from the consumer, and requiring the consumer to check the box of perform some other affirmative act to indicate consent. It looks like the transactions in question would have been covered by the statute. The act is intended to be enforced by the FTC and the State Attorneys General, but it does not rule out private enforcement, and I'm sure plaintiffs will be citing it aplenty.
"Fifth Circuit Blesses Vistaprint's Rewards Program Sign-Up Process -- Bott v. Vistaprint USA Inc."
"Internet Rewards Program Class Action Survives Initial Motion to Dismiss -- In re Easysaver Rewards"