This is a guest post by Rob Berkowitz
When you generate leads by offering free gifts, the gifts had better be free. That’s the lesson that Internet marketers can learn from United States of America (for the Federal Trade Commission), Plaintiff, v. Adteractive, Inc., et. al. CV-07-5940 SI, FTC File No. 072-304. On November 26, 2007, the parties to this lawsuit settled their dispute with Adteractive agreeing to pay $625,000 in civil penalties to get the FTC to dismiss the action.
The Federal Trade Commission (“FTC”) alleged violations of the CAN-SPAM Act and the FTC Act for offering “free” gifts through email and banners. Once a consumer had entered personal information on a registration page, the consumer would then be forced to consider various layers of optional offers, and ultimately required to sign up for still other participation-required offers. In the end, a consumer had to make a substantial financial outlay to “qualify” for the “free” gift. The FTC alleged that by failing to disclose material facts regarding what was necessary to obtain a “free” gift, Adteractive was engaged in deception in violation of the FTC Act and CAN-SPAM.
In settling the lawsuit, Adteractive agreed to pay a hefty fine and stop engaging in certain specific behaviors. At first look, this may appear to be a very harsh consequence for overly aggressive Internet marketing. On second look, however, consider this: Settling this lawsuit required a vote of FTC Commissioners, which was 4-1. The sole dissenting Commissioner, Mr. Jon Leibowitz, expressed concern in his dissenting statement that the civil penalty was too small. Mr. Leibowitz specifically took note of Adteractive’s reported annual revenue of over $115,000,000 and a recent settlement of $900,000 in a similar but unrelated case. Taken in this light, it appears that Adteractive got somewhat of a bargain and not much of a deterrent.
Regardless of whether you think Adteractive got slammed by the FTC, the lesson is clear. If you offer a free product, the product should be truly free. There should be no hidden recouperation of costs, material disclosures about terms and conditions must be conspicuous, and the offers must have a limited duration such that they are truly “special and meaningful.”
Given the FTC’s approach to the use of the word “free,” some very serious questions arise with respect to common lead generation practices. Anyone who participates in the market for Internet marketing leads knows that personal information has a very specific dollar value associated with it. If a consumer is required to provide personal information—an item of intellectual property that is readily bought, sold, leased, rented, and traded—for a “free” product or service, then the product or service is not really free. Thus, the associated promotion could very well be considered false or deceptive, and in violation of the CAN-SPAM Act and the FTC Act. The unsettled nature of this area of law should compel savvy Internet marketers to consult with experienced legal counsel to become better informed about the risks and rewards that are at stake.
About the author: Robert Berkowitz is an attorney with Coast Law Group, LLP in Encinitas, California (http://www.CoastLawGroup.com). A large part of Rob’s practice is focused on Internet marketing issues. Among other distinctions, Rob is a subject-matter expert in the field of privacy policies and has probably written more of them than anyone you know.
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{ 23 comments… read them below or add one }
Very well written. This attorney will begetting some business from Affiliate marketers. Good marketing on his part…..
The most frustrating experience on the web is those windows that pop up awarding you a free Laptop or other device and after you enter you personal information only to find twenty screens later that you need to sign up to buy several hundred dollars worth of other stuff. You finally give up but meanwhile they captured you personal information and then you get on someone’s mailing list and there ‘you’re done for” What a rip off. I totally agree with heavy fines for these firms. Here is one instance where I think the attorneys deserve their exorbitant fees.
Fair enough, it is absolutely illegal & bad ethics but at the end of the day CAN SPAM had significant money in hands from this practice. They actually made good money from this, and this is at the bottom of all spammy behavior – it’s bad for the company, it’s annoying for the customers affected, but still someone is making the big bucks with or without the lawsuit …
true indeed.
Good points. People don’t appreciate deceptive marketing tactics.
Great Post. Deceptive Marketing Works So well! I do it sometimes but not a lot.
Amen. Those popups are so annoying.
I agree with the dissenting commissioner; the penalty should have been higher. If you are offering something free then that’s what it should be. If customer is required to give personal info then customer should be advised before-hand so that customer can make an informed decision. What’s wrong with that?
If a network or its affiliate’s need to use deceptive marketing to sell such an easy sell product like ringtones, either there traffic sux or marketing skills suk or there business ethic is questionable or all of the above. These people represent a threat to to U.S consumers and should be closed by the government or the carriers shoud disable 3rd party billing until content re-sellers fix there broken partnerships..
Real marketing people care about what they do, spammers don’t.. That is why this vertical has problems such as these..The term Nest’s of Spammers needs to be used more often in the description of these folks when posting about this topic.
The behavior we have witnessed, in my mind is like throwing bricks & bottles in a snowball fight.. Viagra’s makin new creatives right now! cause they will all be back..lol
Great post but it’s never going to happen. Too many deceptive people out to make a quick buck on the net
True, becaue they could just move to a country that doesn’t have the same restrictions as the US.
Good post but it’s never going to happen. ! I do it sometimes but not a lot.
I guess it’s time to take down those “Free Ringtone” ads. (Just kidding I dont run those)
we’ve used these guys before, they are fantastic and keeping you in compliance like no tomorrow
Great post. I hate those bs free stuff. Why don’t they just make it simple? Someone is trying too hard with their brains.
Agreed, its very well written.
It would be nice if it happened, but unfortunately I don’t see it, either. Such deceptive practices will hurt them in the long run (we hope).
Great post. This is a simple lesson to be learned, and I’m sure what started as a small “free gift” snowballed into the recipient receiving an even larger “free” gift if they would sign up for “two of the silver or one of the gold” offers (which usually would require some kind of financial investment). I think that its easy to let things spin out of control, and a simple step back to evaluate the situation will allow you to see if things are under control, or spiraling out of it.
Yes very good writen
good post – I get probably 20 email a week giving away a “free” something and its always a situation where you have to sign up to a ton of credit cards or something. I wonder how many people do it?
yes good points .thanks also
Useful post. Thanks
Hopefully it will have taught them a lesson. I guess it depends upon what their profit margins are – they may have been hurt more than you think – hopefully.