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Thursday, 09 July 2009 |
July 2009
For more information contact Jim Kaminski at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
or 202-293-8975.
L aw enforcement authorities nationwide are stepping up their efforts against e-commerce sites which sell goods and services in conjunction with automatic monthly billing plans (also referred to as “continuity programs”). A good example of this prosecutorial activity is the Arizona Attorney General’s Office recent law suit against Central Coast Nutraceuticals, Inc. (“CCN”). Under the settlement agreement concluded in June 2009, CCN will pay $1,375,000 for consumer restitution, penalties, and costs, as well as submit to significant restrictions on its business practices. The Arizona Attorney General’s complaint alleged that CCN used deceptive and misleading sales and advertising practices in selling its nutritional products and fitness consultation services over the internet.
Specifically, CCN advertised a “$1.00 risk free trial offer” for its goods and services. Consumers were obligated to pay a “shipping and handling” charge of $4.95 to take advantage of the offer. Consumers were also required to enter their personal information, including credit and debit card details, on a billing page that included two pre-checked boxes for offers involving additional dietary supplements. Consumers were charged $39.90 for these products. Consumers were also automatically enrolled in a fitness and diet consultation service called “Fit Factory” for another $29.95 per month, and a “Lifestyle” program which was billed on a monthly basis. All of these programs required consumers to take affirmative steps to cancel their memberships to avoid the additional charges.
The Arizona Attorney General found that the term “risk free” was misleading because the offer allegedly carried a degree of risk, finding specifically as follows: First, CCN required consumers to return the trial product within a short trial period. Some consumers did not receive the product until the trial period expired. Second, CCN required consumers to obtain a Return Merchandise Authorization and pay for return shipping. The Arizona Attorney General viewed this requirement as onerous. Third, CCN in some cases charged consumers for additional orders before the trial period had expired. Fourth, CCN presented contradictory information in its promotional materials as to when the trial period expired. Lastly, the Arizona Attorney General alleged that the terms and conditions were not adequately disclosed because they were buried in fine print. As such, the pre-checked boxes were ineffective disclosures of the material terms of the offers.
The Arizona Attorney General also alleged that CCN failed to properly provide refunds by requiring consumers to overcome many obstacles, such as facing telephone hold times of over an hour with customer service representatives. CCN also did not respond to consumers’ emails containing cancelation requests.
As a result of the allegations and the subsequent settlement, the Arizona Attorney General was able to obtain a large financial penalty, and other relief against CCN, including the following: CCN is now prohibited from claiming that consumers may obtain a refund unless the company sets up a dedicated customer service line and responds to those requests within a 24-hour time frame. Prior to purchase, CCN must obtain affirmative consent from the consumer to the terms of the offer. The disclosure containing the material terms must be placed in close proximity to a clear and conspicuous description of the offer. A similar disclosure must also be included with the receipt of the product. CCN is prohibited from charging for the products prior to the expiration of the trial period.
And, perhaps most significantly, by CCN’s settlement with the Arizona Attorney General, the company must now pay $1 million in civil penalties to the State, $350,000 in consumer restitution, and $25,000 for legal and investigative costs.
As this case illustrates, marketers would be well-advised to clearly and conspicuously disclose the terms of an offer prior to accepting payment from consumers. The State of Arizona’s case against CCN is a good example of why such disclosures are important.
© 2009 Hughes & Bentzen, PLLC.
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Thursday, 04 June 2009 |
June 2009
For more information contact Jim Kaminski at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
or 202-293-8975.
T he mobile marketing industry is exploding. More and more, clever marketers are learning to adapt the technology to effectively promote their goods and services. SMS coupons, text-to-win sweepstakes entries and other ad-supported mobile applications (i.e., iPhone applications store, mobile games) are already becoming an everyday occurrence. As John Schmidt of Mobients Inc., an innovator in cell phone software development commented: “The flood gates have opened and marketing campaigns in this area are accelerating at rocket speed.”
The law often lags behind emerging technologies. In some respects, this lag is good because it reduces the likelihood the law will chill or limit technology developments. But, it is notoriously difficult to pinpoint when regulators will decide to step in to lock down these technologies.
Companies may also incur liability from their employee’s abuse of a mobile device
Mobile marketing law is still in its infancy. As a result, the best approach for controlling the risks of mobile marketing campaigns is to focus on the following three aspects: 1) since consumers incur fees for text messages, how do you ensure you have appropriately disclosed and given consumers control over the flow of texts; 2) minimize consumer information that is utilized or captured during the campaign to only that information that is necessary to complete the campaign; and 3) consider how to overcome legal disclosure requirements due to the space limitations inherent in text messages or, in the case of mobile marketing campaigns utilizing the mobile web, on the small screen of a mobile device.
Since consumers are charged for individual text messages, it is of paramount importance to ensure that there is proper disclosure of and control over the flow of text messages so that you do not unfairly incur expenses for consumers just in an attempt to market to them. Courts and regulators alike have never demonstrated tolerance for marketers that cost consumers money just for the privilege of being marketed to, and are quick to charge the marketer with being unfair. Accordingly, it is prudent to make sure that phone users opt in, or agree, to receive commercial text messages.
Few people read the user agreement on a Website or program before clicking, “I agree,”
Remember that in contrast to senders of email messages who can mask their identity, the original sender of a mobile phone text message cannot be disguised. Many businesses do hire third party “gateway” companies to send the commercial text messages to the opt-in phone users in their databases. However, if the gateway companies fail to honor the opt-in requirement, or are at least perceived to be doing poorly in this regard, mobile carriers may block the marketers from sending any messages in addition to the gateway company. The mobile carriers will shoot first and ask questions later. It can be difficult to convince a mobile carrier that violation of opt-in preferences was a one-time error. As of yet, no well-defined process exists for appealing such an action. A business may need to sue the gateway to recover damages.
As mentioned, tailoring the amount of information that is collected from consumers in mobile marketing campaigns and restricting, as much as possible, the amount of information that is actually stored on their mobile device is another important aspect of controlling the risk of mobile marketing campaigns. Many mobile phone subscribers now use smart phones, which offer more computer functions than less-advanced phone models. If these phones fall into the wrong hands, whether they are lost, stolen or recycled, the consequences can be disastrous. Lose a personal phone and credit card information, personal data, and contact lists may be subject to potential abuse. Credit card fraud, identity theft, and other problems may also result. Lose a smart phone that has been used to receive any business information or is provided by a company to an employee for business use, and any sensitive, even proprietary, business material on that phone is no longer secure. Some smart phones have a remote kill function that enables you to deactivate the device. Hackers, however, can find ways to get through anyway. As a legal protection when providing smart phones to employees, corporations may wish to tell the employees explicitly that they are not allowed to have any proprietary company information on the phones. In that manner, companies may attempt to avoid liability should information be leaked.
Companies may also incur liability from their employee’s abuse of a mobile device. Harassing anyone with repeated text messages may constitute stalking or bullying. In any case, companies that provide mobile devices to their employees should have policies in place prohibiting such abuse. This step can protect the company should a complaint be filed. Further, it may be possible to work with the wireless carrier to block certain numbers and texting functionality, if requested.
Few people read the user agreement on a Website or program before clicking, “I agree,” and moving forward and because so few people read these agreements, there is some debate around whether users can be held to their terms. Satisfying the requirement to gain user consent on a mobile phone is even more challenging due to the space limitations of mobile devices. Marketers should examine whether they are willing to accept risk resulting from a lack of knowing consent. For example, if there is question as to whether a phone user has granted permission for his or her photo to be used for promotional purposes, the photo should not be used. Otherwise, there is a risk that a company will at least lose that customer or even face a lawsuit.
Users may also be surprised to find other extra charges on their mobile phone bills. Even if they knowingly purchase a special ring tone or wallpaper, for example, the charge may be higher than they expected. They may not have realized, for example, that introductory prices will revert to higher prices. Currently, most mobile phone carriers in the United States readily adjust the price when a subscriber challenges the bill. However, to avoid the threat of a government or private lawsuit, marketers should explain their pricing clearly.
Text marketing to children may create additional problems. Suppose a child receives texted invitations to enter contests or vote for favorite television show contestants. The child may text replies without realizing that premium data charges are involved. Suppose a family gets a new mobile phone and the teenagers send hundreds of text messages before the parents realize the plan did not include unlimited texting. In both cases, parents may file lawsuits. It is always important to make sure charges associated with texting are clear or that such charges may be incurred, even if the texting marketer is not a carrier.
There are other legal complications associated with marketing to kids which may prohibit the practice. For example, the Children’s Online Privacy Protection Act (“COPPA”) prohibits the collection of data over the internet from children under the age of 13. While the application of COPPA to mobile marketing is still unsettled, there are certain practices that clearly trigger compliance requirements. If that is the case, marketers must obtain parental consent before collecting personal information from the child via the cell phone.
As mobile marketing evolves, so too will the way laws are interpreted and applied to the new technology. Marketers must carefully structure their campaigns to avoid the risks associated with the unclear legal environment. Nevertheless, solutions to the legal quandaries in this area exist to ensure that the exciting growth of this industry will continue.
© 2009 Hughes & Bentzen, PLLC.
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Thursday, 05 February 2009 |
January 2009
For more information contact Jim Kaminski at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
or 202-293-8975.
F ederal privacy laws and regulations determine how marketers may collect and use consumer data in the United States. This area of the law changes rapidly because new technologies provide distinct and inventive ways for marketers to learn more about their customers or web site visitors. Federal law enforcement officials are constantly finding ways to apply old laws to these new technologies. Further, the technologically-savvy Obama administration is sure to have its own approach on these issues. While not intended to be legal advice, a short refresher course on privacy laws follows. Further, we look into our crystal ball to see what may be on the horizon in 2009.
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Wednesday, 12 November 2008 |
The threat of bankruptcy requires careful planning for potential debtors and creditors alike.
R ecent events and the declining economic condition of the United States and the world, have made insolvency planning and education imperative for companies and individuals engaged in a number of the country’s business sectors, including retail, investment, insurance, oil and gas and real estate. Not only are major companies, such as Lehman Brothers, Circuit City and General Motors, engaged in or considering bankruptcy proceedings, the trickle down effect of these large bankruptcies threatens to reach much deeper into the business world, such as automobile suppliers and dealers, and the personal world of workers and service providers laid off due to the lack of need for services and products.
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Wednesday, 05 November 2008 |
A revocable trust is a trust created during the life of the grantor and may be amended or revoked by the grantor during his lifetime as situations or desires change. The person creating a revocable trust is referred to as the “grantor.” Married couples may form joint trusts in which each is a grantor. The initial trustee of a revocable trust often is the grantor. The trust instrument provides for successor trustees when the initial trustee(s) are unable to continue in that role or die.
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Wednesday, 05 November 2008 |
H ughes & Bentzen attorneys were successful representing plaintiffs in two similar cases in the past year. One case was brought in the Superior Court for the District of Columbia, and the second was commenced in the Circuit Court for Montgomery County, Maryland. Each case involved a “finder” who brought a valuable asset to a deal – a well-endowed investor or a large merger – pursuant to an oral agreement. In each case, the “other” party, the defendant, decided that he did not want to pay for the benefit received.
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Wednesday, 05 November 2008 |
H ughes & Bentzen was asked to represent an immigration attorney in a complaint brought by his former client to Bar Counsel of the District of Columbia. The complainant alleged that the immigration attorney had not diligently and professionally represented him, an immigrant to the United States from Cameroon. Hughes & Bentzen partner, Michael Bentzen, was retained to present the defense against those allegations.
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Wednesday, 28 May 2008 |
T he Federal Trade Commission (“FTC”) recently issued its final Discretionary Rule (“Final Rule”) that interprets the CAN-SPAM Act of 2003 (“CAN-SPAM”). CAN-SPAM is the federal law that regulates how marketers may send commercial email. While the Final Rule retains many of the provisions first introduced in the proposed rule the FTC issued in May 2005, there are nevertheless some significant changes. An executive summary and a more in-depth analysis follow.
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