FTC Announces More Aggressive Use of ROSCA to Obtain Monetary Relief

On June 7, 2021, the Federal Trade Commission (FTC) announced a proposed settlement with MoviePass.  Interestingly, FTC staff attorneys used the used the proposed settlement to announce a completely new and original way of obtaining monetary relief.  The case raises legitimate concerns for digital marketers that offer negative option programs because it indicates that the FTC now intends to use ROSCA to challenge any potentially misleading, deceptive or unfair aspect of an autorenewal program.

By way of reminder, the Supreme Court recently held in AMG Capital Management that Section 13(b) of the FTC Act does not authorize the FTC to obtain monetary remedies by initiating enforcement actions in federal court.  Section 13(b) was historically invoked by the FTC in order to challenge unfair and deceptive acts and practices.

In what appears to be an effort to circumvent that ruling, the FTC proposed MoviePass settlement evidences an attempt to interpret the Restore Online Shopper’s Confidence Act more broadly in pursuit of monetary relief in consumer fraud matters.

The Restore Online Shoppers Confidence Act is federal statute governing online negative option programs. In short, ROSCA requires sellers to “clearly and conspicuously” disclose all “material terms of the transaction” and obtain consumers’ “express informed consent” before charging them for online negative option features.

Here, though, the FTC does not actually allege issues relating to the company’s billing disclosures or consent mechanism.  Rather, FTC lawyers alleged that the company interfered with its customers’ ability to use the movie-ticketing subscription service in the manner that it was advertised, and that MoviePass did not reasonably protect the personal data of its users (resulting in a 2019 data breach).

Specifically, the FTC alleges that the company deceptively marketed a subscription service for customers to view movies at theaters for a monthly fee.  However, once customers purchased a subscription, the FTC alleges that MoviePass used different methods that actually prevented subscribers from accessing the advertised service.  For example, the FTC alleges that the company limited the movies customers could view, blocked account access and invalidated  subscriber passwords.  The FTC also alleges that the company implemented an onerous ticket verification program and blocked groups of subscribers.

The FTC’s complaint alleges that MoviePass’ practices rendered its “one movie per day” promise false or misleading in violation of Section 5 of the FTC Act.  What makes this matter so novel is that the FTC alleges that MoviePass’ practices violated ROSCA, because MoviePass failed to obtain consumers’ express informed consent prior to charging their credit or debit cards, and that consumers did not know that promises of “one movie per day” were allegedly illegitimate.  Thus, consumers could not have provided express informed consent.

By using ROSCA in this manner, the FTC has signaled that it could have demanded that MoviePass pay equitable monetary relief as well as civil penalties under Section 19 of the FTC Act, which authorizes those remedies when a defendant has violated “any rule” that the FTC has authority to enforce.

Commissioner Phillips explained in a dissenting statement:

The novelty here is that, for the first time, the Commission is treating a deception about the characteristics of the underlying product — not the negative option feature — as a violation of ROSCA.  To data, all the complaints filed by the Commission that allege ROSCA violations in the negative option context with a first party seller have involved defendants hiding a negative option feature, not obtaining express informed consent before charging the consumer, or failing to provide a simple mechanism for cancelling the recurring charge.  Instead of examining whether consumers understood the negative option feature, had given consent to that, or were able to cancel in a simple way, this complaint instead looks to the characteristics of the product that MoviePass sold …  The Commission is thus announcing that it may seek civil penalties against all businesses that use online negative option features where the Commission determines that there has been any material deception, whether relating to the negative option feature or a characteristic of the underlying product.

Commissioner Phillips criticized the FTC’s novel interpretation of ROSCA.

“The Commission’s decision dramatically to re-interpret ROSCA and expand liability comes just weeks after the Supreme Court’s decision in AMG Capital Management, LLC v. FTC, which held that equitable monetary relief is not available under Section 13(b) of the FTC Act,” he said. “I believe Congress should amend the statute.  But I do not agree that our loss of authority under one statute someone creates authority elsewhere.”

The company’s CEO and the parent company’s CEO were also named in the complaint.  The proposed consent order prohibits MoviePass, its parent company, and the individuals from misrepresenting their services in the future.  It also requires them to implement a comprehensive security program to identify and address security risks.  As has become more common in recent years, the operators shall also be required to obtain biennial third-party assessments of its security program.

Takeaway:  The matter reflects a new enforcement tactic by the Federal Trade Commission and is a clear warning to the digital marketing industry.  In a concurring statement, Commissioner stated: “Given the inaugural use of ROSCA for this purpose, it is appropriate that the Commission is foregoing civil penalties.  Businesses need predictability about the manner in which laws will be enforced and should be afforded the ability to contest new uses of authority.  This case will serve as notice to the market, and future violations of this type may well warrant civil penalties.”  Thus, all signs seem to point to the FTC more aggressively using ROSCA in order to obtain monetary relief for a broader range of false or misleading advertising representations involving the underlying products and services associated with online negative option features.  Businesses are well-advised to evaluate negative option disclosures and identify necessary changes, including, but not limited to, pre-enrollment,  consent and fulfillment disclosures.

This article should therefore be of interests to digital marketers that are engaged in the use and offering of negative option features.  Consult with an experienced FTC lawyer if you are interested in discussing the implementation of preventative measures, if you have received a CID from the Federal Trade Commission or if you have been named as a defendant in an FTC enforcement action.

Richard B. Newman is one of  the leading FTC defense lawyers in the digital marketing space at Hinch Newman LLP. He defends digital marketers in regulatory claim substantiation proceedings.  

Informational purposes only. Not legal advice. May be considered attorney advertising.