FTC Enforcement Powers Keep Growing

Two recent enforcement actions by the Federal Trade Commission highlight the agency’s continued resolve to expand its powers. While these actions, could be dismissed as anomalies brought against rogue marketers, the remedies sought by the government could potentially be used against all marketers.

In its 100th enforcement action challenging Internet commerce, the agency has filed an action concerning the use of copied Web- page computer coding of well-known businesses and popular mainstream topics to lure unsuspecting surfers to defendants’ Web sites.

Although the action targeted an Internet business outside the mainstream, allegedly hijacking (or pagejacking) surfers to hardcore pornographic Web sites, the agency’s attempt to regulate the use of hidden computer coding and to seek the suspension of domain name registrations appears to be unprecedented.

According to the FTC, the marketers made exact copies of approximately 25 million Web pages from unrelated sites as diverse as the Harvard Law Review to sites about the movie “Saving Private Ryan” to the Japanese Friendship Garden. The marketers’ copies included the imbedded text that triggers search engines about the site’s subject matter. Defendants then made one change hidden from view: They inserted a command that redirected any surfer coming to the site to their Web site, which contained adult-oriented material. For example, a surfer who wanted to access Web sites on Oklahoma tornadoes by using a search engine would be redirected to the defendants’ Web sites and then exposed to defendants’ Web site instead of the intended one. The FTC challenged this activity as being deceptive in violation of the FTC Act because defendants misrepresented the Web site’s true identity.

The agency further challenged defendants’ manipulation of the user’s browser commands. Defendants allegedly manipulated the “back” and “close it” (or “X”) commands so the unsuspecting surfer was now trapped into viewing only the defendants’ Web sites. The FTC challenged this action as being unfair in violation of the FTC Act. The agency sought a temporary restraining order suspending defendants’ InterNIC domain registrations.

While the FTC actions would appear justified in light of the potential harm of exposing unknowing individuals (including children) to pornography, the action appears to be a unique extension of the unfair or deceptive prongs of the FTC Act. Also, while defendants’ tactics appear to be a disingenuous method to lure visitors to their Web sites, nearly all marketers seek to employ some sort of creativity to attract consumers to view their advertising campaigns. Traditional marketers may find themselves facing challenges of violating the FTC Act if their creativity misrepresents their purpose or identity.

The Internet pagejacking enforcement action also involved coordination with the Australian Competition and Consumer Commission and the Portuguese Instituto do Consumidor. These foreign consumer protection agencies assisted the FTC in tracking down foreign nationals from these countries who were allegedly behind the scheme.

Also in a recent federal district court ruling, the FTC obtained a judgment for consumer redress of all revenue generated by a challenged diet program marketed through print advertisements. In the case of FTC vs. SlimAmerica, et al., the agency obtained an $8.3 million consumer redress judgment that consisted of all revenue generated from the program. In entering the ruling, the court did not consider any expenditures by the defendants’ advertising, product fulfillment or customers. Except for refunds, the entire gross revenue generated by the program was considered in calculating the judgment.

The court also entered a $10 million dollar bond requirement against the company’s president (an alleged recidivist) and a $1 million bond requirement against the vice president, who had no prior enforcement record. The bond requirement, especially against the vice president, is unique in that it applies not just to the marketing of diet products or even telemarketing. Rather, it applies to each individual’s marketing of any good or service without regard to the method or type of product.

These enforcement actions demonstrate that the FTC continues to aggressively pursue as many remedies as possible to protect consumer interests. The agency has been cleverly using egregious fact patterns to convince courts and the public that it needs these powers to combat misbehavior. However, the risk continues to grow that these remedies will become the norm in the case of challenges to more traditional programs and techniques employed by mainstream legitimate marketers.

Andrew B. Lustigman is a partner in The Lustigman Firm, New York, which specializes in direct marketing law.

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