FTC Says: “Show Me The Money” – Criminal Law

FTC Says: “Show Me The Money” – Criminal Law

MoviePass advertised that its users could use the service to
view one movie per day at their local movie theaters, and that they
could view any movie, in any theater, at any time. The FTC proposed settlement resolves allegations that MoviePass
aggressively interfered with its customers’ ability to use the
movie-ticketing subscription service as advertised, along with
allegations that MoviePass failed to adequately protect its
users’ personal data. The FTC alleges, however, that MoviePass erected barriers to
prevent heavy users of the service from using the service as
advertised. For example, MoviePass would lock users out of their
accounts, falsely claiming to have “detected suspicious
activity or potential fraud,” and then require users to reset
their passwords – a process that MoviePass made extraordinarily
difficult by purposely rejecting users’ email addresses,
failing to send password-reset emails, and linking its password
reset icon to a nonworking webpage. These barriers were often
coupled with an intentionally cumbersome ticket verification
process. The FTC’s complaint alleges that MoviePass’s
practices rendered its “one movie per day” promise false
or misleading in violation of Section 5 of the FTC Act.

On June 7, the Federal Trade Commission (FTC) announced a proposed settlement with
MoviePass. And in an interesting twist, the FTC used the proposed
settlement to announce a novel means of obtaining monetary
relief.
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As you’ll remember from our prior commentary, 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. That
decision threatened to upend the FTC’s fraud program, which for
more than 40 years had invoked Section 13(b) as the basis for
obtaining monetary relief in consumer fraud cases. Not to be
undone, the FTC’s proposed settlement with MoviePass
aggressively expands the agency’s interpretation of the Restore
Online Shopper’s Confidence Act (ROSCA), 15 U.S.C. § 8403,
and thus paves a new path for the FTC to obtain monetary relief in
many consumer fraud cases.
Troutman Pepper Hamilton Sanders

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 went on criticize 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.” As Commissioner Phillips explained in a dissenting
statement:

By invoking ROSCA, the FTC signaled that it could have demanded
that MoviePass pay equitable monetary relief as well as 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. And in a novel move, the FTC’s complaint also alleges
MoviePass’s practices violated ROSCA, because MoviePass failed
to obtain consumers’ express informed consent before charging
their credit or debit cards, as consumers didn’t know that the
promise of “one movie per day” was illusory and thus
could not give express informed consent.

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