Court Rules Against FTC in False Advertising Case

In a case where the Federal Trade Commission is seeking almost $4M in damages, a federal court in California recently ruled in favor of defendant DIRECTV on its motion for partial summary judgment. The opinion provides guidance on how to properly structure negative option programs and deceptive advertising jurisprudence.

In short, the agency alleges that DIRECTV violated Section 5 of the FTC Act and the Restore Online Shopper’s Confidence Act by engaging in false and deceptive advertising over numerous years. According to the Commission, DIRECTV failed to make legally sufficient disclosures of material terms.

The court held that the FTC failed to meet its burden and prove that the net impression of the all of the advertisements in question were likely to deceive an ordinary, reasonable consumer. In doing so, the court considered that the agency only provided evidence for approximately 1,000 of the 40,000 at issue, that various print ads likely complied with the FTC’s Dot Com Disclosure Guidance and that generalized expert testimony offered by the FTC on an internet sample survey was insufficient. The court also rejected the FTC’s attempt to establish deception via other methods, such as internal DIRECTV documentation regarding internal compliance efforts and increased call volume at the expiration of introductory periods.

The FTC’s website-based claims survived DIRECTV’s motion because material terms were merely disclosed via hyperlinks.

Takeaway: Marketers that offer negative options will continue to face scrutiny from state and federal regulatory authorities. Consult with experienced FTC advertising compliance counsel to ensure that material term disclosures and related business processes adhere to ROSCA and applicable state legislation.

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