Legal Ethics

Persistent Yet Questionable: FTC’s Journey Regulating Negative Option Marketing in Online Subscription Services

October 17, 2024
Digital Marketing, Legal Ethics, Marketing, Regulatory

Su Young Lee, MJLST Staffer

Online subscription services are increasingly prevalent in society – prevalent enough to catch the attention of the Federal Trade Commission (FTC). On June 17, 2024, the FTC filed a lawsuit against Adobe Inc for the violation of the FTC Act Section 5 and Section 4 of the Restore Online Shoppers’ Confidence Act (ROSCA).[i] These two laws introduce a general legal framework governing online commerce and negative option marketing.[ii] The ROSCA Section 4 prohibits online sellers from conducting a transaction through “negative option feature” unless the seller “clearly and conspicuously discloses all material terms of the transaction” to the consumer.[iii] While the ROSCA is a distinctive law to the FTC Act, the violation of the ROSCA Section 4 is treated as an “unfair or deceptive acts or practices” so constitutes the violation of the FTC Act Section 5.[iv] Furthermore, as it is treated as an “unfair or deceptive acts or practices,”[v] the violation of the ROSCA Section 4 also triggers the FTC Act Section 19, which allows the FTC to “commence a civil action” against the one who violated subjected law.[vi]

In this case, the FTC argues that Adobe did not “clearly and conspicuously” disclose the early cancellation fee during the subscription process, which, therefore, “constitutes an unfair or deceptive act or practice in or affecting commerce.”[vii] Last year, the FTC filed a similar complaint against Amazon concerning the cancellation of Prime memberships; the case is still ongoing.[viii]

The FTC’s action against online subscription policies, specifically their marketing strategy called ‘negative option marketing,’ or ‘dark pattern,’[ix] are not new. Negative option marketing is “a term or condition under which the seller may interpret a consumer’s silence or failure to take affirmative action to reject a good or service or to cancel the agreement as acceptance or continuing acceptance of the offer.”[x] Examples include automatic renewals, continuity plans, free-to-pay or fee-to-pay conversions, and prenotification plans.[xi] The FTC reports negative option marketing to be a “persistent source of consumer harm” by “saddling shoppers with recurring payments for products and services they did not intend to purchase or did not want to continue to purchase.”[xii]

The FTC has pursued action against negative option marketing, especially its use in online subscription services, in recent years. As with Amazon and Adobe, using ROSCA and/or the FTC Act as a legal basis, the FTC has sued numerous online commercial companies with subscription services such as Wealthpress and MoviePass.[xiii] They also published a staff report and policy statement warning of the danger of negative option marketing.[xiv] On April 24, 2023, the FTC even exercised their rulemaking authority and proposed a rule amending 16 C.F.R. part 425 to specifically target the regulation of negative option marketing.[xv] While the proposed rule does not limit the type of applicable media,[xvi] the FTC added the definition of the terms that particularly apply to online subscription services, such as “simple cancellation” and “annual reminders.”[xvii]

Despite their persistence, the effectiveness of the FTC’s efforts is still in question. First, not everyone welcomes the proposed rule. Former Commissioner Christine S. Wilson states that the proposed rule’s scope of negative option marketing is overly broad because it applies to any misrepresentations, even to those irrelevant to negative option terms or policies.[xviii] She also points out that the proposed rule gives the FTC the authority to seek civil penalties under the FTC Act Section 5, which the Supreme Court limited in AMG Cap. Mgmt., LLC v. Fed. Trade Comm’n.[xix] Commissioner Wilson expresses concern that such overreach would put marketers at risk of being liable for monetary penalties even when they fully disclose negative option terms.[xx]

Luckily for those not fond of the proposed rule, the FTC has not yet prevailed in putting the regulation into effect. Even if it becomes effective one day, this new rule will have to survive the unclarified yet heightened standard the recent overruling of Chevron created. The Section 6(a) of the FTC Act, governing the agency’s rulemaking authority, grants the FTC to make a rule that addresses “unfair or deceptive acts or practices.”[xxi] The proposed rule manifests its relation to such authority, as many of its provisions trigger the violation of the FTC Act Section 5, which states that “unfair or deceptive acts or practices” are unlawful.[xxii] On the other hand, no one is sure at this moment whether such manifestations are the sufficient address of ‘unfair or deceptive acts or practices’ under the new rulemaking standard.

No matter where the proposed rule currently lies, as the ongoing lawsuits against Adobe and Amazon reflect, it seems like the FTC has not given up on regulating negative option marketing within online subscription services. If the current proposed rule does not end up being effective and fails to become the FTC’s resolution, could lawsuits be their alternate pathway? Based on their past lawsuits against Wealthpress and MoviePass, which ended with the agreement in the proposed court order (“Agreement”) and settlement, it may be reasonable to anticipate that the ongoing cases will reach a similar outcome.[xxiii] The settlement and Agreement, which involved specific restriction and monetary agreement,[xxiv] from Wealthpress and MoviePass cases focused on refraining from the alleged type of conduct of an alleged company. These could discourage alleged tech companies like Wealthpress and MoviePass from using the alleged type of negative option marketing in their future subscription policies. However, since neither settlement nor Agreement has precedential authority, it is questionable whether the history of lawsuits filled with settlements and Agreement could prevent other tech companies from applying similar negative option marketing to their subscription policies.

 

Notes

[i] Complaint for Permanent Injunction, Monetary Judgment, Civil Penalty Judgment, and Other Relief at 25, United States v. Adobe Inc., No. 5:24-cv-03630-BLF (N.D. Cal. June 17, 2024).

[ii] Id. at ¶ 10.

[iii] 15 U.S.C. § 8403.

[iv] 15 U.S.C. 45(a)(1) (“Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.”) (emphasis added). See also Complaint for Permanent Injunction, supra note i, at ¶ 22.

[v] 15 U.S.C. § 8404(a).

[vi]  15 U.S.C. § 57(b)(1) (“If any person, partnership, or corporation violates any rule under this subchapter respecting unfair or deceptive acts or practices…then the Commission may commence a civil action against such person.”) (emphasis added).

[vii] Complaint for Permanent Injunction, supra note i, at ¶ 121-25.

[viii] See Fed. Trade Comm’n v. Amazon.com, Inc., No. 2:23-CV-00932-JHC, 2024 WL 2723812 at 1 (W.D. Wash. May 28, 2024) (showing that the FTC is using the same legal basis).

[ix] FTC uses two terms (negative option marketing and dark pattern) interchangebly. See FED. TRADE COMM’N, Bringing Dark Patterns to Light : Staff Report (2022).

[x] FED. TRADE COMM’N, ENFORCEMENT POLICY STATEMENT REGARDING NEGATIVE OPTION MARKETING 60822 (2021).

[xi] Id.

[xii] Id. at 60823.

[xiii] See FTC Suit Requires Investment Advice Company WealthPress to Pay $1.7 Million for Deceiving Consumers, Fed. Trade Comm’n (Jan. 13, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-suit-requires-investment-advice-company-wealthpress-pay-17-million-deceiving-consumers and Operators of MoviePass Subscription Service Agree to Settle FTC Allegations that They Limited Usage, Failed to Secure User Data Fed. Trade Comm’n (June. 7, 2021), https://www.ftc.gov/news-events/news/press-releases/2021/06/operators-moviepass-subscription-service-agree-settle-ftc-allegations-they-limited-usage-failed.

[xiv] See FED. TRADE COMM’N, Bringing Dark Patterns to Light, supra note ix and FED. TRADE COMM’N, ENFORCEMENT POLICY STATEMENT, supra note x.

[xv] Negative Option Rule, 88 FR 24716 (proposed April 24, 2023) (to be codified at 16 C.F.R. pt. 425)

[xvi] Id. at 24734 (“This Rule contains requirements related to any form of negative option plan in any media, including, but not limited to, the internet, telephone, inprint, and in-person transactions.”).

[xvii] Id.

[xviii] Christine S. Wilson, Dissenting Statement of Commissioner Christine S. Wilson, Notice of Proposed Rulemaking, Negative Option Rule 2 (Sept. 2021), https://www.ftc.gov/system/files/ftc_gov/pdf/p064202_commissioner_wilson_dissent_negative_option_rule_finalrevd_0.pdf.

[xix] Id. See also AMG Cap. Mgmt., LLC v. Fed. Trade Comm’n, 593 U.S. 67, 141 S. Ct. 1341, 209 L. Ed. 2d 361 (2021) (finding that the FTC cannot seek monetary relief based on the FTC § 13(b), which triggers permanent injunction when the § 5 is found to be violated)

[xx] Christine S. Wilson, Dissenting Statement, supra note xviii, at 2.

[xxi] 15 U.S.C. § 46(g). See also A Brief Overview of the Federal Trade Commission’s Investigative, Law Enforcement, and Rulemaking Authority, Fed. Trade Comm’n (May, 2021), https://www.ftc.gov/about-ftc/mission/enforcement-authority.

[xxii] 15 U.S.C. 45(a)(1). E.g. Negative Option Rule, 88 FR at 24735 (“In connection with promoting or offering for sale any good or service with a negative option feature, it is a violation of this Rule and an unfair or deceptive act or practice in violation of Section 5 of the FTC Act.”).

[xxiii] supra note xiii.

[xxiv] Id.

Enriching and Undermining Justice: The Risks of Zoom Court

October 15, 2024
Discrimination, Internet, Legal Ethics, Litigation, New Technology

Matthew Prager, MJLST Staffer

In the spring of 2022, the United States shut down public spaces in response to the COVID-19 pandemic. The court system did not escape this process, seeing all jury trials paused in March 2022.[1] In this rapidly changing environment, courts scrambled to adjust using a slew of modern telecommunication and video conferencing systems to resume the various aspects of the courtroom system in the virtual world. Despite this radical upheaval to traditional courtroom structure, this new form of court appears here to stay.[2]

Much has been written about the benefits of telecommunication services like Zoom and similar software to the courtroom system.[3]  However, while Zoom court has been a boon to many, Zoom-style virtual court appearances also present legal challenges.[4] Some of these problems affect all courtroom participants, while others disproportionally affect highly vulnerable individuals’ ability to participate in the legal system.

Telecommunications, like all forms of technology, is vulnerable to malfunctions and ‘glitches’, and these glitches can have significant disadvantage on a party’s engagement with the legal system. In the most direct sense, glitches– be they video malfunction, audio or microphone failure, or unstable internet connections–can limit a party’s ability to hear and be heard by their attorneys, opposing parties or judge, ultimately compromising their legitimate participation in the legal process.[5]

But these glitches can have effects beyond affecting direct communications. One study found participants evaluated individuals suffering from connection issues as less likable.[6] Another study using mock jurors, found those shown a video on a broken VCR recommend higher prison terms than a group of mock jurors provided with a functional VCR.[7] In effect, technology can act as a third party in a courtroom, and when that third party misbehaves, frustrations can unjustly prejudice a party with deleterious consequences.

Even absent glitches, observing a person through a screen can have a negative impact on how that person is perceived.[8] Researchers have noted this issue even before the pandemic. Online bail hearings conducted by closed-circuit camera led to significantly higher bond amounts than those conducted in person.[9] Simply adjusting the camera angle can alter the perception of a witness in the eyes of the observer.[10]

These issues represent a universal problem for any party in the legal system, but they are especially impactful on the elderly population.[11] Senior citizens often lacks digital literacy with modern and emerging technologies, and may even find their first experience with these telecommunications systems is in a courtroom hearing– that is if they even have access to the necessary technology.[12] These issues can have extreme consequences, with one case of an elderly defendant violating their probation because they failed to navigate a faulty Zoom link.[13]  The elderly are especially vulnerable, as issues with technical literacy can be compounded by sensory difficulties. One party with bad eyesight found requiring communication through a screen functionally deprived him of any communication at all.[14]

While there has been some effort to return to the in-person court experience, the benefits of virtual trials are too significant to ignore.[15] Virtual court minimizes transportation costs, allows vulnerable parties to engage in the legal system from the safety and familiarity of their own home and simplifies the logistical tail of the courtroom process. These benefits are indisputable for many participants in the legal system. But these benefits are accompanied by drawbacks, and practicalities aside, the adverse and disproportionate impact on senior citizens in virtual courtrooms should be seen as a problem to solve and not simply endure.

Notes

[1] Debra Cassens Weiss, A slew of federal and state courts suspend trials or close for coronavirus threat, ABA JOURNAL (March 18, 2020) (https://www.abajournal.com/news/article/a-slew-of-federal-and-state-courts-jump-on-the-bandwagon-suspending-trials-for-coronavirus-threat)

[2] How Courts Embraced Technology, Met the Pandemic Challenge, and Revolutionized Their Operations, PEW, December 1, 2021 (https://www.pewtrusts.org/en/research-and-analysis/reports/2021/12/how-courts-embraced-technology-met-the-pandemic-challenge-and-revolutionized-their-operations).

[3] See Amy Petkovsek, A Virtual Path to Justice: Paving Smoother Roads to Courtroom Access, ABA (June 3, 2024) (https://www.americanbar.org/groups/crsj/publications/human_rights_magazine_home/technology-and-the-law/a-virtual-path-to-justice) (finding that Zoom court: minimizes transportation costs for low-income, disabled or remote parties; allows parties to participate in court from a safe or trusted environment; minimizes disruptions for children who would otherwise miss entire days of school; protects undocumented individuals from the risk of deportation; diminishes courtroom reschedulings from parties lacking access to childcare or transportation and allows immune-compromised and other high health-risk parties to engage in the legal process without exposure to transmittable illnesses).

[4] Daniel Gielchinsky, Returning to Court in a Post-COVID Era: The Pros and Cons of a Virtual Court System, LAW.com (https://www.law.com/dailybusinessreview/2024/03/15/returning-to-court-in-a-post-covid-era-the-pros-and-cons-of-a-virtual-court-system/)

[5] Benefits & Disadvantages of Zoom Court Hearings, APPEL & MORSE, (https://www.appelmorse.com/blog/2020/july/benefits-disadvantages-of-zoom-court-hearings/) (last visited Oct. 7, 2024).

[6] Angela Chang, Zoom Trials as the New Normal: A Cautionary Tale, U. CHI. L. REV. (https://lawreview.uchicago.edu/online-archive/zoom-trials-new-normal-cautionary-tale) (“Participants in that study perceived their conversation partners as less friendly, less active and less cheerful when there were transmission delays. . . .compared to conversations without delays.”).

[7] Id.

[8]  Id. “Screen” interactions are remembered less vividly and obscure important nonverbal social cues.

[9] Id.

[10] Shannon Havener, Effects of Videoconferencing on Perception in the Courtroom (2014) (Ph.D. dissertation, Arizona State University).

[11] Virtual Justice? A National Study Analyzing the Transition to Remote Criminal Court, STANFORD CRIMINAL JUSTICE CENTER, Aug. 2021, at 78.

[12] Id. at 79 (describing how some parties lack access to phones, Wi-Fi or any methods of electronic communication).

[13] Ivan Villegas, Elderly Accused Violates Probation, VANGUARD NEWS GROUP (October 21, 2022) (https://davisvanguard.org/2022/10/elderly-accused-violates-probation-zoom-problems-defense-claims/)

[14] John Seasly, Challenges arise as the courtroom goes virtual, Injustice Watch (April 22, 2020) (https://www.injusticewatch.org/judges/court-administration/2020/challenges-arise-as-the-courtroom-goes-virtual/)

[15] Kara Berg, Leading Michigan judges call for return to in-person court proceedings (Oct. 2, 2024, 9:36:00 PM), (https://detroitnews.com/story/news/local/michigan/2024/10/02/leading-michigan-judges-call-for-return-to-in-person-court-proceedings/75484358007/#:~:text=Courts%20began%20heavily%20using%20Zoom,is%20determined%20by%20individual%20judges).

An Incomplete Guide to Ethically Integrating AI Into Your Legal Practice

May 15, 2024
Artificial Intelligence, Legal Education, Legal Ethics

Kevin Frazier, Assistant Professor, Benjamin L. Crump College of Law, St. Thomas University

There is no AI exception in the Model Rules of Professional Conduct and corresponding state rules. Lawyers must proactively develop an understanding of the pros and cons of AI tools. This “practice guide” provides some early pointers for how to do just that—specifically, how to use AI tools while adhering to Model Rule 3.1.​

Model Rule 3.1, in short, mandates that lawyers only bring claims with substantial and legitimate basis in law and fact. This Rule becomes particularly relevant when using AI tools like ChatGPT in your legal research and drafting. On seemingly a daily basis, we hear of a lawyer misusing an AI tool and advancing a claim that is as real as Jack’s beanstalk.

The practice guide emphasizes the need for lawyers to independently verify the outputs from AI tools before relying on them in legal arguments. Such diligence ensures compliance with both MRPC 3.1 and the Federal Rule of Civil Procedure 11, which also discourages frivolous filings. Perhaps more importantly, it also saves the profession from damaging headlines that imply we’re unwilling to do our homework when it comes to learning the ins and outs of AI.

With those goals in mind, the guide offers a few practical steps to safely incorporate AI tools into legal workflows:

  1. Understand the AI Tool’s Function and Limitations: Knowing what the AI can and cannot do is crucial to avoiding reliance on inaccurate legal content.
  2. Independently Verify AI Outputs: Always cross-check AI-generated citations and arguments with trustworthy legal databases or resources.
  3. Document AI-Assisted Processes: Keeping a detailed record of how AI tools were used and verified can be crucial in demonstrating diligence and compliance with ethical standards.

The legal community, specifically bar associations, is actively exploring how to refine ethical rules to better accommodate AI tools. This evolving process necessitates that law students and practitioners stay informed about both technological advancements and corresponding legal ethics reforms.

For law students stepping into this rapidly evolving landscape, understanding how to balance innovation with ethical practice is key. The integration of AI in legal processes is not just about leveraging new tools but doing so in a way that upholds the integrity of the legal profession.

Lawyers in Flame Wars: The ABA Says Be Nice Online

February 13, 2021
Ethics, Internet, Legal Ethics, Social Media

Parker von Sternberg, MJLST Staffer

The advent of Web 2.0 around the turn of the millennium brought with it an absolute tidal wave of new social interactions. To this day we are in the throes of figuring out how to best engage with one another online, particularly when things get heated or otherwise out of hand. In this new wild west, lawyers sit at a perhaps unfortunate junction. Lawyers are indelibly linked to problems and moments of breakdown—precisely the events that lead to lashing out online. At the same time a lawyer, more so than many professions, relies upon their personal reputation to drive their business. When these factors collide, it creates pressure on the lawyer to defend themselves, but doing so properly can be a tricky thing.

When it comes to questions of ethics for lawyers, the first step is generally to crack open the Model Rules of Professional Conduct (MRPC), given that they have been adopted in 49 states and are kept up to date by the American Bar Association (ABA). While these model rules are customized to some extent from state to state, by and large the language used in the MRPC is an effective starting point for professional ethics issues across the country. Recently, the ABA has stepped into the fray with Formal Opinion 496, which lays out the official interpretation of MRPC 1.6 and how it comes into play in these situations.

MRPC 1.6 protects confidentiality of client information. For our purposes, the pertinent sections are

(a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b) and . . .

(b)(5) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceeding concerning the lawyer’s representation of the client.

So, when someone goes on Google Maps and excoriates your practice, a review that will pop up to everyone who even looks for directions to the office, what can be done? The first question is whether or not they are in fact a former client. If not, feel free to engage! Just wade in there and start publicly fighting with a stranger (really though, don’t do this. Even the ABA knows what the Streisand Effect is). However, if they are a former client, MRPC 1.6 or the local equivalent applies.

In Minnesota we have the MNRPC, with 1.6(b)(8) mirroring MRPC 1.6(b)(5). At its core, the ABA’s interpretation turns on the fact that an online review, on its own, does not qualify as a “controversy” or “proceeding.” That is not to say that it cannot give rise to one though! In 2016 an attorney in Florida took home $350,000 after former clients repeatedly defamed her because their divorce didn’t go how they wanted. But short of the outright lies in that case, lawyers suffering from online hit pieces are more limited in their options. The ABA lays out four possible responses to poor online reviews:

1) do not respond to the negative post or review at all, because as was brought up above, you tempt the Streisand Effect at your peril;

2) request that the website or search engine remove the review;

3) post an invitation to contact the lawyer privately to resolve the matter; and

4) indicate that professional considerations preclude a response.

While none of these options exactly inspire images of righteous fury, defending your besmirched professional honor or righting the wrongs done to your name, it appears unlikely that they will get you in trouble with the ethics board either. The ABA’s formal opinion lays out an impressive list of authorities from nearly a dozen states establishing that lawyers can and will face consequences for public review-related dust ups. The only option for an attorney really looking to have it out online it seems is to move to Washington D.C., where the local rules allow for disclosure “to the extent reasonably necessary to respond to specific allegations by the client concerning the lawyer’s representation of the client.”

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