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FTC REACHES SETTLEMENT WITH ONLINE ADVERTISER OFFERING "FREE" GIFTS

On November 27, 2007, Adteractive, Inc., an online advertiser, settled with the Federal Trade Commission ("FTC") over allegations that Adteractive used deceptive "free" gift advertisements. According to the FTC, Adteractive offered "free" gifts through spam e-mails and web-based advertisements without clearly and conspicuously disclosing that consumers would be required to (i) participate in a certain number of third party promotions, such as applying and qualifying for credit cards and automobile loans or (ii) incur expenses by, for example, purchasing DVDs, CDs or music subscriptions. The FTC alleged that Adteractive violated both Section 5 of the FTC Act, by failing to disclose material information, and the Controlling the Assault of Non-Solicited Pornography and Marketing ("CAN-SPAM") Act, by misleading e-mail recipients about material facts of the offered merchandise.

Under the settlement, Adteractive is permanently enjoined from either directly or indirectly implying, in an e-mail or online advertisement, that a gift or award is "free" without disclosing, in the same color, font and size and in close proximity to the representation, that purchases are required to qualify for the gift or award. Adteractive also must disclose, in a clear and conspicuous manner, a list of the monetary and non-monetary obligations that a consumer is likely to incur in order to obtain an advertised gift or award. The settlement also permanently enjoins Adteractive from further violating the CAN-SPAM Act by, for example, initiating the transmission of a commercial e-mail message that misrepresents the content or subject matter of the message.

In addition to the above, the settlement requires Adteractive to pay a $650,000 civil penalty and submit to extensive compliance monitoring, reporting and record keeping requirements.

One FTC Commissioner issued a dissenting statement in which he opined that the civil penalty was inadequate. In support of his statement, the Commissioner pointed to a consent agreement in a closely analogous case in which the FTC obtained a settlement with a $900,000 penalty. The settlement order is subject to final court approval.

  • Charles Gall