VI. Consumer Protection and the Internet: FTC Unfairness and Deception Policies and Related Statutes

In addition to intellectual property and "information injury" liability, e-commerce entities can incur liability for violations of consumer rights and interests. Given that the same universe of commercial conduct and consumer protection laws that apply to "brick and mortar" transactions apply with equal force to e-commerce, however, it would be impossible to summarize here every commercial or consumer protection law that can give rise to liability in connection with Internet consumer transactions. A more practical approach would be to identify legal authority especially attuned to addressing infractions and injuries likely to arise in the Internet context. See Thomas B. Leary, Unfairness and the Internet, 46 Wayne L. Rev. 1711, 1723-24 (2000) "The Internet poses significant challenges to [the] consumer protection mission. The characteristics of cyberspace that create such remarkable potential for economic growth have also made it an incubator for fraud. Low barriers to entry, immediate and global access to innumerable consumers, and the low marginal costs of communications with potential customers make it possible for anonymous con artists with a transitory presence to take advantage of consumers, without the discipline of normal market correctives. Mail order and telemarketing have some of the same characteristics-i.e., transactions between parties who do not know one another-but cyberspace involves another level of separation. In addition, the borderless nature of commerce poses significant law enforcement problems which increase the incentives to engage in cross-border fraud." (Commissioner, Federal Trade Commission.)

Just as is the case for brick and mortar business, the Federal Trade Commission has general jurisdiction to ensure proper business practices in connection with e-commerce, including Internet consumer transactions. See Mary Dee Pridgen, Consumer Protection and the Law CONPROT 12:58 (October 2006) "Thus far, the FTC has not sought any new regulations governing internet sales, but instead has used a case-by-case method, enforcing existing rules and/or general precedents against online marketers. At the present time, the FTC does not have a specific regulation covering marketing practices on the Internet."

Section 5(a)(1) of the Federal Trade Commission Act declares unlawful "[u]nfair or deceptive acts or practices in or affecting commerce." See 15 U.S.C. s 45(a)(1). The prohibition against such practices extends to advertising and marketing, and applies to all forms of media. Disclaimers and disclosures must be clear and conspicuous, however, they will not remedy false or deceptive statements. Moreover, advertising agencies and web designers are obligated to investigate the representations made in advertising materials and can not avoid liability by relying on their clients.

"To prove a deceptive act or practice under s 5(a)(1), the FTC must show three elements: "[1] a representation, omission, or practice, that [2] is likely to mislead consumers acting reasonably under the circumstances, and [3], the representation, omission, or practice is material."....The deception need not be made with intent to deceive; it is enough that the representations or practices were likely to mislead consumers acting reasonably." FTC v. Verity, Intern, 443 F. 3d 48 (2d Cir. 2006). The FTC has to show only that the practice has or is likely to deceive, not that the defendant intended to deceive.

In policing e-commerce, the FTC has issued a set of guidelines for the conduct of Internet consumer transactions, Advertising and Marketing on the Internet: the Rules of the Road, available at http://www.ftc.qov/bcp/conline/pubs/buspubs/ruleroad.shtm. Guidelines are included therein in connection with topics ranging from General Offers and Claims, Protecting Consumers Privacy Online, and for the sale of jewelry online. The Guidelines also include information regarding specific rules enforced by the FTC, such as The Franchise and Business Opportunity Rule, which requires that disclosure documents in connection with such opportunities be provided to consumers at least 10 days before they pay out any monies; The Truth in Lending Act, which requires the provision of written disclosures regarding finance and related charges; The Wool and Textiles Act, which requires disclosure as to the country of origin of such products; The Electronic Fund Transfer Act, which requires the adoption of specific procedures in connection with preauthorized transfers and sets liability limits for losses resulting from unauthorized transfers; and the "mail order rule", which has been updated to apply to telephone and Internet orders, and requires that goods be provided within the time advertised or a reasonable time.

In addition to enforcing pertinent rules and statutes, the FTC has also outlawed specific disreputable practices. For example, the FTC prohibits the use of "negative option marketing", the practice through which merchandise is shipped without request, forcing the recipient to either pay for the merchandise or return it at her own expense or inconvenience. AOL, CompuServe, and Prodigy all were challenged by the FTC for offering "free trials" which eventually became automatically billed services, which practices were terminated pursuant to a Consent Decree. See also F. T.C. v. Crescent Pub. Group, Inc., 129 F. Supp. 2d 311 (S.D. N.Y. 2001) (injunction obtained where "free tour" of pornographic website results in undisclosed charges to consumers' credit cards.)

The FTC has used its authority to pursue a variety of e-entrepreneurs for Internet based unfair and deceptive practices. Perhaps the most important point to keep in mind is that an unfair or deception practice is not necessarily one that is per se illegal. For example, in FTC v. Verity, Intern, 124 F. Supp. 2d 193 (S.D.N.Y. 2000) aff'd in pertinent part, 443 F. 3d 48 (2d Cir. 2006), the FTC brought an action against Internet pornographer for unfair and deceptive billing practices, in which telephone account holders were billed for the service whether or not they were the individuals who actually used the service. (The defendant's system automatically billed the telephone number called from by temporarily disconnecting it from its original ISP and connecting it to the website by placing a "long distance call", whether or not a call was actually placed to a foreign local.) Thus the telephone account holder was billed even if she hadn't authorized the transaction. The FTC obtained an injunction and also an asset freeze, on the grounds that informing telephone account holders that they were obligated simply because the called had been made from their was untrue, and thus deceptive and unfair. See also FTC v. Aylon Technologies, Inc., No. 1:03-CV-1297-RWS (N.D. Ga.7/16/03) (same) available at http://www.ftc.gov.; FTC v. ClickForMail.com, Inc., No. 03C 3033, Stipulated Permanent Injunction (N.D. Ill. 10/2/03) (Internet offers for unsecured credit cards in exchange for a fee; consumer receives only a hyperlink to creditors offering only secured credit cards or catalog charge cards.)

In FTC. v. Pereira, No. 99-1367-A (E.D. Va. filed Sept. 14, 1999) the FTC challenged two Internet technology frauds, "pagejacking" and "mousetrapping." The defendants therein were Internet pornographers who had obtained unauthorized copies of prominent websites such as the Harvard Law Review and created web copies that were indexed by Internet search engines. Consumers searching for the authentic websites were instead "pagejacked" to defendants' pornographic sites. To add insult to injury, once at defendants' site, consumers were then "mousetrapped", that is technologically prevented from leaving the site (or they were diverted to other pornography sites). See also FTC v. Skybiz.com, Inc., No. 01-CV-396-EA(M), Stipulated Final Judgment (N.D. Okla. 1/20/04) (online pyramid scheme) available at http://www.ftc.gov.