In the Courts: Sears and Overstock Pay Price for Inadequate Notice, FTC Operation Short Changed, ME Privacy Law

Sears, Overstock Pay Price for Inadequate Consumer Notice

Sears initiated a program where consumers visiting and could become members of the “My SHC Community.” Members were paid $10 to participate in return for downloading a toolbar that would track their “online browsing.” The toolbar did more than that, however, collecting information such as the contents of shopping carts, online bank statements, drug prescription records etc. while also tracking offline behavior. According to the FTC it was “[o]nly in a lengthy user license agreement, available to consumers at the end of a multi-step registration process, did Sears disclose the full extent of the information the software tracked.” As part of the consent decree, Sears agreed to destroy all data collected.

The decision in Hines v. focused on the enforceability of so-called “browsewrap” agreements where a consumer does not have to manifest consent in any form, but rather is bound to the terms by using the site. The Overstock site had a link to the site terms and conditions at the bottom of the first page and on the purchasing some language that all purchases were subject to these terms. Overstock sought to enforce an arbitration clause in the agreement, but the court held it to be unenforceable since the consumer had no knowledge of it.

Overstock’s mistake, aside from letting a $30 issue turn into a federal case, was to ignore the FTC’s 4 P’s for disclosures: Prominence, Presentation, Placement and Proximity. The provision likely would have been enforced had Overstock simply made the provision larger and/or even closer to the purchase button or used a clickwrap agreement where the consumer clicks to confirm acceptance (often as part of a purchase).

Facebook made the same mistake in its infamous Beacon program which it has agreed to shut down and pay $9.5 million as part of a settlement announced Friday. More Info: Online Media Daily Article on Sears Settlement, Ars Technica Article on Facebook Settlement; Overstock Opinion and the FTC’s Fairness Determination (4P’s).
The 9 th Circuit?s ruling in Gordon on CAN-SPAM discussed in our last issue is binding on all federal courts within the 9 th Circuit but is merely instructive for the state court’s in those states (AK, AZ, CA, OR, HI, MT, NV and WA). Within twelve days, however, it was adopted by Los Angeles County Superior Court in Silverstein v. Liquid Minds in a sweeping opinion that held that for state law claims to survive preemption they must be based on traditional concepts of fraud (i.e., which would requires a plaintiff to show some form of detrimental reliance on the content of the email). More Info: Opinion.

FTC Targets Free Grants and Mortgage Foreclosure Schemes

In Congressional Testimony last week, FTC Chairman Leibowitz detailed the results of “Operation Short Change” in which the FTC and state law enforcement have brought 389 legal actions in four sweeps over the last six months against those engaging in deceptive schemes exploiting consumer vulnerability due to the economic downturn. The FTC has focused on mortgage relief and modification programs in which a party promises “to rescue homeowners in troubled financial waters, but after they take their money they throw them an anchor instead of a lifeline.;” and programs falsely offering free government grants that included multiple negative option plans of nearly $100 per month that were never disclosed to the consumer. More Info: Operation Short Change Press Release.

Maine Privacy Law Unconstitutional
A federal court put the final nail in the coffin of Maine’s Predatory Marketing law. The court found that the law, which required verifiable parental consent before collecting or receiving information from minors online, violated the First Amendment. The State Attorney General had earlier conceded as much in saying that the law would not be enforced. More Info: E-Week article .