By Lesley Fair

Web surfers were bound to see them:  Banner ads congratulating them on “winning” a TV, email “awarding” them a laptop, or pop-ups promising the latest gaming system if consumers were willing to “test” it for free.  But according to a settlement announced by the Federal Trade Commission (FTC), those prizes came with deceptive strings attached.  To settle the charges, one online marketer paid $650,000 in civil penalties and agreed to make clear and conspicuous disclosures in future advertising.

According to the FTC, the company used deceptive spam and online advertising to lure consumers to its websites.  For example, it used email subject lines like “Test it.  Keep it.  Microsoft Xbox 360,” and “Congratulations!  Claim Your Choice of Sony, HP or Gateway Laptop.”  The company’s banner ads and pop-ups were equally enticing, telling consumers “Participate now and you'll receive a free Sony Playstation.”

However, when consumers arrived at the promotional webpages, they were dragged through a maze of additional ads.  To qualify for their “free” gifts, consumers first had to navigate through pages of “optional” offers.  Even if they cleared those hurdles, they ultimately found out they had to take out a car loan, subscribe to a satellite television service, apply for multiple credit cards, or participate in other expensive or time-consuming third-party promotions to claim their prize.  

The FTC alleged that these failures to disclose material terms and conditions violated the law.  The agency also charged that the deceptive subject lines in the company’s email violated the CAN-SPAM Act.  In addition to the civil penalty, the settlement requires the company to clearly and conspicuously disclose that consumers have to spend money or incur other obligations to qualify for a prize.  The settlement also requires the company to give consumers a list of the obligations they are likely to incur to get the gift.  

So what message can marketers take from this case?

• Free means free.  The word “free” is a powerful lure for consumers, which is why its deceptive use is likely to attract FTC attention.
• Truth-in-advertising standards apply to banner ads and pop-ups, too.  Misleading claims in banners and pop-ups don’t get a pass at the FTC.  For more information on how the FTC evaluates promotions on the Internet, read Dot.com Disclosures, the agency’s staff guidance document about online advertising available at business.ftc.gov.
• Disclose the details up front.  As the FTC’s Policy Statement on Deception makes clear, “When the first contact between a seller and a buyer occurs through a deceptive practice, the law may be violated even if the truth is subsequently made known to the purchaser.”  That’s why an “Oh, by the way . . .” statement made well into the transaction is not likely to meet the legal standard for an effective disclosure.
• Keep your email honest.  Among other requirements, the CAN-SPAM Act prohibits deceptive subject lines.  Make sure the subject line doesn’t mislead recipients about the contents of the message.

Lesley Fair is an attorney in the FTC’s Bureau of Consumer Protection who specializes in business compliance.