A cursory look at any pay site establishes the fact that the easiest thing for a surfer to do is to sign up, and the most difficult is to cancel—and the process is often much too difficult at that. The problem lies in just how difficult is "too difficult," because that line, as with others in the law, is dim and uncertain.
Start with obvious extremes. At one end of the continuum would be a site where the sign-up process is for one defined period such as a week or a month. Then, if the customer attempts to sign on after the week or month has expired, the customer is confronted with a screen explaining that his time has expired and asking if the customer is interested in another week or month of membership.
Toward the other end of the continuum might be a site at which the customer is automatically re-billed, and the only method of avoiding a re-bill is for the customer to call a long-distance number not listed anywhere on the site, and at which the phone is answered only one hour per week.
There is something to be learned from the recent AOL settlement, which cost the company a reported $1.25 million in a settlement of just one case. According to the office of New York State Attorney General Elliot Spitzer, it received more than 300 complaints about AOL's customer service. An investigation evidently revealed that the nub of the problem was that customers who wanted their service terminated were finding it nearly impossible to do so. According to Spitzer's office, "The company had an elaborate system for rewarding employees who purported to retain or 'save' subscribers who had called to cancel their Internet service." In many instances, such retention was done against subscribers' wishes or without their consent:
"Under the system, consumer-service personnel received bonuses worth tens of thousands of dollars if they could successfully dissuade or 'save' half of the people who called to cancel service. For several years, AOL had instituted minimum retention or 'save' percentages, which consumer representatives were expected to meet. These bonuses, and the minimum 'save' rates accompanying them, had the effect of employees not honoring cancellations, or otherwise making cancellation unduly difficult for consumers. "Many consumers complained that AOL personnel ignored their demands to cancel service and stop billing."
(Un)consenting adults
You’re probably thinking that there must be something illegal about that, but may not be sure what. Well, for starters, if someone enters a merchant charge with no authorization whatsoever from the cardholder, that is outright larceny, covered in most states by laws regulating credit card transactions—sometimes called credit card fraud or credit card abuse. Fundamentally, it is outright theft.
However, the response is usually a sea of terms and conditions, buried in which are detailed but vaguely worded instructions, supposedly explaining how to avoid repeat billing. The unscrupulous webmaster would say the customer consented, but is that really an accurate statement?
Putting aside the question of whether the customer technically approved the re-bill under those or similar circumstances, there are laws in most states – most notably and most harsh in California – providing remedies for so-called "unfair competition." Every state and the District of Columbia have enacted some combination of civil or criminal penalties against acts of unfair competition and/or false advertising.
While the AOL case was brought in New York, which has a set of laws similar to California's (New York's is General Business Law §349; California's is Business and Professions Code §17200), the California one is said to be the most frequently used – including in private class actions – and therefore is perhaps the best example. Everyone has customers in California and, as it happens, America Online was sued in California by private parties complaining about essentially the same practice involved in the New York case. America Online Inc. v. Superior Court (Mendoza), 90 Cal.App.4th 1, 108 Cal.Rptr.2d 699 (1st Dist. 2001).
The fundamental prohibitions of California's Unfair Competition Law are against any "unlawful business act or practice," any "fraudulent business act or practice" and any "unfair business act or practice." Now, if you look at that carefully, you would not be surprised to see that there are remedies for businesses that engage in "unlawful" practices, which violate some statute, or "fraudulent" businesses practices, which usually amount to outright theft. But what is "unfair" in the legal sense? Well, that is the $2,500-per-day question (that being the amount of civil penalties allowed under the California Act for each violation, plus restitution, attorneys’ fees, and costs).
Three simple rules for defrauding your surfer
California courts have announced that the "unfair" standard is intentionally broad, allowing courts maximum discretion to prohibit new schemes to defraud. While it is not clear just how broad California's definition will stretch, it is at least as broad as that of the Federal Trade Commission, which applies three criteria to determine whether an act or practice is unfair:
"(1) Whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise—whether, in other words, it is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers (or competitors or other businessmen)."
So why is California's Unfair Competition Law so much more powerful than the FTC’s? The answer lies in the fact that an injured consumer can bring a private lawsuit under California's law, which cannot be done under the Federal Trade Commission Act.
The moral of the story is that if you are a re-billing webmaster, a reality check is in order. In performing that reality check, the key issue to address is complaints. If you generate complaints, there will be a response—witness AOL and the New York attorney general!
You need to think about all kinds of scenarios. There is the easy one, where the customer signs up, uses the service for a while, but soon decides it just isn't the entertainment for him; will he have an easy time terminating service? That includes issues such as the degree of difficulty in finding instructions to terminate the account, and the extent to which the customer is made plainly aware of your automatic re-billing policy. Was the customer, as would be the best policy, required to affirmatively click something that plainly discloses re-billing? Or will the customer be required to read carefully all 4,597 words of the terms and conditions (actual count of a randomly chosen set of them, copyrighted by a well-known attorney in this industry) in order to realize that he is signing up in perpetuity? Is the procedure for rejecting further re-bills easy to find?
And then there are circumstances like the guy who wakes up in the morning with a magnitude 7.0 hangover and doesn't even remember that he signed up for anything, only to be reminded when his MasterCard bill arrives. There needs to be an easy way for him to find out about what he did and avoid another bill.
Complaints lead to chargebacks, class actions, enforcement actions by a state attorney general or the Federal Trade Commission, and more. So, once you think that your re-bill procedure would pass muster against a claim of an unfair business practice, try this: Find a friend who is not a webmaster, and demonstrate the operation of your re-billing program, but tell your friend that the site belongs to one of your competitors (thus increasing the likelihood of objective criticism). If your friend thinks the procedure is unfair, so too might an attorney general or consumer attorney. Therefore, an adjustment is in order.
Fair?
Clyde DeWitt is a partner in the Los Angeles, California-based, national law firm of Weston, Garrou, DeWitt & Walters. He can be reached through AVN Online's offices or via email: [email protected]. Readers are considered a valuable source of court decisions, legal gossip, and information from around the country, all of which is received with interest. Books are encouraged to be submitted for review, but they will not be returned. This column does not constitute legal advice but rather serves to inform readers of legal news, developments in cases, and editorial comment about legal developments and trends. Readers who believe anything reported in this column might impact them should contact their personal attorneys.
