The federal judge presiding over the legal battle between the U.S. Federal Trade Commission and Alyon Technologies Inc. has indicated he may impose sanctions on the regulatory agency. If he does, it could represent the first concrete reprimand of the FTC by a significant legal authority.
In an order filed May 27 in the United States District Court for the Northern District of Georgia, Atlanta Division, Judge Richard W. Story mandated that both the FTC and Alyon “brief the Court on its authority to impose sanctions against [the FTC], and… the scope of that authority.” Alyon’s brief is expected to be filed by June 11, and the FTC has 10 days after that to respond.
The order also directed the parties to “engage in good-faith settlement negotiations and notify the Court of their progress in ten days” and to “brief whether ANI [automated number identification] billing is per se illegal” within 30 days.
Stephane Touboul, chief executive for Alyon, which serves as a third-party billing company for Internet dialer technologies, said Story’s most recent order in the 13-month-old case was precipitated in part by the FTC’s April apology to the court for mishandling some previously court-ordered actions. On April 19, the FTC filed court documents admitting errors in its communication with consumers about the court’s rulings. The admission and apology were dated more than six months after the errors were made and only after Alyon filed formal complaints with the court.
If Story finds the FTC’s actions negligent, Touboul said it is possible the judge might award his company legal fees and damages amounting to more than $30 million. “That’s about what we estimate our un-collectable revenues, costs due to lost vendors, and potential client losses to be,” Touboul said. “In receivables alone we’ve lost more than $22 million. There’s another $2.5-$3 million in legal fees.”
Touboul said much of the money his company was trying to collect from consumers when the FTC filed suit against it in May 2003 had to be written off as un-collectable because the FTC told consumers they weren’t obligated to pay. In addition, Alyon incurred unbudgeted expenses when it had to find new vendors after companies like Experian and AT&T cancelled contracts when the FTC sued the company. Perhaps worst of all, according to Touboul, were the negotiations with potential Fortune 500 clients that soured during the highly publicized FTC pursuit. Alyon and codefendant TelCollect (a subcontracting collection and customer service agency) have laid off 48 employees between them since the lawsuit started, Touboul said.
He also said Alyon and the FTC have been in settlement talks since late April, and the details are “mostly worked out,” but a few “sticking points” remain. Although the FTC has become more flexible than it was in the beginning, the agency continues to insist on some terms Touboul and his attorneys find too onerous to accept. “They know now that the judge will slap them,” Touboul said, “so they’re willing to incorporate the Pennsylvania AVC into the settlement. But they want us to report all of our transactions to them for the next six years, and they want to monitor all of our activities for the next six years. That’s just unreasonable. It all comes down to them wanting to litigate us out of business.”
The “Pennsylvania AVC,” signed by Alyon and the state in May 2003, is a legally binding Assurance of Voluntary Compliance that establishes the rules of conduct for Alyon as it does business in Pennsylvania. If it is incorporated into the FTC settlement, it will effectively shut down by default similar lawsuits still pending against the company in about a dozen other states. That’s a good thing, Touboul said.
In essence, Touboul said, it looks like “I’m going to get what I wanted in the first place, but I’m a lot poorer now than I was then.”
The FTC filed suit against Alyon, Touboul, and TelCollect in May 2003, charging the group with engaging in "unfair and deceptive trade practices" in violation of at least four federal statutes. Among other things, the suit sought an injunction prohibiting Alyon's continued operation as a gateway billing services provider for adult Websites, a freeze on the company's assets, and the insertion of a receiver to manage restitution to consumers. In his decision dated July 10, Story declined to grant the FTC's request. The judge issued a subsequent clarification ruling on Oct. 17 after widespread media coverage of an FTC press release misstated the court's decision.
Larry Fox, Alyon’s lead attorney in the case, told AVN Online late last year that Alyon had approached the FTC about voluntarily entering into a federal agreement similar to the Pennsylvania AVC, but it was rebuffed by the agency. About one week later the FTC filed suit against Alyon.
The FTC has repeatedly declined to comment.
