It’s not often we see defendants win a resounding victory against the Federal Trade Commission (FTC) and/or state attorneys general, especially after trial. But a recent opinion out of the Eastern District of Pennsylvania provides us with just that. On March 29, 2024 the court issued a 55-page opinion following a 15-day bench trial on the FTC and Pennsylvania attorney general’s claims against American Future Systems, Inc. and its two co-defendants, finding in favor of the defendants on all six counts.
The FTC and Pennsylvania AG challenged telemarketing for print publications, claiming defendants deliberately misled consumers when defendants:
- Misrepresented trial offers as “free with no risk”
- Failed to adequately disclose the material terms of a negative option subscription
- Shipped and billed for unordered newsletters and books without prior express consent or request
- Failed to disclose the seller’s identity, purpose of the call, and nature of the goods
Trial Offer and Material Terms Claims
First, the court determined that the FTC and Pennsylvania AG failed to prove that the claim to consumers that they would “receive publications for free with no risk” was likely to mislead a reasonable consumer and that defendants provided consumers with the material terms of the subscription.
Specifically, the court determined that the net impression of the telemarketing script does not follow the FTC’s and Pennsylvania AG’s theory in which the script describes how the subscription will work, discloses the costs involved, and explains how to cancel the subscription. The script also requires the consumer to verbally accept after being provided the terms.
Further, the court determined that the FTC’s and Pennsylvania AG’s extrinsic evidence of consumer complaints did not create a net impression that the publications were free. The court determined the quality and reliability of the complaints to be insufficient, and that the number of complaints failed to constitute a “significant minority” of complaints that consumers were deceived. The court’s rejection of complaint evidence is significant, as the FTC and state AGs frequently argue that limited complaint evidence is the tip of the iceberg of widescale fraud.
Unordered Merchandise and Telemarketing Disclosure Claims
Having disposed of the deception claims under the FTC Act and Pennsylvania Unfair Trade Practices and Consumer Protection Law, the court then determined whether defendants violated the Unordered Merchandise Statute by shipping merchandise that had not been ordered. The court again relied on the telemarketing script and found that defendants obtained consent to ship either a book or a newsletter, or both. The court pointed to scripts that required telemarketers to obtain consent for shipping a book in addition to the newsletter, and the sales calls confirmed that telemarketers who failed to obtain proper consent could have their sales canceled.
Finally, the court found that the FTC and the Pennsylvania AG failed to prove their claim that defendants did not provide mandatory disclosures at the beginning of the call regarding the identity of the caller and purpose of the call. The courts once again relied on the disclosures in the script, finding those disclosures adequate on this issue as well.
Takeaway
There’s a lot to unpack from the American Future Systems opinion, but we’ll end with a couple points that stuck out to us.
First, the court’s reliance on the telemarketing script was anchored by the facts that came out at trial, that AFS conducted extensive telemarketer training, telemarketers were required to stick to the script, and AFS had a target audience of business managers or “executives that had purchasing power.” This all bolstered the scripts’ strength, allowing the court to rely heavily on them versus individual customer complaints.
Second, the facts adduced at trial demonstrated that AFS extensively addressed consumer complaints. This typically either resulted in a cancellation or demonstrated that consumers were calling to cancel.
Finally, the scripts’ clear, easy-to-understand disclosure of the offer was central to the court’s determination of consumers’ net impression.
