FTC Sues Senders of Spam Text Messages for Violations of the FTC Act

Late last week the Federal Trade Commission (“FTC”) announced that it filed eight complaints against various affiliate marketers that had allegedly sent millions of unwanted text messages to consumers. The more than 180 million unwanted text messages invited consumers to websites promising “free” gift cards, “free” merchandise, and other gifts and prizes. The FTC filed complaints in the Northern District of Illinois, the Southern District of Texas, the  Central District of California,  and the Northern District of Georgia  against the senders of the spam text messages (“Senders”)  and a complaint in the Northern District of Illinois against the operators of the deceptive websites (“Operators”) to which consumers were directed by the unsolicited text messages (collectively, the “Complaints”).   According to the Complaints, the Senders were paid by the Operators to lure consumers to the websites with promises of “free” gifts and prizes, such as gift cards to major retailers and merchandise such as iPads and iPods. In most, if not all cases, however, the consumer would have to incur substantial costs and other obligations to receive their so-called “free” gift.  For failing to disclose the material limitations on these “free” offers and for sending the unsolicited text messages, the Senders and Operators both allegedly violated Section 5(a) of the FTC Act (15 USC § 45(a)), which prohibits “unfair or deceptive acts or practices affecting commerce.” Companies should also take note that while the defendants are not accused of violating the Telephone Consumer Protection Act (“TCPA”), and these are not, per se, TCPA cases, the Complaints fully lay out various elements of a claim under the TCPA (e.g. sending a text message to the consumer without the consumer’s explicit consent).  So, while a TCPA class action or FCC enforcement action has always been a risk for text message campaigns, it appears that the FTC may also bring similar claims under Section 5 of the FTC Act.  Here, the Complaints allege that the defendants’ “practice of initiating or procuring the transmission of unauthorized or unsolicited commercial electronic text messages to the mobile telephones and other wireless devices of consumers” is an unfair practice in violation of the FTC Act.

According to the Complaints, the defendants indiscriminately sent text messages to random phone numbers. Over a tenth of the numbers were not even associated with text message subscription plans and such consumers would incur a fee to receive the unwanted messages. The unsolicited texts directed consumers to websites with claims that the targeted consumer had won a contest, had been specially selected to receive a prize or would receive a free gift card to a major retailer such as Best Buy, Wal-Mart and Target.  The spam texts used language such as: “You have been selected for a $1,000 Walmart GiftCard, Enter code “FREE” at http://www.walmart.com.wcgm.biz/wm/ to claim your prize: 161 left!”

If the consumers visited the websites to redeem their free gift or gift card, they were deceived into providing personal information, spending money, unknowingly sharing their personal information with third party marketers, and redeeming other offers. In many cases, consumers were led to believe that the websites were somehow affiliated with or sponsored by the associated retailer as the websites often displayed retailer logos and trademarks. Further, the websites often contained counters (e.g. only 161 of 1000 gift cards left!) giving the impression that consumers had to act fast.

Upon visiting the websites, the websites would request a great deal of sensitive personal information, including, in some instances, health-related information. Once such personal information was collected, it was sold to third parties for marketing purposes without the consumers’ consent.  After entering their personal information, consumers were then directed to a second site where they were told they would have to sign up for numerous offers to receive their gift, many of which required consumers to provide their credit card information.  Often the offers required consumers to submit applications for credit that could adversely affect their credit scores and others contained negative option components or free trial periods, where the consumer would incur costs if the plans were not cancelled. But the deception did not end there.  After the consumers signed up for offers in hopes of redeeming their “free” gifts, they were then told they would have to find others who would also sign up for the offers to receive their gifts.  None of these numerous steps or the possibility that consumers might have to spend money were disclosed as terms of the supposedly “free” offer.

And, finally, even when consumers requested that the defendants stop sending them text message spam, consumers continued to receive text messages from the defendants.

For the above violations of the FTC Act, the Complaints seek preliminary and permanent injunctions preventing the defendants from continuing their alleged deceptive and unfair practices, as well as preserving and accounting of the defendants’ assets.