The FTC has filed a complaint against DIRECTV accusing the company of deceptively advertising a year-long programming package. Telecommunications lawyer David Klein discusses the complaint and the actions that brought it about in this report.
Klein says that DIRECTV was being deceptive about several things. The most important thing was that the company did not adequately disclose the subscription price of its satellite service. The catch is that consumers were signing up for a two-year service. The company didn’t reveal this in its television advertising or in its signup process for customers. A customer who cancelled before the end of the two years would still be billed for the entire period. The company also failed to disclose that the monthly prices went up significantly in the second year of the contract, an increase of 50-70%.
The second problem had to do with premium channels that were included in the offer. The advertising indicated that for a free trial period customers would get channels including HBO, Cinemax, and Showtime. The concern was that the free trial period was a “negative option” trial, meaning that consumers who did not affirmatively cancel the free channels during the free trial period would be billed about $48 per month until they were cancelled. Klein says that this approach to marketing is “pretty prevalent” among various types of products and services peddled to the public, including online advertising, including mobile, and late night television. Klein notes that a significant part of his time is spent advising clients in the Internet and mobile advertising business in how to handle their marketing in order to comply with FTC rules.
Klein explains that the FTC requires that, before a vendor obtains “associated billing information” (including billing information, such as credit card numbers) from customers, the vendor needs to disclose material terms and conditions associated with the service. In the case of DIRECTV, it needed to disclose that the period of the contract was really two years and that the price would go up in the second year. It also needed to disclose that the free package of premium would produce a monthly bill after three months if a customer did not cancel those channels. Once a vendor makes the disclosure, it must obtain the customer’s consent to this arrangement on an ongoing basis. If the marketing is online, the disclosure needs to be directly above the “Submit” button.
As to what will happen next, assuming the FTC complaint is upheld, Klein says that everyone who complained about DIRECTV will become part of a settlement pool. If there is later a settlement, as Klein expects there will be, those who complained will be able to recoup their payments to DIRECTV from the settlement fund. One of the FTC’s functions is assuring truth in advertising.
David O. Klein is a managing partner at Klein Moynihan Turco LLP. David Klein is one of the most recognized attorneys in the technology, Internet marketing, sweepstakes and telecommunications fields. Skilled at counseling clients on a broad range of technology-related matters, David Klein has substantial experience in negotiating and drafting complex licensing, marketing and Internet agreements. He has an in-depth understanding of Internet and new media law and is established as a leader in structuring and implementing major technology agreements. The Legal Broadcast Network is a featured network of the Sequence Media Group.