The Federal Trade Commission (“FTC” or “the Commission”) has clearly subscribed to enforcing ROSCA recently.  On Tuesday, the FTC filed a complaint against DIRECTV’s negative option program and contract pricing structure under Section 5 of the FTC Act and ROSCA.

In the complaint, the FTC alleged that DIRECTV required customers to agree to a mandatory 24-month contract to receive television programming; customers who canceled their subscriptions before 24 months were charged an early cancellation fee.  Although the rates were set at a specific monthly charge for the first year of a 2-year customer agreement, in the second year of the agreement, the FTC alleged that DIRECTV would increase the monthly charges by 50-70% higher than customers paid in the first year.  After the first year of the agreement, customers either had to pay significant cancellation fees or pay the higher monthly price.  

The FTC alleged that claims like “Package offers starting at $24.99/mo. Limited Time” did not contain the necessary qualifying clear and conspicuous disclosures about the price consumers would pay after the first year of the agreement.  The FTC took issue with claims made in a variety of media, but the disclosure in the television ad should serve as a warning to all advertisers that Operation Full Disclosure is also something the FTC is signed up for the foreseeable future and raising the bar.

While this disclosure would clearly pass muster under the network guidelines, it is part of what the FTC alleges is a problem.  The price only appears in text not voiceover.  The disclosure language appears not at the bottom of the screen but right below the triggering price claim with excellent white on black contrast and in a bolded font.  The FTC seems to take issue with the relative size of the disclosure, alleging it is “1/10^th the size of price.”  Further, the disclosure about the 24-month commitment appears on the same page as the price in a banner ad included in the complaint.

The FTC alleges nonetheless that these disclosures are “inadequate in terms of their content, presentation, proximity, prominence or placement such that consumers are unlikely to see or understand such disclosures.”

In addition, the FTC channeled its recent ROSCA cases and alleged DIRECTV did not disclose adequately a continuity aspect of its service.   The FTC did not take issue with the original subscription as undoubtedly all reasonable consumers would understand that signing up for cable or satellite television is a monthly service for which they will continue to be billed.  The Commission did challenge DIRECTV’s 3-month free premium channel offer, which automatically enrolled customers in a negative option plan after the 3-month period charging for the premium channels.  The FTC alleged it is a violation that DIRECTV allegedly did not disclose:

1. That customers would automatically be enrolled in a negative option continuity plan under which consumers were charged for access to premium channels after an initial free period, unless consumers contacted DIRECTV and canceled their access to the premium channels;
2. That consumers needed to affirmatively cancel the negative option continuity plan before the end of a trial period to avoid additional charges;
3. That it used consumers’ credit or debit card information to charge consumers monthly for the negative option continuity plan; and
4. The costs associated with the negative option continuity plan.

There are many lessons in this case, and maybe many more since there is not a settlement agreement, and perhaps DIRECTV will challenge the FTC’s interpretations of ROSCA and what constitutes a clear and conspicuous disclosure in court.  Marketers of subscription plans should take a close look at add-on products and not simply how the original good or service is marketed.  And all advertisers are advised to take a fresh look at their disclosures and reconsider the fine print.