At the height of the pandemic, the Federal Trade Commission took swift action to stamp out scammers and other actors looking to take advantage of—or simply make a buck off—the crisis. One of the early moves it made was to file separate lawsuits against a pair of companies that sold sanitizer, face masks, and other protective equipment gear (PPE), but failed to ship the products as promised.
As of this week, the FTC has won summary judgment in both cases, FTC v. QYK Brands LLC d/b/a Glowwy and FTC v. American Screening, LLC. The cases highlight the two following points.
First, compliance with the prehistoric Mail, Internet, or Telephone Order Merchandise Rule (MITOR or “Mail Order Rule”) matters more than ever. The core allegation in each lawsuit was that the defendants violated the Mail Order Rule, a trade regulation rule first promulgated by the FTC in 1975 in response to consumer complaints that catalog sellers failed to ship ordered merchandise in a timely manner or at all and were not providing refunds in a timely fashion. MITOR has been updated several times over the years, to include telephone and then internet sales.
MITOR requires that when you advertise, you must have a reasonable basis for stating or implying that you can ship the advertised goods within a certain time. If, however, you make no shipment statement, you must have a reasonable basis for believing that you can ship within 30 days (you can read more about the ins and outs of the Mail Order Rule here).
In Glowwy and American Screening, the courts found that the defendants advertised that products were “in stock,” solicited orders for products they did not have in stock and had no reasonable basis to believe they would be able to meet the advertised shipping times.
If, after taking the customer’s order, you cannot ship within the advertised time (or within 30 days if the advertising was silent on shipping), you must seek the customer’s consent to the delayed shipment. If you cannot obtain the customer’s consent to the delay, you must promptly refund all the money the customer paid you for the unshipped merchandise. Here, too, the courts found that the defendants’ inventory issues resulted in back orders, but the companies failed to notify all impacted customers of the delays.
Supply chain issues are not an excuse for non-compliance.
Second, the FTC has thrown out its old playbook. Since the 1970s, the FTC has brought only a handful of MITOR cases; the fact that they are now in vogue is not a coincidence. As a result of the Supreme Court decision in AMG Capital Management v. FTC, the FTC can no longer rely on Section 13 of the FTC Act for alleged false advertising challenges under Section 5 of the FTC Act to obtain monetary relief in court. Instead, it must rely on other provisions of the FTC Act, including Section 19, which allows it to seek redress for consumers resulting from a violation of a trade regulation rule.
In each of the complaints filed against the two companies, the FTC also included allegations of unfair or deceptive conduct, including, in the case against Glowwy, unsubstantiated claims that one of the products sold, a protein powder, prevented COVID-19.
That these UDAP claims, in particular the false establishment and virus prevention allegations made against Glowwy, have taken a back seat to the Mail Order Rule confirms we are in a post-AMG world. Expect to see more cases alleging rule violations and a pushing of the boundaries of what those rules require or prohibit.