Lessons From FTC v. UrthBox: Do Not Use Undisclosed Paid Online Reviews
If your San Diego business is currently using online endorsers and is offering some sort of free trial, seek counsel and advice from an experienced San Diego corporate attorney to ensure compliance with federal and California statutes. Otherwise, your business might end up on the receiving end of a Complaint from the Federal Trade Commission like UrthBox.
As many know, UrthBox is a San Francisco-based online retailer selling monthly-subscription through-the-mail snack boxes. The company started in 2014 and offers snacks that are advertised as healthy, organic, non-GMO, and that accommodate dietary preferences. For example, when a customer signs up for the service, they have options to choose diet, gluten free, vegan, or classic versions of the snacks.
Like many online retailers, sales are driven by online reviews. See example here from the DailyUrbanista website. In 2017, the Federal Trade Commission (“FTC”) began investigating UrthBox’s business practices with respect to online reviewers and their procedures with respect to automatically enrolling customers based on a free trial. Eventually, the FTC brought suit against UrthBox alleging that UrthBox violated the Federal Trade Commission Act, 15 U.S.C. § 45, and the Restore Online Shoppers’ Confidence Act, 15 U.S.C. § 8403. The Federal Trade Commission Act is a federal statute that prohibits, among other things, unfair and deceptive business practices. The FTC has made it clear over the last several years that a business’ use of what appears to be unpaid reviews and endorsements is a violation of the Act. The Restore Online Shoppers’ Confidence Act was enacted to prevent online companies from using deceptive methods to induce consumers into registering for paid subscriptions.
With respect to deceptive business practices, the FTC charged UrthBox with using undisclosed paid reviewers on various websites including reviews on the website run by the Better Business Bureau (“BBB”). See here for the FTC Complaint. According to the Complaint, UrthBox began a promotion in 2016 where they offered a free sample box. When unhappy customers contacted UrthBox to cancel or complain, UrthBox offered them another free snack box if they posted a positive review on certain websites. To be eligible for the second free snack box, the customer was required to email to UrthBox a screenshot of the positive review. But, said customers almost never disclosed — and certainly UrthBox did not encourage the customers to disclose — that their reviews were being made in exchange for a free snack box. By the end of 2017, there were more than 600 positive reviews of UrthBox on the BBB website (there had only been nine total reviews in 2016).
This incentive program, and similar versions used with other customers, was the basis for the FTC’s charge against UrthBox that it had used deceptive business practices in growing its business. Recently, UrthBox agreed to settle the case and pay $100,000 fine. See here from the FTC website. UrthBox also agreed to stop using undisclosed reviews and to “undertake its best efforts” to have fraudulently obtained reviews removed. Note that businesses are free to use compensated reviews. The post linked above from the DailyUrbanista is a good example. Down at the bottom of the article is this disclosure: “Disclosure: I received a complimentary UrthBox for review purposes, however, all thoughts, opinions and gross pictures of beef jerky are mine.”
With respect to violations of the Restore Online Shoppers’ Confidence Act, UrthBox also agreed to provide changes to its “checkout” procedures. Prior to the FTC investigation, customers who signed up for a “free” snack box were actually pre-charged for six-month subscription. According to the FTC, the customers had to pay “only” for shipping for their “free” snack box. As such, the customers input their shipping address and credit card or other billing information. However, instead of being charged several dollars for the shipping, they were charged hundreds of dollars for a six-month subscription. This was not disclosed. To cancel, the customer had to contact UrthBox within 30 days. Otherwise, the subscription continued.
Going forward, UrthBox has agreed that this automatic enrollment feature will be conspicuously disclosed as part of the checkout feature, in its Terms and Conditions and on its “FAQ” pages.
Make sure that there is adequate disclosure that an online review has been compensated and make sure that any sort of automatic enrollment in a subscription service is fully and conspicuously disclosed. Note that California law now allows a customer to cancel an online subscription at any time.
Contact San Diego Corporate Law
For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to help draft and implement all types of business contracts to ensure that they are enforceable. Mr. Leonard has been named a “Rising Star” four years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal. Contact Mr. Leonard via email or by calling (858) 483-9200. Like us on Facebook.