The court found further and alternative support for its "gift" characterization under federal postal law.The Postal Reorganization Act prohibits "the mailing of unordered merchandise" without the recipient’s consent, allowing such merchandise to "be treated as a gift by the recipient, who shall have the right to retain, use, discard, or dispose of it in any manner he sees fit without obligation whatsoever to the sender."39 U.S.C. § 3009(a)-(c).Because the promotional CDs could be treated as a gift under the Postal Reorganization Act, the court reasoned, "By sending the Promo CDs to music industry insiders, UMG transferred title to those insiders and the Promo CDs are subject to the first sale doctrine."UMG filed a notice of appeal on June 13, 2008.Possible Applications of the RulingThis decision has implications beyond promotional music CDs.For example, this decision may affect restrictions imposed on digital files "purchased" from online retailers.

Without such control, simple unsolicited receipt of the CDs by the original recipient was insufficient evidence of acceptance of the license agreement, and therefore no license was created.2. The Unordered Merchandize Statute, 39 U.S.C. § 3009, provides that unordered merchandise sent through the mail “may be treated as a gift by the recipient, who shall have the right to retain, use, discard, or dispose of it in any manner he sees fit without any obligation whatsoever to the sender.” Although this statute was intended to protect consumers from unconscionable sales and billing techniques, the Ninth Circuit held that it also allowed the reselling of Promotional CDs.The full scope of the ruling remains to be seen.

Based on the nature of UMG's distribution – no prior agreement, no attempt to track the CDs, and the large scale of distribution – no license was created. Moreover, even if the first sale doctrine did not apply, the CDs constituted "unordered merchandise" under federal law and the recipients were free to dispose of them as they saw fit. 39 U.S.C. § 3009.

Hoping that one hand wouldn’t wash the other, the company shipped the goods to one employee (who received the telephone call) but then sent the invoice to another employee. The FTC alleged that this practice violated the Telemarketing Sales Rule, 16 CFR Part 310 and the Unordered Merchandise Statute, 39 U.S.C. § 3009. A TRO was entered and the case is still pending.

However, the FTC cautioned that others could be harmful if disclosures are inadequate, consumers are billed without their consent, and cancellation is difficult. The FTC concludes that its own enforcement cases and the high volume of consumer complaints justify a continuing need for its enforcement efforts.The FTC relies predominantly on Section 5 of the FTC Act (15 U.S.C. § 45(a)), the Restore Online Shoppers’ Confidence Act (“ROSCA”) (15 U.S.C. §§ 8401-8405), the Telemarketing Sales Rule (16 C.F.R. § 310), the Use of Prenotification of Negative Plans Rule (16 C.F.R. § 425), the Postal Reorganization Act (also known as the Unordered Merchandise Rule) (39 U.S.C. § 3009), and the Electronic Funds Transfer Act (15 U.S.C. §§ 1693-1693r) to bring enforcement actions against negative option marketing.To avoid enforcement, the FTC highlights four basic guidelines for companies to engage in negative option marketing in a compliant manner (more specific requirements for each guideline are available in the policy statement):Clear and conspicuous disclosure of material terms of the offer;Disclosure of all material terms of the offer before the consumer agrees to buy;Express informed consent must be obtained; andCancellation must be simple, reasonable, and easily accessible.According to the FTC, these requirements apply to both written offers (including the Internet) and verbal offers. If offers are written, any disclosures are to appear immediately adjacent to the means of recording the consumer’s consent.

This includes obtaining the consumer’s express informed consent of the negative option feature separately from other portions of the transaction; andProvide a simple, reasonable, and easily accessible method of cancellation. The method of cancellation should be as easy to use as the method the consumer used to buy the product or service.In its policy statement, the FTC notes that its enforcement actions primarily rely on Section 5 of the FTC Act (15 U.S.C. § 45(a)), the Restore Online Shoppers’ Confidence Act (ROSCA) (15 U.S.C. §§ 8401-8405), and the Telemarketing Sales Rule (16 C.F.R. Part 310), as well as the Rule on the Use of Prenotification Negative Option Plans (16 C.F.R. Part 425), the Electronic Fund Transfer Act (EFTA) (15 U.S.C. §§ 1693-1693r), and the Postal Reorganization Act (i.e., the Unordered Merchandise Statute) (39 U.S.C. § 3009).FTC Issues Final Rule Expanding the GLBA’s Safeguards RuleThe FTC recently released its final rule amending the Gramm-Leach-Bliley Act’s (GLBA) Standards for Safeguarding Customer Information (Safeguards Rule). Financial institutions covered by the updated Safeguards Rule will be required to develop far more involved security programs.

about how to cancel; or misrepresent[ing] the reasons for delays in processing consumers’ cancellation requests.” The CFPB raises the possibility that depending on the facts and circumstances, such conduct could be an unfair, deceptive, or abusive act or practice.The FTC set forth its position on negative option marketing in an October 2021 policy statement. The policy statement was intended to “put companies on notice that they will face legal action if their sign-up process fails to provide clear, up-front information, obtain consumers’ informed consent, and make cancellation easy.” To bring enforcement actions against negative option marketing, the FTC relies predominantly on Section 5 of the FTC Act (15 U.S.C. § 45(a)), the Restore Online Shoppers’ Confidence Act (15 U.S.C. §§ 8401-8405), the Telemarketing Sales Rule (16 C.F.R. § 310), the Use of Prenotification of Negative Plans Rule (16 C.F.R. § 425), the Postal Reorganization Act (also known as the Unordered Merchandise Rule) (39 U.S.C. § 3009), and the Electronic Funds Transfer Act (15 U.S.C. §§ 1693-1693r).In addition to federal law, there are a number of states that have additional requirements for negative option marketing, including new autorenewal laws in California, Colorado, Delaware, and Illinois. Given the focus at both the federal and state levels, companies should carefully set up any negative option marketing for subscription services and expect heightened scrutiny and potential enforcement for any compliance issues, especially as the CFPB and FTC implement their guidance and new state laws become effective.[View source.]

o cancel – clearly and conspicuously before subscribers sign up. The proposed amendments would expand the coverage of the rule beyond prenotification plans to all other forms of negative option marketing.Notwithstanding the limited scope of the current rule, and as we noted when the FTC issued guidance on negative option programs in October 2021, several other statutes and regulations also address contracts that automatically renew in addition to the Negative Option Rule. These include Section 5 of the FTC Act, 15 U.S.C. § 45(a) (which prohibits unfair or deceptive acts and practices), the Restore Online Shoppers’ Confidence Act (“ROSCA”), 15 U.S.C. §§ 8401-8405, the Telemarketing Sales Rule (“TSR”), 16 C.F.R. Part 310 (which applies to negative options offers made over the telephone and requires disclosure that charges will be made to a consumer’s account unless they take specific steps to avoid them), the Postal Reorganization Act (also known as the “Unordered Merchandise Statute”), 39 U.S.C. § 3009 (which designates mailing or billing for unordered merchandise as an unfair practice), and the Electronic Fund Transfer Act (“EFTA”), 15 U.S.C. §§ 1693-1693r (which prohibits sellers from imposing recurring charges on a consumer’s debit cards or bank accounts without written authorization). ROSCA, which was enacted in 2010 and is primarily aimed at negative options, including from third-party sellers during or immediately following a transaction, prohibits the use of negative options in internet sales unless there is clear and conspicuous disclosure, express informed consent, and a simple mechanism to stop recurring charges and opt-out.The FTC’s rationale in amending the Negative Option Rule is that “[t]he existing patchwork of laws and regulations does not provide industry and consumers with a consistent legal framework across media and offers.” Examples of this lack of consistency, according to the FTC, include that the current Negative Option Rule does not cover common practices su

nfair techniques to prevent consumers from successfully winning chargeback disputes. Such techniques include disputing chargebacks with misleading information about the underlying transaction and even editing webpage screenshots to add disclosures to the screenshot that did not appear on the underlying webpages. The complaint also notes that the company disputed tens of thousands of chargebacks on behalf of companies that the FTC had previously sued for deceiving consumers. (UDAAP Enforcement Focus: Deceptive, Unfair).Federal Trade Commission & Pennsylvania.Debt Collection. FTC and Pennsylvania announced that a federal district court issued a stipulated order for permanent injunction against a debt collection company and an officer and manager at the company after finding that defendants had allegedly engaged in bogus debt collection efforts against businesses and non-profits. The defendants were found to have violated the FTC Act, 15 U.S.C. § 45(a), the Unordered Merchandise Statute, 39 U.S.C. § 3009, and the Pennsylvania Unfair Trade Practices And Consumer Protection Law, 73 P.S. § 201-3, in connection with the selling and collection of payment for publication subscriptions. (UDAAP Enforcement Focus: Deceptive, Unfair). The company is out of business, and the individuals are permanently banned from the debt collection industry.Consumer Financial Protection Bureau.Payday Lenders. CFPB issued a complaint against two individuals as co-trustees of revocable trusts for allegedly hiding money through a series of fraudulent transfers in order to avoid paying more than $40 million in restitution and penalties for illegal payday lending activities and transferring significant assets to the trusts in an attempt to evade a 2021 agency order against a payday lender and one of the individual co-trustees. This order detailed alleged unfair and deceptive practices and violations of the Electronic Funds Transfer Act and Consumer Financial Protection Act. (UDAAP Enforcement Focus: Deceptive, Unfa

broadened scope of conduct covered by the proposed Rule is alarming given that it sweeps in conduct that has nothing to do with the negative option feature. In particular, the proposed rule would capture alleged misrepresentations regarding the underlying product or service that are wholly unrelated to the negative option feature and give the FTC powers that it otherwise would not have or that were expressly curtailed by the Supreme Court in AMG Capital Mgmt., LLC v. FTC, 141 S. Ct. 1341 (2021).[1] Other types of negative option features are covered by a patchwork of statutes or rules that are also enforced by the FTC, but the differing requirements in the statutes, rules, and FTC Section 5 enforcement actions have not provided a consistent, cohesive framework for businesses to which to adhere. Restore Online Shoppers’ Confidence Act (ROSCA) 15 U.S.C. §§ 8401-8405; the Telemarketing Sales Rule (TSR) 16 C.F.R. § 310; the Postal Reorganization Act (a.k.a. the Unordered Merchandise Rule) 39 U.S.C. § 3009; and the Electronic Funds Transfer Act), 15 U.S.C. §§ 1693-1693r. In particular, the proposed rule would capture alleged misrepresentations regarding the underlying product or service that are wholly unrelated to the negative option feature and give the FTC powers that it otherwise would not have or that were expressly curtailed by the Supreme Court in AMG Capital Mgmt., LLC v. FTC, 141 S. Ct. 1341 (2021).As drafted, the proposed Rule would allow the FTC to obtain civil penalties, or consumer redress under Section 19 of the FTC Act, if a marketer using a negative option feature made misrepresentations regarding product efficacy or any other material fact. The proposed text is as follows:425.3 Misrepresentations.In connection with promoting or offering for sale any good or service with a Negative Option Feature, it is a violation of this Rule and an unfair or deceptive act or practice in violation of Section 5 of the Federal Trade Commission Act (“FTC Act”) for any Negative Option Sell