"Free Software" Scammers To Pay $2.2 Million

The company Think All Publishing has reached a settlement with the FTC in which the “free-software” scamming company will pay $2.2 million for consumer reimbursement, according to NetworkWorld. The scammers offered free software CDs and then billed unsuspecting customers for a continuity program which was unwittingly ordered by checking a “terms of use” box. Details, inside…

The article says,

The “terms of use” detailed computer software licensing arrangements and usage rules, and many consumers checked the box without clicking on the hyperlink or reading the form.

But buried in the seventh paragraph of the single-spaced document was language that contradicted the free software claim. It stated that consumers would be required to send back two of the four “free” CDs within 10 days or they would be charged a fee of $39 to $49. It also stated that consumers would be enrolled in a software continuity program, would receive additional CDs in the future, and would be charged $39 to $49 for those CDs unless they returned them within 10 days, the FTC said.

The FTC alleged in its complaint that most consumers did not know about these charges or the continuity plan until they were billed. According to the agency, because the defendants did not adequately notify consumers, they could not avoid the charges.

The FTC charged the defendants with unfair and deceptive practices that violate the FTC Act. The agency also charged them with violating the Unordered Merchandise Statute, which prohibits billing recipients for merchandise they did not order.

The settlement bars the defendants from making misrepresentations, including misrepresenting that items are “free” when they aren’t. It requires that the defendants disclose all the terms and conditions of any negative option offer. It bars the defendants from charging consumers for products or services without their consent, and without first disclosing the terms of any refund or cancellation policy.

The settlement also prohibits the defendants from sharing their customer lists, and contains bookkeeping and record keeping provisions to allow the agency to monitor their compliance. Finally, under the terms of the settlement, the defendants will pay approximately $2,167,500 in consumer compensation.

Kudos to the FTC. We hope this sends a clear message to the countless companies who continue to make use of this shady business practice. There are always those people that will refute, “You should read what you are signing!” which is true. But, when a company buries a clause deep in their “terms of use” that completely contradicts the spirit of the advertisement, (e.g. Free software) it is unethical, period.


“Free software” scammers out $2.2 million
[NetworkWorld]

Comments

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  1. carso says:

    How is this different than the BMG “12 CDs for 1 cent!” deal that was popular in the ’90s (and may still be popular today)? I recall that they would enroll you in a “club”, in which you would receive a couple of CDs every month – if you didn’t return them, you got billed. Did that ever go to court?

  2. Jbball says:

    Pricks… This is exaclty what I hate about all the lender/tv/anything commercials where they specifically state one thing in PLAIN English, only to have a novel of microprint at the bottom refuting everything they’re stating.

    That should be illegal.

  3. strijder says:

    My wife ordered these CDs, many of which were simply freely available, open source software that could be downloaded for free from the internet. When she found out about the additional terms of the offer, I filed complaints with my state’s AG’s office, the BBB, the Texas AG’s office (which was investigating them at the time, the follow-up call was gratifying) and with the FTC.
    Fortunately for me (unfortunately for Think All Publishing), I was fresh out of my first year of law school and working for my state’s attorney general’s office doing consumer protection work.

  4. strijder says:

    @Jbball:
    Here’s the FTC’s take on the use of the word “free:”

    Disclosure of conditions. When making “Free” or similar offers all the terms, conditions and obligations upon which receipt and retention of the “Free” item are contingent should be set forth clearly and conspicuously at the outset of the offer so as to leave no reasonable probability that the terms of the offer might be misunderstood. Stated differently, all of the terms, conditions and obligations should appear in close conjunction with the offer of “Free” merchandise or service. For example, disclosure of the terms of the offer set forth in a footnote of an advertisement to which reference is made by an asterisk or other symbol placed next to the offer, is not regarded as making disclosure at the outset. However, mere notice of the existence of a “Free” offer on the main display panel of a label or package is not precluded provided that (1) the notice does not constitute an offer or identify the item being offered “Free”, (2) the notice informs the customer of the location, elsewhere on the package or label, where the disclosures required by this section may be found, (3) no purchase or other such material affirmative act is required in order to discover the terms and conditions of the offer, and (4) the notice and the offer are not otherwise deceptive.

    From [www.ftc.gov]

  5. darksunfox says:

    This could have a huge impact on software licensing in the future if companies are forced to spell out exactly what licenses are for up-front. It’s a very good consumer protection but could be damaging to the legitimate software community as well.

  6. @carso: I don’t see why BMG would be taken to court. I was part of their club several times during that time frame and I, along with everybody else I knew that was in the club, easily understood that they would send you CDs every month and if you didn’t return them, they were billed to you.
    They made it quite obvious they were going to bill you for those CDs if you didn’t send them back.

  7. humphrmi says:

    @carso: Columbia House and BMG made it very clear on the form you sent in that you were signing up for a service. Also, they didn’t just send you a couple of CDs every month; they sent a monthly catalog with an order card that said very clearly if you didn’t return it, you would receive a CD in a few weeks.

    BMG and Columbia had their own legal issues, but they didn’t bury the fact that you had to buy more music to get 12 CDs for a penny in a hard to read document, it was right on the form you sent in.

  8. slim150 says:

    Is this the “Video Professor”? Is there a reason they can’t say it?

    Once my dad was going to order from them, and I told him no no its a scam cause you have to mail it back etc. He still wanted a specific CD. So we called them up and said listen I know you have the 3 free cd offer, but we don’t want all I want to do is buy a one time CD paying full price. And they wouldn’t do it!

  9. carso says:

    @humphrmi: You and Terd_Ferguson are right, I guess I had forgotten how obvious BMG/Columbia made it – one was always aware that if one did not return the sent materials, one would be billed. This is clearly different. Thanks for pointing that out.

  10. IrisMR says:

    Well the only thing we’re missing is the name.

  11. stacye says:

    @darksunfox: I’m unaware of a reputable software company that buries their licensing price in the terms of use.

  12. revmatty says:

    @darksunfox: I don’t think that’s a concern at all. As stacye notes reputable software companies don’t bury pricing anywhere in their license or terms of use (among other reasons because it makes it harder to arbitrarily charge different prices depending on how much money they think the potential customer is willing to spend, when you’re talking about enterprise-y software).

  13. SacraBos says:

    @carso: Your analogy would be better if BMG required you to send back 6 of those CD or get charged $20/ea for them – and didn’t inform you of that prior to you sending in the bingo card. I was with Columbia House for a while, and it was very clear what the terms were, how many more I needed to buy to complete the agreement. What was nice is if you kept returning the “auto shipped” album enough times, they would stop doing auto-ship and you had to explicitly purchase all your albums.

    @stacye: No, but they do bury other strange terms in their EULAs. Some include permission for them come into your home to search your computer for licensed software to insure compliance!

  14. RedSonSuperDave says:

    Excellent, it’s about time somebody did something about this crap. If I was in charge, I’d make a rule that all the type in your advertising had to be the same size. My significant other has a 60 inch big screen, and lots of the time, those shady disclaimers are too small for me to read even on that huge TV.

    “Terms of Use” my ass. Checking a box isn’t the same thing as signing a contract, no matter what the law says. Maybe there’s hope for the law being brought back into touch with reality.

  15. Shadowman615 says:

    @carso: Those clubs made it very clear from the start that it would work that way — they were upfront about the charges. Also, they didn’t send CDs to you every month that you had to return, instead they sent a mailer noting the “Album of the month,” which you would receive if you didn’t mail back the card.

  16. HeartBurnKid says:

    @carso: Because 1) they do send you the 12 CDs for 1 cent, as promised, 2) their ads state the requirements to receive those CDs in plain english, and 3) they send you an order card each month, in which you can opt for a different CD or even opt-out of receiving a CD for that month. Really, BMG and Columbia House are no different than any other “___ of the month” club.

  17. raisitup says:

    rtftos?

  18. The_AntiVirus says:

    @slim150:

    I’ve always hated Video Professor. I always felt it was a scam since how can they afford to give out free cds like that? I’m not sure how they make money but I seriously don’t think they can give out millions of free cds.

    One thing I hate about free software, is yes, you can find some free software clean from spy ware and viruses but just because you somehow found it doesn’t mean you can go overboard and get everything for free.

    I had one guy think he could get some big time software for free, can’t remember the name, just because he didn’t feel like dishing out some cash and luckily I stopped him and explained how its a fake since there is no way your going to find an expensive piece of software one the internet for free. I had a gut feeling that it was a Trojan horse. I hate having to get rid of those.

  19. darksunfox says:

    @stacye @revmatty – I realize what this particularly company did was particularly shady, but I feel it’s a really slippery slope to say the agreement to the terms in a EULA is not “adequately notifying” a customer. It sure seems to open up the “ignorance” defense for individuals when it comes to piracy. “Oh, I didn’t bother reading that EULA, I just installed the disc on my home, office, brother’s, sister’s, sent it off to my cousin to install on his computer… why should I have to pay for additional licenses?” If this was someone not reading fine print on a gym membership, we’d be blaming the victim here. I don’t see why an electronic contract to accept software terms of use and billing should be held do a different standard.

  20. iamlost26 says:

    I wanted to note to everyone that subscribed to BMG last year, and they’ve changed it so that now you get e-mails asking if you want to be sent the “recommended” CD of the month. If you click No, Thanks, you’ll never get sent a CD. BMG was a great service. I got my 12 CDs and every now and then I would get an offer that, when everything was calculated out, came out to $4-6/CD.

  21. Kekaha says:

    @carso: The Columbia and BMG clubs both behaved responsibly. They would, for instance, accept returns on any CDs that were mailed because you forgot to respond. Now with online management of accounts, they really offer a valuable service.