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Sept 29 (Reuters) - When Amazon last week agreed mid-trial to pay $2.5 billion to
settle, opens new taballegations by the Federal Trade Commission that it duped customers into signing up for Prime and then made the service hard to cancel, the payout showcased what until recently had been regarded as a law of little consequence.
“Decidedly unremarkable” is how lawyers for Amazon in 2023 described the Restore Online Shoppers’ Confidence Act, or ROSCA, which underpinned the FTC’s case. The 2010 statute, which punishes deceptive online sales tactics such as unwanted or hard-to-cancel subscriptions, had been “cited in only a handful of opinions, and resulted in no significant judgments against legitimate businesses,” Amazon’s lawyers wrote in
court papers, opens new tab.
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Their initial tone of incredulity is understandable. Prior to Amazon's September 25 settlement, the FTC had only twice before secured civil penalties (as opposed to consumer restitution) for ROSCA violations, according to the agency. One fine was for
$500,000, opens new taband the other for
$2 million, opens new tab, knocked down from $10 million because the defendant didn’t have the money to pay.
Not exactly the stuff that keeps a general counsel up at night.
Yet now Amazon, without admitting wrongdoing, agreed to a fine of $1 billion to resolve alleged ROSCA violations, plus another $1.5 billion in consumer redress. It was the biggest civil penalty for a rule violation in FTC history, the agency
said, opens new tab.
It prompts the question: How – and why – did this obscure law become such a formidable weapon? And should companies that have ROSCA cases pending against them, including ride-sharing company Uber Technologies, gym chain LA Fitness and software maker Adobe, be worried about being hit with substantial penalties?
Based on Amazon's settlement and a review of more than a dozen ROSCA cases the FTC has filed since 2022, the answer is yes.
FTC Chairman Andrew Ferguson “has made it clear that he will vigorously enforce the laws passed by Congress, including ROSCA,” an FTC spokesman told me via email. “This includes taking Uber and LA Fitness to court, and securing the historic settlement from Amazon.”
The FTC has filed about 47 ROSCA cases since the law was
passed by Congress, opens new tabvia voice vote without much fanfare in late 2010.
In the years following, the FTC’s early ROSCA targets tended to be little-known companies peddling items such as dietary supplements, credit monitoring services or tooth whiteners.
ROSCA “kind of got forgotten about to a degree,” Holland & Knight partner Brian Goodrich, who represents businesses facing FTC enforcement actions, told me.
When the agency went after big-league defendants for unfair or deceptive conduct, Goodrich said, it typically invoked its authority under the FTC Act. The 1914 law
established the agency, opens new taband gives it broad authority to protect consumers.
However, the U.S. Supreme Court in AMG Capital Management v FTC in 2021 severely curtailed the FTC's power to use a key provision of the act, known as Section 13(b), to compel wrongdoers to return ill-gotten gains. The high court ruled that Section 13(b) only allows the agency to seek injunctive relief, not consumer restitution or disgorgement of profits.
Deprived of its go-to weapon, the FTC turned to other sources of enforcement authority, including ROSCA, which empowers the agency to seek up to $53,088 per violation plus consumer redress.
“The commission started looking for ROSCA violations under every rock,” said Cooley partner Scott Dailard, who defends companies facing FTC actions. “There’s been an obvious uptick in enforcement and investigation activity since the AMG decision.”
The FTC also attempted to enact a “Click-to-Cancel” rule that would have required businesses to make it as easy to cancel subscriptions and memberships as it is to sign up, only to have the measure struck down by the 8th U.S. Circuit Court of Appeals in July.
The agency filed its
ROSCA complaint, opens new tabagainst Amazon in 2023 in Seattle federal court, alleging that the retail giant ran afoul of ROSCA by deceptively enrolling millions of online shoppers into its auto-renewing Prime membership and requiring them to click through a gauntlet of screens if they wanted to cancel.
Amazon lawyers from Covington & Burling, Hueston Hennigan and Davis Wright Tremaine protested in court papers that the FTC’s complaint rested on a “fatally vague standard” of compliance, and that ROSCA was only intended to target conduct that was plainly misleading or coercive, unlike Amazon Prime.
Litigation “is not a permissible way for an agency to enact new standards,” they wrote in an unsuccessful motion to dismiss the case.
An Amazon spokesperson in a
statement, opens new tabsaid the company and its executives have “always followed the law and this settlement allows us to move forward and focus on innovating for customers.”
The FTC sued Uber in April, alleging that it charged consumers for its Uber One subscription service without their consent, failed to deliver promised savings and made it difficult to cancel.
An Uber spokesperson responded via email that the company is “disappointed” the FTC decided to move forward with the case, and that Uber One’s “sign-up and cancellation processes are clear, simple, and follow the letter and spirit of the law.”
A suit against the operators of LA Fitness and other gyms followed in August, with the FTC alleging it is “exceedingly difficult” for consumers to cancel gym memberships.
LA Fitness did not respond to a request for comment.
The FTC
sued Adobe, opens new taband two of its executives in 2024, alleging the software maker deceived consumers by hiding the early termination fee for a popular subscription and made it difficult to cancel.
An Adobe spokesperson did not respond to a request for comment but the company, in court papers, denies wrongdoing. The case survived a motion to dismiss in May and is set for trial next year.
Reporting by Jenna Greene
Our Standards: The Thomson Reuters Trust Principles., opens new tab
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
Jenna Greene writes about legal business and culture, taking a broad look at trends in the profession, faces behind the cases, and quirky courtroom dramas. A longtime chronicler of the legal industry and high-profile litigation, she lives in Northern California. Reach Greene at [email protected]
