Antitrust Lawyer Blog

The Federal Trade Commission (“FTC”) brought a permanent halt on September 14, 2006 to four illegal spamming operations – including one that offered the opportunity to “date lonely wives” and two that hijacked the computers of unwitting third parties and used them to pelt consumers with graphic sexually explicit e-mail. The FTC charged the operators with sending spam that violated provisions of the CAN-SPAM Act, and halted the illegal spamming.

The CAN-SPAM Act requires that a spam e-mail contain accurate header and subject lines, identify itself as an ad, and include the sender’s postal address. It also requires that the spam give recipients an opt-out method, so consumers can elect not to receive messages from the spammer in the future. To ensure that consumers are not exposed to content they do not wish to view, the Adult Labeling Rule requires that senders use the phrase “SEXUALLY EXPLICIT: “in the subject line of sexually explicit e-mail messages and ensure that the initially viewable area of the message does not contain graphic sexual images. The consent agreements announced today settle charges that the spammers violated the CAN-SPAM Act, the Adult Labeling Rule, or both.

Cleverlink Trading Limited and its partners will give up $400,000 in ill-gotten gains to settle FTC charges that their spam, or that of their affiliates, violated federal law. The agency charged that their “date lonely wives” spam violated nearly every provision of the CAN-SPAM Act. It contained misleading headers and deceptive subject lines. It did not contain a link to allow consumers to opt out of receiving future spam, did not contain a valid physical postal address, and did not contain the disclosure that it was sexually explicit. It also included sexual materials in the initially viewable area of the e-mail, in violation of the FTC’s Adult Labeling Rule.

On September 11, 2006, a federal judge ordered a magazine subscription seller to pay a civil penalty of more than $5.4 million and give up more than $1.6 million of his ill-gotten gains for violating a 1996 Federal Trade Commission (“FTC”) consent order and the FTC’s Telemarketing Sales Rule (“TSR”). This amount is the largest civil penalty the FTC ever obtained for a violation of a consent order in a consumer protection matter.

Based on an FTC complaint filed by the U.S. Department of Justice, the court entered a judgment against Richard L. Prochnow of Atlanta. The court found that Prochnow violated the consent order through his ownership and control of Direct Sales International (“DSI”), which either directly or through its dealers: (1) failed to disclose or misled consumers regarding the cost of magazine packages and individual magazines; and, (2) made weekly cost representations even though consumers could not make weekly payments for the magazine packages.

The court also held Prochnow liable for DSI’s failure to tell consumers that their credit cards would be billed for membership in a buying club unless they called within thirty days to cancel, and its failure to provide consumers with information that would enable them to cancel, in violation of the TSR. The court further found Prochnow liable for false statements to consumers that publishers were paid in advance for magazines, which the Court found to be a violation of the TSR.

Social networking Web site operators Xanga.com, Inc. and its principals, Marc Ginsburg and John Hiler, will pay a $1 million civil penalty for allegedly violating the Children's Online Privacy Protection Act (“COPPA”), and its implementing Rule, under the terms of a settlement with the Federal Trade Commission (“FTC” or “Commission”) announced on September 7, 2006. According to the FTC, Xanga.com collected, used, and disclosed personal information from children under the age of 13 without first notifying parents and obtaining their consent. The penalty is the largest ever assessed by the FTC for a COPPA violation, and is more than twice the next largest penalty.

The complaint charges that the defendants had actual knowledge they were collecting and disclosing personal information from children. The Xanga site stated that children under 13 could not join, but then allowed visitors to create Xanga accounts even if they provided a birth date indicating they were not 13 years of age or older. Further, they failed to notify the children's parents of their information practices or provide the parents with access to and control over their children's information. The defendants created 1.7 million Xanga accounts over the past five years for users who submitted age information indicating they were not at least 13 years old.

Xanga.com is one of the most popular social networking sites on the Internet. After setting up a personal profile, users can post information about themselves for other users to read and respond to. On Xanga.com, users can create their own pages or Web logs (blogs) that contain profile information, online journals, text, hypertext images, as well as links to audio, video, and other files or sites. Information on the Xanga site is available to the general public through the use of global search engines such as Google and Yahoo. Incorporated in 1999 and based in New York City, privately held Xanga.com, Inc. was founded by Ginsburg and Hiler. In 2005, Xanga had about 25 million registered accounts.