New Federal Legislation Regulates Post-Transaction Marketing

Monday, January 31, 2011 - 01:00

On December 29, 2010, President Obama signed the "Restore Online Shoppers' Confidence Act" (the "Act") into law. The Act regulates "post transaction marketing" and targets Internet transactions conducted by third-party sellers during or immediately after a consumer's transaction with a different merchant. The Act prohibits the use of the "data-pass process" through which internet merchants transferred customer data to third-party sellers engaged in post-transaction marketing on the merchants' websites. The law also requires disclosures in connection with any transaction effected on the internet involving a "negative option feature." Violations of the Act will be deemed to constitute unfair or deceptive acts and practices under the Federal Trade Commission Act, and State attorneys general are also empowered to enforce the Act.

Post-Transaction Sales

The Act applies to transactions by a "post-transaction third party seller," which is defined as a person that:

• sells, or offers for sale, any good or service on the internet; and

• solicits the purchase of such goods on the internet through an initial merchant after the consumer has initiated a transaction with the initial merchant and is not the initial merchant or a subsidiary, corporate affiliate of the initial merchant or a successor of any such entity.

With respect to such transactions, the Act prohibits a post-transaction third-party seller from charging or attempting to charge any consumer for any good or service, unless the seller discloses the "material terms of the transaction" and obtains the consumer's "express informed consent" for the charge for the transaction before obtaining the consumer's billing information. In addition, the Act prohibits internet merchants from disclosing to post-transaction third party sellers consumer billing information used for the initial transaction.

Negative Option Marketing On The Internet

The Act declares unlawful "charg[ing] or attempt[ing] to charge any consumer for any goods or services sold in a transaction effected on the Internet through a negative option feature" unless the marketer makes certain specific disclosures of the material terms of the transaction before obtaining the consumer's billing information, obtains express informed consent by the consumer before charging the consumer for such transaction, and provides a simple mechanism for the consumer to cancel the transaction and stop further charges from being imposed. A "negative option feature" covered under the Act is a provision "in an offer or agreement to sell or provide any goods or services.... under which the customer's silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer."16 C.F.R. §310.2(t).

Conclusion

The Act is the culmination of an extensive investigation by the Congress into perceived abuses by post-transaction marketers.While post-transaction marketing arrangements are a valuable way to monetize internet traffic, the Act should encourage retailers to closely examine the practices of post-transaction marketers and related agreements to ensure compliance.

Bruce A. Colbath is a Partner in Weil's New York office and a member of the Antitrust and Competition Practice Group. Carrie M. Anderson is a Partner in the Washington, DC office's Antitrust and Competition Practice Group.

Please email the authors at bruce.colbath@weil.com or carrie.anderson@weil.com.