FTC Brings the Hammer Down for Negative Option Consumer Fraud

San Francisco, CAA smoking cessation enterprise has been cited by the US Federal Trade Commission (FTC) for consumer and financial fraud. The company's apparent negative option marketing plan duped smokers trying to quit into believing they had enrolled into a so-called "free trial" that was anything but free.

NextClick Media LLC, Kenneth Chan and Albert Chen were cited in March of last year for offering to consumers a 10-day "free" trial of various herbal products and smoking cessation patches dubbed "Nicocure," "Stop Smoking 180" and "Zero Nicotine." The defendants, according to the FTC, had stated that consumers would only pay for shipping and handling of the product, but did not disclose that the so-called free trial was tethered to automatic enrollment in a maintenance plan that would bill consumers up to $99 per month until they canceled.

According to a press release issued by the FTC earlier this month, not only were the smoking patches ineffective, but consumers found it next to impossible to cancel the continuity program.

While negative option billing is not illegal per se, the FTC took exception to the defendants' claim that the trial was "free" when it in fact clearly was not. The settlement order by the FTC issued against the defendant bars any future reference to a "free trial" or "no obligation" if a consumer will, in fact, be charged, unless the consumer takes an affirmative action to avoid that charge.

The defendants also are prohibited from making a number of other misleading claims to consumers. The order requires that the defendants clearly disclose certain information before asking consumers to pay or reveal billing information, including all material conditions of any negative option offer. The defendants must also ensure that consumers know what they are buying, that they have clearly authorized the transaction, and that they are able to obtain any promised refund without a great deal of difficulty.

The FTC judgment, which was entered on November 3 in the US District Court for the Northern District of California, San Francisco Division, imposes a $3.4 million judgment against the defendants, although that order will be summarily suspended upon payment by the defendants of a $315,000 settlement. According to the FTC release, the full judgment will come due only if the defendants are found to have misrepresented their financial condition.

The judgment does not assume an admission by NextClick Media LLC of any violation of the law.