9523331 UNITED STATES OF AMERICA In the Matter of AMERICA ONLINE, INC., a corporation. DOCKET NO. C-3787 COMPLAINT The Federal Trade Commission, having reason to believe that America Online, Inc. (“America Online” or “respondent”) has violated the provisions of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. §§ 45-58, as amended, as well as the Electronic Fund Transfer Act (“EFTA”), 15 U.S.C. §§ 1693-1693r, as amended, and its implementing Regulation E, 12 C.F.R. § 205, and it appearing to the Commission that this proceeding is in the public interest, alleges: 1. America Online is a Delaware corporation with its principal office or place of business at 22000 AOL Way, Dulles, Virginia 20166. 2. America Online has developed, advertised, offered for sale, sold, and distributed to the public its online service for personal computer users. Through its online service, America Online provides consumers with a range of options including electronic mail, interactive magazines and newspapers, transactional services, and access to the Internet. 3. America Online has been and is now engaged in the regular practice of making “electronic fund transfer[s]” from “consumer” “account[s]” as those terms are defined in the EFTA and its implementing Regulation E. 4. The acts and practices of America Online alleged in this complaint have been in or affecting commerce as “commerce” is defined in Section 4 of the FTC Act. AMERICA ONLINE’S COURSE OF BUSINESS 5. America Online has disseminated or has caused to be disseminated advertisements for its online service through various media including, but not limited to, print, television, direct mail, promotional materials, and instructional materials. These advertisements include, but are not limited to, the attached Exhibits A and B, which contain the following statements: Exhibit A OPEN HERE TO BEGIN YOUR FREE TRIAL It Just Takes 3 Easy Steps . . . To explore America OnlineŽ for TEN Hours on us. So, go for it and we’ll see you online soon! * * * You NEED America Online . . . To access the Internet with graphical ease . . . to download over 120,000 software files and get computing support . . . To investigate your special interests or discover new ones AND MUCH MORE! All For Ten Hours, FREE! The advertisement contains a statement at the bottom of an inside panel, in fine print, that provides:
Exhibit B Open Here For Free Software. Try America Online FREE For 10 Hours! Try the nation’s most exciting online service -- FREE. * * * Just Use This Software To Try America Online Free. . . . Start using your 10 FREE hours today. * * * Special Trial Offer 10 FREE Hours To Explore America Online. . . . The advertisement contains a statement at the bottom of an inside panel, in fine print, that provides:
6. Consumers choosing to participate in the free trial offer do so by connecting to the America Online service through a telecommunication modem attached to their personal computers. Upon their initial connection to the service, consumers view a series of registration screens including, but not limited to, the attached Exhibits C and D. The registration screens obtain identification and billing information from consumers, prompt consumers to select screen names and passwords for future access to the online service, and provide basic information about the online service, including the following details about the terms of the free trial offer: Exhibit C HERE’S HOW YOUR FREE TRIAL WORKS: So you can explore America Online at no risk:
In addition, the registration screens display basic membership terms including the monthly charges incurred by America Online members: Exhibit D YOUR AMERICA ONLINE MEMBERSHIP . . . .
7. Upon completion of the registration process, consumers are provided an opportunity to review America Online’s Terms of Service Agreement and Rules of the Road. To do so, consumers must access the Members’ Service area, available online. These documents, along with the Membership Conditions viewed during the registration process, are collectively referred to by America Online as the Terms of Service and comprise the contract between America Online and its members. 8. While the hourly charge for use of the America Online service is disclosed during the registration process, neither the registration screens nor the Terms of Service disclose the manner in which America Online calculates the time that consumers spend online. Consumers may, however, obtain information on this subject by accessing online resource areas, including an online explanation of America Online’s billing practices. This explanation, attached hereto as Exhibit E, provides in relevant part: Exhibit E CONNECT RATE[:] If you use MORE time online this month than the number of free hours noted at the top of this screen [5 hours/month], you will be charged a connect rate. You will be charged for your extra [connect] time on America Online in one- minute increments. . . . AMERICA ONLINE’S VIOLATIONS OF SECTION 5(a) OF THE FTC ACT 9. Through the means described in Paragraphs 5 through 8, America Online has represented, expressly or by implication, that consumers who participate in its free trial offer will not be charged, provided only that they use the trial time within thirty days of their initial sign-on and do not exceed ten hours of online use. 10. In truth and in fact, consumers who participate in America Online’s free trial offer and use less than ten hours of online time during the thirty days following their initial sign-on, but who fail to cancel their memberships during the trial period, incur charges. Therefore, the representation set forth in Paragraph 9 was, and is, false or misleading. 11. In the advertising and sale of its online service, America Online has represented, expressly or by implication, that consumers who participate in its free trial offer will not be charged, provided only that they use the trial time within thirty days of their initial sign-on and do not exceed ten hours of online use. America Online has failed to disclose adequately to consumers that, upon completion of ten hours of online use or thirty days from the date of initial sign-on, whichever is earlier, consumers who fail to contact America Online and cancel their trial memberships are automatically enrolled as members of America Online and are charged a monthly membership fee plus applicable hourly fees. These fees continue to accrue until the consumers affirmatively cancel their memberships. Such facts would be material to consumers in their purchase or use of the America Online service. The failure to disclose these facts in light of the representation made was, and is, a deceptive practice. 12. Through the means described in Paragraphs 5 through 8, America Online has represented, expressly or by implication, that it calculates online connect time at the rate of $2.95 per hour, prorated by one-minute increments, for time spent online beyond the five free hours of monthly connect time. In addition, America Online rounds up portions of a minute to the next highest whole minute. Thus, America Online has represented, for example, that an online session lasting 2 minutes and 46 seconds would be billed as 3 minutes. 13. In truth and in fact, America Online does not merely calculate online connect time at the rate of $2.95 per hour, prorated by one-minute increments, with portions of a minute rounded up to the next whole minute. Rather, America Online adds 15 seconds of connect time to each online session, allegedly representing the time required for a user’s modem to connect to America Online at the start of an online session and the time required to disconnect from America Online at the close of a session. When online usage consists of a whole minute plus 46-59 seconds, the additional 15 seconds causes the total connect time to exceed the next whole minute. Thus, for example, an online session of 2 minutes and 46 seconds, with the 15 second supplement, totals 3 minutes and 1 second and is billed as 4 minutes. Likewise, when an online session consists of a whole minute exactly, the additional 15 seconds causes the session to be rounded to the next whole minute. Therefore, the representation set forth in Paragraph 12 was, and is, false or misleading. 14. In the advertising and sale of its online service, America Online has represented, expressly or by implication, that it calculates online connect time at the rate of $2.95 per hour, prorated by one-minute increments, for time spent online beyond the five free hours of monthly connect time. America Online has failed to disclose adequately to consumers its practice of adding 15 seconds of connect time to each online session, as described in Paragraph 13. Such facts would be material to consumers in their purchase or use of the America Online service. The failure to disclose these facts in light of the representation made was, and is, a deceptive practice. 15. In the course of the online registration process, consumers view a screen titled “Billing Options,” attached as Exhibit F, that states: Exhibit F Choose a billing method To ensure that we have the correct billing information on file for charges incurred beyond your trial time, please select one of the following payment options:
Consumers choosing the Checking option are first informed that America Online will deduct automatically from their checking accounts each month any charges that they incur in using the online service. Until at least September 1995, such consumers also viewed a screen, attached as Exhibit G, that states: Exhibit G Processing your Checking Authorization Thank you for trying America Online. In the next few days you will receive a checking authorization form in the mail. This form gives America Online authorization to deduct the charges you incur from your checking account automatically every month. We request that this form be returned at your earliest convenience. Until it is received, your account will be limited to $50.00. 16. Through the means described in Paragraph 15, America Online has represented, expressly or by implication, that it would not debit consumers’ checking accounts before it received the authorization forms permitting it to do so. 17. In truth and in fact, America Online in many instances debited the checking accounts of consumers before receiving their authorization forms or without ever receiving such forms. Therefore, the representation set forth in Paragraph 16 was, and is, false or misleading. AMERICA ONLINE’S VIOLATIONS OF SECTION 907 OF THE EFTA 18. As described in Paragraph 17, in the course and conduct of its business, America Online in many instances has debited consumers’ checking accounts before receiving their authorization forms or without ever receiving such forms. In addition, in the course and conduct of its business, America Online in many instances has failed to provide consumers with advance written notice of transfers from their accounts varying in amount from previous transfers. 19. America Online’s aforesaid practices violate Sections 907(a) and (b) of the Electronic Fund Transfer Act, 15 U.S.C. §§ 1693e(a) and (b), and Sections 205.10(b) and (d) of Regulation E, 12 C.F.R. §§ 205.10(b) and (d), as more fully set out in Section 205.10 of the Federal Reserve Board’s Official Staff Commentary to Regulation E, 12 C.F.R. § 205, Supp. I. 20. The acts and practices of America Online as alleged in this complaint constitute deceptive acts or practices in or affecting commerce, in violation of Section 5(a) of the Federal Trade Commission Act. Such acts and practices additionally violate Sections 907(a) and (b) of the Electronic Fund Transfer Act, 15 U.S.C. §§ 1693e(a) and (b), and Sections 205.10(b) and (d) of Regulation E, 12 C.F.R. §§ 205.10(b) and (d). Therefore, the Federal Trade Commission this sixteenth day of March, 1998, has issued this complaint against respondent. By the Commission, Commissioner Azcuenaga not participating. Donald S. Clark SEAL: |