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FTC Continues to Make Its Presence Felt

FTC Continues to Make Its Presence Felt

June 17, 2016
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" Knowledge is power and while it may seem selfish or cold-hearted, there is absolutely nothing wrong with learning and ultimately benefiting from the past mistakes of others. Jerk.com is no exception. "

Make no mistake about it, if you are an online business operator, legal compliance should be at the top of your list of priorities. For the better part of the past decade I have preached about the importance of being cognizant of the Federal Trade Commission and its various powers.

Once again, the FTC is making the front page of newspapers and is a hot topic amongst journalists.

On May 9, the 1st U.S. Circuit Court of Appeals released its order on John Fanning’s “Petition for Review of an Order of the Federal Trade Commission.”

John Fanning petitioned the 1st Circuit to review the FTC’s summary decision finding Fanning personally liable for misrepresentations made on the website Jerk.com.

While the court did find that portions of the FTC’s remedial order are overbroad, the court took the time to support the commission’s findings that Jerk.com materially misrepresented the source of its content and its membership benefits.

For those of you unfamiliar with the history of the FTC’s investigation and prosecution of Jerk.com, here is some background. From 2009 to 2014, Fanning allegedly operated Jerk.com through his entity, Jerk LLC.

Jerk.com was a self-proclaimed reputation management website that amongst other things allowed its users to track their own reputations and other people’s reputations. Jerk.com allowed its users to enter comments and reviews about other people anonymously and allowed users to vote as to whether someone was a “Jerk” or “Not a Jerk.”

By 2010, Jerk.com had 85 million profile pages and the FTC alleged that only a small percentage of the 85 million profile pages actually had reviews posted and for those that did have reviews posted, the reviews were substantially derogatory.

Amongst its features, Jerk.com also had a “Remove Me!” feature that allowed individuals to “manage [their] reputation and resolve disputes” by purchasing a paid subscription.

Allegedly, the subscription page stated that only paid members could “create a dispute” about the content of a profile. As it turns out, it appears that Jerk.com created the majority of the profiles on the website by electronically and automatically populating Jerk.com profiles with data from Facebook.

In April 2014, the FTC filed an administrative complaint charging Jerk and Fanning with engaging in “deceptive acts or practices in or affecting commerce” as a result of Jerk.com misrepresenting that all of its profiles/content were user generated and that Jerk.com mispresented the actual benefits of purchasing a paid membership.

The FTC moved for summary decision and in March 2015, the FTC found Fanning’s company and Fanning personally liable for the websites misrepresentations.

It is very important to keep in mind that the FTC was clear that it looked at statements made throughout the Jerk.com website and not a specific section of the website on its own.

It is also very noteworthy that the FTC felt that Jerk.com’s emphasis on user-generated content and the lack of information to the contrary, meant that reasonable consumers could conclude other Jerk.com users created their profile pages.

All of the pleadings related to the matter to Jerk.com and Fanning can be found on the FTC.gov website.

Time and time again, legal professionals, business owners, consumers and the general public have seen the FTC utilize 15 U.S.C. § 45(a)(2) as one of its best weapons against those it believes are or have engaged in “deceptive acts or practices in or affecting commerce” but for some reason the online business community seemingly continues to ignore how broad the FTC’s ability to prosecute really is.

For those of you that haven’t seen 15 U.S.C. § (45)(a)(2), I’d suggest that you store this article somewhere and re-read it often.

(2)The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except banks,savings and loan institutions described in section 57a(f)(3) of this title, Federal credit unions described in section 57a(f)(4) of this title, common carriers subject to the Acts to regulate commerce, air carriers and foreign air carriers subject to part A of subtitle VII of title 49, and persons, partnerships, or corporations insofar as they are subject to the Packers and Stockyards Act, 1921, as amended [7 U.S.C. 181 et seq.], except as provided in section 406(b) of said Act [7 U.S.C. 227(b)], from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce. 15 U.S.C. § (45)(a)(2)

Ultimately, the 1st Circuit’s order upholding the majority of the FTC’s summary decision doesn’t contain much ground-breaking legal precedent but what the 1st Circuit’s order does do, is provide everyone with a great opportunity to specifically see some of the acts that the FTC doesn’t want to see website operators engage in.

My office spends a considerable amount of its time analyzing and reviewing websites in order to provide online business operators with an idea of what they may be doing that could run afoul with the FTC and in any given week I will hear at least four to five clients say the same thing, “but ________.com is doing the same thing; so why can’t I.”

Just because someone else is engaging in an improper act and hasn’t been caught or penalized does not mean that you will share the same luck.

If you want to be a responsible online business operator, you need to spend time reading about the FTC, its authority and history of activities. You should also be making sure that you have honest conversations with your legal professionals about what products and services your website offers, so that they can properly advise you on how the FTC may affect your specific business and what you may already be doing wrong.

Knowledge is power and while it may seem selfish or cold-hearted, there is absolutely nothing wrong with learning and ultimately benefiting from the past mistakes of others. Jerk.com is no exception.

Corey D. Silverstein is the managing and founding member of the Law Offices of Corey D. Silverstein P.C., which focuses on representing all areas of the adult industry and his clientele includes hosting companies, affiliate programs, content producers, processing companies, website owners and performers, just to name a few. Silverstein can be reached by email at corey@myadultattorney.com; his site, MyAdultAttorney.com and Porn.law; or by telephone at (248) 290-0655.


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