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Federal Trade Commission v. Adept Management Inc.

United States District Court, D. Oregon, Medford Division

September 25, 2018

ADEPT MANAGEMENT INC., et al, Defendants.


          MARK D. CLARKE United States Magistrate Judge

         This case comes before the Court on Plaintiff FTC's motion for summary judgment (#348), as well as the motions for summary judgment filed by the defendants (##320, 321, 323, 325, 327, 329, 333, 339, 341, 342). As discussed below, the FTC's motion is GRANTED in part and DENIED in part. The defendants' motions are DENIED. Plaintiffs motions to strike (##416, 449) and Hoyal defendants' motion to strike (#410) are all DENIED. The case will proceed to trial on the issues of common scheme, individual liability, and remedy.


         I. Plaintiff FTC is entitled to summary judgment on the issue of facial deceptiveness.

         Section 5 of the Federal Trade Commission Act prohibits "deceptive acts or practices in or affecting commerce." FTCA § 5(a)(1), 15 U.S.C. § 45(a). As the Ninth Circuit Court of Appeals has explained, a practice falls within this prohibition: (1) if it is likely to mislead consumers acting reasonably under the circumstances (2) in a way that is material. FTC v. Gill, 265 F.3d 944, 950 (9th Cir.2001) (citing FTC v. Pantron I Corp., 33 F.3d 1088, 1095 (9th Cir.1994)). Deception may be found based on the "net impression" created by a representation, and a solicitation may be likely to mislead by virtue of the net impression it creates even though the solicitation also contains truthful disclosures. F.T.C. v. Cyberspace.Com LLC, 453 F.3d 1196, 1199-200 (9th Cir. 2006). A misleading impression created by a solicitation is material if it "involves information that is important to consumers and, hence, likely to affect their choice of, or conduct regarding, a product." Cliffdale Associates, Inc., 103 F.T.C. 110, 165 (1984).

         Courts, including the Supreme Court, have uniformly rejected imposing a requirement on the FTC to provide extrinsic evidence to show deceptiveness. Kraft, Inc. v. F.T.C, 970 F.2d 311, 319 (7th Cir. 1992) (citing Colgate-Palmolive, 380 U.S. at 391-92) (FTC not required to conduct consumer surveys before determining that a commercial has a tendency to mislead); see also F.T.C v. Bronson Partners, LLC, 564 F.Supp.2d 119, 126 (D. Conn. 2008) ("Even if an advertisement makes a claim by implication, extrinsic evidence is not always necessary.") When evaluating the net impression of an advertisement, it is necessary "to consider the advertisement in its entirety and not to engage in disputatious dissection. The entire mosaic should be viewed rather than each tile separately." Bronson Partners, LLC, 564 F.Supp.2d at 125 (citing FTC v. Sterling Drug, Inc., 317 F.2d 669, 675 (2d Cir. 1963)). The consumer "does not ordinarily carefully study or weigh each word in an advertisement. The ultimate impression upon the mind of the reader arises from the sum total of not only what is said but also of all that is reasonably implied." Id.

         a. The mailer is deceptive as a matter of law.

         In this case, the newspaper subscription mailer[1] is deceptive as a matter of law, based on the net impression that the mailer is either from or authorized by the newspaper publication in question, that any current subscription would be "renewed" automatically, and that the consumer was being offered the lowest price available. The mailers create this impression by including a single newspaper's name in several prominent positions in bold and capital letters, by suggesting a connection with consumers' existing subscriptions, and by using a similar format to a routine invoice or renewal service.

         In contrast to the visibility and repetition of the newspaper's title, the full name of the defendants' dbas typically appears only once in the mailers. The dba name itself is generic-sounding and implies that the dba is a service or a department within the named newspaper's organization, such as "Reader's Payment Service" or "Publisher's Payment." The payment-return envelope defendants included with the mailer contributes to this impression and disguises the true payment recipient by bearing only the words: "ATTN: Mail Processing Department." The net impression that the mailer is either from or authorized by the newspaper is also created by the suggestion that it is connected to a consumer's existing subscription. The word "Renewal" is featured prominently, more than once, and the mailer refers to the consumer's "regular subscription" and a purported deadline to return payment. It offers an "installment" option, implying that the consumer can arrange to pay the full subscription cost in more than one payment during the subscription period. Additionally, the formatting of the mailer implies that it is an invoice or renewal service. It includes a payment stub with framed boxes showing a "Control Number," and a "Total Amount," along with the due date and installment payment amount. Nothing on the mailer indicates that it is an advertisement.

         Finally, the mailer makes other statements that are confusing at best, and wholly false at worst. "Your subscription to [THE NEWSPAPER] is automatic with receipt of your payment when you choose to renew or order a new subscription." Undisputed evidence submitted by the FTC demonstrates that the defendants would attempt to fill a subscription after receiving full payment from the consumer. Thus, rather than being "automatic," subscriptions were actually not even guaranteed to be filled. The mailer also states, Fortunately, by acting now, you can lock in one of our lowest rates! You're receiving one of the lowest available rates we can offer for your regular subscription.

         (Emphasis in original.) While the defendants point out that this is technically true, due to the qualifying words, "one of," and, "we can offer," the statements undeniably imply that the consumer is getting the best deal available, when in fact the price is significantly higher than it would be if ordering through the newspaper itself. The fact that the mailer gives the impression that the consumer is ordering through the newspaper itself compounds the misleading nature of this representation.

         b. The disclaimers are not adequate to cure the mailer's deceptiveness.

         If an advertisement's net impression is deceptive, "disclaimers or qualifications in any particular ad are not adequate to avoid liability unless they are sufficiently prominent and unambiguous to change the apparent meaning of the claims and to leave an accurate impression." Removatron Int'l Corp. v. F.T.C., 884 F.2d 1489, 1497 (1st Cir. 1989). "Anything less is only likely to cause confusion by creating contradictory double meanings." Id. (citing Giant Food, Inc. v. FTC, 322 F.2d 977, 986 (D.C.Cir.1963), cert, dismissed, 376 U.S. 967 (1964)).

         In this case, the purported disclaimers included on the mailer are confusing and inadequate to cure the deception. First, small words on the bottom of the mailer state "Renewal Offer - Not a Bill." This statement continues to imply that the offer is a renewal, and thus connected to their regular subscription and sent from the newspaper publisher. The helpful part of the statement, "Not a Bill," does nothing to clarify this issue.

         Second, the block of text on the reverse side of the mailer is confusing and unlikely to be read by the consumer. The text refers to magazine subscriptions, not newspapers, and a reasonable consumer would likely believe it to be inapplicable to their particular newspaper subscription. The language states that the defendants "do not necessarily have a direct relationship with the publishers or publications" offered. This leaves open the possibility that the defendants actually do have a relationship with the newspaper, when in fact they do not.[2]

         Finally, the text states, "This is a magazine subscription offer, not a bill or an invoice. You are under no obligation to either buy a magazine or renew at this time." This language once again is confusing because it relates to magazines, not newspapers. Even if it were not confusing, it would be ineffective because it is buried in the middle of a block of text, with no prominent placement or distinguishing features.

         c. Consumer complaints confirm the mailers were likely to, and ...

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