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FTC v. ReverseAuction.com

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Citation Edit

Federal Trade Comm’n v. ReverseAuction.com, Inc., Civil Action No. 000032 (D.D.C. Jan. 6, 2000) (full-text).

FTC Complaint Edit

In January 2000, the Federal Trade Commission (FTC) filed a complaint against ReverseAuction.com, Inc. According to the complaint, ReverseAuction.com is an online site that features "Declining Price" and "Wanted" auctions. In the process of marketing and promoting its new site, ReverseAuction.com registered with eBay, a competitor site, and agreed to comply with eBay's User Agreement and Privacy Policy. The agreement and policy protect consumers' privacy by prohibiting users from gathering and using personal identifying information, such as eBay users' personal e-mail addresses, for unauthorized purposes, including the purpose of sending spam.

After agreeing to comply with the User Agreement and Privacy Policy, ReverseAuction.com harvested eBay users' personal identifying information and used the data to spam eBay members with a message promoting its own online auction site. The message contained a deceptive subject line informing the eBay user that his or her eBay user ID "will EXPIRE soon." According to the complaint, many consumers concluded that the eBay user ID and other information had been provided to ReverseAuction.com, or authorized, by eBay. The complaint alleges that violation of the eBay User Agreement and Privacy Policy, sending the deceptive spam, and representing that eBay authorized the mailing are deceptive or unfair acts that violate Section 5 of the FTC Act.

Settlement Agreement Edit

The Settlement Agreement bars ReverseAuction.com from making the misrepresentations in the future. In addition, it requires ReverseAuction.com to provide notice to consumers who, as a result of receiving ReverseAuction.com's spam, registered or will register with ReverseAuction.com. The notice informs these consumers that their eBay user IDs were not about to expire on eBay, and that eBay did not know of, or authorize, ReverseAuction.com's dissemination of the spam. The notice also provides these consumers the opportunity to cancel registration with ReverseAuction.com and have their personal identifying information deleted from ReverseAuction.com's database.

In addition, the order requires ReverseAuction to delete, and refrain from using or disclosing, the personal identifying information of eBay members who received ReverseAuction.com's spam but who have not registered with ReverseAuction.com. Finally, the settlement requires ReverseAuction.com to disclose its own privacy policy on its Internet site, and contains record-keeping provisions to allow the FTC to monitor compliance.

Dissenting Opinion Edit

All of the commissioners voted to support the deception claim, but two of the commissioners voted against the unfairness claim.[1] Commissioners Swindle and Leary dissented from the Commission’s decision on the ground that there was no proof of substantial consumer injury as a result of the respondents’ activities.

The Commission has no authority to declare an act or practice unfair unless it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.” 15 U.S.C. § 45(n) (emphasis added).

The statutory requirement of substantial injury is actually derived from the Commission’s own Statement of Policy, issued in 1980. The Commission explained at that time that, “[t]he Commission is not concerned with trivial or merely speculative harms. In most cases a substantial injury involves monetary harm . . . Unwarranted health and safety risks may also support a finding of unfairness. Emotional impact and other more subjective types of harm, on the other hand, will not ordinarily make a practice unfair.” Letter from the Commission to the Consumer Subcommittee of the Senate Committee on Commerce, Science, and Transportation, Commission Statement of Policy on the Scope of Consumer Unfairness Jurisdiction, 4 Trade Reg. Rep. (CCH) ¶ 13,203 (Dec. 17, 1980), reprinted in International Harvester, Inc., 104 F.T.C. 949, 1070-76 (1984).

We do not say that privacy concerns can never support an unfairness claim. In this case, however, ReverseAuction’s use of eBay members’ information to send them e-mail did not cause substantial enough injury to meet the statutory standard.[2]

The dissenting Commissioners further explained their position on the unfairness claim:

The injury in this case was caused by deception: that is, by ReverseAuction’s failure to honor its express commitments. It is not necessary or appropriate to plead a less precise theory.

Industry self-regulation and consumer preferences, as expressed in the marketplace, are the best and most efficient ways to formulate privacy arrangements on the Internet and in commerce generally. Because proliferation of the kind of deceptive conduct in which ReverseAuction allegedly engaged could undermine consumer confidence in such privacy arrangements, we believe that it is appropriate to pursue this matter under a deception theory. The unfairness theory, however, posits substantial injury stemming from ReverseAuction’s use of information readily available to millions of eBay members to send commercial e-mail. This standard for substantial injury overstates the appropriate level of government-enforced privacy protection on the Internet, and provides no rationale for when unsolicited commercial e-mail is unfair and when it is not. We are troubled by the possibility of an expansive and unwarranted use of the unfairness doctrine.[3]

References Edit

  1. See Statement of Commissioners Orson Swindle and Thomas B. Leary Concurring in Part and Dissenting in Part, in ReverseAuction.com, Inc., File No. 0023046.[1]
  2. Id.
  3. Id.

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