Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—1st Cir.: FTC ruling that Jerk.com operator deceived consumers upheld, (May 10, 2016)

By Linda O’Brien, J.D., LL.M.

The FTC properly found that the founder of a social networking website was personally liable for the website’s material misrepresentations as to the source of the website’s content and the benefits of a paid membership to the website, the U.S. Court of Appeals in Boston has held. Thus, the FTC’s summary decision was affirmed (Fanning v. FTC, May 9, 2016, Torruella, J.).

In 2009, John Fanning founded Jerk, LLC and operated Jerk.com, a self-proclaimed reputation management website, from 2009 to 2014. The website’s main feature was its profile pages, which by 2010 contained consumer profiles for more than 85 million people. The Jerk.com profiles often appeared in search engine results when consumers searched for an individual’s name. Upon viewing their photos on Jerk.com, many believed that someone they knew had created their Jerk.com profile. However, Fanning and Jerk, LLC actually created the vast majority of the profiles by using personal information they obtained through the online social networking service Facebook, a fact not disclosed on any of its pages. Jerk also falsely told consumers that if they paid $30 for a website subscription, they could access “premium features,” including the ability to dispute information posted on Jerk.com. In many cases, consumers who paid the customer service or subscription fee often got nothing in return.

In April 2014, the FTC filed a two-count administrative complaint, charging Fanning and Jerk, LLC with engaging in deceptive acts or practices in violation of Section 5 of the FTC Act. The first count alleged that Jerk.com misrepresented the source of its content by claiming it was entirely user generated, and the second count alleged that Jerk.com misrepresented the benefits of purchasing a $30 membership. In September 2014, the Commission’s motion for a summary decision was granted on both counts and Fanning was found to be personally liable for Jerk.com’s misrepresentations. The FTC also enjoined Fanning and Jerk from making certain misrepresentations and imposed monitoring and recordkeeping requirements. Fanning filed an appeal.

Liability. The Jerk.com website contained false and material statements about the source of its content and the benefits of a paid membership such that the FTC’s grant of summary decision was proper, the appellate court found. First, statements on the website gave reasonable consumers the overall net impression that its content was wholly user generated. The website referred to millions of users, contained disclaimers for views reflected by users, and invited users to create profile pages. Furthermore, complaints to the FTC by consumers, expressing concern that someone they knew created their profile page, provided extrinsic proof that Jerk.com impliedly misrepresented the source of its content.

Second, the misrepresentations on the website were material, since consumers altered their conduct based on Jerk.com’s misrepresentation that its content was user generated, according to the court. The source of the profile pages went to the central characteristic of the social networking website, and a consumer’s belief that Jerk.com had many users and an acquaintance made his or her profile page would influence the consumer’s decision to purchase a membership.

The Jerk.com website also contained false and material statements about the benefits of the paid membership. The website expressly represented that a $30 membership would allow users to contest and potentially remove negative reviews on their profile pages. The FTC presented evidence that its investigators paid the membership fee and never received any communication from Jerk.com. The agency received numerous complaints from consumers indicating the same experience. The misrepresentations were material in affecting consumer behavior, as reflected in the consumer complaints to the FTC indicating that they paid the membership fee in order to remove their profiles or negative reviews.

Recordkeeping. The court also found that the recordkeeping requirements were reasonably related to Fanning’s FTC Act violations. The requirement that Fanning maintain advertisements and promotional materials containing any representation covered by the order for a period of five years and notify the FTC of any complaints relating to the website ensured that the Commission would be aware of Fanning’s other business ventures, how he portrays them to consumers, and how consumers perceive them. The monitoring provisions were particularly reasonable based on the transferability of the unfair practices to other products, since Fanning started a similar website while operating Jerk.com.

Compliance monitoring. However, the reporting requirement that Fanning report to the FTC all affiliations with any business venture and employment for a period of 20 years was overly broad and not reasonably related to Fanning’s violation. The court noted that the provision was not restricted to whether the affiliate or employer had any responsibilities relating to the order and the FTC did not provide an explanation of the rationale for such a requirement. Thus, the provision relating to the compliance monitoring was vacated and remanded for further proceedings.

The case is No. 15-1520.

Attorneys: Bradley Grossman and Jonathan E. Nuechterlein for the Federal Trade Commission. Peter F. Carr, II and Pamela C. Rutkowski (Eckert Seamans Cherin & Mellott, LLC) for John Fanning.

Companies: Jerk, LLC

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