Antitrust Lawyer Blog

On March 12, Kmart Corporation agreed to settle FTC’s charges that it engaged in deceptive practices in advertising and selling its Kmart gift card. Kmart will implement a refund program and publicize it on its Web site. This is the agency’s first law enforcement action involving gift cards.

According to the FTC’s complaint, Kmart promoted the card as equivalent to cash but failed to disclose that fees are assessed after two years of non-use, and misrepresented that the card would never expire. Kmart has agreed to disclose the fees prominently in future advertising and on the front of the gift card.

The FTC’s complaint alleges that since 2003, Kmart did not disclose adequately that after 24 months of non-use, a $2.10 “dormancy fee” would be deducted from the card’s balance for each month of inactivity, resulting in a $50.40 reduction from the card’s value if the card was not used for 24 months. In many instances, the FTC alleges, consumers did not learn of the fee until they attempted to use their cards. The FTC’s also alleges that since December 2005, Kmart’s Web site stated that the gift cards never expire, even though the dormancy fee caused cards valued at $50.40 or less to expire after two years of inactivity. As of May 1, 2006, Kmart stopped charging a dormancy fee on all Kmart gift cards.

On February 28, Nicholas C. Albert, an affiliate Webmaster who used the allure of “free” music downloads to spread malicious computer code, is settling FTC charges he violated federal law. The defendant, who was paid to distribute the code by the company that developed it, will give up all of his ill-gotten gains and is permanently bared him from interfering with consumers’ computer use, including distributing software code that tracks consumers’ Internet activity or collects other personal information, changes their preferred homepage or other browser settings, inserts new toolbars onto their browsers, installs dialer programs, inserts advertising hyperlinks into third-party Web pages, or installs other advertising software. He is also prohibited from making false or misleading representations; prohibited from distributing advertising software and spyware; and is required to perform substantial due diligence and monitoring if he is to participate in any affiliate program. Albert will also give up his ill-gotten gains – $3,300.

According to the FTC complaint, Albert was deceptive when he bundled Enternet Media’s malware with “free” music made available to bloggers and others at his Web sites: iwebtunes.com and iwebmusic.com. Bloggers who selected a music file from Albert’s site also received a bundled piece of java script code that caused their blogs to display Enternet Media’s deceptive software installation boxes. Then, whenever a consumer landed on a blog that had downloaded files from Albert, the consumer would not only hear music, but would also see the pop-up.

Enernet Media’s code would automatically install when the consumers downloaded the offer for free browser upgrades. The FTC alleged that the code interfered with the functioning of the computer, and was difficult for consumers to uninstall or remove. In addition, the code tracked consumers’ Internet activity, changed their home page settings, inserted new toolbars onto their browsers, inserted a large side “frame” or “window” onto browser windows that in turn displayed ads, and displayed pop-up ads, even when consumers’ Internet browsers were not activated.