If Amazon's Online PRIME Cancellation Process Is Found to Be a Prohibited 'Dark Pattern,' Lots of Other Advertisers Should Be Worried

The FTC made news yesterday by filing suit against Amazon for allegedly "tricking" consumers into signing up for the company's Prime service and also for allegedly "sabotaging" consumers' efforts to cancel Prime. Prime is Amazon's $139/yr ($14.99/month) subscription service that includes free video streaming, shipping, and other benefits.  

The FTC does not allege that Prime is worthless. Instead, it alleges that Amazon "duped" consumers into signing up for Prime and then made it confusingly difficult to cancel — using so-called "dark patterns" — a moniker the FTC increasingly uses to describe online "cognitive trickery."

"Dark patterns" are simply old tactics in a new setting. In the days before online selling became commonplace, consumers who called in to sign up for a subscription service would later have to call back to cancel that service. Before being allowed to cancel, however, consumers were often subjected to elaborate schemes to counteroffer — referred to in the telemarketing industry as "saves." Sometimes, businesses would use hard-sell tactics to wear down consumers who wanted to cancel and would even reward telephone agents who prevented customers from canceling. It is easy to see how these tactics could be abused. Dark patterns refer to the use of deceptive tactics online to steer consumers away from what they presumably really want to do, which in this case is allegedly either not subscribing to Prime in the first place or canceling Prime. 

It is hard to see how what Amazon was doing, even taking the allegations in the FTC's complaint in their most flattering light, was deceptive. Amazon would dangle a free trial offer for Prime to every regular consumer who ordered an item right before they clicked "buy." People are generally not stupid. They know that by signing up for Prime, they would get the immediate shipment for free (and have any other shipping fees during the free trial service also waived). The disclosures plainly informed consumers that they could try Prime for 30 days and then could cancel at any time up to 30 days after signing up, or they would be charged the monthly subscription fee of $14.99. Consumers also had the option of paying a one-time fee annually, saving money on the monthly subscription. None of these selling tactics appears to be out of the industry norm in any material way.

But the FTC generally dislikes free trial offers (alternatively called "negative options" or "free-to-pay conversions") because it knows that many consumers forget to cancel before the end of the free-trial period and find themselves on the hook for at least the first month's subscription fee, if not more, before they remember to cancel. Many advertisers take advantage of this phenomenon and can model out so-called "attrition" rates based on sign-ups and cancellation rates, which often lag. Whose fault is this?

The FTC has put into place rules for alerting consumers in advance to the impending monthly subscription charge and has frequently brought enforcement in this area over the years — more recently using its favorite new law, the Restore Online Shoppers Confidence Act (ROSCA). ROSCA prohibits "any person to charge or attempt to charge any consumer for any goods or services sold in a transaction effected on the Internet through a negative option feature ... unless the person— (1) provides text that clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information; (2) obtains a consumer’s express informed consent before charging the consumer’s credit card, debit card, bank account, or other financial account for products or services through such transaction; and (3) provides simple mechanisms for a consumer to stop recurring charges from being placed on the consumer’s credit card, debit card, bank account, or other financial account." The FTC and advertisers often disagree what "clear and conspicuous" disclosure of: "material terms" and "simple mechanisms to cancel" mean in practice.

The FTC's case against Amazon centers on two aspects of the consumer transaction  — the sign-up and the cancellation. The Commission alleges that Amazon made it deceptively simple to sign up by failing adequately to disclose the material terms of the deal when the customer was most vulnerable, i.e., after purchasing an item online and entering the checkout flow. Subsequently, although the FTC does concede that Amazon made it possible to cancel Prime online, it made consumers proceed through a series of six online reminders and save screens before effectuating that cancellation.

How many "save" screens would qualify as "simple" under ROSCA? Shouldn't the online seller be permitted to remind the customer of the benefits of the subscription they might be losing? The FTC would presumably say that a single cancel button, accompanied by a list of benefits being lost, would comply with ROSCA, but this seems unduly restrictive. Surely, if there are many benefits, and those benefits are complicated, the advertiser should not have to put all of this information on a single screen. Is it deceptive to remind the consumer on successive screens of each benefit they may forego by canceling? Should we treat customers who select an item online and then proceed to checkout as somehow especially vulnerable? All of these issues will be subject to dispute at trial.  

Both parties will most likely seek to introduce competing survey evidence regarding consumer understanding of the sign-up and cancellation processes. One key to these surveys will be identifying the relevant universe of respondents. Someone who makes a one-time purchase of paper towels might take less time in the purchase flow than a consumer buying, for example, a $2,000 pre-fabricated gazebo. A consumer purchasing a single item might value Prime differently than someone who has a basket full of items to be packaged in different shipments. A consumer who never intends to use Amazon again might see the costs and benefits differently than someone who intends to make frequent use of the service. A grandfather who subscribes to cable may value Prime differently than a Millennial cord-cutter who only watches video online.

Already, commentators are casting doubt on the FTC's chances of success in this case. Amazon is a popular and trusted online sales platform. The FTC alleges it engaged in trickery to get people into signing up for Prime, a service that people generally appear to like. Likely there are emails from company employees describing how changes to the cancellation screens might stave off some Prime cancellations, but is this evidence of a knowing violation of the law?

It's clear that Amazon and the FTC have been haggling over these issues for a while and have not reached a settlement, which would ordinarily be the norm in such matters. My experience is that this generally means that FTC demanded too steep a price, or too onerous conditions, for settling.

Now, the case proceeds to court, where if successful, the FTC will presumably seek relief that includes civil penalties, cessation of the allegedly wrongful conduct (much of which has already been discontinued), and likely also the presumptive cancellation of Prime membership and refunds for thousands of consumers. The private class actions will also likely flow from this set of actions, compounding the harm to Amazon. Is this beneficial to consumer protection overall?

A mere 5-10 years ago, I struggled to find reports of court cases where the FTC had not prevailed — and many of the cases resulted in summary dispositions against obvious fraudsters. Its recent track record is more checkered, however. As the FTC pursues bigger targets, using more controversial theories, it is bound to lose more often. Another courtroom defeat for the FTC here could embolden more targets of investigation to opt for court. This might not be helpful for the cause of consumer protection.