The FTC is Turning the Lights On: Dark Patterns Aren’t in the Shadows Anymore

The continued growth and dominance of e-commerce have ushered in a new frontier for businesses. In response to the progressive evolution from brick-and-mortar marketplaces to the current e-commerce dominant landscape, companies redeveloped their advertising strategies to fit the digital age. As with any new evolution in commerce, this has left regulators struggling to keep pace with the industry. In an effort to adjust to the new virtual marketplace, e-commerce sites, apps and gaming platforms have developed and refined their marketing to include customer retention tactics such as pre-checked boxes, sometimes-hard-to-find disclosures, and confusing cancellation policies to increase revenue, stymie customer attrition or collect a customer’s private information. [1]  These tactics— coined “dark patterns”— have grown in scale and sophistication, creating ever greater challenges for both consumers and businesses in the digital age. [2]

Enforcement and Regulation of Dark Patterns

As part of a renewed enforcement campaign, the Federal Trade Commission (“FTC”) has increased its efforts to combat what it deems to be dark patterns tactics, including, but not limited to, monitoring and regulating companies that engage in allegedly deceptive or unfair business practices. [3]  In its September 2022 Staff Report, the FTC identified what it considers to be four of the most common dark pattern tactics employed by companies including (1) misleading consumers and disguising advertisements; (2) making it difficult to cancel subscriptions or charges; (3) burying key terms and junk fees; and (4) tricking consumers into sharing data. [4]  In recent years, the FTC has filed a number of enforcement actions against companies seeking to employ these tactics.

Dark patterns that have been deemed to be deceptive practices include designing advertisements to look like independent editorial content or utilizing countdown timers designed to make consumers believe that they only have a limited time to purchase a product or service when the offer is not actually time limited. [5]  For example, in 2019, the FTC took action against the operators of a “work-from-home scheme” for sending unsolicited emails to consumers that included “from” lines that falsely claimed they were coming from news organizations like CNN or Fox News. [6]  The FTC has also filed actions against companies that (1) required users to navigate multiple screens in order to cancel recurring subscriptions; (2) used vague dropdown arrows or small icons to hide the full cost of products; and (3) included unwanted products in consumers’ online shopping carts without their knowledge. [7]  In November 2022, the FTC took action against Vonage, an internet phone service provider, which resulted in a $100 million payout to customers who the FTC alleged were trapped by dark patterns and junk fees when trying to cancel Vonage’s services. The FTC also required Vonage to revise its terms and conditions to provide its customers with a simple way to cancel its services. [8]

Sometimes these dark patterns are combined for even stronger effects. [9]  This was the case for the online stock trading website RagingBull.com, LLC, which the FTC alleged used deceptive customer testimonials to lure consumers, placed disclaimers in dense terms and conditions text boxes that required scrolling to find, and sold services as a subscription which the FTC alleged had made it difficult to cancel and stop the recurring charges. [10]  The FTC claims that the combination of these dark pattern tactics has a compounding effect, increasing the impact of each and exacerbating the harm to the consumer. [11]

Dark Patterns Targeting the Youngest Consumers

Another common dark pattern involves allegedly tricking a user into purchasing goods or services that they did not want or intend to buy, whether the transaction involves a single charge or recurring charges. Notably, the FTC has brought actions against some of the biggest companies in the United States, including Amazon, Apple, and Google, involving purchases consumers made via their children’s in-app charges. Amazon, the FTC alleges, charged parents (and other account holders) for children’s purchases in mobile apps that were advertised as “free” while burying in fine print the fact that users could make in-app purchases. [12]  Once the account holder downloaded the app and children began playing the game, unbeknownst to the account holder, children could simply rack up multiple charges, ranging from $0.99 to $99.99 each, by tapping buttons, with no account holder involvement. [13]

However, perhaps the highest priority item for the FTC is a dark pattern which seeks to trick users into sharing their personal data, especially when those users may be children. These dark patterns are often presented as giving consumers choices about privacy settings or sharing data but are designed to intentionally steer consumers toward the option that gives away the most personal information. [14]  Under the Children’s Online Privacy Protection Act (COPPA), companies are required to protect children’s privacy and safety online, including by getting parental consent before collecting some types of information from children under the age of 13. [15]  A violation of COPPA is likely to have severe repercussions for a business. For example, in December 2022, the FTC’s enforcement action against Epic Games, Inc., the creator of the popular video game “Fortnite,” resulted in the company being assessed a $275 million penalty for violating COPPA.  In addition, Epic was also ordered to change its default privacy settings and to pay $245 million in refunds for allegedly tricking users into making unwanted charges. [16]

Conclusion

The FTC has provided significant guidance on what it deems to be dark patterns practices through its publications and enforcement actions. While these dark patterns are embedded in our digital commerce world, the FTC’s continued regulation is inevitably reshaping the landscape and promoting fair business practices. In light of the increasing regulatory focus on dark patterns, businesses that market to consumers online should consider the following risk-mitigation strategies in accordance with FTC guidance: (1) present information in a true and neutral manner to consumers; (2) test the effectiveness of their marketing messages online and in the marketplace; (3) ensure that material terms are easy to access and are disclosed early and prominently in the user stream versus at the end of the transaction or buried in terms and conditions; (4) obtain affirmative and unambiguous consent from the user when appropriate; and (5) obtain express informed consent of the account holder to any charges. By implementing these risk-mitigation strategies, businesses can not only protect themselves and their customers but also aid the FTC in its fight against dark patterns.

——————————–

This DarrowEverett Insight should not be construed as legal advice or a legal opinion on any specific facts or circumstances. This Insight is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult your attorney concerning any particular situation and any specific legal question you may have. We are working diligently to remain well informed and up to date on information and advisements as they become available. As such, please reach out to us if you need help addressing any of the issues discussed in this Insight, or any other issues or concerns you may have relating to your business. We are ready to help guide you through these challenging times.

Unless expressly provided, this Insight does not constitute written tax advice as described in 31 C.F.R. §10, et seq. and is not intended or written by us to be used and/or relied on as written tax advice for any purpose including, without limitation, the marketing of any transaction addressed herein. Any U.S. federal tax advice rendered by DarrowEverett LLP shall be conspicuously labeled as such, shall include a discussion of all relevant facts and circumstances, as well as of any representations, statements, findings, or agreements (including projections, financial forecasts, or appraisals) upon which we rely, applicable to transactions discussed therein in compliance with 31 C.F.R. §10.37, shall relate the applicable law and authorities to the facts, and shall set forth any applicable limits on the use of such advice.

[1] Federal Trade Commission Bureau of Consumer Protection, Bringing Dark Patterns to Light, Staff Report, September 2022 at 1, available at https://www.ftc.gov/system/files/ftc_gov/pdf/P214800%20Dark%20Patterns%20Report%209.14.2022%20-%20FINAL.pdf.

[2] Id. The term “dark patterns” has been used to describe design practices that trick or manipulate consumers into making choices they would not otherwise have made which may cause harm to consumers.  Id. at 2.

[3] Federal Trade Commission Bureau of Consumer Protection, FTC to Ramp up Enforcement against Illegal Dark Patterns that Trick or Trap Consumers into Subscriptions, https://www.ftc.gov/news-events/news/press-releases/2021/10/ftc-ramp-enforcement-against-illegal-dark-patterns-trick-or-trap-consumers-subscriptions; see 15 U.S.C. Sec. 45(a)(1); 15 U.S.C. Sec. 45(n).

[4] Federal Trade Commission, FTC Report Shows Rise in Sophisticated Dark Patterns Designed to Trick and Trap Consumers at 1-2, available at, https://www.ftc.gov/news-events/news/press-releases/2022/09/ftc-report-shows-rise-sophisticated-dark-patterns-designed-trick-trap-consumers.

[5] Id.

[6] See FTC v. Effen Ads, LLC, Case No. 2-19-cv-00945 (D. Utah).

[7] See FTC v. Age of Learning, Inc., also d/b/a ABCmouse and ABCmouse.com, Case No. 2:20-cv-07996 (C.D. Cal.); FTC v. Prog Leasing, LLC, also d/b/a Progressive Leasing, Case No. 1:20-cv-01668 (N.D. Ga.); FTC v. LendingClub Corporation, Case No. 3:18-cv-02454 (N.D. Cal.); FTC v. AH Media Grp., Case No. 3:19-cv-04022-JD (N.D. Cal.).

[8] FTC Press Release, FTC Action Against Vonage Results in $100 Million to Customers Trapped by Illegal Dark Patterns and Junk Fees When Trying to Cancel Service (Nov. 3, 2022), available at https://www.ftc.gov/news-events/news/press-releases/2022/11/ftc-action-against-vonage-results-100-million-customers-trapped-illegal-dark-patterns-junk-fees-when-trying-cancel-service.

[9] FTC Bureau of Consumer Protection, Bringing Dark Patterns to Light, Staff Report, September 2022 at 2.

[10] FTC v. RagingBull.com, LLC, Case No. 1:20-cv-3538 (D. Md.).

[11] FTC Bureau of Consumer Protection, Bringing Dark Patterns to Light, Staff Report, September 2022 at 2.

[12] FTC Bureau of Consumer Protection, Bringing Dark Patterns to Light, Staff Report, September 2022 at 7; see FTC v. Amazon.com Inc., Case No. 2:14-cv-01038 (W.D. Wash.).

[13] Id.

[14] Federal Trade Commission, FTC Report Shows Rise in Sophisticated Dark Patterns Designed to Trick and Trap Consumers at *1-2, available at, https://www.ftc.gov/news-events/news/press-releases/2022/09/ftc-report-shows-rise-sophisticated-dark-patterns-designed-trick-trap-consumers.

[15] 15 U.S.C. §§ 6501-6505.

[16] FTC Press Release, Fortnite Video Game Maker Epic Games to Pay More Than Half a Billion Dollars over FTC Allegations of Privacy Violations and Unwanted Charges (Dec. 19, 2022), available at https://www.ftc.gov/news-events/news/press-releases/2022/12/fortnite-video-game-maker-epic-games-pay-more-half-billion-dollars-over-ftc-allegations.