United States: FTC Sues Online Retailer Over "In Stock" And "Ships Tomorrow" Claims

The Federal Trade Commission sued SuperGoodDeals.com and its owner, alleging that they misled consumers with false promises that face masks and other PPE were "in stock" and would shipped "tomorrow."  According to the FTC, the company actually took weeks to ship products to customers. 

The U.S. Attorney's Office for the Eastern District of New York also brought a criminal case against the company's owner, charging him with price gouging and mail and wire fraud. 

Andrew Smith, the Director of the FTC's Bureau of Consumer Protection, said, "Unscrupulous merchants are taking advantage of consumers in their hour of need by not delivering goods -- including masks and other personal protective equipment -- as promised, and failing to provide required refunds.  The FTC will not tolerate this, and we are working closely with criminal authorities to put a stop to it."

The FTC alleged that the company's claims violated both the FTC Act's prohibition on "unfair or deceptive acts or practices" and the FTC's Mail Order Rule.  As we recently blogged about, the Mail Order Rule requires companies to have a reasonable basis for any shipping representations that they make.  If it turns out that a company is unable to ship when promised, the company must give customers notice of the delay, an opportunity to cancel the order, and then, if cancelled, a prompt refund.  Here, the FTC alleged that the company did not notify customers, get consent to the delayed shipments, or provide prompt refunds. 

The FTC also charged the company with selling counterfeit goods that were falsely advertised as "authentic."  For example, SuperGoodDeals advertised "authentic" Yeti mugs -- which the FTC said were not, in fact, made by Yeti. 

Here are a few important take-aways from the FTC's action.

After having brought only a few Mail Order Rule cases over the last decade, the FTC has now brought two cases in the last three months.  With e-commerce becoming more important than ever as we live under a pandemic, marketers should expect that the Mail Order Rule will become a more frequently-used enforcement tool. 

Mail Order Rule compliance, particularly when you're talking about fast shipping and delivery claims, requires companies to have processes in place to be able to identify products that won't ship on time, and to notify and then get consent from consumers, very quickly.  If you don't have proper procedures in place, now is the time to scale back your fast shipping and delivery claims until you're sure you can comply.  (The FTC published a very useful guide to help companies comply.)  

Unlike typical false advertising cases that the FTC brings, Mail Order Rule cases are big damages cases -- up to $43,280 per violation.  Unless you're interested in paying a seven or eight figure settlement (or worse!), now's the time to heed the FTC's warning and ensure you're in compliance.  (When the FTC went after Fashion Nova earlier this year, the company settled for $9.3 million.)  

This case also highlights the fact that the FTC continues to be focused on pandemic-related claims.  Although FTC Chairman Joe Simons said that the FTC would be "flexible and reasonable" in enforcing the FTC's compliance requirements during the pandemic, this case says there's a limit to how flexible the FTC is going to be.  If you're promising to get needed supplies to consumers next day (or any other product, for that matter), you'd better make sure you can do that.  

Finally, I wanted to mention two other interesting things.  First, note that the U.S. Attorney's Office is bringing a criminal case as well.  It's another example -- and we have seen many, lately -- of government agencies partnering to go after coronavirus-related fraud.  With limited resources, agencies often decide to forgo taking action when another agency is already on the case.  The fact that we're seeing multiple examples of government agencies prosecuting the same company at the same time highlights how seriously the government is taking these issues and how aggressively they're going to prosecute violations.  

And, finally, in a case that's largely about the Mail Order Rule and COVID-19, it's interesting to see that the FTC added unrelated allegations related to counterfeit products.  Often, the FTC doesn't charge the full range of potential violations that it could, focusing on what it considers the most important issues -- or the issues that it wants to highlight to industry.  With the FTC's Commissioners publicly debating, over the last year or so, whether the FTC is being tough enough -- including whether they should charge the full range of possible violations -- this action may indicate that we're going to see a different (and a more aggressive) approach going forward.