December 21, 2022

Stroock Client Alert

By: Stephen J. Newman, Gilana R. Keller

The FTC has warned businesses about using so-called “dark patterns” online, stating: “It’s bad business to entice people with misleading representations and then waste their time with an online obstacle course that doesn’t result in the advertised benefit.” What does this “online obstacle course” look like, and how can businesses avoid dark pattern claims without being forced through endless hoops of their own? The FTC’s Dark Patterns Report provides useful guidance as to how compliance-minded companies can protect themselves. And, the recent $520 million settlement with Epic Games, and the $100 million Vonage Settlement discussed in our prior article, How the Federal Trade Commission Is Vigorously Targeting “Dark Patterns” Marketing. Is Vonage’s Nine-Figure Settlement Just the Beginning?, indicate that the FTC plans to aggressively employ the dark patterns framework set forth in its Report.

The FTC’s action against Epic Games Inc., the developer and distributor of the popular game Fortnite, involves two settlements. Pursuant to a proposed court order, Epic will pay a $275 million monetary penalty for violating the Children’s Online Privacy Protection Act (COPPA). Separately, a proposed administrative order requires Epic to pay a $245 million refund to consumers —which is the FTC’s largest administrative order—for its use of dark patterns. Though Fortnite is free to download and play, the FTC alleged that Epic employed dark patterns to charge consumers for certain in-game items, usually purchased by kids, without obtaining express informed consent from the account owners, and then precluded them from accessing previously purchased content when they disputed unauthorized charges. Further, millions of consumers complained to Epic about these practices and disputed the unauthorized charges with their credit card providers, and Epic’s employees internally raised alarms about the practices and suggested mechanisms to correct them. Yet, Epic ignored both consumers and their employees.

The Administrative Complaint alleged that “Epic deliberately requires consumers to find and navigate a difficult and lengthy path to request a refund through the Fortnite app.” While in June 2019 Epic began permitting users to cancel or undo charges for certain in-game items, it used “design tricks” or dark patterns to deter consumers from cancelling or requesting refunds for unauthorized charges. For example, Epic began permitting consumers to cancel certain in-game charges, but only allowed players to do so for a limited time. While an “undo” button initially appeared on the user’s screen in the same area that had a button for purchases, Epic made it harder to find after seeing a significant jump in cancellations. Epic did so by changing the name, minimizing it, and moving it to the bottom of the screen, and requiring consumers to push and hold the button on their controller, which is not required to purchase items. Further, Epic ensured that refunds were difficult to obtain. Epic placed the link to submit a refund request under a tab unrelated to the purchase screen. Most damning, the Epic user experience designer said he put it there in an “attempt to obfuscate the existence of the feature” and that during UX testing no player found the option. His superior told him it was in a “perfect” location. The designer commented that if consumers found it, they would need to take several unnecessary steps to submit the request “add[ing] friction for friction’s sake.”

In the Vonage Complaint, the FTC alleged that Defendants advertised and sold communication services through a negative option feature, or an offer in which the seller treats a consumer’s silence as consent to be charged for goods or services. The FTC claimed that Vonage failed to provide a simple method for customers to cancel their telephone services, employing “dark patterns,” which impeded customers’ ability to stop recurring charges. While few would link the FTC to the Eagles, in a recent press release about the settlement, the FTC extensively quotes the band as a warning to not run a Hotel California. Extending the obstacle course theme, the FTC cautions businesses against an attitude of “Relax, said the man. We are programmed to receive,” meaning to compare the resources companies expend to signing up new customers versus resources to cancel. To avoid a similar FTC action, companies should ensure cancellation options are clear and direct.

The FTC dark pattern claims against Epic and Vonage can largely be found in the FTC’s Report “Bringing Dark Patterns to Light” which provides more of a blueprint for these claims. And, while it uses some dramatic and ominous words to describe certain marketers – “unscrupulous” and relying on “psychological tactics” to formulate “manipulative design practices” – the Report also sets forth helpful guidance for businesses, and advertisers specifically, on how to avoid dark patterns.

The Report provides companies with four buckets of behavior to avoid: design elements that (1) induce false beliefs; (2) hide or delay disclosure of material information; (3) lead to unauthorized charges; and (4) obscure or subvert privacy choices. Breaking these down, each contain practical suggestions for companies when formulating advertisements on what not to do.

1. Design Elements that Induce False Beliefs: The FTC warns companies not to create “advertisements deceptively formatted to look like independent, editorial content.” This is not new: As the Report concedes, the FTC has taken action against these types of ads, including disguised advertising and promotional messages. Still, the FTC makes clear these actions are now also considered dark patterns. The Report provides as an example a claim against Effen Ads, which employed fake news stories to “trick” consumers to purchasing their program by allegedly sending unsolicited emails to consumers that included “from lines” claiming they originated from news organizations. Once consumers clicked on the links, Effen Ads showed them other fake news stories and then took them to Effen Ads’ sales website. The Report advises companies that “if an advertisement strongly resembles editorial content such as a news article, or appears formatted as native content in a publication with a strong journalistic brand, it is unlikely disclaimers will overcome the deceptive net impression.” The FTC is overall concerned not just about the “effect their design choices have on sales” but rather how “those choices affect consumers’ understanding of the material terms of the transaction.” In sum, when creating advertisements, companies should continue to ensure they are not formatted in a way that sways consumer conduct by generating “false beliefs.”
2. Design Elements that Hide or Delay Disclosure of Material Information: The FTC Report calls out “drip pricing” as a hidden-fee dark pattern in which companies advertise only a portion of a product’s price to induce consumers to move very far down the road of purchasing the product, and then only inform consumers about other mandatory charges late in the purchasing process. The Report explains that this practice hurts both consumers as well as competitors – “an honest business that sets forth the total price of its product at the outset will be at a significant disadvantage when compared to a seller that advertises an artificially low price to draw consumers in. . .” To avoid running afoul of a drip pricing dark patterns claim, companies should make sure the “upfront, advertised price” includes all “unavoidable and mandatory fees.” Ideally, even optional fees for additional services should be disclosed early in the purchasing process.
3. Design Elements that Lead to Unauthorized Charges: In yet another “dark pattern” that is not new, the FTC discusses enforcement actions focusing on in-app charges incurred by children. Companies should not advertise kids’ gaming apps as “free” while “burying” in the fine-print that app users could make in-app purchases, particularly when the app is likely to be used by a child. In an enforcement action against Amazon, the Report described that while a game was advertised as free, once the account holder downloaded the app, children could “rack up multiple charges,” some up to $99.99, without the adult account holder’s express consent, involvement or advance knowledge. In the Epic Complaint, the FTC emphasized that Epic engaged in similar practices despite the enforcement actions brought against Amazon and other companies, and offered in-app purchases so that kids could acquire items by pressing buttons absent any card holder consent. To avoid claims, businesses should make sure to advertise any fees up-front and provide specifics of their mechanics, especially when it comes to children’s games or other websites which allow for multiple users. They should also consider adding speed bumps or other technological features to ensure that the additional features are desired by the accountholder and that (for child-oriented apps) a responsible adult has given consent to the charge.
4. Design Elements that Obscure or Subvert Privacy Choices: The FTC Report provided little detail on how it might bring advertising claims under this bucket. However, the Report quotes one of its workshop panelists that described companies collecting phone numbers by default, since it is an opportunity to identify a consumer and target someone for advertising. The panelist cited to a case against Facebook alleging that Facebook collected phone numbers for purportedly a security reason, but in actuality used the information to also target advertisements. Companies should ensure that their privacy disclosures are clear, and should be transparent as to what kinds of data might be collected, and for what purposes.

Regarding the Epic Settlement, the FTC echoed one of the main takeaways from the Report, which is to “[l]ook at your website or app through the eyes of consumers” and “read your mail and listen to your employees.”^[1] Whether new dark pattern claims will be novel, or the label will simply be used for matters previously covered by the FTC Act, companies should critically think about how consumers perceive their advertising techniques to avoid claims. Doing so when beginning to formulate new business plans should minimize the growing obstacle course that the FTC is creating for companies through its dark patterns framework. 

[1] Lesley Fair, $245 million FTC settlement alleges Fortnite owner Epic Games used digital dark patterns to charge players for unwanted in-game purchases, FTC Business Blog, Dec. 19, 2022, https://www.ftc.gov/business-guidance/blog/2022/12/245-million-ftc-settlement-alleges-fortnite-owner-epic-games-used-digital-dark-patterns-charge.

• Financial Services Litigation, Regulation and Enforcement