The Initial Decision in the administrative action challenging allegedly deceptive “free” claims for Intuit’s TurboTax product was just released, and the meticulous 237-page opinion is a must-read for anyone in the advertising arena. Until you have time to digest the Administrative Law Judge’s ruling, we think this excerpt illustrates why we view the decision as a major victory for American consumers:
“Complaint Counsel has demonstrated that Respondent violated Section 5 by engaging in deceptive advertising. Numerous, widely distributed advertisem*nts for TurboTax expressly or impliedly represented that the consumer-viewer would be able to file their taxes online for free using TurboTax, when, for a significant proportion of these consumers, this was simply untrue. Respondent’s purported disclosures of the conditions and qualifications for the free online filing offer were typically inconspicuous, unclear, or otherwise insufficient to inform a reasonable viewer of the terms of the offer or to modify the dominant message of ‘free.’”
Intuit’s “free” claims for TurboTax have been ubiquitous. Indeed, some national TV commercials in Intuit’s “Power of Free” campaign consisted of little more than the word “free” repeated over (and over and over). According to the Administrative Law Judge, Intuit deceived consumers with its bogus “free” filing claims, given that approximately 100 million people – about 2/3 of filers – didn’t qualify for “free” filing. You’ll want to read the Initial Decision to get the complete picture (including an encyclopedic citation of relevant caselaw), but here are some key points we think are worth emphasizing.
Staff’s commitment to truth in national advertising is unwavering. The Bureau of Consumer Protection is a relatively small office, but we patrol a vast law enforcement beat. That includes challenging widely disseminated claims by major national advertisers. How extensive was Intuit’s campaign? According to the Initial Decision, the “free” ads ran at least 84,356 times across 721 television networks. Those totals don’t include online dissemination, which generated billions of impressions, or dissemination via YouTube, Facebook, Twitter, email, etc. The Initial Decision is just that – initial. But even at this stage of litigation, the case demonstrates that we won’t back down when it comes to protecting consumers from deception.
Advertisers should exercise caution when using the word “free.” The Initial Decision quotes the famous line from the FTC’s Book-of-the-Month Club case: “The word ‘free’ is a lure. It is the bait. It is a powerful magnet that draws the best of us against our will ‘to get something for nothing.’” As the ALJ put it, “Given the power of ‘free’ messaging, the need for the advertiser to provide clear and conspicuous disclosures of any limitations or conditions is particularly strong.”
It’s unwise to rely on a purported “disclosure” to correct a deceptive claim. In response to Intuit’s defense that its ads included purported disclosures that effectively modified its “free” claims, the Initial Decision put that argument under the microscope. In rejecting the company’s claim, the ALJ looked at the purported disclosures’ wording, font size, font color, juxtaposition with other statements, location and length of time on the screen, placement at the end of some ads, and other relevant factors. The conclusion: “Respondent’s purported disclosures of the conditions and qualifications for the free online filing offer were typically inconspicuous, unclear, or otherwise insufficient to inform a reasonable viewer of the terms of the offer or to modify the dominant message of ‘free.’” Specifically, the ALJ found that “use of the phrase ‘simple returns’ is an ineffective disclosure because it fails to convey to consumers that they may not qualify in a manner that is consistent with TurboTax’s qualification criteria and does not cure the false impression that they can file for free with TurboTax.”
Consider consumer perception before making unqualified claims. In FTC parlance, an “unqualified” claim is one without conditions or restrictions while a “qualified” claim conveys limitations. Citing Removatron v. FTC, the ALJ held that “qualifications must be unambiguous in order ‘to change the apparent meaning of the claims and to leave an accurate impression. Anything less is only likely to cause confusion by creating contradictory double meanings.’” The Initial Decision applied that holding this way:“To the extent Respondent’s advertisem*nts could be interpreted as conveying either an unqualified free offer available to the viewer or a qualified offer that may not apply to the viewer, such ambiguity is construed against the advertiser.”
Don’t rely on a pro forma statement like “see details” to change the message consumers take from an ad. Intuit urged that language in its ads and on the TurboTax website like “see details” or “see if you qualify” was sufficient to notify consumers that the “free” offer wasn’t necessarily free for them. The ALJ rejected that argument, observing that such statements are “unlikely to alter the overall net impression of an advertisem*nt. At best, such messages create ambiguity in Respondent’s dominant ‘free’ messaging rather than materially modify it.”
The potential complexity of a transaction doesn’t relieve companies from meeting established truth-in-advertising standards. FTC caselaw establishes that if the advertiser induces the first contact with a consumer through deception – sometimes called a “deceptive door opener” – the advertiser has violated the FTC Act “even if the buyer later becomes fully informed before entering the contract.” Intuit argued that it should be exempt from that standard because online tax preparation is a complex product and consumers don’t expect to see all qualifying details in an ad. The Initial Decision slammed the door on that defense, noting that “no FTC case has held that the deceptive door opener rule does not apply to transactions that take place online rather than in a brick-and-mortar store.”
Don’t assume that sending people to your website for more information will cure deception. Intuit further argued that it referred consumers to its website for details, and that phrases like “see details” or “see if you qualify” sufficiently informed people they could go to the TurboTax website, click on various hyperlinks, and view pop-up screens to get complete information about eligibility for free filing. The Initial Decision cites three reasons why that argument was unpersuasive. “First, the assertion is contrary to the weight of the evidence . . . showing that at least a significant minority of consumers could reasonably, and did in fact, take away from Respondent’s advertising the false impression that they could file for free with TurboTax.” Second, “even if some consumers may choose to conduct research in response to an advertising claim, the law protects those who do not: ‘[T]he public is not under any duty to make reasonable inquiry into the truth of advertising.’” And “Third, information available on Intuit’s website cannot be used to counter or cure a false claim contained in other advertising.” In short, a deceptive door opener can’t be cured by what happens at the website.
If a truthful explanation of material terms that limit an advertising claim would subject consumers to “information overload,” rethink your claim. Intuit argued that disclosing in its ads material eligibility requirements for free tax filing would harm consumers by confusing them with “information overload.” The Initial Decision includes a forceful rebuttal to that argument: “Moreover, to the extent it is difficult for Intuit to communicate effectively all material eligibility requirements for Intuit’s free tax filing products, the solution is to avoid claims that trigger the need for such clarifying disclosures.”
Intuit’s changes to its advertising were not enough. Intuit raised as an affirmative defense that the FTC case is moot because “Intuit has discontinued the purportedly unfair and deceptive advertising campaigns . . . .” The company’s argument rested, in part, on a May 2022 settlement with Attorneys General from 50 states and the District of Columbia, resolving an investigation into the company’s marketing of online tax preparation products. That settlement, Intuit urged, effectively enjoins any recurrence of the violation alleged in the Complaint. You’ll want to read the Initial Decision for details, but here’s the key conclusion: “[T]he facts do not demonstrate either that Respondent has voluntarily ceased all the conduct found to be unlawful herein or that the State Settlement will prevent Respondent from engaging in such unlawful conduct in the future. Accordingly, Respondent’s mootness defense is rejected.”
Of course, the Initial Decision doesn’t put an end to the pending litigation. We’ve cited only a few of the many quotable quotes, which is why it’s an opinion that merits a fresh yellow highlighter and your undivided attention.
