In 2014, AT&T offered to purchase DirecTV for approximately $67 billion in total compensation – $48.5 billion in cash and stock, plus an assumption of DirecTV’s $18.6 billion in total debt. Click here. Some believe that this deal was predicated on AT&T’s desire to be able to stream DirecTV’s content to AT&T’s wireless customers. Click here. However, this deal has hit a major bump in the road as the Federal Trade Commission (hereinafter “FTC”) has brought a complaint against the satellite television provider for deceptive advertising. Click here.
The complaint, brought in U.S. District Court in the Northern District of California after receiving a unanimous vote of approval from the FTC, alleges that several of DirecTV’s advertising practices are deceptive. Click here.
Specifically, the FTC alleges that, since 2007, DirecTV has inadequately notified customers that its twelve-month promotional offer requires a minimum contract of two years, which includes a $480 early cancellation fee; that the cost of the service increases by up to $45 per month in the second year of the contract; that its offer of three free months of premium movie channels includes an automatic charge to the customer’s account upon completion of the trial period, unless the customer calls in and cancels the package; and other similarly devious practices. Click here.
Although no specific legal basis is cited in the FTC’s complaint, click here, it will likely base its claim on the Federal Trade Commission Act, which bars “unfair or deceptive acts or practices in or affecting commerce[.]” Click here. The FTC’s Bureau of Consumer Protection is charged with stopping “unfair, deceptive and fraudulent business practices by collecting complaints and conducting investigations, suing companies . . . that break the law, [and] developing rules to maintain a fair marketplace[.]” Click here. If found guilty, DirecTV could be enjoined from any practices deemed to be deceptive. Click here. Or, if charged civilly, the company could be liable for up to $10,000 for each violation. Click here. The scope of such a holding could be staggering, given that DirecTV has over 20 million subscribers, each potentially having a legitimate claim. Click here.
Unfortunately for DirecTV, and perhaps for its customers, this recent complaint is not the first deceptive advertising claim against the company. In 2008, public interest activist group Consumer Watchdog, click here, sued DirecTV on behalf of its customers, seeking to enjoin the company from enforcing its early cancellation fee. Click here. This case remains unresolved, with DirecTV petitioning to the United States Supreme Court to review the matter. Click here.
If the FTC’s complaint, or the Consumer Watchdog lawsuit for that matter, results in liability on the part of DirecTV, AT&T’s anticipated purchase will likely be placed “under greater scrutiny.” Click here. This is particularly significant because, prior to the FTC action, the Federal Communications Commission unequivocally approved of the deal, primarily because the two companies are not direct competitors. Click here. Even more significant, however, may be the precedential value such a case would carry. Erik Brannon of IHS Technology stated that advertising practices such as these have become the industry norm. Click here. If that is true, DirecTV, as well as its competitors such as Comcast and Time Warner Cable, will have to be more consumer-friendly in what they include in the fine print of their advertisements, as well as in what information they make more readily apparent. Click here. For consumers, this would constitute a significant victory.