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Lessons learned from the $10M mobile content lawsuit settlement

August 31, 2010

Mobile content providers must disclose charges clearly

Mobile content providers must disclose charges clearly

A group of mobile content providers is on the hook for more than $10 million to settle a class action lawsuit, even though all of the companies involved deny any wrongdoing.

The mobile content providers include Flycell Inc., Glomobi, Mobilefunster Inc., Thumbplay Inc. and WebAMG Holdings, as well as the marketing affiliate Glispa LLC and the aggregator Motricity Inc. They have agreed to settle a number of class action lawsuits against them, involving claims that these companies charged wireless subscribers for mobile content without authorization.

“These private actions are the result of a lack of federal guidance for marketing practices relating to mobile content customer acquisition in this developing channel,” said Andy Lustigman, principal attorney at The Lustigman Firm, New York. 

Mobile content refers to electronic products such as ringtones, games, graphics, news and other alerts that are provided through mobile phones and are charged directly to consumers’ mobile phone bills.

Although a relatively new form of commerce, mobile content has evolved to form a large and increasingly important industry.

Unsettling settlement
To be clear, each of the defendants has denied any wrongful conduct, and the settlement is in no way a judgment or ruling by the Court that the defendants did anything wrong.

The settlement has been preliminarily approved by the Circuit Court of Cook County in Illinois. It includes a $9 million fund to pay all claims of settlement members, and attorney’s fees of up to $1.85 million.

Settlement members are eligible to receive a one-time cash award of $10, or a refund of up to three months of content subscription charges.

Members of the settlement class include any person in the U.S. and its territories who, at any time prior to Aug. 27 of this year, were charged, damaged or otherwise lost money as a result of unauthorized content from any of the settling defendants.

People can find out if they are eligible by scanning past phone records for short codes that identify the various mobile content companies.

Participants in the AT&T, Mobile Messenger, Media Breakaway, m-Qube or Jamster settlements are not eligible.

In addition to the payout, the defendants are required to agree to adhere to certain consumer protection practices, including properly disclosing billing terms and promptly refunding unauthorized content.

Attorneys Jay Edelson, Myles McGuire, Rafey S. Balabanian and Steven L. Lezell of Edelson McGuire LLC were appointed by the Court to serve as the attorneys for the suit.

Further details can be found at

Confused consumers
Although many of the details of the settlement have not been made public yet, it appears that consumers complained that they were billed for content they had not purchased, or at least did not realize they had purchased.

“This isn’t a new issue,” said Gonzalo Mon, a partner in Kelley Drye & Warren’s advertising and marketing law practice in Washington. “Over the past few years, various companies have faced similar complaints.

“In the typical scenario, consumers are enticed by ads that prominently offer free content, but costs associated with that content are relegated to the fine print,” he said.

Advertising laws require companies to “clearly and conspicuously” disclose important offer terms.

In recent years, the Florida Attorney General has challenged various companies that failed to adequately disclose the costs associated with “free” offers.

These companies have each had to pay at least $1 million to settle the investigations.

In the most recent settlement, the AG even set forth specific guidelines about how disclosures must be made.

For example, certain disclosures must be made in 12-point font, with a minimum color contrast value of 125, and within 125 pixels of the cell submit field.

“Based on the information we have so far, it doesn’t appear that the recent settlement will change any of the obligations that mobile content providers previously had under existing laws,” Mr. Mon said.

“Again, the key is to make sure that costs are clearly and conspicuously disclosed so that consumers know what they are obligated to pay,” he said.

“If a consumer is surprised about a bill, he is likely to complain, and those complaints often lead to lawsuits.”

Marketers should look to the MMA Guidelines and the settlements in Florida for tips on how to make the required disclosures. 

One thing that is unique about this settlement, however, is the price tag. The content providers will reportedly have to establish a $9 million fund to pay all claims of settlement members, and pay attorney’s fees of up to $1.85 million.

“This could be the largest settlement over mobile marketing practices and demonstrates that there can be a high cost associated with failing to comply with legal requirements and best practice guidelines,” Mr. Mon said.

Other lawyers following the space agreed that this settlement comes as no surprise. 

“Which of these wireless content distributors would actually want to go in front of a jury of its peers who have all fought to have unauthorized charges removed from their wireless or credit card bills?” said Adam Snukal, an attorney at Reed Smith, New York.

“The fact remains, whether a company is selling a ringtone, an app or a pair of sneakers, the advertising cannot be deceptive, misleading or unclear as to the offer on its face,” he said.

“These companies must also be cognizant that both the market and the regulators which enforce them have raised the bar of acceptability.”

Final Take
Dan Butcher, associate editor, Mobile Commerce Daily

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Dan Butcher is associate editor on Mobile Commerce Daily and Mobile Marketer. Reach him at

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