Judge Sides With DirecTV in $4 Billion FTC Spat

OAKLAND, Calif. (CN) - Rejecting claims that DirecTV put out misleading ads, a federal judge on Thursday dealt a major blow to the Federal Trade Commission's quest to claw back $4 billion in "unjust gains" from the AT&T-owned company.

"The Court has significant questions about the FTC’s ability to prove that the amount it seeks in restitution reasonably approximates the defendant’s unjust gains," U.S. District Judge Haywood Gilliam Jr. wrote in his 45-page ruling.

Gilliam found the FTC failed to show DirecTV misled consumers about pricing and cancellation fees in print and online ads, but he delayed deciding if it deceived consumers on its website.

Despite allowing claims about the website to survive, the judge raised serious doubts about whether the FTC can ultimately justify its demand for $3.95 billion in damages.

According to the FTC, DirecTV did not clearly disclose a mandatory two-year contract period, early cancellation fees, and increased pricing after the first year.

Gilliam issued his findings based on evidence presented during the first part of a bench trial in August 2017. After the FTC made its case, DirecTV moved for judgment on partial findings, effectively suspending the trial.

The FTC's expert witness, Dr. Daniel Rascher testified in court that $3.95 billion represents "a reasonable estimate" of DirecTV's unjust gains, based on the assumption that "all DirecTV subscribers... thought they would pay the same amount in the second year as they paid in the first."

But to justify that amount, Gilliam said the FTC would have to show that different versions of DirecTV's website in 2011 and later would lead a reasonable consumer to expect to pay the same price after one year of service.

The judge found that a 2011 version of DirecTV's online ordering process could be deceptive because customers had to click on hyperlinks or hover a mouse over symbols to view key terms of service.

Gilliam also delayed ruling on claims that DirecTV violated the Restore Online Shoppers Confidence Act of 2010, which requires obtaining online customers' express consent before charging them for services. Gilliam said he must evaluate other versions of the website to decide on those claims.

But Gilliam found the FTC utterly failed to prove its case regarding the DirecTV ads it called deceptive. One FTC expert testified about an online survey assessing consumers' comprehension of terms featured in a print ad. Another expert testified about "general principles of social influence," including how offering a "lowball" price and "free gift" can increase the likelihood that someone will make a purchase.

Gilliam found both experts' testimony irrelevant to the central question of whether DirecTV's ads were likely to mislead a reasonable consumer.

Analyzing one of DirecTV's print ads from 2013, Gilliam found the terms clearly disclosed in bold and capital letters, contrasting with other text in the disclosure box, even though the disclosure appeared in smaller font toward the bottom of the ad.

"Because most of the text in the disclosure box is not bolded, not in all capital letters, and not partially underlined, this information stands out visually," Gilliam wrote.

The judge further held that even if he found one advertisement deceptive, the FTC failed to show how one ad could be representative of more than 40,000 advertisements that DirecTV put out between 2007 and 2017.

According to Gilliam, the FTC failed to "explain why conclusions about a handful of advertisements can be applied to derive a uniform net impression for an extremely large number of others that vary significantly in format, content and emphasis."

Gilliam scheduled a case management conference for Sept. 4 and asked the parties to decide whether they want to finish the bench trial or renew settlement talks.

DirecTV attorney Chad Hummel, of Sidley Austin in Los Angeles, and the FTC public affairs office did not immediately return emails seeking comment Thursday afternoon.

AT&T purchased DirecTV for $48 billion in 2015, creating the world's largest pay-TV company.

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