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A company that operates a billing service for Internet pornographers has been enjoined from billing telephone line subscribers who neither used, nor authorized the use, of their lines to reach adult Web sites. Southern District Judge Lewis A. Kaplan also froze some of the assets of the company, Verity International Ltd., or in the alternative, ordered the company to post bond, based on a showing by the Federal Trade Commission that it and other defendants conducted unfair and deceptive trade practices in billing for access to the sites. And Judge Kaplan’s ruling in Federal Trade Commission v. Verity International Ltd. Inc. 00 Civ. 7422, instructs the company not to bill a line subscriber without an express agreement permitting such billing or a “conspicuous” statement informing them of their rights. The company is in the business of collecting bills for access to adult sites without requiring the customer to provide a credit card number over the Internet. When computer users go on line to reach one of the Web sites, they see a series of terms and conditions for use. If they then click a box reading “I accept,” they are switched from their normal Internet service provider to an international telephone number. Verity or one of it affiliates then uses a system called Automatic Number Identification (ANI) to determine the identity of the user to whom the telephone line is assigned. It then bills the computer user at a rate of $3.99 per minute. Judge Kaplan said that in a billing system that was put into use in 1999, one of Verity’s affiliates, in a revenue sharing agreement with Telecom Madagascar, used telephone numbers allocated to Madagascar. From 1999 until earlier this year, the Verity affiliate had an agreement with AT&T to handle the call traffic to the Madagascar numbers in exchange for half the revenue. Under that agreement, the bills that customers received for accessing the adult Web sites simply showed long distance calls to Madagascar. The AT&T agreement was ended in May, Sprint provided the same service for a period during July, and then Verity’s affiliate switched to a direct billing system in August and September. Judge Kaplan called the implementation of the new system “a disaster,” with computer users and telephone customers complaining they were billed for services they never used or authorized. Some customers said they were billed even though they had 900 number blocks and international call blocks on their lines. And when they called a billing company affiliated with Verity to complain, they were pressured to pay the bills or misdirected to another office. The FTC said it received 548 complaints about Verity in one four-day period in September. The commission submitted 81 declarations from consumers to Judge Kaplan about the billing problems. Judge Kaplan said that “the Verity defendants stoutly argue that every call for which they were billed in fact was made from the line subscriber’s line to the Madagascar numbers�” Nonetheless, he said “The record is more than sufficient to establish, and the court finds, that a significant number of line subscribers to whom Verity sent bills did not themselves use, or authorize others to use, their lines to access the services of Verity’s clients, even assuming that someone else used their lines to do so.” “Based on the evidence before it, the court finds that the FTC is likely to succeed in showing that these practices are deceptive and unfair,” he said. Under the so-called “filed rate doctrine,” the judge said, courts have “consistently held” that subscribers must pay for telephone calls made on their lines even if those calls were not authorized. However, he said, “The FTC has long distinguished between basic telecommunications carriage principally ordinary telephone and long distance service and enhanced services such as those offered by Verity’s clients.” Moreover, he added, clicking the “I accept” box does not create a contract unless it is the subscribers themselves who click the box. “Insofar as these bills were sent to line subscribers who did not access or authorize access to the services for which payment was sought, the FTC is likely to establish that the bills made false and deceptive representations of material fact in suggesting that line subscribers were obliged to pay the bills,” he said. In fashioning the injunction, Judge Kaplan said the Verity defendants had already conceded that the “Madagascar” calls were actually terminated on a server located in London, and the defendants agreed to stop making references to “Madagascar” on the bills. Judge Kaplan said that “The chief vice of the defendants’ ANI-based billing is that it falsely represents to line subscribers that the line subscribers are responsible for services purchased from defendant’s clients even where the line subscribers neither purchased nor authorized the purchase of those services.” Therefore, Judge Kaplan said Verity and its co-defendants are enjoined from ANI-based billing unless the subscriber “previously entered into an express verifiable agreement authorizing such billing,” or the bill has a “conspicuous” and “express statement” that the subscriber is not obliged to pay unless they personally agree to do so. The company must also, he said, provide a convenient way for a subscriber who had not made such an authorization to have their bill cancelled. Lawrence Hodapp and David Torok represented the Federal Trade Commission. Patrick Coyne, Richard H. Kjeldgaard Scott A. Sinder and John Villafranco, of Collier Shannon Scott, represented Verity International Ltd.

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