Rosa Labs in violation of FTC rule if they do not automatically cancel orders


#1

There is a discussion about this in another thread, but this point is important enough to deserve discussion entirely centered around it:

Regarding the recent 8+ week delay that has been added to non-backer orders, Rosa Labs must do the following to comply with the FTC’s Mail or Telephone Order Merchandise Trade Regulation Rule:

If your first delay option notice provides a definite revised shipping date of more than 30 days or states that you do not know when you will be able to ship, you must tell your customers that if they do not respond, the order will be cancelled automatically within the originally promised time plus 30 days.

Thoughts?


#2

Interesting, just read through it. Any owner placed on the new website looks like it would fall under the rule.

It looks like by delaying shipping this long may cause a large number of canceled orders from non responses.


#3

This wouldn’t apply to the original backers, as the nature of the crowdfund investment was not the purchase of a product, but an investment followed by the promise of a reward. Different rules apply… but to the pre-orders and current buyers, these rules might be pertinent. @juliomiles , @rob , you guys might want to have your legal team check it out. It might throw a kink in things, but it’s definitely better to be on the right side of the law.


#4

Yes, as stated in the original post, this applies to non-backer orders.

However, an interesting point is it does apply to subscription orders by backers that are still waiting on the backer order to arrive. As the order timeline was given as 10-12 weeks for non-backer orders, that all backer orders would be fulfilled before non-backer orders, and that all reorders are to ship within 2 weeks of the shipment of the first order, then it follows that all subscription orders that have been placed by backers have an official max timeline of 12-14 weeks.

Here are the penalties for anyone that doesn’t feel like reading the FTC document:

Merchants who violate the Rule can be sued by the FTC for injunctive relief, monetary civil penalties of up to $16,000 per violation (any time during the five years preceding the filing of the complaint), and consumer redress (any time during the three years preceding the filing of the complaint). When the mails are involved, the Postal Service also has authority to take action for problems such as non-delivery. State law enforcement agencies can take action for violating state consumer protection laws

It wouldn’t be the maximum penalty, as injunctive relief is equitable. There would be some fine assessed that a judge felt appropriate for the delay and failure to follow the rule though. It would certainly go up if discovery provided evidence that Rosa Labs staff was aware of the violation but chose to continue down that path in the interest of profit.

And considering how new this whole backer thing is, if an actual lawsuit occurred, I would be surprised if the FTC lawyers did not delve into the legal grey area of crowdfunding in an attempt to set a precedent, especially in the case of crowdfunding done by large, well funded organizations.


#6

Hmmmm… I’m not really sure this thread needs closing/locking. It seems to be pretty civilized and is bringing up a valid concern for Rosa Labs. Granted it’s an uncomfortable topic to have to bring up and is close to bumping into the shipping complaints threads… but to me it doesn’t feel like it’s crossed that line at all. -shrug-


#7

why would you request this?


#8

Gonna agree with @vanclute on this one. Nothing inflammatory about the thread, and it’s a rational concern being presented in a civilized way, plus a simple request for thoughts on the subject.

It’s true there have been one or two similarly-named topics in the past, more focused on arbitrary and aggressive demands, but as of yet this isn’t one of them, so there’s no reason to cut it off :slight_smile:


#9

IMO, if Rosa doesn’t need to pre-charge people to cover the bills, they should just change their policy to charging when they’re about to ship.

I was surprised they don’t just do that, since they received funding I’d be surprised if they were spending hand to mouth.

That said… maybe it reduces the order volume to a more manageable level.


#10

Correct me if I am wrong, but there are three types of orders excluding reorders:

  1. Backer orders, who ordered before the crowd funding period ended
  2. Pre-orders, who ordered after crowd funding period, but before the initial launch of the site.
  3. Normal orders, who orders after the launch of the main site.

So would pre-orders also be excluded?


#11

I would guess not, because pre-orders still had a definite timeline attached to them. Only the backers jumped in knowing a risk that they may not get it at all, or get it drastically later than expected.


#12

I honestly don’t know, nor does anyone unless an actual lawsuit occurs.

If this went to court, you’d probably hear an argument that the FTC Rule applied the moment the transaction became a quid pro quo donation with an actual date and confident language that suggested the product would not fail to ship.

The period starting near the end of April was like that, when shipping dates were given and earlier spots in line were offered. I’m sure it could be suggested that is not the case, ‘because reasons’.

The big issue is for the retail orders after the site launch – those are very clearly online transactions, not quid pro quo donations. If there’s a problem there, it invites a lawsuit, reducing the barrier of entry for other less compelling arguments.

Most people would gladly click an opt-in link that confirmed they are willing to wait a few additional months if that were necessary to keep Rosa Labs safe from a lawsuit.


#13

I see that Rosa Labs has updated their order website to indicate that new orders ship in 4-5 months rather than the 10-12 weeks they advertised last week even after pushing May 2014 orders back 8-10 weeks. I hope this is a signal that they are considering complying with the regulations that they are subject to.


#14

I don’t think there’s any “consideration” involved - your tone implies that they’d prefer not to, when in fact, this group of people will do their utmost to protect their investment and reputation. They have more skin in the game than any individual customer, and it’s not like this will make them rich unless it works.


#15

I would be sad if Rosa Labs actually ended up being sued over this… If the rules were true and applied in this case. I believe most of us know that these guys have operated with good intentions and are not trying to be evil or such… A law suit could potentially destroy Rosa Labs and ruin it for everyone else hoping they do well


#16

That good intentions thing is becoming more and more more questionable.

Do you honestly believe them announcing they were going to give us less info was good intentions?

Do you honestly believe the latest excuse for the new delay?


#17

Yes honestly I do :slight_smile:


#18

I don’t mean to imply there is any malice on their part, it is possible that they were unaware of the rule. I am just saying they have 3 options:

  1. Send an email indicating they will cancel orders at the 12 week + 30 day mark unless they get a response, then cancel the orders where customers have not consented.
  2. Just cancel orders at the 12 week + 30 day mark without pre-warning customers.
  3. Take their chances.
    And I hope they are considering doing #1. They have already violated the rule. The rule states that their email about the delay should have already indicated that they will be cancelling orders at the 12 week + 30 mark:

If your first delay option notice provides a definite revised shipping date of more than 30 days or states that you do not know when you will be able to ship, you must tell your customers that if they do not respond, the order will be cancelled automatically within the originally promised time plus 30 days.

So it isn’t apparent to me that they are going to do #1. Not cancelling orders for people who have not contacted them at the 12 week + 30 day mark will just be another (more serious?) violation.

The decision to fulfill backer’s orders before web merchant orders was a damned-if-you-do damned-if-you-don’t decision. On one hand, it is ludicrous and insulting to tell backers they would have been better off canceling their backing orders and reordering in May 2014. On the other hand, paying out fines and/or refunds may negatively affect the company’s ability to get Soylent to anyone.

For what it is worth, I think they made the right decision with fulfilling backer orders first. I would just like to see them begin to comply with this rule.

I’m less concerned about them being sued by customers as just being investigated by the FTC. It just takes a few customers complaining to the FTC create the possibility; and it pretty apparent to anyone who has hung around here for any amount of time that people like complaining. Additionally, they have opened themselves to the possibility of penalties for the next five years:

monetary civil penalties of up to $16,000 per violation (any time during the five years preceding the filing of the complaint)

If they don’t have a competitor that would have an interest in seeing them investigated by 2020 I don’t like the odds of this grand experiment having succeeded.


#19

Good intentions don’t exclude you from laws.


#20

Depending on the law, the intentions can affect the punishment though as far as I know :slight_smile:


#21

As far as I am aware we are talking about Rosa Labs needing to chang their policy to avoid breaking a law, so avoiding punishment in the first place would be the best course of action.

Sometimes I’m not sure where these conversations are going :wink: