The legality of ‘UNLIMITED’ and oversold plans…

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This web hosting review was started by SA-ChrisM on 2009-07-31 01:38:59:

This just came up in another thread and I did a bit of research and found a few interesting nuggets. I’m really curious what you, the community, think about this.

General consensus amongst knowledgeable buyers is that ‘Unlimited’ is shady. You’re selling something you can’t actually provide and relying on your TOS to cover your rear from a ‘legal’ standpoint.

General consensus amongst hosts is that ‘Unlimited’ is the same thing the industry has been doing effectively since overselling started happing. Nothings changed but the date, and the numbers.

I’ve worked in the industry for quite a few years Heck, one of my duties at several of my old positions was to make additions to the TOS (after verification by the legal department, of course) that were effectively tripwires setup to ensure that no one would ever be able to actually *REALLY* use the oversold packages they purchased.

Make no mistake and have no misconceptions, almost *EVERY* hosting company that oversells does this. Wether or not they enforce it is strictly discretionary. If you actually read the fine print, I can just about guarantee you’ll see stipulations regarding bandwidth and disk usage directly mentioned, if not, it’ll be tied to something nebulous such as ’system resources abuse’ or some other very open ended terminology.

With that in mind, let me get back to my original point. The previously mentioned thread intrigued me enough to take a look around and see what/if the legalities and/or regulations concerning this is, if any. Here’s what I found. (only applies to US laws and regulations, btw)

FTC FAQ to Advertising questions…

http://www.ftc.gov/bcp/edu/pubs/business/adv/bus35.shtm

Quote:

What makes an advertisement deceptive? According to the FTC’s Deception Policy Statement, an ad is deceptive if it contains a statement - or omits information - that: Is likely to mislead consumers acting reasonably under the circumstances; and Is "material" - that is, important to a consumer’s decision to buy or use the product.

I’d say disk space and bandwidth certainly fall under these guidelines. When choosing shared hosting, these are by long and far the most common resources looked at by your average consumer.

Now, we get to the nitty gritty…

Quote:

How does the FTC determine if an ad is deceptive? A typical inquiry follows these steps: The FTC looks at the ad from the point of view of the "reasonable consumer" - the typical person looking at the ad. Rather than focusing on certain words, the FTC looks at the ad in context - words, phrases, and pictures - to determine what it conveys to consumers. The FTC looks at both "express" and "implied" claims. An express claim is literally made in the ad. For example, "ABC Mouthwash prevents colds" is an express claim that the product will prevent colds. An implied claim is one made indirectly or by inference. "ABC Mouthwash kills the germs that cause colds" contains an implied claim that the product will prevent colds. Although the ad doesn’t literally say that the product prevents colds, it would be reasonable for a consumer to conclude from the statement "kills the germs that cause colds" that the product will prevent colds. Under the law, advertisers must have proof to back up express and implied claims that consumers take from an ad.

How many ads have you seen that expressly claim that you get unlimited resources? These are not implied in any way, shape or form.

Quote:

The FTC looks at what the ad does not say - that is, if the failure to include information leaves consumers with a misimpression about the product. For example, if a company advertised a collection of books, the ad would be deceptive if it did not disclose that consumers actually would receive abridged versions of the books.

These ads/splash pages never have an * that I can think of. Consider it like the 900 number advertisements. They’re forced, by law, to say ".39 cents the first minute, 2.00 each additional minute".

Quote:

The FTC looks at whether the claim would be "material" - that is, important to a consumer’s decision to buy or use the product. Examples of material claims are representations about a product’s performance, features, safety, price, or effectiveness.

As mentioned above. Yes, they are the key deciding factors in the majority of hosting purchases. This isn’t really disputable. Yes there are other factors, but let’s not get sidetracked here.

Quote:

The FTC looks at whether the advertiser has sufficient evidence to support the claims in the ad. The law requires that advertisers have proof before the ad runs.

This is an interesting one… By definition, these providers can *not* show evidence of offering unlimited hosting. In no way, shape, or form can they show an account that’s used an infinite amount of space. However, it’s not a nebulous term, unlimited means no limits. None, not a single one. If you put a limit on it, by definition, it is no longer unlimited.

Now, by not directly saying in the TOS. "We really get alerted to your account at 50G and check it out, if we need space we terminate" is that technically still unlimited disk space? Is saying "Unlimited disk space EXCEPT FOR these kinds of files" a limit? That’s not an answer that I have.

A few other caveats of interest.

Quote:

How does the FTC define "bait and switch" advertising? It’s illegal to advertise a product when the company has no intention of selling that item, but instead plans to sell a consumer something else, usually at a higher price. For more information, ask the FTC for its Guides Against Bait Advertising.

While next to impossible to prove, I won’t say that I’ve never heard the old addage "tell them to upgrade to a VPS, but they can’t stay on our shared servers." Was that part of the intention? I imagine it varies business to business, but I could very well see some companies doing this.

This should be of special interest here as well as it pertains directly to disclosures, i.e., the TOS.
http://www.ftc.gov/bcp/edu/pubs/busi…erce/bus41.pdf

Quote:

The same consumer protection laws that apply to commercial activities in other media apply online. The FTC Act’s prohibition on “unfair or deceptive acts or practices” encompasses Internet advertising, marketing and sales. In addition, many Commission rules and guides are not limited to any particular medium used to disseminate claims or advertising, and therefore, apply to online activities. 2. Disclosures that are required to prevent an ad from being misleading, to ensure that consumers receive material information about the terms of a transaction or to further public policy goals, must be clear and conspicuous. In evaluating whether disclosures are likely to be clear and conspicuous in online ads, advertisers should consider the placement of the disclosure in an ad and its proximity to the relevant claim. Additional considerations include: the prominence of the disclosure; whether items in other parts of the ad distract attention from the disclosure; whether the ad is so lengthy that the disclosure needs to be repeated; whether disclosures in audio messages are presented in an adequate volume and cadence and visual disclosures appear for a sufficient duration; and, whether the language of the disclosure is understandable to the intended audience. 3. To make a disclosure clear and conspicuous, advertisers should: Place disclosures near, and when possible, on the same screen as the triggering claim. Use text or visual cues to encourage consumers to scroll down a Web page when it is necessary to view a disclosure. When using hyperlinks to lead to disclosures, l make the link obvious; l label the hyperlink appropriately to convey the importance, nature and relevance of the information it leads to; l use hyperlink styles consistently so that consumers know when a link is available; 2 l place the hyperlink near relevant information and make it noticeable; l take consumers directly to the disclosure on the click-through page; l assess the effectiveness of the hyperlink by monitoring click-through rates and make changes accordingly. Recognize and respond to any technological limitations or unique characteristics of high tech methods of making disclosures, such as frames or pop-ups. Display disclosures prior to purchase, but recognize that placement limited only to the order page may not always work. Creatively incorporate disclosures in banner ads or disclose them clearly and conspicuously on the page the banner ad links to. Prominently display disclosures so they are noticeable to consumers, and evaluate the size, color and graphic treatment of the disclosure in relation to other parts of the Web page. Review the entire ad to ensure that other elements—text, graphics, hyperlinks or sound—do not distract consumers’ attention from the disclosure. Repeat disclosures, as needed, on lengthy Web sites and in connection with repeated claims. Use audio disclosures when making audio claims, and present them in a volume and cadence so that consumers can hear and understand them. m Display visual disclosures for a duration sufficient for consumers to notice, read and understand them. Use clear language and syntax so that consumers understand the disclosures.

Anyway, what do you guys think about this? Is pretty much the entire webhosting industry primed for regulation/class action lawsuits? Is the industry guilty of violation of the above-mentioned rules?

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