• by Wendy Davis  @wendyndavis, January 31, 2008

Online performance marketing company Member Source Media will pay $200,000 to settle Federal Trade Commission charges that it misled consumers by advertising "free" iPods, laptops and other merchandise.

The agreement, which marks the second FTC settlement stemming from the use of the word "free" in online advertising, also requires the company to clearly disclose that purchases are required to obtain the "free" products. Specifically, the agreement provides that the disclosure must appear in the same color, font and size as the word "free" and in close proximity to it.

Such terms are similar to those performance marketing company Adteractive agreed to last year in a similar settlement.

The FTC also is investigating ValueClick for its use of the word "free" in ads. ValueClick still does not display participation-required disclosures in the same color, font and size as the word "free" on at least some of its Web sites.

But ValueClick's John Ardis, vice president of corporate strategy, said the company won't necessarily reach the same terms with the FTC as Adteractive.

In the Member Source Media complaint, which was made public Wednesday along with the settlement, the FTC charged the company with violating CAN-SPAM by sending consumers e-mails with allegedly misleading subject lines like, "Congratulations. You've won an iPod Video Player" and "Here are 2 free iPod Nanos for You: confirm now." The company did business as ConsumerGain.com, PremiumPerks.com, FreeRetailRewards.com and GreatAmericanGiveaways.com.

In most cases consumers allegedly weren't eligible for the free merchandise until they first agreed to subscribe to a service like Netflix or participate in another paid program. While this restriction was disclosed to consumers, it was in smaller print than the offer of a "gift" or "free" merchandise.

Member Source Media's general counsel, Linda Goodman of San Diego, Calif., said that the company didn't believe its old ads were improper because, like at least some of ValueClick's current ads, they indicated consumers had to participate in a program to receive the free gift. She added that, until the Adteractive settlement, the FTC had not indicated that disclaimers had to appear in the same size and color font as the word free.

Still, Goodman said, Member Source Media settled to avoid the expense of trial. "It's a little company and they didn't have the money."