No Safe Harbor for The Entrepreneur’s Source Says FTC

The Entrepreneur's Source vs FTCFollowing a public comment period, the FTC has announced that it has approved final orders in the Commission’s case against TES Franchising, LLC and American International Mailing, Inc.  The final orders, which were first announced in April 2015, resolve the FTC’s charges that TES and American International deceived consumers about their participation in international privacy frameworks.

The Entrepreneur’s Source, founded by Terry Powell in 1984, matches prospective franchisees with franchise opportunities.  Its website states that it earns its income from the franchisor when a successful match is made.  The franchise company also offers franchises to those who want to be coaches under the TES Franchising brand.  Today The Entrepreneur’s Source encompasses other affiliates and strategic partner franchise businesses.  

The FTC’s complaint alleged that the TES and American International websites indicated they were currently certified under the U.S.-EU Safe Harbor Framework and, in the case of TES, the U.S.-Swiss Safe Harbor Framework.  However, this was not true.  In fact, both TES and American International had let their certification lapse a number of years earlier.  Additionally, the FTC alleged that TES deceived consumers about the nature of its dispute resolution procedures.  On the TES website, TES stated that Safe-Harbor-related disputes would be settled by an arbitration agency, would take place in Connecticut, and costs would be split between the consumer and TES.  However, in its Safe Harbor Certification, TES said it would resolve disputes through the European data protection authorities, which do not require in-person hearings and resolve disputes at no cost to the consumer.  

To properly participate in the U.S.-EU Safe Harbor Framework or U.S-Swiss Safe Harbor Framework, a company must self-certify annually to the Department of Commerce that it complies with the seven privacy principles required to meet the EU’s adequacy standard: notice, choice, onward transfer, security, data integrity, access, and enforcement.  A participant may also highlight for consumers its compliance with the Safe Harbor by displaying the Safe Harbor certification mark on its website.

Under the terms of the final orders, both TES and American International are prohibited from misrepresenting the extent to which they participate in any privacy or data security program sponsored by the government or any other self-regulatory or standard-setting organization.  The settlement with TES further prohibits the company from misrepresenting its participation in or the terms of any alternative dispute resolution process or service.

While TES and American International ultimately settled with the FTC, recent statements from TES conflict with responses from the FTC regarding the matter.  In an article following the announcement of the settlement, Marissa Ruderman, project manager at TES who worked with the FTC on the matter, said:

We are not at this time. That’s how this came about. I think it’s been about a year and a half since we were licensed . . . We were part of the TRUSTe program and when that renewal came up it was sent to our general counsel who is no longer with us . . . So it was something that we never received. When we actually got the filing sent directly to us, I called FTC to get additional information.  They then let me know the email address and the regular address they were sending the information to, which was not correct.

Ruderman further stated that when TES found out it had missed the renewal date, TES called TRUSTe to find out what it would cost renew their license.  Because they have their own privacy policy in place for other things, Ruderman said they decided to opt out and not renew at this time.  “We removed that language [referring to the Safe Harbor Frameworks and TRUSTe program] from our website so that we would not be stating something that was not true.”

However, the FTC says TES has not removed the language from their website.  When asked what exactly the issue was with the FTC privacy allegation to TES as a “consumer” violation, Ruderman said it wasn’t a franchisee issue.  “It’s more on the consumer level, so it’s pretty much stating that if you are going to be entering your information on some of these websites it is going to be kept safe.  And we do go through some precautions to ensure that.”

Finally, when asked about the FTC’s order, Ruderman answered, “She [the FTC contact person] pretty much said that she was making us aware that this happened the first time around, that it was the only time it had happened. But if it does happen in the future and we are out of compliance as a licensee of TRUSTe program and don’t renew, there might be some fines.”