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Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

May 24, 2012 at 11:04 AM

RealNetworks sued by state, consumers getting $2 mil back

In response to hundreds of consumer complaints over odd credit card charges by RealNetworks, Attorney General Rob McKenna investigated the Seattle digital media company and reached a settlement announced today.

The settlement will end “questionable practices” such as pre-checked boxes that Real used to obtain consent to bill customers. The practices included “free-to-pay conversions” that converted free trials to paying subscriptions, and obstacles to customers who tried to stop charges and cancel subscriptions.

“Deceptive pre-checked boxes and fine print obligated consumers to not-so-free trials for subscription services they didn’t want in the first place,” McKenna said in a news release. “People were charged for months — sometimes years — paying hundreds of dollars for subscriptions they knew nothing about.”

Real used to have a reputation for obnoxious billing practices or “nagware” that turned some users into unwilling paying customers. Those practices may have contributed to Real’s losing its early lead in online digital media, although the company also suffered from Microsoft’s anticompetitive practices in the 1990s.

The state AG’s office and Better Business Bureau received more than 500 complaints about Real’s billing, and McKenna contacted the company starting in July 2010 to address the situation.

That led to a lawsuit and settlement filed today.

Real Chief Executive Thomas Nielsen said the practices “at the heart of the issue were discontinued years ago, prior to the commencement of this matter.”

“While we disagree with the complaint filed by the Washington Attorney General, we acknowledge that some aspects of RealNetworks’ e-commerce practices were not what our customers expected of us,” he said in a prepared statement. “More importantly, those practices were not up to the high standards we expect of ourselves.”

The timing is interesting, given that the questionable practices date back to 2007. The state is finally resolving the situation now, as McKenna makes a run for governor on a campaign highlighting his consumer advocacy as attorney general.

McKenna’s a Republican and Real’s founder and chairman, Rob Glaser, is a prominent Democrat who hosted President Obama at Glaser’s Seattle home in 2010.

McKenna spokesman Dan Sytman said the case isn’t politically motivated.

“These matters have nothing to do with politics,” he said. “They have to do with righting wrongs that consumers bring to us and those cases are resolved in the length of time that is dictated by a legal process and by both parties.”

Asked why the state didn’t engage until 2010, Sytman said the office’s complaint database – which goes back to 2005 – shows the most complaints between 2007 and 2009.

“We responded based on a significant uptick in complaints and a pattern of consumer frustration with how Real handled them,” he said via e-mail.

Real is paying $2.4 million, including $2 million to a pool to provide restitution nationally for consumers who were “victimized” during a three-year period before December 2009 when the practices were most common, according to the AG’s announcement.

The state listed conditions that Real agreed to under the settlement. As described in the release, they are:

— Stop using pre-checked boxes to obtain consent from consumers to purchase products or services.

— Stop offering free-to-pay conversions that do not clearly disclose all the terms of the offer, including subscriptions automatically charged on customers’ credit cards.

— Provide an online method of cancellation so that consumers may easily cancel their subscriptions.

— Send e-mail or other reminders that consumers are enrolled in a free-to-pay conversion, along with instructions for how to cancel the subscription.

— Cancel subscriptions within two days of a consumer’s request to do so.

— Inform consumers who have called to cancel a subscription of additional subscriptions on their account.

Seattle’s Jennifer Horwitz was among the people who had trouble with Real.

“RealNetworks didn’t dispute that I had canceled their service before the free trial expired but when I asked them for a refund, they refused,” she said in the release. “I had to fight my way up the chain of command. They continued to stonewall, only agreeing to a partial refund ‘as a courtesy to me.’ I believe this was calculated to make a profit by misleading consumers and taking money they were not entitled to.”

Real said that it has created a “customer bill of rights” that explains how customers can expect to be treated by the company, which also set up a new web site explaining its position.

Per the settlement, the company set up a website and phone line for consumers to obtain restitution. It’s open to “certain U.S. customers” who enrolled in Real subscription products between Jan. 1, 2007, and Dec. 31, 2009.

Real continues to provide consumer services but the focus of its business is increasingly software and services provided to other companies. Last year it lost $35 million on sales of $336 million.

To find out about restitution, visit www.realnetworksrestitution.com or call 866-229-7802.

Comments | Topics: AG, RealNetworks, Rob McKenna

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