Last month, a federal district court in Connecticut ruled that an affiliate marketing network was responsible for false claims made by its affiliate marketers in the network when the latter were promoting a company that sold weight-loss and colon-cleanse products through deceptive means. As affiliate marketing becomes increasingly prevalent, this case has significant precedential value.
Affiliate marketing is a type of performance-based discipline in which a business rewards one or more affiliates for each visitor or customer brought by their marketing efforts. It is used heavily in e-commerce to help businesses achieve greater market penetration through websites that target specific groups of Internet users.
•The LeanSpa case
This case began when the Federal Trade Commission (FTC) filed a complaint involving purported weight-loss and colon-cleanse products sold under various brand names by LeanSpa, NutraSlim, and NutraSlim, UK (collectively, "LeanSpa"). The FTC alleged LeanSpa had made misleading weight-loss claims and had offered false promises of "free" trials. The commission also alleged LeanSpa had hired LeadClick Media, Inc., and LeadClick Media, LLC (together, LeadClick) so that its products could be made available to affiliate marketers through LeadClick’s affiliate marketing network for online marketing as part of its eAdvertising division.
According to the FTC, LeadClick used its network of affiliate marketers to lure consumers to LeanSpa’s online store, including through the use of bogus news sites that misappropriated the logos of legitimate media outlets and that falsely claimed independent journalists had endorsed the products.
In particular, the FTC alleged that LeadClick had engaged in deceptive practices by representing that "objective news reporters" had performed independent tests demonstrating the effectiveness of LeanSpa’s products and that comments following these "news reports" expressed the views of independent consumers when, in fact, neither was the case. No news reporters had performed independent tests and the comments following the reports did not express the views of independent consumers.
The court ruled in favor of the FTC. It found the affiliate marketer had engaged in deceptive practices by using fake news sites to promote LeanSpa products – with logos of genuine news outlets and a fake "news page format" that claimed a reporter was conducting independent tests of the LeanSpa products purportedly based on independent consumer comments.
The court also held that LeadClick was liable under the FTC Act for the deceptive content on its affiliates’ websites, notwithstanding the FTC’s concession that LeadClick had not created the fake news sites. The court explained that LeadClick employees had known that "fake news sites were being used to promote LeanSpa products on the eAdvertising Network," had recruited the affiliates, had the power to approve or reject their marketing websites, and had given feedback about the content of those sites.
The court also rejected LeadClick’s claim that it was immune from liability under Section 230 of the Communications Decency Act, which provides immunity from certain liability for service providers based on the content transmitted by their users, concluding that LeadClick was responsible in part for the fake news sites promoting LeanSpa’s products and was not a mere service provider. Accordingly, the court concluded that LeadClick had to disgorge nearly $12 million it had received from LeanSpa as payment for its affiliate marketing services.
•The bottom line
Businesses using affiliate marketing would be well advised to analyze the affiliate network practices to comply with the law. Here, LeanSpa settled with the FTC prior to the court decision against LeadClick. The court’s decision also establishes that affiliate networks can – and will – be held responsible for the acts of their affiliates even if they do not create the content used by the affiliates. Accordingly, affiliate networks should consider consulting experienced legal counsel to implement best practices to try and limit their potential liability for affiliates’ actions under the FTC Act.
Michael Lasky is a senior partner at the law firm of Davis & Gilbert LLP, where he heads the PR practice group and co-chairs the litigation department. He can be reached at email@example.com.