In an effort to protect the general public and hold accountable those who use the Internet for advertising and solicitation purposes, the FTC has decided to take a stronger position and swing a bigger stick at those it considers to be violators. The recent settlement with Legacy Learning Systems is a case in point. While it is not the first company to be singled out for “deceptive” advertising practices, it is the first to be sanctioned, fined and required to demonstrate a significant change in practice.

The FTC took issue with promotional ads and testimonials written by paid bloggers for an independent marketing agency contracted to Legacy Learning Systems for a DVD program, Learn and Master Guitar. Basically, the paid writers wrote these positive reviews without ever experiencing the product. Because neither the independent marketing firm nor Legacy added the disclaimer that these authors were being paid for their testimonials and reviews, and because Legacy advocated that these endorsements “reflected the views of ordinary consumers or independent reviewers,” the FTC ruled that deception had been in play.  This is just one example of False Advertising Online.

Consequently, a settlement was reached that included a fine of $250,000 and an agreement by Legacy Learning Systems to monitor 50 of their top revenue-generating affiliate marketers for proper disclosure. Another 50 will also be randomly picked and monitored, and monthly reports are to be turned in to the FTC. Furthermore, the FTC strongly suggested that Lester Smith, the owner of Legacy put into place a permanent monitoring system to assure that hired affiliate marketers are adhering to the principles of truth in advertising.

While Legacy Learning Systems may have actually gotten off quite lightly, considering that this DVD sales promotion netted more than $5 million, it begs the question, is the FTC setting a new precedent for controlling advertising behavior on the Internet? Will the policy of fining companies for the actions of their affiliates take root and require a substantive response from the vast numbers of businesses that draw a major portion of their revenue from online advertising and promotion? How will this affect global interaction among companies over which the FTC has no jurisdiction? Although this agency has always held a broad and sweeping area of authority, just how far does its reach extend?

Since the Communications Act of 1934, America has been trying to balance the right of the public to be protected with the First Amendment Right to free speech. The Communication Decency Act of 1996 was a further step to keep what would be considered inappropriate and offensive materials off the new media world of the Internet. Section 230 was instituted to protect those online from unfair legal action, to deregulate this field as much as possible to promote growth and expansion, and to allow and encourage the independent service provider (ISP) to self govern published content. It states that, “[n]o provider or user of interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” An additional policy in 2009 specifically required that if payments were being made in cash or kind for testimonials and reviews, that fact must be disclosed.

Apparently the FTC has taken a strong approach in this area. According to David Vladeck, Director of the FTC’s Bureau of Consumer Protection, “Whether they advertise directly or through affiliates, companies have an obligation to ensure that the advertising for their products is not deceptive. Advertisers using affiliate marketers to promote their products would be wise to put in place a reasonable monitoring program to verify that those affiliates follow the principles of truth in advertising.”

So, is the website operator merely a passive service provider who is not personally responsible for the content on his site, or is he in fact a content provider and therefore liable for whatever content he contracts and publishes? The FTC felt that Legacy Learning Systems should assume responsibility because the company hired an affiliate marketing agency but apparently did not stipulate that disclosure policies must be followed or monitor to see that they were, in fact, respected.

Since it is obviously impossible to go after independent bloggers and freelance writers, perhaps aim should be directed towards these affiliates that are well aware of the principles of truth in advertising and who might be considered the actual employers of these content generators. In such a case, the concept of respondeat superior might be applied in that the master is responsible for the actions, in this case the content, of the servant. There appears to be no clear cut answer to this situation, but in the meantime, the FTC has sounded a warning bell that should be heard loudly and clearly by Internet businesses.