FTC Wielding Big Stick To Combat False Advertising

affiliate marketing lawThe FTC has decided to swing a bigger stick at marketing mischief. If you use affiliate marketers to promote products or services online, this article will serve as an important cautionary tale about the FTC’s authority when it comes to punishing parties over false advertising.

FTC Busts Company For Questionable Affiliate Marketing False Advertising Tactics

A recent settlement with Legacy Learning Systems exemplifies the FTC’s efforts to crack down on false advertising. While it’s not the first company to be singled out for “deceptive advertising” practices, it’s the first to be sanctioned and fined.

Paid Testimonials and Reviews Angered FTC

The FTC took issue with promotional ads and testimonials for an instructional guitar DVD made by Legacy Learning Systems, which were written by third-party bloggers. The paid writers wrote positive reviews without ever using the product. Because neither the independent marketing firm nor Legacy added a disclaimer revealing their material connection, and because Legacy said the endorsements “reflected the views of ordinary consumers or independent reviewers,” the FTC ruled that Legacy acted deceptively.

Business Shells Out A Quarter Million Dollars For False Advertising Tactics

The FTC and Legacy reached a settlement. Legacy agreed to pay $250,000 and monitor 50 of their top revenue-generating affiliate marketers. The FTC will also randomly pick and track another 50 of Legacy affiliates; the company will also submit monthly reports to the FTC. Furthermore, the FTC strongly suggested that Legacy establishes a permanent monitoring system to assure that affiliate marketers adhere to “truth in advertising” principles.

Is the FTC Going Too Far In Its Quest To Clear the Internet of False Advertising?

Considering that Legacy’s DVD sales netted more than $5 million, one could argue that the company got off lightly. Regardless, the case raises several questions:

  1. Is the FTC setting a new precedent for controlling online advertising behavior?
  2. 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?
  3. Although this agency has always held broad authoritative oversight, just how far does its reach extend?

Apropos of Nothing, Online Marketers Must Adhere To The Communications Decency Act

Since the Communications Act of 1934, America has been trying to balance First Amendment rights and marketing language rules. The Communications Decency Act of 1996 furthered the cause of keeping inappropriate and deceptive materials off the Internet. The law provides that:

  1. Website operators and ISPs are immune from defamation charges for content posted by third-parties;
  2. Payments made in cash or kind, for testimonials and reviews, must be disclosed as such.

FTC Head Honcho Says Businesses Are Responsible For Affiliate Marketers Activities!

So, are website operators passive service providers and therefore not responsible for content? Or, are they liable for material they contract and publish? The FTC felt that Legacy Learning Systems should assume responsibility because the company hired an affiliate marketing agency but allegedly didn’t stipulate that disclosure policies must be followed. According to the FTC, nor did the company monitor affiliates’ actions.

David Vladeck, Director of the FTC’s Bureau of Consumer Protection, advised that marketers, “Whether they advertise directly or through affiliates…have an obligation to ensure that the advertising for their products is not deceptive.” He also warned that advertisers using affiliate marketers should develop reasonable monitoring programs to ensure that their affiliates follow “the principles of truth in advertising.”

Get In Touch With An Affiliate Marketing Lawyer

If you’re an affiliate marketer with a legal issue or a business that uses affiliate marketers to promote products or services, we’re here to help. Our law firm has assisted countless online advertising firms, businesses, and lone marketers with various aspects of online marketing law.

Get in touch today to begin the conversation.

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