In an effort to play consumer watchdog Superman on behalf of the public, the FTC has decided to take a stronger position — and swing a bigger stick — at businesses it considers to be engaging in marketing mischief. If you use affiliate marketers to promote your products or services online, this article will serve as an important cautionary tale about the FTC’s limits when it comes to false advertising online.
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 is the first to be sanctioned, fined and required to demonstrate a significant change in practice.
Paid Testimonials and Reviews Angered FTC False Advertising Watchdogs
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 called Learn and Master Guitar. Basically, the paid writers wrote positive reviews without ever experiencing the product. Because neither the independent marketing firm nor Legacy added a disclaimer revealing the material connection of the reviewers, 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 two partied have reached a settlement. Legacy agreed to pay $250,000 and monitor 50 of their top revenue-generating affiliate marketers for proper disclosures. Another 50 Legacy affiliates will also be randomly picked and monitored, and monthly reports are to be submitted to the FTC. Furthermore, the FTC strongly suggested that Legacy establish a permanent monitoring system to assure that affiliate marketers are adhering to the principles of “truth in advertising.”
Is the FTC Going To Far In Its Quest To Clear the Internet of False Advertising?
While Legacy Learning Systems may have actually gotten off lightly, considering that their DVD sales promotion netted more than $5 million, it begs several questions:
- 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?
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 appropriate marketing language rules. The Communications Decency Act of 1996 was a further step to keep inappropriate and deceptive materials off the Internet. Amendments have been made over the years, but law provides that:
- Website operators and ISPs are immune from defamation charges for content posted by third-parties;
- Significant deregulation efforts should be made to make the Internet a viable, competitive marketplace;
- If payments were being made in cash or kind for testimonials and reviews, that fact must be disclosed.
FTC Head Honcho Says, “You Are Responsible For Your Affiliate Marketers Activities!”
So, is the website operator merely a passive service provider not responsible for the content on his or her site, or is he or she, in fact, a content provider and therefore liable for whatever material he or she 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, actually, respected.
The FTC has taken a strong approach in this area. 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 program to ensure that their affiliates are following “the principles of truth in advertising.”
Get In Touch With An Affiliate Marketing Lawyer
If you are an affiliate marketer with a legal issue, or a business that uses affiliate marketers to promote your product or service, we’re here to help. Our law firm has helped countless online advertising firms, businesses and lone marketers with various aspects of affiliate marketing law.
Get in touch today to begin the conversation.