Networks May Be Liable For The Acts Of Affiliates – By Gary Kibel

by Sara Szado on November 20, 2015

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With so many participants in the affiliate marketing ecosystem, it is not uncommon when things go wrong for people to start pointing fingers. The Federal Trade Commission (FTC) and a federal court recently pointed the finger squarely at an affiliate network for the acts of its member affiliates, when these affiliates were promoting a company that sold weight loss and colon-cleanse products through deceptive means.

Case. The case began when the FTC filed a lawsuit involving purported weight loss and colon-cleanse products sold by a marketer under various brand names by LeanSpa, asserting that LeanSpa had made misleading weight loss claims and had offered false promises of “free” trials.

The marketer had hired a network, LeadClick, so that its products could be made available to affiliates through an affiliate network. 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 (a/k/a flogs) that misappropriated the logos of legitimate media outlets and falsely claimed that independent journalists had endorsed the products.

Court Decision. In its decision, the court found that fake news sites used to promote LeanSpa products – with logos of genuine news outlets, a fake “news page format” that claimed a reporter was conducting independent tests of the LeanSpa products, and purportedly independent consumer comments – were deceptive, material misrepresentations that were “likely to mislead consumers acting reasonably under the circumstance” as a matter of law.

The court decided LeadClick could be liable 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 LeadClick employees had known “fake news sites were being used to promote LeanSpa products on [the network],” had recruited the affiliates, had the power to approve or reject their websites, and had given feedback about the content of those sites.

Even though the affiliate network contended it could not be held liable because it had not actually created the fake news sites, the court decided it had participated in, and had the authority to control, the affiliate marketers’ conduct in so far as it related to the fake news sites.

LeadClick was ordered to disgorge nearly $12 million it had received from LeanSpa as payment for its affiliate marketing services.

Take Away. This decision makes it clear that affiliate networks can be held responsible for the acts of their affiliates even if they do not create the content used by the affiliates.

Therefore, all participants in the affiliate marketing ecosystem should consider implementing appropriate controls to prevent them from being associated with bad actors.

Further, all parties should ensure that they are drafting, negotiating and signing sound agreements that are designed to shield them from liability.

Gary Kibel (gkibel@dglaw.com, @GaryKibel_law) is a partner in the law firm of Davis & Gilbert LLP.

This article appeared in issue 31 of FeedFront Magazine, which was published in August 2015. http://issuu.com/affiliatesummit/docs/feedfront-31

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