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Acai of Relief? Marketers’ Recent Settlement of FTC Charges Serves as a Reminder for Online Advertisers and Affiliate Marketers.

Posted in Marketing

InfoLawGroup Partner Jamie Rubin, and Counsel Andrew L. Hoffman, contributed to this post.

Two online marketers of acai berry products recently settled the FTC’s charges that the marketers engaged in deceptive practices by operating “fake news” sites directly and through affiliates to promote acai berry products. Although these cases are extreme examples of deceptive practices, they should serve as an important reminder for companies engaging in affiliate marketing that the FTC actively enforces in this area using the FTC Act, and that companies marketing through affiliates and affiliate marketers must understand and address the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising, which were updated in 2009 (“Guides”).  As discussed further below, this can pose a challenge for companies of all types advertising through affiliate marketing programs.

In the FTC v. IMM Interactive, Inc. case, the FTC alleged that one set of defendants posted purportedly objective investigative reports on websites designed to look like legitimate news websites, using domain names such as channel2local.com, nbsnewsat6.com, and channel9healthbeat.com. The FTC also made similar charges in FTC v. Coulomb Media, Inc., but also alleged that the defendants there maintained websites purporting to be independent consumers’ blogs reporting their experience using the acai products. In both cases, the FTC alleged that the defendants and their affiliates made false and deceptive claims regarding weight loss benefits resulting from the use of their products, when the Defendants did not possess any reasonable basis to substantiate the claims. In the Coulomb case, the FTC also alleged that the defendants failed to disclose in a clear and conspicuous manner that the purported blogs were not objectively evaluating the products.

In addition to monetary payments and agreements not to engage in enumerated deceptive acts, the settlement also requires the IMM Interactive defendants to monitor all its affiliate marketers when selling any good or service, obtain adequate information about the affiliate marketers it hires, approve their advertisements, and immediately stop processing payments generated by any affiliate marketer using deceptive advertisements.

Note that this is the third and fourth in a string of FTC settlements over the past few years dealing with the Guides, the first of which was the Reverb case and the second was the Legacy Learning (guitar lessons) case. In Reverb, the FTC alleged that Reverb (a PR firm) posted reviews for its clients on the iTunes store that appeared as independent reviews reflecting the views of ordinary consumers. In Legacy Learning, the FTC alleged that Legacy Learning used an affiliate program where, among other activities, the affiliates wrote positive reviews about the product next to hyperlinks to the Legacy Learning web site. The affiliates received a commission on the sale of products purchased via those links, but did not disclose that fact. In addition to ongoing compliance obligations, Legacy agreed to pay $250,000 as part of the settlement.

Any company advertising through affiliates should carefully consider the Guides and this string of FTC settlements, and consider how they might impact the organization’s affiliate marketing efforts. Although the Guides are not law, they explain what conduct the FTC considers deceptive under Section 5 of the FTC Act in connection with certain types of offline and online advertising. Although advertisers should be fully aware of the Guides, some key excerpts relevant to affiliate advertisers are as follows:

  • Endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser, and may not convey any express or implied representation that would be deceptive if made directly by the advertiser. 16 C.F.R. § 255.1(a).
  • Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers. 16 C.F.R. § 255.1(d).
  • An advertisement employing endorsements by one or more consumers about the performance of an advertised product or service will be interpreted as representing that the product or service is effective for the purpose depicted in the advertisement. Therefore, the advertiser must possess and rely upon adequate substantiation, including, when appropriate, competent and reliable scientific evidence, to support such claims made through endorsements in the same manner the advertiser would be required to do if it had made the representation directly, i.e., without using endorsements. 16 C.F.R. § 255.2(a).
  • When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed. 16 C.F.R. § 255.5.

To address these principles, the FTC indicates that:

  • An advertiser should provide guidance and training to its bloggers and affiliates concerning the need to ensure that statements they make are truthful and substantiated. The advertiser should also monitor bloggers and affiliates who are being paid to promote its products and take steps necessary to halt the continued publication of deceptive representations when they are discovered.
  • If the relationship between a blogger or affiliate and an advertiser is not inherently obvious (e.g., where a company sends products, free of charge, to bloggers to review), the blogger should clearly and conspicuously disclose that he received the product for free. With respect to affiliate marketers, the affiliate should disclose that it will receive a commission if the advertisement is paired with the affiliates endorsement of the product. The company should advise its bloggers and affiliates that this connection should be disclosed, and it should have procedures in place to try to monitor postings for compliance.
  • An employee of a company who posts on an online message board regarding his company’s products should clearly and conspicuously disclose his relationship to the company to members and readers of the message board.

With respect to affiliate marketing relationships, does this mean that an advertiser must monitor the content of all pages upon which its ads appear? Such a burden becomes troublesome for a company that advertises its products through a traditional affiliate marketing program, where potentially thousands of sites may display the advertisement. At a minimum, a company that engages in affiliate marketing should: (i) have its affiliates execute an agreement agreeing to follow a set of guidelines created by the company and the FTC’s guidance regarding truthful and substantiated claims and disclosures of material relationships; and (ii) create a written program that includes affiliate guidelines, monitoring of affiliates and enforcement of the guidelines. While it may not be feasible or affordable to monitor all of the activity arising out of large affiliate marketing networks, a monitoring program that includes reviewing samples and spot-checking affiliates on a regular basis can help address the issues laid out in the FTC’s Guide In fact, the FTC has indicated that it will take into account the monitoring and enforcement efforts of an advertiser when determining whether to pursue a case and when determining culpability.  As this type of marketing becomes the norm for companies of all stripes, thinking ahead and creating workable policies could be the difference between a successful marketing program and an intrusive FTC investigation and action.