FTC’s $11.9 Million Win Emphasizes Need to Follow Guidelines
The Federal Trade Commission (“FTC”) just won another important victory as part of its crackdown on deceptive health claims. LeadClick Media (“LeadClick”) and its parent company were held responsible for claims made by affiliate marketers and ordered to pay a total of $11.9 million in ill-gotten gains from a deceptive weight-loss product-marketing scheme.
LeadClick was found responsible for the false claims made by affiliate marketers it recruited on behalf of LeanSpa, LLC (“LeanSpa”). LeanSpa sold acai berry and colon cleanse weight-loss products and settled with the FTC in January 2014, agreeing to disgorge all of its assets.
This case has been brewing for a while; the FTC filed its original complaint (jointly with the State of Connecticut) back in 2011. The FTC argued LeadClick made deceptive weight-loss claims, used deceptive news reports, and represented to consumers they could receive full refunds, but only fully refunded the money after customers complained to law enforcement or the Better Business Bureau.
As we warned in our previous post, the FTC actively enforces in this area using the FTC Act. Furthermore, Section 230 of the Communications Decency Act does not necessarily protect affiliate marketers from liability. Here, the court rejected LeadClick’s argument that it was immune under Section 230 because LeadClick recruited the affiliates, had approval power, paid the affiliates, purchased ad space for the advertisers, and gave feedback about their Websites.
Although LeadClick’s actions were clearly deceptive, this ruling still highlights several issues that companies should consider when advertising their products and services.
Marketers face significant risks by crossing the line between advertising and news. Here, the FTC claimed that LeadClick’s affiliates deceived consumers by using real news organization’s names and logos with supposed testimonials from those who use LeanSpa products. Further, LeadClick’s promotions falsely claimed that objective news reporters performed independent tests demonstrating the effectiveness of the products and planted fake consumer comments below the fake news reports.
To make certain that your company – and its affiliates – follow correct procedures regarding user comments and testimonials you must understand and address the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising and the Code of Ethics and Standards of Conduct for the Word of Mouth Marketing Association. This includes clearly disclosing the endorser’s identity and any relationship with the advertiser which may materially affect the weight or credibility of the endorsement. In addition, advertisers should be genuinely honest in their communications and have substantiation that the endorser’s experience is representative of what customers will generally achieve with the product.
Companies should also take note to ensure that they have proper mechanisms in place to allow easy cancellation of trials and refund money as promised. In this case, the FTC said that LeanSpa deceived consumers into its recurring purchase program with a “free trial” that was hard to cancel. Additionally, they promised a “30 Day Money Back Guarantee” and “Try it for 30 days, Risk Free,” however, the refund process was not simple, it was difficult for customers to reach a live person, and LeanSpa imposed what the FTC called “onerous, inadequately disclosed” conditions to receive full refunds. Although refund policies are generally not required by law, if your company posts, advertises, or offers specific refunds, you should ensure to honor the refund policy. If not, the FTC could use its authority to investigate and enforce under the FTC Act.
On April 22, 2015, this post was UPDATED based on corrected information regarding the judgment amount.