October 5, 2016
The U.S. Court of Appeals for the Second Circuit recently affirmed a ruling of a lower court that held an affiliate marketing network liable for its role in promoting a deceptively-marketed product. Despite the fact that the network did not itself produce the deceptive content at issue, the Court affirmed the judgment in favor of the Federal Trade Commission (“FTC”), requiring the affiliate marketing network to pay a $11.9 million penalty.
Why did the Court find fault with the affiliate marketing network?
LeadClick Media, LLC (“LeadClick”) served as an affiliate marketing network through which it connected merchants to affiliate publishers in order to advertise participating merchant products. What drew the scrutiny of the FTC was a purported weight-loss and colon-cleansing product. The vast majority of traffic driven from LeadClick’s network to the product merchant’s websites was from phony news sites that touted fake reporters’ claims of independent studies that attested to the efficacy of the subject weight loss products, as well as fabricated testimonials from fictional customers. The Court found that LeadClick not only approved of its affiliates’ use of the fake news sites, it also suggested substantive edits to those web pages and purchased advertising space on legitimate websites for banner ads that linked to those fake news sites.
Protecting Your Affiliate Marketing Network
Operating an affiliate marketing network can be an effective means of leveraging the marketing capacity of thousands of web venues and marketers without actually incurring the expense of establishing those venues and hiring those marketers. This case demonstrates, however, that even if the network is not directly responsible for producing the creative used by its affiliates to market a particular product or service, there is still exposure to the network for the conduct of its publishers. As such, it is critical that affiliate networks work closely with experienced counsel to not only properly draft its affiliate network agreements in order to ensure that the network is afforded maximum protections, but also to review its practices and procedures to minimize the risk of being held liable for the acts of network affiliates.
The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.