CAN AFFILIATE MARKETING NETWORKS BE LIABLE FOR FALSE ADVERTISING?

We know from recent FTC cases about Affiliate Marketing that product producers, advertisers and marketers can be liable for violations of the law.  But what about networks?  A recent  FTC case suggests that networks might not be immune.

Typically, nobody in the affiliate marketing ecosystem identifies themselves as an “advertising agency.”  But the role previously taken in the old world by advertising agencies—brokering services between content producers, publishers and advertisers—hasn’t gone away.  In the new world of Affiliate Marketing, “networks” seem to have inherited the ad agencies’ role.  And with that august inheritance, the networks may have also inherited advertising agencies’ liability.

A recent FTC case* held an advertising agency liable for doing little more than being an advertising agency. The FTC castigates the advertising agency for:

◊ Producing radio ads formatted to sound like talk shows

◊ Creating in-bound call scripts

◊ Using “experts” in their advertising

It’s not entirely clear from any of the publicly available information that the advertising agency knew that any of this conduct was deceptive.  They may not have known, for example, that the “experts” didn’t actually study the scientific data that the advertiser claimed to have.  Or that the faux talk shows would be used deceptively by the advertiser. Or that the call scripts didn’t reflect the advertiser’s actual practices.

That the advertising agency was acting like an ad agency—producing ads as directed by the client—didn’t matter.  For their sins, the companies and individuals running the companies were subject to tight restrictions on their future marketing efforts, continued surveillance by the FTC, and the requirement that they “cooperate” with the FTC in related matters.  Both corporations and individuals were held liable for a $6 million-plus judgment.**

It should be noted that the FTC has sued ad agencies before, though it’s rare.  The press release on this case boasts about a “50 year history” of holding ad agencies liable “for their role in deceptive campaigns.” The cases are rare and they don’t always hold up in the federal appellate courts.  Still, the press release in this case—in conjunction with the increased attention on Affiliate Marketing—might give a strong clue of why the FTC chose to do it here.

The FTC’s press release ends with a curious warning:  the case “should give any business person pause before assuming that truth in advertising is someone else’s responsibility.”  If anyone is “a business person … assuming that truth in advertising is someone else’s responsibility,” it’s the networks.  As the Affiliate Marketing cases have developed, networks have been largely able to stand on the sidelines while advertisers and publishers get nailed for deceptive advertising.***  But as the regulators get more sophisticated about Affiliate Marketing, the networks are going to find themselves more and more under the gun when the ads they broker turn out to misrepresent products, services, terms and conditions or client’s practices.

Some out-of-place language in the same FTC press release suggests that the regulators are turning their baleful eye on networks.  The press release suggests that the case should be read as a warning that “companies that may not describe themselves as ‘ad agencies’ may still be held responsible” for their clients’ illegal acts or practices.  Who are “companies that may not describe themselves as ad agencies’?  Certianly not “publishers” or “advertisers” or service providers.  But that description fits the networks like a glove.

What’s an Affiliate Marketing network to do?  The web of contractual relationships binding Affiliate Marketing industry players and the rapid evolution of relationships in the industry makes any general suggestion difficult.  But a first step is for networks to stop relying on contractual disclaimers of liability to protect you from liability.  What the FTC and other regulators are going to require is a much more active inquiry into the practices of the businesses whose products and services you’re brokering.  It wouldn’t hurt—as an individual company, or as an industry—for networks to begin developing compliance procedures to address the kinds of issues the FTC attacked here.

______________________________

*See:  https://www.ftc.gov/news-events/press-releases/2017/08/three-dietary-supplement-marketers-settle-ftc-maine-ag-charges

**The judgment was suspended because the defendants showed an inability to pay.  If any information comes to light in the future that the “inability” was false, the judgment will become un-suspended.  The FTC now actively pursues false inability-to-pay claims.

***In another article, I’ll discuss a case where it didn’t and a network was tagged with liability.

 

 

 

 

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *