US Appeals Court: Affiliate Network Liable for Deceptive Marketing

On September 23, 2016, a federal appeals court affirmed a lower court ruling that an online advertiser can be held liable for deceptive marketing content that it did not develop.

By way of background, the LeadClick affiliate network connected third-party merchants with its affiliates to promote the former’s products.  Here, LeanSpa, a core client of LeadClick, sold weight-loss and colon-cleansing products.  Allegedly, the vast majority of traffic directed to the LeanSpa websites originated via bogus news websites with unsubstantiated efficacy claims.

According to the court, LeadClick ratified publisher use of such websites, utilized contracts that required affiliates to submit marketing content for approval, was involved in the editorial process, required modifications to the content of affiliates’ purported news web pages by suggesting revisions that complied with directives from LeanSpa, purchased advertising space for display ads that linked to fake news websites that advertised LeadSpa’s products, and continued paying affiliates that were utilizing fake news web pages for their referrals.

The evidence also established that LeadClick employees informed an affiliate interested in marketing LeanSpa offers that “News Style landers are totally fine,” and a potential advertising client that “[a]ll of our traffic would be through display on fake article pages.”

In 2011, the Federal Trade Commission, in tandem with the state of Connecticut, initiated legal action against LeanSpa and its parent company for unfair and deceptive trade practices.  The U.S. District Court for the District of Connecticut subsequently granted the plaintiffs’ motion for summary judgment, holding that the named defendants violated federal and state law.  Notably, the court found that the defendants were not entitled to immunity under Section 230 of the Communications Decency Act.

fakeThe U.S. Appeals Court found unpersuasive LeadClick’s defense, that it was a content-neutral “interactive computer service” and immune from liability for wrongful statements made by the actual information content publishers.  In determining that LeadClick participated in participated in the conduct in question, the court found that it did not provide “computer access in the sense of an internet service provider, website exchange system, online message board, or search engine.”  The court stated “LeadClick’s own actions—recruiting and paying affiliates who used fake news sites for generating traffic, managing those affiliates, suggesting substantive edits to fake news pages, and purchasing banner space for fake news sites on legitimate news sources—caused significant harm to consumers.”

Takeaway:  Pursuant to the FTC Act, a defendant may be held liable for engaging in deceptive practices or acts if, with knowledge of the deception, it either directly participates in a deceptive scheme or has the authority to control the deceptive content at issue.  A deceptive scheme violating the FTC Act may have more than one perpetrator.  A network can be found liable for the actions of its affiliates, regardless of whether it intended to deceive consumers.

Consult a Federal Trade Commission compliance and defense lawyer to discuss what degree of network action or inaction may lead to a similar result.

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