Electronic Retailer - May 2011 - 14

INDUSTRY REPORTS

FTC Forum Notations on Affiliations
BY LESLEY FAIR “We want to make sure that affiliate marketers are on notice that they will be held responsible for the claims they make. In addition, we strongly encourage any company who chooses to use affiliates to market its products or services – either directly or through affiliate networks – to take some basic steps to ensure that the advertising messages being disseminated on your behalf are truthful.” That’s what David Vladeck, director of the Federal Trade Commission’s (FTC) Bureau of Consumer Protection, said last year at the Electronic Retailing Association’s Great Ideas Summit in New Orleans. FTC law enforcement actions brought since then prove he meant business. In recent months, the FTC has filed lawsuits against defendants up and down the affiliate marketing chain. For example, one way instructional DVD seller Legacy Learning Systems promoted its products was through an affiliate program. When a customer was directed to Legacy’s site by an affiliate and then bought the product, the affiliate pocketed a commission of between 20 and 45 percent of the price. According to the FTC’s complaint, some of Legacy’s affiliates promoted the DVDs through glowing endorsements in articles, blog posts and other online content. One “review” called Legacy’s series “the undisputed No. 1 training product for someone wanting to learn how to play the guitar.” Another page described as “The Independent Reviews Site” offered this recommendation: “Putting it simply: Learn and Master Guitar emerged from our test as the King of ‘learn guitar at home’ courses.” The problem, said the FTC, was that prospective buyers didn’t know that those satisfied “person on the street” endorsers or independent reviewers were, in fact, paid by Legacy to steer traffic to its site. The FTC charged that the failure to disclose that material connection violated Section 5 of the FTC Act – a legal misstep explained in the agency’s Guides Concerning the Use of Endorsements and Testimonials in Advertising. Under the terms of the settlement, Legacy will pay $250,000 redress and will implement a monitoring program to keep an eye on what its affiliates are up to. If affiliates misrepresent their status, the order requires Legacy to cut them off immediately or face civil penalties. Other recent actions have focused on the affiliates themselves. In a law enforcement sweep involving fake news sites pitching acai berry diet products, the FTC said that affiliate marketers used titles like “News 6 News Alerts” to run what appeared to be investigations into weight loss supplements. The “articles” often used the names and logos of media outlets like ABC, Fox News, CBS, CNN, USA Today and Consumer Reports, suggesting that the reports had been broadcast on those networks or appeared in those publications. What was really going on? According to the FTC, affiliate marketers had paid a total of more than $10 million to run the bogus reports in an effort to direct traffic to sellers’ sites. The complaints alleged that the affiliate marketers violated the law both by mimicking the look of objective news reporting and by disseminating allegedly false and unsubstantiated claims about the acai berry products. Those cases are still pending. Looking for more on affiliate marketing? Visit business.ftc.gov. Lesley Fair is an attorney with the FTC’s Bureau of Consumer Protection. 14

electronicRETAILER | May 2011

Electronic Retailer - May 2011

Table of Contents for the Digital Edition of Electronic Retailer - May 2011