Electronic Retailer - October 2012 - 12

INDUSTRY REPORTS

FTC Forum

Trust … but Verify

BY LESLEY FAIR

President Reagan used the phrase in reference to other superpowers, but it is advice that adapts well in the DRTV arena. Decades ago, entrepreneurs managed the entire marketing process themselves – from product inception to fulfillment. Nowadays, most successful launches involve multiple companies working behind the scenes: ad agencies, telemarketers, payment processors, social media managers, etc. Have you taken steps to see that others involved in a project follow your high standards for legal compliance? The breadth of the Federal Trade Commission (FTC) Act and laws like the Telemarketing Sales Rule and CAN-SPAM underscores why it’s important to trust, but verify. • Do your due diligence. It’s ironic that some otherwise sophisticated executives perform more investigative work before buying a toaster than when they sign on with a new business partner. Just a few clicks of the keyboard would have alerted them to a company’s troubling go-rounds with law enforcement agencies or patterns of consumer dissatisfaction. Legal considerations aside, trust your gut if a prospective partner comes with baggage you don’t want to carry. • Assets and liabilities. Certainly a company that sells consumers a deceptively-advertised widget may be held liable for deceptive practices, but truth-in-advertising principles extend to others, too. For example, in a recent case challenging questionable claims for diet products, the defendants supplied other companies with an ingredient they said causes weight loss. They also provided the companies with deceptive ads and purported substantiation materials – actions that gave those companies the means to make misleading claims about their own products. According to the complaint, the suppliers were liable for their role in the promotion. The message for savvy marketers: Even if you’re not the one actually doing the advertising, the FTC Act may still apply. • The facts about contracts. One step toward making sure others live up to your standards is to build legal compliance into your agreements with service providers. For example, spell out the data security measures you expect of companies with access to your customers’ confidential information. Compliance is a two-way street, of course. The titaniumgrade security network at your data center won’t be of much use if a client sends you unencrypted account information 12

in an email. But no matter what you put on paper, you can’t contract away (or indemnify away) your legal obligations under the FTC Act. That’s why experienced DRTV professionals build in supervision mechanisms to give them belt-and-suspenders peace of mind. • Heed the signs that something’s amiss. The FTC has taken legal action when a company ignores evidence that fraud is afoot. In a case involving a business that marketed payment software, the court cited the defendants’ “extreme lack of diligence” in the face of proof the product was being exploited by scammers to gain unauthorized access to consumers’ accounts. Similarly, in a lawsuit involving a payment processor, the FTC alleged the company continued to process for merchants even though an astronomical percentage of transactions (as high as 83%) were rejected and returned by banks. Of course, it shouldn’t take numbers like that to set off alarm bells for a conscientious marketer. Encourage your front-line personnel – the people who answer your phones, respond to customer service requests, or monitor your emailbox – to speak up if they spot suspicious patterns. Lesley Fair is an attorney with the FTC’s Bureau of Consumer Protection.

electronicRETAILER | October 2012

Electronic Retailer - October 2012

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