FTC Liability Traps Internet Marketers Must Avoid With Affiliate Marketers

By Chip Cooper, Esq

Internet marketers often ask: Am I liable if any of my affiliates engage in deceptive marketing practices? The answer is, it depends. This article will provide a checklist of practical points that will help Internet marketers determine what is required for their specific affiliate marketing program and FTC legal forms.

We only have to look to recent FTC cases to learn that affiliate marketers have been nailed for engaging in deceptive marketing practices involving false and unsubstantiated claims, false news reports, untrue claims of test results, and testimonials that were completely fabricated. And in one recent case, an Internet marketer with ineffective FTC legal forms has held liable for failing to monitor affiliates’ marketing practices.

Internet marketers should understand that the legal violations of affiliates may result in liability for the Internet marketer, particularly where an Internet marketer fails to monitor and terminate affiliates who engage in deceptive marketing practices. For this reason, it’s absolutely critical that Internet marketers who use affiliates understand how to avoid this liability.

Basic Truth In Advertising Principles

To begin to understand how an Internet marketer may be held liable for affiliates’ deceptive marketing practices, it’s important to understand four basic truth in advertising principles that apply generally to all marketers, including both Internet marketers and affiliates.

Claims by marketer regarding a product or service that would materially influence a consumer’s decision must be truthful, not misleading, and reasonably substantiated prior to publication. Being truthful is a no-brainer. However, if the claim is technically true, but it omits a material factor that a consumer would consider, then it would also be deceptive. And claims about objective, specific results must be substantiated by tests prior to publication or else they’re also deceptive.
Ditto for claims made endorsers and testimonialists about someone else’s product or service. The same rules summarized above also apply to endorsers and testimonialists who make claims or statements about the products of others.
If a marketer doesn’t have proof that an endorser’s “success story” experience represents what consumers will achieve by using the product, the advertising copy must clearly and conspicuously disclose the generally expected results in the depicted circumstances. Prior to December, 2009, it was OK to use an endorser’s “success story” endorsement, even if the endorser’s level of success was significantly greater than typical, provided that a “results not typical” disclaimer accompanied the endorsement. Beginning in December, 2009, the “results not typical” disclaimer will no longer be effective. Now, a statement regarding the generally expected results is required.
If there’s a “material relationship” (family or employment relationship or payment or benefits) between the marketer and an endorser or testimonialist that would affect how people evaluate the endorsement or testimonial, it should be disclosed “clearly and conspicuously”.

The Problem With Affiliate Marketers

Affiliate marketers are engaged in performance marketing, meaning that they are compensated on a “performance” basis involving a completed action. In most situations, affiliates are compensated based on conversions originated through traffic driven to the advertiser’s website.

The problem with affiliates in terms of marketing practices is that their performance-based compensation creates an inverse relationship between maximizing conversions on the one hand, and on the other hand, providing marketing messages that comply with the truth in advertising rules discussed above.

What is Required If You Market Through Affiliate Networks

The FTC requires that Internet marketers have reasonable programs in place to train and monitor their affiliates.

The key question is what is “reasonable” according to the FTC? The FTC says that what is reasonable varies with the circumstances. According to the FTC, if the product or service at issue could cause consumer harm – either physical injury or financial loss – then a relatively high level of supervision would be required. For example, health products may require more supervision than the promotion of ladies hand bags.

Core elements of an affiliate monitoring program should always include:

Consistent with a marketer’s responsibility for substantiating objective product claims, Internet marketers should explain to affiliates the marketing message regarding the product or service, including what can be said and what can’t be said about the product or service. These explanations should be consistent with the basic truth in advertising principles discussed above.
Set up and maintain a reasonable monitoring program to determine what affiliates are actually saying about the product or service.
Follow up with questionable affiliate marketing practices, and terminate affiliates who willfully or repeatedly do not follow the rules.

A recent settlement with an Internet marketer imposed more stringent requirements.

Clearly and conspicuously disclose in writing to each marketing affiliate that engaging in deceptive marketing practices will result in immediate termination of the affiliate relationship and forfeiture of all monies owed to such marketing affiliate.
Routinely monitor and review, on at least a monthly basis at times not disclosed in advance to the affiliate and in a manner reasonably calculated not to disclose the monitoring activity at the time it is conducted, affiliate marketing materials, including websites, emails, banners, sponsored search terms, and pop-up ads.
Promptly and completely investigate any consumer complaint regarding any affiliate.
Immediately halt the processing of any payments or charges generated by an affiliate that the Internet marketer knows or should know is engaged in a deceptive marketing practice.
Fully refund, within five business days, each consumer charged by any defendant whose sale originated from any affiliate engaging in a deceptive marketing practice.
Terminate immediately any affiliate that is engaged in deceptive marketing practices.

Conclusion

Internet marketers who do not monitor and manage their marketing affiliates regarding deceptive marketing practices do so at their peril. Both the FTC and state regulatory authorities are becoming increasingly more vigilant regarding online advertising and marketing, particularly regarding affiliate marketers.

At the very least, Internet marketers should implement programs consistent with the core elements discussed above. It remains to be seen whether the more stringent requirements implemented in the recent FTC settlement with an Internet marketer who was actively engaged in deceptive marketing practices himself will also apply to Internet marketers who have no past record of deceptive practices.

Here’s How To Make Sure You, Your Business & Website Is FTC Compliant

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How to Avoid FTC Claims When Collecting Leads With Optin Forms

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Disclaimer: This article is provided for informational purposes only. It’s not legal advice, and no attorney-client relationship is created. Neither the author nor FTC Guardian, Inc. is endorsed by the Federal Trade Commission.