Court Finds Affiliate Marketing Network Responsible for False Claims Made by Its Affiliates

A federal district court in Connecticut has ruled that an affiliate marketing network was responsible for false claims made by the affiliate marketers in its network when these affiliates were promoting a company that sold weight loss and colon-cleanse products through deceptive means.

LeanSpa Case
The case began when the Federal Trade Commission (FTC) filed a complaint in federal court in Connecticut involving purported weight loss and colon-cleanse products sold under various brand names by LeanSpa, LLC, NutraSlim, LLC, and NutraSlim, U.K., Ltd. (collectively, “LeanSpa”), asserting that LeanSpa had made misleading weight loss claims and had offered false promises of “free” trials.

In addition, the FTC alleged that LeanSpa had hired LeadClick Media, Inc., and LeadClick Media, LLC (together, LeadClick) so that its products could be made available to affiliate marketers through LeadClick’s affiliate marketing network for online advertising as part of its eAdvertising division. According to the FTC, LeadClick used its network of affiliate marketers to lure consumers to LeanSpa’s online store, including through the use of bogus news sites that misappropriated the logos of legitimate media outlets and that falsely claimed that independent journalists had endorsed the products.

In particular, the FTC alleged that LeadClick had represented that “objective news reporters” had performed independent tests demonstrating the effectiveness of LeanSpa’s products and that comments following these “news reports” expressed the views of independent consumers when no news reporters had performed independent tests and when the comments following the reports did not express the views of independent consumers.

The FTC and LeanSpa reached a settlement, and the FTC moved for summary judgment against LeadClick. The FTC argued that LeadClick had engaged in deceptive marketing practices in violation of Section 5 of the FTC Act.

Court Decision
The court granted the FTC’s motion for summary judgment against LeadClick. In its decision, the court found that fake news sites used to promote LeanSpa products – with logos of genuine news outlets, a fake “news page format” that claimed that a reporter was conducting independent tests of the LeanSpa products, and purportedly independent consumer comments – were deceptive, material misrepresentations that were “likely to mislead consumers acting reasonably under the circumstance” as a matter of law.

The court then decided that LeadClick could be liable under the FTC Act for the deceptive content on its affiliates’ websites, notwithstanding the FTC’s concession that LeadClick had not created the fake news sites. The court explained that LeadClick employees had known that “fake news sites were being used to promote LeanSpa products on the eAdvertising Network,” had recruited the affiliates, had the power to approve or reject their marketing websites, and had given feedback about the content of those sites.

Even though LeadClick contended that it could not be held liable because it had not actually created the fake news sites, the court decided that LeadClick had participated in, and had the authority to control, the affiliate marketers’ conduct insofar as it related to the fake news sites. Thus, the court concluded, LeadClick had violated Section 5 of the FTCA as a matter of law.

The court also rejected LeadClick’s claim that it was immune from liability under Section 230 of the Communications Decency Act (CDA) which provides immunity from certain liability for service providers based on the content transmitted by their users, concluding that LeadClick was responsible in part for the fake news sites promoting LeanSpa’s products and was not a mere service provider.

Accordingly, the court concluded that LeadClick had to disgorge nearly $12 million it had received from LeanSpa as payment for its affiliate marketing services.

Bottom Line:

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Original article by D&G here.