Regulators are increasing scrutiny of affiliate marketing practices. The Federal Trade Commission and state attorneys general are investigating potentially deceptive or unfair advertising claims, privacy violations, fake reviews, and undisclosed sponsorships. Affiliate networks and individual marketers could face liability for misleading ads. To avoid enforcement actions, marketers should ensure claims are truthful and not misleading, disclose any material connections like sponsorships or payments for endorsements, respect privacy policies, and have proper legal protections in place.

1. REGULATORS ARE TAKING AIM:
ARE YOU A TARGET?
KEN DREIFACH, KEN@ZWILLGEN.COM
AFFILIATE SUMMIT EAST, AUGUST 20, 2013
Ken Dreifach
ZwillGen, PLLC
ken@zwillgen.com

2. What I Will Discuss
 FTC and other CONSUMER laws
 THINGS THAT MATTER:
 WHO is liable?
 WHAT are you advertising?
 HOW are you describing it?
 WHY are you saying it (What’s in it for you?)
 Examples

3. The Legal Principles
Don’t Be:
 Deceptive
 Unfair
 Creepy
 Sloppy

4. FTC’s Section 5: Deception
 “Deception” – a misrepresentation or omission
likely to mislead the consumer acting
reasonably, to the consumer’s detriment
 Express and implied claims
 “Reasonable” consumer standard
 What is the “net impression”?
 Is a deception “material”?

5. FTC Section 5: Unfairness
 Likely to cause substantial injury
 Not reasonably avoidable
 Not outweighed by other benefits
 Arises in privacy cases (what is “injury”?)

6. The “What”: Products FTC
Scrutinizes
 Health and safety claims
 Dietary, weight loss
 Work from home/business opportunities
 Hard-to-test claims
 “Save” on energy
 “Safe” for ozone layer
 Sweepstakes
 Advertising Software (“adware,” “overlay”)

7. Hot Button: It’s “FREE!”
 A particular hot-button
 “Free” must be “Free”
 Any conditions must be disclosed clearly and
conspicuously
 “free with subscription”
 “free basic subscription”
 “free trial”
 For instance, adjacent to claims
 If Software – disclose material functionality

8. Hot Button: Negative Option
Rule
 Clearly and conspicuously disclose automatic
renewal
 Within a ToS or EULA is not clear and
conspicuous
 FTC may consider high chargebacks as a
negative inference of deception

9. Hot Button: Privacy
 Intense Focus on Data and Online Privacy
 Multiple FTC Reports (2012, 2013)
 Investigations by FTC, State A.G.’s, Congress
 Lawsuits re cookie placement, geo-location data,
address books, social network data
 FTC: Privacy Violations = Harm
 Rule Number One: Privacy Policies Must Be
Followed!
 Disclose what info you take, how you use it.
 Where is the Creepy Line? “Google policy is to get
right up to the creepy line and not cross it.“ (Eric
Schmidt, CEO)

10. Hot Button – Kids, COPPA
 Children’s sites, apps – is site “targeted to
children under 13”
 Focus on “Personal Information” taken from
children (without parents consent)
 “Personal Information” now = anonymous
identifiers
 Fines = $11,000 per violation (substantial)
 NEW RULES: July 1, 2013
 FTC: Increased Enforcement

11. The “WHO” -- WHO is Liable?
 The Advertiser
 The Affiliate Network and the Ad Agency?
 Maybe, depending on role.
 Did they help design the ad?
 Did they help create the strategy?
 Create websites?
 What was their level of knowledge?
 Individuals
 Participation or
 Authority to Control

12. The “HOW” -- What is
“Deceptive”?
 False Statements –
 “ABC mouthwash prevents colds” (express)
 “ABC mouthwash kills germs that cause colds”
(implied)
 “Will help you lose 60 pounds with no exercise”
 “Contains no chemicals”
 Results reported must be typical
 What about customer testimonials?
 Must be typical of the average consumer.

13. The “HOW”: Can’t I
Disclaim?
 A disclaimer in a Terms of Service is insufficient
 Can’t be “easily missed” on website.
 Disclaimer can’t be used to contradict other
statements in ad or clear up misimpressions that
ad leaves
 "Lose 10 pounds in a week doing nothing!”
 Cannot disclaim via: "Diet and exercise required"
 “RESULTS MAY VARY” does not disclaim atypical
claims
 Disclaimers should be close/adjacent to claim

14. The “WHY” - Sponsored Content
. . . Endorsements, Astroturf &
Flogs
SPONSORED: The Taliban Is A Vibrant
And Thriving Political Movement
NEWS • News • ISSUE 49•03 • Jan 15, 2013

15. Flogging Across America
 “Wal-Marting across America” Blog (2006)
 Laura & Jim in an RV, staying in Wal-Mart lots
 Failed to Disclose Wal-Mart sponsorship

16. Astroturf, Sockpuppets &
Flogs
 Background
 What are these things?
 “Astroturfing” = fake grass(roots)
 Reviews, posts,
 “Sockpuppet” = fake online identity
 “Flog” = fake blog (undisclosed sponsor)
 Purpose: Create buzz, viral marketing,
influence decision-makers

17. Does it Really Matter (Isn’t the
Internet fake anyway . . . ?)
 These devices mimic influential groups:
 Consumers
 Peers
 Journalists

18. Disclosing “WHY”-
Endorsements
 “Guides Concerning the user of Endorsements
and Testimonials in Advertising”
 1975
 1980
 2009
 An “ENDORSEMENT” is an advertising
message that “consumers are likely to believe
represents the opinions, beliefs, findings, or
experiences of a party other than the
sponsoring advertiser” even if the views are
the same.

19. FTC Rule: Disclose Material
Connections
 Must disclose connections “not reasonably
expected” by audience
 Disclose payment, if offered to induce
 Or if is likely to induce
 Reviews, testimonials, tweets
 Blogs
 Disclose receipt of free product
 “An advertiser’s provision of a gift to a blogger for
posting blog content could constitute a material
connection that is not reasonably expected by readers
. . . .” (FTC, 2012)
 Provider should require, monitor for compliance

20. What NOT to Do
 FTC’s Warning Shots at Ann Taylor (2010)
 Ann Taylor Promises attendees a “special gift”
 Conditioned on posting about premiere within 24
hours
 Hyundai gift certificates for including links to
Hyundai videos (Nov. 2011)
 Nordstrom (Feb. 2013) – $50 gift card to
“influencers” attending a “TweetUp” opening
event
 “But They Didn’t Say Reviews Had to be
POSITIVE . . .”

21. How to Disclose?
 This is the disclosure that studies shows was not effective.
 This is the disclosure that you are probably using. (If you disclose . . . .)
 For Twitter: According to FTC: “Use a
hashtag and then ‘ad,’ and that’s only
three character.”

22. Increased Focus On . . .
 Paid-for reviews
 Doctors, health practitioners
 “Reputation Management”
 SEO providers
 FTC, New York State AG

23. Paid Reviews
 “The Best Book Reviews Money Can Buy,” NY
Times (August 26, 2012)
 Gettingbookreviews.com:
 $499 = 20 reviews
 $999 = 50 reviews
 April 2013: Samsung apologizes for posting
fake (negative) reviews of HTC devices
 Hired students to do it

24. Increase in Enforcement,
Subpoenas
Fake News

25. More Fake News

26. More Fake News

27. Fake Reviews – Enforcement
 Lifestyle Lift fined $300k by NYAG in 2010.
 Told employees to “put on your wig and skirt
and tell them about the great experience you
had”
 Blogs, social media, websites

28. More “Who”: FTC Has Cast
Broad Net
 Affiliate network?
 FTC v. Ads4Dough.com (2012) (acai berry case)
 Recruited affiliates
 Negotiated terms
 “Through their affiliate marketers” assisted in
promotion through affiliates’ websites
 Individuals?
 Participation in wrongdoing
 Owner/President was Defendant in above case

29. Network and Individuals =
Liable
 FTC v. IMM Interactive (2012)
 “Defendants and their affiliate marketers”
 Operate websites
 Promote products
 Allegedly deceive users
 Receive commission for click or “free trial”
 Failed to disclose in a clear and conspicuous manner
that they are being paid to promote the products
 “Relevant information . . . Appears in small type at the
bottom of the page following the fake consumer
comments”
 Individuals – President (Owner), CEO and CMO

30. Some Cases Go the Other
Way
 NY State v. Synergy6 – Affiliate email network
not liable for acts of its independent
contractor
 NY State v. Direct Revenue – Affiliate
overlay/adware network not liable for failure of
distributors to present notice.
 These are litigated cases, under state law.

31. Protect Yourself!
 Warrants & Reps (Specific)
 Indemnities
 Insurance
 Signed Agreements
 Echosign, Docusign
 “Overriding” Appendixes
 Due diligence

32. Takeaways -
 “Deceptive Acts” – look at whole picture
 No Silver Bullet – no easy disclaimers
 Testimonials and endorsements must disclose
material connections
 Respect privacy (and the “creepy line”) –
disclose what data you take and how you use
it
 FTC casts broad net in determining liability
 Reps/warranties/indemnities

33. STOP TALKING NOW.
Ken@zwillgen.com
347.210.1798

34. Questions?
Ken Dreifach (ken@zwillgen.com)
Blog.zwillgen.com