LAW ENFORCEMENT RISKS
AFFILIATES & NETWORKS
AD:TECH SF, APRIL 21, 2009
Lisa Jose Fales
HOW TO AVOID GOVERNMENT
INVESTIGATIONS, AND WHAT TO DO
[AND NOT DO] IF FACED WITH ONE
FTC Enforcement / Principles re: Online
Negative Option Marketing
+ Consumer Blogs, Celebrity/Expert
Endorsements, Product Claims
= The Perfect Storm?
Top Ten Tips!
FTC vs. JAB VENTURES
Failure to adequately disclose material terms of
– Free trial period before charging more than
– Right to cancel easily/at any time
Unfairly billing without express informed consent
False/unsubstantiated weight loss claims
Debiting bank accounts on recurring basis without
REMEDIES FOR ALLEGED
DECEPTIVE ADVERTISING –
FTC vs. JAB VENTURES
FINAL STIPULATED ORDER:
prohibits misrepresentations alleged, bans key terms
mandates disclosures allegedly not made
prohibits billing without express informed consent
prohibits preauthorized debiting w/o written authzn.
prohibits false/unsubstantiated weight-loss claims
Defendants ordered to pay $610,000 in redress, with
rest of $7.8 million judgment suspended
Corporate and individual defendants jointly and
First 5 Tips : FTC STAFF PRINCIPLES RE:
ONLINE NEGATIVE OPTION MARKETING
n Marketers should disclose the offer[s]'s
material terms in an understandable manner.
n Marketers should make the appearance of
disclosures clear and conspicuous.
n Marketers should disclose the offer[s]’s
material terms before consumers pay or
incur a financial obligation.
n Marketers should obtain consumers’
affirmative consent to the offer[s].
n Marketers should not impede the effective
operation of promised cancellation
Testimonials and Endorsements
Testimonials and endorsements that pertain to the benefits of a
product must be substantiated, or properly disclaimed.
(“Results not typical”)
A testimonial must represent the experience that a typical
consumer can expect with the product.
Ø There is no personal opinion exception.
Ø Must reflect the honest opinions, findings, beliefs, or
experience of the endorser.
Ø Any material connection between the endorser and the
seller must be disclosed -- $ from seller to endorser,
directly or through ad network
Note: FTC is currently modifying their Endorsement/
Testimonial Guides, and “results not typical” safe harbor may
be removed – may have to disclose generally expected results
Disclaimers: FTC’s view
Important to focus on the “net effect” of the
Disclaimer must be clear and conspicuous.
Statements like “not all consumer will get this result”
are generally not adequate.
Disclose what the generally expected performance
would be, or the limited applicability of the endorser’s
experience to what consumers may expect to
Expert Endorsements: FTC’s View
Expert’s qualifications must give him the expertise
he is represented as possessing.
An expert must have a reasonable basis for his/her
Expert’s endorsement must be:
– supported by actual exercise of his expertise in
evaluating product features or characteristics
with respect to which he is expert, and
– which are both relevant to ordinary consumer’s
use of or experience with product, and are also
available to ordinary consumer.
3 Ways Testimonial Can Be Deceptive:
Weight Loss: A current example
Endorser may not have experienced the reported
Weight loss may be attributable to other factors, such
as diet, exercise, or lifestyle changes.
If testimonials claiming extreme and atypical weight
loss are presented as typical and ordinary, they are
likely to be deceptive, without:
an indication of the more modest weight loss results
that the typical user would experience using the
Use of celebrity picture and quotes:
Ø DO NOT use unless consent is provided
Ø If consent is not provided, make clear that
celebrity/expert does not endorse product
(this approach not recommended).
Use of news media pictures/videos/quotes:
Ø SAME PRINCIPLES AS ABOVE, and make clear:
no affiliation/separately-owned marks!
What about use of trademarked keywords?
Ø Lanham Act challenge: “use in commerce,”
but likely confusion?
WHO ELSE MAY BE LIABLE FOR DECEPTIVE
Advertiser – Strict liability
Ad agency – “Knew or should have known”
Individual corp. officers with authority/control/knowledge
Endorsers / Bloggers
In appropriate circumstances, shopping channels,
catalogs, payment processors, fulfillment houses, others
with role in promotion
Affiliate Marketers? Ad Networks?
quot;It is well settled law that the originator is liable if it
passes on a false or misleading representation with
knowledge or reason to expect that consumers may
possibly be deceived as a result.quot; FTC Chairman Pitofsky
and Commissioners Anthony and Thompson, In re Shell
Oil Company (1999).
In other words: don’t have to be seller to be liable!
Avoiding Govt. Investigations: Last 5 Tips
Online advertisers and affiliates driving traffic to them
[bloggers, reviewers] should avoid false or
unsubstantiated claims re: advertised good/service.
Advertisers and affiliates should avoid false celebrity/
expert/media endorsements, express or implied.
Disclose any material connections between
advertisers and affiliates – directly or through ad
Advertising networks should avoid actively or
knowingly participating in or approving of the above
practices/failures to disclose.
Advertisers, affiliates and ad networks should seek
counsel before publishing online ad claims, and
online marketing offers with negative option features.
Lisa Jose Fales