ASE 2012 LR ftc enforcement

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ASE 2012 LR ftc enforcement

  1. 1. Flogs, Farticles, Facebook, Fraud, FTC, oh F%*! 2012 FTC EnforcementAffiliate Summit East, New York, NY August 14, 2012Thomas A. Cohn, LeClair Ryan LLC Thomas.Cohn@LeClairRyan.com www.leclairryan.com
  2. 2. For Release: 04/19/2011FTC Seeks to Halt 10 Operators of Fake News Sites from MakingDeceptive Claims Re: Acai Berry Weight Loss Products Web Marketers Falsely Claim Endorsement by ABC, Fox News, CBS, CNN, USA Today, and Consumer Reports, FTC Alleges FTC obtained federal court orders to temporarily halt allegedly deceptive tactics of 10 operations using fake news websites to market acai berry weight-loss products. FTC seeks to permanently stop this misleading practice and has asked courts to freeze assets pending trial. According to FTC, defendants operate websites that are meant to appear as if they belong to legitimate news-gathering organizations, but in fact the sites are simply ads aimed at deceptively enticing consumers to buy the featured acai berry weight-loss products from merchants. FTC complaints allege that these fake news sites have titles like “News 6 News Alerts,” “Health News Health Alerts,” or “Health 5 Beat Health News.” Sites often include names and logos of major media outlets, such as ABC, Fox News, CBS, CNN, USA Today, and Consumer Reports, and falsely represent that the reports have been seen on these networks.
  3. 3. For Release: 04/19/2011FTC Seeks to Halt 10 Operators of Fake News Sitesfrom Making Deceptive Claims Re: Acai Berry WeightLoss Products An investigative-sounding headline on one such site proclaims “Acai Berry Diet Exposed: Miracle Diet or Scam?” The article that follows purports to document a reporter’s first-hand experience with acai berry supplements – typically claiming to have lost 25 pounds in four weeks. “Almost everything about these sites is fake,” said David Vladeck, Director of the FTC’s Bureau of Consumer Protection. “The weight loss results, the so-called investigations, the reporters, the consumer testimonials, and the attempt to portray an objective, journalistic endeavor.”
  4. 4. FTCActionsvs.AffiliateMarketers,Exhibit toFTCInvestigator’sDeclaration
  5. 5. FTCActionsvs.AffiliateMarketers,Exhibit toFTCInvestigator’sDeclaration
  6. 6. FTC Actions v. Affiliate Marketers - update By March 2012, a total of eight out of ten affiliate marketers [including Intermark/ Copeac, sued for its conduct as both network and affiliate] had settled actions by the FTC and were ordered to stop using fake news sites to market dietary supplements and other products. In these settlements, the affiliates also had to agree to: stringent claim substantiation provisions for weight loss and other health-related products, and onerous requirements to monitor other affiliate marketers, should they ever operate as an advertiser or a network. Copeac settlement: three individual defendants added, all defendants ordered to pay over $1.3 million. Other settlements had money judgments ranging from $143K to $2.7M, but were partially suspended due to inability to pay.
  7. 7. From FTC Revised Endorsement Guides FAQs, re: Affiliate Marketing: I’m an affiliate marketer with links to an online retailer on my website. When people click on those links and buy something from the retailer, I earn a commission. What do I have to disclose? Where should the disclosure be? Let’s assume that you’re endorsing a product or service on your site and you have links to a company that pays you commissions on sales. If you disclose the relationship clearly and conspicuously on your site, readers can decide how much weight to give your endorsement. In some instances, where the link is embedded in the product review, a single disclosure may be adequate. When the product review has a clear and conspicuous disclosure of your relationship – and the reader can see both the product review and the link at the same time – readers have the information they need. If product review and link are separated, reader may lose the connection. As for where to place a disclosure, the guiding principle is that it has to be clear and conspicuous. Putting disclosures in obscure places – for example, buried on an ABOUT US or GENERAL INFO page, behind a poorly labeled hyperlink or in a terms of service agreement – isn’t good enough. The average person who visits your site must be able to notice your disclosure, read it and understand it.
  8. 8. Other 2012 FTC Actions Re: Affiliate Marketing FTC has not limited its efforts to just affiliate marketers, and how it also has been going after online advertisers (like Central Coast Nutraceuticals and Jesse Willms) who use allegedly deceptive continuity marketing, deceptive affiliate marketing, and/or make allegedly false or unsubstantiated product claims. These advertisers’ settlements likewise impose tough claim substantiation requirements, and stringent monitoring provisions that make it difficult to almost impossible to work with affiliate marketers. How stringent? Serving the order on affiliates and networks; obtaining their signed statement acknowledging receipt of and agreement to comply with order, and reviewing and approving every piece of affiliate content before publication, terminating/cutting off payment to any making deceptive claims.
  9. 9. FTC Release: 01/09/2012Internet Marketers of Acai Berry Weight-Loss Pills and "Colon Cleansers"Pay $1.5M to Settle Charges of Deceptive Ads and Unfair Billing  FTC announced that an operation that marketed acai berry supplements, "colon cleansers," and other products using allegedly fraudulent free trial offers and phony endorsements from Oprah Winfrey and Rachael Ray will pay $1.5 million as part of a settlement. The money will be made available for consumer refunds.  The case against Phoenix-based Central Coast Nutraceuticals, Inc., is part of the FTCs ongoing efforts to protect consumers from fraudulent internet marketing, as well as false and misleading health claims.  The settlement order bans the defendants from so-called "negative- option" sales, such as continuity plans and free or introductory price trial offers, in which consumers pay nothing up front or only a small fee to receive a product, but are then automatically charged a higher price unless they take steps to cancel or return before end of trial period.  The settlement order also imposes tough monitoring requirements re: using affiliate marketers – prior review/approval of all content; terminate/cutoff payment to any making deceptive claims.
  10. 10. For Release: 02/23/2012FTC Halts Deceptive Practices of Marketer Who Took $359M Using BogusFree Trial Offers; Settlements Ban Use of Negative-Option Marketing  FTC stopped an Internet scheme that allegedly used bogus "free" product offers that deceived consumers in the United States and other countries and charged them for products and services they did not want or agree to purchase. A settlement order, reached as part of the FTCs ongoing efforts to stamp out online marketing fraud, permanently bans Jesse Willms and his companies from using "negative-option" marketing, a practice in which the seller interprets consumers silence or inaction as permission to charge them.  Willms settlement order imposes a judgment of $359 million that will be suspended upon Willmss surrender of bank account funds and proceeds from the sale of his house, personal property, and corporate assets, including a Cadillac Escalade, fur coat, and artwork.  "The fact that almost four million consumers fell prey to the lure of these free trial offers is a stark reminder that free offers can come at a huge price," said David Vladeck, Director of FTCs Bureau of Consumer Protection. "The FTC has stopped about $1 billion in online marketing fraud during the past two years by shutting down operations like this. But consumers still need to beware, because scam artists are constantly coming up with new ways to deceive people online.“  FTC worked closely w/ Canadian law enforcers [most defendants in Alberta].
  11. 11. Affiliate Marketing and the FTC: Next Steps, Best Practices So what are the FTC’s next steps? In addition to even more actions against advertisers and affiliates, the FTC may begin pursuing third parties who allegedly “assist and facilitate” the advertisers’ and affiliates’ deceptive practices. This could mean advertising and/or affiliate networks; payment processors; list brokers; lead generators, call centers, and others. In short, any person or entity in the advertising “chain,” from ad creation to alleged consumer injury, is potentially liable, if they knowingly help out others’ deceptive practices, or provide the “means and instrumentalities” for them.
  12. 12. Affiliate Marketing and the FTC: Next Steps, Best Practices Regulatory scrutiny just keeps ratcheting up, so affiliates, advertisers, networks and others must clean up their act or risk enforcement. Everyone in the chain will be held to the same basic standards: claims must be truthful and substantiated; all “material connections” (between affiliates, networks, endorsers and advertisers) must be disclosed; Must do “reasonable monitoring” and policing of third parties you work with, and any fake or deceptive claims or formats will substantially up the enforcement risk [flogs, farticles, etc.].
  13. 13. Affiliate Marketing and the FTC: Next Steps, Best Practices – 3/21/12 FTC Blog: “Through a series of recent law enforcement actions, the FTC has articulated what should be apparent: that truth-in-advertising principles apply to affiliate marketers and to the companies that use them to promote their products. A settlement announced today by the FTC makes a similarly obvious point: The law applies to affiliate marketing networks, too. According to FTC’s complaint against IMM Interactive [Copeac], company operated fake news sites to peddle acai diet products and “colon cleansers.” The FTC also charged that Copeac recruited an entire network of affiliates that used fake news sites to promote products with allegedly deceptive claims. The FTC’s original lawsuit was part of a law enforcement sweep filed last year against ten operators of fake news sites. Those complaints challenged three kinds of conduct as illegal: 1] falsely portraying the sites as legitimate news outlets; 2] making false and unsupported health claims; and 3] failing to disclose defendants were paid by companies selling the products.”
  14. 14. Affiliate Marketing and the FTC: Next Steps, Best Practices These days, if/when the FTC comes calling, they often push to take from defendants every last cent they can of “ill-gotten gains,” for purposes of consumer redress or disgorgement. And if defendants have prior law enforcement orders, the FTC frequently seeks outright bans on certain types of marketing or verticals. The price of non-compliance is thus higher than ever, and all participants must take these risks into account, before launching any campaign. FINAL WORD: look for more FTC actions vs. more types of defendants, attacking these 3 types of conduct, and minimize risk of regulatory scrutiny by minimizing use of: • deceptive formats, • deceptive product claims, and • failure to disclose material connections; PLUS: • deceptive negative option/free trial/continuity marketing
  15. 15. QUESTIONS? Thomas A. Cohn, Partner, LeClair Ryan LLC Thomas.Cohn@LeClairRyan.com www.leclairryan.com

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