The views in the following article belong to its writer and should not be considered the collective opinion of the PMA. The PMA welcomes counterpoints on this issue and will consider publishing opposing views.

No Immunity for Affiliate Network with Ability to Control Advertising Process

In 2011, the Federal Trade Commission filed a series of lawsuits against affiliate publishers who used “fake news” websites to advertise weight loss products and other merchant offerings.  In one of those lawsuits, the Commission joined with the State of Connecticut to include an affiliate network as a defendant.

The complaint alleged, in part, that affiliate network LeadClick Media was responsible for the deceptive weight loss claims, bogus new reports, misleading claims of independent testing and fabricated consumer comments created by its affiliate publishers, all in violation of Section 5 the FTC Act.  Section 5 of the FTCA prohibits unfair or deceptive acts or practices in or affecting commerce.

The Commission considers health-related advertising claims to be high-profile and the court had little difficulty finding that the FTCA had been violated by the affiliate publishers.  What is critical to note about the FTC v. LeanSpa et al. opinion, however, is the United States District Court, District of Connecticut agency-centric analysis resulted in a decision that held LeadClick liable for the deceptive advertisements created by independent contractor affiliates long before they joined the LeadClick network.

The holding begs the question of what type of network action or inaction will lead to a similar result.  Perhaps more importantly, the decision may be a roadmap of what a network can do — if anything — to avoid liability for the acts of third party publishers.

LeadClick argued that it was merely a passive conduit, neither creating nor publishing the allegedly unlawful marketing content.  The Commission conceded, and the court agreed, that the deceptive advertising had been created and published by affiliate publishers before they had any relationship with LeadClick.

In holding that LeadClick was, in fact, directly liable for the unlawful actions of its affiliate publishers, the court rejected LeadClick’s Communications Decency Act defense that a content-neutral “interactive computer service” is immune from liability for wrongful statements made by the actual information content publishers.

The CDA defines “information content provider” as “any person or entity that is responsible, in whole or in part, for the creation or development of information provided through the Internet or any other interactive computer service.”  A service provider is responsible for the development of offensive content if it in some way specifically encourages development of what is offensive about the content or contributes materially to the alleged illegality of the conduct.

… information content provider…any person or entity that is responsible, in whole or in part, for the creation or development of information provided through the Internet or any other interactive computer service…

In this instance, the court held that LeadClick was not entitled to immunity due to evidence that suggested it was a knowing and willing participant in the deceptive conduct.  Thus, given the particular set of facts, the court found the affiliate network’s argument that it could only be liable if it actually created or published that deceptive content to be unpersuasive.

This surprising result creates a new concern about the degree to which an affiliate network must be involved in the creation of the content to make it responsible for an affiliate publisher’s advertising.  CDA legal precedent clearly holds that knowledge of the unlawful nature of the information provided is not enough to consider it to be a service provider’s own speech.  Nor is profit motive.

Internet platforms have no obligation to monitor, block, edit or remove offending or deceptive user-generated content.  Indeed, platforms have lost CDA immunity only in the rare circumstance that the platform virtually requires, or makes extremely likely, that users will create unlawful conduct.

Here, despite the fact that the offending advertisements were created and used by affiliate marketers prior to and without any involvement of LeadClick, the court held that no reasonable jury could deny that LeadClick was an “information content provider.”

It found that LeadClick:

  • Solicited and hired publishers to advertise LeanSpa’s products, knowing that affiliate publishers used fake news pages;

  • Despite that knowledge, it continued paying affiliate publishers running fake news pages for their referrals;

  • Failed to instruct affiliate publishers not to use such websites after hiring them and failed to remove affiliate publishers from the network if they failed to comply;

  • Communicated with LeanSpa and with affiliate publishers running fake news pages regarding which products should be advertised, purportedly under independent investigation;

  • Screened advertisements and suggested changes according to the merchants’ preferences; and

  • Contributed to the unlawful nature of the campaign through media buys designed to provide affiliate publishers with a vehicle to direct consumers from genuine news sites to fake news sites.

Yet these are precisely the type of activities — unrelated to the development of content — that are routinely deserving of CDA immunity.

In analyzing the foregoing factors, the court generally considered the degree of participation in, and the authority to control, the advertising process.  Interestingly, the ruling suggests that the mere retention of authority to review and alter creative materials and websites, whether exercised or not, was enough to find a violation of the FTCA.  This is almost directly contrary to the specific language in the CDA that expressly provides that a platform can retain the right to exercise traditional editorial functions without risk of liability.

While the decision is currently being appealed to the Second Circuit U.S. Court of Appeals, if affirmed, it creates an untenable situation for affiliate programs and seems to encourage a network to abandon all control over affiliate marketers.  Under this ruling, networks that provide responsible rules and adopt compliance policies will be considered to retain an “ability to control” affiliate publishers and will be liable for the misrepresentations made by such third party marketers.  

…networks that provide responsible rules and adopt compliance policies will be considered to retain an “ability to control” affiliate publishers and will be liable for the misrepresentations made by such third party marketers.

The court’s discussion of liability for the actions of third parties is particular noteworthy given that the Commission will almost certainly attempt to bolster its ability to seek consumer redress from all those in the stream of commerce.  As a result, affiliate publishers, advertising networks, affiliate networks and merchants must all be mindful of issues such as claim substantiation, negative options and the proper use of testimonial-style advertising.

This decision should be of interest to any company or individual engaging in interactive marketing, including corporate counsel.  If you are interested in discussing the design and implementation of meticulous compliance controls or measures designed to reinforce CDA immunity, please contact the author at (212) 756-8777, rnewman@hinchnewman.com and www.hinchnewman.com.

Information conveyed in this article is provided for informational purposes only and does not constitute, nor should it be relied upon, as legal advice. No person should act or rely on any information in this article without seeking the advice of an attorney.

 

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Richard B. Newman is an Advertising Law Attorney at Hinch Newman LLP focusing on Internet law, online marketing compliance, regulatory defense and digital media matters. His practice includes complex commercial litigation defense, SPAM law compliance and litigation defense, intellectual property transactional and litigation matters, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.