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· Issue 18 · May 2012

Law Enforcement

I

n January 2012, six affilThomas A. Cohn

iate marketers settled actions by the Federal

Trade Commission (FTC) and were ordered to stop using fake news sites to

market dietary supplements and other products. In 2011, the FTC obtained preliminary orders shutting down their webpages and restricting their assets.

Perils Pitfalls

Affiliates

for

by Thomas A. Cohn

The FTC alleged these websites mimicked actual news reports, but were in fact commercial advertisements intended to drive consumers to purchase acai berry and

to ensure they comply with the order, and must terminate

other dietary supplements and products.

business with any offenders.

The websites often claimed that the story by the “report-

The FTC again imposed harsh monitoring require-

er” had run in major media outlets like ABC, Fox News, CBS,

ments in a February 2012 settlement with Jesse Willms and

CNN, and USA Today. The settlements order the affiliates to:

other defendants. They were ordered to turn over assets

clarify that their webpages are advertisements and not objec-

and agree to monthly monitoring and policing of affiliate

tive journalism; disclose any material connections they have

marketers and networks they do business with. They like-

with advertisers; and together pay the FTC about $500,000.

wise must serve the order on affiliates and networks and

The settlements also ban them from making deceptive or unsubstantiated claims about health-related or any

obtain a signed statement acknowledging receipt of, and agreeing to comply with, the order. What do these increasingly aggressive FTC actions

other products. But the FTC hasn’t limited these efforts to just affili-

mean for affiliates? Regulatory scrutiny is higher than ever,

ate marketers. FTC actions against online advertisers have

and they must clean up or risk enforcement. Such attacks

cited their use of deceptive affiliate marketing. And the

might come from FTC and/or state Attorneys General, who

orders against them have imposed severe monitoring re-

are also more active than ever in policing online market-

quirements which make it difficult to nearly impossible to

ing. This means:

work with affiliate marketers. Two such actions illustrate this aggressive FTC approach: In January 2012, the FTC settled charges against Central Coast Nutraceuticals (CCN) and its principals for deceptively marketing dietary supplements through trial offers that led to unauthorized billing. Defendants were ordered to pay $1.5 million

»» Affiliates must disclose all “material connections” with advertisers, such as money paid. »» Affiliates held to same standards as advertisers: claims must be truthful and substantiated.

and banned from negative option marketing, deceptive and

»» Any fake or deceptive formats will greatly increase risk of enforcement.

unsubstantiated product claims, and unauthorized billing.

»» Health claims re: dietary supplements? Very risky!

Significantly, defendants were required to distribute

»» Income claims re: work-at-home, biz opps? Very risky!

the order to affiliates and networks helping to sell their

»» Limit advertising to foreign markets? May lower, but doesn’t eliminate risk!

products, and obtain from them a signed statement acknowledging receipt and expressly agreeing to comply with the terms of the order. Defendants also must review

»» If conduct has any nexus here, then FTC has enforcement jurisdiction!

those affiliates’ marketing materials before they are used,

28

Tom Cohn is a Partner at LeClairRyan, www.leclairryan.com, and a former FTC Regional Director.

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