Affiliate Marketing: Caught In The Crosshairs
By Jeffrey D. Knowles and Thomas A. Cohn
Affiliate marketers have long operated anonymously, under the radar screen. They publish content such as blogs, reviews and a wide variety of other types, traditionally with banner ads containing offers and links to advertisers’ products. For every consumer who clicks that link or purchases the advertiser’s product, the affiliate is paid a fee, either directly from the advertiser or indirectly through a network.
State attorneys general (AGs) have recently stepped up their investigations and begun law enforcement actions against both online merchants and the affiliate marketers who drive online traffic to them. How did affiliate marketing get to this point? And how can affiliate marketers and those doing business with them such as advertising networks and online merchants, avoid raising the ire of law enforcement?
RECENT ENFORCEMENT ACTIONS
Several years ago, both federal and state law enforcement agencies began to notice the concept of affiliate marketing. In 2005, the Federal Trade Commission (FTC) brought CAN-SPAM actions against seven adult website companies, alleging that they violated the CAN-SPAM Act because they paid affiliate marketers to use deceptive e-mails to drive online traffic to the defendants’ pornographic websites. The combined civil penalty amounts in these cases exceeded $1.6 million, but the affiliate marketers were not named defendants in the actions.
The AGs also began to take action on the affiliate marketing front. In 2007, the Florida AG announced a $1 million settlement over allegedly deceptive “free ringtone” online marketing campaigns. That year, the Florida AG also announced a group of investigations of other online affiliate networks using allegedly deceptive offers for “free” or “complimentary” mobile content (such as ringtones or wallpaper) to enroll consumers into monthly subscription plans, without describing the prices and terms of service clearly and conspicuously.
Two of these matters recently settled: the Florida AG within the last year announced two $1 million settlements with online marketers of mobile content, requiring the companies and their affiliate marketers to follow guidelines on the disclosure of material terms in its online marketing of mobile content.
The FTC sued affiliates directly for the first time earlier this year, alleging that the defendants purchased “sponsored links” that appear on the results pages of Internet search engines when consumers search for “making home affordable” or similar terms. The defendants’ ads, which prominently displayed the full government website address “www.MakingHomeAffordable.gov,” then appeared among the search engines’ results. Consumers who clicked on the advertisements were not directed to the website for the government program, but were instead diverted to websites that attempt to sell paid loan modification services. These commercial websites, which are not affiliated with the government, required consumers to enter personally identifying and confidential financial information, and then either offered loan modification services or sold consumers’ personally identifying information to companies that market such services.
Although the FTC did not name these commercial loan modification websites as defendants or allege they were engaged in deception, it did allege that the affiliate marketer defendants were attempting to defraud or scam homeowners trying to use the government site, by falsely implying through search results that visitors were being sent to the government’s website.
Several recent enforcement actions only underscore the perils of affiliate marketing. Various state AGs have cited the role of affiliate marketers in their latest actions against online promotions, and these may be followed by other AG actions and possibly FTC law enforcement against merchants, affiliates and/or networks that either engage in deceptive advertising, or knowingly assist and facilitate it. In addition, affiliates’ unauthorized use of celebrity and news media images and marks is increasingly subjecting them (and the online merchants to which they link) to charges of trademark infringement, false endorsement and related allegations, under both state and federal law.
So what can online merchants, advertising networks and affiliate marketers do to reduce their risk of being targeted by state or federal law enforcement agencies? The following “top ten tips” (while not exhaustive) should be applied by affiliates–and by merchants and advertising networks–to avoid regulatory problems that may arise from affiliate marketing:
AFFILIATES
1. Ensure that affiliate advertising of any merchant’s products or services is truthful, substantiated and not deceptive or unfair.
2. Do not publish “flogs” (fake blogs) or other false content, false or unsubstantiated product claims, or offer incentives to consumers in return for their response to any ad, unless the offer’s terms and conditions of the offer are clearly and conspicuously disclosed.
3. Do not publish fake news articles or other fake media titles, without clearly and conspicuously disclosing that the content is an advertisement.
4. With respect to any endorsement (third-party promotion of an advertiser’s product to consumers), do not publish false or unsubstantiated endorsements, and be sure to clearly and conspicuously disclose any material connections with the merchant and/or the network.
5. Do not infringe on the personal rights, trademark, copyright, patent rights, service mark or any other intellectual property right of any third party mentioned in published content.
MERCHANTS AND NETWORKS
1. Enter into written agreements with affiliate marketers, requiring that all affiliates publishing content designed to drive online traffic to the merchant abide by all state and federal consumer protection laws and regulations including the FTC Act and the CAN-SPAM Act.
2. These agreements should also require affiliates to comply with the FTC’s Endorsement Guides.
3. These agreements should also require that affiliates not infringe on the personal rights, trademark, copyright, patent rights, service mark or any other intellectual property right of any third party.
4. These agreements should also require that affiliates clearly and conspicuously disclose the terms and conditions of any incentives, points, rewards, cash or prizes promised to consumers in return for their response to any advertisement.
5. Agreements must provide that any affiliates who violate these laws, regulations and guides shall be terminated by the merchant or network, and shall forfeit any commissions earned in the course of committing such violations.
Given recent law enforcement developments, everyone in the online advertising stream, from merchants to networks to affiliates, should follow these tips to avoid getting caught in regulators’ crosshairs.
Jeffrey D. Knowles manages Venable LLP’s Government Division and heads the firm’s Advertising and Marketing Practice Group. He can be reached at (202) 344-4860. Thomas A. Cohn is of counsel in Venable LLP’s New York, NY office. He can be reached at (212) 370-6256.

