Monthly Archives: May 2015

Internet Business Law: Renew Your Safe Harbor Certification

safe harbor certificationIf you operate a website or app that collects personal user information, read on. Not taking the advice within could mean an unwanted visit from the Federal Trade Commission.

What are the International Safe Harbor Provisions and TRUSTe?

International Safe Harbor Certification Program

First things first: what, exactly, is a “Safe Harbor” provision?

In 1995, the European Union (“E.U.”) ratified rules regarding the digital transfer of personal information. In 2006 – in conjunction with the U.S. Department of Commerce – the E.U. created the Safe Harbor Framework, which allows U.S. businesses to demonstrate compliance with European standards.

U.S. and Swiss officials also rolled-out a separate, but near identical, program around the same time.

The Safe Harbor Frameworks are self-certification processes, but participants are required to comply with associated paperwork to maintain official compliance recognition.

TRUSTe Program

True Ultimate Standards Everywhere Inc. (a.k.a., TRUSTe) is a private firm that offers security certifications. Primarily, businesses, who want to demonstrate a commitment to international data laws, use the company’s services. Businesses can apply for universally recognized TRUSTe licenses. Like the Safe Harbor Frameworks, licensees are required to renew every few years.

Two Companies Busted For Not Renewing Safe Harbor and TRUSTe Commitments

TES Franchising LLC (“TES”) and American International Mailing Inc (“AIM”) both self-certified under the U.S.-E.U. and U.S.-Swiss Safe Harbor Frameworks. The former first completed the process in 2011, the latter in 2006. TES also held a TRUSTe license.

Both companies, however, failed to renew the required paperwork – and the FTC found out. As a result, TES and AIM were saddled with 20-years of FTC-sanctioned, time-consuming bookkeeping, the non-completion of which could trigger a huge, legally enforceable fine.

Even If You Don’t Change Your Website or Procedures, Safe Harbor Renewal Is Mandatory

TES and AIM didn’t violate any Safe Harbor certification standards, they simply forgot to renew on-time. So, despite neither company committing a security abuse, not fulfilling the proper paperwork put them on regulators’ radars.

The Takeaway: If you want to keep officials off your back, make sure you’re up-to-date with the latest international, national and regional Internet laws — especially Safe Harbor certification paperwork.

For Maximum Profit, Enlist an Experienced Internet Law Attorney

Kelly / Warner attorneys are masters of Internet law. Pioneers in the field, we’re commonly recognized as one of the country’s leading tech law firms. Kelly / Warner consistently delivers better-than-big-firm results, for a fraction of the price.

Contact Kelly / Warner today to get started on your safe harbor certification or other Internet law issue.

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Section 5 of the FTC Act: To Parameter or Not To Parameter?

Section 5 of the FTC Act parameters
Will officials finally formalize FTC Act rules?

The Federal Trade Commission recently hosted a public debate. The topic? Parameters for Section 5 of the FTC Act. The first open gathering on the issue in seven years, at the event, both pro-guideline and anti-guideline advocates shared conflicting views.

But did participants come any closer to a consensus? Not a chance.

Section 5 of the FTC Act: A History of Conflict

For decades, lawyers and lawmakers have quibbled over the FTC Act. Academics, elected officials and court officers have all offered strong opinions regarding the U.S. Congress’ ultimate intention when it green lit the law’s bill back in 1913. Usually, discussions regarding Section 5 take place behind closed doors. But for the first time since 2008, commissioners hosted a debate where representatives from the public sphere and private sector convened to debate the issues.

The Main Debate: Parameters

What are the main issues that have people pounding on about parameters? In short, these two questions anchor the contentious issue:

  • Should officials formalize Section 5 of the FTC Act parameters? and
  • Should lawmakers pass additional federal online marketing statutes that address “unfair and deceptive” practices?

Pro-formalization people argue that better definitions will lead to more transparency, efficiency, predictability and cohesion. Anti-formalization advocates think the current process isn’t hurting the marketplace and stringent guidelines will only lead to an unnecessarily bloated bureaucracy.

Does The Chatter About FTC Guidelines Transfer To Actual Action?

The FTC is in a transition phase; Chairwoman Ramirez is serving her final months at the helm, and new hires are being brought in for key technical positions. To wit, don’t expect significant policy movement on this matter for many months, if not years.

Speak With A Lawyer Who Deeply Understands Section 5 of the FTC Act & How To Work With It

In the meantime: if you’re facing an Internet law issue related to online promotional campaigns, or if you landed on the FTC’s radar, contact Kelly / Warner Law for help. A pioneer in the field of online marketing legal research and litigation, our team has helped over 500 companies and entrepreneurs navigate the peaks and valleys of advertising legalities. Get in touch today so we can start solving your legal problems, for the right price.

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Are Discount-For-Review Programs Legal of Illegal?

discount-for-review legalities
Are “discount-for-review” programs legal? Do they violate FTC guidelines?

Do you pay for your company’s online reviews? Do you manipulate them? Barter for them? Do you offer discounts for reviews? If you do, keep reading, because the Federal Trade Commission may be on the hunt for people like you.

FTC Cracks Down on AmeriFreight For “Coerced” Online Reviews

Online reviews matter – a lot. Knowing this, the marketers at AmeriFreight allegedly implemented an “I’ll scratch your back, if you scratch mine” online review system. How’d it work? The Georgia-based auto broker offered clients a $50 discount in exchange for posting online reviews. Customers weren’t obligated to be positive, they just had to post feedback.

To ensure customers met their discount-for-review pledge, AmeriFreight reminded clients that the discount only applied if they posted the online reviews.

Bottom line: the program worked – well. And as a result, AmeriFreight was able to market itself as “top-ranked” and “highly rated”. Company promotional materials boasted of being “more highly ranked…than any other company in the automobile transportation business.”

The Federal Trade Commission Uncovered AmeriFreight’s “Discount-for-Review” Scheme and Unleashed the Marketing Kraken

How Can The FTC Punish “Unfair and Deceptive” Marketers?

The Federal Trade Commission is the nation’s “consumer watchdog”. It’s responsible for shielding you and me from “unfair and deceptive” marketing practices. The agency can censure and fine companies that shirk advertising and promotional guidelines and laws, like the 2012 online advertising guidelines, the FTC’s Dot Com Disclosures and Section 5 of the FTC Act.

According to current standards, pay-for-review programs don’t pass legal muster, so AmeriFreight lost the case.

Consequences of Operating A Discount-For-Review Program

Luckily for AmeriFreight, the FTC is not doling out a hefty fine. However, the auto company must stop promoting itself as “top-ranked” and “highly rated”. Moving forward, AmeriFreight must disclose any and all material connections associated with testimonials and reviews. And lastly, if the company is caught ignoring the sanctions, the commission will most likely wield its pecuniary punishing power.

Making an Example; Next Round: Huge Fines for Pay-For-Review Schemes

If you’ve made it this far, you may be thinking, “Pfft! AmeriFreight wasn’t fined into oblivion for violating discount-for-review restrictions, so, what is preventing me from running a similar program!?”

Word to the wise: don’t do it.

When new – legally ambiguous – marketing techniques hit the scene, first the FTC investigates the situation. If commissioners agree that a given practice is dastardly, they sound the “unfair and deceptive” marketing alarm and publicly scold violators.

But being in the first batch of baddies has its benefits; instead of being freighted with a huge fine, round-one violators sometimes avoid financial sanctions. Instead, they’re used as the anti-poster children for illegal online marketing techniques. In this case, AmeriFreight dodged a financial hammer by being one of the first “discount review violators” investigated by the FTC. But now that the auto-broker has fulfilled its role as a cautionary case, down the line, businesses engaging in discount-for-review schemes may be fined.

Discount-For-Review Officially “Unfair and Deceptive” Marketing Practice

Now that the FTC – via its public censure of AmeriFreight – has publicly decried client review manipulation, in the future, commissioners may fine businesses that ignore guidelines regarding discount-for-review schemes.

Online Marketing Lawyers That Know The System And How To Work It

Kelly / Warner Law is a pioneer in the fields of Internet law and online marketing law. We’ve helped over 500 companies:

  • Evade FTC censure;
  • Craft effective — but legal –promotional campaigns;
  • Comply with international Internet marketing guidelines; and
  • Navigate national and local unfair and deceptive marketing regulations.

We work with weight-loss marketers, professional design firms, affiliates, Amazon sellers, game developers, SEO firms, tech firms, startups and Fortune 500 companies. To read an overview of our online marketing legal practice, head here. If you’re ready to chat with one of our top-rated marketing attorneys, get in touch today. Kelly / Warner attorneys resolve challenges quickly – and for the right price.

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Finance Analyst Awarded Millions In Professional Defamation Ruling

professional defamation case study
A young banker is several million dollars in the green thanks to a favorable defamation ruling.

A finance broker sued colleagues for professional defamation and won millions of dollars in damages. The reputation-related case serves as a cautionary tale against workplace gossiping.

Meet Svetlana Lokhova: Finance Prodigy & Reputation Attack Victim

With a history degree in hand, Svetlana Lokhova – a Cambridge University grad – eschewed ruins for rubles when she took a job with big money brokerage firm Sberbank CIB.

Moving On Up The Corporate Ladder

Go-getter Lokhova quickly climbed the Sberbank rungs; within a few years, she was banking the big bucks. But Lokhova’s meteoric rise was not without turbulence. According to reports, she locked horns with colleagues over insider trading allegations, and eventually opted to alert authorities about the indiscretions.

Whistleblowing

In the whistleblowing wake, things at the office became untenable for the academic-turned-banker. According to Lokhova, colleagues attacked her reputation, mercilessly. Hecklers taunted: “Mad Svetlana”, “Miss Dodgy Septum” and “Crazy Miss Cokehead”. The Sberbank bullies even went so far as to label Lokhova a “chemically dependent…b*tch” and “major car crash”.

Workplace Gossip Becomes Brutal

Work became a living nightmare for Lokhova, and the office atmosphere had a “seriously detrimental effect on [her] health.” According to her, the situation also triggered “chronic and long-term symptoms” that drove her to “mental collapse”.

But instead of letting her detractors get the better of her, Lokhova fought back via a legal action.

The Central London Employment Tribunal Weighs In On Lokhova’s Professional Defamation Case

Lokhova took her case to the Central London Employment Tribunal (CLET), an official body, with authority to rule on certain workplace legal disputes. Preemptively, Lokhova took a drug test – and passed – to prove the addiction accusations false. After reviewing the facts, the CLET sided with Lokhova, awarding her a total of $2.3 million.

Though pleased with the decision, Lokhova lamented that she “could never return to financial services again” because “everybody knows everybody’s business in banking and people believe there is no smoke without fire. My reputation has been shredded.”

Maturely, instead of decrying the tribunal’s ruling, a Sberbank spokesperson vowed that the finance firm is “committed to take on board any lessons to be learned.”

Speak With A Professional Defamation Lawyer

A pioneer in the field of Internet defamation law, Kelly / Warner Law has successfully handled hundreds of reputation-related cases for finance professionals and firms. We pride ourselves on resolving challenges quickly – and in our clients’ favor.

Click here learn more about our trade libel and professional defamation legal practice. If you’re ready to speak with an attorney, contact us; one of our experienced lawyers will be in touch within hours.

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Cybersquatting Case Study: Academy of Motion Picture Arts and Sciences v. GoDaddy.com Inc.

cybersquatting case example
Did a court just make it easier to sue cybersquatters?

A U.S. court ruling paved the way for lawsuits against domain name registrars that offer “cash for parking” programs. The high-profile case, Academy of Motion Picture Arts and Sciences v. GoDaddy.com Inc., may have a profound effect on cybersquatting lawsuits from this point forward.

Background On The Oscar Cybersquatting Lawsuit

In 2013, the Academy of Motion Picture Arts and Sciences – or AMPAS (a.k.a., the people who give out Oscars) – filed a lawsuit against GoDaddy.com. The issue? AMPAS felt that GoDaddy – via its Paid Parking Program – was unfairly profiting off the Academy’s name.

Domain Marketer Bought Oscar-Related URLs

An enterprising domain marketer purchased several URLs that incorporated the “Oscar” trademark, including oscarliveblogging.com and Oscarlist.com. Instead of putting a website on the URLs, the marketer opted to take advantage of GoDaddy’s Cash Parking Program – a program that financially benefited both GoDaddy and the would-be cybersquatter.

As you may have already guessed, during Oscar season, the domain name entrepreneur made a cash killing via the ads that appeared on the sites.

AMPAS brass wasn’t impressed with someone profiting off its brand. So, the Academy decided to move forward with a cybersquatting lawsuit.

Violations of the Anticybersquatting Consumer protection Act

In 1995, U.S. Federal officials passed the Godfather of domain dispute laws. Entitled the Anticybersquatting Consumer Protection Act, the statute protects the domain names of trademark owners. Essentially, it illegalized the practice of buying another party’s trademarked domain with bad faith intent to profit. It’s the law that disallows you or me from, say, buying Nike.com and then holding it ransom for $1 billion (spoken in Dr. Evil’s voice, thank you very much!).

Why The Court Sided With AMPAS In The GoDaddy Cybersquatting Case

AMPAS’ lawsuit alleged that GoDaddy monetized 115 domains infringing on the Oscar trademark. After reviewing the facts of the case, the court rejected the registrar’s safe harbor defense because the law only shelters parties that don’t profit – in any way – from the infringing URL of a customer. Since GoDaddy made money off the cybersquatter via advertising, the safe harbor argument didn’t work.

Other Legal Remedies for Trademark Domain Disputes

Lawsuits aren’t the only remedy for domain disputes. The Uniform Domain-Name Dispute-Resolution Policy (UDRP) is an international ICANN program where trademark holders, with URL grievances, can petition to regain control of disputed domains. What is the drawback of UDRP rulings? They’re nonbinding.

In the event that a UDRP ruling does not land in petitioners’ favors, they can pursue lawsuits claiming violations of section 43(d) the Lanham Act (15 U.S.C. $ 1125(d)).

Speak with An Internet Trademark Attorney

Kelly / Warner Law helps hundreds of businesses and trademark holders with various types of domain disputes – from resolving cybersquatting issues to simple registration needs. A top-rated legal practice, Kelly / Warner maintains a 10-out-of-10 rating with venerated lawyer review group, Martindale-Hubbell. To learn more about our online intellectual property practice, click here. To speak with a domain dispute lawyer, get in touch. We can remedy your issue quickly, and at a competitive price.

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New Law Could Decimate WFOE Tech Outfits Operating In China

WFOE China law proposal
A proposed international law could affect international businesses operating in China.

If you’re a tech company with controlling interest in a Wholly Foreign-Owned Enterprise  (WFOE) operating in China, read on. A new law proposal could mean the forced liquidation or sale of your operation.

How International Businesses Currently Navigate China’s Investment Laws

The Chinese government is protective of profit and investments in certain market sectors. Currently, laws prohibit outright foreign ownership of companies that primarily operate in China. The regulations affect many tech and online companies. But, over the years, entrepreneurs have pioneered a win-win system that makes use of variable interest entities (VIEs) and wholly foreign-owned enterprises (WFOEs).

How does it work? Without diving into the detail, foreign investors, who are eager to tap the increasingly wealthy Chinese market, establish an investment vehicle known as a wholly foreign-owned enterprise. What makes WFOEs unique is that a mainland Chinese partner is not required to create the outfit, legally. Once the wholly foreign-owned enterprise is in place, it contracts with a Chinese-owned operating company (the VIE), which can then invest in the restricted sector.

The WFOE / VIE system is not without its disadvantages; regardless, it has become a popular method for international investors to navigate the fertile Asian market. U.S. tech companies such as Amazon.com Incorporated, Pearson PLC and CBS Corporation all use the system to operate in China.

China’s Ministry of Commerce Wants To Change The VIE / WFOE Rules

All good things must come to an end. And it looks like the WFOE / VIE structure is in its twilight year, as Chinese officials recently announced potential plans to uproot the system. The proposed law would essentially eradicate the current ecosystem by disallowing foreign control of entities that primarily operate in the Chinese marketplace.

Who are some of the mega players that stand to lose big if Chinese officials ratify the statute? Sina Corp. and Weibo Corp. are largely controlled by international investors, and, as such, may be Hulk-slapped by the impending change.

What Will Be The Main Consequences For Businesses Affected By The Chinese Law Change?

To be clear: the law hasn’t yet passed; it’s only been proposed. If, though, Chinese officials do green light the statute, foreign investors in affected companies will most likely have to sell their controlling stakes – or liquidate.

Now, of course, if there’s a will, there’s a way. But figuring out a viable plan that won’t violate the impending Chinese statute will take the help of an attorney versed in international law. Kelly / Warner is one such firm. Even better, we’re a pioneer in the field of internet and tech law, and have the knowledge you need to profit.

To speak with an attorney to learn more about our international tech legal practice, get in touch today.

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Amazon Sues Reviewers: An E-Commerce Case Study

Amazon sues reviewers
Amazon sued an alleged fake review facilitator.

From The E-Commerce Law Desk: Amazon Sues Reviewers

Amazon declared war on fake feedback — and the retailer’s litigators are hunting down pay-for-post services.

Amazon Sues Reviewers: The Feedback Industry In A Nutshell

A philosophical fence separates the online review industry: feedback facilitators are either on the “light side” or the “dark side.”

The Light Side’s MO

Reputable e-commerce marketing companies DO exist. They help Internet retailers market products, find audiences, and garner great reviews using above board tactics.

The Dark Side’s MO

The review company pays people to write phony – often glowing – missives on Amazon, Yelp, and other consumer platforms without ever trying the product or reading the book. These folks typically use underhanded tactics (like shipping empty boxes) to give posts an air of credibility.

The deceptive practice has gone viral quicker than a conga line of cats, but it’s slowly poisoning the digital economy.

Amazon Sues Reviewers: Fake Feedback Brokers

Amazon’s first paid fake review lawsuit targeted the operator of buyazonreviews.com, in addition to the John Doe(s) facilitating buyamazonreviews.com, bayreviews.net, and buyreviewsnow.com. Lawyers for the plaintiff are arguing trademark violations (some of the sites use unauthorized Amazon logos), unfair competition, and a smattering of other business-related torts.

From the “Amazon sues reviewers” lawsuit:

“While small in number, these reviews threaten to undermine the trust that customers, and the vast majority of sellers and manufacturers, place in Amazon, thereby tarnishing Amazon’s brand. Amazon strictly prohibits any attempt to manipulate customer reviews and actively polices its website to remove false, misleading, and inauthentic reviews.“Despite substantial efforts to stamp out the practice, an unhealthy ecosystem is developing outside of Amazon to supply inauthentic reviews. Defendants’ businesses consist entirely of selling such reviews.”

Amazon purports to have damning evidence against the defendant (whether it’s true or not is yet to be determined).

Speak With An E-Commerce Attorney

Kelly / Warner focuses on Internet law issues, including online reviews. To learn more about our work with Amazon sellers, head here. Read about our online reputation practice, by jumping here. To speak with one of our experienced attorneys, get in touch today.

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Kelly / Warner is an Internet law firm that handles online business matters, including e-commerce issues related to paid online reviews.

Social Media Marketing Law: #Ad and #Sponsor

social media marketing law
What are the rules regarding using #ad and #sponsor hashtags?

What is the most important social media marketing law? If you pay people to promote products or services on social media, must they label their posts? What if you don’t give them money, but instead discounts or other in-kind compensations?

Below, we’ll answer the above social media marketing law questions, and review a few other relevant legalities.

Dress Sold Out, But No #ad Disclosure

In 2015, Lord & Taylor launched a wildly successful social media campaign. A testament to the power of social media promotions, the retailer paid fifty fashionistas to tweet, ‘gram, and otherwise social-media themselves in the same floral dress.

The garment sold out in 24 hours.

The issue? Most of the participants failed to use an #ad or #sponsor tag. The lack of disclosure flouted FTC guidelines.

Are #Ad or #Sponsor Disclosures A Must?

What are the rules? Is it essential to use an #ad or #sponsor tag when promoting something on social media, for pay, discount, or a mutual back-scratch?

Unfortunately, the rules are not cut and dry. In fact, they’re murkier than a Florida swamp – a fact that causes severe headaches for fashion marketers. As Danielle Wiley of the Sway Group explained, “When brands see a successful campaign like this without the ugly little ‘ad’ disclosure…they want the same thing for themselves.”

Social Media Marketing Law: The Guidelines

According to the Federal Trade Commission (the nation’s official “consumer watchdog”), if a party is compensated, in any way, for a social media promotion, that fact should be disclosed. The common way of doing so is adding either an “ad” or “sponsor” hashtag to the post, tweet or ‘gram.

The rub? The FTC’s recommendations are only guidelines, which means the rules are, shall we say, fluid. What does that mean, practically speaking?

  • It’s a crap shoot whether or not you’ll be sanctioned for NOT using #ad or #sponsor disclosures on paid social media promotions.
  • Though there is no hard-and-fast federal law regarding the use of online marketing disclosures, there are enforceable rules regarding “unfair and deceptive marketing,” which the FTC can use to severely fine violators.

See what we mean by murky? The lack of formal regulations – coupled with the existence of quasi-governmental guidelines – results in marketplace confusion. Some companies and marketers are sanctioned and fined for disregarding promotional guidelines; some entities are caught, but only get a slap on the proverbial wrist. And, still, others get away scot-free.

Don’t Blame The Marketer

The current state of murky online promotional guidelines is causing consternation for many marketing firms. Some have even been fired for following them. (Tsk Tsk!)

But here’s the rub: if marketers continue to shirk guidelines, a draconian law may take its place – one that will have businesses begging for the simple #ad or #sponsor hashtag requirement.

Speak With A Digital Marketing Lawyer

Kelly / Warner Law has an active – and successful – online marketing division. We help hundreds of startups and businesses with their Internet and mobile promotions. To read more about online marketing legalities, head here. To speak with one of our experienced marketing lawyers, get in touch.

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Kelly / Warner handles social media marketing law issues. We represent startups and businesses from a variety of industries and maintain a top AV rating.

Fake News Sites: Legal or Illegal?

fake word near many newspapers to accompany blog post about fake news sites
Are fake news sites legal or illegal? If an affiliate uses phony “news style” sites to promote products, are you responsible for the content?

We’ll answer these questions below, by discussing an important fake news lawsuit.

Online Marketing Regulations and Guidelines

Online advertisers are beholden to several Internet marketing regulations.

Section 5 of the Federal Trade Commission Act (FTC Act), Ch. 311, §5, 38 Stat. 719, codified at 15 U.S.C. §45(a)

Section 5 of the FTC Act allows the Commission to levy “unfair and deceptive marketing” fines.  In part, the statute reads:

(1) Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.

(2) The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations, [except certain specified financial and industrial sectors] from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce

Dot Com Disclosures

A quasi-legal regulatory guide prepared by the Federal Trade Commission, the Dot Com Disclosures outline disclosure requirements. The document is nearly 100 pages, but the gist is this:

Don’t Lie, Cheat, or Mislead Online Consumers. Don’t Make False Claims About Products. Disclose All Testimonials and Reviews Written By People With Whom You Have A Material Connection. Paid And Fake Reviews Aren’t Acceptable. Make Sure You Use Proper Disclosures.

Section 230 of the CDA

[Note: Section 230 blog posts deals with defamation, but it’s sometimes applicable in phony review cases.]

People say that Section 230 of the Communications Decency Act is the law that “made” the Internet because it gives ISPs immunity for third-party defamation. To put it another way, section 230 is why Facebook isn’t sued for users’ shenanigans.

LeadClick Case Study: Fake News Site Liability

In 2015, a judge blamed an online marketing firm for an affiliate’s misstep. When the ruling came down, attorneys did double-takes because the decision flouted established Internet case law.

Online Marketing Company Developed an Extensive Affiliate Network

Affiliate armies can work search engine miracles, which is why top-level online marketing firms spend considerable resources building – and grooming – affiliates.

LeadClick Media, Inc. is a digital promotions firm with a large affiliate network. To take part in LeadClick’s program, affiliates had to apply, and the company rejected “unsuitable candidates.” Accepted affiliates – though largely working independently – could seek advice from LeadClick. Plus, to assist affiliates, LeadClick engaged in mass media buying that helped network members.

According to reports, some of LeadClick’s affiliates used sites that included:

  • Claims of independent testing;
  • Weight loss testimonials; and
  • Misappropriated names of real news networks and reporters.

(Programming Note: For the purposes of our cautionary online marketing tale, it’s important to note that a health company, LeanSpa, used LeadClick to market its products and services.)

The FTC Started Sniffing Around LeadClick

FTC commissioners heard that LeadClick and LeanSpa may be engaging in tricky marketing and disingenuously enlisting consumers in alternative health programs. So, to suss out the situation, officials started sniffing around both operations.

Ultimately, the FTC suspected that both parties, in addition to a handful of individuals, used promotional tactics that defied both the FTC Act and Connecticut law. Fake news sites – which included unsubstantiated claims, fake testimonials, and misappropriated names of real reporters – landed the operation in hot water.

Additionally, FTC investigators allegedly unearthed credible evidence that LeadClick employees:

  • Knew about the fake news sites;
  • Discussed “news style” pages among themselves and affiliates;
  • Allowed and didn’t object to fake news pages;
  • Talked about placement of products on phony news sites; and
  • Engaged in media buying on behalf affiliates using made-up “news style” sites.

LeadClick Argues Immunity

In defense, LeadClick evoked Section 230. Since “another content provider” created the material, the company argued it shouldn’t be held responsible.

Officials Deny Section 230 Immunity Claims

In the judge’s estimation, LeadCick exercised control over its affiliate network. It supposedly “provided affiliate marketers with a way to direct consumers from genuine news sites to [phony] news sites.” As such, the judges reasoned, the company forfeited Section 230 immunity.

An excerpt from the decision:

“LeadClick had the authority to not hire affiliates using fake news sites, to instruct them not to use such sites after hiring them, and to remove them if they continued to do so. Just as LeanSpa would be liable for approving requests to advertise with fake news sites, LeadClick, as LeanSpa’s agent, is liable for its own decision to effectuate that decision.”

Court clarified a few lingering questions about marketing liability

  • If an entity is “in whole or in part” responsible for a website’s content, it can be held liable for any defamatory or unfair competition illegalities that arise.
  • Companies – not just individuals – can be held responsible for illegal affiliate marketers’ actions.
  • Omissions of material facts are against the law under Section 5 of the FTC Act.
  • Media buying on behalf of affiliates is a “material contribution” that could land a marketing company in deep legal waters – alongside individual affiliates.
  • Several entities can be held responsible – in part or in whole – for the creation of one piece of content.

Consult With An Internet Lawyer

Kelly / Warner is an Internet law firm that handles Section 230 and FTC Act issues.

Many people wrongly believe that few rules govern Web businesses. They’re wrong. Legislators have been busy passing various Internet regulations – many of which address online marketing issues.

If you’re dealing with a cyber law situation similar to the one above – or any other digital marketing questions – get in touch. We’re here to help.