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 by discussing a recent 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 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. The ruling shocked lawyers 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 by disingenuously enlisting consumers in alternative health programs. So, 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.

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