1. FTC CASES RE: AFFILIATE MARKETING
THOMAS A. COHN, PARTNER
LECLAIR RYAN, NEW YORK
thomas.cohn@leclairryan.com
AFFILIATE SUMMIT NYC MEETUP
MAY 29, 2012

2. FTC v. Legacy Learning Systems settlement [March
2011]: affiliate marketing and consumer testimonials
 Legacy, seller of lesson DVDs, including “how to play guitar” series, represented
that product reviews were endorsements reflecting opinions of ordinary
consumers or independent reviewers. Customers didn’t know that many
favorable endorsements were posted by affiliate marketers who received
commissions from Legacy for sales generated. Failure to disclose that material
connection allegedly violated FTC Act.
 Terms of proposed consent order: $250,000 settlement, plus provisions about
Legacy’s future business practices:
 Legacy agreed not to misrepresent status of any product user or endorser, such
as that the person is an independent user or ordinary consumer of the product.
 Legacy can’t make any representation about product user or endorser unless
any material connection between that person and anyone else involved in
promoting product is clearly and prominently disclosed. Proposed order defines
“material connection” as relationship that materially affects the weight or
credibility of endorsement and wouldn’t be reasonably expected by consumers.

3. Legacy (cont’d) – final order, June 2011
 Legacy must take steps immediately with regard to its affiliate program:
Company will set up and maintain system to monitor and review affiliates’
representations and disclosures to ensure compliance with order. Within 30
days - and semi-annually after that - company will determine its top 50
revenue-generating affiliates.
 At least once a month, Legacy will visit their sites to review their
representations/disclosures, and must do this in a way designed not to
disclose to the affiliates that they’re being monitored. For the other affiliates,
Legacy will monitor random sample of 50 sites at least once a month.
 If affiliates misrepresent their status in any way — for example, by claiming
they’re independent reviewer or ordinary person who’s used product, or by
failing to disclose material connection with Legacy — then Legacy must
immediately terminate them as an affiliate and stop paying them.

4. For Release: 04/19/2011
FTC Seeks to Halt 10 Operators of Fake News Sites from Making
Deceptive Claims Re: AcaiBerry Weight Loss Products
 Web Marketers Falsely Claim Endorsement by ABC, Fox News, CBS,
CNN, USA Today, and Consumer Reports, FTC Alleges
 FTC is requesting federal courts to temporarily halt allegedly deceptive tactics
of 10 operations using fake news websites to market acai berry weight-loss
products. FTC seeks to permanently stop this misleading practice and has
asked courts to freeze assets pending trial.
 According to FTC, defendants operate websites that are meant to appear as if
they belong to legitimate news-gathering organizations, but in fact the sites
are simply ads aimed at deceptively enticing consumers to buy the featured
acai berry weight-loss products from merchants.
 FTC complaints allege that these fake news sites have titles like “News 6
News Alerts,” “Health News Health Alerts,” or “Health 5 Beat Health News.”
Sites often include names and logos of major media outlets, such as ABC,
Fox News, CBS, CNN, USA Today, and Consumer Reports, and falsely
represent that the reports have been seen on these networks.

5. For Release: 04/19/2011
FTC Seeks to Halt 10 Operators of Fake News Sites
from Making Deceptive Claims Re: Acai Berry Weight
Loss Products
 An investigative-sounding headline on one such site proclaims
“Acai Berry Diet Exposed: Miracle Diet or Scam?” The article
that follows purports to document a reporter’s first-hand
experience with acai berry supplements – typically claiming to
have lost 25 pounds in four weeks.
 “Almost everything about these sites is fake,” said David Vladeck,
Director of the FTC’s Bureau of Consumer Protection. “The
weight loss results, the so-called investigations, the reporters, the
consumer testimonials, and the attempt to portray an objective,
journalistic endeavor.”

6. FTC
Actions
vs.
Affiliate
Marketers,
Exhibit to
FTC
Investigator’s
Declaration

7. FTC
Actions
vs.
Affiliate
Marketers,
Exhibit to
FTC
Investigator’s
Declaration

8. From FTC Revised Endorsement Guides FAQs,
re: Affiliate Marketing:
 I’m an affiliate marketer with links to an online retailer on my website. When people
click on those links and buy something from the retailer, I earn a commission. What
do I have to disclose? Where should the disclosure be?
 Let’s assume that you’re endorsing a product or service on your site and you have
links to a company that pays you commissions on sales. If you disclose the
relationship clearly and conspicuously on your site, readers can decide how much
weight to give your endorsement. In some instances, where the link is embedded in
the product review, a single disclosure may be adequate. When the product review
has a clear and conspicuous disclosure of your relationship – and the reader can see
both the product review and the link at the same time – readers have the information
they need. If product review and link are separated, reader may lose the connection.
 As for where to place a disclosure, the guiding principle is that it has to be clear and
conspicuous. Putting disclosures in obscure places – for example, buried on an
ABOUT US or GENERAL INFO page, behind a poorly labeled hyperlink or in a terms
of service agreement – isn’t good enough. The average person who visits your site
must be able to notice your disclosure, read it and understand it.

9. For Release: 12/01/2011
FTC Action Temporarily Halts Operation that Allegedly Used Fake News
Sites to Make Deceptive Claims about Acai Berry Weight-Loss Products
 Continuing its crackdown on deceptive health claims, FTC and CT AG sued to stop
Lean Spa -- allegedly used fake news websites to market products, made deceptive
weight-loss claims, and told consumers they could get free trials of acai berry and
"colon cleanse“ products, and only pay nominal shipping/handling costs. Alleged that
many consumers ended up paying $79.99 for the trial and paying for more monthly
shipments of products that were hard to cancel. Defendants have allegedly collected
more than $25 million from consumers.
 At request of FTC and CT AG, court issued ex parte temporary restraining order on
Nov.14. Parties agreed on Nov. 22 to a preliminary injunction halting the allegedly
illegal conduct of defendants, including entities based in the UK; continuing an asset
freeze; appointing a temporary receiver; and giving the receiver, FTC and CT AG
immediate access to the business premises.
 Complaint alleges that defendants hired affiliate marketers who used fake news
websites to promote the defendants' products that were misrepresented as objective
reports and endorsements by news organizations; engaged in deceptive and
unauthorized billing; made unsupported claims that consumers could lose a lot of
weight quickly; and falsely stated that the claims were clinically proven.

10. For Release: 12/01/2011
FTC Action Temporarily Halts Operation that Allegedly Used Fake News
Sites to Make Deceptive Claims about Acai Berry Weight-Loss Products
 Stipulated PI halts defendants from selling "negative-option“ continuity plans, from
making unauthorized sales charges, and from making certain deceptive claims. The
order also requires defendants to cease collection efforts and extends an asset
freeze over the defendants until final resolution of the case.
 FTC's 11th case involving allegedly fake news websites used to promote dietary
supplements. In April 2011, the FTC charged 10 companies that operated "fake
news" sites promoting acai berry weight-loss products.
 Notable case for several reasons: continues recent trend of vigorous FTC and AG
enforcement, sometimes as co-plaintiffs; continues FTC’s recent practice of naming
third parties, such as credit card processors, that FTC claims played a role in
furthering alleged fraud; and continues FTC trend of obtaining outright bans against
specified conduct (such as negative-option marketing) in the case, at the PI stage.
 Also, PI differs from FTC staff guidance in February 2009, regarding online negative-
option marketing. Instead of simply requiring clear/conspicuous disclosure at start
and end of trial period, PI flat-out enjoins defendants from starting trial period before
the date the consumer receives, or defendants reasonably expect the
consumer to receive, product.

11. Central Coast and Jesse Willms cases
 FTC actions against online advertisers have continued to cite their use of deceptive
affiliate marketing. And the orders against them have imposed severe monitoring
requirements which make it difficult to nearly impossible to use affiliate marketers.
Two such actions illustrate this aggressive FTC approach:
 In January 2012, 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 and
banned from negative option marketing, deceptive and unsubstantiated product
claims, and unauthorized billing.
 Significantly, defendants were required to distribute the order to affiliates and
networks helping to sell their 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 those affiliates’ marketing materials before they
are used, to ensure they comply with the order, and must terminate business with
any offenders.
 FTC again imposed harsh monitoring requirements in a February 2012 settlement
with Jesse Willms and other defendants. They were ordered to turn over assets and
agree to monitoring and policing of affiliate marketers and networks they do business
with. They likewise must serve the order on affiliates and networks and obtain signed
statement acknowledging receipt of and agreeing to comply with order.

12. Affiliate Marketing and the FTC:
Next Steps, Best Practices
 FTC likely to continue going after non-seller third parties -- affiliate
marketers, payment processors, list brokers and others – who engage in
deceptive practices or assist and facilitate others who do, that result in
consumer injury.
 Merchants and Networks need to do “reasonable monitoring” of affiliate
marketers, to ensure compliance with consumer protection laws, rules and
guides [remember Legacy case]
 Affiliates must clearly and conspicuously disclose their “material
connections” with advertisers: $ paid.
 Affiliates will be held to same standards as merchants: product/service
claims must be truthful and substantiated.
 MERCHANTS may be held responsible for their own violations, AND/OR
those of rogue affiliates who drive traffic to them: FTC cases vs. Legacy
Learning, Central Coast, Jesse Willms, LeanSpa.

13. Affiliate Marketing and the FTC:
Next Steps, Best Practices
 What do these increasingly aggressive FTC actions mean for
affiliates? Regulatory scrutiny is higher than ever, and they must
clean up their act or risk enforcement. Such attacks might come from
FTC and/or state AGs, who are also more active than ever in policing
online marketing. THIS MEANS:
 Affiliates must disclose all “material connections” with advertisers,
such as $ paid.
 Affiliates held to same standards as advertisers: claims must be
truthful and substantiated.
 Any fake or deceptive formats will greatly increase risk of
enforcement.
 Health claims re: dietary supplements? Very risky!
 Income claims re: work-at-home, biz opps? Very risky!
 Limit advertising to foreign markets? May lower, but doesn’t
eliminate, risk!
 If conduct has any nexus here, then FTC has enforcement
jurisdiction!

14. QUESTIONS?
 Read my article in FeedFront 18, “Law
Enforcement Perils & Pitfalls for Affiliates”
 Come to my ASE12 panel, “Flogs, Farticles,
Facebook, Fraud, FTC, oh F%*!”
 At ASE, New York City, on August 14, 2012

15. QUESTIONS NOW?
 Thomas A. Cohn, Partner, LeClairRyan
 Thomas.Cohn@LeClairRyan.com
 www.leclairryan.com

16. Join Our NYC Meet Up – It’s
Free
Come join the NYC Affiliate Summit Meetup
Group to chat with other people that are sharing
information about affiliate marketing and
internet marketing.
http://www.meetup.com/Affiliate-Summit-NYC
Discuss affiliate marketing on:
http://forum.affiliatesummit.com