1. 2012 FTC & State AG Enforcement
Affiliate Management Days, Ft. Lauderdale, FL
October 9, 2012
Thomas A. Cohn, Partner, LeClairRyan
Thomas.Cohn@LeClairRyan.com
http://www.leclairryan.com/thomas-a-cohn/

2. 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
 Web Marketers Falsely Claim Endorsement by ABC, Fox News, CBS,
CNN, USA Today, and Consumer Reports, FTC Alleges
 FTC obtained federal court orders 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.

3. 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.”

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

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

6. FTC Actions v. Affiliate Marketers -
update
 By March 2012, a total of eight out of ten affiliate
marketers [including Intermark/ Copeac, sued for
its conduct as both network and affiliate] had
settled actions by the FTC and were ordered to
stop using fake news sites to market dietary
supplements and other products.
 In these settlements, the affiliates also had to
agree to:
 stringent claim substantiation provisions for
weight loss and other health-related products,
and
 onerous requirements to monitor other affiliate
marketers, should they ever operate as an
advertiser or a network.
 Copeac settlement: three individual defendants
added, all defendants ordered to pay over $1.3
million.
 Other settlements had money judgments ranging
from $143K to $2.7M, but were partially
suspended due to inability to pay.

7. 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.

8. Other 2012 FTC Actions Re: Affiliate Marketing
 FTC has not limited its efforts to just affiliate marketers, and
how it also has been going after online advertisers (like Central
Coast Nutraceuticals and Jesse Willms) who use allegedly
deceptive continuity marketing, deceptive affiliate marketing,
and/or make allegedly false or unsubstantiated product claims.
 These advertisers’ settlements likewise impose tough claim
substantiation requirements, and stringent monitoring
provisions that make it difficult to almost impossible to work with
affiliate marketers.
 How stringent? Serving the order on affiliates and networks;
obtaining their signed statement acknowledging receipt of and
agreement to comply with order, and reviewing and
approving every piece of affiliate content before
publication, terminating/cutting off payment to any making
deceptive claims.

9. FTC Release: 01/09/2012
Internet Marketers of Acai Berry Weight-Loss Pills and "Colon Cleansers"
Pay $1.5M to Settle Charges of Deceptive Ads and Unfair Billing
 FTC announced that an operation that marketed acai berry
supplements, "colon cleansers," and other products using allegedly
fraudulent free trial offers and phony endorsements from Oprah Winfrey
and Rachael Ray will pay $1.5 million as part of a settlement. The
money will be made available for consumer refunds.
 The case against Phoenix-based Central Coast Nutraceuticals, Inc., is
part of the FTC's ongoing efforts to protect consumers from fraudulent
internet marketing, as well as false and misleading health claims.
 The settlement order bans the defendants from so-called "negative-
option" sales, such as continuity plans and free or introductory price trial
offers, in which consumers pay nothing up front or only a small fee to
receive a product, but are then automatically charged a higher price
unless they take steps to cancel or return before end of trial period.
 The settlement order also imposes tough monitoring requirements re:
using affiliate marketers – prior review/approval of all content;
terminate/cutoff payment to any making deceptive claims.

10. For Release: 02/23/2012
FTC Halts Deceptive Practices of Marketer Who Took $359M Using Bogus
'Free' Trial Offers; Settlements Ban Use of 'Negative-Option' Marketing
 FTC stopped an Internet scheme that allegedly used bogus "free" product
offers that deceived consumers in the United States and other countries and
charged them for products and services they did not want or agree to
purchase. A settlement order, reached as part of the FTC's ongoing
efforts to stamp out online marketing fraud, permanently bans Jesse Willms
and his companies from using "negative-option" marketing, a practice in
which the seller interprets consumers' silence or inaction as permission to
charge them.
 Willms settlement order imposes a judgment of $359 million that will be
suspended upon Willms's surrender of bank account funds and proceeds
from the sale of his house, personal property, and corporate assets,
including a Cadillac Escalade, fur coat, and artwork.
 "The fact that almost four million consumers fell prey to the lure of these
'free trial' offers is a stark reminder that 'free' offers can come at a huge
price," said David Vladeck, Director of FTC's Bureau of Consumer
Protection. "The FTC has stopped about $1 billion in online marketing fraud
during the past two years by shutting down operations like this. But
consumers still need to beware, because scam artists are constantly coming
up with new ways to deceive people online.“
 FTC worked closely w/ Canadian law enforcers [most defendants in Alberta].

11. Affiliate Marketing and the FTC:
Next Steps, Best Practices
 So what are the FTC’s next steps? In addition to even more
actions against advertisers and affiliates, the FTC may
begin pursuing third parties who allegedly “assist and
facilitate” the advertisers’ and affiliates’ deceptive practices.
 This could mean advertising and/or affiliate networks;
payment processors; list brokers; lead generators, call
centers, and others.
 In short, any person or entity in the advertising “chain,” from
ad creation to alleged consumer injury, is potentially liable,
if they knowingly help out others’ deceptive practices, or
provide the “means and instrumentalities” for them.

12. Affiliate Marketing and the FTC:
Next Steps, Best Practices
 Regulatory scrutiny just keeps ratcheting up, so affiliates,
advertisers, networks and others must clean up their act or
risk enforcement.
 Everyone in the chain will be held to the same basic
standards:
 claims must be truthful and substantiated;
 all “material connections” (between affiliates, networks,
endorsers and advertisers) must be disclosed;
 Must do “reasonable monitoring” and policing of third
parties you work with, and
 any fake or deceptive claims or formats will substantially up
the enforcement risk [flogs, farticles, etc.].

13. Affiliate Marketing and the FTC:
Next Steps, Best Practices – 3/21/12 FTC Blog:
 “Through a series of recent law enforcement actions, the FTC has
articulated what should be apparent: that truth-in-advertising principles
apply to affiliate marketers and to the companies that use them to promote
their products. A settlement announced today by the FTC makes a similarly
obvious point: The law applies to affiliate marketing networks, too.
 According to FTC’s complaint against IMM Interactive [Copeac], company
operated fake news sites to peddle acai diet products and “colon cleansers.”
The FTC also charged that Copeac recruited an entire network of affiliates
that used fake news sites to promote products with allegedly deceptive
claims.
 The FTC’s original lawsuit was part of a law enforcement sweep filed last
year against ten operators of fake news sites. Those complaints challenged
three kinds of conduct as illegal:
 1] falsely portraying the sites as legitimate news outlets;
 2] making false and unsupported health claims; and
 3] failing to disclose defendants were paid by companies selling the
products.”

14. Affiliate Marketing and the FTC:
Next Steps, Best Practices
 These days, if/when the FTC comes calling, they often push to take from
defendants every last cent they can of “ill-gotten gains,” for purposes of
consumer redress or disgorgement.
 And if defendants have prior law enforcement orders, the FTC frequently
seeks outright bans on certain types of marketing or verticals.
 The price of non-compliance is thus higher than ever, and all participants
must take these risks into account, before launching any campaign.
 FINAL WORD: look for more FTC actions vs. more types of
defendants, attacking these 3 types of conduct, and
minimize risk of regulatory scrutiny by minimizing use of:
• deceptive formats,
• deceptive product claims, and
• failure to disclose material connections; PLUS:
• deceptive negative option/free trial/continuity marketing

15. Affiliate Marketing and the
FTC/State AGs: LATEST NEWS
 September 12, 2012:
 FTC settlement with Coleadium/Ads4Dough
 Second [after Copeac] FTC action vs. affiliate network
 Order requires stringent monitoring of merchants and affiliates
 Order prohibits:
• false/unsubstantiated product claims
• deceptive formats
• failure to disclose material connections
 Consumer redress/disgorgement: $1 million.
 State AGs: numerous enforcement actions against:
• merchants using affiliates [some jointly with FTC]
• individual affiliates [IL AG actions re: Oprah/Oz]
• networks and others [FL AG investigations; WA AG vs. Adscend, re: FB
spamming; NY AG vs. GameTheory, re: text spamming].

16. QUESTIONS?
 Thomas.Cohn@LeClairRyan.com
 http://www.leclairryan.com/thomas-a-cohn
 http://www.linkedin.com/in/tomcohn
 https://twitter.com/tom_cohn [FTCLawyer]