Affiliate marketing

“Affiliate marketing” is used in more than one setting, and its meaning depends on the context. In consumer protection, it means “a method of advertising where an advertiser enlists the assistance of an affiliated website to refer traffic to the advertiser’s website in return for a commission on sales resulting from the referred traffic”.1 Source: Initial Decision by Chief Administrative Law Judge D. Michael Chappell [Redacted Public Version], Finding 254

The affiliate is typically paid a percentage of the sales it generates, or for each click a consumer makes on one of its links to the merchant’s site.2 Source: Plaintiff Federal Trade Commission's Application For Temporary Restraining Order ... and Memorandum In Support, Background on Affiliate Marketing

These rules make the party that profits from affiliate traffic answerable for the content that produces it. Because an affiliate and the network above it are paid per action, each has an incentive to maximize traffic, so without a knowledge-and-control test a merchant or network could keep the revenue from a deceptive page and leave the claims to an affiliate it never met.9 Source: FTC v. LeadClick Media, LLC, Second Circuit Opinion, Background

The material-connection disclosure addresses a different failure: a reader who sees a glowing post cannot tell it is paid unless the post says so, so a paid endorsement reads as an independent one. That is the impression the FTC described in the Legacy Learning matter, where affiliates’ posts led readers to think the endorsements came from ordinary consumers or independent reviewers.10 Source: In the Matter of Legacy Learning Systems, Inc., File No. 102-3055, Analysis of Proposed Consent Order to Aid Public Comment

A violation can bring a permanent injunction and monetary relief. Under section 13(b) of the FTC Act, the FTC “may seek, and after proper proof, the court may issue, a permanent injunction.”35 Source: FTC v. Gugliuzza, Memorandum of Decision of the District Court (OnlineSupplier) Section 13(b) also permits monetary equitable relief in the form of restitution and disgorgement.36 Source: FTC v. Gugliuzza, Memorandum of Decision of the District Court (OnlineSupplier) In Commerce Planet, the court found $18.2 million to be a reasonably conservative estimate of consumer injury.37 Source: FTC v. Gugliuzza, Memorandum of Decision of the District Court (OnlineSupplier)

A network that sits between merchant and affiliates is not insulated by its payouts. In the LeadClick district court ruling, the network had to disgorge the consumer payments it received from LeanSpa, and the court rejected its attempt to deduct what it had paid its affiliates, because it actually received the money.38 Source: FTC v. LeanSpa, LLC (D. Conn.), Ruling on Motions for Summary Judgment, Disgorgement Amount The FTC’s appellate brief describes the district court as also requiring the network’s parent, a relief defendant, to disgorge $4.1 million that LeadClick had transferred to it.39 Source: Final Form Brief for Appellees Federal Trade Commission and State of Connecticut, FTC v. LeadClick Media, LLC, Statement of the Case

Executives can be reached personally. An individual may be held liable for corporate violations of the FTC Act if the individual (1) participated directly in the wrongful practice or had authority to control it, (2) had knowledge of the wrongful practice or was recklessly indifferent to the truth, or was aware of a high probability of fraud along with an intentional avoidance of the truth.40 Source: Memorandum of Decision of the District Court Concluding That Defendant Charles Gugliuzza Is Individually Liable (Commerce Planet), Part C To hold an individual liable for monetary redress, the FTC must additionally establish knowledge.41 Source: Memorandum of Decision of the District Court Concluding That Defendant Charles Gugliuzza Is Individually Liable (Commerce Planet), Part C On the question of knowledge, advice of counsel and good faith are, as a matter of law, not defenses to whether the defendant had the requisite knowledge under section 5(a).42 Source: FTC v. Gugliuzza, Memorandum of Decision of the District Court (OnlineSupplier)

Settled orders show what an affiliate-driven case can cost. In the Coleadium stipulated judgment, the defendants were held jointly and severally liable for $1,000,000 in equitable monetary relief.43 Source: Stipulated Final Judgment and Order for Permanent Injunction and Other Equitable Relief as to Defendants Coleadium, Inc. and Jason Akaitff, §§ VII, X An order can also bar affiliate programs altogether: John Zuccarini stipulated to a civil contempt finding for violating Section I(C) of a permanent injunction by participating in affiliate marketing programs.44 Source: Stipulated Order Finding John Zuccarini In Civil Contempt and Modifying Permanent Injunction, Findings The order entered a $164,000 judgment to disgorge the money he received.45 Source: Stipulated Order Finding John Zuccarini In Civil Contempt and Modifying Permanent Injunction, Findings