Should A Company Be Liable For What Its Affiliates Do?
from the section-230? dept
We all know that there are bogus product reviews online. At times, it's difficult to take reviews seriously because of this. So, to some extent, it seems like a good thing that the FTC is apparently cracking down on bogus online reviews, as demonstrated by its decision to fine a company called Legacy Learning Systems Inc., to the tune of $250,000. Apparently, the company had an affiliate program, and those "affiliates" posted all sorts of positive reviews of the company's educational DVDs for things like "Learn and Master Guitar."However, part of this is troubling. I have no problem with the FTC going after bogus reviews. Where it could get questionable is fining LLS for the actions of its affiliates. Lots of companies have affiliate programs, and it seems to set a dangerous precedent if the company is blamed for any actions taken by those affiliates. If the company was encouraging fake reviews or something along those lines, perhaps it would move liability back to the company, but it's not at all clear that's what happened here. Now, the FTC's press release on this is a bit vague. At one point, it suggests that the company had a special "review ad" affiliate program. If that's the case, then perhaps the company was specifically soliciting fake reviews, in which case the liability could potentially be justified. But later in the press release, the FTC seems to suggest it doesn't matter:
"Whether they advertise directly or through affiliates, companies have an obligation to ensure that the advertising for their products is not deceptive," said David Vladeck, Director of the FTC's Bureau of Consumer Protection. "Advertisers using affiliate marketers to promote their products would be wise to put in place a reasonable monitoring program to verify that those affiliates follow the principles of truth in advertising."Perhaps our various Section 230 experts can weigh in on this, but I can't see how the above statement fits with Section 230. If the affiliates are doing deceptive practices on their own, without direct encouragement from the company, then I can't see how the company itself is liable, and I certainly can't see a legal obligation to put in place a "reasonable monitoring program." In fact, I would think that Section 230 says the exact opposite.
Once again, I have no problem with cracking down on fake reviews, but shouldn't it be the reviewers themselves who are liable for being deceptive? Blaming the company in cases where they might not know seems only likely to make the whole concept of affiliate programs too big a liability for most companies to bother offering.
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Filed Under: affiliates, endorsements, ftc, liability
Companies: legacy learning systems
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To some extent, yes, companies should be responsible. (This is the case, for example, with TCPA and junk faxes.) With no directly traceable revenue stream (i.e. no charges to the customer's credit card), it's all too easy to create a shadow affiliate that misbehaves, only to close it when justice comes calling before opening it up again under a different name.
What it boils down to is this: If a company pays its affiliates, it tacitly endorses their actions on its behalf, and should hold some measure of responsibility. Additionally, the root company is in a better position to recover damages from affiliates than end customers are.
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I think that if a company has a well published policy with regard to affiliates and can be seen to be taking action when they step (substantially) outside it then that should be enough to remove liability. It's one of thos (rare) situations where a certain amount of strict liability is justifiable.
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Due process is hard. Better to just shoot first and not have to ask questions at all.
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Another way to look at it is this:
In a free market, deceptive advertisement is problematic and needs to be stopped. The ultimate beneficiary of deceptive advertising is the company who's product is being advertised.
If you don't hold the company responsible, you create an incentive for the behavior to continue.
If you do hold them responsible, you create an incentive for them to police their own affiliates and prevent it from happening.
Seems like a no-brainer to me.
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You can't rationalise away an obligation with linguistics, an advertiser is barred from making false advertisements. Employing people to post notices is advertising, not "freedom of affiliation".
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This is a problematic area
There have been so many cases of (b) at this point that claims of (a) are met with (appropriate) disbelief. (And how do we know they were (b)? Because they were sloppy and careless.)
This is unfortunate for those involved in (a), because believing them means believing that they're the 1-in-1000 exception, and this strains credulity. But there are ways that companies legitimately caught up in this can help themselves:
1. Have a policy that any affiliate caught doing bad things will not only be shut down, but will be outed. Making a publicly example of them sends a message to others and provides evidence to the everyone else that the parent is serious.
2. Structure the affiliate agreement such that affiliates who misbehave lose everything -- and more. Enforce contractual penalties that are a sufficient deterrent.
3. Make sure these policies are in place, and publicly available, before an affiliate program is launched.
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Re: This is a problematic area
If you do not want hoards of semi-anonymous people acting on your behalf, then don't employ hoards of semi-anonymous people as your "affiliates". If you do, then be prepared for the liability issues.
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Re: This is a problematic area
This gives the company reason to (a) make sure affiliates are real people and not just throw away accounts and (b) make sure the contact info stays up to date so that any liability due to bad faith activities can be applied to the appropriate party.
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It's called agency law
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Re: It's called agency law
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Re: It's called agency law
I think the key section of that sentence is the last: "what you directed them to do".
Also, "if [the affiliate] believes" is I think incorrect, as anyone can say they believed anything. I would think it would be what a court decides a reasonable person would believe in the same circumstance.
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Re: Re: It's called agency law
Really, if it wasn't this way and I want to break the law, I just direct someone to help market online, impliedly illegally, and I get off because I "didn't know." The best way to limit the activity is to go after the people calling the shots, then they'll make sure that their agents(or affiliate in Mike's terms) will not commit the "evils" that congress decided to legislate against.
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C-28 (CASL)
In this law, any brand owner that benefits directly or indirectly from the any violation of law is vicariously liable. The only exceptions are if they can prove a complete absence of any business relationship, or if they prove that they exercised due diligence in preventing their brand name from being used unlawfully.
Since this law applies to commercial electronic messages either sent or received in Canada, American companies may find themselves being sued for email that was sent from the US to Canada.
I have a feeling that may work out to be be similar to getting sued for patent infringement in East Texas.
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To a degree
In the end, the affiliate should really take full blame, but the problem with that is it could very likely be a shell and as soon as any money is involved, they can just claim bankruptcy and close shop with virtually no responsibility.
Better yet, allow the management within the company to be directly responsible instead of letting the company act as a shield to protect the assholes within.
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Re: To a degree
Won't someone please think of the pirate corn-farmers?
...think I've got it covered now.
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Re: To a degree
The business who runs the affiliate program is liable for the paying of the fine levied by the government. If this fine is due to the actions of a 3rd party "contractor" (affiliate) then the company would have grounds for suing the affiliate.
This eliminates the "bogus/shadow" affiliate concern that are really setup by the company themselves.
-CF
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Affiliate Programs
In my case the court case is based on language in my contract that states that the other company will not facilitate in any way another of it's affiliates to compete with me for a period of time.
My court case actually involve multiple companies due to this language.
In the case of the reviews though, I would say that if LLS was aware of the deceptive practices of it's affiliate and did not take action to stop their affiliate then they should be held responsible. They directly benefited from the reviews, and they had an affiliation with the company, so at least in theory they should have been able to put a stop to the deceptive reviews.
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Assuming this to be the case, 230 would not come into play.
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So quite often, affiliates aren't even really affiliates.
If they main site or program owner is aware of false advertising, they should be liable for accepting the traffic from it. That doesn't just mean "not paying the affiliate" but actively blocking traffic coming from that affiliate and not continuing to accept it. It means knowing who your affiliates are, and being able (and willing) to work with authorities to deal with deceptive marketing practices. No matter the structure, the selling company bears at least some responsiblity for how their products are marketed.
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(And yes, I'm answering the question in the title before reading the article.)
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This particular company is interesting to me because I did a lot of research 1 year ago to find a learn-at-home guitar program and it was very obvious to me that most of the review sites for all the various guitar programs are done by affiliates.
I actually ended up ordering this program (Legacy Learn and Master Guitar) direct from the company (not through an affiliate link) and I am very happy with the program. It is too bad that this FTC action may hurt the reputation of the company because the program and the online community support offered by the instructor Steve Krenz is really amazing. (And no, I am not an affiliate of any kind :-)
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Lets see, you pay people to talk about your product but are not aware of what they are doing? Why would you pay them yet? Can I just send a company a bill that states I was reccomending them?
Why should a CEO be punished if the books are cooked? The CEO didn't audit the books.
SOX was created for just this purpose, punish those that did something wrong or should have known something was wrong. That is why the punishment in SOX for failing to provide proper oversight is almost as harsh as fraud.
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Not a section 230 issue
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Holding companies responsible for affiliate actions
Many, many years ago, companies would, for example, hire marketing organizations (generally hard-to-find personages) and point out that misleading or even damaging advertising was "not me!". True, in those days the offenses were sometimes even violent (see Carnegie's history!).
This led to an expansion of "respondeat superior" - if you can show, both proactively and after the fact, that you did not encourage and do not encourage such acts, you may be okay - the act may have been a rogue action. Otherwise, you are responsible for the actions of the people you hire (so, no longer can you have someone you "do not control" turn machine guns on protestors!).
To me, the doctrine needs to be MORE strictly enforced.
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A couple of links
I also note the 1-800 Contacts v. Lens.com decision, which rejected affiliate liability in the TM context: http://blog.ericgoldman.org/archives/2011/03/important_ninth.htm
I've generally taken the position that government regulators have a more expansive view of affiliate liability than the actual law; i.e., when tested in court, the regulators' views fail. http://blog.ericgoldman.org/archives/2008/08/affiliate_liabi.htm
Eric.
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affiliate marketing
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