Posts Tagged ‘affiliate agreement’

Misleading Endorsements Result in $250,000 Payment to FTC

Tuesday, March 22nd, 2011

In the Matter of Legacy Learning Systems, Inc. confirms that online marketers are at risk of paying when in violation of the Federal Trade Commision’s (FTC) Part 255 Guidelines are not followed.  An online marketer has agreed to pay $250,000 after misrepresenting that reviews of its DVDs, which it sold and allowed affiliates to market on its behalf, were independent.  Affiliates had actually been paid commissions for the reviews of the products.

The FTC filed a complaint saying that the online marketer had disseminated or caused to be disseminated advertisements touting reviews as “independent” when in fact they were provided by endorsers who “receives financial compensation from the sale of [the online marketer’s] products.”  The FTC did not take kindly to the online marketer’s failure to “implement a reasonable monitoring program to ensure that [its] affiliates clearly and prominently disclose their relationship.”  Despite the online marketer’s affiliate agreement requiring compliance with the FTC’s testimonial and endorsement guidelines, the FTC focused on the online marketer’s failure to enforce the provision against those affiliates that violated the terms.

A March 21, 2011 Federal Register notice summarized as follows: “The consent agreement in this matter settled alleged violations of federal law prohibiting unfair or deceptive acts or practices or unfair methods of competition.”  The online marketer must now monitor its affiliates, the affiliates that generate the online marketer significant sums of money.

While this FTC enforcement action was against the online marketer, it does not mean that the FTC will not pursue action against online marketers and affiliates alike in the future.  Both have a duty to be truthful, disclose material relationships, and be able to substantiate the same.

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