Affiliate Summit West 2015

Tips from an FTC Pro: How to be Smart and Avoid “FTC Hell” William I. RothbardLaw Offices of William I. Rothbard

OVERVIEW OF TOPICS• FTC Powers to Regulate Deception and Unfairness• FTC Enforcement Priorities• Ad Substantiation • Clear & Conspicuous Disclosure/Negative Option• FTC Endorsement Guidelines • Merchant-Advertiser Responsibility & Liability• Affiliate/Network Responsibility & Liability• Merchant-Advertiser/Affiliate-Network Best

Practices

WHEN IS AN AD DECEPTIVE? When a claim or omission would materially mislead consumers

acting reasonably in the circumstances.

STRICT LIABILITY – Intent to Deceive not required. Knowledge of deception also not required except for money judgments against principals, which require proof of knowledge or reckless indifference to truth or falsity

WHEN IS AN AD UNFAIR?When it is likely to cause substantial consumer injury.

It is not reasonably avoidable by consumers themselves.

And it is not outweighed by benefits to consumers or competition.

SAME STANDARDS APPLYTO ALL PRODUCTS

SAME STANDARDS APPLYIN ALL ADVERTISING MEDIA

FTC REMEDIES

Cease & Desist Orders – conduct restrictions; 10-20 year compliance reporting and recordkeeping

Consumer Redress - FTC wants all your money

Civil Penalties for Rule and Order Violations

Bans and Bonds – death knell for your livelihood

Ex Parte (without notice) TROs, asset freezes, receiverships – death penalty for your business

FTC/AG ENFORCEMENT PRIORITIES

• Free Trial/Negative Option Marketing (ROSCA)• Dietary Supplements • Financial Offers (grants, Internet biz ops, home loan

modifications, debt relief, tax relief, etc.) • Affiliate Deception/Fraud • Mobile (SMS) Marketing • Privacy • New target areas, i.e., Cognitive (“Brain”) Claims

Before disseminating an ad, the advertiser must be able to

support all objective claims with:

COMPETENT AND RELIABLE EVIDENCE

SUBSTANTIATION

Advertisers must substantiate all objective performance, efficacy, health and safety claims — express and implied — with:

COMPETENT AND RELIABLE SCIENTIFIC EVIDENCE

What would independent scientists with expertise in the field rely on?

Methodologically sound tests, studies, scientific research

Based on expertise of professionals in field

Objectively conducted by qualified people

Using procedures accepted as accurate

Yielding statistically significant results

Anecdotal evidence from consumers

Popular press articles

Sales materials from manufacturer

Low return rate

Money-back guarantee

COMPETENT AND RELIABLE SCIENTIFIC EVIDENCE

WHAT IT ISN’T WHAT IT IS

“NEW” FTC SUBSTANTIATION STANDARD?

• Iovate , POM Wonderful , etc. • Weight Loss & Disease Treatment Claims – Orders

require at least 2 randomized, double-blind, placebo-controlled , statistically significant human clinical studies (RCTs) on advertised product by separate, independent researchers

• Unclear if two study requirement is only remedial “fencing in” or an FTC standard even for companies not under order

• At least one RCT for all health claims

“Clear and Conspicuous:” Effectiveness of Disclosures (4 Ps)

Prominence Will consumers notice the disclosure?

Presentation Is the language easy to understand? Does it contradict other assertions in the ad?

Placement Is it located where consumers will see it?

Proximity Is it close to the language being qualified?

Dot.Com Disclosures (2013: Updated for Mobile)To Meet “Clear & Conspicuous” Standard:

• Place disclosures close to the triggering claim.

• When using hyperlinks to disclosures, make the link uniform and obvious, label the type of information it leads to, and monitor click-through rates for effectiveness.

• Disclose purchase terms on order page, near order button, as well as in T&Cs.

• Disclose key privacy terms, such as 3d party marketer datasharing, on order page.

• Disclose key purchase terms in banner ads where possible or on linked page.

• Avoid elements (i.e., text, graphics) that distract from disclosures.

• Use “plain English” to make disclosures.

CLEAR AND CONSPICUOUS NEGATIVE OPTION• Restore Online Shoppers’ Confidence Act (“ROSCA”) - mandates disclosure of

online negative option terms “before obtaining consumer billing data”

• ROSCA codifies FTC standard that for a negative option offer to be lawful:– all material terms, including recurring charges, must be clearly and

conspicuously disclosed before the consumer submits billing information– the consumer must give express informed consent to the offer– cancellation must be easy.

• ROSCA violators are subject to a civil penalty of up to $16,000 per violation (each deceptive sale) in addition to restitution or disgorgement.

• FTC brought first ROSCA cases in 2014. Has not yet sought ROSCA civil penalties, but undoubtedly that day is coming.

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CLEAR AND CONSPICUOUS NEGATIVE OPTION

• Green Millionaire Order - FTC’s most detailed guidance on “clear and conspicuous” disclosure and “express informed consent” requirements for negative option. Requires disclosure of:

• -- product/service description– trial period length– specific billing terms– billing entity if not clearly disclosed in ad– how charge will appear on the billing statement if it doesn’t disclose billing

entity– amount and dates or frequency of recurring charges– all material terms and conditions of purchase and use– how to cancel and obtain a refund

• Green Millionaire requires negative option disclosures to be “immediately adjacent” to a “consent” button or box which must be clicked or checked.

• Green Millionaire requires post-sale confirmation email restating offer terms

CLEAR AND CONSPICUOUS NEGATIVE OPTION

• One Technologies - FTC’s latest negative option case• Mandates Green Millionaire disclosures• “Conspicuous” means “UNAVOIDABLE”• FTC said negative option terms were not conspicuous (unavoidable) even though

they were disclosed multiple times:– at the top of the landing page– on an inside page– on the signup page box adjacent to the credit card fields and above the order

button. • Why? They weren’t big/bright enough or positioned prominently enough. • Result: Company had to pay $22 million to settle.

• Lesson: Not disclosing negative option terms in the exact color, font, size, place desired by the FTC can really hurt.

CLEAR AND CONSPICUOUS NEGATIVE OPTION

CLEAR AND CONSPICUOUS NEGATIVE OPTION

FTC ENDORSEMENT GUIDES

Testimonials can’t be used to communicate claims that would be unsubstantiated if made directly by advertiser

Testimonials must represent what consumers “typically” will achieve

BUT: if they don’t, “Results not typical” disclaimer no longer suffices. Clear & Conspicuous disclosure of “generally expected results” required, unless advertiser can prove consumers don’t think the results are typical.

Disclosure of material financial connections between advertisers and lay (non-expert) endorsers must be made. This applies to blogger product endorsers, who also can be liable for false claims, and to celebrity endorsers in unconventional formats (i.e., talk shows) or social media where consumer may not think celebrity is being paid. Advertiser principally liable for the failure to disclose.

MERCHANT-ADVERTISER RESPONSIBILITY

• Claim Substantiation • Compliance with FTC Endorsement Guidelines• Clear and Conspicuous Disclosure of Material Terms &

Conditions, including key billing terms above fold near order button on checkout page as well as in T&Cs

• Getting Express Informed Billing Consent - no pre-checks• Responsive customer service, including fulfillment of stated

cancellation/refund policies• Anti-Affiliate Fraud Policies and Procedures• Clear Privacy Policy Terms and Data Sharing Opt-Out Rights

AFFILIATE/NETWORK RESPONSIBILITY

• CAN-SPAM Compliance • Endorsement Guides compliance, including disclosure of

material financial connections to advertiser • Compliance with merchant-advertiser’s compliance guidelines

and approved non-deceptive ad copy, avoidance of hyped, unapproved claims

• Avoidance of fraudulent/confusing incentivized marketing• Diligent network monitoring• Disciplinary action against non-compliant affiliates

“AIDING & ABETTING” AUTHORITY• Can an affiliate network or other third party service provider be liable for a

merchant’s deceptive advertising?• Absolutely in telemarketing cases - FTC’s Telemarketing Sales Rule (TSR) expressly

imposes liability for providing “substantial assistance or support” to a deceptive telemarketing campaign while “knowing or consciously avoiding knowing” it.

• Uncertain under FTC’s general statutory authority in other contexts, i.e., Internet– FTC Chairs have suggested agency lacks “aiding & abetting” authority under a

Supreme Court decision. – FTC v. Lean Spa – Relying on Supreme Court precedent, affiliate network is

denying liability since it neither created nor published the advertising and is not identified in it. Decision due soon.

• FTC v. Applied Sciences - settlement with supplement ingredient manufacturer on an “aiding & abetting”/“means & instrumentalities” theory.

OVERLAPPING ADVERTISER AND AFFILIATE/NETWORK LIABILTY

• Advertiser and Affiliates/Networks can have “cross liability” for the other’s acts. Liability isn’t automatic, depends on degree of participation, ratification, and negligent or willful ignorance or disregard

• Affiliates/Networks could be liable for advertiser’s deceptive claims if they were involved in creating them or had reason to believe they’re deceptive; can’t necessarily rely on advertiser’s assurances

• Advertiser is liable for deceptive claims it directs affiliates to make • Advertiser also can be liable for affiliate deception it did not authorize but

had reason to believe was occurring and didn’t take action to stop • Advertiser-Affiliate/Network contracts should contain reps/warranties of

compliance with FTC Act, TSR, TCPA, CAN-SPAM etc. and indemnity clauses

Top 5 Tips For Affiliates/Networks• Ensure that affiliate advertising is truthful and substantiated

• Do not publish "flogs" (fake blogs) or other false content, false or unsubstantiated product claims, or offer incentives to consumers in return for their response to an ad, unless the terms and conditions of the offer are clearly and conspicuously disclosed

• Do not publish fake news articles or other fake media titles, without clearly and conspicuously disclosing it’s an ad

• Do not publish false or unsubstantiated endorsements, and clearly and conspicuously disclose material connections with the merchant or network

• Do not infringe publicity rights, trademark, copyright, patent rights, service mark, or other intellectual property rights of third parties

Top 5 Tips For Merchants• Enter into written agreements with affiliates, requiring that all affiliates abide

by state and federal consumer protection laws and regulations, i.e., FTC Act, TSR, Endorsement Guides, TCPA, CAN-SPAM.

• Agreements should require affiliates to clearly and conspicuously disclose the terms and conditions of incentives, points, rewards, cash, or prizes promised to consumers in return for their response to an ad.

• Agreements must provide that non-complaint affiliates be terminated and forfeit commissions.

• Monitor affiliates and enforce contractual sanctions against misconduct.

• Manage Consumer Complaints, Honor Refund Promises, and Keep Chargebacks As Low as Possible – BEST WAY TO AVOID “FTC HELL”

CONCLUSION: CAVEAT VENDOR!

• Be Aware of the Hyper- Aggressive FTC Landscape.

• Affiliates, networks and merchants should consider

themselves on notice: those who engages in or assists

fraud could end up in the FTC’s crosshairs.

• Online marketers must be careful to publish non-deceptive

content and make required disclaimers and disclosures

• Consult expert counsel who thoroughly understands the

FTC’s thinking and enforcement strategies, so you have the

benefit of sound advice to help you avoid “FTC Hell.”

QUESTIONS?

• William I. Rothbard • 310-453-8713 • Rothbard@FTCAdLaw.com • www.FTCAdLaw.com