Court Rules Against Affiliate Marketing Network

In 2011 the FTC filed a complaint seeking to permanently stop Leanspa a company that allegedly used fake news websites to promote their products, made deceptive weight-loss claims, and told consumers they could receive free trials of acai berry and "colon cleanse" products, and only have to pay the nominal cost of shipping and handling. The FTC alleges that many consumers ended up paying $79.99 for the trial, and for recurring monthly shipments of products that were hard to cancel.  In 2013 the FTC amended the complaint to include LeadClick and then again to include CoreLogic as a relief defendant.

In 2014 FTC and Leanspa reached a settlement requiring LeanSpa principal Boris Mizhen and three companies he controls to surrender cash, real estate and personal property totaling approximately $7 million. The settlement bans the defendants from billing consumers for products or services by automatically charging them on a recurring basis unless they opt out. And it prohibits the defendants from misrepresenting or failing to disclose facts about the products that involve costs, charges, terms for refunds, endorsements, and trial supplies. The order also prohibits the defendants from falsely claiming that any product can cause rapid and substantial weight loss without the need for dieting or increased exercise. Litigation continued against defendants that acted as LeanSpa’s affiliate network as well as the relief defendants.

The FTC and LeadClick Media both filed for Summary Judgment. In April 2015 the court granted the FTC’s request for summary judgment and ruled that LeadClick was responsible for the false claims made by affiliate marketers it recruited on behalf of LeanSpa, LLC, a company that sold acai berry and “colon cleanse” weight-loss products. According to the FTC’s Complaint, LeanSpa used a “free trial” ploy to enroll consumers into its recurring purchase program that cost $79.99 a month and that was difficult to cancel.

In the summary judgment ruling, the court held that the fake news sites developed by LeadClick’s affiliates deceived consumers by using real news organization names and logos along with purported testimonials from users of LeanSpa’s products. In finding LeadClick responsible for the deceptive content on its affiliates’ websites, the court noted that LeadClick recruited the affiliates, had the power to approve or reject their marketing websites, paid the affiliates, purchased advertising space for them, and gave them feedback about the content of their sites. The court also rejected LeadClick’s claim that it was immune from liability under Section 230 of the CDA, because it was responsible in part for the fake news sites promoting LeanSpa’s products.

This case provides a strong reminder that affiliate networks need to carefully review the advertisers that are in their network as well as the services they provide.

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