Legal Review
Online Marketer to Pay FTC
for Affiliates’ Misleading
Reviews
The Federal Trade Commission (FTC) recently announced that Legacy Learning Systems Inc. and its owner have signed a consent agreement and agreed to pay $250,000 for deceptively representing that endorsements of its products
on blogs or other websites created by Legacy’s affiliates
reflected the views of ordinary consumers or “
independent” reviewers.
In fact, the affiliates who posted those reviews had
signed up for Legacy’s “Review Ad” program and were
paid commissions ranging from 20 percent to 45 percent
every time a customer ordered a product after clicking
on a hyperlink to Legacy’s order page on the affiliate’s
website. According to the FTC, some affiliates did not
disclose their business relationship with Legacy at all,
while others disclosed it only through inconspicuous
links located at the bottom of the affiliates’ websites.
Legacy “failed to disclose, or disclose adequately, that
the endorser receives financial compensation from the
sale of Legacy’s products,” the FTC complaint says.
But Legacy didn’t disseminate any ads. The allegedly
misleading representations were the result of the affiliates’ online advertising, not Legacy’s advertising. And
Legacy didn’t really cause those ads to be disseminated
directly. Legacy’s affiliate marketing program certainly
encouraged the dissemination of advertising, but not
these particular advertisements.
The FTC’s real problem with Legacy wasn’t about
what Legacy did as much as what Legacy failed to do.
According to the agency, the company “failed to imple-
ment a reasonable monitoring program to ensure that
(Legacy) affiliates clearly and prominently disclose their
relationship to Legacy.”
Legacy’s affiliate marketing agreement required af-
filiates to comply with the FTC’s guides. But the FTC
Legacy’s real sin was to make
a lot of money as a result of its af-
filiates’ deceptive endorsements.
According to the FTC, Legacy’s
25 best affiliates generated at
least $5 million in sales of Lega-
By Gary D. Hailey and
Jeffrey D. Knowles
cy’s “Learn and Master Guitar” DVDs.
Why did the FTC challenge only Legacy rather than
taking action against any of the offending affiliates who
were the real guilty parties? For the same reason that
some people believe the best way to reduce crimes committed with handguns is to make the manufacturers of
handguns liable rather than just locking up the people
who pulled the trigger. It’s much more convenient for
the FTC to go after Legacy than the dozens or even hundreds of Legacy affiliates.
It’s worth noting that there’s no indication that
anyone thinks that Legacy’s instructional DVDs are not
good products. This is not an ad for a miracle weight-loss
pill or other bogus product, and the sample endorsements that are attached to the FTC’s complaints don’t
sound phony or exaggerated.
The FTC consent order requires Legacy to institute
an affiliate-monitoring program with teeth. Every six
months, Legacy must determine who its 50 top revenue-generating affiliates are, and then monitor them on a
monthly basis to make sure their advertising is up to
snuff. Legacy must pick another 50 affiliates at random
and monitor their advertising on a monthly basis as well.
Legacy must immediately terminate any affiliate who
misrepresents that he or she is an independent user or
ordinary customer, or fails to disclose any material connection between the affiliate and Legacy.
The Legacy settlement is the latest in a series of FTC
actions involving misleading online product endorsements, but the first one to hold a marketer liable for
misleading representations of affiliates, and also the first
to require a monetary payment by a marketer. We’re still
waiting for a much larger endorsement and testimonial
guides shoe to drop.
When the FTC issued its revised guides in 2009, the
repeal of the “safe harbor” provision that allowed advertisers to use atypical testimonials as long as they were
accompanied by “results not typical”-type disclaimers
got most of the attention. To date — almost 16 months
after the revised guides went into effect — the FTC has
yet to take action against a marketer of a weight-loss or
money-making product who used best-case testimonials but failed to disclose the typical results achieved by
customers.
