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Direct Response Marketing

Legal Review: Vladeck Comments Turn Up the Heat on Affiliates

5 Mar, 2010 By: Jeffrey D. Knowles, Venable LLP’s Advertising, Gary D. Hailey Response

The day before the Federal Trade Commission’s David Vladeck addressed an early-February industry conference in New Orleans, rumor had it that the FTC’s top consumer-protection cop would announce a complaint or consent agreement involving testimonials or affiliate marketing.

But Vladeck dropped no such bombshells in his remarks. Instead, he reiterated the agency’s position on several issues of great significance to direct response marketers — most notably, the revised FTC testimonial guides and online affiliate marketing.

Anyone in the direct response industry who hasn’t heard about the revisions to the FTC testimonial guides just hasn’t been paying attention. Those revisions were inspired largely by advertising for weight-loss products that featured testimonials that achieved extraordinary results. Vladeck noted that weight-loss advertisers and others who use best case, “outlier” testimonials need to disclose the generally expected results consumers can expect to achieve. But he expressed distaste for such ads because they “give with one hand but take away with the other.” Instead, he urged marketers to use testimonials “that actually reflect what your product or service is likely to deliver.”

Vladeck admitted that the revisions to the guides require “a shift away from the way the industry has handled testimonials for decades.” But don’t expect any apologies from the FTC. “[W]e will be enforcing the law when it comes to testimonials,” Vladeck warned. It’s clear what the FTC staff thinks the law requires. Of course, the FTC is not the ultimate arbiter of what the law is.

The FTC has become increasingly aggressive in the online affiliate marketing space because it believes (to use Vladeck’s words) that “affiliates are essentially let loose on the public without adequate direction or supervision to ensure that their advertising is truthful and non-misleading.” Because affiliates are often compensated on a pay-per-click basis, they have an incentive to use any and all means — including fake product-review sites (or “flogs”) — to drive traffic to the seller’s Web site. The fact that many affiliates rely on free-trial offers that convert to continuity programs is another red flag. In Vladeck’s opinion, the use of pre-checked boxes and the unauthorized transmission of credit card information are “reprehensible practices.”

While the agency has irresponsible affiliate marketers in its sights, companies that use affiliates to market their products or services are also directly in the line of fire. The FTC expects any such company to give its affiliates specific and detailed guidelines concerning what they should say in their ads, and — just as important — what they should not say. The government also expects such companies “to do some quality control on the back end” by keeping a close watch on the affiliates and advertisements that are generating the most traffic to their Web sites.

Vladeck emphasized a point that is all too often overlooked by industry members — that FTC liability “can potentially reach anyone in the chain between a seller and the ultimate consumer.”

And while the FTC has never sued a publisher or broadcaster for disseminating obviously deceptive ads, Vladeck said there is no legal obstacle to the agency doing so. In fact, one of the five FTC commissioners is actively pressing the staff to name a newspaper or television network as a defendant to make that point loud and clear. Of course, publishers and broadcasters have considerable power and influence in Washington, which may explain why the agency has given them a pass to date.

Vladeck closed his remarks by commenting on the continuing investigation by Sen. Jay Rockefeller (D-WV) into the practices of online membership marketers — especially the so-called “datapass” process. The bureau director stopped short of endorsing a ban on the use of pre-acquired credit-card account information, which he admitted can be a big convenience for consumers. But Vladeck warned his audience that Congress might be ahead of the FTC on this issue. He expects to see legislation that bans or severely restricts certain common practices by online negative-option marketers in the near future.

Whether that legislation makes it through the Congressional meat grinder is anybody’s guess, but such practices are about as popular as unsolicited telemarketing calls during the dinner hour — and we all remember how quickly the federal government moved to implement “Do Not Call.” n

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