FTC Rules for Affiliate Programs
Cliffsnotes for Online Marketers To Avoid FTC Liability From Affiliates
There's been a lot of buzz in the blogosphere about the 81-page
Guides for the use of Endorsements and Testimonials in Advertising
issued by the Federal Trade Commission (FTC). Most of the debate
and discussion has centered on the rules (and potential liability)
facing bloggers who write testimonials and endorsements.
But what about the advertisers that recruit bloggers and other
intermediaries to write testimonials and endorsements (think online
marketers that recruit affiliates or resellers)? What are the rules
affecting these advertisers, and what's their liability if they
When Are Online Marketers Regulated By The Guides?
The threshold question for online marketers is "when do the
Guides apply to my marketing practices"?
If all you do is market directly from your website with no involvement
by intermediaries, the Guides do not apply.
However, if you recruit intermediaries - such as affiliates
or resellers - to pitch your products or services, then the Guides
apply, and with them, potential liability. Intermediaries
would also include viral marketing programs with incentives and
network marketing programs where endorsers periodically review your
products or services and they receive a free product or service
about which they write a review.
If the Guides do apply, you're classified as an "advertiser",
and your intermediaries are classified as "endorsers".
As an advertiser, you're required to:
- provide guidance and training to your endorsers to help them
understand their legal obligations regarding advertising statements
about your products or services; primarily, that their claims
are truthful, not misleading, and substantiated, and
monitor your endorsers and take steps to remedy advertising statements,
practices, or procedures that are unlawful.
- If the Guides do apply, and you fail regarding the two obligations
listed above, you may be held liable for the actions of your endorser.
This is the way the FTC put it: "It is foreseeable that an
endorser may exaggerate the benefits of a free product or fail
to disclose a material relationship where one exists.
- In employing this means of marketing, the advertiser has assumed
the risk that an endorser may fail to disclose a material connection
or misrepresent a product, and the potential liability that accompanies
Suggestions For Advertisers
Your first priority should be to get a legal review of your affiliate
and/or reseller agreements. Modify your agreements to comply with
the Guides. Although the following list of suggested clauses is
not exhaustive, it would be a good start:
No-Spam Policy - at the least, strict compliance
with the U.S. CAN-SPAM Act of 2003 should be required; and you should
consider prohibiting any and all bulk, unsolicited email, even though
it is permitted under the CAN-SPAM Act subject to certain requirements;
also consider requiring your endorser to indemnify you against claims
based on their violation of the no-spam policy;
Recruitment of Sub Affiliates - if sub affiliates
are permitted, they should be subject to prior review and acceptance
by you and be required to enter into your agreement;
FTC Rules Regarding Endorsements and Testimonials -
this clause addresses the guidance and training requirement discussed
above; it focuses on the endorser's requirements regarding endorsements
FTC Rules Regarding Truthful and Non-Deceptive Advertising
- this clause also addresses the guidance and training requirement
discussed above; it focuses on the endorser's requirements regarding
truthful and non-deceptive advertising;
Monitoring Rights - this clause addresses the
monitoring requirement discussed above; it provides that you may
require the endorser to modify or cease any marketing methods, procedures,
or communications for purposes of compliance with applicable laws
and regulations; and
Consent to Release Information - this clause
provides that you have the right to release information regarding
the endorser to any governmental or regulatory agency, or to any
private party or organization which you believe has a good faith
claim based on the endorser's marketing methods, procedures, or
In addition to reviewing and revising your affiliate and/or reseller
agreements, what actions should you take? Although the following
list of suggested actions is not exhaustive, it would be a good
- familiarize yourself with the applicable rules and regulations;
you won't be able to perform your guidance, training, and monitoring
obligations if you don't;
- find a quick and easy way to continue to stay on top of all
the latest legal developments in this area such as a frequent
newsletter; again, you won't be able to perform your guidance,
training, and monitoring obligations if you don't;
- exercise your monitoring rights and obligations, and document
that you have done so; be careful to actually enforce your policies,
and again, document, document, document. If the FTC ever comes
calling, you'll need to be able to document your compliance; and
- do a thorough job of screening your potential endorsers before
you approve them; remember, an ounce of prevention is worth a
pound of cure.
You need to be aware that legal scholars are currently debating
whether the FTC may impose liability on advertisers for advertising
claims made by their endorsers. A well-established federal statute
(47 USC 230(c)(1)) may provide a defense to this liability. This
will have to be resolved by judicial interpretation in the future.
At present, advertisers can't count on this defense to get them
off the hook.
Time is growing short for advertisers that are covered by the Guides
to begin a compliance program. The Guides go into effect on December
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