The FTC has become increasingly aggressive in holding advertisers responsible for advertising claims made by their affiliate networks and marketers. Indeed, just this week the FTC announced another settlement in a case that was part of the same “sweep” as the case discussed here. In July of 2012, the FTC amended its April 2011 complaint against LeanSpa, a marketer of acai berry and colon cleanse products, to add claims against LeadClick, which served as the ad network for LeanSpa. The FTC alleged that LeadClick (and LeanSpa) had paid affiliate marketers to publish fake news stories touting the LeanSpa products to drive traffic to LeanSpa. In a novel defense to the FTC’s claim, LeadClick argued that its actions were immune under section 230 of the Communications Decency Act (“CDA”). Last week, the federal district court in Connecticut denied Lead Click’s Motion to Dismiss finding the CDA did not provide immunity from the FTC’s allegations.
The purported scheme worked like this: LeanSpa’s websites offered consumers weight-loss and health-related products, like acai berry and colon cleanse programs on a “risk free” trial basis. Customers only had to pay a small shipping and handling fee (around $4.95) and they got a “100% satisfaction guarantee” on the items they ordered. The problem, according to the FTC and the State of Connecticut, was that once a consumer gave his or her payment information to cover the shipping and handling fees, LeanSpa charged the customers for the trial products, automatically and enrolled them in monthly continuity plans (that cost around $79.99), and made it very difficult to cancel future shipments.
In order to market these products and drive traffic to its sites, LeanSpa hired LeadClick. LeadClick in turn hired third-party affiliate marketers who created fake news sites promoting LeanSpa’s products. According to the complaint, the fake news sites used domain names that sounded like objective news outlets like channel8health.com and dailyhealth6.com. The affiliate sites posted stories such as “Acai Berry Diet Exposed: Miracle Diet or Scam,” they often displayed the logos of major news sources, and they included links to LeanSpa websites. These links were purportedly provided by LeadClick; LeanSpa then paid LeadClick a set fee each time a consumer clicked on a link on a fake news site, ended up on a LeanSpa website, and purchased a product.
The FTC alleged that through this elaborate setup, LeanSpa and LeadClick knew that the affiliates were using the fake news sites and that both LeanSpa and LeadClick monitored and encouraged the use of these fake news domains. Indeed, LeadClick and LeanSpa purportedly “discussed which products to pair with the LeanSpa Defendants’ products on the fake news sites” and conferred about strategies to reduce the impact of the excessive chargebacks, according to the complaint.
LeadClick sought to dismiss the FTC’s deceptive acts and practices allegations related to these so-called “fake news sites” on the basis that LeadClick is an interactive computer service provider that has immunity under section 230 of the CDA. The CDA provides that, “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”
The court evaluated LeadClick’s CDA defense and held that LeadClick, unlike the defendants in the cases it cited, is not an interactive computer service provider because it does not operate online message boards, it does not review websites, and in fact, it does not operate websites at all. Instead, LeadClick simply provides network links that direct consumers from one website to another. The court went on to note that even if LeadClick did qualify as an interactive computer service provider, it would still not be entitled to section 230 immunity because it’s plausible that LeadClick is not an information content provider—i.e., that it is not “responsible …for the creation or development of information provided through the Internet or any other interactive computer service.” Because of this, the court denied LeadClick’s immunity defense under the CDA and the case is moving forward, LeadClick included.
Stay tuned to this blog for more real-news developments in the lawsuit against the (perhaps) less-than-real news sites.