Marketers have always had to keep a close eye on the claims their brands make, especially in the weight-loss world. But, as this week’s US federal court ruling against LeadClick Media for using fake news sites to sell diet pills and weight loss promises proves, scrutiny of digital content in today’s marketplace is ever-increasing.
According to the FTC announcement, a U.S. district court ruled that affiliate marketing network LeadClick Media, and its parent company CoreLogic, Inc., must repay monies deceptively earned from false claims made by its affiliate marketers on behalf of LeanSpa, LLC. LeanSpa is a company that sells acai berry and “colon cleanse” weight-loss products, notoriously promoted in shady web ads.
The complaint against LeadClick states that its affiliates lured consumers to purchase LeanSpa products in part by creating fake news sites. The sites used logos and names of credible news sources and first-hand testimonials that led customers to believe that LeanSpa products were vouched for by independent news outlets rather than paid advertisers.
The fake sites used domain names that appeared as objective news or health sites, such as channel8health.com, dailyhealth6.com and online6health. So-called “reporters” also claimed that use of the products resulted in measurable weight loss—sometimes as much as 25 pounds in one month without a major diet or exercise overhaul—even though the jury’s still out on acai berry weight-loss claims.
Consumers were also tempted with a “free trial” ploy where it was communicated that only a nominal shipping and handling fee was necessary to receive the products. The sites then prompted the entry of debit or credit card information, and consumers were then enrolled in a recurring purchase program of $79.99 per month that was difficult to cancel. LeanSpa paid LeadClick between $35 and $45 each time a consumer enrolled in the free-trial program, having been directed to the LeanSpa website by a LeadClick affiliate.
This latest judgment against LeadClick Media stems from an earlier December 2011 case when the FTC and the State of Connecticut first sued LeanSpa and its principal, Boris Mizhen and temporarily halted operations. The suit was settled in 2014 when LeanSpa and Mizhen agreed to stop the practices and surrender assets for repayment to affected customers. Since then, the FTC has mailed over 400,000 claim forms to possible victims.
The ruling on this week’s LeadClick Media case is an interesting one, as the company was found responsible for the actions of its affiliate marketers. In other words, even though LeadClick as an organization may not have created the false news sites and related deceptive content, the court ruled that the organization was in fact responsible. Why?
The court believed LeadClick knew the deceptive practices were in effect since they had recruited the affiliates, had the power to review, appeal and reject the websites, paid the affiliates, gave feedback on the sites and purchased ad space for the websites. So, even though they weren’t physically creating the sites, they were responsible for the practices of their affiliates because of their awareness and involvement.
“This ruling is good news because it takes ill-gotten gains out of the hands of companies who knew they were promoting a scam and gives them back to the consumers who lost millions of dollars,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “It also makes clear that a parent company cannot retain ill-gotten gains of its subsidiaries.”
The key takeaway from this cautionary tale? Brands that don’t keep tabs on content that is being created on their behalf (or who turn a blind eye) may see some costly consequences.
—Tori Miner is a New York-based verbal branding consultant with a penchant for scotch and Scrabble.