Friday, March 12, 2010

Thoughts from the NEMOA Spring Conference: Perils for Vendors from Affiliate Endorsements

Today was Day 3 of the New England Mail Order Association Spring Conference in Boston. It was a great conference with lots of opportunities for benchmarking and networking. A number of industry gurus were present, including George Michie from The Rimm-Kaufman Group, who gave a great talk on paid search issues that this lawyer found compelling.

Marty Eisenstein and I moderated a round table discussion on emerging online affiliate issues. There was quite a bit of interest in new FTC guidelines regarding testimonials and endorsements. These new guidelines have the potential to impact seriously a number of business practices that are quite common among reputable online merchants.

Imagine if you will the following scenario: Acme Direct Marketing is an online seller of skin cream. Acme enters into an agreement with a third party to create a revenue-sharing affiliate network for the purpose of generating traffic to Acme's website. Affiliates enroll through the third party--perhaps Google. Many affiliates, if not all, are anonymous as far as Acme is concerned. They are paid each month based upon the traffic that they drive to Acme's website. Traffic is measured by the third party, who bills Acme for traffic generated each month. I am guessing that this scenario sounds quite familiar to many online merchants--in fact almost all online merchants engage in some variation of this business practice.

Now assume that one such affiliate (or maybe several) includes content on its website for the purpose of attracting attention and referring traffic to the merchants for whom it is an affiliate. The material that it posts on its website is often not entirely accurate--after all, these folks know nothing about the cosmetics business, and even less about truth-in-advertising. Perhaps the affiliate takes some liberties with the supposed benefits of Acme's product.

Under new FTC guidelines, Acme is responsible for false or misleading statements made by its affiliates. Moreover, the affiliate is obligated to disclose that it receives remuneration in exchange for sending traffic to Acme's website.

In many instances, the system for managing far flung affiliate networks is simply not designed to permit monitoring of these affiliate sites. In addition, early indications in the marketplace show that third party affiliate programs are not eager to assume any of the legal risks associated with these new guidelines.

Under the circumstances, responsible merchants need to be thinking about techniques for monitoring affiliate networks, and for securing contractual assurances that the affiliates will comply with the new rules.

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