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August 22, 2010

Bad Ads: Who Should be Responsible for Fraudulent and Deceptive Advertising?

Until recently, it has been a legal standard that publications are not liable for the bad behavior of their advertisers. While some print publications do require that advertising conforms to certain standards or follows guidelines that they set, this is almost always based on community sensibility and the personal preferences of the publishers. When it comes to the content, the legitimacy of the claims being made by an advertiser; there usually is no responsibility for a publication in the United States to determine if the claims are true or valid. However, the relationships between the publisher, the advertising network, and the advertiser has changed enormously and everyone should be aware of what this means.

The relationship between the advertiser and the publication in all areas requires that the publisher be independent of any decisions regarding the claims and content of the advertising. Publishers, while they can obviously ask for changes based on esthetics, principles and general guidelines generally do not comment or ask for changes based on the legitimacy of the product.

If an advertiser claims that “this product will guarantee to make you lose 50 lbs a week,” it is never the responsibility of the publisher, to check this claim and ensure the legitimacy of it. The publication, whether it is print, internet or mobile is just taking the content and placing it within the publication. As Bennet G. Kelley of the Internet Law Center explained to in a brief conversation about this topic, once a publisher gets more involved “there is a potential for greater liability. The greater role one takes the greater risk they take.”

When the dynamic changes, therein lies the problem. Advertising networks on the internet, for example, are sometimes becoming more and more involved with the creative process and the actual selling of the product.

For example, there is more than one major display network that also makes creatives for their clients and changes them so that they perform better. In doing this, the display network is no longer just “placing ads” but is actually becoming part of the creation process. Often the reason to be involved is simple: the advertising pays based on a click or conversion and, if there is a better advertisement, the network will be paid more.

An advertisement that once claimed that “you can lose weight” on this product, might have been changed by the network to “you can lose weight while watching TV”. The actual claim is being made by the advertising network since they made the advertisement.

“It is the difference between being passive,” says Kelley “and being an active participant in the process. Once you get involved in the decision making of what the advertisement says you open yourself up to liability.” Kelley mentions an example where a housing website has been sued for violation of fair housing laws because they created the website in a way that one could in the process of creating the ad for listing, include screening of people based on race. They at that point opened themselves to liability.

Similarly, there should be a real concern about any company that receives money based on a commission, cost per lead, cost per action. Affiliate networks have already learned that they are not immune from the bad actions of their affiliates and many of them embroiled in the ACAI and other fraud suits know too well that they can be sued based on the actions of their client.

An “Affiliate” or “CPA network” is no longer an advertising network that just places advertising. Most of them are involved from the ground up with almost every aspect of how the market is created and have little or no defense to the bad-actions and claims of the advertisers anymore. Even without this, there is now a relationship based on commission, based on the performance of the advertisement that goes beyond a simple placing of an advertisement. The affiliate network makes money only if the advertising makes money and there is a real argument that they are no longer acting as a publisher, but as an independent sales person pushing a product.

This should concern publishers who are involved with these programs as well. As the FTC starts to examine the practices of advertisers and their actions, they are going to start examining the relationship of the publishers to those advertisers.

If you getting paid on a Cost-Per-Performance model, your liability is suddenly much greater. Putting a link in your blog that reads “This product can do this” suddenly goes beyond a recommendation or advertisement. You are in fact yourself making that claim and getting paid based on the result of that claim. No longer are you just a publisher with an advertiser, but you’ve become an agent, a salesperson, a product pitcher that could be responsible for your statements and actions. Kelley mentioned that the FTC is closely examining everyone in the chain and what their role is.

Michael H. Sproule, of the firm Akabas and Sproule, explained that in order to determine liability there is often a two prong process. “Endorsement required two things: First the publisher received an economic benefit from the advertisement and secondly a reader would think the publisher was recommending the product. Both prongs must be met.”

He says that any website that recommends a product based on a CPA needs to be careful. “Here both prongs are present: payment to the reviewer, plus a recommendation. On its face, this traditional test could apply to Cost per Sale (Affiliate) advertising without any difference. If the commission was seen merely as analogous to a traditional payment for placement, then there is no difference. The first prong, economic benefit to the publisher is met, but there would be no liability unless placement made the ad appear to be a recommendation.”

Thus a link to a product without a review or recommendation might be okay, but as soon as you recommend the product, or make claims, there lies the liability.

What can be learned from this? If you are engaged in any product marketing where you are doing anything besides just putting an advertisement up for a set cost, you need to examine what you are selling. If a product makes a claim and you are expressing that same claim in anything you do, whether it be posts in your blog or your own personally created banner you need to do some research about those claims. Ask the person involved what studies have been done to show them, ask what proof they have.

Perhaps it’s also time to retain an attorney, if you don’t already have one, to look over these relationships. I know it’s hard for publishers to spend the money in this economy, but the possibility of getting sued for millions based on one poorly worded banner or recommendation might be enough to scare you into doing it.

In perhaps the fastest growing industry ever, one person has made a name for himself as a leader and innovator. Pace Lattin, the publisher of the top newsletters in new media and online advertising, is one of the inventors of many of the technologies and methods that have become standards in the industry. He has been called many things, including a rabble-rouser, a guru, an innovator and a watchdog — but one thing stays the same: he is one of the most interesting leaders and commentators in the online advertising industry. Marketing Sherpa, a leading marketing research publication called him the most influential journalist in online media for a reason.