The U.S. Court of Appeals for the Second Circuit has affirmed a
federal district court's decision in Connecticut holding the
operator of an affiliate marketing network liable for deceptive
practices by the third-party affiliate/publishers in its
As we have previously discussed, LeadClick Media LLC operated an
affiliate marketing network to connect merchants with
affiliate/publishers who would promote links to the merchants'
products and services online in a variety of ways, including email
marketing, banner ads, search engine placement and creating
advertising websites (to see a previous D&G Alert on an FTC
action against an affiliate marketing network, click here).
LeadClick managed this affiliate network through tracking
software that would track the flow of traffic from the links on
individual affiliates' websites and services to the
merchants' websites, compensating the affiliates for sales
resulting from consumers who arrived at the merchant's websites
via such links.
LeanSpa LLC, a merchant that sold purported weight-loss and
colon-cleanse products under various brand names, joined
LeadClick's service to connect with affiliates in
LeadClick's affiliate marketing network. The Federal Trade
Commission (FTC) subsequently asserted that certain affiliates in
the LeadClick network used fake news sites to market LeanSpa
products and link to the LeanSpa website, thereby earning affiliate
commissions for such affiliates. According to the FTC, these fake
news sites looked like genuine news sites and also frequently
included a "consumer comment" section, but that content
LeadClick did not itself create the fake news sites to advertise
products, but the FTC contended that LeadClick knew that fake news
sites were common in the affiliate marketing industry and that some
of its affiliates were using fake news sites, approved of the use
of these sites, and, on occasion, provided affiliates with content
to use on their fake news pages.
The FTC sued LeanSpa and LeadClick, alleging that they had
violated Section 5 of the FTC Act. The FTC and LeanSpa reached a
settlement, and the FTC moved for summary judgment against
The District Court's Decision
The district court granted summary judgment in favor of the FTC,
holding that LeadClick had violated the FTC Act and that LeadClick
was not entitled to immunity under Section 230 of the
Communications Decency Act (CDA), which provides immunity from
certain liability for Internet service providers based on the
content transmitted by their users.
As part of its decision, the district court required LeadClick
to disgorge all proceeds that it had received from LeanSpa as
payment for affiliate marketing – about $11.9 million.
LeadClick appealed to the U.S. Court of Appeals for the Second
The Second Circuit's Decision
The circuit court affirmed the district court's ruling that
LeadClick had engaged in a deceptive act or practice in violation
of the FTC Act.
In its decision, the circuit court first rejected
LeadClick's contention that because it had not created the
deceptive content appearing on the fake news sites, and because the
content was not attributable to it, it could not be held liable.
The FTC Act, the Second Circuit said, did not require that a
defendant "create deceptive content to be liable."
Rather, it held, a defendant may be held liable for engaging in
deceptive acts or practices if, with knowledge of the deception, it
either directly participated in a deceptive scheme or had the
authority to control the deceptive content at issue.
Applying that standard, the Second Circuit pointed out that
LeadClick had known that deceptive fake news sites were prevalent
in its affiliate marketing network, had directly participated in
the deception created by its affiliates, and had the authority to
control the deceptive content of these fake news sites but had
allowed the deceptive content to be used in LeanSpa advertisements
on its network.
Accordingly, the circuit court ruled, LeadClick had properly
been held liable for engaging in deceptive acts or practices.
Finally, the Second Circuit affirmed the district court's
decision that Section 230 of the CDA did not immunize LeadClick
from liability under Section 5 of the FTC Act
The circuit court rejected LeadClick's contention that it
was a mere "interactive computer service provider" under
the CDA that should not be liable for the content of its users,
deciding instead that LeadClick was an "information content
provider" that was responsible in part for the content and
therefore not entitled to immunity under the CDA. So it could be
held liable under the FTC Act "for its own deceptive acts or
practices, rather than for publishing content created by
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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