October 30, 2014

Thomas Cohn: Legal Challenges For Online Affiliate Marketing #AMDays

Welcome to this interview of Thomas Cohn, a well-known consumer regulatory attorney, former Federal Trade Commission (FTC) Regional Director, and 17 year FTC veteran. At Affiliate Management Days East 2012 (on Oct 9-10, 2012), Thomas will be speaking on FTC and State actions versus affiliates and merchants and how to comply with consumer laws to avoid regulatory scrutiny.

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Question: What are the major affiliate marketing threats that you have seen evolve over the past few years on the legislative front?

Thomas:  There’s a big direct threat on the state level (sales tax legislation).  On the federal level, there are only indirect threats such as the limited situations in the “Rockefeller Bill” that became ROSCA.

Beyond legislation, there are new FTC regulations implementing legislation, like the MARS Rule (banning advance fees for mortgage assistance) and the Business Opportunity Rule (more stringent disclosure requirements, covering more types within definition).

But the threat even bigger than legislation or regulation, is simply the continual increase in enforcement actions by state AGs and the FTC against deceptive online marketing, and against the roles played in it by not just merchants, but also affiliates, networks, and others who allegedly play a role in helping to apply the deceptive practices against consumers.

Question: Can you give us an example of a case involving legal compliance?

Thomas: The actions that FTC has brought in the last 12 months have highlighted the FTC’s awareness of deceptive tactics in affiliate marketing, and its increasingly aggressive stance in going after them.  Whether they involve merchants, affiliates, networks, or other third parties whom the FTC believes are “assisting and facilitating” these tactics.

This includes FTC cases against merchants like Central Coast Nutraceuticals, Jesse Willms and LeanSpa.  The ten FTC cases brought against individual affiliate marketers, and the two FTC cases against affiliate networks.

Other third parties may be vulnerable, too: lead generators, list brokers, payment processors and call centers have all been targeted by the FTC.  There may be more investigations and/or actions against such third parties.

Question: What can affiliate managers merchants do to ensure  compliance with the laws and avoid regulatory scrutiny?

Thomas: Take a look at the enforcement actions cited above that have final orders requiring monitoring, and see how onerous these are to actually implement!  Then realize that while these don’t apply to everyone, just to the named defendants, you should still consider them in your risk calculus.

Finally, come up with a robust monitoring program that you actually can and will follow, by checking out both merchants and their offers, and affiliates’ published content, before doing business with them.

Then, after offers start running, periodically check up on at least those merchants and affiliates that are performing the best, to see just why they are the top performers.  Are there any deceptive/false/unsubstantiated product claims, including testimonials/endorsements?  Are there deceptive formats?  Are there inadequate or missing negative option/free trial and/or continuity/rebill disclosures?

If so, either enforce modifications or terminate the relationship.

Question: What can the affiliate marketing industry do to ensure its growth, regardless of the emerging legislative challenges?

Thomas: Same as above.  Make sure both merchants and affiliates stay as compliant as possible, or stop doing business with those who don’t.  The best way to ensure growth is to stay on top of the content being published by reasonably monitoring merchants’ and affiliates’ advertising.

While online privacy is a perennial hot topic, affiliate marketers and affiliate networks may not be affected much by whatever behavioral targeting legislation is eventually passed. The more immediate privacy-related issue is data security.  If you “say what you do” with your consumer data, then you better ensure that you “do what you say.”

Any major hacking attack or other data breach could quickly bring an FTC investigation and/or enforcement action.

Question: If you were to leave affiliate managers with just one piece of advice today, what would it be?

Thomas: Compliance monitoring. It doesn’t have to be perfect, but has to be reasonable and consistently implemented.

The FTC doesn’t care about cloaking/masking or other difficulties that affiliate networks/managers face in monitoring affiliates. The FTC’s view is that, if network profits are based on traffic that converts, then the network must do better to ensure compliant affiliate content.

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Affiliate Management Days takes place October 9-10, 2012. More information about Affiliate Management Days being held in Ft Lauderdale, can be found here. Or follow the hashtag #AMDays on Twitter. There’s still time to register using code SBTAM150 to receive $150.00 off your pass.

Be sure to check out the rest of the interview series from #AMDays.

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Geno Prussakov


Geno Prussakov Geno Prussakov is the Founder & Chair of Affiliate Management Days and the CEO & founder of AM Navigator LLC. As an award-winning affiliate marketing expert, he has contributed to the online marketing success of such top brands as Forbes, Nokia, Hallmark, Warner Music, Skype, Forex Club, and hundreds of small businesses.

5 Reactions

  1. I feel like the sales tax issue is a big one because entire states are getting banned from affiliate programs to avoid collecting sales tax for those states.

  2. Robert, you are right about the sales tax (or affiliate nexus tax, to be exact) issue being “a big one”. We have indeed seen thousands of state-residing affiliates (i.e. those who reside in the state that passes the tax law) “getting banned from affiliate programs”, and that was always sad to see. Merchants do have other options (e.g. collect the tax!), but larger ones were often using affiliates as cannon fodder in their fight with the states, while smaller ones were often replicating what larger ones were doing, and all of that didn’t look good at all… With the common $10k threshold many of the smaller merchants wouldn’t even have to worry about it. Or if you do want to have your bases covered, you can collect the tax (even if it is being collected just in the states that have the affiliate nexus tax in place).

  3. That’s great post Geno! Thank you so much for sharing it. Its informative for me.

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