The US Court of Appeals for the Second Circuit has affirmed a lower court's decision in a case involving advertisement on fake news websites, in which it ruled that an online advertiser can be held liable for deceptive content which it did not create (see our related report here).
In 2011, the Federal Trade Commission ("FTC") and the state of Connecticut filed a suit seeking to hold LeadClick liable for its role in the use of deceptive websites for market weight loss products in violation of Section 5 of the FTC Act, and the Connecticut Unfair Trade Practices Act (CUTPA).
The Appeals Court disagreed with the defendants' argument that it cannot be held liable under the FTC Act as it did not produce the deceptive content, determining that a defendant can be held liable under the FTC Act for participating in a deceptive scheme or having the authority to control the deceptive content in question. Moreover, the Court ruled that LeadClick's own actions – recruiting and paying affiliates who used phony news sites to generate traffic, managing the affiliates, suggesting substantive edits to fake news pages, and purchasing banner spaces for phony news sites on legitimate news sources – caused substantial harm to consumers.
This case demonstrates the importance for marketing affiliates to refrain from engaging in promoting similar misleading practices, and the possible legal liability that could arise, by better scrutinizing and monitoring ad materials, in order to act diligently when confronted with knowledge of unfair or deceptive practices of their partners.