A Nevada based federal court recently held a Web company called iWorks liable for deceptive business practices committed by its marketing partners. The fact that iWorks retained editorial control seems to have been the deciding factor.
The case arose when the Federal Trade Commission filed a complaint against several defendants, including iWorks, alleging defendants engaged in deceptive and unfair business activities on the Internet. The FTC claimed the defendants made misrepresentations and deceptively enrolled consumers into memberships for their products, and then charged consumers’ credit cards or debit accounts for the memberships without authorization.
The defendants allegedly used Web sites to offer “free or risk-free” information about defendants’ products or programs, including government grants to pay personal expenses and Internet-based money-making opportunities with Google “Adwords.” The government grant sites contained testimonials that gave the false impression that consumers would likely get the same results from the products or programs as the people in the testimonials. The Web sites asked consumers to fill out a form and provide their credit card or bank account information to pay for the shipping and handling of a CD with information on defendants’ products or programs. The Web sites’ disclosures often stated that consumers were actually being enrolled in negative option membership plans and upsells bundled with the core product. The negative option plans would charge an initiation fee and recurring monthly fees for a membership. The upsells would also contain separate and recurring monthly fees.
In its defense, iWorks argued that it should not be “vicariously liable” for fraudulent acts its marketing partners (who hosted the sites) committed. That’s not an unreasonable argument. In deciding whether a principal should be responsible for its agents activity, courts typically consider whether the acts were “within the scope” of the agent’s duties. So UPS is probably liable if its driver rear ends a car in a routine traffic accident. It may be a different story if the driver takes the brown truck and drag races a Fed Ex driver. Routine deliveries are within the scope of the UPS driver’s duties. Drag racing, not so much.
While iWorks didn’t claim its marketing partners were drag racing, but they did argue that if in fact the marketing partners were committing fraud, that type of activity was “outside the scope” of the engagement. The Court wasn’t impressed. It agreed with the FTC, which argued that iWorks’ agreements with the marketing partners gave iWorks final say over the content and display of the information on the Web sites. The court wasn’t willing to let iWorks have it both ways – on the one hand retain editorial control and on the other wash its hands of responsibility for the Web site’s editorial content.
It’s understandable that iWorks wouldn’t want to abdicate its authority over content bearing its name. One could argue it would be irresponsible if it did so. But that’s the thing about retaining control. The control brings with it the responsibility. And failure to exercise that responsibility properly apparently brings liability.