The United States District Court for the District of Connecticut ruled that LeadClick Media, an affiliate marketing network, must make a reimbursement of $16 million it had gained by a deceptive marketing scheme. The Court ruled that LeadClick was responsible for the false claims made by affiliate marketers it recruited on behalf of LeanSpa, LLC, a company that sold acai berry and “colon cleanse” weight-loss products.
The case first began in December 2011 when the Federal Trade Commission (“FTC”) and the State of Connecticut sued LeanSpa and its principal, Boris Mizhen. According to the FTC’s Complaint, LeanSpa used a “free trial” ploy to enroll consumers into its recurring purchase program that cost $79.99 a month and that was difficult to cancel. LeadClick’s network lured consumers to LeanSpa’s online store through fake news websites designed to trick consumers into believing that independent news outlets and independent customers, rather than paid advertisers, had reviewed and endorsed LeanSpa’s products.
In January 2014, the FTC and the State of Connecticut reached a settlement with LeanSpa and Mizhen, who agreed to cease their deceptive practices and surrender assets in order to compensate consumers.
In the summary judgment ruling, the Court held that the fake news sites developed by LeadClick’s affiliates deceived consumers by using real news organization names and logos along with purported testimonials from users of LeanSpa’s products. In finding LeadClick responsible for the deceptive content on its affiliates’ websites, the Court noted that LeadClick recruited the affiliates, had the power to approve or reject their marketing websites, paid the affiliates, purchased advertising space for them, and gave them feedback about the content of their sites. Accordingly, the Court ordered it to make a reimbursement of $12 million it was paid by LeanSpa for its services. In addition, the Court ordered CoreLogic, LeadClick's parent company, to make a reimbursement of $4 million it received from LeadClick. The reimbursed incomes will be used by the FTC to compensate consumers that were affected by the scheme.
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.