After claiming that Legacy Learning Systems, Inc., and its owner deceptively advertised its guitar-lesson DVDs by using affiliates to promote the products through endorsements on blogs and online articles, the Federal Trade Commission has settled with the defendants for $250,000.
Legacy used “Review Ad” affiliates who promoted its learn-to-play-guitar-at-home DVDs with positive endorsements in blog posts, articles and other online editorial material, the agency alleged. The copy contained hyperlinks to the defendants’ Web site, and the affiliates received commissions based on sales from referrals, which the FTC estimated generated $5 million in sales for the company.
However, in violation of the FTC’s guidelines on endorsements and testimonials, the affiliates failed to disclose that they were paid for their work, and instead held themselves out as ordinary consumers or independent reviewers, the agency said. The defendants also failed to implement a reasonable monitoring program, according to the FTC, to ensure affiliates were in compliance with the guidelines.
For example, one review said, “Read my Independent Review and Discover the Truth of Learn & Master Guitar Now! Rank: #1 . . . . Simply the best beginner course available, Learn & Master Guitar is well structured, well paced, and contains an appropriate level of music theory and techniques to develop your musicianship.”
Under the proposed settlement, Legacy and its owner, Lester Gabriel Smith, will pay $250,000.
The company also agreed to ongoing monitoring by the agency, and it must submit semiannual reports about the top 50 revenue-generating affiliate marketers to ensure that the affiliates are disclosing that they earn commissions for sales and are not misrepresenting themselves in their online reviews. In addition, the defendants must similarly monitor a random sample of 50 other affiliate marketers for compliance, and submit a monthly report to the FTC.
To read the consent order in In the Matter of Legacy Learning Systems, click here.
Why it matters: “Whether they advertise directly or through affiliates, companies have an obligation to ensure that the advertising for their products is not deceptive,” David Vladeck, Director of the FTC’s Bureau of Consumer Protection, said in a statement about the settlement. “Advertisers using affiliate marketers to promote their products would be wise to put in place a reasonable monitoring program to verify that those affiliates follow the principles of truth in advertising.” Since the revised endorsement guidelines went into effect in 2009, the agency has investigated retailer Ann Taylor for giving gifts to bloggers (though no charges were filed) and settled with Reverb Communications last September over claims the public relations firm illegally advertised its clients’ gaming applications by having employees pose as consumers and post positive reviews on iTunes.