‘Don’t Ask, Don’t Tell’ Asks for Trouble From the FTC - 06/04/2013

The Pentagon policy of "Don’t Ask, Don’t Tell” helped keep gay servicemen in the U.S. military and out of trouble when they were still technically banned from serving in the military. The same policy, practiced by direct response merchants and those who assist them, asks for nothing but trouble from the Federal Trade Commission (FTC).

It isn’t news that the FTC will impose liability for false advertising not just on the advertiser but on those who help create it. Practically every ad agency on Madison Avenue during the past 50 years has been an FTC defendant at one time or another. What is news is the way the FTC has widened the enforcement net in recent years to snare not only those who play a direct creative role in a marketing deception, but those who rely on the marketing services of others or who provide non-creative critical support services to a marketer. In the process, the FTC has established an effective "duty of inquiry” on such parties. For them, donning blinders – "don’t ask, don’t tell” – is not a shield to an FTC lawsuit. It is an invitation to one.

One prominent area in which the FTC recently has sought to impose a duty to inquire is online affiliate marketing. Through settlements against Internet merchants (i.e., Legacy Learning Systems, Central Coast Nutraceuticals-Graham Gibson, 1021018 Alberta Ltd., d.b.a. Just Think Media-Jesse Willms) and affiliate networks (i.e., Clickbooth), the FTC is attempting to create a "culture of accountability” in the unruly world of affiliate marketing through the imposition of stringent affiliate policing and disciplinary requirements. These include, in brief:

Another group the FTC has aggressively sought to pin the duty on is payment processors, who obviously play no marketing role but provide the lifeblood without which DR marketers would be out of business. In numerous settlements going back some years now (i.e., First American Payment Processing, InterBill) to very recent ones (i.e., Landmark Clearing, Automated Electronic Checking), the FTC has imposed duties of investigation and compliance monitoring on processors who were accused of turning a blind eye to deceptive practices of their merchant clients, including unauthorized consumer billing. More than ever, the FTC is targeting the payments industry as a strategy for rooting out Internet and telemarketing fraud, and we can expect to see more actions like these in the months ahead.

Most recently, the FTC took down another type of critical support provider who allegedly put its head in the sand rather than learn the truth about its clients. In Skyy Consulting, the FTC accused a provider of "voice broadcasting” services of facilitating illegal robocalls despite knowing, or by "consciously avoiding” knowing, that its clients were violating the FTC Telemarketing Sales Rule (TSR), including the requirement to have prior consumer consent to make robocalls. In a concurring statement supporting the settlement, FTC Commissioner Maureen Ohlhausen said liability was warranted because the vendor, "actively encouraged clients to use its robocall service … without any inquiry into whether its clients were complying with the TSR.” Skyy Consulting most definitely will have to inquire now. Under the order, it must review all pre-recorded messages it delivers and terminate relations with any clients who are violating the TSR.

William I. Rothbard is a former FTC attorney and practices in Los Angeles, specializing in advertising and marketing law. He can be reached at (310) 453-8713, Rothbard@FTCAdLaw.com, and www.ftcadlaw.com.

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