The U.S. Court of Appeals for the Second Circuit has upheld a lower court ruling requiring the operator of an affiliate marketing group to pay $11.9 million for its part in helping to promote LeanSpa, a deceptively marketed weight-loss supplement.
In issuing its ruling, the Circuit Court found that LeadClick Media, LLC recruited affiliate marketers that used fake news sites to drive internet traffic to the LeanSpa website. LeadClick knew that the news sites were phony and actively participated in creating their content. The decision is the first by a court of appeals holding the operator of an affiliate marketing network liable for deception by third-party marketers.
“LeadClick knew its affiliates were lying to consumers and took steps to help make those lies more effective,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “The Circuit Court’s ruling goes a long way toward ensuring that affiliate networks can’t hide behind claims of immunity when their consumer fraud is exposed.”
In the ruling, the Circuit Court also found that LeadClick bought advertising banner space from legitimate online news sites with the intent to resell it for use with fake news sites, “thereby increasing the likelihood that a consumer would be deceived by the content.” Separately, the Court found, however, that relief defendant CoreLogic, Inc., LeadClick’s parent company, could not be held liable for $4.1 million that it had collected from LeadClick and was sought by the FTC to provide consumer redress.
In granting the FTC’s request for summary judgment, the court ordered LeadClick to disgorge the $11.9 million it received from LeanSpa as payment for its affiliate marketing services. It also ruled that LeadClick’s parent company, CoreLogic, had to disgorge $4.1 million in ill-gotten gains it received from LeadClick, as part of the $11.9 million total judgment.
LeadClick and CoreLogic appealed the district court’s ruling, leading to the circuit court decision.
For more information, visit www.ftc.gov.