[Post by Venkat Balausbramani]

In re Legacy Learning Systems, Inc., FTC File No. 102 3055 (FTC Release) (Complaint (pdf))

An FTC press release notes that the FTC settled with Legacy Learning over allegations that Legacy improperly utilized affiliates to “promote its courses through endorsements in articles, blog posts, and other online editorial material.” Specifically, the FTC complaint alleges:

[Legacy] recruited “Review Ad” affiliates for [Legacy's affiliate program], who promote Legacy’s instructional courses through positive endorsements in articles, blog posts, or other online editorial copy that contain hyperlinks to Legacy’s website in close proximity to the endorsements. [Legacy's] Review Ad affiliates often post such endorsements using statements that give readers the impression the endorsements have been submitted by ordinary consumers.

As noted in the release, the guidelines – which govern endorsements or testimonials – require disclosure of a material connection between a reviewer and a company. Under these guidelines, a positive review from a person connected with the seller or product (“someone who receives cash or in-kind payment to review a product or service” or who gets a cut of the sales) should come with a disclosure. The complaint alleges that twenty-five of Legacy’s “review ad” affiliates were responsible for at least $5 million in sales of Legacy’s products.

What did the reviewers do wrong?: Reviewers did not disclose that they were affiliates of Legacy – i.e., received a cut of the sales, and in some cases were paid to review Legacy products. These were not “the independent reviews reflecting the opinions of ordinary consumers.” (Examples of the reviews can be found in Exhibit A to the Complaint [pdf].) In some cases, the reviewer websites had disclosures, but the disclosures were anemic at best and were not contained in the posts themselves (e.g., “we are paid by some of the companies who’s [sic] products we review” – not exactly a robust disclaimer). [Italics added.]

Where did Legacy go astray?: For one thing, Legacy called these affiliates “review ad” affiliates. I would probably avoid this terminology. The complaint did not include a copy of the affiliate terms, so we don’t know whether Legacy contractually required the affiliates to comply with the FTC’s guidelines or explained how to comply. The complaint also does not specify whether Legacy paid the reviewers for their reviews (it alleges that the affiliates received a cut of the sales) — but judging from some of the reviews and the websites of the reviewers, and from Legacy’s suggestions to its affiliates, this seems to be the case (at least with some reviewers). Legacy offered suggested disclaimers (to affiliates) on its website but even these were ambiguous (“Affiliate Disclosure Requirements and Examples Legacy Learning Systems“):

Disclosure: We are a professional review site that receives compensation from the companies whose products we review. We test each product thoroughly and give high marks to only the very best. We are independently owned and the opinions expressed here are our own. [emphasis added]

Regardless of what Legacy may have suggested or required of its affiliates, Legacy also did not have any sort of compliance program to make sure that its affiliates made the necessary disclosures.

As part of the (proposed) settlement, Legacy will:

• Pay $250,000;
• monitor and submit monthly reports about their top 50 revenue-generating affiliate marketers;
• make sure that affiliates disclose they earn commissions for sales and are not misrepresenting themselves as independent users or ordinary consumers.

Previously, the FTC went after a company which posted fake reviews on behalf of its client (“FTC Dings PR Firm for Fake Reviews“). The FTC also issued a warning shot to AnnTaylor over gifts to bloggers (“FTC Drops Investigation of Advertiser Who Gave Gifts to Bloggers“). This time, rather than merely firing the warning shot, the FTC went after Legacy, and extracted a settlement.

The FTC’s enforcement efforts and statements show that it is willing to go after companies whose products that are enforced as well as PR agencies who participate in writing or posting fake endorsements. Thus far, the FTC has not gone after the blogger, but we’ll see what’s in store ahead.

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