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27 Antitrust 69 (2012-2013)
The More Things Change, the More they Stay the Same: Applying Section 5 to Emerging Marketing Practices

handle is hein.journals/antitruma27 and id is 71 raw text is: The More Things Change, The More They Stay the Same: ApplyingSection 5 to Emerging Marketing Practices BY LISA JOSE FALES AND ELLEN T. BERGE S TREMENDOUS ADVANCEMENTS in new media and marketing technologies have ,Atransformed electronic commerce over the last twenty-five years, the Federal Trade Com- mission has continued to protect American consumers from fraud with a statutory directive that has remained unchanged since the earliest computers were employed in the late 1930s, back when no one envisioned that computers would be used to sell products and services. The consumer protection prong of Section 5 of the Federal Trade Commission Act, declaring unfair or deceptive acts or practices unlawful, is as deliberately broad and general as the antitrust prong's prohibition on unfair methods of competi- tion.' The wording of Section 5 allows the Federal Trade Commission to nimbly adapt its application in the consumer protection context as technologies change and innovative platforms for advertising and marketing emerge, and the Commission has done precisely that. The last decade has seen an explosion of advertising prac- tices involving new technologies, from cell phones to the Internet. To adapt Section 5 to these ever-evolving practices the FTC can prescribe trade regulation rules identifying the specific acts or practices that constitute a violation of Section 5.2 However, given the stringent requirements of FTC rule- making, the Commission has instead applied Section 5 to these newer practices through strategic enforcement actions, typically resulting in consent orders, and agency guidelines.3 Although these methods have the benefit of being flexible and relatively quick, the downside is that they do not nec- essarily provide clear rules of the road for these new adver- tising mediums. This article examines how the FTC has used enforcement actions and guidance to apply Section 5 to three newer meth- ods of marketing-affiliate marketing, social media, and mobile marketing-and explains the implications for busi- ness compliance. Affiliate Marketing In simple terms, affiliate marketers generate interest in a merchant's products or services, direct leads to the mer- chant's website, and receive payment from the merchant for each consumer inquiry or sale generated by the affiliate's activities. Today's affiliates earn huge payouts, as much as 50 percent of gross revenues, for generating leads or sales for merchants. Many merchants contract with affiliate net- works, which manage hundreds of affiliates that indirectly work for the merchant by sending commercial email mes- sages, hosting landing pages with content created by the affil- iate, placing ads on Websites that incentivize consumers to buy, writing articles, building links, texting, blogging, and tweeting. Even today, most merchants that use affiliate net- works remain completely unaware of the identities of the hundreds or even thousands of affiliates and subaffiliates working within the network, and must rely on the network to monitor affiliate behavior and punish bad affiliates. Affiliate marketing has a rocky legal past, and the FTC was somewhat slow to bring Section 5 enforcement actions against affiliates. One of the first notable offensives against affiliate marketing was private litigation waged by Oprah Winfrey and Dr. Mehmet Oz, who in 2009 famously sued about fifty defendants, including several affiliate marketers, for using their images to sell dietary supplements made with such ingredients as acai berry and resveratrol.i Among other things, the complaint alleged fake news Websites, which were crafted by some affiliates after Dr. Oz appeared on Oprah, hyped the anti-aging benefits of resveratrol, a substance found in red wine.' The alleged fake news articles, dubbed farti- cles, seemed to provide actual reviews of a reporter's thirty- day trial of resveratrol pills and the positive effects experi- enced by the reporter.6 The sites were peppered with ads promoting a free trial of the product reviewed in the report. Upon settling with the various defendants, Oprah and Dr. Oz made it clear that they wanted to send a strong message to prevent marketers engaging in what they deemed to be false and deceptive marketing practices from taking advantage of consumers.7 For the FTC's part, legal guidance to merchants and affil- iate marketers on when conduct may run afoul of Section 5 FALL 2012 69

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