Limit Your Brand’s Liability against Deceptive Actions by Affiliates

As a global multibillion-dollar industry, affiliate marketing is powering online businesses to unprecedented heights. For online entrepreneurs who know their craft, the undeniable and essential role played by affiliate marketing in the seemingly incessant rise of internet commerce is a given. It needs little elaboration here.

However, what is equally evident to online entrepreneurs is the risk that goes along with using affiliate marketing as your company’s engine of growth. The risk can take many forms. In this brief discussion, I'd like to focus on one particular risk: the risk that you may be held liable for damages caused by your affiliates’ false statements about your products. In the weight loss vertical, a common example is a false statement by your affiliate that a certain celebrity has been taking the pills listed on your website. Or the statement that the pills have been tested by esteemed medical clinics when this is not the case. All such statements, insofar they are false, constitute deceptive practices since they encourage consumers to purchase items under fraudulent pretenses and they can therefore trigger enforcement actions against companies based on consumer fraud.

It goes beyond the scope of this brief to discuss the applicable laws in both the U.S. and the EU. It helps that they are fundamentally similar and they boil down to the following: as an online brand, you can generally be held liable for deceptive practices by your affiliates if you (i) have knowledge of the false statements that are being made by your affiliates; and (ii) you have either participated in the practices or you had the ability (the control) to stop the practices but didn’t. If, for example, your affiliate managers are actually providing banners or videos to your affiliates in which the false statements are made, this would mean you are aware of what they are doing and you are participating in the practices. The same goes if your affiliate managers are in any other way assisting the affiliates with their false and deceptive statements.

Sometimes, companies (thinking they are clever) willfully remain ignorant of what their affiliates are doing. They are happy with the increase in conversions and (though they may assume that the affiliates might be up to no good) they stay away from the marketing done by the affiliates, thinking that the resulting passivity and ignorance will keep them out of legal trouble. Think again. On both sides of the Atlantic, this strategy will not work.

This is where the applicable laws (mainly in EU directives as seen in Dutch practice) and the applicable legal concepts become really stringent and show little mercy. If your company’s affiliate program results in the engagement of affiliates who are making deceptive statements to consumers (for example, pitching AI-created dating profiles as real women eager for a date) and cause them financial harm, your company may be held liable for the mere and only reason that you chose to use affiliate marketing as your marketing method and this ‘choice’ lies behind the harm that is caused.

Though this does seem harsh, it is also understandable. The financial harm caused to consumers as a consequence of affiliate fraud has to be carried by someone. It is unreasonable to have the consumers carry it. So the companies - for whose benefit the marketing is being conducted and which chose to use this type of marketing - are allocated the risk of liability. It’s important to understand that this does not at all mean the affiliates themselves are off the hook. They can most definitely also be held liable for the financial harm suffered by consumers. So the liability of the company is additional to the liability of the affiliates themselves. Perhaps you are wondering why it does not suffice to place the liability only on the affiliate who has made the deceptive statements? Practical notions may be the reason for this. Instead of tracking down the hundreds (or thousands) of affiliates who are making the deceptive statements, consumers and regulators may have it easier if they can just lodge their claim against the company that has engaged the affiliates. Furthermore, legal considerations may also have played a role in the wish to hold companies liable for the conduct of their affiliates. A company that knows it may be held liable for the deceptive practices of its affiliates has an incentive to try to limit such deception.

Does this really mean that in all cases (always) companies will be liable for the false statements made by their affiliates about their products? Isn’t there anything a company can do to limit or prevent this liability? There is. But you have to be able to show a court that you have done everything you could to prevent the affiliates from making deceptive practices. You must show a good faith effort that you have taken multiple measures to prevent consumers from being harmed by deceptive affiliate practices. Only if you are able to show this effort, a court may rule that you carry no liability for the false statements of your affiliates.

There are multiple measures that your company can (and should) take to limit its liability for affiliate fraud. It starts with your affiliate program terms, i.e., the insertion order and the agreement that the affiliates enter into when they sign up for your company’s affiliate program. Ensure that these terms protect you against deceptive practices of your affiliates. Use these terms to impose obligations on the affiliates regarding what they can say and what they definitely cannot. Also, make sure that your affiliates know which laws apply to them by directly emailing them and letting them know which laws are applicable to their marketing practices.

Furthermore, it is essential to show that you have not only imposed obligations on your affiliates but that you have also monitored whether they are complying with the obligations. Routinely (monthly or quarterly) request your affiliates to provide you with the marketing material they are using so you can see what they are doing and you can show that you have monitored the material. Show that you take matters seriously by immediately investigating consumer complaints and ceasing cooperation with those affiliates who engage in false statements. In at least one known instance, a court in the Netherlands has refused to hold a company liable for the deceptive practices of its affiliates because the company not only performed many of the mentioned measures, but it also engaged an outside UK-based anti-fraud company to monitor the practices of its affiliates.

I know it does not sound attractive to take all these measures. I also know (though the courts do not) that it's nearly impossible to monitor all your affiliates. After all, there may be thousands of affiliates doing your company’s marketing, and you may not even know who they are, where they are marketing, and how. Monitoring all your affiliates may be simply too unreasonable a demand. But take comfort in the fact that courts are generally reasonable. If you can show good faith and illustrate that you have applied your best efforts to prevent affiliate fraud, then you have a good chance of winning the court’s favor. If you take no measures at all to prevent deceptive practices by your affiliates, you should skip going to court and not waste your time because you won’t stand a chance.