January 4, 2006, 12:00 AM

Better Watch Out

The FTC is holding marketers responsible for their affiliates`actions—a ruling that may boost the prospects of affiliate management companies.

A recent Federal Trade Commission settlement with the operators of several porn sites sets out stringent affiliate-monitoring requirements. And while the settlement applies only to the companies named in the complaint, many see it as the FTC’s way of putting online retailers and others on notice that they will be held responsible for the actions of affiliates.

“It’s the first shot across the bow from the top consumer agency in the United States that the affiliate marketing world needs better controls and better answers to consumer protection issues,” says Trevor Hughes, executive director of the Email Sender and Provider Coalition, a trade group that was formed in 2002 to fight spam and protect the interests of e-mail services companies.

Best practices

Stephen Cohen, an FTC staff attorney, characterizes the affiliate-monitoring provisions as “best practices, some good guidelines” for the industry. But he also warns that online retailers would be considered initiators of e-mail sent out by their affiliates and thus would be liable for any violations under the CAN-SPAM Act.

In the case of the porn sites, the FTC claimed those sites’ affiliate marketers violated the CAN-SPAM Act and other FTC rules by sending out sexually explicit e-mail messages using prohibited practices, such as misleading subject lines and header information. The FTC considers the porn site operators-not the affiliates themselves-as the initiators of the e-mail and held them liable for the violations.

In the settlement, the FTC ordered the operators of the porn sites to collect detailed information on affiliates, including name, address and telephone number and, in cases where affiliates are corporate entities, names, addresses, and telephone numbers of persons owning, managing or controlling the company.

In addition, prior to an e-mail campaign, the site operators must collect from affiliates certification as to how each affiliate obtained the e-mail addresses to be used in the campaign as well as myriad other data (see box). Once the e-mails are sent, the companies are required to sample new subscribers to their web sites to make sure the affiliates are complying with the settlement order. They also must set up a system to gather, review and respond to consumer complaints. On top of that, they were hit with a $621,000 penalty.

Time-consuming

Such close supervision of affiliates could be time-consuming and costly for retailers, especially those with affiliate programs numbering in the thousands. But the alternative could be just as costly, says Cohen, the FTC attorney. “They have to make a business decision as to whether they want to take that risk or not,” he says.

The need to keep close watch on affiliates has increased over the past few years, as the use of affiliates-sites that market other web sites-has exploded, creating an industry that is largely unregulated, experts say. As a result, there are widespread abuses, some participants say, many stemming from “daisy chaining,” in which affiliates subcontract with other affiliates that then subcontract with yet more affiliates.

That practice results in what Hughes terms “the serious problem of cascading trust. Before you know it, you are six steps removed from the original marketing company,” he says. “It’s very easy for marketers to find their offers are being presented on web sites with questionable content or being delivered through e-mail affiliate relationships that are akin to spam.”

That means retailers must be vigilant about how affiliate marketers are portraying their products, services and brands in the marketplace, Hughes says. “The FTC is giving us some guidance,” he says. “Know who you are dealing with.”

Retailers need to do research on prospective affiliates-know their company names, where they do business, where they’re going to place the content, Hughes says. They also should make sure contracts and ad and insertion orders with affiliates clearly outline where the retailers’ content can be placed, what types of content it can and cannot be associated with, and the way in which it can be delivered. “You don’t want it to be delivered through a spam net or through spyware,” he says.

The right questions

In screening affiliate networks, retailers should ask such questions as whether they have compliance controls or a privacy professional or compliance officer on staff. They also should find out how many and what types of sites are in the network; whether they daisy chain; whether they have been sued or investigated by any enforcement agency. “These types of questions are reasonable questions to be asking in today’s world,” he says.

Hughes also recommends that retailers check whether affiliates are members of industry groups, such as the Email Sender and Provider Coalition, that promote ethical standards.

The ruling is sure to increase the complexity of managing affiliates, participants say. The way major affiliate network management companies screen prospective affiliates can serve as a model for retailers, says Chris Henger, vice president of marketing and product development at Performics Inc.

Performics, for instance, uses a list of ten criteria to screen prospective affiliates, Henger says. The company declines an applicant if a site can’t be accessed or reviewed based on the URL provided; the site is under construction; the information provided doesn’t match registered domain information; the affiliate submits unsolicited commercial e-mail or there is evidence of trademark infringement; or the site contains gambling information.

In addition, Performics, a division of DoubleClick Inc., will turn down an applicant whose site content is libelous or defamatory; promotes illegal substances; uses violence or hate-oriented speech; features extensive religious commentary or attempts to preach or solicit members for a particular church or faith; or contains adult, obscene or offensive content.

The look

Retailers should also check out what other companies or brands are featured on an affiliate’s site, Henger says. “If they don’t look like a big time operator, they’re probably not,” he says.

Performics and Commission Junction, a division of ValueClick Inc., also have developed a code of conduct by which their affiliates must abide.

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