Endorsements & Affiliate Marketing: The Legacy Learning Systems Order

Two hot topics in the advertising arena:  affiliate marketing and consumer testimonials.  The FTC’s settlement with Legacy Learning Systems touches on both of those buzzworthy issues.

According to the agency’s complaint, Legacy — which sells instructional DVDs, including a “how to play the guitar” series  — represented, directly or indirectly, expressly or by implication, that reviews of their products were endorsements reflecting the opinions of ordinary consumers or independent reviewers.  What customers didn’t know, the FTC alleges, was that many of the favorable endorsements were posted by affiliate marketers who received a commission from Legacy for sales they generated.  The FTC says that the failure to disclose that material connection violated the law.

So what are the terms of the proposed consent order?  In addition to a $250,000 settlement, the order includes provisions about Legacy’s future business practices.

Under Part I, Legacy agrees not to misrepresent the status of any product user or endorser.  That would include that the person is an independent user or ordinary consumer of the product.

Under Part II, Legacy can’t make any representation about a product user or endorser unless any material connection between that person and any other party involved in promoting the product is clearly and prominently disclosed.  The proposed order defines “material connection” as a relationship that materially affects the weight or credibility of an endorsement and wouldn’t be reasonably expected by consumers.

Part III outlines steps Legacy will take immediately with regard to its affiliate program.  At a minimum, the company will set up and maintain a system to monitor and review affiliates’ representations and disclosures to ensure compliance with Parts I and II of the order. Within 30 days — and semi-annually after that — the company will determine its top 50 revenue-generating affiliates.  At least once a month, Legacy will visit their sites to review their representations and disclosures.  The order specifies that it has to be done in a way designed not to disclose to the affiliates that they’re being monitored.  For the rest of its affiliates, Legacy will monitor a random sample of 50 sites at least once a month.

If affiliates misrepresent their status in any way — for example, by claiming they’re an independent reviewer or an ordinary person who’s used the product or by failing to disclose a material connection with Legacy — the order says that Legacy will immediately terminate them as an affiliate and stop paying them.

Looking for more information about the use of endorsements?  Read The FTC's Revised Endorsement Guides:  What People are Asking or watch these clips.