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If you’ve been following recent developments about endorsements and affiliate marketing, the FTC’s settlement with Nashville-based Legacy Learning Systems and Lester Gabriel Smith — marketers of a “learn to play the guitar” DVD series – should strike a chord.

One way Legacy promoted its products was through an affiliate program — a set-up in which hyperlinks on one site will direct potential buyers to another site.  Affiliates typically get paid for referring people to the site or for sales generated from their links.  Under Legacy’s program, when a customer was directed to Legacy’s website by an affiliate and then bought the product, the affiliate pocketed a commission of between 20% and 45% of the purchase price.

According to the FTC's complaint, many of Legacy’s affiliates promoted the courses through positive endorsements in articles, blog posts, reviews, or other online editorial copy that contained hyperlinks to Legacy’s website close to the glowing testimonials.  One five-star review described the DVD series as “The undisputed No. 1 training product for someone wanting to learn how to play the guitar.”  Another said it was “Simply the best beginner course available, Learn and Master Guitar is well structured, well paced, and contains an appropriate level of music theory and techniques to develop your musicianship.”  One page described as “The Independent Reviews Site” offered this recommendation:  “Putting it simply: Learn and Master Guitar emerged from our test as the King of ‘learn guitar at home’ courses.”

According to the FTC, endorsements like that gave readers the impression that they’d been submitted by ordinary consumers or independent reviewers — and generated more than $5 million in sales for Legacy.

Were buyers aware of the financial relationship between the endorser and Legacy?  No, says the FTC.  Since at least December 1, 2009, Legacy’s contracts stated that affiliates should “comply with the FTC guidelines on disclosures.” But saying it isn’t the same as doing it.  Many of the affiliates endorsed the courses without disclosing their relationship to Legacy or with disclosures accessible only through inconspicuous hyperlinks at the bottom of their homepages.  The FTC noted that Legacy failed to implement a reasonable monitoring program to ensure that affiliates clearly and prominently disclosed their relationship.

Next:  The proposed order against Legacy, including a $250,000 settlement


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