At first, consumers thought it was their lucky day. They had received text messages announcing they had won a $1,000 gift card from a major retailer. But they ended up with their hopes in the tank – in this case, CPATank, Inc., and Eagle Web Assets, Inc., the latest defendants to settle FTC charges for sending deceptive unsolicited texts. The law enforcement action offers interesting insights into affiliate marketing and the breadth of liability under the FTC Act.
The FTC announced a text message spam sweep last year against participants at various level of the affiliate marketing food chain. According to the latest case, Chicago-based CPATank and Eagle Web Assets served as intermediaries between merchants operating websites offering the “free” gifts (spoiler alert: the FTC says they weren’t really free) and the affiliates who marketed the deceptive offers.
How did the operation work? CPATank and Eagle Web Assets agreed to promote the merchants’ sites through their network of affiliate marketers. They ran that part of the show, selecting which affiliates were admitted and tracking consumer traffic and revenue generated by each affiliate. The affiliates typically had no direct contact with the merchants who sell the products. That was the defendants’ job.
The affiliates, in turn, promoted products – including the offers for the “free” merchandise – through unsolicited texts that falsely told consumers they’d been specially selected for a gift or prize – for example, “Dear Walmart shopper, your purchase last month won a $1000 gift card, go to [website] within 24 hours to claim.” The defendants got a commission from the merchants for every person who clicks the link, visits the site, provides information, or buys something. The defendants, in turn, pay a portion of that cash to their affiliates.
The defendants and their affiliates got their piece of the action, but what about those lucky “winners”? Consumers ultimately found out that to qualify for the “free” merchandise, they had to climb a Mount Everest of other offers, including applying for credit cards, enrolling in negative option plans, and turning over a raft of personal information. In most cases, it was impossible for people to get the “free” prize without opening their wallets.
To protect consumers in the future, the order bars the defendants, including corporate principals Vito Glazers and Ryan Eagle, from making any misrepresentations in the marketing of any product or service, including false “free” claims. They’ll also have to clearly disclose all material terms and conditions of offers. Unsolicited texts? They’re banned. The order imposes a $200,000 judgment, most of which is suspended due to the defendants’ inability of pay. But they’ll be turning over $30,000 in cash plus the proceeds from the sale of a Bentley and a Range Rover.
The message for those involved in any link of the affiliate marketing chain: “Who, me?” is not likely to be a viable legal defense to charges of deception.