Washington, D.C. – The Federal Trade Commission (FTC) announced Wednesday that it has charged seven adult affiliate program companies with violation of the CAN-SPAM Act by failing to prevent their affiliates from sending explicit email advertisements that did not contain the necessary labels required by the Act.Two of the companies contacted by the FTC have stressed that the emails in question were not sent by them, but rather by independent webmasters who signed up for their affiliate programs. Furthermore, the companies claim that the FTC understands this, but nonetheless has chosen to hold the companies themselves liable for the actions of their affiliates. According to an FTC statement, the CAN-SPAM Act holds the affiliate companies liable for the mailings, even though they were not sent by the companies themselves.
“While the defendants did not send e-mail directly to consumers, they operated ‘affiliate marketing’ programs in which they paid others to send spam on their behalf,” read a statement on the FTC website. “Under the CAN-SPAM Act, the defendants are liable for the illegal spam sent by their affiliates because the defendants ‘initiated’ the e-mail by paying others to send it on their behalf.”
Four of the companies targeted have reached settlements with the FTC, while three others have not. The Department of Justice (DOJ) has filed U.S. District Court suits against the three companies that have not reached settlements, and the suits will seek “civil penalties and a permanent bar on the illegal marketing.” For the other four companies, settlements totaling $1.159 million have been reached already.
“The settlements bar the illegal marketing practices in the future and require that the defendants monitor their affiliates to ensure they are not violating the law,” an FTC announcement read.
YNOT asked FTC spokesperson John Kraden if any of the companies had specifically asked their affiliates to send out email ads on their behalf.
“They made it clear that email was an acceptable promotional tool,” Kraden responded. He added that there was no proof that the companies had expected the emails to be sent in violation of the CAN SPAM Act, and that sending explicit email advertisements is not illegal as long as the emails are sent in accordance with applicable laws.
One of the companies contacted by the FTC was Cyberheat Inc., owners of the popular TopBucks affiliate program. According to a statement released by the company, the FTC is wrongfully trying to generate funds by targeting Cyberheat rather than the people who have actually violated the CAN-SPAM Act.
“We would like to proclaim publicly and vehemently deny any and all accusations that Cyberheat Inc. knowingly participated in any email campaigns that violated the CAN-SPAM Act,” read a statement from Cyberheat. “Cyberheat attorneys have attempted to resolve this matter with the FTC. However, we find that the FTC’s motives in this instance are not to stem the flow of illegal spam, but rather to generate money and force companies like ours to police our affiliates with extreme measures and take on unnecessary liabilities.”
Kraden rejected claims by Cyberheat that the FTC was concerned with making money.
“Ultimately I don’t see any of this money, this isn’t something that increases my salary,” Kraden told YNOT. “I don’t think there’s any validity to that.”
According to the Cyberheat statement, the company’s affiliate program terms prohibit affiliates from violating the CAN-SPAM Act in the promotion of TopBucks products.
“Cyberheat has always adhered to FTC regulations and we believe we remain CAN-SPAM compliant. We have been explicit in our communications that we have zero tolerance for webmasters who do not comply with FTC regulations and the CAN-SPAM Act. In our case, the FTC has admitted that they are attempting to make our company liable for affiliates who have broken the CAN-SPAM law and violated our terms. We are confident that we have done due diligence to banish CAN-SPAM violators and that the law clearly is on our side.”
But according to Kraden, simply telling affiliates not to do anything illegal isn’t enough. He says “vendor liability” language in the CAN SPAM Act means that affiliate programs are liable when their affiliates market on their behalf in violation of the Act.
“That was the way the law was written by Congress, and that’s the way we’re interpreting it,” Kraden said. He added that too many companies “stuck their heads in the sand and didn’t pay attention to what their affiliates are doing.” He suggested that this latest FTC action should “serve as a warning” to the adult industry.
But even if the warning is heard, what could other affiliate programs do to make sure they weren’t next on the FTC’s list?
“It’s difficult for me to say,” Kraden admitted. “We’re not in the business of running other people’s businesses.” He added that affiliate companies should “find out more about the people they’re doing business with,” to “pay closer attention to what their affiliates are doing,” and to “be proactive instead of reactive.”
Pressed by YNOT about how affiliate programs could possibly monitor their affiliates’ email campaigns, Kraden added, “I don’t know if there are other technical solutions that these companies can come up with to have a better idea what their affiliates are doing.”
BangBros.com, Inc. is one of the four companies that have reached agreements with the FTC – in the case of BangBros.com, charges will not be filed against the company in exchange for a financial settlement of $650,000 and the promise to better police affiliates.
“Bangbros.com, Inc have corporate policies against spamming,” read a statement from BangBros.com. “They have never condoned illegal spam and now prohibit any affiliated companies from participating in any email marketing on their behalf. The FTC has not alleged that Bangbros.com, Inc. sent even a single email message that violated the federal CAN SPAM Act. Instead, the FTC has sought to hold the company responsible, under CAN SPAM, for the conduct of independent third party marketing companies that had all been directed to comply with that law. In recognition of their good faith efforts, the FTC has created a safe harbor in the settlement to protect Bangbros.com, Inc. so long as they continue their no-spam policy and terminate any affiliated company they discover has violated that policy.”
“The settlement agreement entered into with the Federal Trade Commission makes clear that there has been no admission by Bangbros.com, Inc of any wrongdoing,” the statement continued. “In fact, it contains a clear denial of all FTC allegations. Nonetheless, in order to put this matter behind them, BangBros.com, Inc. cooperated fully with the FTC’s inquiry and are pleased that it has been completed.”
Other companies that settled were MD Media, which agreed to pay $238,743, APC Entertainment, Inc., which will pay $220,000, and Pure Marketing Solutions, LLC, who along with Internet Matrix Technology will pay a combined $50,000.
But why didn’t the FTC simply target the offending spammers directly instead of the affiliate programs?
“We have gone after spammers in the past,” Kraden said. “One of the main functions of this was with a top-down approach.” By bringing action against the affiliate companies “under the theory of liability,” Kraden said the FTC hoped to “get the attention of the industry and help bring the industry under compliance with CAN SPAM.”
Asked whether these actions were initiated against the adult companies on behalf of consumer complaints or at the request of another section of United States government, Kraden said merely that he was “not at liberty to discuss the investigative process of any individual case.”
Does this latest move by the FTC put adult affiliate programs in the position of choosing between accepting liability for the actions of people outside of their control and shutting down altogether?
“It’s not the FTC’s position that we are out to shut down affiliate programs,” Kraden said. But he admitted, “It does raise the stakes.”
