Siding with the Federal Trade Commission, a federal appellate court ruled that the affiliate marketing company LeadClick is responsible for fake news sites that promoted weight-loss products.
A three-judge panel of the 2nd Circuit Court of Appeals rejected LeadClick's argument that it didn't create the fake news sites and therefore shouldn't be held responsible for duping consumers. "A defendant may be held liable for engaging in deceptive practices or acts if, with knowledge of the deception, it either directly participates in a deceptive scheme or has the authority to control the deceptive content at issue," the judges wrote in an opinion issued Friday.
The litigation dates to 2011, when the FTC charged the marketer LeanSpa with using fictional news article about acai berry (and other products) to dupe consumers. Affiliate marketers allegedly created fake news sites with names like “dailyhealth6.com,” and then populated the sites with "articles" like "Acai Berry Diet Exposed: Miracle Diet or Scam?"
Those sites often included logos of the major news networks, but the news on the sites was phony, according to the FTC.
The FTC named LeadClick as a defendant in the case in 2012, eight months after bringing charges against LeanSpa and other defendants.
LeadClick fought the charges, arguing that it wasn't responsible for the fake articles.
A federal judge ruled against LeadClick last year and ordered the company (and parent company, CoreLogic) to disgorge $11.9 million total. LeadClick and CoreLogic then appealed to the 2nd Circuit.
The appellate judges accepted CoreLogic's argument and reversed the finding against the parent company, but rejected LeadClicks' contentions. In a 50-page decision, the panel ruled that LeadClick "caused significant harm" by participating in the deceptive scheme.
"LeadClick knew that deceptive false news sites were prevalent in its affiliate marketing network, directly participated in the deception, and had the authority to control the deceptive content of these fake news sites," the panel wrote. "LeadClicks own actions -- recruiting and paying affiliates who used fake news sites for generating traffic, managing those affiliates, suggesting substantive edits to fake news pages, and purchasing banner space for fake news sites on legitimate news sources -- caused significant harm to consumers."