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Ad Agency Liability and the FTC

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Advertising agencies are potentially liable to the Federal Trade Commission for deceptive acts or practices, along with their clients. 

The FTC will consider numerous factors, including, but not limited to, the extent to which the agency participated in the unlawful conduct, the degree of control the client exercised over the agency and responsibility for advertising content.

Generally, the greater the degree of agency participation in the acts or practices subject to FTC scrutiny, the higher the standard of care.

It is the agency’s burden to establish that it did not possess actual knowledge or constructive knowledge (could not have known) of the deceptive acts or practices with which it was involved, including express and implied ad representations.

Is “Acting Under the Direction of the Advertiser” a Viable Defense?

Ad agencies under regulatory scrutiny often attempt to advance defenses such as “acting under the direction of the advertiser client” and “the advertiser maintained had ultimate responsibility to approve content.”  However, agencies that engage in or assist with unfair or deceptive conduct in violation of the FTC Act or state UDAP statutes may find that FTC attorneys may not give much weight to such arguments when they look the other way.

The FTC Expects Agencies to Reasonably Inquiry of its Clientele

For example, a 2018 settlement involved the FTC and the State of Maine, and a radio and TV ad agency.  According to the complaint, the agency created and disseminated deceptive radio ads for weight loss products marketed by its client. 

As alleged, the ad agency disregarded the need for adequate claim substantiation, developed and circulated bogus testimonials, concealed the true nature of promotional content, and created misleading telemarketing scripts.

Notably, the terms of the settlement include prohibitions upon ads disseminated by the agency on its own behalf, and promotional materials created for and disseminated on behalf of its advertising clientele. 

How Can Advertising Agencies Limit Liability Exposure?

Advertising agencies (and other third-parties) that are interested in minimizing potential liability exposure should consult with a seasoned FTC defense lawyer in order to develop and maintain documentation establishing that there has been a reasonable inquiry into the lawfulness of marketing content, and that no actual or constructive knowledge exist of deceptive conduct.

If approached deliberately and properly, the foregoing can potentially reduce regulatory scrutiny significantly and provide a strong defense argument in the event of an investigation into or enforcement action against the agency or a third-party.

Takeaway:  The Federal Trade Commission and state attorneys general consistently attempt to expand various third-party liability theories, including substantial assistance and vicarious liability.  Advertising agencies, performance marketers and lead generators are expected by the FTC and state attorneys general to conduct reasonable due diligence and implement written policies outlining such activities.  An attorney general defense lawyer can provide further information on the types of information often requested in CID’s and subpoenas directed to third-party intermediaries (e.g., affiliate networks, lead aggregators and ad agencies), such as requests for information pertaining to monitoring practices and written policies.  Mere verbal policies may not get an agency very far when attempting to mitigate potential liability exposure in the event that something goes wrong. 

Richard B. Newman is an ecommerce lawyer at Hinch Newman LLP. 

Informational purposes only. Not legal advice. May be considered attorney advertising.Top of Form

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Richard B. Newman
Richard B. Newmanhttp://www.hinchnewman.com
Richard B. Newman is an Internet Lawyer at Hinch Newman LLP focusing on advertising law, Internet marketing compliance, regulatory defense and digital media matters. His practice involves conducting legal compliance reviews of advertising campaigns across all media channels, regularly representing clients in high-profile investigative proceedings and enforcement actions brought by the Federal Trade Commission and state attorneys general throughout the country, advertising and marketing litigation, advising on email and telemarketing best practice protocol implementation, counseling on eCommerce guidelines and promotional marketing programs, and negotiating and drafting legal agreements.

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