Are advertising agencies potentially liable to the Federal Trade Commission for deceptive acts or practices, along with their clients?
Yes.
First, the FTC usually considers myriad factors when assessing potential liability, including the extent to which the advertising agency (or other third-party) participated in the unlawful conduct, the degree of control the advertising client exercised over the ad agency, and ultimate responsibility for advertising content.
As a general rule, 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 ad 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 it a Good Defense That the Ad Agency waws “Acting Under the Direction of the Advertiser?”
Advertising 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, advertising 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 lawyers may not give much weight to such arguments when the agency merely buries its head in the sand.
The Federal Trade Commission Expects Advertising Agencies to Reasonably Inquire 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 agency simply disregarded the need for adequate claim substantiation, developed and circulated fake testimonials, concealed the true nature of promotional content, and created misleading telemarketing scripts.
Here, the settlement terms 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 eCommerce lawyer in order to compile documentation establishing that there has been a reasonable inquiry into the lawfulness of advertising materials, and that it did not know (now should it reasonably have known) of deceptive conduct.
If approached deliberately, 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 FTC and state attorneys general consistently attempt to expand various third-party remedial theories, including substantial assistance, facilitation, means and instrumentalities, and vicarious liability. Advertising agencies, digital 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. A seasoned attorney general defense lawyer can provide further information on the types of information often requested in civil investigative demands 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.
Richard B. Newman is an FTC defense lawyer at Hinch Newman LLP.
Informational purposes only. Not legal advice. May be considered attorney advertising.
