Federal Trade Commission v. LeadClick Media, LLC
2016 U.S. App. LEXIS 17383
| 2d Cir. | 2016Background
- LeadClick operated an affiliate marketing network and tracking service (HitPath) that routed consumers from affiliate pages to merchant LeanSpa’s site and paid publishers per "action."
- Many LeadClick affiliates used fake news-style landing pages that falsely claimed independent testing and fabricated consumer comments to market LeanSpa weight-loss products; most traffic to LeanSpa from LeadClick’s network came from those fake sites.
- LeadClick recruited, approved, paid, and managed affiliates for the LeanSpa account, sometimes suggested content edits, and purchased banner placements destined for affiliates’ fake news pages.
- Plaintiffs (FTC and Connecticut) sued; the district court granted summary judgment finding LeadClick violated Section 5 of the FTC Act and CUTPA and denied CDA §230 immunity; the court also ordered CoreLogic (LeadClick’s parent) to disgorge $4.1 million it received from LeadClick.
- On appeal, the Second Circuit affirmed LeadClick’s liability (FTC Act/CUTPA), held §230 immunity inapplicable, reversed the disgorgement as to CoreLogic, and remanded to enter judgment for CoreLogic.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether LeadClick is liable under §5 of the FTC Act/CUTPA for affiliates’ deceptive advertising | LeadClick orchestrated and profited from a deceptive affiliate scheme, knew of fake news sites, participated in and controlled affiliates’ conduct, so it directly engaged in deceptive practices | LeadClick did not create the deceptive content and therefore cannot be held liable for affiliates’ statements | Held: LeadClick liable — a defendant who knowingly participates in or has authority to control deceptive practices can be directly liable under §5 |
| Whether LeadClick is immune under CDA §230 | Plaintiffs: LeadClick materially developed deceptive content and is being held for its own conduct, so §230 does not apply | LeadClick: it is an interactive computer service merely publishing third-party content and thus entitled to §230 immunity | Held: §230 inapplicable — LeadClick was an information content provider and was liable for its own deceptive acts, not merely as publisher |
| Standard for imposing liability when third parties create the deceptive content | Plaintiffs: liability can attach to orchestrators/aggregators who knowingly participate or control deceptive practices (no need to be sole content creator) | Defendants: imposing liability conflates aiding/abetting or improperly extends liability to non-creators | Held: Court adopts test (from Amy Travel framework) — liability where defendant, with knowledge, directly participates in deception or has authority to control it; this is direct, not mere aiding/abetting |
| Whether CoreLogic (relief defendant) must disgorge funds received from LeadClick | Plaintiffs: CoreLogic received $4.1M traceable to LeadClick and should disgorge because it lacks a legitimate claim | CoreLogic: transfers repaid intercompany advances made under shared-services arrangement; it had a legitimate claim to repayment | Held: Reversed as to CoreLogic — CoreLogic had a legitimate creditor claim to the funds and is not a proper relief defendant |
Key Cases Cited
- FTC v. Neovi, Inc., 604 F.3d 1150 (9th Cir. 2010) (aggregator/distributor may be liable when its own practices cause consumer harm even if third parties create specific deceptive materials)
- FTC v. IAB Mktg. Assocs., L.P., 746 F.3d 1228 (11th Cir. 2014) (company liable where it knew of third-party misrepresentations and had authority to control sellers)
- FTC v. Accusearch, Inc., 570 F.3d 1187 (10th Cir. 2009) (party that materially contributed to development of unlawful content is not immune under §230)
- Zeran v. America Online, Inc., 129 F.3d 327 (4th Cir. 1997) (broad statement of §230 immunity policy)
- Barnes v. Yahoo!, Inc., 570 F.3d 1096 (9th Cir. 2009) (§230 bars claims that treat a defendant as publisher/speaker; focus on whether the duty arises from publisher function)
- Roommates.com, LLC v. Fair Hous. Council, 521 F.3d 1157 (9th Cir. 2008) (site was an information content provider where it materially contributed to illegality)
- FTC v. Verity Int’l, Ltd., 443 F.3d 48 (2d Cir. 2006) (elements of deception under §5: representation/omission/practice likely to mislead reasonable consumers and material)