Opinion ID: 4036586
Heading Depth: 3
Heading Rank: 2

Heading: LeadClickʹs Relationship with LeanSpa

Text: In August 2010, an eAdvertising account manager contacted LeanSpa to solicit business, suggesting that ʺLeanSpa could be a great fit in the eAds network.ʺ J. App. at 714‐15a. LeanSpa, an internet retail business, sold purported weight‐loss and colon‐cleanse products under various brand names. ‐ 6 ‐ LeanSpa hired LeadClick to provide online advertising through its affiliate network in September 2010. Pursuant to their contractual arrangement, LeanSpa was to pay LeadClick a set amount ‐‐ typically $35 to $45 ‐‐ each time a publisherʹs advertisement directed an online consumer to LeanSpaʹs landing page and that consumer enrolled in LeanSpaʹs free‐trial program (referred to herein as an ʺactionʺ).1 This arrangement was commonly referred to in the affiliate marketing industry as a cost per action (ʺCPAʺ) agreement. LeadClick was responsible for paying 80 to 90 percent of the amount it charged LeanSpa per action to the publisher under separate CPA agreements with its affiliate marketers. LeadClick would retain the difference as compensation for its role connecting merchants with its affiliate network and managing those affiliates. To keep track of individual actions, LeadClick provided a unique link to its affiliate marketers for use in LeanSpa advertisements. When customers clicked on that link, they would unknowingly be routed through the 1 Once customers enrolled in the ʺfree trialʺ offer, LeanSpa would deceptively enroll them in automatic credit card billing following the trial period. This practice drew the attention of the FTC, which investigated and filed an action against LeanSpa prior to discovering LeadClickʹs involvement. ‐ 7 ‐ HitPath server to the LeanSpa website. The HitPath server would record information on the customer, including the specific affiliate that directed the consumer to LeanSpa. The data was then used by LeadClick to determine the total number of actions for which it could charge LeanSpa and its corresponding contractual liability to the individual affiliates responsible for those actions. Because both LeadClick and its affiliate marketers profited per action generated, they were incentivized to maximize consumer traffic to LeanSpaʹs websites. As the business relationship progressed, LeadClick became LeanSpaʹs primary marketing network, and LeanSpa became LeadClickʹs ʺtop customer.ʺ J. App. at 343a; 908a; 1016a. By 2011, LeanSpa offers represented approximately 85 percent of all eAdvertising division sales. In total, LeadClick billed LeanSpa $22 million over the course of their contractual agreement. LeanSpa was chronically behind on its payments to LeadClick: LeanSpa owed LeadClick $6.4 million by March 2011 and approximately $10 million by June 2011. LeanSpa ultimately paid LeadClick $11.9 million, approximately half of its outstanding bill. In accordance with industry practice, LeadClick paid its publishers before it received payment from LeanSpa. Despite LeanSpaʹs steep outstanding ‐ 8 ‐ balance, LeadClick continued to pay its affiliate marketers for advertising LeanSpa products online. In September of 2011, LeadClick terminated its business arrangement with LeanSpa. 3. LeadClickʹs Involvement in the Use of Fake News Sites to Market LeanSpa Products Certain affiliates hired by LeadClick used fake news sites to market LeanSpa products. These fake news sites, which were common in the industry at the time, looked like genuine news sites: they had logos styled to look like news sites and included pictures of supposed reporters next to their articles. The articles generally represented that a reporter had performed independent tests that demonstrated the efficacy of the weight loss products. The websites also frequently included a ʺconsumer commentʺ section, where purported ʺconsumersʺ praised the products. But there were no consumers commenting ‐‐ this content was invented. The vast majority of internet traffic to LeanSpaʹs websites from LeadClickʹs affiliate network came from fake news sites. The FTC investigator who reviewed spreadsheets produced by LeadClick, which documented traffic to LeanSpaʹs website from LeadClick affiliates, found that all of the 24 identifiable ‐ 9 ‐ affiliate websites that sent 1,000 or more consumers through LeadClickʹs affiliate network were fake news sites. While LeadClick did not itself create fake news sites to advertise products, as discussed below, it (1) knew that fake news sites were common in the affiliate marketing industry and that some of its affiliates were using fake news sites, (2) approved of the use of these sites, and, (3) on occasion, provided affiliates with content to use on their fake news pages.
First, LeadClick knew that fake news sites were commonplace in the industry. For example, one eAdvertising division employee noted that in the summer of 2010, fake news sites were ʺfairly common,ʺ J. App. at 158‐59a, while another testified in his deposition that during his time at LeadClick, ʺeveryone was using ʹem,ʺ id. at 235a. In conversations amongst themselves and with affiliates and merchants, LeadClick employees occasionally discussed fake article pages, fake news pages, and news style pages. Second, LeadClick knew of its own affiliatesʹ use of fake news sites to promote LeanSpaʹs products. For the LeanSpa account, a LeadClick employee created an affiliate ʺscouting reportʺ which consisted exclusively of fake news site names like Health8News.net, News‐Health6.com, ConsumerNews24.com, ‐ 10 ‐ BreakingNewsat6.com, and News6Access.com. One account manager testified that he saw fake news sites from LeadClick affiliates that contained information that was ʺnot truthful or accurate,ʺ including websites advertising LeanSpa products. J. App. at 387a, 389a. LeadClick employees also discussed the content of their affiliatesʹ fake news sites, such as ʺstep 1 and step 2,ʺ a typical fake news site product pairing system, demonstrating that their awareness extended beyond general knowledge. See J. App. at 800a. ii. LeadClickʹs Approval of Affiliatesʹ Fake News Sites LeadClick employees also affirmatively approved of the use of fake news sites: One LeadClick employee told an affiliate interested in marketing LeanSpa offers that ʺNews Style landers are totally fineʺ followed by two punctuation marks commonly united to represent a smiley face. J. App. at 761a. Another employee told a potential new client that ʺ[a]ll of our traffic would be through display on fake article pages.ʺ Id. at 750a (emphasis added). LeadClickʹs standard contract with affiliate marketers required affiliate marketers to submit their proposed marketing pages to LeadClick for approval before they were used. ‐ 11 ‐ iii. LeadClick Requested Edits to the Content of Fake News Sites Finally, on occasion, LeadClick employees requested content edits to some of its affiliates using fake news sites. When LeanSpa informed LeadClick of certain requirements for its advertisements, LeadClick provided these requirements to affiliates and would review proposed advertisements for compliance with LeanSpaʹs requirements. For example, when LeanSpa noticed that some of the affiliate marketers were pairing a LeanSpa ʺstep 1ʺ product with another merchantʹs ʺstep 2ʺ on fake news sites, it informed LeadClick of a new LeanSpa product that should be used for ʺstep 2ʺ and LeadClick ordered its affiliates to implement that change in their fake news websites. J. App. at 800‐ 801a. In one instance, after hearing of a state action against another network for false advertising, a LeadClick employee reached out to an affiliate to ʺmake sure all [his] pages [were] set up good[,] like no crazy [misleading] info.ʺ J. App. at 231a. The affiliate responded that he was removing references to his page being a ʺnews siteʺ and thinking of ʺremoving the reporter picsʺ from the site to be safe. Id. at 230‐31a. The LeadClick employee advised him not to stop using the fake reporterʹs picture, but to ʺjust add [the term] advertorial.ʺ J. App. ‐ 12 ‐ at 231‐32a. In a later online conversation, the LeadClick employee advised the affiliate to delete references to acai berry on his fake news site and instead use words like ʺspecial [ingredient], formula, secret, bla, bla, blaʺ because ʺwe noticed a huge increase in [actions] with stuff that doesnʹt [s]ay acai.ʺ J. App. at 1015a. Another employee sent an affiliate a list of ingredient information about a LeanSpa product, referring to it as ʺgood content that we can use for the pageʺ and stating ʺif we get this inserted correctly and make the page look good we can blow this up.ʺ J. App. at 778a. Providing feedback on another affiliateʹs page, that same employee stated that the site ʺlooks good except you CANT say anything about a free trial.. [sic] I need that removed,ʺ id. 787a, and noted that ʺ[i]t is much more realistic if you say that someone lost 10‐12 lbs in 4 weeks rather than saying anything more than that,ʺ id. at 788a. 4. LeadClickʹs Media Buying on Behalf of Aﬃliates With Fake News Sites In addition to providing LeanSpa access to its affiliate network, LeadClick occasionally purchased advertising space on genuine news sites for banner advertisements that would link to the fake news sites promoting LeanSpaʹs products as part of its ʺmedia buyingʺ business. When soliciting ‐ 13 ‐ LeanSp paʹs businesss, a LeadC Click accou unt manag ger referred to the m media buyin ng as a way to ʺgenerat[e] quallity traffic in very luccrative plaacements.ʺ J. App. att 714a. L occasionally identifieed fake neews sites ass destination pages ffor LeadClick o the ban nner adverttisements w when nego otiating wiith media sellers by emailing tthe media sseller a com mpressed v version of an affiliateeʹs page orr providing the web addresss for the deestination page.