This week has seen a flurry of legal rulings and FTC settlements that highlight a variety of important online issues:
Federal Court Rules Marketing Company is Financially Responsible for the Sale of Counterfeit Products
A federal judge in South Carolina ruled that Bright Builders Inc. was responsible for civil damages as part of a lawsuit alleging trademark infringement over counterfeit golf clubs. Cleveland Golf filed a lawsuit in 2009 against CopyCatClubs.com alleging that the site infringed on 11 trademarks related to their products. They later amended their complaint to include the site's hosting and marketing company claiming they had a duty to recognize they were promoting the sale of counterfeit goods.
The surprising part about the ruling was the site owner was ordered to pay roughly $28,000 while the marketing company was ordered to pay $770,000, 27x the financial damages of the actual business owner. This ruling sets a dangerous precedent because it shifts the responsibility of policing client sites on intermediaries like SEO companies and web hosts instead of law enforcement. According to the plaintiff's lawyer, this is the first time an internet services provider has been found guilty of contributory infringement without prior notification from a trademark holder.
I agree that the company has some liability because they engaged with someone clearly involved in illegal activity but what if you run a large hosting company and can't review your clients? Since there was no prior notification, can you be held liable for damages when all of a sudden you're served as part of a lawsuit without even knowing your client is engaged in illegal activity?
FTC Fines Guitar Teaching Company for Fake Reviews Posted by Affiliates
A company that sells learn to play guitar DVDs was fined $250,000 for enlisting affiliate marketers to write reviews about their products without disclosing that they were being compensated for generating sales of the product. Lending Learning Systems Inc. was sanctioned for claiming that reviews represented regular consumers and independent reviewers without disclosing that reviewers were being compensated for generating sales. According to the FTC, the fake reviews generated around $5 million in sales showing the sheer power and consumer trust associated with positive consumer reviews.
FTC Settles Complaint with Chitika Over Opt-Out Program
The FTC settled a complaint against ad targeting firm Chitika over an issue with users choosing to opt-out of the company's tracking program between May 2008 and early 2010. During that time, when users asked to opt-out of their tracking program, they were only removed for 10 days before tracking resumed. The company claimed that they meant to set the opt-out time at 10 years and quickly corrected the problem when it was brought to their attention. They settled the complaint on a no-fault basis and agreed to remove user data collected during that time frame while providing additional clarity to users regarding their opt-out policy.