Spam Suit Highlights Need to Police Affiliates

In the wake of New York Attorney General Eliot Spitzer’s $20 million lawsuit against an alleged New York-based spam ring, marketers have been put on notice that they could be held responsible for the actions of their affiliates.

One of the defendants in the case, Synergy6 president Justin Champion, said he and his company were unknowingly drawn in when a Synergy6 affiliate marketing link was brokered by OptInRealBig.com to another third party, Delta Seven Communications, and Delta Seven sent the link to consumers as spam. (Efforts to reach Delta Seven for a response were unsuccessful.)

“It could happen to anyone,” said Marc Ryan, director of analysis for Nielsen//Net Ratings of the lawsuit announced Dec. 18 by New York’s attorney general and Microsoft , which filed a separate $18 million suit.

“The chances increase with the number of affiliates you have,” Ryan said. “Marketers have a responsibility to monitor their affiliates to make sure this doesn’t happen.”

In affiliate marketing, merchants share revenues with the affiliates that bring them customers. The contracts that govern such relationships usually forbid spamming, but, in practice, keeping affiliates from spamming in the merchant’s name can be difficult.

Synergy6 has over 300 clients, including advertisers, publishers and agencies. Or at least the company did before the New York attorney general alleged on Dec. 18 that New York-based Synergy6 and five others, led by OptInRealBig.com, assisted in the distribution of more than 250 million junk emails daily.

Many of Synergy6’s clients and vendors have severed their relationships with the company in the wake of the suit, according to Champion.

“By the time I woke up the day the lawsuit was announced, people were canceling,” Champion said. “Now we’re probably going out of business. Synergy6 does not spam, it has never spammed and it doesn’t condone spam. If you have a rogue affiliate that takes your offer and spams it, you suffer the consequences.”

A privacy advocate called the lawsuit a “wake-up call.”

“This serves as a wake-up call to companies with affiliate programs,” said Ray Everett-Church, an attorney who is cofounder and counsel to the Coalition Against Unsolicited Commercial E-Mail. “Affiliate programs have been suffering abuse for years. What was an inconvenience may now be a prosecutable offense.”

Church said marketers must choose their affiliates carefully, monitor what they’re doing and have a mechanism by which reports of abuse can be made.

“I don’t know all the facts of the [New York attorney general’s case] and would have to see what evidence comes out in trial, but it is entirely possible Synergy6 was an innocent victim here of the spamming relationship between other parties,” Church said.

However, he cautioned, “Certainly anyone who was doing business with somebody like Scott Richter [CEO of OptInRealBig] would be on notice from facts available on the Web that there might be some question about his involvement with unsolicited email.”

Another spam opponent saw things differently.

“The only way someone would be on the hook for something which their affiliates did would be if they knew, or should have known, what the affiliate was up to, and they benefited from the affiliate’s activity,” said Anne P. Mitchell, an attorney who is president and CEO of the Institute for Spam & Internet Public Policy.

“If we lose this case, affiliate marketing is sunk,” said Scott Richter, president of OptInRealBig.com and a central figure in the lawsuit. “Nobody will be able to promote their product using a third party.”

Richter said affiliate abuse has not been a problem with his company.

“We monitor our affiliates and we have a very strict acceptable use policy,” said Richter, who vehemently maintained that he and his company are innocent of the allegations. “The problem is, it was Synergy6’s affiliate program and it’s up to them to monitor it, not us.”

Though monitoring can be difficult, it’s critically important, as this case attests.

“It’s very difficult to monitor a very large network of affiliates,” said Nielsen’s Ryan. But it’s not impossible, he said.

“A lot of affiliate programs take advantage of a core technology. They can keep track of what its affiliates are doing by monitoring that technology. In most cases there’s an automatic way to monitor what they’re doing.

“Synergy6 had a responsibility to monitor what was going on. When you’re running an affiliate program you always want to know what your affiliates are doing. Particularly when there’s an opportunity to abuse a system, you need to have some sort of system in place to prevent that abuse,” said Ryan.

Though spam gets plenty of media attention, affiliate marketing is not as widely reported upon. But affiliate marketing is a $95 billion industry that is expected to grow to approximately $230 billion by 2008, according to an August 2003 report by Forrester Research.

“Nobody does the kind of things that affiliate did,” said Declan Dunn, CEO of ADNet International. “Altering headers is scumbag stuff. That’s just not done. It’s stupid. There’s no reason to do it.

“Normally we all have agreements with affiliates. If an affiliate breaks those rules and you come back to the person who owns the business and hold them liable for what the affiliate did, that’s a very dangerous precedent,” Dunn said.

“If a person with a McDonald’s franchise does something wrong, breaks the law, do you sue McDonalds? The liability is very dangerous. I know how these guys (Richter and Champion) do their marketing,” he said. “They’re aggressive. But they’re doing everything through normal channels and I’ve never seen either company do the things they’re accused of.”