Copyright The New York Law Journal. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Fake news has been in the news a great deal recently, with some wondering how to address it. The recent decision by the U.S. Court of Appeals for the Second Circuit in Federal Trade Commission v. LeadClick Media, 838 F.3d 158 (2d Cir. 2016), may provide a way, at least in some instances. In this case, the Second Circuit upheld a challenge by the Federal Trade Commission (FTC) to certain kinds of fake news under the FTC Act, ruling that the FTC’s complaint had not run afoul of §230 of the Communications Decency Act (CDA).
The case involved LeadClick Media, which operated an affiliate-marketing network to provide advertising in Internet commerce. LeadClick arranged for advertising for its merchant clients by connecting them to third-party publishers—affiliates—that advertised the merchant’s products. The affiliates advertised products in a variety of ways, including email marketing, banner ads, search engine placement, and creating advertising websites. LeadClick managed the affiliate network through tracking software that tracked the flow of traffic from each individual affiliate’s marketing website to the merchant’s website while remaining invisible to the consumer.
LeanSpa, an Internet retail business that sold purported weight loss and colon cleanse products under various brand names, hired LeadClick to provide online advertising through its affiliate network. Toward that end, certain LeadClick affiliates used fake news sites to market LeanSpa products. These fake news sites looked like genuine news sites in that they had logos styled to look like news sites and they 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 “consumer comment” section, where purported “consumers” praised the products. There were no consumers commenting, however; this content was invented.
The FTC sued LeanSpa and LeadClick, among others, asserting claims under §5 of the FTC Act, which prohibits deceptive acts or practices. Claims against LeanSpa were resolved in the district court, and LeadClick moved to dismiss, claiming immunity under §230 of the CDA.
The U.S. District Court for the District of Connecticut denied LeadClick’s motion and granted summary judgment in favor of the FTC, holding that LeadClick had violated the FTC Act as a matter of law and that it was not entitled to immunity under §230. As part of its decision, the district court required LeadClick to disgorge all proceeds that it had received from LeanSpa as payment for affiliate marketing.
LeadClick appealed to the Second Circuit.
FTC Act Liability
The Second Circuit affirmed the district court’s decision against LeadClick.
In its decision, the circuit court ruled that, under the FTC Act, a defendant could be held liable for engaging in deceptive practices or acts if, with knowledge of the deception, it either directly participated in a deceptive scheme or had the authority to control the deceptive content at issue. Such a defendant that allowed the deception to proceed, the Second Circuit decided, engaged through its own actions in a deceptive act or practice that caused harm to consumers in violation of §5.
The circuit court found that although LeadClick had not itself created fake news sites to advertise products, LeadClick had known that fake news sites were common in the affiliate marketing industry and that some of its affiliates were using fake news sites to promote LeanSpa’s products; LeadClick had approved of the use of these fake news sites; and, on occasion, LeadClick had provided affiliates with content to use on their fake news pages.
Accordingly, the Second Circuit determined, LeadClick—and not just affiliates that had engaged in false and deceptive advertising practices—could be held liable under §5 for having engaged in deceptive acts or practices.
For purposes of this column, one of the most significant aspects of the Second Circuit’s decision was its analysis of §230 of the CDA and its conclusion that the district court had correctly held that LeadClick was not entitled to §230 immunity.
As the Second Circuit explained, the primary purpose of the CDA was to protect children from sexually explicit Internet content. It then noted that §230, enacted through an amendment to the CDA, had a different objective: “[T]o preserve the vibrant and competitive free market that presently exists for the [I]nternet and other interactive computer services, unfettered by [f]ederal or [s]tate regulation.” 47 U.S.C. §230(b)(2). The Second Circuit added that §230 bars lawsuits seeking to hold an Internet service provider liable for its exercise of a publisher’s traditional editorial functions, such as “deciding whether to publish, withdraw, postpone or alter content.”
Section 230, the circuit court continued, was intended to provide immunity for “interactive computer service[s]” that made “ good faith” efforts to block and screen offensive content. 47 U.S.C. §230(c). To accomplish that goal, §230 provides that “[n]o provider … of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” 47 U.S.C. §230(c)(1).
The Second Circuit then explained that §230 shields conduct if a defendant “is a provider or user of an interactive computer service, (2) the claim is based on information provided by another information content provider and (3) the claim would treat [the defendant] as the publisher or speaker of that information.”
It then applied that test to LeadClick, and ruled that LeadClick was not entitled to §230 immunity because it was an “information content provider” with respect to the deception at issue and because LeadClick was liable under the FTC Act for its own deceptive acts or practices, rather than for publishing content created by another.
The Second Circuit first said that it was “doubtful” that LeadClick was an “interactive service provider.” It observed that the computer access service LeadClick actually provided, routing customers through its server before reaching LeanSpa’s website, was “invisible to consumers and did not benefit them in any way.” Its purpose was not to encourage discourse but to keep track of the business referred from its affiliate network, the Second Circuit added.
The circuit court then said that it did not have to reach this issue because LeadClick did not meet the other tests required to obtain immunity under §230.
In particular, the Second Circuit decided that LeadClick was not entitled to immunity because it had “participated in the development of the deceptive content posted on fake news pages.” It observed that LeadClick had recruited affiliates for the LeanSpa account that used false news sites; LeadClick had paid those affiliates to advertise LeanSpa products online, knowing that false news sites were common in the industry; and LeadClick employees occasionally advised affiliates to edit content on affiliate pages. LeadClick also purchased advertising banner space from “legitimate news sites” with the intent to resell it to affiliates for use on their fake news sites, “thereby increasing the likelihood that a consumer would be deceived by that content.”
In the circuit court’s opinion, LeadClick’s role in managing its affiliate network “far exceeded that of neutral assistance” in that it participated in the development of its affiliates’ deceptive websites, “materially contributing to [the content's] alleged unlawfulness.” Accordingly, it concluded, LeadClick was an information content provider with respect to the deceptive content at issue and was not entitled to immunity under §230.
In any event, the Second Circuit continued, LeadClick could not establish the third element necessary for immunity because it was not being held liable as a publisher or speaker of another’s content but, instead, was being held accountable for its own deceptive acts or practices—for directly participating in the deceptive scheme by providing edits to affiliate webpages, for purchasing media space on real news sites with the intent to resell that space to its affiliates using fake news sites, and because it had the authority to control those affiliates and allowed them to publish deceptive statements.
Accordingly, the Second Circuit concluded, because LeadClick’s §5 liability was not derived from its status as a publisher or speaker, §230 immunity did not apply.
Certainly, as the U.S. District Court for the Southern District of New York reaffirmed recently in Manchanda v. Google, No. 16-CV-3350 (JPO) (S.D.N.Y. Nov. 16, 2016), entities acting only as publishers of sites whose content causes injury are immunized from liability by §230. The Second Circuit’s decision is clear, however. A self-proclaimed publisher that actually is an information content provider involved with the creation of deceptive content may be subject to suit by the FTC. Whether this ultimately will lead to a crackdown on fake news sites in appropriate circumstances remains to be seen.