Michael Fortin wrote an interesting post today called a “Disturbing Trend in Internet Marketing“. The trend isn’t all that new, though. As Michael Fortin points out when he mentions the Internet Marketing Sins report his wife put out over two years ago. Other people like Markus Allen have been trying to get the same kind of message across for as far back as 2003, if not earlier.
But what interested me most about Michael Fortin’s post was this statement:
“Even the term “information products” is debatable, too. Because the “products” most gurus sell today aren’t really information. What they really are selling are business opportunities packaged as information and sold under the guise of training systems.”
This is something Attorney Michael Webster opened up my eyes to and has tried to get across to the some of the people selling training. Because there’s more to it than “I just sell training so I’m not a business opportunity” in many cases according to him.
Here’s a great write up he did giving some great insight about this:
BlogMasterMind, Testimonials and Seller Assisted Marketing Plans (note, he mistakenly refers to them as “affiliate marketers” instead of “internet marketers”)
Business Opportunity Laws And How They Make It Easy For FTC to Win Cases and Shut Down Companies
According to this FTC page listing State Offices Administering Business Opportunity Laws:
“Twenty-six states have business opportunity laws. Most of these laws prohibit sales of business opportunities unless the seller gives potential purchasers a pre-sale disclosure document that has first been filed with a designated state agency.
State business opportunity laws typically cover every imaginable type of business opportunity that might be offered. If a business opportunity seller is not required to provide pre-sale disclosures by the Franchise Rule, these disclosures will almost always be required by the laws of the states listed below.
The disclosures required by state business opportunity laws differ, and usually provide more abbreviated information than the FTC’s Franchise and Business Opportunity Rule requires. However, most of these laws provide important rights and remedies for business opportunity investors, including required security bonds to cover investor losses.
If you are considering purchasing a work-at-home or other business opportunity, and reside in a state with a business opportunity law, we encourage you to find out more about the protection provided by your state statute before you invest.”
Again referring to attorney Michael Webster’s blog here he explains why it is so much easier to shut down businesses when they violate business opportunity laws than when they violate Section 5 of the FTC Act. Here’s what he says in his post:
“Section 5 actions by the FTC are lengthy and involve a lot of resources; whereas Biz Op actions are relatively easy: You are Biz Op, but you have no mandatory disclosure document so the FTC simply shuts you down.”
So not only are Biz Op actions easier to enforce, they’re much cheaper to enforce, too.
Syndicates Are Sexier, But “No Safe Harbor” Violations Are Easier
Again I’ll turn to observations made by attorney Michael Webster. He made these particular observations when the FTC Published their Final Guides Governing Endorsements and Testimonials when he published this post about Testimonials and Disclaimers explaining how while many bloggers and marketers were debating and worrying over the Endorsement sections, they were completely overlooking the more important introduction of the “No Safe Harbor” rule for testimonials such that “If the testimonial is an outlier, then the company has to report “the typical consumer experience“.
He then goes on to note in that same post about Testimonials and Disclaimers (which also has great information about FTC prosecution strategies):
“This means that they cannot make any earnings claim because they don’t have any typical consumer experience data. But they will continue to make these claims, making it an easy case for the FTC to prosecute.”
If It’s So Easy And Cheap Now, Why Doesn’t The FTC Prosecute?
Speaking of “no safe harbor”, even just a random run through of products on this Joint Venture Launch Announcement list shows NUMEROUS examples of sites with income testimonials where I would be shocked if the publisher has collected “typical consumer experience data”.
So if it’s so cheap and easy to enforce violations of “no safe harbor” rules and Business Opportunity registration violations why doesn’t the FTC prosecute? A few reasons come to mind:
- Lack of resources and funds. Seems doubtful since it would seem that this type of prosecution would be MUCH less expensive than their Operation Shortchange crack down and other similar FTC “operations” targeting large numbers of companies at once.
- The FTC doesn’t deem the target market “vulnerable” enough. Personally, my money’s on this one.
- They will and just haven’t done so yet.
- Political reasons. Maybe it’s a stretch, but I thought I’d throw it in to see what kind of feedback I might get on that one.
Related documents:
- Revitalizing Section 5 of the FTC Act Using “Consumer Choice” Analysis
- FTC Act By Sections
- Scope of FTC’s powers under the FTC Act
Related posts:
Oops, left the following comment on the wrong thread:
“Thanks, Paul. I should clearly update the article, referencing these new posts and make it more clear that I am focusing on the internet marketing group and not affiliate marketers.
I was horrified looking at the Frank Kern video, and the Alexa pictures of the dates of the product launch. Do you think a jury would see this a clear evidence as an agreement to split up the marketplace!
If there is anything I can do to help coordinate complaints to either to either the FTC, re un registered biz op sellers, or to the DOJ regarding anti trust violations, please let me know.
Thanks again for the kind comments.”
Thanks Michael,
Your insight has been invaluable for me and I was happy (and a bit stunned) to see Michael Fortin have the awareness to say that “the ‘products’ most gurus sell today aren’t really information. What they really are selling are business opportunities packaged as information and sold under the guise of training systems.”
I think sometimes when it comes from an attorney people sometimes have the tendency to think “oh, it’s just an attorney fanatically legal”. But they may be more prepared to more readily hear the same information when coming from one of their peers.
(I deleted your duplicate comment, btw).
Thanks for deleting the duplicate.
I have been pounding this drum probably since 2003 starting at the Friends in Business Board.
For many years, it seemed to fall on deaf ears, but perhaps now it will seem common place.
(I think I reached out to Fortin several years ago with my usual observation.)
Hopefully, the more legitimate marketers will learn how to comply with the various state/federal laws.
But nobody likes to have to pay to comply – until they see the value of it as business insurance.
Wow, as far back as 2003. Interesting.
I changed the title of the post here, btw, but the old link will redirect.
Well, a large part of that was in anticipation of the new Biz Op Law – which is still mothballed.
It had very extensive reach and was well suited for prosecutions regarding internet marketing fraud.
Texas’ definition of a business opportunity includes this:
“products, equipment, supplies, or services that will be used by or for the purchaser to begin a business”
I don’t know how many of these training programs fit that definition, but no doubt some of them do. A few states have somewhat more expansive definitions, but that’s the basic question – whether the idea is for the purchaser to start a business.
Trying to stretch that definition to include “how to do X in your business” may be fun conversation but it’s a big stretch.
Dan, here is the basic practical point.
1. Does Texas need revenue?
2. Does the AG of Texas think it is worth shaking down some rich but non compliant internet marketer for a couple of million?
3. If you were a rich internet marketer, what would you pay to avoid 1 and 2?
And by the way, your legal analysis is completely wrong.
But if you aren’t making any serious money, then you don’t have to worry about 1-3, as long as you limit yourself to selling from and to Texas. Does that describe you?
Michael,
One thing that that still puzzles me is how certain types of SEO Training – such as those that Dan and Aaron sell – which are designed to help an existing business could be considered a business opportunity?
Here is the site where Dan currently offers his training: SEO Brain Trust
Imagine that.
Dan Thies, one of my favorite SEO teachers and Michael Webster, one of my favorite bizop/franchise attorneys together in the same thread.
Dan,
I hear what you’re saying and it does make sense that something like “SEO Training” wouldn’t typically fall under selling a means to “start a business”. And I’ve seen Michael Webster comment about Aaron Wall’s training and I think I’ve discussed yours as well and Michael Webster talking about “accidental franchises” (a concept which I don’t understand).
It’s also possible Michael didn’t fully understand the nature of your and Aaron’s SEO training.
As an unanticipated benefit to what you’ve stated though it made me think of many sales letters use claims like “no prior online business experience is needed” to “use this system”. Of course price and other factors come into play.
OK. I found some information on accidental franchises over at the ABA site that is starting to make sense for me (but still not as to how it could apply to training designed to help existing businesses):
http://www.abanet.org/buslaw/blt/2004-01-02/modell.shtml
Paul and Dan;
0. Here is the usual history behind the biz op law. “Investigations show that business opportunity scams are most often promoted at trade shows and through small ads that appear in the classified sections of newspapers and magazines though they also occur in large print advertisements, over the Internet, by direct mail, by radio, and by special invitation to meetings.
Many of the ads promise big earnings, possibly on a part-time basis; contain references to vending machines, display racks or other “proven” concept; promise that no selling or other experience is necessary; and urge the reader to call an 800 number for more information.”
I believe that the FTC shifted focus, in or aroudn 2004/2005 from the vending/display rack fraud to the internet marketing fraud. (I have a forthcoming post on this.)
1. I reviewed the Seo Brain Trust site and one video, but I was not able to come to a full conclusion about whether what was being sold was a bizop/franchise, and for which state.
2. If Dan is sell courses to some people, but not everyone, who are then selling the content of said course to other people, the it is very likely that Dan is not simply selling coaching services, but instead is selling a business opportunity, or even franchise if SEO Brain Trust is trademarked.
With regard to the first sale, it is probably regulated as biz op or franchise. The mere sale of training may not be, but it depends on what further representations the seller makes.
For example, a buy back guarantee, a representation that the cost of the course is less than what some could make, or a representation that there is a market for goods/services which were enabled by the training, could all put the seller under the California Seller Assisted Marketing Plan Act. (I believe that like all biz op laws there are 8-9 exemptions carved out.)
3. Second, it appears to me that most internet marketers are selling, maybe at a discount, their courses to their affiliates who then are involved in reselling the same course bundled with the affiliate’s own program. (I cannot tell whether Dan is doing this or not.) This will also likely be a bizop relationship.
If there are not any questions on this, I will more on to explain the significance of the “accidental or inadvertant” franchisor.
Michael,
One thing I’ll throw in here is the FTC apparently didn’t understand affiliate marketing very well until this past year. After I helped them with the In Deep Services case, the senior litigator that I helped on that case asked me to explain to her how affiliate marketing worked – and I also know they were getting training on how it worked during that time period.
I agree with this observation, but if you look at the two cases brought by the FTC regarding the testimonial rule, you will see that they are getting up to speed
Michael,
Another thing that is generally (although not always) true with affiliate marketing is that typically affiliate marketers don’t have to pay anything to be allowed to promote a product or service as an affiliate.
Yes, I agree with that.
But the “fee element” requirement can be read in an expansive manner. If a certain amount of advertising is required, certain expenses required, the fee element might be met.
But again, the critical consideration is this: when you are selling a marketing plan, which most internet marketers are, if you make other representations, you could find yourself be regulated as either a biz op or franchisor.
For many successful internet marketers, it would make more sense to file the appropriate biz op registration.
(If you are granting someone the use of a trademark, then you really want to talk with a franchisor attorney.)
1. Okay…
2. Anyone selling the content of my courses would be a “thief.” We don’t do any of this stuff. I know people who do, but I think they’re nuts.
3. I don’t know anyone who does this, and your notion that “most” marketers are doing so leads me to wonder how much you actually know, and how much of what you’re saying is just speculation.
If you want to see a “business opportunity” – here is one:
http://seopro.stompernet.com
Dan,
I don’t quite get how your tying Michael’s statement about selling “contents of a course” to his statement about internet marketers selling marketing plans. As far as the first statement about selling “contents of a course” I THINK what Michael means is the affiliate has the right to “sell” the course for a commission.
However, even if that’s true and the other “expansive definition” of “fees” were correct, I don’t think the FTC would go that far. Even Michael has said that the FTC wants cases they can win and based on my experience helping them and talking to the senior litigator nearly 20 times over the course of the In Deep Services case and then explaining details of affiliate marketing to her they seem to want cases that are pretty cut and dry.
However, the AGs are another matter. Many of them seem to me to be either much smarter, or more willing to take legal risks.
But based on my nearly daily conversations with Lynndel Edgington (who works with an Assigned Federal Agent and was the only non-agency person invited to attend recent white collar crime initiative meetings) and through whom I provide the more “interesting” documentation (mapping out potential criminal networks, companies they potentially own in various countries, major and minor players, etc)…anything that’s of any level of investigative difficulty is going to hit the more “secretive” 3-letter agencies. In that sense the Salty Droid site’s point about “the syndicate” might be more relevant…or he could be completely “overlawyering” or paranoid (personally, my experience has been that so-called “paranoid people” often connect dots incorrectly or way too quickly without real “proof” but often lead me down paths to the truth that ARE provable and more far-reaching than someone who is just looking for “easy answers”).
There’s no question Michael has been right about is the fact that while internet marketers and affiliates were debating and worrying over “endorsement rules” they were completely ignoring the really important aspect of the new FTC guidelines on endorsements and testimonials – the removal of the “no safe harbor” rule…something nice and clear cut like the FTC likes.
Thanks for the link to SEOPro. As a layperson, seems pretty cut and dry there.
Looking back on how I constructed this post I probably would have been smarter to focus on the removal of the Safe Harbor guidelines instead of the “Business Opportunity” aspect.
Dan and Paul;
Take a look at the 2006 FTC proposed new biz op rule, and look at the section entitled “pyramid marketing schemes” and the types of schemes the FTC shut down using section 5.
This will give you some idea about a) how the FTC thinks, and b) also how behind the curve they were in 2006.
2. Paul is right, I am referring to those cases in which is granted for consideration the rights to resell.
3. Yes, I should have specified that a) I am referring to those marketers who have achieved “guru” status, b) I tend to follow only those whose tactics attract my con detection. Which is not, as you say, what most marketers are doing.
Thanks for biz op reference, somebody I have been following for quite some time!
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Despite the “earnings disclaimer” on this site, this turnkey opportunity being sold in an unregistered bizop.
Now, where did this guy learn these techniques? Is there a online biz op syndicate pumping this crap out?
I don’t know about that one, Michael. That’s pretty far out of what I would consider the mainstream.
To be pretty blunt here – I specifically asked the Senior Litigator I helped about a specific well-known (guru status) marketer’s hidden continuity offer that was generating enormous complaints. What *I* took away from what she said about it was that the particular demographic wasn’t of interest because the target audience should have known better (not her exact words).
The more I think about the aspect of potential horizontal collusion that the SaltyDroid Syndicate post brings up, the more I doubt any Federal Law Enforcement agency would even care at that level…unless “syndicate” participants were also involved in something like money laundering. I know Lynndel is still working on his book, but I would love to get his thoughts on that, as it’s just a hunch on my part.
As to your last question, though, there does appear to be a strongly connected group of questionable “marketers” that seem to center around the well-known spammer Sebastian Foss – listed on the ROSKO top 100 list here. Again, not ones I would consider “mainstream” – but ones that do sell A LOT of “product”, especially recently through some of the shadier affiliate networks. And not with the same kind of agreement that Frank Kern talks about in his video (I don’t think anyhow).
I noticed that Ryan Champion, one of the people behind the In Deep Services company is now off that list.
1. Paul, the example was designed to show that, right now, even a clear online biz op fraud won’t be shut down.
2. But, if I am a legitimate internet marketer, I would surely love some way of distinguishing myself from those people in 1. Registration may be that way.
3. No regulator cares about the people that they are supposed to protect. Because the job is way too difficult and frustrating, the regulators come to see the victims as “marks”. It is the only way the regulators can justify their pitiful performance in preventing fraud.
4. Don’t know about the DOJ and Kern’s syndicate. But, I made the complaint anyways. The laundering aspect makes sense when you have a large number of people offshore “betting” small amounts that they are going to be rich. 12Dailypro was such a money laundering scheme.