TOOLKIT FOR START-UP AFFILIATES


The fundamentals needed to make headway in an industry that has come a long way from its ‘wild west’ beginnings.


Several components of the modern affiliate business that new entrants and ‘rookies’ will need to fully understand, including legality, business planning and budgeting, payments, website build, SEO and mobile and social marketing. Firstly, our friends at DLA Piper walk us through the legalities of affiliate marketing in the key regulated European markets.

Affiliate marketing in a regulated Europe

In his article in the last issue of iGB Affiliate, “The Future For Affiliates in a Regulated European Market”, Stephen Ketteley, Partner at DLA Piper in London, considered the changing landscape of the regulatory regimes across Europe and explored how this was potentially going to impact on the operation of marketing affiliates. Following up on that article, other specialists in DLA Piper’s Madrid, Milan and Paris offices consider the impact of recent regulation in their jurisdiction on marketing affiliates; vital information for affiliates generally but particularly for those new to market.
First, Sian Croxon, another partner in DLA Piper’s London office, considers the way general advertising laws can operate when faced with extra-territorial enforcement challenges. She illustrates this with recent examples of the UK’s advertising regulator’s actions.

The UK; is this a case of “Yes Prime Minister”?

With questions being asked in the House of Commons as to the amount of betting advertising being aired on TV (approximately 32 hours per week) and the Prime Minister giving his own opinion on the need for companies to behave responsibly, it is clear that the spotlight is shining on the industry.

The UK, as with a number of other countries, operates a self-regulatory regime based on well-established codes of practice. The CAP Code, as it is commonly referred to, looks somewhat benign on first reading stating as its opening gambit that all advertising should be “legal, decent, honest and truthful”. The Codes themselves are straightforward to read and in many ways apply common sense to the premise that advertisers should not mislead consumers but neither should their creative juices be entirely squeezed out.

That said, when it comes to marketing what are considered 'sensitive business sectors’ (sex, drink and gambling), or marketing to potentially vulnerable consumers (the old, vulnerable or children) the authorities take a much stricter line and can and do lose their sense of humour in the public interest. Furthermore, now that their remit has been extended to material on the Internet, overseas companies can no longer ignore the UK Advertising Standards Authority’s (ASA) influence, as recent adjudications illustrate.

Whilst not a gambling related advertisement, the reported complaint against Zazzle Inc does show how a non UK-based company can be affected by an adverse onshore regulator’s adjudication (in this instance, the ASA). Zazzle is a company that has developed a platform to allow an open marketplace for the promotion of user generated designs.

The company does not pre-vet the user¬generated content (UGC), although its terms and conditions make clear that it will remove any material found to be offensive if reported.

The website was used to advertise a children’s T-shirt labelled “Nothing Tastes as Good as Skinny Feels”. An image of a T-shirt bearing the slogan was included. As soon as Zazzle learned of the complaint, it removed the advert (which it was accepted breached the Code). However, the company argued that it was a US company over which the ASA had no authority and that Zazzle itself was not the advertiser - the UGC having been created by a third-party which it merely hosted.

Zazzle’s arguments fell on stony ground - with the site offering the URL www. zazzle.co.uk, it could not avoid the ASA’s extended authority on the basis of clear territorial targeting. Furthermore, since it manufactured the designs created by the contributors of the UGC, the ASA held that the company was the advertiser for the purpose of the review. Had Zazzle not provided the manufacturing services it might have escaped censor.

Even if the advert in question is not on a ‘.co.uk’ site, the long arm of the ASA may nonetheless catch it out. Another example unconnected with gambling (although sex must have been involved somewhere along the line) relates to the advertising and sale of pregnancy testing kits. The company distributed a pack that made certain claims about the product and its performance (i.e. using their testing kit would tell the consumer a day before any other product if they were pregnant) but the ASA held that the way the claims were expressed in its advertising were misleading and could not be repeated. That meant that Zazzle could not show the pack which included the offending wording. What, you might ask, has that got to do with the world of gambling? On its ‘.com’ website on which its international business was showcased, it displayed photos of the pack. In order to comply with the adjudication (and despite the fact that the claims were perfectly acceptable in most other countries), the pack had to be pixellated out of clear view with the wording changed on the site. Apply that principle in the gambling industry and you can see what the impact of an ASA adjudication might mean.

When the Prime Minister made his comment about “quite aggressive” advertising during the live broadcast of football matches, the chief marketing officer of one well known betting company said that adverts are intended to be entertaining and the industry should seek to emphasise brand values not react to the Prime Minister’s allegation. Sound advice, but if they want to avoid falling foul of regulatory scrutiny, he and his fellow marketing executives will have to be on their mettle to ensure the right balance between entertainment and compliance is achieved whether in print, broadcast or .online advertising.

France

The regulated online gambling industry in France was enacted under the French Online Gambling Act of May 12, 2010 (the Online Gambling Act). The Act opened three online gambling activities to competition; horserace betting, poker and sportsbetting, although such activities remain under numerous restrictions. In order to provide one of these activities in the French market, an operator needs to be licensed by the French Online Gambling Regulatory Authority (the ARJEL). According to the said Act, the provision of online gambling services by an unlicensed operator, as well as the advertisement of such services, is a criminal offence.

Sanctions for the advertising of unlicensed operators

Affiliate marketing is used by the remote gambling industry in many countries, including France, to promote the websites of unlicensed operators. However, such practice is illegal in France and affiliates are liable under Article 57 of the Online Gambling Act.

This provision allows the French government to adopt a strong enforcement policy against illegal operators, along with the ability to block access to illegal websites and to prohibit any transfer of funds to or from accounts identified as being held by unlicensed operators.

Article 57 provides that anyone advertising an unlicensed operator’s website by any means is liable for a €100,000 fine. The amount of the fine can be increased up to four times the amount spent on illegal advertising and anyone has the ability to launch proceedings on these grounds. This means that affiliates as well as advertising agencies, advertisers and bloggers (or anyone displaying or advertising such services) can be liable for promoting unlicensed operators websites.

Indeed, according to general case law on affiliation, although the retailer is liable for the content provided to its affiliates, the affiliates are the ones directly liable for the advertising. Hence, compliance to French law is customarily imposed upon affiliates by affiliate networks in their Terms and Conditions.

And, although to our knowledge there is no specific case law with regards to Article 57, it is known that the ARJEL as well as the French Courts are actively enforcing the Online Gambling Act. In addition, the sanctions specified by the law regarding advertising an unlicensed operator’s website could be an effective deterrent for affiliates.

Consequently, when assessing the risk/benefit ratio associated to the illegal advertisement of unlicensed operators in France, affiliates should take these elements into consideration as Article 57 of the Online Gambling Act leaves no doubt that they will be considered as liable.

Spain

One of the most issues arising out of the recently adopted regulations of online gaming in Spain has been that relating to the actual definition of an ‘operator’.

This is a crucial question since, under said regulations, any such operator is going to be required to obtain the corresponding licenses, something which may imply reasonably high costs (since any licensed operator is required to file a bank guarantee of at least €2 million).

Moreover, the Spanish authorities have adopted a restrictive approach in this respect, considering that any entity obtaining benefits from the operation of online gaming activities and being involved in the relevant decision-making processes connected with those activities are to be deemed as ‘operators’ and, as a consequence, subject to the licensing duty.

The activities of affiliates would fall in a grey area, without having a clearly defined regime. Nonetheless, the Spanish regulations (namely Royal Decree no. 1614/2011, developing the Spanish Gaming Act) have considered this question, setting forth a flexible system that should allow the operation of affiliation schemes in Spain. Article 3.4 of the Royal Decree sets forth that, as a general principle, marketing affiliation per se is going to be exempt from the duty of obtaining licences in Spain. In this sense, ‘affiliation’ is defined as any promotional activity or any other type of marketing behaviour aimed at attracting potential customers for a given gaming operator, as long as the affiliate does not register those customers or execute any type of agreement or maintain a gaming account with said customers.

Taking this definition into account, it is obvious that, under Spanish law, affiliates will benefit from the exemption of obtaining licences as long as they act as genuine marketing entities, without getting involved in the contractual relationship between the customers they have attracted and the operators they serve. It is critical to determine whether someone is acting as an affiliate or if they are going beyond what is permitted and moving towards being an operator. Affiliate schemes in Spain will require a lot of attention on the sharing of personal data between the operator and the affiliate or, indeed, any other information relating to the registered customers of the operator in question.

The Spanish regime obliges operators to adopt a vigilant approach vis-a-vis the commercial practices of their affiliates. Indeed, junder Spanish law, operators shall be deemed liable for any breach incurred by any of their affiliates. Hence, any affiliation scheme in Spain shall require strict fulfilment of the general advertising requirements as well as those regulations that are due to specifically oversee advertising and any other relevant promotional activity to be adopted by the affiliates. No such regulations have, as yet, been published.

Finally, it is important to bear in mind that affiliates can only assist authorised gaming operators. Any affiliate promoting non-authorised operators will be considered to be performing an illegal activity, which could lead to enforcement action and significant fines.

Italy

The regulatory principles applicable to affiliates under Italian gambling law have never been the subject of thorough review, perhaps because of the difficulty in enforcing Italian court decisions against foreign websites. However, such conduct is regulated and the applicable sanctions are considerable.

The general principle is set forth in ‘Law 13 December 1989, No. 401’ prohibiting the advertising of gambling websites run without an Italian gambling licence issued by AAMS or offering games that are reserved to the Italian state. Breaching this obligation is punishable by imprisonment of up to three months which can then be increased to one year in the case of advertising concerning foreign gambling websites offering lottery tickets or similar games of chance.

Italian law prohibits the remote offering of games to Italian residents without an AAMS licence and sanctions imposed on such conduct can lead to imprisonment of up to three years. As a consequence, the aforementioned provisions have also been introduced to avoid any advertising practice involving non-Italian licensed websites targeting people located in Italy.
But under what criteria are these provisions applied in the case of foreign websites? Italian criminal law applies the principle of territoriality which makes reference to both the place where the illegal conduct took place and to the place where the effects of such illegal conduct occurred. As a consequence, because of the ubiquity of the Internet a foreign affiliate website that advertises non-Italian licensed websites might face criminal sanctions.

Despite the fact that there is no case law on disputes involving affiliates, the previous conclusions are even more grounded if there is a version of the affiliate website in Italian. In such cases, given that the Italian language is mainly spoken only in Italy, the affiliate website might be deemed to be ‘targeted’ to Italian players, therefore falling under the scope of Italian criminal law.

This is confirmed by the number of affiliate websites that are on the blacklist of illegal websites published by AAMS and in relation to which, Italian Internet Service Providers (ISPs) are obliged to implement filters preventing Italians from accessing such websites. This is due to the fact that affiliate websites are often used by non-Italian licensed gambling websites to circumvent the filters put in place by Italian ISPs through banners which link to websites whose domain name is slightly different from the main operator website.

Indeed, despite the considerable efforts of AAMS to keep its blacklist up-to-date, operators frequently generate new domains that avoid the blacklist and are redirected to their main website. However, in order to notify the new domain name to players, they use banners published on affiliate websites.

This practice is even more risky for affiliates since they might be deemed to be liable, in a contributory sense, in the crime perpetrated by the operator. In such cases, the potential sanction would increase from three months or one year imprisonment (depending on the games offered on the advertised website) to three years - the sanction applicable against non-Italian licensed online operators offering games to people located in Italy.

Therefore, caution would be the watchword for affiliate websites advertising non-Italian licensed websites to Italian residents, especially because monitoring is likely to become increasingly aggressive due to the pressure that Italian licensed operators (which now include most of the major gambling operators) are putting on AAMS to foster more stringent actions against them.
 
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