Is affiliate marketing legal

The most common scams in affiliate marketing

The Roman poet Horace recognized the power of money in his quote: "Where the money increases, worry follows". So it is only logical that easy money making on the internet gives way to criminal activity.

In affiliate marketing, companies pay advertising partners for referring customers. If the customer successfully concludes, for example a purchase made in the online shop via the partner, the affiliate receives a commission - a win-win situation for both the retailer and the advertising partner.

Fraud opportunities are documented on both sides. Affiliates complain about non-transparent commission payments, while advertisers are often confronted with insidious manipulations on the part of the affiliates. Both cases are about money lost due to an unreliable partnership.

The following article takes a closer look at four known fraud possibilities in affiliate marketing on the part of the affiliates. In addition, the legal situation in Germany is examined in order to explain the legal framework for online retailers with regard to their responsibility.

The internet is very important as an advertising medium

In 2013, with 25.5 percent of the net advertising cake, the Internet was the second strongest advertising medium after television (28.4 percent) and ahead of daily newspapers (20.2 percent).

The latest OVK Online Report presented a sales forecast for the net volume of digital display advertising, online and mobile, for 2014, which totaled 1.41 billion euros - an increase of 6.8 percent compared to 2013 (1, 32 billion euros).

Although the share of affiliate marketing in the advertising pie was not examined in the report, this branch of the online marketing will certainly benefit from the trend. As an additional advertising force for merchants, there are nevertheless numerous risks for online retailers.

Again and again one reads of reports that address a crime problem in the affiliate industry. In this way, affiliates can take advantage of certain opportunity structures in order to obtain commissions in spite of the services not being provided.

An analysis by iBusiness shows that around every seventh euro that is spent in the affiliate segment ends up in the black (as of 2012). Projected, the online magazine estimates the economic damage caused by affiliate fraud in Germany at around 82 million euros per year. The sum is supposed to be paid out to online companies affiliates who illegally cheat their partners out of commissions. In addition to high losses of money, dodgy affiliates can also extremely damage the image of advertisers.

What are some of the most popular ways to get money by fraud?

Opportunities for fraud in affiliate marketing

1. Cookie dropping as a blackhat method

Last year Affiliate Deals covered the Shawn Hogan case as one of the most famous affiliate scammers to date. In May 2014, the then largest affiliate of the eBay partner program and second largest of Google AdSense was sentenced to five months' imprisonment for fraud in the amount of 28 million US dollars (about 20 million euros). In addition, the fraudster has to pay a fine of 25,000 US dollars (about 22,100 euros) and remains on parole for three years after his release.

With the help of the “cookie dropping principle”, Hogan has secretly stored eBay cookies (view cookies) in the browser for every visitor to its website without the browser having clicked on an eBay advertising medium (click cookie). With this method, the affiliate was wrongly paid commissions if the ignorant user made a successful deal with the internet auction house - without an active click on the corresponding advertising material. In other words: The affiliate received a commission for an advertising service that he never provided - effective, but prohibited in affiliate marketing.

Tips for merchants:

  • regular control of the network account
  • Use of a cookie switch / tracking switch

2. Fake orders as an affiliate scam

Fake orders are orders with false data that are controlled by the affiliate. The shipping method “cash on delivery” is selected as the payment method. Due to the wrong address, the goods cannot be delivered and the online retailer is left with the shipping costs.

The affiliate wants to use this fraud method to obtain a commission for the alleged referral of the customer. Real addresses from the phone book are often used and programs are used to anonymize the IP address. The ordered goods are returned to the online retailer as a return.

Often the merchant lacks the connection between the inventory control system and the affiliate network, so that the order cannot be checked for correctness. Nonetheless, in many cases, fake orders are easy to understand because they are processed via a specific affiliate with his or her individual affiliate ID.

There are ways to prevent fake orders, but ultimately the online retailers would create disadvantages with certain preventive measures. For example, sending goods only against prepayment restricts payment options and could result in fewer orders and the loss of customers. Verification procedures such as an address verification system do not offer one hundred percent protection and are usually expensive and incomplete. Criminal affiliates can easily bypass the security mechanism.

Tips for merchants:

  • (Automated) comparison of orders from the affiliate networks with the merchandise management system to identify and, if necessary, cancel orders that have not been placed in the networks
  • manual comparison for orders with a high shopping cart value
  • Random checks for cash on delivery orders
  • Filing a criminal complaint in the event of fraud, e.g. criminal liability for forgery of documents according to §§ 267 ff. StGB

3. SEA ad hijacking as “kidnapping online customers”

Ad hijacking is a particularly aggressive form of brand bidding. Ad hijacking is the deliberate manipulation of advertisements in search engines by affiliates.

The Google AdWord ads from mostly well-known companies such as Amazon are copied exactly (including the ad URL), whereby the company bid must be overbid by at least 1 cent, as the affiliate ad with a higher CPC bid will displace the original ad from the search results .

Example: Google AdWords advertisement from Amazon

As soon as the customer, for example, googled “Amazon” and unexpectedly clicks on the copied advertisement, he is redirected to the Merchant website. The affiliate sets a cookie for the user with the integration of his individual partner number and receives a commission for a successful mediation (e.g. online purchase), although he has made no profit from the contact. He only benefits from the awareness and attractiveness of the brand.

Fraudsters are extremely clever in order to avoid falling into the company's field of vision. For example, the copied advertisements will not be displayed in the company's city and will be posted online outside of office hours.

Over time, large companies in particular have become aware of the fraud method, which makes it very difficult to obtain a commission through this route.

Tips for merchants:

  • Regular checks with the help of automated monitoring tools such as Xamine, SEM-Scout or Ad-Police
  • Prohibition of SEA activities in the affiliate terms and conditions of the partner program

4. Affiliate hopping as a fraudulent commission trick

Affiliate hopping is a fraud method in which the affiliate links to several affiliate networks for an advertising medium, so that the commission is paid out several times if the transaction is successful.

This works when the merchant advertises its affiliate program through multiple affiliate networks.

An illustrative example:

Affiliate program xy advertises its affiliate program via the affiliate networks affilinet, zanox and retailerweb.net. The affiliate registers with all networks as a publisher. He installs the advertising material from the partner program xy on his website and links the ad in such a way that a cookie with the publisher ID is stored in the user's browser from all three networks when it is clicked. If the user buys in the online shop of the partner program xy, all cookies are read and the order is transmitted to all three networks. If partner program xy does not check the transaction, the affiliate receives three times the commission for a purchase.

Tips for merchants:

  • Installation of technical precautions (cookie switch / tracking switch etc.)
  • Cross-network comparison of transactions before the commission is released, e.g. orders placed on the same day at the same time with an identical shopping cart
  • Establishment of an in-house partner program (especially for large companies)

Merchants as those responsible for criminal affiliates

Merchants can suffer double damage from fraudulent affiliates. Firstly, direct damage, for example due to the fraudulent possibilities described or as the person responsible for violations by your partner. It is not uncommon for affiliates to commit legal violations, in particular violations of personal rights and violations of competition, trademark or copyright law, for which the merchant can be held responsible.

The risk arises for the merchant if the affiliate uses the advertising material he has created illegally, for example sending spam mails with the merchant's advertising material or placing the advertising material on a website that includes illegal content.

The so-called interference liability in Germany states that the merchant is responsible for the content of his advertising material and must ensure compliance with applicable legal provisions. Although the jurisprudence is not uniform, he may have to be liable for legal violations by his partners (cf. § 1004 BGB, right to removal and injunctive relief). If the affiliate leaves the contractual relationship with the merchant without their knowledge, liability for any legal violations is unlikely.

For this reason, the dealer should inform his partners about possible legal violations and ask them to observe the applicable law. In the event of a serious breach of contract, sanctions should be taken against irresponsible affiliates - from warnings and publisher cancellations to contractual penalties, civil and criminal prosecutions (see Shawn Hogan) and termination of the partnership.

Conclusion

Affiliate marketing has a problem with fraud. In principle, it is an opaque network between publishers, merchants and affiliate networks. Opportunities for fraud can be assigned to each of the three actors. In order to guarantee transparency and reliability in the affiliate sector, the Federal Association of the Digital Economy (BVDW), for example, issues quality certifications for trustworthy affiliate networks and agencies. As soon as merchants get into the line of fire of criminal affiliates, it is time to put a stop to it. This includes detailed conditions of participation, regular reporting and monitoring as well as consistent tracking of unfair methods. A competent affiliate manager who looks after the publishers of large and successful partner program operators is indispensable. This is the only way to ensure that the affiliates have a direct contact person and - to the benefit of both parties - are regularly monitored and advised. All in all, affiliate marketing offers an excellent opportunity to earn money on the Internet with an advertising partnership.