Mattress Giants v. Sleepoplis: The War On Getting You To Bed [e293]

Full Podcast Transcript

NASIR: Welcome to the podcast!

My name is Nasir Pasha.

MATT: And I’m Matt Staub. Two attorneys here with Pasha Law, practicing in California, Texas, New York, and Illinois.

NASIR: And this is where we talk about the business in the news and, also, add our legal twist to that business news.

MATT: This is going to come out after Thanksgiving, but I think this is a very appropriate story for Thanksgiving Day because it deals with actual sleeping, I guess, but it deals with mattresses.

NASIR: Do a lot of people buy mattresses on Black Friday or during Christmas holidays?

MATT: After the meal.

NASIR: I was thinking, like, the day after, you go out and buy a mattress.

One thing I didn’t realize is that this mattress industry is cutthroat. You wouldn’t think so, but it seems like, if you’re in the industry, whether you’re in retail or you’re in this now, these online mattress companies, this is where everything’s going now. You can literally buy your mattress online. You see it all over the internet – even on TV now they advertise for it. It’s pretty crazy.

MATT: Well, we’re going to be talking about the online aspect of it, as you say, but it makes sense if you’ve ever driven around and you see one company or one building business that sells mattresses and you’re likely to see a handful within a couple of minutes. I think the reason that is because, like you said, competition. Someone’s going to go to one store to look for a mattress. If they buy, that’s it. If not, there are going to be a bunch of competitors right there that can make the sale.

NASIR: The whole mattress thing, I’m sure you’ve bought a mattress before, I assume.

MATT: Never.

NASIR: Well, let me tell you what it’s like…

The whole mattress buying process, it’s never fun. I mean, not that shopping and stuff like that is ever fun. But it’s like they’re all the same. You’re making this kind of long-term investment where, if you make a mistake, even if they give you a guarantee return or whatever, you can try it out for 30 days, you’re not returning no mattress. Whatever you buy, you’re keeping. I can say that I’ve had pretty decent mattresses in my life. I would say that I kind of just get used to them – whether I like it or not.

MATT: All very good points. I’ve felt the same things. I don’t know about you, but the last one I purchased was actually online and it was through an ad on some podcast I had listened to. Like you said, it was try it out for a hundred days. If you don’t like it, we’ll come and pick it up. If you have to send it back, that’s not even feasible, really. I don’t know how you would even do that. But, yeah, it’s a big investment. They say, depending on how much sleep you get, I guess it would be anywhere from 25 percent to a third of your time of your life, potentially sleeping on a mattress.

NASIR: Yeah, that assumes that, when you’re sleeping, you’re sleeping on the mattress.

MATT: Exactly.

What we’re going to do is we’re going to kind of go through this. It’s a really interesting story that’s played out for a couple of years here dealing with online sales of mattresses which seems to be the growing trend. There’s a lot of different companies out there doing it – one of which is Casper which we’ll get into.

Take it back from the beginning here. There’s this website called Sleepopolis. It was started by an individual named Derek Hales back in 2014. Essentially, at the time, he was looking to purchase a mattress. I think he looked at a couple and he ended up buying one from a company online. He didn’t like it and sent it back and found another one.

Essentially, what you said earlier, there’s got to be a better way to go about this and get some more information and having to go through this whole process. He started this site, Sleepopolis, and it was pretty straightforward. It was a mattress review site. He would do whatever – lay on the mattress, get the specifics, et cetera, put a review on the site, put up videos on YouTube and that was it. It got some pretty high traffic, I think, right away. I think it was something like 25,000 views on the first video that he put up. Almost immediately, he saw something there and then started building out the site. Eventually, he said, “Well, I need to monetize this thing as well.”

The way he did it was through and what we’re going to get into in specific here was referred to as affiliate links or referral links. That is really what kicked off this whole issue that came up.

NASIR: Affiliate marketing is – I don’t want to say since the internet began because that’s definitely not true but there was a point where people realized that, when they’re talking about different products – whether it’s their blogs or they have any kind of websites that are about younger products or even, frankly, about anything. How you monetize it – besides just general advertisement – is, if you can get them to click onto another site and then they actually purchase something, then that target site will actually give you a percentage or some dollar flat fee amount for that sale.

And so, almost every major – I would say most – online retailers have some kind of affiliate program – whether it’s Amazon. In fact, Amazon was a big one. If you guys recall, people would blog, and they would have a little, “Hey, buy this to Amazon. I recommend this book,” or whatever. They would get a percentage – whether it’s a fixed fee or otherwise. And so, that really blew up to such an extent that online retailers realized that, in order to really do well on the web, you need to have an affiliate program and you can make a ton of sales. That’s exactly what happened in this case.

Sleepopolis blew up along with all these other online mattress reviewers, especially when it comes to the online mattress industry. It not only grew incredibly because of these affiliate marketing sites. They are actually dependent upon them. A lot of their sales were coming through these online review sites.

MATT: Real quick, just to contrast with the straight up advertisement would be a similar idea, I suppose, but in an ad, the business is paying, I would assume, an amount upfront to place whatever ad they want on the site as opposed to this where you can have these affiliate links in place. Basically, the business would have to pay the owner of the site if there’s a sale made, and they come through the channels, through their link, et cetera. There is a difference between the two and we’ll get into that on why that’s significant on the legal aspect.

NASIR: Actually, let me get into that for a second, just from a technical perspective so people understand. Again, people that are in business, this is very, very basic for them. But I just want to make sure that we’re all on the same page.

When advertisers pay, they can either pay by per click or per view. Per click, per view, it doesn’t matter whether there’s a scare or not. How it works technically, when you’re doing some kind of referral or affiliate program is when someone clicks on the link or maybe even if they go to your page, then a cookie – you know, I think everyone understands what a cookie is, a little file – goes on to your browser and, if later on, they ended up purchasing something, through the purchase checkout process, they detect that that cookie is on there and they’ll actually give credit to that online publisher.

MATT: Like you said, what he was doing here was started the reviews and then what he was doing initially was he put these affiliate links at the bottom of the reviews. What the rules are or what the law is you have to disclose the nature of these relationships which he did to some extent. We’ll get into whether it was sufficient or not under the law. But, just know in general, he would have reviews and at the bottom there would be these links that people click on direct to these different mattress sites and sales would be made and he would get a payment on the back end.

The interesting thing here is he was pretty successful doing it. I think he started out, he would get the deal he had in place was you’d get a $50.00 Amazon gift card for every mattress he sold which, if you look at the average price being $1,000, that’s five percent. That’s a pretty good deal. I think that’s relatively in line with what you would expect on this affiliate link setup that you have.

NASIR: Just think about how that changes the industry because, of course, most of us are used to going into a store and some mattress salesman selling you a mattress. Of course, a lot of those salesmen work on commission. Just think about how much work they have to do to get that sale.

I’m not saying that these people don’t require work because it requires a tremendous amount of work. But the idea is, once you have the website up, you have the content there and you have people going to it. It’s kind of just sitting back and seeing what works and what doesn’t. That five percent in volume seems pretty attractive. In fact, I think he ended up making at least… They don’t know exactly, but the understanding is that he’s made millions of dollars just on this affiliate marketing program.

MATT: Yeah, I think a conservative estimate was 1.6 to 2 million.

It’s exactly what you just said. Basically, building up or providing the content video, et cetera – that was the sale and it’s just on there and then his work is done. The sales process, he only has to do it once and then people get fed through it – through what we’ll call the purchasing funnel – and that’s how he ends up getting paid on the back end which, again, it’s great as long as you can get traffic to your site and people are making the purchase through the links. It’s kind of set it and forget it almost and that’s what makes these affiliate marketing plays so attractive, especially for websites that are basically solely content-based or review sites.

NASIR: Why are we talking this? I mean, this is kind of an interesting story.

We have this successful guy but, at a certain point, Casper wants to pull out of the affiliate marketing program and it’s at that point where things really start changing – not only in the industry but in legal battles as well.

There’s kind of a history and a trail to that because Casper and these other online mattress companies as well as other online reviewers, there’s been a lot of litigation in-between all of these competitors, between these review sites and a lot of emails have come out. You’ve seen how Casper and other online mattresses try to woo these reviewers in multiple ways. They’ll say, “Hey, look, I notice that you reviewed our mattress a little lower than our competitor. We would love to have you try it out again. Maybe we can fly you out to New York.” Basically, they don’t say it outright, but basically schmooze their way into getting a better review.

Of course, there’s a lot of implications to that because, like Matt said, when it comes to these affiliate marketing sites, especially if you’re actually reviewing their sites, the FTC has put up a bunch of different guidelines over the years and it’s become more and more clear that you have to disclose that relationship and how you disclose it becomes very important, of course.

MATT: What you said is really important because what Casper ended up doing was it went very hot and then completely cold. I will give the CEO credit. He saw the opportunity there and said, “Look, if we can just funnel these sales through this site, it’s much better than having to pay over avenues. It’s really a win-win for everyone.” So, he started pushing hard with Sleepopolis, particularly the owner, like you said, “What can we do to make this relationship better?” – offering to fly them out for the weekend to sleep on the mattress which is kind of weird but whatever; promising to increase the payouts from $50.00 to $60.00 which, $10.00, who cares? But he was selling a lot. That’s a pretty significant increase.

This is a smart piece, too – offering not only increasing the price that Sleepopolis was going to get but offering his readers, Sleepopolis’ readers, a discount through it as well. It looks attractive to the potential purchasers. They said, “Oh, I can get a discount through this.” That was a very savvy move, I thought, on the part of Casper.

So, they keep doing this, it really ups the ante. Then, Casper starts getting to the actual bad reviews of the mattresses themselves which I don’t know if we mentioned that or not and we probably should, but the big problem Casper had at the beginning was their mattresses weren’t getting great reviews in comparison to some of the other ones. That was their issue. That’s why they were really doing this push.

NASIR: Some would say – and I think Derek, the owner of Sleepopolis would say – it’s not necessarily bad reviews. It’s just that, in comparison, he even says, “It’s a good mattress.” But, when you compare prices and apples to apples, it’s like, in his opinion, he rates them lower than possibly the competitor.

This is what’s interesting. When Casper pulled out, that existed already – that kind of different reviews a little bit lesser a review of the competitor. But, when Casper pulled the plug o the affiliate program which I assume is going to be a significant amount of money, Sleepopolis also changed shortly thereafter how they present the reviews.

Most significantly, I don’t think they necessarily said anything different than what they already believed in but how thy highlighted it. For example, they added a little box on the Casper mattress review page and it said something like, “Thinking about buying a Casper? Do your homework.” It was kind of highlighted in such a way. “Check out these four mattresses companies that Sleepopolis loves.” The implication is, even if the opinion did not change, after they pulled the plug, now all of a sudden, the owner of the site has a financial incentive to steer their visitors to a different mattress. Of course, Casper did not like that, and they responded by suing not only Sleepopolis but a couple of other review sites as well.

MATT: To some extent, I get it. I mean, if the situation where, obviously, new mattresses come out and you would assume they’re going to be better technology to build it, put it in place. And so, the review or the rating of a Casper mattress, an older one, could go down or it could look worse in comparison. That probably makes sense. But, what you said, that was the problem that ultimately led to the lawsuit. It’s basically actively pushing the competitors of Casper on Sleepopolis’ site – of course, after the arrangement fizzled out. That was the big issue. That’s when Casper stepped in and sued for basically false advertising and deceptive practices. That’s really what got this thing rolling in terms of the back and forth. You mentioned a couple of other companies or a couple of other sites that got sued. They basically settled I think fairly quickly. We don’t really know the terms of that. But Sleepopolis stayed – no pun intended – stayed firm with their stance and tried to fight this thing out. That’s where we get into the real interesting legal battle between these two companies.

NASIR: As an FYI, these other companies that ended up settling, they actually ended up just removing the references to Casper all together which leads us to believe that may have been part of the actual settlement. So, Casper basically sued Sleepopolis and specifically the owner and the entity both in their individual capacity, basically saying, “Hey, you have deceptive practices because you didn’t disclose certain things.”

There’s even some factual statements that basically say in Sleepopolis that they’re not paid for the reviews. They do disclose the relationship, but it is interesting because, you know, the reason for this FTC regulation is to say, “Look, if I’m going to give you a review, I don’t want to present myself like I’m totally unbiased because I am getting paid for this, but that doesn’t necessarily mean it’s a dishonest review just so long as I disclose that.” That’s kind of the purpose of it.

And so, it almost seems as though Casper is saying that, because they started steering in a different direction, that was crossing the line and the argument is, “Well, if you disclose that there is a relationship, who cares if I’m starting to sell them? Yeah, I get paid for people that buy other mattresses beside Casper and I’m telling you the other mattresses are better than Casper. What’s wrong with that?” I think, on its face, there’s nothing so long as you follow the disclosure requirements by the letter of the law. That’s the issue Casper had. That’s the angle that they were trying to get at.

MATT: Yeah, and I think there’s some meat to that and a couple of statements that were made or a couple of the disclosures on Sleepopolis’ site that no reviewer content is paid for by any manufacturer or company. Basically, these are balanced reviews and things of that nature.

NASIR: Also, the actual disclosure of the affiliate relationships were buried in a remote corner of his site to such an extent that Sleepopolis actually changed that and adjusted that. I don’t actually have that version of the site previously, but it seems like there was an acknowledgement that, “Okay, something was wrong, and they fixed it.” So, there might have been something definitely there in that aspect.

MATT: Yeah, and I think there’s two big problems. Like you said, it’s the actual disclosure that’s required – the where and the how of that – and then the statements that were made also on the site about there’s no review or whatever is paid for which, I mean, I guess we’ll take that on its face, that could be true.

But there was definitely some statements on the Sleepopolis site that a judge questioned that could potentially become an issue. Because, here’s the thing, it’s going to be hard on Casper’s end to prove that these are false statements in fact because a lot of it is opinion-based. But there were some statements on there that the judge looked at and said, “All right, these are factual statements that are listed on the Sleepopolis site that could end up being false or deceiving or misrepresented, and those could become a problem.

It’s really two separate issues, but they kind of blend together a little bit.

NASIR: This case is going on. Actually, Fast Company released this article and kind of went through this whole story for us in a really great way. I have to give him credit for that in great details. We’ll link it. It was published back in October. They reference this in-court discussion that Sleepopolis and Derek and their council was having some settlement discussions with Casper. But then, shortly thereafter, they make a motion to basically amend their answer to actually counterclaim against Casper.

Let me restate that. They’re in the middle of settlement negotiation, supposedly. And then, maybe something doesn’t happen right in the way that they wat her to go. In fact, they were discussing possibly Sleepopolis paying something to Casper. But, shortly thereafter, Sleepopolis fires back and actually sues Casper back. What do they allege? They allege some allegations regarding negative SEO and we’ve covered negative SEO way in the past – you know, as soon as it started to get in the picture and we talked about then what are the legal implications of negative SEO.

So, I guess what happened was that, during the same period of Casper pulling out of the affiliate program and these other lawsuits going around, they hired a reputation management firm and it wasn’t proven. But then, Derek, the owner of Sleepopolis, basically started seeing all these bad links to their site. As you guys know, not all inbound links are good for SEO purposes. If it appears spammy or you’re using some kind of black hat technique, then Google will actually penalize you and push the rank in your search results actually down.

In order for him to combat it, he had to do what’s called disavowing the links and basically telling Google, “Hey, these links, I have nothing to do with them, so don’t count these against me.” If you ask any SEO guys, when you get a negative SEO attack, it is a very difficult situation to deal with a lot of times, especially if it’s sophisticated. Not only that, if you’re not sophisticated enough – whether it’s your SEO guys or otherwise – it can be very hard to deal with, just from that level. Derek happened to be pretty good at SEO. Obviously, he got to where he was because of that, I think. So, he was technically savvy.

Because of these actions, he actually filed a suit and says he has two theories. One is that it’s a tortious interference of a prospective economic advantage which is a tort theory. Second is some kind of unfair business practice statute based in the state of New York.

We talked about this but, when we saw it, we were kind of excited to see this because this is the first time that we’ve actually seen a high-profile case go toe to toe with a company that are alleging negative SEO practices.

MATT: Of course, we’re not going to find out what happened.

Let me timeline this out a little bit. Actually, the initial complaint by Casper was filed April 29, 2016. Almost a year to the day, April 20, 2017, was when this counterclaim was filed. It looks like, in July of 2017, the Sleepopolis site has been sold. Who was it sold to? Jack Media LLC acquired Sleepopolis.com which, okay, whatever. Who cares? But Casper provided financial support to Jack Media to acquire the site. They acknowledge it and said, “We exert no influence and have no influence over their site other than we lent them money.” Basically, Casper gave these two guys that I think actually knew the owner of Sleepopolis, Casper loaned them money to buy the site. I guess we’ll let people draw their own conclusions on that one, but it’s just interesting how that played out.

NASIR: To me, it just sounds crazy – crazy is the wrong word – I mean, almost brilliant move in the sense that I wonder if Sleepopolis’ owner knew that these guys were affiliated by Casper because, frankly, if you think about it in their shoes, Sleepopolis is in the middle of a lawsuit. We have this negative SEO cross complaint that may or may not have any teeth. Frankly, again, this is kind of untested waters and the level of proof because how do you actually prove it? Some of the tech-savvy people listening, the SEO guys, you know, how do you prove that someone is buying bad links? Because, a lot of times, these black hat techniques and these bad links come from overseas. Tracing that, there’s not really a lot of connections. If you’re using another, if I hire a reputation firm and they hire another group of people or another vendor to do it, how I prove that on paper in front of a judge or jury is tough. And so, Derek’s in this kind of quagmire here and he finds an opportunity to sell – whether he was actively looking or what-have-you and he sells, and the lawsuit is settled. And so, it’s a win-win, it seems like, actually.

MATT: I was going to say exactly that. Let’s assume that all the statements he made were true and he wasn’t doing anything deceptive, you know, looks at the allegations against him, the claims against him, and says, “Those aren’t true. Also, I’m pretty sure this negative SEO was happening. This is all great for me,” but he’s approached by this other company or these guys and, regardless of whether he knew whether they were affiliated with Casper or Casper loaned them money or not, he has to look at that from a practical standpoint and say, “All right, I made some good money off of this. I can get out clean – get out of the lawsuit.” I assume he got out of the lawsuit. Yeah, they did reach a settlement and the suit was dropped. “I can really get out of all this clean, get paid, already made money on it. It’s probably just best if I take this route. It’s going to be easiest for everyone.”

NASIR: Yeah. Again, this is where we don’t know the details, but I wonder if it was actually part of the settlement and the process. It’s hard to tell.

I said it was a win-win. Referencing The Office, I don’t know if it was a win-win because we, the consumers, may not have necessarily won here because, if you go to Sleepopolis.com now, it looks like a very genericized website. It almost seems a little too fair. They’re not directing anything. It’s almost a lack of opinion. It’s like there’s very subtle difference between it.

Sometimes, when it comes to opinions, especially people that are reviewers, when you ask Siskel and Ebert – I think one of them is late, I can’t remember.

MATT: Yeah, definitely – one.

NASIR: I apologize to them and his family, I can’t remember which, but the point is, when you go to them for a review, you’re not looking for this very objective criteria of what’s good and bad. You want opinion. Either you hate it or you love it or some kind of a little more adjectives than that. That’s not what this mattress review site provides anymore.

MATT: Well, I think there are a couple of telling things about the site now. We didn’t even mention this at the beginning but the one mattress he really liked was this brand, Leesa. In the sidebar, there is a couple on there for Leesa with a yellow box. Now, that’s gone, after the sale, after the acquisition. Instead, it’s a box with a coupon for Casper. You tell me. That’s one thing.

The other thing I noticed when I was trying to find the compliant, the owner of Sleepopolis had been documenting this whole legal battle and blogging about it on his site. I found another website that had picked up the story and had linked to the Sleepopolis site. It said, “Oh, here’s the copy where you can get the complaint.” Surprise, surprise! I click on it. Now, it just goes to regular Sleepopolis site. They’ve wiped it clean of all the documentation of this lawsuit that the former owner of Sleepopolis was doing.

It seems pretty clear how this all played out. I’d agree with you, it’s still pretty good but not great win-win-lose – consumers being the loser.

NASIR: I know Casper but I’m still assuming that Derek won somehow.

MATT: Oh, yeah.

NASIR: But I could be wrong because it seems like all these other mattress review sites are owned by mattress companies now, too.

MATT: Yeah.

NASIR: That’s what I’ve heard at least. Again, it seems like a pretty cutthroat industry.

MATT: We assume – and we talked about this earlier – he made a couple of million before we assume he sold it. Casper is probably willing to loan a decent amount of money. He made millions – multimillion dollars – by reviewing mattresses. I would classify that as a win. He was a pretty young guy, too, I think. He still has plenty of time to do other things.

NASIR: I really wish that negative SEO lawsuit would go through. In fact, if anyone has potential negative SEO lawsuit and they have a way to prove the actual acts of the bad links being put up by your competitor, give us a call because we’re definitely interested in that.

MATT: Yeah, it would be interesting to see and just to have a judge listen to that. But then, if that was presented to a jury, I can’t even imagine the glossed over eyes it would see.

Real quick, on the affiliate marketing side of things, what’s the law behind it? We talked a little bit about this. Basically, we mentioned this with the ads with influencers previously. It’s a similar idea. If there is the affiliate relationship, you do have to disclose it. What do you have to disclose? You have to disclose that it exists and there’s different opinions on what’s sufficient and what’s not, and then where does it need to be disclosed. Basically, the bottom line is, the closer the disclosure is to the actual recommendation, the actual affiliated link, affiliated company, the better. You can’t have it on your About Us page and probably not even on your Terms and Conditions or the General Info.

NASIR: With the disclaimers, it should really be on the same page, just to be safe.

MATT: If there’s a couple of paragraphs and then there’s a link – certainly if there’s a link – you can disclose it right there. But, yeah, it’s that clear and conspicuous language that we’ve seen before. You do have to make the disclosure if there’s any form of pay that’s getting pushed across. Just disclosing that it’s an affiliate link is probably not enough because I don’t think, really, the average consumer might not even know what that is.

We talked about this before as well, but this does differ from an ad. Again, we like to give a more clear definition of this. You know how the law works. If it’s clear that something’s on the site, if it’s a paid ad, if it’s clear to the visitor of the site, then you don’t need to make additional disclosures. But, if it’s not clear, then you might need to make those additional disclosures.

Probably the word of advice here is, when in doubt, just make the disclosure.

To me, it wouldn’t really steer the way I felt about something necessarily, unless it was very blatant that it was biased. But, you know, be on the side of caution.

NASIR: I’ve seen this carry out itself in multiple ways and we probably need to revisit, on a case-by-case basis, some of the new guidelines that have come out. But I’ve seen everything from even saying, “Hey, here’s my affiliate link.” Most people know what that means. It’s like, “I get paid a percentage or I get some kind of referral fee if you click on this, so please use this.” Everyone’s familiar – most people, again – with refer-a-friend where you buy something and you refer something and you get $10.00 off, they get $10.00 off or whatever. And so, there’s ways to do it to be very clear and not do it in a way that may annoy your readers or annoy who you’re recommending these products to. Again, it gets very specific. And so, what I would do is, if you have one of these affiliate links or sites and you’re more interested in figuring out how to present it, just give us a call or give an attorney a call in your jurisdiction that’s familiar with these rules and we can talk about it.

MATT: Or your greater wish – get involved in some big negative SEO.

NASIR: I would love it. You know, we really need to look more. I’ve been searching for those kinds of lawsuits, but nothing that’s really caught my attention that’s kind of worthwhile.

I think there’s a lot of ways to combat negative SEO as well. That’s typically the better way to handle it. But I’m sure there’s going to be an instance where it makes sense to financially go after your competitor because of it.

MATT: It’s got to be proving some amount of damage or what the amount of damage is is going to be difficult. I don’t know. We’ll tackle that at another time. This is strictly mattress talk for this episode.

NASIR: Very good.

Well, I think that’s our episode. Thanks for joining us, everyone.

I’m trying to think of a pun related to this. Puns usually just come off the cuff, right?

MATT: Yeah, you can’t force it. I already had the “firm” mattress one, so I think we’re okay. We filled our quota for this episode.

NASIR: Great.

All right, thanks for joining us!