ONLINE ADVERTISING AND AFFILIATE AGREEMENTS

IVAN HOFFMAN, B.A., J.D.


        For those sites that are either supported in whole or in part by advertising dollars or those that are either the licensor or affiliate in an affiliation program, these 2 kinds of agreements should be thoroughly understood.  There are some similarities as well as differences between these agreements so it makes sense to discuss them within a single article.  This article is written from the point of view of the site owner submitting the agreement to the advertiser or the affiliate.

The Online Advertising Agreement

        Clearly the agreement should provide that the site owner have the right to review and approve all advertising placed on the site.  It should allow the site owner to carry competitive advertising unless the advertiser is paying for exclusivity, either as to entire content such as a co-branded part of a site, or as to specific pages within a site.  The deals thus struck should of course be made in this regard before the agreement is prepared so that the agreement can be drafted accordingly.

        The agreement should cover which party is responsible for the creation of the advertising.  While this is generally going to be the advertiser, this is not universally so.  Often a site provides, as part of its services, the creation of banner or other formatted ads and the advertiser may thus use the site owner as that creative element.  In all instances, these questions lead to and the agreement should thoroughly cover, who owns the rights to the advertisements thus created.  If it is the advertiser, the agreement should so reflect and should further then include appropriate warranties on the part of the advertiser that it in fact owns all rights to the ads (or at least sufficient rights to enable it to enter into the agreement with the site owner) and of course, appropriate indemnities in the event the warranties or other obligations on the part of the advertiser are not fulfilled.  These warranties and indemnities should include but not be limited to issues such as that the products or services being advertised are safe and comply with all laws and regulations and so on.
 
        If the site owner is going to be the creator of the advertising, then the agreement should deal with the ownership rights to the creative and other elements in the ads.  Surely the site owner is not going to end up owing rights to the underlying product or service since that belongs to the advertiser.  However, the creation of advertising may result in rights of copyright and trademark in the ads themselves, such as the creation of characters, graphics, sounds, logos, contests and the like.  The parties must understand and the agreement must reflect, who owns these very important rights.  Keep in mind that today’s web site (and anything on it) has the possibility of becoming tomorrow’s feature length motion picture, or merchandising campaign or similar cross-marketing event.  Ownership of rights is a very important legal and business issue.

        The agreement should also provide that the site owner has the right to remove the advertising if the advertiser fails to pay for the same and in the event that the site owner receives a notification that the advertising is claimed to infringe on the rights of a third party.  In that regard, you should read “The Notice and Take Down Provisions of the DMCA.”

        The site owner should not be making any representations or warranties about the performance of the site or the technology behind the site.  There should, accordingly, be legally sufficient disclaimers in these areas.

        However, of great importance are provisions dealing with whether or not the site is going to guarantee any number of impressions, click-throughs or any other form of measurable response to the advertising.   This is perhaps the essence of the deal from both parties’ standpoint.  But how this is handled within a contract is often very difficult.  If the thresholds, whether expressed as a guarantee or not, are not met, what are the rights and remedies of the parties?  Can the advertiser get some or all of its money back?  What happens to the duration of the agreement?  What if the site goes out of business?

        Also of great importance are issues relating to which party “owns” the customer data received by the site and the advertiser from the site.  Since repurposing customer information can be a major source of income for both parties, these provisions are essential.  But there are some subissues that have to be dealt with here and those subissues relate to the nature of the site and the legal status of its privacy policy and terms of use, if the site has either of these.   These policies and terms of use govern the relationship of the site to its visitors and, if the site has these policies and terms of use, the site is legally mandated to comply with the same.  This means that if the site is seeking to “own” the customer data as between it and the advertiser, the site must have its privacy policy and terms of use so state.  If there is a conflict, the site may find itself in legal hot water.  Furthermore, if the site is a site that falls within the scope of the laws regulating sites marketed to children (“The Children’s Online Privacy Protection Act” and other such laws including state laws if any), then the use of the data so collected is subject to strict legal requirements including that any such data that is legally collected is subject to being deleted at the request of the parent.

        Thus any use of the data collected, as between advertiser and site owner, and the license agreement between those parties, is subject to full compliance with the site’s own privacy statements and terms of use and any laws governing the same.  There are a number of articles on my site under the links “Articles About the Internet and Electronic Rights” and “Articles About Privacy.”

        The agreement should also cover issues about the confidentiality of the data and any other site-specific information and of course should have provisions dealing with prices, dates for payments, term of the agreement and other relevant clauses.

The Affiliate Agreement

        Many of the same legal issues are presented by the affiliate agreement but let me highlight some of the provisions that are particular to this contract that arise by virtue of the nature of the relationship.  I use the term “affiliate” to refer to the site that is the source of the traffic and the term “site owner” to refer to the program’s originator and the destination of the link clicked on at the affiliate site.

        The affiliate should of course be given the right to create a link and/or banner that links to the site owner’s site but the site owner should be given the right to control and approve how that link is set up and established.  The ownership of all rights in any such banner or other linking item should remain solely with the site owner.  However, it should be the responsibility of the affiliate to make certain that the link actually works.

        The affiliate arrangement should of course be non-exclusive and the agreement should reflect that the site owner has the right to enter into the same or similar arrangements with other affiliates including those that are competitive to that of the affiliate.  The site owner should have the right to cancel or modify the program at any time after notice to the affiliates but this notice should not have to be sent to each affiliate individually and should be allowed to be posted on the site owner’s site.

        The site owner should have the sole right to decide whether or not to sell to or otherwise do business with a visitor that has clicked through to the site owner’s site from the affiliate.  The site owner needs total discretion to review all such “orders” for many reasons including creditworthiness, reliability etc.

        The fee arrangements must be specified with particularity.  How is the fee calculated?  Is it a flat fee or a percentage based on gross or net?  If on net, how is that net calculated i.e. what costs and expenses are allowable deductions from gross before the calculation is made?  How are returns or refunds handled?  Is there one fee for click-throughs and another fee for an actual purchase?  As with the advertiser agreement, which party “owns” the customers that have clicked through?  Does the affiliate get paid if the affiliate itself makes a purchase?  What happens if a customer who originally came via a link from the affiliate later returns to the site owner’s site directly and purchases?

        As with the advertiser agreement, there should be exclusions from warranties, in a legally acceptable way, indicating that the site owner does not warrant that there will be any links, any traffic, and in turn any revenue generated from the program.

Conclusion

        As with all agreements, there are many other provisions that should be included and I have merely tried to point out some of those provisions that are particular to these type arrangements.  Depending on which side of the transaction you are on, the negotiations about these and other provisions may change.

© 2001 Ivan Hoffman

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This article is not intended as a substitute for legal advice.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  You should consult with an attorney familiar with the issues and the laws.
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No portion of this article may be copied, retransmitted, reposted, duplicated or otherwise used without the express written approval of the author.

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