Affiliate marketing is a type of performance-based marketing where an online business (merchant) uses third-party advertisers (affiliates) to advertise its products to potential internet customers. Affiliates use display advertising, e-mail, and paid search engine marketing to channel internet traffic to a merchant’s website or product. In return for the advertisements, businesses will compensate the affiliate for each click or sale that occurs due to the third-party marketing efforts.
Recently, affiliate marketing has become an overwhelmingly popular and profitable way for online merchants to reach customers, particularly in states where the business may lack any physical presence.
What does Affiliate Marketing Look Like?
Let’s say I run a popular website that publishes reviews of bestselling novels. Along with the reviews, my website also provides a link to Amazon.com, where you can purchase the books I’m reviewing. You might click the link, and you might buy the book from Amazon.
If I have an affiliate marketing agreement with Amazon, software on Amazon’s website will track how many times my readers click the Amazon link, and how many visitors actually purchase something using my link. If the customer’s action on the website is a qualifying transaction under our agreement, I’ll be compensated.
What is an Affiliate Marketing Agreement and Why is it Important?
Every affiliate marketing relationship between a merchant and the affiliate/content publisher is defined by an affiliate marketing agreement. Usually, the merchant creates the agreement, and affiliates agree to abide by the terms in order to participate. These agreements should include terms like (1) payment structure, (2) advertisement means and structure, and (3) cookie duration (i.e., once customers clicks the link, how soon do they need to purchase the product for the affiliate to get paid?) In addition to laying a foundation for a business relationship, these agreements can also protect both merchants and affiliates in several ways.
An affiliate marketing agreement may be a merchant’s first defense to prevent third-party advertisers from using unlawful or distasteful advertising practices to advertise the merchant’s business. Of course, you want affiliates to advertise your company in a legal and professional way, but even more importantly, there’s a chance you could be held liable if they don’t.
A couple years ago in United States v. Cyberheat, Inc., the Federal Trade Commission attempted to hold a seller liable for the misconduct of its marketing affiliates. One of Cyberheat’s affiliates used sexually explicit e-mails that didn’t comply with FTC warning label requirements, and the FTC tried to hold Cyberheat strictly liable for the affiliate’s actions. Although the case did not result in merchants being held strictly liable for an affiliate’s actions per se, since then, the FTC and state authorities have continued to increase affiliate monitoring requirements.
As of today, merchants can either act as if they will be held liable for their affiliate’s actions, or be prepared for FTC litigation if an affiliate does something illegal. In order to prevent unneeded litigation, your affiliate marketing agreement should explicitly and clearly state terms about how the affiliate may and may not advertise. The agreement should also include a proper termination clause in the event a violation does occur.
With the advent of online affiliate marketing, affiliates have used methods like false advertising, spam, and adware to drive traffic to a merchant’s website. Because the online e-commerce industry utilizes ever changing technology and lacks clearly defined standards, your affiliate advertising agreement is the best way to articulate what affiliates may and may not use to advertise your company.
If the affiliate wants to use a novel technology to advertise, make sure you know how the technology works before agreeing to it. The affiliate marketing agreement should also have clearly defined monitoring procedures so you can prevent any unlawful or distasteful affiliate practices before they get out of hand.
As an affiliate, your marketing efforts may be for nothing if you don’t clearly understand the payment structure of your affiliate marketing agreement. Before you jump on board, make sure the agreement specifies when, how, and why you’ll be compensated for your advertising efforts. As a merchant, a clear payment plan will ensure that your affiliates are fairly compensated, and could prevent a load of litigation down the road.
If you are thinking about starting your own affiliate marketing program or have questions about online advertising, contact the Attorneys at Revision Legal.
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