Last Updated: March 15, 2023
What is an Affiliate Agreement?
Who are the Parties to an Affiliate Contract?
An affiliate contract is a legal contract between two parties where one party (the affiliate) agrees to promote and market the products or services of the other party (the merchant or affiliate marketer) in exchange for a commission or a share of the revenue generated from the sales made through the affiliate's promotional efforts.
Who are Affiliate Contract Managers?
An affiliate contract manager is a person who manages the relationship between a company (the merchant) and its affiliates. The main role of an affiliate manager is to recruit new affiliates, communicate with existing affiliates, and coordinate marketing and promotional efforts to maximize revenue and growth for both parties.
Affiliate contract managers typically have a deep understanding of affiliate marketing strategies and practices, as well as knowledge of the company's products or services. They may be responsible for developing and implementing marketing plans and strategies, monitoring affiliate performance, providing support to affiliates, and ensuring compliance with the terms of the affiliate agreement.
Other responsibilities of an affiliate contract manager may include negotiating commission rates and payment schedules with affiliates, tracking and analyzing affiliate performance metrics, creating reports and forecasts, and identifying opportunities for growth and optimization.
Overall, an affiliate contract manager plays a critical role in maintaining a solid and productive relationship between a company and its affiliates, helping to drive revenue and growth for both parties.
In an affiliate agreement, the terms and conditions of the relationship are set out, including the commission rate, the payment schedule, the responsibilities and obligations of both parties, the restrictions on the use of trademarks and intellectual property, and the termination clause.
The Single, Most Significant Legal Concern and Challenge for Affiliate Marketers & Merchants
As early as 2010, rather than place the entire compliance burden on the affiliates themselves, the FTC's regulatory strategy has been to hold the entire affiliate marketing advertising chain responsible.
David Vladeck, Former Director of the FTC Bureau of Consumer Protection, stated on November 18, 2010:
“FTC liability for deceptive advertising can potentially reach anyone in the chain between a seller (original advertiser) and the ultimate consumer.”
Legal Liability for Affiliate Marketers & Contract Managers
The FTC has long been concerned with affiliate marketers who engage in deceptive marketing campaigns. Affiliate marketing has become a profitable channel, with affiliates often earning huge commission payouts. The FTC has taken notice, bringing enforcement actions against all links in the affiliate marketing chain.
The Legacy Learning Systems Case
In 2011, we first learned that affiliate managers could be held liable for the sins of their affiliates in the FTC's case against Legacy Learning Systems.
The FTC settled the case with an order for Legacy Learning Systems to pay $250,000. The FTC alleged that Legacy Learning deceptively marketed its guitar lesson DVDs through online affiliate marketers who falsely posed as ordinary consumers or independent reviewers.
The LeadClick Media Case
In 2016, we first learned that an affiliate network could also be held liable for the sins of their affiliates in the FTC's case against the affiliate network LeadClick Media.
In the LeadClick Media case, the U.S. Second Circuit Court of Appeals upheld a lower court ruling requiring the affiliate network LeadClick Media to pay $11.9 million for its affiliates' deceptive marketing practices.
The FTC alleged that LeadClick was directly liable because it orchestrated a scheme that was likely to mislead reasonable consumers.
Risk Management for Affiliate Marketers
An affiliate marketing agreement should incorporate the five strategies for limiting the liability of affiliate marketers, merchants, and contract managers, as discussed below.
5 Strategies for Limiting Liability for Affiliate Marketers, Merchants & Affiliate Contract Managers
1. Affiliate Compliance Program
The first FTC strategy for regulating affiliate marketing imposes legal liability to the very top of the affiliate marketing chain.
The second FTC strategy for regulating affiliate marketing requires affiliate marketers to monitor and enforce a compliance program.
The settlement in the Legacy Learning Systems case provides the following guidelines for the second FTC strategy.
* Clearly and conspicuously disclose in writing to each marketing affiliate that engaging in deceptive marketing practices will result in immediate termination of the affiliate relationship and forfeiture of all monies owed to such marketing affiliate.
* Routinely monitor and review, on at least a monthly basis at times not disclosed in advance to the affiliate and in a manner reasonably calculated not to disclose the monitoring activity at the time it is conducted, affiliate marketing materials, including websites, emails, banners, sponsored search terms, and pop-up ads.
* Promptly and completely investigate any consumer complaint regarding any affiliate.
* Immediately halt the processing of any payments or charges generated by an affiliate that the Internet marketer knows or should know is engaged in a deceptive marketing practice.
* Fully refund, within five business days, each consumer charged by any defendant whose sale originated from any affiliate engaging in deceptive marketing practices.
* Terminate immediately any affiliate that is engaged in deceptive marketing practices.
2. Affiliate Email Policy
Affiliate marketers can be liable for violations by affiliates of the U.S. "CAN-SPAM" Act of 2003.
CAN-SPAM is an opt-out statute (not opt-In).
CAN-SPAM has 5 basic rules.
* Header Information: to, from, IP address must not be misleading.
* Subject Line: must not mislead regarding the content or subject matter.
* Return Email Address: must be functional
* Unsubscribe Requests: visible and operable unsubscribe mechanism with a single click; honored within 10 days (most likely to get marketers in trouble).
* Contents: must identify ads and provide a valid postal address (PO box is OK).
The FTC Issued Final Rules in 2008.
* Sender Rule: The Advertiser-merchant is the “sender” and responsible for compliance even though the affiliate sends the emails
* When the FTC defined the advertiser-merchant as the “sender,” affiliate program compliance underwent a fundamental change.
Recommendations. Develop policies to manage liability exposure for the following issues created by affiliates.
* Defective Unsubscribes.
* Failure to opt-out unsubscribers.
* Suppression list management (opt-out list).
3. Affiliate Monitoring Policy
Develop a policy and process for monitoring affiliate websites, emails, banners, sponsored search terms, and pop-up ads to discover compliance violations.
The recommended approach is an automated process; however, a manual process may be sufficient depending on the scope of the process.
4. Affiliate Enforcement Policy
Monitoring without enforcement is meaningless.
Develop a written policy for enforcement that establishes protocols for:
* Initial violations, including time frame for updating to compliance and warnings for future violations.
* Subsequent violations, including immediate termination without payment of commissions and other related actions.
* Incorporate these policies into your affiliate agreement.
5. Affiliate Recordkeeping Policy
Monitoring and enforcement without documentation to support the process are meaningless.
Document all monitoring and enforcement activity to demonstrate to regulators that you have implemented and enforced your affiliate compliance program.
How I Can Help You
I help affiliate marketers, merchants, and affiliate contract managers develop an affiliate marketing agreement that fits their specific requirements.
I help affiliate marketers, merchants, and affiliate contract managers develop and maintain an affiliate compliance program and the required policies consistent with FTC requirements.
How to Get Started
The recommended way to get started is to scroll to the bottom of this page, click on the "Book a Call" button, then schedule a call.
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- Juris Doctor Degree, Wake Forest University School of Law
- Adjunct Professor of Law, Wake Forest University School of Law (20 years)
- Martindale-Hubbell Highest Attorney Peer Rating – AV® PREEMINENT™
- Co-Founder & CEO, FTCGuardian.com, #1 in FTC Compliance Training