Affiliate Marketing: The Legal Issues
For those who do not know what affiliate marketing is, we will attempt a brief description and then an illustration. Affiliate marketing in an online context is a type of performance based marketing where an e-commerce business (seller) rewards an individual (affiliate) for each visitor or customer the affiliate is able to drive to the seller’s website which results in a successful sale/sign-up.
So, say Mr. Lagbaja has a an e-commerce store that sells roast plantain on demand, he needs to generate more sales, so he gets Ms. Toyin Tomato to be an ‘affiliate’ and drive sales to his website. Ms. Tomato has a blog that advises people on dieting and healthy food to eat, and so she writes a blog about the benefits of eating roast plantain (especially with groundnut), and in this blog she puts links to where people can buy roasted plantain online – Mr. Lagbaja’s website, with the understanding that if someone clicks on a link on her blog to Mr. Lagbaja’s website and then makes a purchase, Ms. Tomato will get a percentage of the value of the sale.
Lecture on definition of ‘Affiliate marketing’ over.
This post therefore is about the legal issues that one should clarify before embarking on this sort of business, and here are some of our observations:
Certain services/goods that are being sold online are regulated, and therefore to market it, you need to ensure that the business on whose behalf you are marketing is registered and licensed to sell those products. For example, in order to run an online sports betting website in Lagos, Nigeria, the company needs to be licensed by the Lagos State Lotteries Authority. Any company carrying out the business of online sports betting without a licence is committing a crime.
If you therefore assist in the commission of this crime, by actively engaging customers on behalf of an unlicensed company, you could be held liable for being an accessory to the crime. Granted, there is no case law on online affiliate marketing in Nigeria to support this, however, it is a theory of criminal liability, which definitely holds up to academic scrutiny. Therefore, before you sign any affiliate agreement, ensure the company is validly registered to carry on that business, ask for proof, do your research etc. Make sure that you take all logical steps to verify that you are not assisting in the commission of a crime.
You need to understand exactly what you are being paid for, it varies by website, and varies by industry. You may be paid ‘per click’ which leads to the business owner’s website, or ‘per sale/action’. It is imperative you know this, so you can gear your marketing towards achieving those metrics. If for instance you are being paid per sale, and there is no specific ‘call to action’ on your blog, which is geared towards closing a sale, you may find that all you are doing is generating user traffic for the business but no sales, and therefore no revenue for yourself.
Sometimes the business sets a volume cap for each affiliate marketer. A volume cap is when a business sets a maximum number of referrals/leads/acquisitions it can receive from a marketer within a specific time frame. This might be done so that the business can better manage its cash flow and work within its budget.
It is your duty therefore when reviewing the affiliate marketing contract to ensure that no such cap exists, and where it does, then you should use it as a barometer to manage your lead flow into that business. What you do not want to be doing is passing on customers to the business after exceeding your volume cap, because doing that would just mean that you are giving the business free leads.
Commission Structure & Termination process
Some affiliate marketing contracts provide for a minimum number of referrals/leads, which an affiliate marketer must deliver in order for them to trigger a payment. You should be aware that this is perfectly legal, and although providing leads which are below the threshold doesn’t mean you are not owed the referral fees on the leads, it simply means that they have not ‘matured’, and you have no legal right to claim them yet. You therefore need to ensure that you can hit those minimum threshold figures before you sign the agreement.
Also linked to this is the fact that some of these affiliate marketing agreements may stipulate that if you terminate the agreement within a certain time frame, or at a certain time of the month, you forfeit your right to certain payments due. You should read these clauses very well and understand your rights in those situations – specifically notice periods, and termination payments.
So, the crux of this business model is that you are sending customers from your website to Mr. Lagbaja’s website. An issue may arise where you check your analytics and reporting and see that in Month X you sent 35 customers to Mr Lagbaja, however, Mr Lagbaja’s analytics and reporting tell him that you only sent 28 customers in Month X. What happens in such a situation? The correct answer should be that the agreement would stipulate whose reporting will prevail in such a disagreement. More often than not, it is Mr Lagbaja’s reporting that will prevail, and if that is the case then you need to get some assurances around the robustness of the reporting platform Mr Lagbaja uses before you agree to be an affiliate marketer for him.
Disclaimers and Limitation of Liability
Most affiliate marketing contracts should have a limitation of liability clause, what this clause basically states is that the business is not liable to you for any actions or suits brought against you as a result of you passing on customers to it, and notwithstanding the limitation of liability, in the event of any liability, the extent of liability cannot exceed the total commission paid to you as a marketer. (Confusing, we know. We will explain better below)
The operation of a clause, using the example given earlier above, would be to the effect that in a scenario where an online betting website operated without a licence, and you obtained customers for this website as an affiliate marketer. If the regulatory body was to hit you with a fine of say N1 million, for assisting in the commission of a crime, and you only made N10,000 in commission fee, the betting website’s liability to you (if they grudgingly accepted liability) would only be to the tune of N10,000 and sadly you would have to make up the difference of N990,000 to pay the fine.
Also, the contract might have a disclaimer, which disclaimed any express or implied representations or warranties regarding the products or services offered, and any implied warranties of ability or fitness for a particular purpose.
What this means in plain English is if on your website you marketed a product, say a toothbrush, like this – “best toothbrush in the world, guaranteed to last for 5 years”, and a customer was to click on the link to go to the seller’s website, went ahead to buy it, and after using it for 2 months it breaks. If the buyer sued you and the website owner on the basis of the way it was marketed to him, the website owner would use the disclaimer as a shield to evade liability, and you would therefore theoretically be solely liable.
The above is not an exhaustive list, it is just a cursory look at some things you need to think about from a legal perspective before you sign up to an affiliate marketing program.
It is highly unlikely that one affiliate marketer can get a website to change its terms of agreement, however you should be aware of what you are signing before you sign up. I always say this to people, before you sign something, especially something that has financial implications – Get a lawyer to review the agreement, or read it yourself very thoroughly!!
The Latin maxim for this is ‘caveat subscriptor’ – let the signer beware (yes, there is a Latin maxim for almost everything). It means that when a party to a written contract signs it, there is a legal presumption that he/she is aware of all the terms and conditions of the contract, and is bound thereby. It will not, in general terms, be a defence that he/she was not aware of certain unfavourable terms or that he/she signed the agreement without understanding the meaning and implication of the unfavourable terms, or that the application of the unfavourable term is grossly unfair to him/her.
In other words, shine ya eye before you sign!
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We hope you have found this information helpful. Please note that this information is provided for general informational purposes only and is not intended to be legal advice. No lawyer-client relationship is formed nor should any such relationship be implied. It is not intended to substitute for the advice of a qualified lawyer. If you require legal advice, please consult with a qualified lawyer.