Keeping Your Affiliate Marketing Arrangement on the Up and Up
Disclaimer: Obviously, this blog does not provide legal advice. How do you know? This is free. Legal advice you have to pay for.
Over the next few weeks, we are going to discuss some of the legal issues surrounding a very popular online business model – affiliate marketing. If you are unfamiliar with the practice, affiliate marketing is a relationship between a retailer and affiliates who market and sell products on the retailer’s behalf. The affiliate gets a commission from each sale that they bring in.
While this seems on the surface like a fairly unremarkable business relationship, it actually brings out a number of important legal issues, especially since it is regulated by the Federal Trade Commission (FTC). The laws behind the FTC prohibit “unfair or deceptive acts or practices” by advertisers, and covers most mediums including the internet. The FTC has also promulgated regulations for many sectors and actively enforces deceptive advertising.
Of course, the FTC is not the only law in town regarding internet businesses. Most internet laws will have some effect on affiliate marketing, since so much of the practice occurs online. The first thing to remember is that the FTC and the courts have been very willing to hold the retailer liable for the affiliate’s actions. This means that if your affiliate breaks a law, you as the retailer may need to pay the fines or damages. Therefore, it is very important that you carefully monitor all affiliate advertising.
For this post, we will just give a very general outline of some of the more pressing legal issues that you should be aware of if you are an affiliate marketer or looking to hire an affiliate marketer. We will expand on these issues in the coming days.
The FTC prohibits any deceptive advertising practices. They have interpreted this task very broadly. Not only do they enforce false advertising, but they also require certain disclosures in ads. For example, any copy that requires qualifiers in order to be true, must include disclosures explaining the qualifiers. All disclosures must be clear and conspicuous so that the reader will easily see them. In addition, the FTC has determined that failing to disclose an affiliate marketer relationship is deceptive. This means that any affiliate marketers who are earning money from their advertising must disclose their financial incentives. This is required even for social media posts, customer reviews, and blogs.
Affiliate marketing has gotten a bad reputation lately for illegal and unethical practices. The government provides hefty fines for marketing that uses spam or adware. Beware of marketing using brand names as trademark and copyright issues may arise. And avoid negative advertising, since it may be more trouble than it’s worth.
Other Legal Best Practices
There are many things you can do to help protect your affiliate marketing business. Perhaps the most powerful move is to create a formal business entity to provide limited liability for the owner, so that they cannot go after your personal assets. Just as important, understand your affiliate contracts. There are many pitfalls and liabilities you can protect yourself from with a well drafted contract. Finally, remember that your website’s Terms of Service are your contract with your customers. Ensure it provides you with protection and a clear structure.
We’ll be talking more about each of these issues in more detail in the coming days.