LEGAL CORNER

When the Fine Print Matters- What You Need in Your Contracts

Fine print is everywhere, so you might as well use it.  If things go awry, certain terms and conditions in your contracts with affiliates and customers could save you too. 

Contracts with your affiliates

SEO companies and advertisers commonly use affiliates to help drive traffic, but they can also drive in some unforeseen liabilities.  Affiliates are usually independent contractors.  Generally speaking, a company cannot be held liable for the actions of their independent contractors.  The opposite generally holds true for employees.  Therefore, any contract with an affiliate should spell out that the agreement does not create an employee/employer relationship. 

The inclusion of language specifically denying the existence of an employment relationship will not save you in all states.  The key issue is usually control.  Do you simply tell the affiliates to drive traffic or do you tell them when, how and where to do it?  With the latter, the courts are likely to rule the affiliate is an employee and you could be held liable for their actions.

With affiliates, even if you properly treat them as independent contractors, their actions can still get you in trouble.  For example, the federal CAN SPAM law makes certain email activities illegal.  The law specifically holds advertisers and possibly SEO firms liable for the actions of their affiliates if the advertiser knew the affiliate was spamming for the economic benefit of the advertiser without taking reasonable steps to prevent it.  While the enforceability of this rule against advertisers is still unresolved, the Federal Trade Commission has brought claims against advertisers forcing either settlements or expensive battles that are better to simply avoid. 
One simple defense that has been upheld is the inclusion of a provision that prohibits your affiliates from violating CAN SPAM in the affiliate contract.  If you make it a practice not to bid on trademarked terms (a possible violation of the Lanham Act), then you should contractually prohibit your affiliates from doing that too.  Adware use by affiliates has also created problems. Therefore, you should include similar restrictions related to any other practices for which you do not want to be responsible.
Of course, more contractual restrictions means more control which could result in “employee” status for the affiliate equaling more possible liabilities.  So, attention to your contracts with affiliates is very important and requires a fine balance and careful review by your lawyer.

You should also include what is called an indemnity provision.  It requires the affiliate to pay for your defense costs and any damages you might have to pay as a result of their actions.  It sounds foolproof, but its value is only as good as the creditworthiness of the affiliate.  If the affiliate does not have any money to pay your legal defense costs or any damages you are ordered to pay, then the bill goes to you. 

Contracts with your customers

SEO and SEM contracts with the customers should have similar provisions.  Although the firm is more likely to select the ideas and the search terms, you still need to protect yourself from unwittingly taking part in unlawful actions.  For example, if you prohibit the customer from selecting trademarked terms rather than you being forced to determine the significance of each search term, then the contract should prohibit it.  If you are doing work for licensed professionals like lawyers and doctors, you should also make sure they are contractually responsible for ensuring compliance with their own regulations.  You should make the customer defend, indemnify and hold you harmless from any of these violations with the same caveat that indemnity is only good if the customer can actually pay.

In addition, the customer’s contract should include a forum selection clause that requires any and all lawsuits to be decided in your home town.  You should also include a limitation of liability of provision that limits any recoverable damages to the amount paid to you by the customer.  It is not unheard of for a company to blame the loss of an entire business on their marketer.  Considering your program may garner you only $1,000, you do not want to open yourself up to unlimited liability for losses beyond your control.

If you give a lawyer unlimited time and space, he or she could make your simple marketing contract forty-five pages.  No contract, however, can cover every contingency.  At some point, you have to draw the line.  Visit with your lawyer to make sure the issues important to you are covered as well as protecting yourself from issues you haven’t even thought of. 

Some “Fine Print” of My Own

None of the provisions will guarantee you will be free from litigation.  Each state treats the “fine print” differently.   With the caveats that different laws apply in different states, here is some form language that is being provided for general informational purposes only and is not considered legal advice; nor does your review or use of it create an attorney-client relationship.  You should visit with your lawyer to tailor your needs to your contract.

Affiliate contract – independent contractor

The parties acknowledge and agree that the Affiliate is, for all purposes, an Independent Contractor, and that this Agreement does not create an employment relationship, a partnership, joint venture, or any other relationship other than that of independent contractor. 

Affiliate – prohibit violations of policies

Although Affiliate is an Independent Contractor Company, Affiliate shall conduct himself or herself in the conduct of his or her activities hereunder so as not to denigrate the name and reputation of the Company.  Affiliate is not authorized to engage in any conduct on behalf of or for the benefit of Company that would violate CAN-SPAM, the Lanham Act or any other violations of state or federal law.  Company is not liable or responsible for any such violations and Affiliate is strictly prohibited from engaging in any such behavior for Company.

Customer contract – prohibit violations of the law

Customer acknowledges and represents it has not and will not ask Company to engage in any conduct on behalf of or for the benefit of Customer that would violate CAN-SPAM, the Lanham Act or any other violations of state or federal law.  Company is not liable or responsible for any such violations and Customer is not relying upon Company to determine whether or not any such violations have occurred. 

Indemnity provisions

Affiliate/Customer shall hold the Company harmless from all claims, damages, losses and expenses reasonably attributable to Affiliate’s/Customer’s negligence, wrongful acts, violations of CAN SPAM, the Lanham Act or other violations of state or federal law or misrepresentations in the exercise of Affiliate’s/Customer’s right(s) hereunder.

Forum selection provisions

The validity, effect and construction of this Agreement shall be governed by the laws of the State of Texas.  Contractor agrees to any suit arising under or in connection with this Agreement, including but not limited to, any proceeding to enforce or construe this Agreement shall be brought in state court in Harris County,Texas, and nowhere else.  Both parties agree to be bound by any judgment or order, whether legal or equitable, issued by the required Courts.

Limitation of liability

CUSTOMER ACKNOWLEDGES AND AGREES THAT THE CONSIDERATION WHICH COMPANY IS CHARGING HEREUNDER DOES NOT INCLUDE ANY CONSIDERATION FOR ASSUMPTION BY COMPANY OF THE RISK OF CUSTOMER'S CONSEQUENTIAL OR INCIDENTAL DAMAGES WHICH MAY ARISE IN CONNECTION WITH SERVICES PROVIDED. ACCORDINGLY, CUSTOMER AGREES THAT COMPANY SHALL NOT BE RESPONSIBLE TO CUSTOMER FOR ANY LOSS OF PROFIT, INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE SERVICES PROVIDED BY COMPANY. Any provision herein to the contrary notwithstanding, the maximum liability of Company to any person, firm or corporation whatsoever arising out of or in the connection with any services provided by Company or use of any services provided by Company, use or other employment of any software delivered to Customer hereunder, whether such liability arises from any claim based on breach or repudiation of contract, warranty, tort or otherwise, shall in no case exceed the actual price paid to Company by Customer for the services provided. The essential purpose of this provision is to limit the potential liability of Company arising out of this Agreement. The parties acknowledge that the limitations set forth in this section are integral to the amount of consideration levied in connection with the providing of services by Company any services rendered hereunder and that, were Company to assume any further liability other than as set forth herein, such consideration would of necessity be set substantially higher.