7 Legal Pitfalls Affiliate Marketers Should Avoid


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Affiliate marketers face countless legal pitfalls, often without acting until it’s too late. This is a practical guide against the most common legal issues all internet marketers should be aware of.

Experience level: Beginner
Target audience: Affiliate/Publisher
Niche/vertical: Legal

Troy Meyerson, Partner, Fraser Stryker PC LLO (Twitter @InternetAttys)

Published in: Business
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  • I'm just starting to dive into understanding the business of Affiliate Mktg -- as a possible venture. I've viewed this presentation just one time & I MUST state this is the MOST important contribution to this business/industry/venture I've come across -- so THANK YOU!! Tis should be the MANDATORY 'READ ME FIRST' for EVERY person involved or wanting to be invovled in Affiliate Mktg. I expect to review this countless times until I FULLY understand it . . . Thanks AGAIN B. C. Ohio
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7 Legal Pitfalls Affiliate Marketers Should Avoid

  1. 1. www.fraserstryker.com
  2. 2. 7 Legal Pitfalls Affiliate Marketers Should Avoid Troy F. Meyerson Fraser Stryker PC LLO Internet Law Group Chair © 2013 FRASER STRYKER PC LLO tmeyerson@fslf.com @InternetAttys Affiliate Summit West 2013 2
  3. 3. Affiliate Marketing’s Legal Pitfalls:I. Entity FormationII. Analyzing Affiliate ContractsIII. Terms of ServiceIV. Privacy PoliciesV. FTC Regulations and Truth in AdvertisingVI. Trademark Infringement © 2013 FRASER STRYKER PC LLOVII. Copyright Infringement 3
  4. 4. I. Entity Formation4 © 2013 FRASER STRYKER PC LLO
  5. 5. Entity Formation OverviewSole Proprietorship – Default; 100% personal liabilityShould you form a business entity at all?Which entity is right for your business? Partnership Corporation •C Corporation © 2013 FRASER STRYKER PC LLO •S Corporation Limited Liability Company (LLC) 5
  6. 6. Should you form a business entity at all?Affiliate Marketing Businesses can gain several benefits from forming an entity. Asset Protection Limited Personal Liability Potentially Favorable Tax Treatment Easier to Raise Capital and Transfer Ownership Interests.However, determining which entity is right for your © 2013 FRASER STRYKER PC LLO business requires an analysis of the costs and benefits of each option. 6
  7. 7. Limited LiabilityChoosing an entity with limited liability protects your personal assets. Personal liability limited to amount invested. Personal assets generally out of creditors. Especially important for businesses operating in riskier areas. © 2013 FRASER STRYKER PC LLO 7
  8. 8. Limited LiabilityEntities with UNLIMITED Liability General Partnership (Default) Sole Proprietorship (Default)Entities with LIMITED Liability S Corporation C Corporation © 2013 FRASER STRYKER PC LLO Limited Liability Company (LLC) 8
  9. 9. Tax ImplicationsC Corporation Double taxation (Corporate Level and Personal Level)S Corporation and LLC “Pass-Through” Entities - Income flows straight to the individual © 2013 FRASER STRYKER PC LLO LLC Members must pay self-employment taxes 9
  10. 10. Ownership and TransferabilityOwnership LLC – One or more members S Corporation- Up to 100 shareholders C Corporation – Unlimited number of shareholdersTransferability LLC – Depends on the operating agreement © 2013 FRASER STRYKER PC LLO S and C Corporation – Generally, easier to transfer ownership 10
  11. 11. Bottom Line on Entity FormationUpfront costs.LLCs and Corporations provide limited liability.LLCs and S Corporations provide single, pass-through taxation.LLCs offer flexible management options with less formal requirements. © 2013 FRASER STRYKER PC LLO 11
  12. 12. II. Analyzing Affiliate Contracts © 2013 FRASER STRYKER PC LLO 12
  13. 13. Affiliate ContractsNever work with an Advertiser or affiliate program without a contract.An Advertiser or affiliate program should have a standard affiliate marketer contract.It is very important to read the contract. Legal consultation is recommended for complicated contracts. © 2013 FRASER STRYKER PC LLO Taking the time to understand the contract will pay off. 13
  14. 14. Important Provisions in Affiliate ContractsHow is compensation determined –  “per click” or “per lead” basis or  “per sale/action” basis.Lead Volume – Has the Advertiser or Network included a cap on the lead volume in your contract? For example – if an Advertiser or Network sets a lead volume cap at 1,000 leads per month and you exceed that © 2013 FRASER STRYKER PC LLO volume, you may not be paid for the excess volume. 14
  15. 15. Important Provisions in Affiliate ContractsCommission Step-up – Are there two tiers of payouts?  Do you think you can achieve the second tier?  Does the lower tier adequately compensate you?Termination Provisions – Are you allowed to terminate the arrangement without penalty?  How much notice must be provided to the Advertiser/Network? © 2013 FRASER STRYKER PC LLO  What payments are required to be made to you upon termination? 15
  16. 16. Important Provisions in Affiliate ContractsLeads/Actions – what qualifies as an Action?  Whose data is used to determine the commissions owed?  What time frame is required in order to protest?Limitation of Liability –  Is there one?  Is it mutual? © 2013 FRASER STRYKER PC LLO  Are consequential damages disclaimed?Indemnity Obligations? 16
  17. 17. Bottom Line on Analyzing Affiliate Contracts Read the affiliate contract. Make sure you understand your obligations. Structure your websites and marketing efforts to comply with the contract’s terms. © 2013 FRASER STRYKER PC LLO 17
  18. 18. III. Terms of Service18 © 2013 FRASER STRYKER PC LLO
  19. 19. Terms of ServiceBusinesses are advised to protect their interests by entering into transactions using a contract.The interaction between a website operator and a website user is essentially a business transaction.Thus, website operators should implement terms of service to protect their interests. © 2013 FRASER STRYKER PC LLO 19
  20. 20. Common Terms of Service ProvisionsDigital Millennium Copyright Act (“DMCA”) NoticePrivacy Policy ReferenceDisclaimers – provisions stating the website’s information or services are provided “as is”. Such a provision might be particularly important if your website contains a blog which provides © 2013 FRASER STRYKER PC LLO personal (un-compensated) opinions. 20
  21. 21. Common Terms of Service ProvisionsLimitations of Liability. Potential liabilities to be averted: •Copyright infringement •Defamation and obscenity tortsTerms Governing the Submission of User Content.Choice of Law and Venue Provisions. © 2013 FRASER STRYKER PC LLO 21
  22. 22. Terms of Service EnforceabilityAssuming the contract is otherwise enforceable, courts should enforce terms of service if the user continues to use the website after having reasonable notice of the terms.Thus, enforceability is often a fact sensitive analysis.To ensure the enforceability of key terms, website operators should make such terms highly visible to the user. © 2013 FRASER STRYKER PC LLO 22
  23. 23. Terms of Service Enforceability ConsiderationsDoes the user have to scroll down to see the terms of use…………………………………………………….....are they initially hidden?Are the terms (or a link thereto) visible when the user registers?Does the website implement its terms of service through a browsewrap contract? Do not proceed to the next slide unless you agree with the terms of this presentation.Does the website utilize a click-through contract? © 2013 FRASER STRYKER PC LLO □ Click this box to proceed to the next slide, and by doing so you expressly agree to the terms of this presentation. 23
  24. 24. IV. Privacy Policies24 © 2013 FRASER STRYKER PC LLO
  25. 25. Privacy Policy OverviewPrivacy Policies are sometimes required, but should always be considered. There is no blanket federal law mandating privacy policies for all websites. Some states require privacy policies.If an affiliate website is going to collect any user © 2013 FRASER STRYKER PC LLO information, a privacy policy is probably appropriate. 25
  26. 26. When is a Privacy Policy Legally Required?Children’s Online Privacy Protection Act of 1998 (“COPPA”) Who is Affected? •Websites directed at children and operators with actual knowledge that they are collecting personal information from children under 13 years old.  What is Required? •Post a clear privacy policy describing the information (collection and use) practices for children’s information. •Provide notice to parents and obtain verifiable parental consent before collecting personal information from children. •Allow parents to review, delete, or prohibit the disclosure of their children’s © 2013 FRASER STRYKER PC LLO information to third parties. •Cannot condition a child’s use of a website on the disclosure of more information than is necessary. •Maintain the confidentiality, security, and integrity of children’s information. 26
  27. 27. FTC’s Revised COPPA Rule Last month, the FTC promulgated new rules interpreting COPPA, effective July 1, 2013. The new rules broaden the websites and services covered by COPPA. Requires websites that allow plug-ins or third-party advertisers to collect children’s personal information to follow the COPPA notice and consent rules, even if the website itself does not collect any personal information. Operators of plug-ins or third-party ad networks that have actual knowledge that they are collecting personal information through a child-directed website must follow the notice and consent rules. Websites that only target children as a “secondary audience” and do not collect © 2013 FRASER STRYKER PC LLO information prior to obtaining age information need only comply with the notice and consent rules for those users that self-identify as being under age 13. 27
  28. 28. FTC’s Revised COPPA Rule Covered personal information now includes any of the following:  First and last name  Physical address  Phone number  Screen name  Photos, videos, or audio files that contain a child’s image or voice  Geolocation Data  Persistent identifiers (IP address or mobile device ID) Must take reasonable steps to ensure you only give collected information to third © 2013 FRASER STRYKER PC LLO parties who are capable of maintaining the data’s security and confidentiality. Must delete information when it is no longer necessary to fulfill its purpose. 28
  29. 29. When is a Privacy Policy Legally Required?California Online Privacy Protection Act Who is Affected? •The Act applies to any website or service which collects personally identifiable information from California consumers. What is Required? •All affected websites must post a conspicuous privacy policy. © 2013 FRASER STRYKER PC LLO Enforcement •Private plaintiffs can bring suit. •State can bring suit under California Unfair Competition Law. 29
  30. 30. When is a Privacy Policy Legally Required?Delta Airlines operated a mobile app that collected personal information (name, telephone number, email address, credit card number…), but the app did not have a privacy policy.The California Attorney General sent a non-compliance letter to Delta on October 26, 2012.Delta did not post a privacy policy on its app within 30 days.California brought suit against Delta Airlines on December 6, 2012.The Attorney General is seeking a $2,500 fine for each copy of the © 2013 FRASER STRYKER PC LLO app downloaded by California residents. 30
  31. 31. When is a Privacy Policy Legally Required?Private Agreements Requiring Privacy Policies: Merchants or affiliate networks may require an affiliate website to have a user privacy policy. For example: Google AdSense •The Google AdSense Online Standard Terms and Conditions require all participating websites to post privacy policies. •“You must have and abide by an appropriate privacy policy that clearly discloses that third parties may be placing and reading cookies on your users’ browser, or using web beacons to collect © 2013 FRASER STRYKER PC LLO information, in the course of ads being served on your website. Your privacy policy should also include information about user options for cookie management.” 31
  32. 32. FTC Enforcement of Posted Privacy Policies Websites may be required to post a privacy policy for several reasons.To fulfill this requirement, many websites copy existing privacy policies without considering the policy’s full implications. © 2013 FRASER STRYKER PC LLO 32
  33. 33. FTC Enforcement of Posted Privacy PoliciesUnder Section 5 of the FTC Act, the FTC will enforce posted privacy policies, regardless of whether the website operator put any thought into the terms.The violation of a website’s posted privacy policy constitutes “deceptive acts or practices in or affecting commerce.”As a result, posting a poorly written or otherwise inaccurate privacy policy may result in FTC imposed penalties. © 2013 FRASER STRYKER PC LLO 33
  34. 34. What to Include in a Privacy Policy1. Above all else – outline your ACTUAL data collection practices!2. If you plan to sell or distribute a user’s email address, say so.3. Explain what information is collected and for what purpose.4. Address websites to which you link.5. Specify a way for users to contact you.6. Consider disclosing how users can deactivate cookies in their web browser.7. Do not guarantee absolute security of personal information. © 2013 FRASER STRYKER PC LLO 34
  35. 35. V. FTC Regulations and Truth in Advertising © 2013 FRASER STRYKER PC LLO 35
  36. 36. FTC OverviewSection 5 of the FTC Act prohibits “unfair or deceptive acts and practices in or affecting commerce.” Enacted in 1914, and substantially unchanged since 1927Important general concepts for ensuring advertisements comply with FTC regulations Truthful vs. False or Misleading Substantiating Claims with Reasonable Evidence © 2013 FRASER STRYKER PC LLO Using Clear and Conspicuous Disclaimers (Reminder) Abiding by Posted Privacy Policies 36
  37. 37. Business Opportunities DisclosuresEffective March 1, 2012, “Business Opportunity” advertisements must make certain disclosures.“Business Opportunities” include offers to sell a business where the seller also promises to: Provide the buyer with customers, accounts, or outlets; or Provide locations for displays, vending machines, or equipment; or © 2013 FRASER STRYKER PC LLO Buy back the merchandise the buyer produces (i.e. work- at-home, envelope stuffing, or product assembly) 37
  38. 38. Business Opportunities DisclosuresIf an offer is considered a “Business Opportunity,” then the seller must provide to customers a one-page disclosure document.If the offer also makes an earnings claim (“You can earn $10,000 per month!”), then the seller must provide an additional disclosure document.The bottom line for affiliates: Do not advertise business opportunities without seeing the disclosure documents. Don’t make any earnings claims unless you or the seller have © 2013 FRASER STRYKER PC LLO created the required disclosure document. Do not contradict the information contained in these disclosure documents. 38
  39. 39. Consumer EndorsementsWhat is a consumer endorsement? Any advertising message that consumers are likely to believe reflects the opinions, beliefs, or experiences of a person other than the sponsoring advertiser.What is not an endorsement? Statement by an identified company representative. © 2013 FRASER STRYKER PC LLO 39
  40. 40. Requirements for Consumer EndorsementsDoes the ad feature a consumer explaining their own experience with the product?Is their experience common?Can the advertiser support the claim that everyone should expect those same results?If not, then the advertisements must clearly disclose the results that consumers can generally expect. Under the 1980 version of the Guidelines, advertisers could describe unusual results in a testimonial, so long as they included a disclaimer © 2013 FRASER STRYKER PC LLO such as “results not typical." Such a disclaimer no longer creates a safe-harbor. 40
  41. 41. Example -- JaredThe original Jared commercial aired in2000 with the disclaimer:  “The Subway diet, combined with a lot of walking, worked for Jared. Were not saying this is for everyone. You should check with your doctor before starting © 2013 FRASER STRYKER PC LLO any diet program. But it worked for Jared.” 41
  42. 42. Example – Jenny Craig The FTC Guidelines now require advertisers to explain just how“untypical” a consumer’s results are. © 2013 FRASER STRYKER PC LLO 42
  43. 43. Disclosing Connections between Endorsers and Sellers Connections between an endorser and a seller that might materially affect the weight or credibility of an endorsement (i.e., the connection is not reasonably expected by the audience), the connection must be fully disclosed.  The FTC has deemed all connections involving consideration in return for a review to be material.What to look for: “Advertorials” -- advertising that appears as a news article, sometimes referred to as a “flog” or “fake news site.” Advertising blogs -- blogs that are, or include, advertising. © 2013 FRASER STRYKER PC LLO Message boards -- are employees posting messages about employer’s products? Key issue: Is it clear to consumers that these are advertisements and not unbiased opinions? 43
  44. 44. Examples Consumer buys expensive dog food, and then blogs that it made her dog’s coat shinier, and is worth the extra money. (NOT AN ENDORSEMENT) Consumer receives free dog food at the pet store because the store tracks her purchases and gives free dog food based on her purchase history. Then she blogs that it made her dog’s coat shinier, and is worth the extra money. (NOT AN ENDORSEMENT --- no relationship with dog food manufacturer) © 2013 FRASER STRYKER PC LLO Consumer joins a network marketing program and periodically receives products about which she can write reviews on her blog. Then she blogs that it made her dog’s coat shinier, and is worth the extra money. (THIS IS AN ENDORSEMENT, THEREFORE DISCLOSURE OF THE RELATIONSHIP IS REQUIRED). 44
  45. 45. Disclosure Requirements Applied to Bloggers Reviewers in “traditional media” do not have to disclose that they received free books, movie tickets, etc., because the FTC does not consider reviews published in traditional media (newspapers, magazines, etc.) to be sponsored advertising. The FTC does not believe that knowing whether the media entity that published the review paid for the item in question would affect the weight consumers give to the reviewer’s statements. The FTC believes that consumers’ opinions about a blogger’s endorsement will © 2013 FRASER STRYKER PC LLO be affected by knowing that the blogger has a relationship with the company whose product it reviews. 45
  46. 46. VI. Trademark Infringement46 © 2013 FRASER STRYKER PC LLO
  47. 47. Trademark Infringement OverviewProtects words, names, or symbols used in trade to indicate the source of the goods or services, i.e., brand names and logos.Prevents other parties from using confusingly similar marks.Can last forever if renewed appropriately. © 2013 FRASER STRYKER PC LLO 47
  48. 48. Trademark Infringement ExposureTrademark owner’s actual damages and your profits attributable to the infringement.Trademark owner’s attorney fees.Litigation in a foreign state.Injunction against future use of the mark. © 2013 FRASER STRYKER PC LLO 48
  49. 49. How to Protect your Brand - Trademark RegistrationTrademark registration is not mandatory; however, the law strongly incentivizes registration. Presumption of Ownership in the Mark Ability to Bring Suit in Federal court Ability to Obtain Registration in Foreign Countries © 2013 FRASER STRYKER PC LLO 49
  50. 50. Infringing Advertisement IssuesTwo common types of online advertising: Keyword Advertisements: Purchasing keywords that trigger ad placement on search engine (Google AdWords) Website Banner Advertisements: Placing advertisements on your or other websitesWhen your advertisements utilize someone else’s trademark, potential liability arises. © 2013 FRASER STRYKER PC LLOThe key question is whether your use of their trademarks is likely to cause confusion. 50
  51. 51. Infringing Advertisement IssuesKeyword triggers still present some risk, but only a slight risk if you follow these rules.How to reduce your risk of liability for infringement: Don’t use the trademarks in the text of your advertisement Make sure the ads are separated and labeled as advertisements (especially important for banner advertisements) © 2013 FRASER STRYKER PC LLO Identify the source of the advertisement (your company or website) 51
  52. 52. VII. Copyright Infringement © 2013 FRASER STRYKER PC LLO 52
  53. 53. Copyright Overview Protects “original works or authorship,” i.e., literary, dramatic, musical, and other intellectual works. •Photographs •Essays •Videos •Anything original and minimally creative Exclusive right to reproduce, distribute, or display the work, © 2013 FRASER STRYKER PC LLO subject to fair use. Lasts for 70 years after the author’s death. 53
  54. 54. Copyright MisconceptionsCopyrighted material is NOT in the public domain merely because it is placed on the internet!Material may be copyrighted even if it does not display a copyright mark - © © 2013 FRASER STRYKER PC LLO 54
  55. 55. How to Protect your Content – Copyright RegistrationSimilarly to trademark registration, copyright protection is secured automatically upon creation; however, registration is strongly encouraged to take advantage of the following incentives: Ability to Bring Suit Presumption of Validity Damages; Attorney’s Fees © 2013 FRASER STRYKER PC LLO 55
  56. 56. Copyright Infringement ExposureCopyright owner’s “actual damages” and your profits that are attributable to the infringement.Injunctive ReliefLitigation in foreign stateCopyright owner’s attorney feesStatutory damages from $750 up to $150,000 © 2013 FRASER STRYKER PC LLO 56
  57. 57. Digital Millennium Copyright Act (DMCA)The DMCA is meant to prevent illegal use of copyrighted recordings, videos, and other content.Notable Provisions: Prohibits circumvention of technologies designed to protect copyrighted works. Limits copyright infringement liability for online service providers. Streamlines the notice and takedown procedure for handling infringing works. © 2013 FRASER STRYKER PC LLO Establishes a procedure for copyright owners to discover the identity of infringing internet subscribers. 57
  58. 58. 58 © 2013 FRASER STRYKER PC LLO
  59. 59. Eligibility for DMCA Protection“Service Provider”Adopt and implement a policy of terminating the accounts of repeat infringersMust not interfere with standard technical measures used by copyright owners to identify or protect copyrighted worksComply with take-down proceduresRegister with the U.S. Register of Copyrights © 2013 FRASER STRYKER PC LLO 59
  60. 60. 60 © 2013 FRASER STRYKER PC LLO
  61. 61. The Bottom Line on CopyrightDo have a good set of Terms and Conditions / User Agreement on your website.Don’t use pictures, articles, videos, etc. without the author’s permission.Do buy licenses for images you use on your website.Do register with the DMCA if you allow third parties to post content on your website. © 2013 FRASER STRYKER PC LLODo protect your own content by registering your copyrights and pursuing those who infringe on your rights. 61
  62. 62. Resources for More Informationhttp://business.ftc.gov/advertising-and-marketing/  FTC Guide: “Advertising and Marketing on the Internet”  FTC Guide: “Dot Com Disclosures; Information About Online Advertising”  FTC Guide: “The FTC’s Revised Endorsement Guides: What People are Asking”http://business.ftc.gov/privacy-and-security  Data Security and Privacy Policieshttp://business.ftc.gov/selected-industries/franchises-and-busine © 2013 FRASER STRYKER PC LLO  Business Opportunities Disclosureshttp://www.copyright.gov/onlinesp/  Register for the DMCA 62
  63. 63. 7 Legal Pitfalls Affiliate Marketers Should Avoid Troy F. Meyerson Fraser Stryker PC LLO Internet Law Group Chair © 2013 FRASER STRYKER PC LLO tmeyerson@fslf.com @InternetAttys Affiliate Summit West 2013 63
  64. 64. 500 Energy Plaza | 409 South 17th Street | Omaha, NE 68102-2663 P (402) 341-6000 F (402) 341-8290 www.fraserstryker.com