Eric Goldman published his notes on affiliate liability from his talk at SMX West. He mentions some cases where a company was sued under CAN SPAM. Unlike general legal statutes, where non-agents cannot create liability for a company, under CAN SPAM companies are liable for the actions of their advertisers. Despite this statutory difference, both the FTC and private litigants have had difficulty proving in court that the advertised company was liable for the activity of the affiliate.
Any company that is using affiliate marketing on the Internet needs to take a look at the article and the best practices defined by Eric.
Best Practices for Advertisers
1) Advertisers’ affiliate contracts should prohibit ads in spam, adware, etc. This has successfully cut off advertiser liability in several cases (Fenn, Hypertouch, Impulse Media, Synergy6)
2) Affiliate contract should restrict the affiliates’ keyword ad practices. Note, however, the more the affiliate contract controls affiliate behavior, the greater the risk that a court will misinterpret the contract to form an agency relationship.
3) Escrowed/delayed payments are the best way to minimize affiliate fraud and manage contract compliance. It’s rare for advertisers to bring lawsuits against affiliates (e.g., Land’s End v. Remy, eBay v. Digital Point Solutions). The best way to curb bad affiliates is to keep dollars out of their pockets.
4) Advertisers must actually police affiliate behavior
5) Especially in light of NY tax law, advertisers must do a cost-benefit analysis of affiliate programs. Are they net-profitable, after considering all of the costs? The answer may surprise you.