Affiliate marketing can be a great way to earn extra income on the side. Helping businesses advertise products while earning a portion of the profit can be rewarding. But have you ever thought of the legal issues that could ensue? What if someone buys a product because they saw you advertise it, but it doesn’t work properly or they get hurt; are you then liable?
If you’re new to affiliate marketing or need a refresher course, there are a few things you need to know.
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What Is Affiliate Marketing
First, let’s define affiliate marketing. It’s when brands utilize bloggers and social media influencers to market their products.
Let’s say Dwight has just started his own business selling beet chips. He makes them fresh at Schrute Farms and then distributes them to every Whole Foods in their local store region. He then selects a local foodie blogger to write about the beet chips in her blogs, including a link where her followers can purchase them. Dwight creates a contract stating the full agreement, along with the compensation amount, a volume cap, terms of service, and much more.Giphy
Affiliate marketing is mutually beneficial since Dwight will be able to market his beet chips, and the foodie blogger will receive compensation for driving Dwight’s sales.
But the reality is, it’s never that simple.
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What to Look Out For
Now, let’s get down to the nitty gritty. This definitely isn’t the most exciting topic, but being aware of potential legal issues can save you time and your hard-earned money in the future.
Licensing. Is the business you’re marketing for properly licensed? Ask for proof, because if the company does not have a valid license and you promote their product, you could end up in a legal minefield. Make sure the merchant is in accordance with relevant rules and regulations on their end. If they’re carrying out illegal activities even without your knowledge, your participation with an unlicensed company could get you into trouble for assisting the commission of a crime.
Choose your merchants wisely. You don’t want to advertise for a company that has a bad reputation, because it could tarnish yours. Make sure your merchant is financially stable and has had favorable experiences in the past.
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Relevant Case Law. Know the laws applicable to your field of work. These can include:
- Relationship Disclosures. According to the FTC, you must openly disclose your relationship with the company you are advertising (and that doesn’t mean just small wording at the bottom of your page or a hidden paragraph in the middle of your blog post.)
Source: Kourtney Kardashian
Everyone, even the Kardashians, are required to disclose advertisements. This is commonly done by hashtagging #Spon (for sponsored) or #Ad (for advertisement).
- Repercussions. If you are found to be out of compliance with any regulations, the FTC will investigate. If they choose to move forward with your case, they could freeze your assets or even file suit. You can find more information and applicable laws on the FTC’s website.
- Affiliate Nexus. Affiliate Nexus is a legal term referring to taxation requirements when engaging in affiliate marketing. It basically means that the vendor must pay state sales taxes on products sold by their affiliates. These laws vary by state, so check with your state’s requirements to make sure you are compliant.
- Trademarks. Infringing on trademarks (even unknowingly) could earn you a costly lawsuit. Be sure to thoroughly research and review copyright and trademark information.
- The Contract. I can't stress this enough: read the contract! Once you sign it, you're legally bound, so reading the contract beforehand will benefit you in the long run. And you'll know exactly what you're getting into.
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It’s crucial to understand the agreement in depth. The contract will outline everything you need to know while explaining the below points in great detail.
Compensation Determination. There are a few ways affiliate marketers can be compensated. Per click, per lead, or per sale are all common ways merchants determine compensation.
- Per Click. You’ll be paid for clicks on your affiliate link.
- Per Lead. You’ll be compensated for leads you direct to the merchant.
- Per Sale. You’ll be paid for completed sales.
The contract will outline this in detail, and your merchant may decide to place a cap on compensation.
Volume Cap. A volume cap means that after a certain amount of sales, clicks, or leads, you are not owed compensation. This puts a limit on the amount you can be paid.
Termination Process. Can you terminate the agreement, and if so, are there any consequences?
Dispute Resolution. Know how you will resolve disputes with the company if one arises.
Disclaimers and Limitation of Liability. If a product malfunctions, is falsely advertised, or hurts a consumer, who is responsible?
When signing a contract, you might be faced with limitations of who you can associate with. Your vendor might also present a non-compete agreement, which if you agree to, would prevent you from advertising two competing products. For example, if you are an affiliate for Nike and advertise women’s running shoes, you might have to sign an agreement that you will not do the same for competing brands like Adidas or Puma.
If you’re an affiliate marketer, remember to choose good merchants, study relevant laws, and always read your contracts. These three things could save you from major legal trouble in the future.
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FTC Regulations. These prohibit false or misleading advertisements, so be sure to be as honest and truthful as possible so you don’t infringe on the law.