10 Cores in Affiliate Marketing Terms and Conditions

You are an affiliate manager, drafting Affiliate Marketing Terms and Conditions that regulate the cooperation relation between affiliate and merchant.

What are the potential pitfalls of the “definition of terms” clause? How does each one affect your affiliate program?

Let’s explore!

What Do You Need to Include in Your Affiliate Agreement?

We have compiled some ‘must-have’ clauses that any serious and robust terms and conditions affiliate agreement should include. 

1. Definitions of Terms

A good affiliate agreement avoids confusion by defining important words like “affiliate,” “merchant,” and “commission.” This makes the agreement clear for everyone involved.

The definition of terms is placed on top of the array of clauses. 

And, there are potential pitfalls that you need to notice. 

Definitions of terms do not include terms that are used in specific cases in the later clauses. Specific cases are the cases that often lead to disputes. 

For example, terms like “reasonable efforts” or “material breach” are simply too broad. If there are no other choices using these terms, the scope terms should be objectively approached, with clear metrics whenever possible.

The definitions of terms, though they seem to be simple, could be the most complicated part of the agreement. Therefore, it is typically complete at last, even when located in the first place of the contract. 

2. Consumer Protection

The “Consumer Protection” clause in an Affiliate Marketing Terms and Conditions agreement is crucial for ensuring compliance with relevant laws and regulations and safeguarding the interests of consumers. 

In affiliate marketing, most promotional activities are conducted by affiliates – which means they are the ones directly involved in consumer data and fully responsible for their actions with data. Compliance with applicable data protection laws, such as the GDPR or CCPA, should be clearly stated

In practice, both affiliates and the merchant have to take legal accountability for affiliate promotional activities. For example, Machinima used to be alleged to engage in deceptive advertising. Their sponsored affiliate simply failed to disclose the material connection between the influencers and the company, violating Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices in commerce.

in customer protection, they need to ensure that affiliates adhere to regulations regarding advertising, endorsements, and disclosures to protect consumers from deceptive practices.  

Here are what to include in your consumer protection clauses: 

• Misleading advertising: Ensuring that affiliates provide accurate and truthful information about products or services, this includes preventing them from making exaggerated or unverified claims about a product’s benefits
• Legal compliance: Requiring affiliates to comply with consumer protection laws & advertising laws such as the FTC guidelines in the U.S., GDPR in Europe, and CCPA in California.
• Affiliate relationship disclosure: Affiliates have the responsibility to clearly disclose their relationship with the company, including their commission-based earnings. 

3. Intellectual Property Rights (IP)

Normally, affiliates need brand assets (or in other words, their property) to promote the products. So having the terms & conditions related to IP rights is considered a must in affiliate marketing contracts. 

Those T&Cs are designed to protect brand identities, trademarks, copyrights, and other intellectual property from unauthorized use or infringement by affiliates.

Meanwhile, affiliates, in the common practices, are given the right to use all materials in the promotional assets, provided by the merchant. 

Here are what to include when drafting the “Intellectual Property Rights (IP)” clause in an Affiliate Marketing Terms and Conditions agreement: 

• Branding and trademarks: Specify how affiliates can use and what are limits when using the company’s logos, trademarks, and branding materials in their promotions.
• Content and copyrights: Simply you, again, about the ways affiliates can make use of the brand’s content. It’s important as many 
• Software and technology: Outlining the terms under which affiliates can use the company’s software, tools, or proprietary technology.
• Post-termination message: Defining which intellectual property that affiliate can keep making money on, and what’s not. It is all about the rights upon termination of the affiliate agreement. 

4. Sale qualification

Sale qualification is the criteria that a sale must meet for the affiliate to earn a commission. This clause ensures that only legitimate, valid sales generated through the affiliate’s efforts are eligible for commission payments. 

It is very common when affiliates question about their commission not being counted (because they often skip agreement). We advise you to add sale criteria to the program landing page. 

Here is what is typically included in your Sale Qualification Clauses:

• Completed transactions: Only sales that are fully completed and not refunded or canceled qualify for commissions.
• Minimum order value: Sales must meet a minimum value threshold to qualify for commissions
• New customers: Commissions may only be paid for sales to new customers, rather than existing ones.
• Geographical restrictions: Sales might only qualify if made within certain geographical areas or markets.
• Cookie duration: Sales must occur within a certain timeframe called cookie duration.

5. Payment terms

Payment term is the conditions and schedule under which the affiliate will be paid commissions for their referred sales. This clause details how often payments are made, the method of payment, minimum payout thresholds, and other relevant conditions affecting the disbursement of earned commissions.

Here are what to include in your Sale Qualification Clauses: 

• Regular payouts: To ensure affiliates receive their commissions on a regular schedule, such as monthly or quarterly.
• Payout threshold: To avoid frequent, small transactions, affiliates often need to accumulate a minimum amount of commission before receiving a payment.
• Payment methods: To specify the method of payment, whether via bank transfer, PayPal, check, or other means.
• Currency and fees: To clarify the currency in which payments will be made and who will bear any transaction fees or currency conversion costs.

There was a thing called hold-back periods that you should consider adding to your contract. It is the safe net for potential returns or chargebacks. To be more specific, it allows payments may be held till the chargeback/return period is over. 

E.g: When your store’s return duration is 14 days, it may take the same timeframe to get the order qualified. 

6. Commission Rates

The Commission rates term in affiliate contracts specifies the percentage or fixed amount that affiliates will earn as compensation for each qualifying sale or action they generate for the company.  

In short, this defines how and how much commission an affiliate can earn. 

• Commission calculation: It includes the commission model (PPC, flat rate per sale,…), which specifies whether commissions are based on a percentage of sales revenue, a fixed amount per sale, or a combination of both.
• Commission structures: You have to add it in if your are running a multi-tier commission affiliate program.  
• Rewards & performance: Details how many affiliates will earn when they reach a certain threshold or certain achievement. 

So, the frames above are necessary points for you. What should you do when you want to change the commission rate? 

This is a common scenario, just that the affiliate is performing too well so you decide to raise how much you pay just to keep them by your side. 

Traditionally, you can update the existing agreement with a new section on commission changes. But in modern online marketplaces, you can use a single agreement for all programs, allowing affiliates to be switched to different commission structures within.

See more: How to Set Up Affiliate Commission Rates

7. Agreement Termination

Agreement termination in affiliate marketing is the moment the contractual agreement between the affiliate and the merchant is legally ended. This can occur under various circumstances and in different ways, depending on the terms outlined in the contract. 

What to Include? 

• Specific reasons for termination.
• Notice period 
• What each party must do after termination (e.g., stop using logos).
• Any limitations on using confidential information after termination.  

The affiliate contracts are typically terminated by one side: the merchant and the reverse is extremely uncommon. The reasons for this might be fraudulent activities or deceptive practices from affiliates or violate promotional guidelines. 

Why it Matters?  Clear termination clauses protect both you (the Merchant) and the Affiliate by allowing either party to exit if needed while reducing risks from poor performance or broken promises.

Termination Without Cause in an Affiliate Agreement

In an Affiliate Agreement, the notice period for termination without cause is the amount of time one party must give the other before ending the agreement without providing a specific reason. This period is intended to allow both parties to prepare for the termination and manage any ongoing commitments or adjustments.

This time can range from immediate termination to several months’ notice: 

• Immediate Termination: Some agreements allow for immediate termination without cause, meaning that either party can end the agreement without any prior notice.
• Short Notice Period: Other agreements may require a short notice period, such as 7, 14, or 30 days.  
• Longer Notice Period: In some cases, especially in more complex or significant partnerships, the notice period might extend to 60 or 90 days or even longer. 

These sections are typically titled “Termination,” “Termination Without Cause,” “Notice Period,” or similar headings. It is advisable to have a clear condition for contract termination. 

Mutual Termination in an Affiliate Agreement 

Both the affiliate and the company agree to terminate the agreement by mutual consent. This often involves a written agreement outlining the terms under which the contract will end.

Automatic Termination in an Affiliate Agreement

Some agreements may include conditions that trigger automatic termination. This can include the expiration of the agreement’s term, significant changes in business circumstances, or reaching a pre-defined end date.

8. Restriction on Promotional Activities 

The Restriction on promotional activities term in affiliate contracts outlines the limitations and guidelines for how affiliates can promote the company’s products or services. 

• Brand protection: Affiliates need to follow the company’s instructions (brand guidelines) on how to promote their products or services. This keeps things consistent and professional.
• Prohibited Practices: Affiliates can’t do things that make the company look bad, like using fake ads or saying mean things.

This part is pretty intuitive. Some affiliates might have the habit of links spamming and this may lead to a bad reputation. So, there are many possibilities to consider when talking about promotional practices. 

9. Dispute resolution

The dispute resolution term in affiliate contracts outlines the procedures and methods for resolving disagreements or conflicts between the parties involved in the agreement. 

There are some of the common dispute-resolution methods include:

• Negotiation: Parties engage in informal discussions and negotiations to resolve the dispute directly, without involving third parties. Negotiation allows for flexibility and can often lead to mutually satisfactory outcomes.
• Mediation: A neutral third party, the mediator, assists the parties in reaching a voluntary and mutually acceptable resolution through facilitated communication and negotiation. Mediation is less adversarial than arbitration or litigation and can preserve the business relationship between the parties.
• Arbitration: A formal process in which a neutral arbitrator or panel of arbitrators renders a binding decision to resolve the dispute based on evidence presented by the parties. Arbitration is often faster and less expensive than litigation but may limit the parties’ ability to appeal the decision.
• Litigation: Parties resolve disputes through the court system, involving formal legal proceedings, evidence presentation, and judicial decision-making. Litigation can be time-consuming, expensive, and adversarial, but it provides a definitive resolution and the opportunity for appeals.
• Hybrid approaches: Some contracts may incorporate a combination of dispute resolution methods, such as mediation-arbitration (med-arb) or negotiation followed by arbitration if mediation fails. These hybrid approaches aim to combine the benefits of different methods while minimizing their drawbacks.

The suitable dispute resolution method depends on various factors, including the nature of the dispute, the complexity of the issues involved, and the desired outcome.

So, can you just include all five options above?

 In practice, mediation is frequently favored in affiliate marketing contracts due to its collaborative nature, confidentiality, and ability to maintain business relationships. 

Plus, arbitration is also commonly used for its efficiency, particularly in international contracts where parties may tangled in various jurisdictions. 

10. Indemnification

Indemnification serves as a crucial safeguard in affiliate agreements, providing protection to one party in case they incur losses or damages due to the actions or negligence of the other party.  

This part may include:  

1. Liability for misrepresentation: Affiliates might accidentally say something untrue about our products, leading to a lawsuit. Indemnification ensures they cover any costs if that happens
2. Intellectual property infringement: Affiliates use our logos or slogans to promote our products, but misuse them and someone else sues us. Indemnification protects us from those costs too.
3. Regulatory compliance: Affiliates break advertising laws while promoting our products, and we get fined. Indemnification ensures they cover those fines.
4. Third-party claims:  A customer sues us because of something an affiliate did. Indemnification protects us from those legal fees and any damages awarded.
5. Breach of contract: An affiliate doesn’t follow the rules in our agreement and we lose money. Indemnification ensures they compensate us for those losses.

Conclusion

To close the topic, all you need to know is to make sure affiliate agreement is vital. It remains transparent and clear for your affiliates. Covering essential elements such as commission rates, payment schedules, and enrollment sets the stage for success. By including these key provisions, you’ll be well-prepared for various scenarios of risk