Checklist: Drafting an affiliate marketing agreement (USA)

Introduction

This checklist will assist in-house counsel, private practice lawyers, and sales and marketing departments and provides guidance for a company when negotiating and drafting affiliate marketing agreements.

This guide addresses the following steps:

1. Introduce the parties and describe the purpose of the agreement
2. Consider the specific terms and conditions of the affiliate marketing agreement
3. Include standard contract provisions and conduct review internally

The checklist is presented as a series of steps that you can check off as they are addressed. At the end of each step, there are explanatory notes corresponding with each requirement in the checklist.

This checklist can be used in conjunction with the following How-to guide: How to draft an affiliate marketing agreement.

Step 1 – Introduce the parties and describe the purpose of the agreement

Step 2 – Consider the specific terms and conditions of the affiliate marketing agreement

Step 3 – Include standard contract provisions and consider contract review internally

Explanatory notes

Legal framework

Affiliate marketing agreements are governed by the principles of contract law and, for the most part, by state law. With the growth of e-commerce, intellectual property laws have become an increasingly important consideration when drafting affiliate marketing agreements. This is because the use of the company’s intellectual property (IP) is likely to be an important component of the marketing strategy to be used by the affiliate. Copyright (Title 17 of the US Code) and patent laws (Title 35 of the US Code) are exclusively the domain of US federal law. Trademark law (Title 15 of the US Code) is largely, but not exclusively, a creature of federal law. Both state and federal statutes govern trade secret law.

Key considerations

Affiliates are the people who promote products in exchange for a commission. Affiliate marketing agreements are, for the most part, private contracts mutually agreed between the parties, and the standard terms and conditions of any well-crafted contract should be taken into consideration while drafting and negotiating affiliate marketing agreements. Caution is advised when setting out the rights and responsibilities of the company and the affiliate, the use and ownership of IP, and considerations relating to standards of performance and compensation. See also, How-to-Guide: How to draft an affiliate marketing agreement.

Step 1 – Introduce the parties and describe the purpose of the agreement

1.1 Identify legal parties to the agreement

The first step in drafting an affiliate marketing agreement is to identify the legal parties to the agreement and include their names and addresses (in the case of corporations, limited liability companies, or other legal entities, add their registered office address). Failure to record and identify the correct parties to the agreement will result in ambiguity and could impact the ability to enforce the contract in the event of a dispute. 

1.2 What is the relationship between the company and the affiliate?

1.2.1 Nature of relationship

The agreement will set out the nature of the relationship between the parties. It is important to agree on and understand this from the outset and document it accordingly. For example, consider the questions listed below.

• Is there an ongoing relationship between the company and the affiliate?
• Is the affiliate an existing subsidiary or partner with the company?
• Is this agreement the only relationship between the company and the affiliate, or is it part of a wider master agreement framework? A master service agreement (MSA) may be in place where, for example, the affiliate is engaged by the parent and then will subsequently perform services for multiple subsidiaries. The MSA would then be the overriding contract and separate addendums would be executed for the work to be done for each subsidiary.
• Will success or failure in this contract affect or impact any other agreements between the parties?

It is best practice to clarify the nature of the relationship and set this out expressly – for example, noting affiliates are independent contractors and prohibiting them from implying any other type of relationship (where relevant) such as franchise, employment, or partnership.

1.2.2 Degree of supervision of the affiliate

Affiliates can be given varying degrees of duties and responsibilities, and the company will need to consider how much autonomy to give to them. Monitoring and oversight of the affiliate activity is essential. Consider the questions listed below.

• What degree of supervision will the company exert over the affiliate’s efforts?
• What duties to report and provide information does the affiliate owe the company?
• Does the company or any of its officers or agents have regular input in how the affiliate provides its services?
• Does the affiliate have regular access to, or use of, company resources, including data, marketing material, and IP?

These details should be clearly set out in the agreement.

1.3 What is the purpose of the agreement?

The recitals generally note the overall purpose of the document. Namely, the background to the agreement and in what way each party expects to benefit from it. Each agreement will be different, but generally the goal of the company is to increase sales, market share, and brand visibility. The company provides the product or service that the affiliate markets or sells. The affiliate brings either an established or potential base of customers, followers, or fans, or an established track record for finding and securing new customers. These, or any other goals of the respective parties, should be expressed clearly when drafting.

1.4 What are the goals to be achieved by working with an affiliate?

One of the important metrics to consider when drafting the agreement is how to measure the affiliate’s performance. This will be at the core of the agreement when considering compensation and whether the affiliate is acting within the contract terms. The following questions may be useful when considering how to draft performance measurables.

• How does the agreement measure success?
• How have the parties agreed that the affiliate’s efforts will be measured or graded?
• Is success measured through volumes sold, income generated, or some other metric?
• Will these metrics be reviewed monthly, quarterly, semi-annually, or yearly?
• Will other targets or milestones be set?

Step 2 – Consider the specific terms and conditions of the affiliate marketing agreement

2.1 Has due diligence been conducted on the potential affiliate?

Prior to entering into the agreement with the affiliate, consider what type of due diligence checks to do. This will involve investigation and audit to ensure that the affiliate is the right ‘fit’ for the company. Have references for the affiliate been obtained? Is the affiliate a legitimate company with a proven track record of success in their industry?

Such material is seldom written into agreements beyond the affiliate’s written representations of their ability to do the work to specification. Pre-appointment background checks on the affiliate and its senior officers are essential. These could take the form of references obtained through industry contacts, professional organizations, or published journals. Business references provided by the affiliate are essential prerequisites to any contractual agreement.

The company could also conduct credit checks to ensure that the affiliate is solvent, or court or enforcement checks to ensure the affiliate has not been subject to, for example, convictions or previous or pending enforcement actions. It is best practice for the company and its counsel to undertake a comprehensive appraisal of the affiliate and its senior officers and governing board before entering into the contract.

2.2 What sales and promotional methods is the affiliate permitted to use?

Consider how the affiliate is going to conduct sales and marketing for the company. For example, what are the specific marketing methods, sales channels, and geographic regions that the affiliate can use and operate within?

Consider the underlying objective of the appointment. Specifically consider the questions listed below.

• Does the agreement specify that the affiliate will use its skill and expertise to open up new markets, or is the affiliate restricted to selling to an established base of customers, clients, or followers?
• Does the agreement allow for both of the above scenarios?
• Is the affiliate operating on an exclusive basis, or is the company permitted to target customers who may also be the affiliate’s customers or clients? If the company is operating multiple affiliate programs, it will also be necessary to ensure compliance with any pre-existing agreements with other affiliates.

When drafting the agreement, also consider the impact of working with other affiliates in adjacent regions or in overlapping commercial channels – does this need to be incorporated into the new agreement?

If using social media influencers, other considerations should be taken given the nature of the platforms. Consider the following questions and incorporate relevant terms into agreements:

• Is there a description of the expected deliverable (Video review on YouTube, Instagram carousel post, TikTok challenge, etc.)?
• Is the influencer allowed to post things ’live’ as they create their content?
• Does the influencer need to obtain approval before sharing their content? Is that a requirement for the satisfaction of the contract?
• Are you allowed to repost or use the content in other promotional materials?
• Has a morality clause been included?
• Does the contract specifically detail what the influencer needs to say or do in order to be compliant with FTC regulations?

For further information, see Checklist: Using product endorsements.

2.3 What are the rights and responsibilities of the company and the affiliate?

2.3.1 Goals and expectations of the affiliate

Place the goals and expectations of both parties in the recital. These may be expanded upon at any point in the agreement (generally at the beginning). Consider the questions below when thinking about what it is useful to set out.

• What is the goal of the company, and what does the company expect from the affiliate?
• What is the goal of the affiliate, and what does the affiliate expect from the company?
• How does the agreement envisage these goals and expectations being achieved?

2.3.2 Responsibilities and requirements of the parties

The agreement should state the roles and responsibilities of each of the parties to the agreement. Reach an agreement on this with the affiliate and incorporate it into the agreement. It helps delineate the duties and responsibilities of the parties whilst imposing certain rules and obligations to protect their interests. When drafting this clause, it is necessary that each party understands the other’s expectations, and any restrictions or additional considerations should be set out clearly.

2.3.3 Technologies to be used by the affiliate

Consider whether there are any requirements regarding the type of technology the affiliate will use. The questions below may help the company decide what to include.

• What technologies (if any) will the affiliate use to achieve the goals envisioned by the agreement?
• Will the affiliate provide this technology, or will the company supply the affiliate, in whole or in part, with the necessary technology and resources to complete the assignment?
• If the agreement requires the purchase or lease of proprietary tools or software, who will enter into the contract to do so, and who owns the right to these leased or purchased items?
• What happens to the technology or software that has been purchased or leased if the agreement is terminated?

2.3.4 Coordination between the parties

The company and the affiliate will need to establish how they will work together in practice. It is essential for the smooth running of any contract that the channels of communication are established, and who does what in terms of the ‘logistics’ of the contract roll-out. If the affiliate and the company coordinate efforts, how will it look? Discuss it together and detail it in the agreement.

If, alternatively, the company merely provides the product or service to the affiliate who will act independently, is the affiliate bound to report on progress, or will the company simply set up mechanisms to collect payments?

It is essential to understand the systems, controls, and processes that govern the company affiliate program.

2.4 How will the affiliate be paid?

2.4.1 Methods used to track and record progress

It is common for affiliates to obtain their revenue through commissions obtained from the company in return for providing the company with customers. Consider the calculation and structure of commission payments.

• Commission formula: determine the basis for commission payments, such as the number of leads generated, retail sales, gross sales, or increased web traffic. Clearly define how each of these metrics translates into commission earnings.
• Calculation and tracking: establish a method for calculating and tracking commissions. This might involve automated systems that record sales data and apply the commission formula consistently. It's important to ensure accuracy and transparency in how commissions are computed and documented.
• System control: decide who controls the system used for tracking and calculating payments. It could be managed by the company, the affiliate, or a third-party service. Each option has its pros and cons, such as control, impartiality, and ease of use.

2.4.2 Timing of payments

The agreement should clearly outline the timing and terms of payments to ensure transparency between parties. It must specify the payment schedule, such as whether payments will be made monthly or quarterly, and detail the conditions under which payments are processed, including any minimum thresholds. The agreement should also explain any potential deductions, such as chargebacks or withholdings for returns, and how these will affect the final payment. If advances on commissions or royalties are offered, the terms and conditions should be clearly stated, including when and how these advances are earned or reconciled.

2.5 How are issues related to protecting intellectual property addressed?

2.5.1 Ownership of old and new intellectual property

An affiliate relationship often involves an affiliate working closely with the company, which may require the company to grant the affiliate permission to make some use of IP owned by the company, such as trademarks, copyrighted material, trade secrets, and patented material. These are valuable company assets, and it is important they are protected against infringement by the affiliate (or others). The agreement should explain the allocation of these rights in detail, including which IP rights the affiliate is allowed to use, under what circumstances such IP may be used, and when the right to use that IP material begins and ends. The agreement also should specify the procedure for returning any tangible or recorded IP material on termination of the agreement and what steps the affiliate and the company are required to take to protect those IP rights during the term of the agreement and following termination. The agreement also should specify in detail who becomes the owner of any IP that is created during the term of the agreement, and who will retain ownership of that IP upon termination.

2.5.2 State and federal laws

Except for New York and North Carolina, all states, the District of Columbia, Puerto Rico, and the US Virgin Islands, have adopted the Uniform Trade Secrets Act (the Act). New York protects trade secrets through common law, which means that civil liability is created for misappropriating someone else's trade secret. The Uniform Law Commission created the Act to promote consistency across states. However, some states have made slight modifications to the Act, so not all state statutes are identical. Courts in the various states have also interpreted the Act in different ways. It is best practice for companies to seek counsel’s advice and familiarize themselves with the standards in their respective states. The Defend Trade Secrets Act of 2016 (18 US Code Chapter 90) criminalizes certain acts of trade secret theft and provides trade secret owners with civil remedies to combat misappropriation. 

The agreement should also contain, or incorporate through reference, any non-disclosure, confidentiality, or non-compete clauses that are intended to protect company IP. It is also necessary to specify how affiliates are required to implement measures to protect trade secret and other IP security among their network of employees, officials, and contractors while handling company IP.

It is best practice for the company to register all copyright, trademark, and patents, and to clearly state when the affiliate is authorized to use any company IP.

Step 3 – Include standard contract considerations and conduct review internally

3.1 Are appropriate indemnification provisions in place?

It is not possible to protect against all risks in a contract, but risk can be managed by adding indemnity clauses to the contract measured against loss or damage suffered. The scope and effect of an indemnity depends on the intention of the parties and the way it is drafted. The question to ask is as follows – does the agreement sufficiently protect against loss in the event of default or third-party action?

An appropriate indemnification clause is necessary, noting which party is responsible in the event of default or third-party action and stating the value of that indemnity. The agreement should specify any necessary insurance policy and its value, any required terms of the policy, who will take out the policy, who will pay the premiums, and who is the beneficiary of the policy in the event of breach.

3.2 Have dispute resolution clauses been incorporated into the agreement?

The parties may stipulate that the agreement will be adjudicated under the laws of a specified jurisdiction and venue. It is important to understand this at the outset and assess the risk to the company if a governing law or jurisdiction which is not in the United States is agreed to. The company may wish to seek specialized legal advice if the impact of what is being negotiated is not clear.

The agreement may also specify that the parties must engage in mediation or arbitration before, or in lieu of, seeking a remedy in court. The agreement likewise may specify who pays for such arbitration or mediation and which arbiter or mediator to use in case of dispute.

Here is a sample clause:

3.3 Have issues related to termination been considered?

The termination clause sets out the express grounds for bringing the contract to an end (eg, by date (perhaps expiry of a fixed term), by fulfillment of terms, upon notice, or some other such mechanism). It should also specify the procedure by which the company is wound up upon termination – for example, naming a date or deadline by which all monies are paid, all IP is returned (or what will happen to the IP rights, technology and resources), and how all other connections between the parties will be settled. The termination provisions should also consider what will happen in the event of unforeseen circumstances (eg, a pandemic, acts of God, or other circumstances). It is very important to understand and correctly state the grounds to terminate and cancel a contract, for example, for poor performance by an affiliate, and stipulate how the company is legally permitted to do so.

Additional considerations apply if an affiliate relies on personal endorsements or testimonials from influencers. An influencer who becomes closely associated with a brand can attract negative publicity, for reasons such as their personal conduct or extreme statements. A clause allowing termination of an agreement for an individual’s immoral or detrimental conduct should be considered.

3.4 Have the agreed terms and conditions been incorporated?

There often are considerations unique to the company (or other parties of the agreement) that are difficult to anticipate given that each affiliate marketing plan will be tailored to the marketing plan and the specific products or services the company offers. Consider the questions below when drafting the agreement.

• Does a review of the agreement indicate it embodies the full consent and the complete intention of both parties?
• Is there any ambiguity in the terms and conditions that require further clarification?
• Do any documents incorporated through reference conflict with specific clauses within the agreement (ie, verify that that any incorporated documents have language consistent with the contract)?
• Is there any boilerplate language in the agreement that may negate or confuse negotiated clauses?
• Are there any negotiated clauses in the agreement that contradict one another or give rise to confusion?

In addition, representations and warranties in commercial contracts provide facts (representations) and security against loss (warranties) if the statements made are not true. When drafting an affiliate marketing agreement, if the affiliate is representing that they have extensive knowledge and relationships within the industry this should be documented in the agreement.

3.5 Have the appropriate internal stakeholders been consulted?

Prior to contract execution all relevant company stakeholders will need to have been consulted on the company entering into the affiliate marketing agreement and its terms. Consider whether all those involved in contract negotiations have had ample time to review the draft and to provide feedback on particular clauses, and whether the agreement protects the interests of the company and is ready to be signed off?

3.6 Are adequate internal review and approvals procedures in place?

It is best practice during the drafting process to have one version of the document in circulation. Multiple drafts of the agreement should never be shared between the parties or among the internal stakeholders. All changes or suggestions should be tracked and recorded carefully. A process for contract management should be established which charts timeframes, workflow, and key priority targets. Establish systems to ensure that the draft is reviewed and signed off across all relevant channels including by legal, sales, marketing, management, logistics, or any other necessary departments.

Additional resources

ScienceDirect – ‘All that glitters is not real affiliation: How to handle affiliate marketing programs in the era of falsity’
The Federal Trade Commission – The Fair Credit Reporting Act: Affiliate Marketing
An example marketing affiliate agreement between Birch First Global Investments Inc and Mount Knowledge Holding Inc filed with the SEC
The Influence of Influencer Affiliate Marketing Strategies on Generation Z's Purchasing Decisions:  An Analysis of Business Communication on the TikTok Platform

Related Lexology Pro content

How-to guide:

How to draft an affiliate marketing agreement

Clauses:

Intellectual property
Payment (Services Related)
Payment (Goods)
Confidentiality (Short-Form)
Confidentiality (Long-Form)
Indemnification
Insurance
Dispute resolution
Termination

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