How-to guide: How to draft an affiliate marketing agreement (USA)

Introduction

This guide will assist in-house counsel, private practice lawyers, and sales and marketing departments when negotiating and drafting affiliate marketing agreements. It sets out the key commercial and legal issues to consider as well as practical guidance for companies.

This guide covers the following:

What is an affiliate marketing agreement?
Issues to consider when drafting affiliate marketing agreements
Practical considerations prior to and during contract negotiations

This guide may be used in conjunction with: Checklist: Drafting an affiliate marketing agreement.

Section 1 – What is an affiliate marketing agreement?

1.1 Nature of the relationship – contractual

An affiliate marketing agreement is a legally binding contract between a company and an affiliate (who can be an individual or another business) who agree:

to market or promote the company, its products, or its services; and
does so in exchange for compensation (typically in the form of a commission based on sales revenue or a referral fee).

Affiliate programs can be a great way for companies to expand their user base and add new customers and clients. An affiliate can mean many things, but within the context of a marketing agreement affiliates are the people who promote products in exchange for a commission.

The affiliate marketing agreement terms and conditions govern the company-affiliate relationship and drafting these terms and conditions should be a priority when an affiliate marketing program is being considered.

1.2 Commercial advantage

Collaborating with an affiliate that has access to a different customer base, or an established sales and marketing network can secure new customers and increase market share. Recruiting affiliates to sell products or services can be a cost-effective marketing strategy whilst reducing the cost or risk of establishing a formal subsidiary relationship. Affiliation for online retailers is common – for example, where the seller maintains the website and sells the products and in return pays commission to the affiliates. For example, Amazon utilizes affiliate arrangements in its Associates Program Operating Agreement. The Associates Program permits affiliates to generate income from various media including websites and social media user-generated content by placing links to an Amazon site on their webpages. When customers click through on the links to purchase an item or services from the Amazon site, affiliates are paid a commission. Amazon uses the term ‘Amazon Associates’ to describe people with whom it has an affiliate relationship.

1.3 Protection of company interest

While use of affiliate marketing agreements is common in practice, drafting such an agreement is not without complexity – the affiliate is effectively stepping into the shoes of the company and the company needs to protect its brand in the marketplace. Take care when drafting agreements to clearly delineate the relationship between the parties. This is particularly relevant for the protection of intellectual property rights, where potential tort liabilities arise (such as for the sale of a dangerous or misused product), or where there is a potential for indemnification in the event of damages.

An established affiliate with prior experience in an affiliate marketing program may have a standard boilerplate agreement for all parties to sign, or alternatively a separate agreement may be drafted to outline requirements and document the relationship. It is up to the parties to choose which option is most suitable to their affiliate operating model, and they are free to negotiate and agree the terms and conditions to govern the relationship.

Section 2 – Issues to consider when drafting affiliate marketing agreements

2.1 Scope of work to be undertaken

2.1.1 Purpose of the agreement

Most affiliate marketing agreements have similar goals and objectives – the company has a product or service that it wishes to sell, and the affiliate has either an established community of clients, customers, or followers, or has a proven track record for making and generating sales.

As with all commercial agreements, the background to the affiliate marketing agreement is included in the recitals. The recitals generally appear at the beginning and describe what each party brings to the proposed relationship and in what way each party seeks to benefit from it. Ensuring that the recitals are accurate is an important component of drafting the agreement.

2.1.2 How will the agreement work?

The agreement should provide a clear explanation of how the commercial relationship between the parties will work and set out the intentions of the parties. It should specifically set out the company and affiliate requirements, including legal and monetary requirements.

In particular, it should set out the nature of the sales and marketing relationship, ie, whether the affiliate works from its own established client base on behalf of the company, from a client base provided by the company or a third party, or whether the affiliate will use its sales and marketing skills to forge new relationships. The agreement should also stipulate what role the company will play in the affiliate’s marketing and sales efforts and what role any additional third parties will play (if any).

2.1.3 Definitions

For the purposes of the agreement, clarifying terms at the outset is important, and it is good practice to define key terms such as company, affiliate, and affiliate business. This will help to avoid misunderstanding between the parties.

2.2 Rights and responsibilities

2.2.1 Set expectations

The agreement, or some other document incorporated through reference, should set out what is expected of the affiliate in terms of objectives, ie, goals and milestones to grade the affiliate’s performance. The reason for the affiliate’s appointment is to create value for the company, and to assess this, there need to be specific and measurable targets to track the affiliate program’s success. There are numerous ways to set goals, such as establishing projected sales or target clients, and tracking performance against metrics – for example, periodically recording the number of clicks among affiliate channels (eg, based on monthly, quarterly, or annual performance).

2.2.2 Technologies to be used in executing the agreement

The agreement should specify what type of technology the affiliate will use, whether it is search engine optimization, online or analogue advertising, mass email or press releases, or other such medium. Affiliate technology plays a crucial role in connecting affiliates, and there are many different reasons brands pick a specific affiliate technology over another. Often the decision will come down to which platform can most efficiently and cost-effectively assist the brand in meeting their goals and targets.

2.2.3 Coordination of the parties

The agreement should detail the roles and responsibilities of the parties, ie, how the company and the affiliate will coordinate their efforts. Both parties should be clear on the terms which they agree to be bound by when entering the agreement. Typically, the agreement will include provisions that provide a clear outline of the duties of both parties. An affiliate’s effort might be fully funded and directed by the affiliate, with the affiliate providing customers or income directly to the company. An agreement might also include the company investing time into the affiliate’s efforts, with the company providing information and resources for whichever campaigns the affiliate puts into place. Such commercial aspects of the arrangements should be agreed, negotiated, and expressed clearly in the agreement.

2.2.4 Advertising and marketing

While an affiliate marketing agreement does not necessarily create or imply an agency relationship, an affiliate’s marketing or advertising practices may be reflective of the other party’s business practices. In at least one case, the FTC has required as a condition of a settlement agreement that the affiliate marketing partners be required by contract to obtain prior written approval from the other party for all unique advertising and marketing copy used to offer, promote, or sell the products covered by the agreement. FTC v Instant Checkmate, LLC, No 23-CV-1674 (SD Cal Oct 11, 2023).

2.3 Affiliate payment methods

2.3.1 Commission based

The fee the affiliate receives is usually based on the amount of ‘converted leads’ from the company website. Most affiliate agreements compensate the affiliate through the payment of commissions for sales made or clients recruited for the company. Commissions can be based on retail or wholesale prices, or they can be based on a flat rate. The affiliate program payment terms need to specify the commissions the company will pay to affiliates, and will be influenced by the type of business, expenses, and profit margins. Choosing the best payment model will depend on the type of business and what type of actions the company want to reward – for example, if the company has numerous products or services, commissions may vary according to qualifying thresholds or product or service categories. To motivate affiliates, the company may also consider offering the affiliate tiered increases, and depending on the agreement, there may also be provision for bonuses or incentives. The fee structure together with any other payment terms is important to understand when drafting and need to be delineated clearly in the agreement.

2.3.2 Timing

Besides setting payment terms, the company will also have to decide on the frequency of payments. How often will the affiliate be paid? Will that compensation be per current quarter/month, based on projections, or per previous quarter/month? The company can make weekly payments to affiliates, or, from an administrative and resourcing perspective, it may be more favorable for a company to make monthly payments. This will be a commercial decision to be agreed between the parties and taking the affiliate’s preferences into account too.

2.3.3 How will progress against goals be tracked and recorded?

As far as methods for tracking performance are concerned, the agreement should describe what type of management information and data recording methods will be used, including the type of software system, and which party is responsible for tracking the performance of the affiliation.

2.4 Indemnification clause

2.4.1 What happens when things go wrong?

Indemnification clauses are clauses in contracts that usually contain wording about how claims are made and paid as well. When an indemnification clause is included in a contract, it is meant to transfer risk between the contracted parties. In most cases, the clause will set out the types of losses for which the other party to the agreement should indemnify the other including expenses and efforts associated with defending against any third-party claims, against losses for which one party has no responsibility, as well as against general claims, damages, expenses, and liabilities arising from the agreement. If the company is the party covered by the clause, it means that the other contractual party is agreeing to compensate in accordance with the clause. Indemnification clauses are used on a regular basis in contracts, and it is important that the clause is negotiated carefully taking specialized legal advice if deemed necessary.

2.4.2 Representations and warranties

Representations and warranties in commercial contracts provide facts (representations) and security against loss (warranties) if the statements made are not true. If the marketing agreement involves the sale of goods, responsibility for warranty coverage should be set out in the agreement (ie, if the product is defective it should state who is liable for damages or repairs). Warranties may be express or implied, and if the affiliate intends to disclaim any responsibility under a warranty, this should be made explicit in the agreement. Within the context of a marketing agreement, if the affiliate is representing that they have extensive knowledge and relationships within the industry this should be documented in this section of the agreement.

An example of a warranties clause by Party A is:

Party A agrees that any and all warranties made to Client shall be made only by Party A. Party A acknowledges and agrees that Party A will make no representations to its Clients with respect to any warranty made by Company. Party A hereby agrees to indemnify and hold Company harmless for any loss, damage, claim or action resulting from Party A’s failure to comply with any of Party A’s obligations under this Agreement. Party A will be solely responsible for any claims, warranties or representations made by Party A or Party A's representatives or agents, which differ from the warranties, provided by Company in the applicable end user license agreement(s).

2.4.3 Limitation of liability

An indemnification clause could include a provision limiting the liability of the company to the affiliate. Affiliates should provide the company with indemnification in the event a customer claims that they suffered harm as a result of purchasing the products or services. When drafting the clause, the parties should consider, for example, the maximum liability for compensation in event of loss, the losses each party wishes to cap, and the excluded losses. Note that such a limitation may not be binding on the ultimate purchaser of a product – for example, if the product defect is due to gross negligence the limitation may be viewed as unconscionable if the harm caused by the defect is extensive.

2.4.4 Insurance

The agreement should also specify requirements to effect and maintain an insurance policy. Obtain confirmation of the insurance policy by recording specific details of any insurance policy taken out to mitigate loss, that policy’s 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, for example, breach or loss. Insurance provisions in the agreement provide a level of financial protection to an organization in relation to loss incurred or liability arising from negligent acts or omissions.

2.5 Intellectual property

2.5.1 Specified rights to use

Affiliate agreements often require the affiliate to sell products and services of the company that may be protected at law. Depending on the individual circumstances, the affiliate may use the company’s patents, trademarks, or copyrights. For many companies, intellectual property (IP) protects more than just a concept. IP protects genuine valuable assets of the company and can be used to prevent competitors or anyone else from profiting from company ideas without consent. An affiliate may also be able to use processes (eg, proprietary methods of engaging customers through the internet) protected by trade secrets and may also use advertising and marketing material protected under copyright. The agreement should specify which IP rights are being granted (eg, use of the company logo) to the affiliate, how specifically those IP rights are to be used, and on which date the affiliate may begin using the IP rights and on which dates (or under which circumstances) the affiliate must cease exercising those rights. For further guidance, see How-to guide: How to draft and negotiate limitation of liability clauses.

2.5.2 Non-disclosure and confidentiality clause

The agreement should state the steps the affiliate must take to protect the company’s IP. There should be a non-disclosure and confidentiality clause in the agreement (or one incorporated through reference), and the agreement should require the affiliate to undertake specific steps (eg, enter into non-disclosure agreements, confidentiality agreements, physical protection of trade secrets, etc) to ensure the affiliate’s employees and contractors also protect the company’s IP.

2.5.3 Will new IP be created as a result of the affiliation?

The agreement should specify who will own any new IP developed during the company-affiliate collaboration, including any rights that the other party might have during the term of the agreement and in the future.

2.5.4 IP protection – federal law

In the United States, copyright and patent rights and responsibilities are created entirely by US federal law. Most states also have trademark protection statutes, and there is some common law trademark protection, but a registration of a trademark through the US Patent and Trademark Office provides a trademark holder with great power to exclude others from the use of that mark. It is best practice for companies to register all their IP (ie, patent, trademark, and copyright) with the appropriate federal agency.

In terms of trade secrets, however, both state and federal law protect trade secrets and no registration is necessary. 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. Protection under this Act requires that the secret being protected be used in interstate commerce.

2.5.5 IP protection – state law

State laws regarding trade secrets vary but there is a certain uniformity. In recent years, most US states have implemented some sort of trade secret law. Most of these state statutes are variations of the Uniform Trade Secrets Act created by the Uniform Law Commission. There are slight variations in the Act from state to state, and courts in the various states have interpreted the Act in unique ways. It is best practice for companies to seek counsel and familiarize themselves with the standards in their respective states.

2.6 Resolution of disputes

As in other contracts, the parties are free to negotiate the jurisdiction and venue where any disputes between the parties will be adjudicated and under which state law that dispute will be resolved. Likewise, the agreement may specify that the parties must engage in mediation or arbitration before, or in lieu of, seeking a remedy in court. The agreement may specify who pays for such arbitration or mediation and which arbiter or mediator is to be used in the case of dispute. Dispute resolution clauses are very important to ensure there are clear rules on the mechanism to resolve disputes. If there is no dispute resolution clause, then the decision on dispute resolution will be made by the courts.

2.7 Term and termination clause

2.7.1 Specified term

The agreement itself may specify the start and end date of the contract. The end date is when the agreement will cease to be effective, either by the expiration of a certain period or the completion of certain goals.

2.7.2 Reasons for termination

The agreement should set out provisions under which a party may terminate the agreement, including instances where a party may end the agreement for cause. ‘Cause’ may include actions taken by the affiliate contrary to the interests of the seller, illegal activities, or failure to perform under the agreement. Such clauses should specify the procedure for winding up the collaboration, naming a deadline by which, and how, all monies are to be paid, all IP is to be returned, and all other connections between the parties are to be settled. The agreement should also set out termination provisions in the event of unforeseen events such as through impossibility or acts of God. The termination clause will set out a variety of grounds which each party can rely on to end the contract in an orderly manner.

2.8 Terms and conditions

2.8.1 General

Negotiating and drafting an affiliate marketing agreement takes time and resources and should be the subject of much internal review to ensure that all terms and conditions desired by each party are in place. Namely, the clauses in the agreement should document the complete intentions of each party and be entered into voluntarily and by mutual agreement. Address and clarify any ambiguities during the drafting stages and take particular care to ensure that clauses are clear and understandable, and check that any documents incorporated through reference do not conflict with negotiated clauses.

2.8.2 Non-compete clauses

Non-compete clauses are often controversial within modern contracts. A non-compete clause is a clause under which one party agrees not to enter into or start a similar profession or trade against another party. Non-compete clauses should be drafted narrowly in terms of scope, geographic area, and duration. State courts have adopted a variety of remedies to deal with overly restrictive non-compete clauses, including blue-pencilling (meaning that unreasonable or overly broad terms of a non-compete clause can be struck out to make the agreement enforceable under state laws), partial enforcement, and refusal to enforce. It is best practice for parties to familiarize themselves with statute and court precedent in the states in which they do business.

In 2024, the FTC issued a rule that prohibits most employers from including non-compete clauses in their contracts and enforcing them. It applies to non-compete clauses that prohibit workers from seeking or accepting work after their employment ends. The new rule was scheduled to go into effect on September 4, 2024; however, as of February 2025, the rule is being challenged in several courts. It is widely expected that the Trump administration will abandon any efforts to implement this rule.

Section 3 – Practical considerations prior to and during contract negotiations

3.1 Parties having input into the agreement

Depending on the complexity of the company, internal stakeholders across different divisions are likely to be involved in the drafting negotiations. Whilst some organizations may have large procurement departments and dedicated contract lawyers, smaller companies may have a less specialized management team.

It is best practice to develop a standard drafting and review process through which each stakeholder, and all parties to the agreement, may be able to provide accurate input and make their assessment on whether the agreement is prudent or feasible. If the company is unsure of what the contract terms mean, or what is best practice for the company business model, it is recommended to speak to professional advisers to ensure the right documentation is in place. It is critical to develop robust systems and procedures during the course of contract negotiations and for ongoing contract management.

It is best practice during drafting to have one ‘living’ document at a time. There should never be more than one copy of the draft agreement in circulation. Failure to do so will result in confusion and could lead to error if the wrong document is reviewed or annotated. All changes or suggestions to the agreement should be tracked and recorded carefully. Establish a workflow with specified timelines for document review across legal, sales, marketing, management, logistics, or any other departments conducting the review.

3.2 Conduct due diligence on the other party

3.2.1 Background checks

It is best practice to conduct thorough background checks on the other party or parties to any agreement, including thorough checks on all senior officers in any prospective affiliate companies. This will help to assess the type of individual or business the company is dealing with and verify that the party is who they claim to be, and that they are solvent, etc. It is possible to undertake business searches by contacting the secretary of state office where the affiliate business is registered (see, eg, Maryland), where an inquiry can be made to determine whether a particular affiliate is in ‘good standing’ meaning all taxes have been filed and paid and all other obligations have been met with the state. There are also third parties that conduct these types of investigations.

3.2.2 Industry contacts

In addition to background checks, an assessment through contacts within the company’s industry are useful. Have other companies worked with a prospective affiliate in the past? Does the affiliate have a good reputation? Consider who within the company network may be best placed to speak with, or if they know someone who may be able to assist?

3.2.3 References

Asking a potential business client or partner for direct references is a useful way to obtain information about another party. Reviewing references will help decide whether the candidate is suitable and reliable for the company.

3.2.4 General internet search

A good and low-cost first step in due diligence of the other party is a simple internet search. Anyone can create a professional-looking website, but an established business presence on the internet is harder to fake. How long has the other party been incorporated? Do its officers and managers have a presence on professional sites? Have employees and managers published in professional journals? Undertaking the appropriate due diligence is vital and it is worthwhile taking the time to consider the legal and financial circumstances of the affiliate and conduct the necessary checks.

Additional resources

Bede Ravindra Amarasekara and Anuradha Mathrani – Exploring Risk and Fraud Scenarios in Affiliate Marketing Technologies from the Advertiser’s Perspective, Australasian Conference on Information Systems (2015)
Zurina Patrick and Ong Choon Hee - ‘Factors Influencing the Intention to Use Affiliate Marketing: A Conceptual Analysis’, International Journal of Academic Research in Business & Social Sciences (March 2019)

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Commercial contracts