Decades in Business, Technology and Digital

Internet and Social Media Advertising Relationships and Agreements

Advertising remains a primary source of revenue from Internet activities and transactions. Different types of advertising and marketing raise different business, legal and regulatory issues. This creates a need for clear and concise understanding advertising agreements and monetization methods in order to protect the various parties.

Online Advertising and Third-Party Servers

Internet advertising can take many forms, including banner ads, pop-ups/pop-downs, interstitial ads, rich media, text links, instream video, sponsored content, widgets, co-branding, viral ad videos, search engine optimization, directory listings, emails – the list goes on and grows daily.

Ad inventory needs to be sold to advertisers and delivered to websites. Websites can directly sell advertising or can sell all or a portion of their ad inventory to ad networks. Ads can be served by websites themselves, but more commonly, third-party ad servers are used for serving ads. These ad servers can act as merely the serving platform, or can also act as an ad network, which may amass hundreds or thousands of advertisers for which it serves ads to as many websites. Multiple relationships may be created linking websites to ad servers and to advertising networks.

Types of Advertising Agreements

Ad Server. The ad server is a platform for serving ads. The primary obligations of the ad server is to have an efficient and reliable system. Therefore, it is important to specify performance criteria, like uptime, and to describe access to and response commitments for support if problems arise. With online advertising – time is money – therefore when ads are not properly served or the system is down, the website loses revenue for ads not served. This type of failure should directly translate into compensation from the ad server to the website. The ad server is also the source of information and data relating to impressions served and clicks made. This information is the basis upon which advertisers will be charged, and therefore, must be accessible, current, accurate and auditable. What follows is that ad servers possess large quantities of valuable data and the ownership of this data, as well as the security systems in place to protect this data, should be specified in an agreement.

Ad Network. An ad network signs up advertisers and seeks out websites, mobile networks and other media to which to sell advertising. From the advertiser’s perspective, the ads need to be served to relevant locations that are pre-selected by the advertisers. From the website’s perspective, it wants to verify that ads are appropriate (and certainly not inappropriate, illegal or likely to result in liability). Therefore, ideally, a website would want the right to pre-approve all ads that will be served. However, this is often not practical given the volume and method of selection. An alternative is that the ad network (1) agrees not to serve ads that are violent, pornographic, etc., (2) allows the website to pre-select the types of ads that will be served and (3) will remove or cease to serve ads immediately upon a request from the website. A sensitive issue is the allocation of risk and liability arising from ad content. It is reasonable for a website to get an indemnification from the ad network for liability arising from illegal, infringing, libelous content. However, an ad network may want to limit this liability to the extent that it has indemnifications from the advertisers.

Publisher Network. A publisher network is the counter part to the ad network. In a publisher network, an entity represents multiple websites, often with similar themes and seeks to sell advertising that will appear on the publisher network. This can arise because a single website has limited advertising inventory available. Therefore, it can sell much more advertising inventory when working with the network.

Insert Orders. Insert orders are the terms and conditions that define the relationship between advertisers and either a website, an ad network or a publisher network. An insert order should contain the commercial terms relating to the ad campaign, and should also contain provisions relating to (1) advertiser indemnity regarding liability arising from ad content, (2) definition of ownership and rights relating to data on ad performance, and (3) limit the liability of the website/network for failure of ads to be served.

GalkinLaw can help you select the right type or right of mix of ads for your business and put the appropriate advertising agreements in place.

Additional Issues and Concerns with Internet Advertising

Ad pricing and fraud. Ad pricing can take many forms. The most common of which are cost per thousand impressions (CPM) and price per click (PPC or CPC). There are many avenues for generating impressions and clicks which may be either fraudulent or merely inappropriate. On a manual level, a person can keep reloading a particular page, and each time this occurs, the advertisers are charged. This process can also occur through robots and other automated means. The agreement should expressly prohibit this. Additionally, ads may be appropriately served, but to websites or locations not requested or desired by the advertiser. The problem arises as to how can an advertiser determine when there is inappropriate ad serving. Audit rights might reveal foul play, but can be time consuming and expensive. As one can imagine, validating the integrity of ad serving and charging methods can be as complex as the systems and algorithms that serve the ads. One of the best sources of standards in this industry can be found at the Interactive Advertising Bureau (IAB) Incorporating the appropriate standards in a warranty is an effective way to require industry best practices compliance – but expect resistance to this during negotiations. Additionally, an advertiser can include a provision that allows it to withhold payment when it in good faith believes that there has been inappropriate behavior.

Analytics. What often distinguishes ad delivery companies is the quality of their analytics. Verifying the effectiveness of Internet advertising is becoming critical as the amount of money going into Internet advertising rapidly increases. Similarly, as mentioned elsewhere, the ownership of such data and the security to which such data is subject should be agreed to.

Ad Intellectual Property. The content of ads is subject to copyright, trademark and publicity rights protection, and therefore proper license rights and clearance must be obtained prior to running ads. This issue should be dealt with in warranties and indemnifications.

FTC Actions. FTC jurisdiction for false and deceptive advertising is well established under the FTC Act and is applied in a similar manner online as for traditional forms of advertising. This issue should be dealt with in warranties and indemnifications.

Privacy. Through the process of ad serving, information about users is automatically gathered. This can also be accomplished through use of cookies, behavioral profiling and clicking on ads. Users should be notified of this process through a Privacy Policy and parties need to commit to comply with privacy regulations and indemnify for failure to so comply.

Co-Branding. Co-branding occurs when applications or content can be better promoted when available under multiple brands. For example, websites that have financial content might cross-license the content and create pages containing the trademarks of both websites. Also, an application might be integrated into a third-party website and promoted under both marks, like when a job site (e.g., Monster) is accessed on a high traffic site (e.g., The New York Times) with the resulting feature pages being co-branded.

Linking. Generally, no permission is required to link out to another site. However, linking agreements can be useful in cases where one party wants to require another to link out to it and thereby create traffic. For example, where a vendor wants to require companies that it has granted distribution rights to link out to it. This allows the vendor to try and up sell to the distributor’s customers. It is common for certain software applications to have both free and charged for versions. The free versions may be offered to customers through OEM arrangements. However, the vendors goal is to convert customers to the charged for version. Therefore, it wants to require its distributors to place a link on their sites. The mere requirement to place a link will only be useful if it is accompanied by placement specifications. Otherwise, it can simply be buried in the website, never seeing the light of day.

CAN-SPAM Act of 2003. Under the Act, unsolicited messages must identify the message as an advertisement or solicitation, provide a valid physical postal address and provide clear and conspicuous notice to recipients of their right to opt-out of future emailings. Additionally, commercial messages must provide recipients with a valid return email address or other mechanism that remains operative for at least thirty (30) days after the time the message is sent, to allow recipients to opt-out of future emailings (and must honor such requests within ten (10) business days of receiving them) and refrain from using misleading subject headings or other header information. If a recipient opts-out, it is prohibited to subsequently send messages to the recipient or to sell or transfer the recipient’s email address to any third party for the purpose of further solicitations. Under the CAN-SPAM Act, the FTC regulates and criminalizes unsolicited commercial email communications, but the Act does not provide a private right of action. However, state laws on false or deception behavior, trespass, contract breach, tort, fraud, and computer crimes may provide a private right of action for spam. The Act only applies to commercial communications. Also, messages that are transactional or relationship based are not subject to the Act (e.g., messages relating to completing or confirming transactions agreed to by the recipient, providing warranty or update information, loan account information where there is an ongoing relationship, etc.).

It is important to note that the CAN-SPAM Act covers the persons sending the messages, as well as those ordering such services. Therefore, both the advertising services company plus the company ordering the advertising services would be covered. Liability for spam may also be imposed on entities that have a majority interest in the spamming entity. There can also be liability under the Act to a company if the company’s services or products are marketed by a third party in violation of the Act.

The Devil is in the Details

Advertising agreements need to clearly address a checklist of issues, without being too cumbersome or obscure. We have years of experience with these issues and will help you navigate through them.

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