What Is an Advertising Agreement?
An advertising agreement is a written document that describes the terms of an agreement between an advertiser paying to promote a good or service and the publisher which will be hosting said promotion on their web page or included within their print publication. Although advertising agreements are common, they can also be among the most complex and costly of all contracting agreements to negotiate and enter into. The more expensive and complicated the advertising campaign is, the more likely it is a dispute will arise, which is what makes understanding the function and content of a detailed advertising agreement so essential .
While each advertising agreement will be different depending on the needs of the involved parties, all advertising agreements have similar functions. To begin with, an advertising agreement must set forth the price to be paid, and the methods by which payment can occur; these methods include wire transfer, check, and cash. In addition, advertising agreements often contain all of the necessary components to create and establish a contract: mutual assent, consideration, and, at times, the ability to modify the agreement.
Components of an Advertising Agreement
An advertising agreement typically outlines the terms and conditions of collaboration between advertisers and ad platforms, networks, or publishers. While the specific terms can vary, a well-drafted advertising agreement will generally include:
Parties: A clear definition of who the parties to the agreement are. This typically includes the name and business address of the advertiser and the name and business address of the ad platform, network, or publisher.
Scope of Work: A description of the services to be performed for the advertiser or the tasks the advertiser must perform. This section should detail the scope of work to be undertaken, including the platform where the ad will be displayed, the duration of the ad campaign, and other specifics such as targeting, reporting, and optimization efforts.
Payment Terms: The agreement should specify how the advertiser will be billed for the ad services provided. This includes the types of advertising payment models that apply, such as cost per action (CPA), cost per click (CPC), or cost per mille (CPM). It should also describe how payment will be made and when.
Duration: The agreement should define the term of the agreement, generally from the effective date of the agreement through each campaign the advertiser runs. Also included should be a termination provision that describes how to stop advertising at any time, with or without cause. Some agreements split campaigns into series to maintain campaign performance while managing budget.
Intellectual Property: This explains who owns the content used in the ad campaign and what permission is granted to use this content.
Confidentiality: This section of the agreement keeps private the communications between the two parties per the terms of the agreement.
Indemnification: This part of the agreement describes the responsibilities of both parties if violations of law occur, such as intellectual property or trademark infringement.
Limitation of Liability: An advertising contract should limit liability for damages or losses arising out of the agreement.
Example Advertising Agreements
Sample advertising agreement templates can be found on various websites online. For instance, the U.S. Small Business Administration offers a free sample advertising agreement on their website (PDF). Free templates are also available from the Media Law Resource Center and many law firms. While no advertising agreement should be downloaded for use or filled out without reading it entirely and understanding everything it says, these free models do give you an idea of the basic components of the document, the language and terminology used, and how the agreement is structured. You can then search the document archive of your favorite legal services provider such as Westlaw or Lexis and see if a more recent version of the agreement is available. Some providers may charge you a fee to download the document or on a subscription basis.
If you wish, you can then take that initial, free sample advertising agreement and customize it to your own purposes, inserting your own specific information, adding or deleting terms and conditions, provisions and addenda as needed and deleting any provisions which do not suit your situation. At this point, however, it is always a good idea to have an attorney familiar with advertising agreements review the document.
Creating an Advertising Agreement
When drafting an advertising agreement, the terms should be clear, precise and unambiguous. Advertising agreements can help build sound relationships between advertisers and publishers, so taking the time to draft an effective agreement will pay dividends for years to come. There are some general points to remember when drafting advertising agreements: Every advertising agreement will require some unique wording. The nature of the advertising, in terms of specifics, may dictate some of the provisions. For example, terms should cover all advertising, including any in-house ads placed by the publisher for their own benefit. Payment for that placement needs to be addressed even if it was not anticipated at the time the contract is drafted. Finally, avoidance of joint liability is critical and something the attorney will be trying to avoid, as well, in order to shield both parties. However, a broad indemnification provision should be included to limit liability to the specific advertiser about whom complaints were received. Without that language, the media company may be responsible for the actions of other advertisers.
Common Advertising Agreement Mistakes
However, not all businesses take the time to hash out the nitty-gritty. Below are some of the most frequent errors in advertising agreements and how to fix them.
Defining the Work
To avoid the confusion that can arise over who is responsible for what, a company should be very specific about the scope of work. In particular, all aspects of production should be carefully outlined, right down to whether consultants will be used.
Confidential Information
It is critical to define what information will be treated as confidential between both companies. Often, advertising agreements will prohibit the use of any "confidential" information by either party. If this is not defined, then anything not already in the public domain could be considered confidential. One solution is to note every item of information that is to be confidential. However, this may be impractical because of the sheer amount of items that need to be mentioned. Instead, general categories of information that are to be kept secret will suffice.
Liability
The liability section of the advertising agreement will deal with any problems or complaints involving the partnership. For example, if an advertising campaign causes an inquiry by the Federal Trade Commission , then the company behind the ad should bear the consequences.
Intellectual Property Ownership
This is another area that can cause problems later on. Intellectual property ownership should be discussed at great length to avoid disputes. For example, if the company receiving the ad has a product that has been successfully marketed in the past, then they will want to keep all rights to the intellectual property associated with their product.
Termination Clause
The termination clause needs to be basic but specific. If the company wants to be able to terminate the advertising agreement without penalty after a specific period of time, then that should be spelled out in detail. Likewise, if the advertising agency wants to be able to terminate the contract at any time, then it should be stated in the agreement.
Take Care
These are just some of the most common mistakes that people often make when drawing up an advertising agreement. If a company is not careful in its advertising agreement, it runs the risk of an unhappy working relationship with the ad agency. This in turn can lead to serious problems with the advertising campaign-which is something that everyone involved hopes to avoid.
Advertising Agreement Considerations
Of course, any legal aspects of advertising agreements that need to be considered, including how agencies should comply with advertising laws and how agencies are protected by the intellectual property rights of their client/advertisers, must be strictly adhered to in order for the agreement to be considered "legal" with enforcement. We’ve found that many existing advertising agreements leave a lot to be desired.
For instance, many advertising agreements include a clause that states if the agency is put on retention, then the agency has the right to retain fees (sometimes as much as 10% of the annual billing); however, most of these advertising agreements do not go on to further define what retention means. While there are varying definitions of retention, generally speaking, retention lets the client know the commitment of the agency to act for their benefit and safeguard their interests.
On the other hand, retention also generally suggests that the client has an obligation to pay for the services of the agency irrespective of whether the client utilises all the services impleaded in the agreement or not. If an agency does not return any unearned retainer to the client, the agency may be at risk of an action in conversion and need to return the unearned portion of the retainer. The agency would need proof of time devoted to the client’s business, a time sheet, and an affidavit from the person who prepared the time records, as an evidentiary basis for establishing quantum meruit.
Advertising agreements should also define the scope of use of the advertising materials (that is the media, duration and placement/frequency of the advertisement) to help ensure that the client is not at risk of an action in copyright infringement. If the advertisement was for something that was nationally televised or run across the country at certain times, the client runs into an issue where there may be non-compliance in the use of the advertising materials in that the materials may only allow for regional or local use. Having the wording in the advertising agreement will prevent this issue of non-compliance and therefore prevent any risk of an action being brought against the client in copyright infringement.
Advertising Agreement FAQs
Q: I am a small business owner. Will an advertising agreement really protect me?
A: An advertising agreement can offer a great degree of protection to a small business, because it can address specific and, sometimes, unique concerns. For example, there may be particular brand color palette restrictions that are materially different than the Pantone® colors in the advertiser’s standards, and the contract may provide protection for whether the company can enforce its standards. Advertisers must also be concerned about how their creative can be used or referenced later down the line, after a campaign is over. There can also be nuances to specific language used that could be material from a legal perspective, but are often overlooked. For example, if a product is referred to as a "Broadband Internet Service" in the contract, but the advertiser references it as a "High Speed Internet Connection" in ads, there is a potential disconnect. Advertiser should also make provisions for remedies they might need to receive under the contract, such as injunctive relief.
Q: Are there terms that automatically go into third-party advertising agreements?
A: Yes. A well-written advertising agreement will deal with the unique characteristics of a particular service or deliverable and include those terms. But it will also contain "boilerplate" provisions, which are terms intended to be included in every contract. Some examples of boilerplate provisions include: who owns the work that was created, severability, delivery schedules, applicable law, payment terms, indemnification, notice, legal fees, warranties, representations and limitations of liability.
Q: What if my company creates advertising for a third party and I don’t want the ad agency to have any proprietary rights in the product I created?
A: The parties have to negotiate provisions like this. In the absence of an agreement stating that the advertising agency created the advertisements, the law generally assumes that the advertising agency authored the material . Thus, this type of provision should be included in the agreement if the advertiser wants to maintain ownership of the created material.
Q: I don’t want an advertising agency to sublicense my product name or logo without permission but I’m afraid that will limit the agency’s ability to promote my business. What can I do?
A: The parties should include a negotiated provision detailing the ownership of creative material and, if it is important for either party, including rights to sublicense. Most recognizable brand owners have strict policies on how their brand elements can be used by third parties, and so advertising agencies have been conditioned to be proactive in seeking permissions. The advertiser can set forth the governing policies in the contract.
Q: Will I still own the advertising material created under an advertising agreement?
A: Parties to contracts should specifically address the ownership of the creative elements in an advertising campaign. If an advertiser contracts with a production company, the company has the ability to include various provisions that specify ownership rights over the work. For example, if an advertiser asks a production company to create a television advertisement, the production company might try to reserve the right to use the advertisement in its own portfolio. That right needs to be specifically addressed in the contract. The rights to television advertisements and other creative work can be a valuable copyright asset for a production company in particular, and therefore the parties to an advertising agreement should address ownership of all creative works.
Q: Can I cancel my advertising agreement at any time?
A: Advertising agreements typically contain termination provisions that set forth how long each party has to terminate the agreement and the bases for termination (e.g., a material breach). These provisions are typically universal across all contracts, however, the parties can negotiate specific cancellation provisions, especially if the parties have confidential information or branded material that they do not want disclosed to the public.