Margae vs. Clear Link: The Dangers of Doing SEO By Commission and Not Having Good Contract Discipline
May It Please the Mozzers,
For Legal Monday, I'm going to spotlight a case dealing with SEO, affiliate marketing, commissions-based SEO, and the importance of having a clear, written contract.
In this Utah case, Margae Inc., an internet marketing company with an odd homepage, is suing Clear Link, another internet marketing company.
Clear Link is a big fish providing and managing affiliate marketing services for some hot properties, such as Direct TV, ADT, and Hughes Net.
Margae is a smaller company that claims expertise in affiliate marketing and SEO. It agreed to provide affiliate and SEO services for Clear Link.
Unfortunately, the parties disagree about the terms of that agreement.
At this stage of the case, Clear Link asked the Court to rule that the Partnership Agreement covered the parties' entire relationship and that the parties must arbitrate their dispute under the terms of the modified electronic agreement.
Margae asked the Court to rule that the Partnership Agreement only covered the parties' affiliate marketing relationship and that there was a separate, oral agreement regarding SEO services.
Oddly, Margae wanted the same results as Clear Link; It wanted the Court to order the parties to arbitrate their dispute. However, Margae wanted the Court to reach the conclusion by different means. Margae did not want the Court to decide that the Partnership Agreement governed the parties' entire relationship (SEO and affiliate marketing). Instead, Margae asked the Court to require arbitration 'just because' Clear Link asked for it and arbitration is generally a good idea.
Why does Margae care whether the Court uses the Partnership Agreement as the reason for granting arbitration? Because if the Court rules that the Partnership Agreement is enforceable for the parties' entire relationship, then Margae could get screwed out of its commissions for the SEO work it performed on the Clear Link properties. The Partnership Agreement did not have any protection for Margae's proprietary SEO strategies and allows Clear Link to terminate business relationships at any time.
The Court agreed with Margae and found that the electronic Partnership Agreement covered the affiliate marketing services, but not the SEO services. The Court was convinced that if both parties truly wanted the Partnership Agreement to cover the SEO services, then it would have included language about website ownership, and protection of proprietary information, and some non-competition language.
It's a great ruling for Margae. Without the written agreement to rely on, Clear Link has to argue why it should be able to use Margae's SEO strategies on its site without paying Margae commission like it did in the past. In some ways, the litigation is just heating up because now the parties have to fight over the terms of the oral agreement.
However, I feel pretty confident that the Court's decision will give Margae the leverage it needs to negotiate a settlement for unpaid commissions. And both parties will start to find settlement very appealing after getting their attorneys' invoices for the litigation to date.
First, SEO based on commissions is very risky. Yes, the potential reward is high, but the risk that your merchant will bail out on you is also high. The risk averse should not go this route.
Second, while written contracts can be scary, not having one is scarier. If Margae had a written contract covering the SEO services it was providing for Clear Link properties, it wouldn't have spent thousands of dollars just trying to prove that a contract existed. If the parties don't settle, then Margae will have to spend thousands of more dollars trying to prove what the terms of the oral agreement were.
Third, if you're drafting a contract for SEO based on commission, pay close attention to (1) your remedies and (2) the term of the contract. You need to make the merchant commit to provide you commissions for a set length of time. There should also be penalties in the event that the merchant terminates the contract early. For example, reserve the right to remove your proprietary SEO techniques and strategies in the event of contract termination.
Fourth, consider asking for a combination of a modest retainer up front and ongoing commissions. This will act as a hedge against risk and more accurately reflect the investment of time and resources you put into the project.
Fifth, don't agree to do SEO by commission unless you have tremendous trust in the honesty and the longevity of the merchant.
Lastly, if you're an online business, the courts are much more likely to hold you to your electronic contracts than a regular, unsophisticated consumer. Thus, read your contracts before you sign them and check for updates at least quarterly.
I'll keep you updated as the case develops.
Best Regards,
Sarah
Hat tip to Eric Goldman for bringing this case to my attention.
For Legal Monday, I'm going to spotlight a case dealing with SEO, affiliate marketing, commissions-based SEO, and the importance of having a clear, written contract.
The Parties
In this Utah case, Margae Inc., an internet marketing company with an odd homepage, is suing Clear Link, another internet marketing company.
Clear Link is a big fish providing and managing affiliate marketing services for some hot properties, such as Direct TV, ADT, and Hughes Net.
Margae is a smaller company that claims expertise in affiliate marketing and SEO. It agreed to provide affiliate and SEO services for Clear Link.
Unfortunately, the parties disagree about the terms of that agreement.
The Facts, In Brief
Margae approached Clear Link about doing some affiliate and SEO work for Clear Link back in 2006. The parties talked and agreed that Margae would get commissions both on its affiliate sites (like any other Clear Link affiliate) and that Margae would get commissions on sales from the Clear Link properties that it optimized.
It sounds like the parties reached an agreement, right? Well, they did on the big picture stuff, but it's not clear about the details. And the devil is in the details.
Clear Link's version of the story is that it asked Margae to enter into its online "Partnership Agreement" to govern the parties' entire relationship, affiliate and SEO.
Margae's version of the story is that the Partnership Agreement covered the affiliate stuff, but that the parties had a separate oral agreement for SEO services. In fact, the president of Margae said in a sworn statement that he very specifically didn't enter into a written contract for the SEO part because he had been screwed by written contracts in the past (I'm paraphrasing there).
The parties' different understandings are in dispute. However, the parties agree that Margae entered into the Partnership Agreement and everything went quite well for about a year. Clear Link gave Margae access to its websites and Margae optimized them and received commissions. Margae also received commissions on its own affiliate sites. Everyone was making money and people were happy.
Then some time in 2007, a dispute developed between the parties. Apparently Margae was also an affiliate for one of Clear Link's competitors. According to Margae, Clear Link asked it to give up the relationship and when it refused, they terminated Margae's access to the Clear Link properties and stopped paying commission on all sites.
Margae is suing Clear Link to force it to pay any commissions earned on its affiliate sites and on the Clear Link properties it optimized.
Clear Link's position is that it can terminate affiliates whenever it wants pursuant to the partnership agreement and that it doesn't owe Margae anything more for optimizing its properties. It also argues that Margae doesn't have the legal right to bring this case because the Partnership Agreement contains a mandatory arbitration clause.
The mandatory arbitration clause argument came as a surprise to Margae because it was added to the Partnership Agreement after Margae agreed to it. Of course, the Partnership Agreement gives Clear Link the right to change the agreement without notice to affiliates.
Will Margae be able to convince a Court that the SEO services were outside of the Partnership Agreement? Will the Court enforce the mandatory arbitration clause even though it was added in after Margae entered into the agreement?
Margae approached Clear Link about doing some affiliate and SEO work for Clear Link back in 2006. The parties talked and agreed that Margae would get commissions both on its affiliate sites (like any other Clear Link affiliate) and that Margae would get commissions on sales from the Clear Link properties that it optimized.
It sounds like the parties reached an agreement, right? Well, they did on the big picture stuff, but it's not clear about the details. And the devil is in the details.
Clear Link's version of the story is that it asked Margae to enter into its online "Partnership Agreement" to govern the parties' entire relationship, affiliate and SEO.
Margae's version of the story is that the Partnership Agreement covered the affiliate stuff, but that the parties had a separate oral agreement for SEO services. In fact, the president of Margae said in a sworn statement that he very specifically didn't enter into a written contract for the SEO part because he had been screwed by written contracts in the past (I'm paraphrasing there).
The parties' different understandings are in dispute. However, the parties agree that Margae entered into the Partnership Agreement and everything went quite well for about a year. Clear Link gave Margae access to its websites and Margae optimized them and received commissions. Margae also received commissions on its own affiliate sites. Everyone was making money and people were happy.
Then some time in 2007, a dispute developed between the parties. Apparently Margae was also an affiliate for one of Clear Link's competitors. According to Margae, Clear Link asked it to give up the relationship and when it refused, they terminated Margae's access to the Clear Link properties and stopped paying commission on all sites.
Margae is suing Clear Link to force it to pay any commissions earned on its affiliate sites and on the Clear Link properties it optimized.
Clear Link's position is that it can terminate affiliates whenever it wants pursuant to the partnership agreement and that it doesn't owe Margae anything more for optimizing its properties. It also argues that Margae doesn't have the legal right to bring this case because the Partnership Agreement contains a mandatory arbitration clause.
The mandatory arbitration clause argument came as a surprise to Margae because it was added to the Partnership Agreement after Margae agreed to it. Of course, the Partnership Agreement gives Clear Link the right to change the agreement without notice to affiliates.
Will Margae be able to convince a Court that the SEO services were outside of the Partnership Agreement? Will the Court enforce the mandatory arbitration clause even though it was added in after Margae entered into the agreement?
What Was the Court Was Trying to Decide in This Stage of the Case?
At this stage of the case, Clear Link asked the Court to rule that the Partnership Agreement covered the parties' entire relationship and that the parties must arbitrate their dispute under the terms of the modified electronic agreement.
Margae asked the Court to rule that the Partnership Agreement only covered the parties' affiliate marketing relationship and that there was a separate, oral agreement regarding SEO services.
Oddly, Margae wanted the same results as Clear Link; It wanted the Court to order the parties to arbitrate their dispute. However, Margae wanted the Court to reach the conclusion by different means. Margae did not want the Court to decide that the Partnership Agreement governed the parties' entire relationship (SEO and affiliate marketing). Instead, Margae asked the Court to require arbitration 'just because' Clear Link asked for it and arbitration is generally a good idea.
Why does Margae care whether the Court uses the Partnership Agreement as the reason for granting arbitration? Because if the Court rules that the Partnership Agreement is enforceable for the parties' entire relationship, then Margae could get screwed out of its commissions for the SEO work it performed on the Clear Link properties. The Partnership Agreement did not have any protection for Margae's proprietary SEO strategies and allows Clear Link to terminate business relationships at any time.
The Court's Decision
The Court agreed with Margae and found that the electronic Partnership Agreement covered the affiliate marketing services, but not the SEO services. The Court was convinced that if both parties truly wanted the Partnership Agreement to cover the SEO services, then it would have included language about website ownership, and protection of proprietary information, and some non-competition language.
It's a great ruling for Margae. Without the written agreement to rely on, Clear Link has to argue why it should be able to use Margae's SEO strategies on its site without paying Margae commission like it did in the past. In some ways, the litigation is just heating up because now the parties have to fight over the terms of the oral agreement.
However, I feel pretty confident that the Court's decision will give Margae the leverage it needs to negotiate a settlement for unpaid commissions. And both parties will start to find settlement very appealing after getting their attorneys' invoices for the litigation to date.
What Can We Learn?
First, SEO based on commissions is very risky. Yes, the potential reward is high, but the risk that your merchant will bail out on you is also high. The risk averse should not go this route.
Second, while written contracts can be scary, not having one is scarier. If Margae had a written contract covering the SEO services it was providing for Clear Link properties, it wouldn't have spent thousands of dollars just trying to prove that a contract existed. If the parties don't settle, then Margae will have to spend thousands of more dollars trying to prove what the terms of the oral agreement were.
Third, if you're drafting a contract for SEO based on commission, pay close attention to (1) your remedies and (2) the term of the contract. You need to make the merchant commit to provide you commissions for a set length of time. There should also be penalties in the event that the merchant terminates the contract early. For example, reserve the right to remove your proprietary SEO techniques and strategies in the event of contract termination.
Fourth, consider asking for a combination of a modest retainer up front and ongoing commissions. This will act as a hedge against risk and more accurately reflect the investment of time and resources you put into the project.
Fifth, don't agree to do SEO by commission unless you have tremendous trust in the honesty and the longevity of the merchant.
Lastly, if you're an online business, the courts are much more likely to hold you to your electronic contracts than a regular, unsophisticated consumer. Thus, read your contracts before you sign them and check for updates at least quarterly.
I'll keep you updated as the case develops.
Best Regards,
Sarah
Hat tip to Eric Goldman for bringing this case to my attention.
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