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July 24, 2002  
Potential Liability Risk When Using A "Partnership" Affiliate Program

By J. D. Obenbergre, Esq.
AdultInternetLaw.com

Traffic, traffic, traffic. To a large extent, obtaining traffic is the name of the game when it comes to building a successful adult site. One of the most popular methods for developing a lucrative stream of traffic is to offer revenue splits with individuals that send traffic to your site. As with most things, there is a productive and counterproductive method for developing affiliate programs. In this article, the focus is on the overused and dangerous "Partnership Program." By creating a "partnership" with traffic driving Webmasters, most owners of adult sites do not realize that they are opening themselves up to significant lawsuits and damage claims. It should be noted that I am not suggesting you drop your affiliate programs, only that you position them in a different way to avoid being considered a partner with your affiliates.

For the purposes of this article, a partnership can be defined as a business effort undertaken by two or more persons or entities for the purpose of producing a profit. There are a variety of partnership types, but every affiliate program I have seen on the Internet would fall under the classification of a "General Partnership". From a legal perspective, it is better to have died a small child then to be involved in a general partnership. Why? The definition of a general partnership can loosely be summarized as follows: "A partnership in which all partners are liable for all partnership liabilities regardless of the amount of involvement of an individual partner." In more succinct language, each partner is liable for all of the debts of the partnership as well as the actions of the other partners in forwarding the purpose of the partnership. So how does this legal mumbo-jumbo apply to affiliate programs?

When the owner of an adult site offers a "Partnership Program" to traffic driving Webmasters, the parties can be found to be forming a general partnership or partnership by estoppel. In the adult arena, these legal classifications are the same things for all intensive purposes. The creation of this partnership relationship can lead to disastrous results for adult sites.

SPAM

Yes, I realize you all put nice detailed language in your terms and conditions barring your affiliates from spamming. Somehow, spamming still continues to grow at an exponential rate although mortgage, insurance and other products now appear as often as adult advertisements. Do you really know what your affiliates are doing? What happens when one of your affiliates spams the lawyers for America Online and the lawyers file a lawsuit? Under general partnership concepts, you are jointly liable with your affiliate for any action promoting the business of the partnership, i.e., gaining revenue from memberships. It does not matter that you did not actually undertake the spamming yourself, particularly if you new it was occurring.

The first rebuttal that I hear from owners of adult sites to the above argument is that everybody gets away with spam, so why should they really care. In essence, the argument is that no lawsuits occur, so there is really no risk. As the following reveals, those days are over:

    AOL v. National Healthcare Discount, Inc. - $419,000 judgment
    AOL v. Sex Web et. al. - $1,578,175.48 judgment


AOL has pursued numerous cases against spammers and recently filed nine more. In short, the site owner should recognize that there is a significant risk of liability by offering a "partnership program" to affiliates.

Non-SPAM Liability Risks

A partnership program can create liability for the owner of an adult site regardless of the specific acts of your affiliates. Many in the industry have questioned the legal validity of celebrity sites, specifically questioning the lack of a right to use celebrity images. This concern recently came to fruition in a rather unique way.

As has been frequently reported, the judge in the Perfect 10 v. Adult Check litigation granted a request for an injunction against the posting of celebrity sites on the Adult Check AVS. Ask yourself this, "Why and how could Adult Check be the defendant when it was the individual site owners that were using the images?" The answer arises from the judges finding that Adult Check and the individuals promoting their sites on the AVS may be partners. Specifically, U.S Federal Court Judge Louis Baird ruled Adult Check might ultimately be held liable because it could be found to be a partner of the sites using the age verification service. Upon issuing the injunction, Adult Check had no choice but to drop approximately 3,000 sites from the AVS. It is anticipated that Adult Check will file an appeal in the matter, and Webmasters should keep a sharp eye out for the appellate decision. Regardless, the case represents a clear application of the "partnership" concept to adult revenue programs and should send shivers up the back of anyone with an affiliate program.

At this point, you should be convinced that a partnership with affiliates should be avoided. Does this mean that affiliate programs are going the way of asbestos buildings? No. It simply means that affiliate programs and the accompanying terms and conditions must be redesigned to establish that no partnership is being created pursuant to the agreement. If re-written correctly, the terms and conditions for your adult affiliate program should limit any partnership liability.

The above discussion is intended to be a general commentary on affiliate program issues. Each situation is different and this article is not intended as legal advice for your specific situation. Further, nothing in this article is intended to create an attorney-client relationship. If you have additional questions, please contact Joe Obenberger at AdultInternetLaw.com.

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