Litigating Payment Disputes Between Internet Advertisers & Publishers

December 19, 2014

internet advertiserPerhaps the most common form of litigation in the Internet marketing space is the endless stream of lawsuits between Internet advertisers and publishers.  These cases not only damage goodwill between the respective entities, but they can also be quite costly – both in terms of attorney’s fees and opportunity costs when time is diverted from revenue generating activities.  These lawsuits are often avoidable and, should a dispute arise, there are a number of strategies available for optimizing the outcome in your company’s favor.

Nature of Disputes

In general, the majority of suits by advertisers against publishers involve the quality and substance of leads.  This includes cases where the advertiser paid for leads that turned out to be substandard or where the leads were allegedly obtained by the publisher in violation of either the specific terms of the contract between the parties or applicable law.   This category also frequently includes indemnity claims by the advertiser against the publisher, e.g. where the advertiser is named in a TCPA, CAN-SPAM, attorney general or Federal Trade Commission lawsuit or inquiry, and seeks to have the publisher cover the cost of defense and settlement.

Conversely, publisher suits against advertisers most often involve a straight-forward demand for payment.  These cases can include situations where the advertiser simply refuses to pay due to the publisher obtaining the leads in violation of the parties’ contract or applicable law.  These cases also involve situations where the advertiser is unwilling or unable to pay due to cash flow issues, insolvency or even bankruptcy.  On occasion, publishers will seek relief under a non-circumvention provision where an advertiser attempts to “go around” the publisher and deal directly with a publisher sub-affiliate.

How To Come Out On Top In An Internet Advertiser/Publisher Dispute

Whether you are an advertiser or a publisher, the most obvious way to succeed in any potential litigation is to enter into the best possible contract before the first lead is sent or paid for.  Many advertisers and publishers operate under the significantly misguided belief that marketing contracts are similar to other commercial contracts and that any attorney can draft, review or negotiate one.  Worse yet, many smaller marketers attempt to review and negotiate contracts on their own. This misconception costs many marketers an enormous amount of money each year.

A properly drafted contract will avoid many disputes simply by anticipating and protecting against potential breaches in advance.  A contract must clearly define what constitutes performance, net payment terms, cure provisions and remedies for breach, among other things.  More importantly, counsel that drafts, reviews and/or negotiates the contract must be fully-versed in all aspects of Internet marketing law, including all applicable state laws, rules and regulations.  When negotiating the contract, counsel must contemplate whether your company is more likely to be a plaintiff or a defendant in a dispute, whether you would be better served by arbitration or litigation, whether you may need injunctive relief, as well as what would be the most advantageous choice of law and choice of venue.  Further, limitation of liability provisions needs to truly encompass all scenarios, including those arising out of all relevant consumer regulations.  Simple boiler plate contracts are essentially useless in this regard.

On the litigation side, counsel must scrutinize the contract for all relevant terms and conditions, and be aware of items that may have been purposely or inadvertently omitted from the contract.  Specifically, do you have any flexibility over whether to bring or move the action to arbitration or from arbitration to a state or federal court?  Do certain arbitration panels or state/federal courts provide more expediency or more optimal law?  Are there indemnity provisions that can be invoked against the party bringing suit or against a third party?  What is the scope of the limitation of liability provision and what motions can be brought immediately to either prosecute or defeat any subject action?  Has the opposing side waived any causes of action or defenses or created any new ones (e.g. where an advertiser has paid an invoice without raising objection)?

Significantly, in potential indemnity scenarios, where one or both of the parties, or their officers and directors individually, have been sued by an attorney general, a TCPA class action plaintiff, etc., it is critical that counsel is prepared and experienced enough to address and potentially dismiss the underlying cause of action and not simply the indemnity demand.  Of course, you would be best served if counsel were able to anticipate potential regulatory violations at the drafting stage of the contractual relationship.

Conclusion

If you engage in Internet marketing, or utilize any form of third party marketing (Internet, email, text, telemarketing, etc.) it is critical to retain counsel that is knowledgeable and experienced in marketing law before any contract is negotiated or signed.  Counsel must know the ins and outs of the law, as well as the red flags that will lead to litigation.  The foregoing will almost certainly save you substantial time and money, as well as allow you to avoid the distraction of dealing with litigation involving your business or you personally.

This topic should be of interest to any company or individual engaged in the online marketing and telemarketing industries.

If you are interested in ensuring that you are compliant with current regulations or enhancing your contractual protection, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.

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