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.
I read a while ago: "a contract is no replacement for trust."
I've become immensely happier since I stopped trying to perfect every letter of the contract, and started focusing instead on only doing business with reputable people.
The problem is that reputable people can forget what they agreed to. It's an unfortunate truth that the human memory is no substitute for paper. In my experience, it's always been best to have things on paper. Eventually, even the best client forgets what he agreed to. It's not that they're bad people. They just forget and then it can turn into one big mess.
I really think some of the facts of this agreement have been misunderstood.
I know both of these companies very well. Margae was an affiliate for years.... Clearlink offered Mark Goodman (the owner of Margae) an opportunity to make more money and give their site more exposer. After a few months Mark got greedy. Called Clear Link and said he wanted more money per sale and after they said they could not afford to pay more (they were already paying him $150.00 per sale) he threatened them.... with tearing down all the good rankings.
So instead of being held hostage to Mark Goodman trying to extort more money they told him he was not going to have access to their sites any more, but still paid him on sales from Clear Link owned sites for the next month. They also never stopped paying for the sales coming from Marks sites.
So, it was never an SEO commission deal... it was always an affiliate deal that Clear Link and Margae benefited from allowing him to draw an extra income from Clear Link Sites.
No, I am not tied with either party here.
I've enjoyed my own move to more commission based activities, but this article really brings me back to earth.
I have a couple of situations that now have the potential to get ugly, and it's nobody's fault but my own for doing handshake deals over the phone.
Thank you for the not so gentle reminder to "get it in writing".
Always in writing. Always. CYA!
Great example of why that is so important.
Legal Monday is becoming one of the few "must-reads" online. Keep up the good work.
I wouldnt touch performance based. Had a few bad experiences also but pulled out early.
Since then I found in the Moz pro section a document called Disclaimer of warranties. Goes something like:
"SEO Company MAKES NO WARRANTY, EXPRESS......etc"
Makes the client understand they are buying consultation and advice, not rankings.
I ask all new clients to sign this doc, and only take payment for work up front. Then when I get the contract I work like mad to satisfy the client and make sure they get great results. When their first payment period is up, I ask them to buy more time. They say yes every time. No contracts, no performance deals, no stress :)
Funny, we were just having this debate at work today!
Has anyone ever heard of a situation where one performs a social media campaign on a pay-per-performance model? if so, are the metrics used to analyze performance (traffic, links, etc.) acctually measurable?
I tend to agree with nicknick in that it is much "cleaner" to charge a flat fee.
Although...i would hate to pass on that "right" deal! Any thoughts are greatly appreciated!
I love Legal Monday!
Especially when it hits on a topic I have been debating for the past weekend. I ALMOST agreed to a commision based agreement...ALMOST. It is something I've always stayed away from and this time I started to see too many dollar signs to really stick to my roots.
Thank you for smacking me back in line. :)
Cheers,
@trontastic
SEOmoz engaged in 3 different pay-for-performance contracts, and while we had fairly strict contracts each time, it was all about the trust. In the single case where it didn't go well, the result was that we basically gave up the right to the works we'd completed without payment.
The other two went much better, but I'd still be really wary of performance/incentive-based contracts in SEO. They're usually much easier in the affiliate world, because the systems are so well established and entrenched.
I don't trust (oral or written) pay-for-performance agreements. I usually request that the entire project fee be paid before any work is done.
Certain states have different provisions for the enforceability of verbal contracts. In other words, some are more lax than others. IANAL, but it appears that Utah is one of those states where verbal agreements are just as binding as written contracts (with exceptions: no written contract exists, not real estate, etc...) Maybe Margae got lucky being able to bring the case in Utah?
Not entering into a written agreement seems like a pretty poor management decision, as was performing additional work without any kind of guarantee. Saying you don't like written agreements because you've been screwed, but thinking verbal is any better is just plain idiotic. I'm also amazed at the fact that, as the Court found, Clear Link allowed a third party to change and/or add content to their intellectual property with no agreement as to who owned the content. These two seem made for each other.
What is the current opinion on changing the TOS without any additional consideration? I'm sure I've seen this before, but apparently, the Utah Court hasn't ruled on that yet? Is there a precedent?
It's still open. Eric Goldman blogged about one:
https://blog.ericgoldman.org/archives/2007/08/douglas_v_talk.htm
But...that's just about it so far.
Sarah, et al.--
Great article and a very helpful reminder to be cautious when dealing with any entity.
The only problem I have with the article is that it is biased and essentially grants Mr. Goodman all of the "honesty" points and gives a "penalty" to Clear link for being the big bad company.
While I understand that this forum is for all of us SEO gurus, let's be careful not to give our industry a bad name by biting the hand that feeds us.
Pay-for-performance is a excellent way to balance accountability and upside for us so long as the deal is papered correctly & accurately for mutual protection. I do like the idea of the down payment, etc. but this case certainly shouldn't act as the poster child of we SEOers getting "screwed" by the man, as Sarah puts it.
I happen to be very familiar with Mr. Goodman's work and I have to agree with "Nobody" that he's just not honest. I think that's as nicely as I can put it.
We deal in a specialized and pretty small community of developers and when one of us cries foul we need to know that we can back him or her up, but in this case, I have to tell you that the problem is with Goodman/Margae and not Clearlink. I have worked with Clear link under the same type of arrangement for nearly 7 years just as SEO was really getting its start and clearlink has never missed a beat or a chance to be honest. In fact our first years were nothing but a verbal agreement made on a handshake--we didn't know any better. I should have known better, but thankfully things worked out.
Although Sarah's cautionary tale means well, I think she has the roles reversed and Mr. Goodman (ironic name) is actually the one to watch out for. Let's not put a black eye on our industry by crying foul agaisnt the very companies that pay our bills.
Weird. Your only comment is to this post. Then, the next comment on this post is defending your original idea. And...magically you get a thumbs up. Ironic...
If I'm not mistaken, you have created two accounts and given yourself a thumbs up. Posing as two different people. Note: Both don't have avatars. And both are recently created accounts...
The case is closed my friend. Sorry for your perceived injustices.
sorry to burst your bubble, pal, since you are obviously a very excitable individual. I have no connection with legalese. I'm not a regular seomoz follower - a friend of mine who knows i'm familiar with both clearlink and mr. goodman sent me the link. I wanted to comment - so I created an account and did so! And "GASP!" I did 'thumbs up' "legalese" and "i am a nobody" (didn't catch that particular 'thumbs up' did you?).
Have a great day as you continue the difficult task of policing the internet. My heartfelt thanks for a job well done.
Just in case you missed it the first time.
The case is closed my friend. Sorry for your perceived injustices.
You write some great legal blog posts.
This is definitely timely for me and writing my first large seo contract. Thanks for sharing the information. This has helped me out tremendously.
Any thoughts on appropriate penalties for early contract termination? Percentage of fees for remaining term, etc.? Any ideas would be greatly appreciated.
any updates to this case?
Does not shock me. They (Clearlink) made their terms retroactive and stole my commissions and set me back over a grand in ad costs. They failed to mention in their terms that negative keywords were required. Accused me of "I should of known to do it anyway". What a crock! So why is it that the industry standard is to include the requirement of negative keywords in their terms? In as much as Adwords can "broad match" so many trademark terms and misspellings one could never imagine them all. Also every company want to protect their trademarks differently. Some let you bid on anything. Some dont want you bidding on their name but dont require negative keywords, some wont let you use their name in the text of your ad. Clearlink makes it up as they go along and if the Master company has an issue with anything, well they will just blame you and steal your commissions.
This article came too late for me, I agree to do SEO on commission, What to to next???.
I am glad I have not signed any agreement as yet.
Hi,
Great article...and to all the people who "supposedly" know the parties involved...in the original piece by Ms. Bird, she simply recaps the facts handed down from the decision and why the decision was good for the SEO company. So, she did not give the SEO company the benefit of the doubt, the Judge did.
Very interesting. Commission payments - always tempting. I've heard amazing stories and some real disasters. We have some small ones, but generally steer clear. Very interesting read and good insight, though Sarah - thank you.
Written contracts are important. I wonder if Margae will reconsider their approach now to written contracts even though the president of Margae got " ..screwed by written contracts in the past.."? Was Margae notified when Clear Link updated their written agreement?
I just can't imagine Margae, which doesn't appear to be a 'mom and pop' outfit, investing all that time and energy into seo services for future earnings without at least backing it up with some sort of written document, especially if they were working alongside a large corporation. Perhaps this is a premeditated link juice tactic!
Margae is located in a residence on a street in clyde, nc. Mark Goodman the owner wants people to believe he is a knowledgeable and reputable SEO company when in fact he is a retired dentist who is dabbling in SEO. He has very little ethics or reputable SEO business practices and tactics. A 'mom and pop outfit would have been a better choice to work with.
I agree with Rand here. I'd stay away from performance based deals. The client tends to change his/her opinion over time and if there is no money put in, they can also loose interest. Contract or no contract, it's best to just get paid for what you do and let the client enjoy their own business model. It's cleaner and much more profitable for an SEO.
Having said that, if the right deal comes along.... ;)
Sarah,
In my very limited understanding of contract law, here's my question:
In Margae Inc. getting paid additional funds (comissions) outside of the written Partnership Agreement, would that be evidence of an additional agreement (verbal or written)?
If so, wouldn't that be pretty easy for Margae Inc. to receive an award of the unpaid comissions?
In this case, the fact that Margae received commissions for both affiliate and SEO work isn't necessarily determinative because it is consistent with both parties' version of the facts.
Clear Link argued that of course Margae received commission from the Clear Link properties because those properties were governed by the Partnership Agreement, just like all affiliate sites. In other words, Clear Link wanted the Court to treat the SEO work that Margae performed on the Clear Link sites like any other typical affiliate relationship.
Margae, on the other hand, argued that the partnership agrgreement was irrelevant to the SEO services provided for the Clear Link properties. Its commissions were based on an oral contract.
Everyone agrees that Margae should have received commission for both its own websites and the Clear Link websites. The question was whether the commission was owed because of the Partnership Agreement or some other verbal contract.
The stakes are high. If the partnership agreement controls, then Clear Link has termination rights and can argue it doesn't owe a terminated affiliate anything. On ther other hand, if the partnership agreement doesn't control, then Clear Link has a more difficult time justifying why it should be able to continue to use Margae's proprietary techniques without continuing to pay commissions.
Hope this helps!
Ah got it,
Thanks so much for the clarification Sarah.
Is there any information about what exactly these propriatery techniques are?
"You have to get rid of your backlinks" or "You can't strcuture your title tags this way anymore" would seem a bit silly.
Rule six - be extremely wary of any SEO who claims to have 'proprietary technologies and patented search engine ranking methods'
Automation can be done in car washes, but not for competitive keywords.
What a fascinating story and illuminating summary, Sarah.
FWIW, I have only ever entered into a commission-based "contract" with one of my oldest friends who I know will not screw me over. We basically have a verbal contract and so far it has been a win-win for both of us. It is also only for ONE website that I control access to, and not a series of websites that he has access to.
That would be the ONLY time, and the only manner in which I'd ever do a commission-based contract, for the reason that you cite:
Great case. I always hated people who contact me for SEO and then want to counterpitch with SEO for commissions. Nonsense to me. If I'm working for commission and the work is done, you basically got free work. No thanks. Or else I'd take over the business. I mean -who's more desperate? Me for a gig - or you for business to stay in business? I also got companies trying to hire me as in-house SEO and pay me for lower salary and work for commission. No thanks. Why would I work for commission if I'm not responsible for actual sales? If I'm doing the marketing - I should be paid for the marketing work. You don't go to a creatives agency and say I need you to create an ad and you'll be paid on commission from sales from the ad. No creatives agency would accept that.
I couldn't agree with your points more. I get approached for commission deals all the time. There's more to making a sale then generating traffic!
I would take it a step farther than “read the contract thoroughly” with my thoughts. You should read and understand the contract. Don’t just rely on a lawyer (unless they are on your staff) to make decisions in your company’s best interest; take the time to understand the details of your contract, and don’t sign something that you don’t understand fully.
"an internet marketing company with an odd homepage"
LMFAO!
Excellent post Sarah - I find it amazing that anyone would consider working without a written contract.
I was always taught that a contract or agreement (as it often seems to be called in the UK) is there to protect both parties, and the only way you can lose out is by not having one.
Let the buyer beware....Make sure SEO firm you are dealing with is a reputable one and not a house on a street in who knows where.
I want to concur with Legalese - most on this board have jumped to the conclusion that the big bad affiliaate has once again screwed the poor little online marketer. Anyone who has been in affiliate marketing for more than a year or two has either felt they were cheated or lied to by one or more affiliate programs - I would never deny it can be a shady industry. But like Legalese, i'm familiar with Mark Goodman and his practices as well as some of the folks at Clearlink during the period referred to in the lawsuit. In this instance, the company is not at fault here. The reason they're in this position is because they didn't have a written contract with Margae. Clearlink wanted a written contract, but as stated in the lawsuit, Goodman wouldn't sign one and they made the mistake of continuing with the relationship in good faith -- a big mistake when your dealing with Mark. After establishing a longterm deal and giving several insurances to his excusivity with Clearlink, Mark, without warning, suddenly announced he would no longer work with Clearlink and would not discuss how the relationship could be improved. Overnight, Mr. Goodman became a competitor through another affiliate program and didn't like the competition Clearlink represented, hence the lawsuit. From what I've heard, the SEO 'strategies' Mark employed with clearlink are anything but propriety, and are basic SEO 101 type stuff - link building/buying and geotargeting. I guess no one at Clearlink reads webmaster forums.
Anyway, my two cents are to not assume every case like this is the evil goliath against the saintly david -- sometimes the little guy is the one who's doing the screwing. And like everyone on here agrees, no matter how they feel about this issue, ALWAYS have a written contract!
Pay-Per-Performance models models are simply useless it seems for SEO. Great article!
This is a great post and protecting your business with a written "understanding" so there is no confusion later is vital. I use "understanding" instead of "contract" as it is a softer word (learned that from the book "To be or not to be Intimidated"). Keep it to one page and outline the responsibilities of both parties and more importantly what happens when the relationship ends.
Business relationships are no different than marriages in that they need the same care in communication and respect that marriages do. And of course, when there is a "divorce" it tends to get messy.
Sarah's point in this post is giving all of us a wake-up call with this example: have a good contract, er, "understanding" in writing. Handshake deals as Scott pointed out, can turn ugly. I have had merchant's sell their business which left me out in the cold. I used to believe in trusting others. Now I believe in trusting others with a written "understanding." :-)
At the end of the day as SEOs what we want is to get paid for the work that we did right? Well, if ClearLink ended the relationship with Margae but they kept his work, and it is clear they didn't pay for it, that isn't cool.
And the "greedy" comment from "im a nobody" ... let me ask you, if you were making $50k a year and another firm offered you $85k a year and you went to your boss asking them to match it would you consider that "greedy"?
Didn't think so. What ClearLink did is what a lot of slimy merchants do when an SEO campaign is highly successful. They don't like paying those high commissions. So they "fired" Mark kept his pages on their sites, benefited from the traffic Mark produced and they KEPT his six-figure monthly commissions for themselves.
That is what this lawsuit is about. If you want to fire your affiliate, that's your decision, but you can't keep the SEO work they did for you without fair compensation.
ok, but when mark asked for more money he should have taken the fact the content he added was on clear Links website, that Mark had no real claim to. The pages even mentioned "Copyright UsDirect.com) Mark does not own usdirect.com, Clear Link does.
That was a risk he took when asking for more money and then jeperdized the relationship by making threats. Nothing wrong with going after more money... i do it all the time. But, when i do i know the risk and i use a little more tack than he does.
Oh, I can make the greedy comment, I know Mark... i'm just letting people here know that the facts are not always clear. If your relation ship is only built on money with your clients and or partners then your most likely greedy.... my relationships are built more on trust. I get offered more money all the time... the relationship is worth more. I'm in the top 1% of US income so a few more or less $$ is not always important.
To use one of your words "Slimy" Mark did what allot of "Slimy" affiliates do, make a deal on good faith and the fist competitor that offers more money... go and jump. With out any consideration of the extra money, time and effort the first merchant put in to the relationship. Again, Mark should have known the risk in how he conducts business.