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As venture capital funding becomes scarce, more and more new media companies are exploring strategic partnerships and affiliations with other dot-coms or traditional brick and mortar companies. Although these deals can generate much-needed publicity and revenue for both parties, companies should carefully consider their pros and cons and the many legal considerations. This article examines a number of affiliations and strategic partnerships, from simple linking agreements to complex cobranded sites with e-commerce capabilities, and highlights the legal and business issues associated with each type of deal. Strategic partnerships and affiliations offer many benefits to new media companies. They can lend credibility to a start-up company which can lead to venture capital funding and an increase in a company’s valuation. They can increase traffic to a start-up’s Web site. They can provide access to the strategic partner’s resources such as talent, technology, contacts and customer lists. The potential benefits derived from entering into a strategic partnership are not, however, without risk: in such an alliance, a company is associating itself with a partner, for better for worse. New media companies should therefore make sure the partnership will add value to their own brand and not tarnish it. A company will also want to make sure the strategic partner will fulfill its obligations, whether it’s directing traffic to the company’s site or processing orders and providing customer service. The two parties also need to address liability and ownership of customer data. Nonetheless, there are many examples of successful strategic partnerships which benefit both parties, including the following kinds of deals. LINKING Linking deals are relatively simple. Company A and Company B post links on each other’s sites (bilateral), or Company A allows Company B to post a link on its site (unilateral). The legality of permissive linking is still somewhat uncertain, so many companies enter into linking agreements. Such an agreement should address who has control over the placement of the link, which pages are linked to, take-down rights and exclusivity. The parties should also decide whether to adopt a revenue sharing model if linking potentially leads to sales. And each site should contain disclaimers in its legal page or terms of use concerning liability for the content of linked sites or possible transmission of viruses via linking. AD BARTER Another relatively simple affiliate deal allows Company A and Company B to advertise on each other’s sites. Such an agreement should define whether the parties can place an equal number of advertisements on each other’s site, or, if one site is more heavily trafficked than the other, whether to use a formula based on the value of impressions on each site. An ad barter agreement should also establish the type and size of ads allowed, where on each site they can be placed, whether the agreement is exclusive within an industry (so that ads of competitors are not allowed within the site or on certain pages) and whether one or both sites will receive compensation such as royalties based on click-through sales. SPONSORSHIP OF CONTENT Just as some companies sponsor television shows, certain advertisers choose to sponsor Web sites or particular content or pages on a Web site. This usually provides the sponsor with prominent and exclusive exposure on a site, but it leads to questions regarding whether the content, particularly if it is commercial in nature, is editorial content or advertising. This is an important issue because the rules for editorial content differ from the rules for advertisements. In general, the FTC requires that advertisements be truthful and not misleading and be supported by sufficient substantiation, whereas editorial content is not subject to the same strictures. If the content regarding a commercial topic (e.g., a description of a new product) is “sponsored,” it can look more like advertising, and therefore be subject to the more stringent rules which the potential sponsor should be aware of when attaching its name to the content. Another important issue in sponsorship deals is the ownership of the content if it is created for the sponsored page. The parties should consider using a work-for-hire provision and should establish whether the sponsor can use the content in other media during and after the term. A sponsorship agreement should also address whether the sponsor has any control over the rest of the content on the site and who gets revenue from advertising on the site. CONTENT LICENSES Many Web sites attract visitors by constantly providing new content. But Web-site operators often lack the resources to create enough new content to fill their sites. A popular solution is to contract with outside content providers so that Web sites have enough text, still images, streamed audio and video, stock quotes, news updates and software to keep visitors coming back. Web sites looking for content can license pre-existing content or content created specifically for the site directly from the copyright owner. Such an agreement should cover who owns the content and any limitations on its use, both during the term and after. The agreement should also address restrictions on the right to modify the content, exclusivity, whether the content can be used in different media (off-line and on-line) and sale of advertising and sponsorships on licensed content and within frames. Web sites negotiating for the right to use content usually want the maximum amount of flexibility so that they, or a parent company, can use the content in many media and as the business changes. Also, venture capital firms and potential buyers of a Web site company look carefully at content licenses to determine what rights were acquired and whether they can be assigned to a buyer or affiliate. Web sites can also enter into subscription-type agreements with on-line content syndicators such as iSyndicate, Studio One or Screaming Media. Such companies supply content such as news articles, sports scores and multimedia clips on various topics to Web sites for monthly or yearly fees. These agreements are usually not exclusive, the advantage of which is that a Web site can license content in a particular subject from various sources, rather than paying a license fee to one source for a broad range of material it may not need. COBRANDING, COPROMOTION Cobranding agreements involving e-commerce or copromotions (such as sweepstakes and contests) are usually more complex than other types of affiliate agreements or strategic partnerships. These alliances require creating Web pages or microsites with both brands on them with each company contributing to and responsible for the operation of the cobranded pages or site. It follows that cobranding agreements contain provisions relating to Web site hosting and design, copyright and trademark licenses, e-commerce and customer service obligations, advertising revenue and ownership of customer data. First, the parties should decide who will host and serve the cobranded pages and what guarantees the hosting party can and will provide regarding functionality of the site. Second, the parties should determine what the cobranded pages will look like. Will they have the look and feel of one party with the other party’s logo, or will the content have a jointly created look and feel? The parties should also determine whether they both will have approval rights over the Web-site design, who will own the content, including the Web-site design, at the end of the term, and how each party’s trademarks will be used on the site. Third, for sites offering e-commerce, the parties should decide whether goods will be sold from the cobranded pages or from linked pages on each party’s own site. If one party is responsible for handling the e-commerce backend, such as order fulfillment and customer service, the other party needs to know how this will be accomplished — will the other party have adequate resources to handle the e-commerce obligations or will it be outsourced to a third party? And what is the allocation of risk for something unexpected like a product recall? The parties also need to determine the allocation of revenues. For example, if one party handles the fulfillment responsibilities, it will expect to recoup certain expenses before sharing revenue with the other party. Since the success of a cobranded site depends on Web traffic, another important issue is promoting the cobranded site. The parties should spell out not only who is responsible for promoting the site but also what kind of promotion is expected — press releases, promotions on each party’s main site, or advertisements on third-party sites — and which party pays for promotion expenses. Each party’s promotional responsibilities should be carefully defined so that neither party is surprised by the nature or lack of the other party’s advertising and promotional activities. Finally, the parties should establish who will own customer data, whether there will be any limitations on the use of the data, how the parties will comply with spam and privacy laws, and what happens after termination of the cobranded agreement. SWEEPSTAKES AND CONTESTS One of the popular methods for driving traffic to sites is through the use of sweepstakes and contests. However, because both are subject to a wide variety of state and federal laws, it is critical that companies entering into copromotion affiliations using such methods determine who will be responsible for ensuring legal compliance. Many states require detailed disclosures in the ad copy and rules. Some states require that sweepstakes sponsors register and bond the sweepstakes if the total value of the prizes exceeds $5,000. Parties entering into copromotion agreements should decide whether to run the promotion in-house or outsource it to a promotion agency, what the advertising and marketing budget will be and who will be responsible for having it vetted by experienced promotions lawyers to ensure that the promotion complies with the relevant laws. COPPA ISSUES All companies that enter into a strategic partnership or affiliation geared toward children must pay particular attention to the Children’s On-line Privacy Protection Act (COPPA) because a company may be liable for the data collection practices of its partner or affiliate. In general, COPPA requires that operators of Web sites that are directed towards, or that knowingly collect information from, children under 13 post a privacy policy, provide notice to parents of their data collection practices, get verified parental consent if the site collects personal information from children, and provide access to the information. To determine whether an entity is an operator, the Federal Trade Commission will consider who owns and controls the information, who pays for the collection and maintenance of the information, what the pre-existing contractual relationships are in connection with the information and what role the Web site plays in collecting or maintaining the information. Companies should therefore proceed with caution when entering into a strategic partnership or affiliation with a site that appeals to children. CONCLUSION Strategic partnerships can lead to increased Web-site traffic and visibility, e-commerce revenue and access to a partner’s resources. The key is to craft an agreement that takes into account each party’s responsibilities and expectations so that both parties benefit from the arrangement. Terri J. Seligman is a partner in the advertising law group, and co-chair of the iLaw group, at Loeb & Loeb in New York. Jill Westmoreland, an associate at the firm, assisted in the preparation of this article.

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