This article is written by K. K. Nishchita pursuing Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
Any advertisement company in the market needs to bring out its best creative and visionary work to the table when it proposes a new business idea to a new client. If the ad agency is successful in satisfying the client’s needs and the client feels that the agency’s ideas are result-oriented and efficient then the client shall confirm a contract with the agency. A client should first trust the agency to fulfill his advertising objectives. However, in certain circumstances, misunderstandings between the agency and client can occur which will cause a business relationship to go downhill.
Advertisements are either video graphics or photographic messages that are chiefly intended to influence the audience watching them purchase the goods and services. Advertising is a crucial component of any commercial broadcast media organization. The organizations that broadcast their programming on television, radio, or the Internet, depend massively on advertising revenue to fund their operations. They also rely on advertising to publicize their own product, i.e., through TV and radio programming, and as well as on any internet content they provide. The swift growth of the Internet has motivated many advertisers to shift to a medium advertising budget sparking a spirited debate in the broadcasting industry over new ways to generate revenue. The agreement between an advertiser and a broadcaster is a legal document that outlines the association between an advertiser, its advertising agency, and also the broadcaster. An advertising agency can be a person or a company that places advertisements as required to attract customers. Through an advertising agreement, all rights to the work created by the broadcaster are assigned to the advertiser for their specific uses. In return, the advertiser shall agree to pay the agency and the broadcaster a certain amount. The agreement will include what services will be rendered, fees charged and payment structure to be followed, and ownership and use of content developed during the duration of the agreement.
In other words, an advertising agreement is a document that is signed and executed between an individual or a company or a corporation who wants to promote their products on the one side and the advertiser, the company/corporation/individual who would advertise their product and help them in reaching the mass on the other side. The term advertising agreement is not defined in any statute and the example of the advertising agreement is the contract between a billboard company and a company wanting to rent a billboard for advertising space. The main idea behind this article is to put out the important clauses in an agreement between an advertiser and a broadcaster and to make one understand how such an agreement is drafted from the beginning.
What is an advertising agreement?
Advertising agreements are commonly made between the person or company where the advertising will be presented, and the person or company that is going to be placing the advertisement. Whether a person is a host or an advertiser, it’s always a good idea to have a written agreement, so that the legal interests are protected thereby minimizing misunderstandings and risks associated.
An advertising contract also referred to as a marketing contract, is a document that consists of a simple agreement between two parties. The two parties involve the service provider or products that need to be advertised, and the advertiser providing the space and time to market those goods to the public.
An advertising agreement is a document signed by an organisation and an advertising agency that shall run advertisement campaigns for the company on any media as decided in the agreement.
The organisation may be a company, a firm, a Limited Liability Partnership (LLP), a One Person Company (OPC), or any other business entity. The advertiser can either be a natural or an artificial person like a company. The agreement provides particulars about the method, pricing estimates, and other terms and conditions of the advertisement campaign.
Constituents of an advertising agreement
An agreement shall have the following details:
Title and introduction of parties
Particulars about the types of business organizations and attributes of business of both parties are required to be mentioned. For instance, the advertising agreement could be between a company incorporated under the Companies Act, 2013, and an advertising agency which can be an LLP or a One Person Company.
It shall be mentioned as to who approached whom for the purpose of the agreement and also acceptance of the other party to bind themselves in a contractual relationship with each other. For example, whether company A approached company B or vice versa is mentioned and the acceptance of the offer by the other party respectively is specified in this constituent.
Terms and conditions of the agreement
- Medium: All the required information about the medium for which advertisements should be created can be mentioned. It may be newspapers, websites, television, radio, cinema slides/ads, journals, magazines, etc
- Estimates: If an organisation advertises or broadcasts the content be it any medium, they require to learn how to negotiate with the media houses who advertise and broadcast content to get an estimate of the revenue that they might receive.
- Payment: It can be a fixed reimbursement of a lump sum amount after reimbursing the expenses incurred in the creation and publishing of the advertisements in various mediums.
Competition, legal issues, reports, intellectual property, indemnification are some other aspects under the terms and conditions that need to be taken care of.
Duration of the agreement
The time period of the agreement must be recorded. The rights and responsibilities of both the parties towards each other shall remain the same during the mentioned time period.
The method in which termination is to be made available to both parties needs to be specified, including the notice period, if there is any. For example; the termination clause needs to specify under what circumstances the agreement could be terminated like the breach of rules, fraud, misrepresentation, etc. The notice period can be for forty-five days.
Responsibilities on termination
The advertiser shall be made to return all materials lying with them and not use it for any other purpose. For example; if company A is providing different fabrics as a raw material for company B that produces unique designer clothes. If the agreement between them is terminated for some reason, then company B will have to return all the fabrics remaining with and should stop its usage immediately.
The cycle of payment and taxes
The mechanism in which payments shall be released to the advertiser should be made explicit along with the tax liabilities of both parties. For example; the accounts consisting of profits, losses, expenditures, and taxes being paid need to be made transparent to both parties by each other.
Apart from the above details, the agreement can contain details of dispute jurisdiction, applicable laws, force majeure, and more in order to avoid any further disputes in the future.
Some important points to be included in an advertising agreement
1. Parties and duration
The advertising agreement shall analyze and pinpoint as to which person or entity will be bound by the agreement. All kinds of details of contacts such as email addresses of the parties involved, residence address, and a contact number must be included. The client’s main contact must be known. All these details will be of use if a legal notice has to be sent.
This agreement shall need to address whether they perform the role of the client’s exclusive provider of advertising services or not. Some clients may prefer non-exclusive agreements so there is a need to be prepared to negotiate.
It is important to highlight whether the work will be on a retainer or fixed-term basis. The term ‘retainer’ means that the client is going to be attached on a long-term basis for a fixed amount of payment until and unless either of the parties chooses to terminate the agreement. On the other side, a specified-term contract has a categorical start and final date to the services that will be provided.
The client can also be allowed to renew a fixed-term contract or have a contract that renews on a particular date. However, the client must be informed about this within a considerable period of time as to when the contract will be renewed, so they can decide whether or not to end the contract or proceed for renewal. Otherwise, it can be considered an unfair contract.
2. Scope of work
The advertising agreement needs to specify the details of the kinds of services that will be provided to the client.
The scope of work generally covers:
- Advertising strategies, goals, and plans;
- Creative and innovative concepts;
- Deliverables for marketing campaigns; or
- Timelines on when the work is about to start.
At times, a client may want some work that is not covered under the contract. In that situation, the terms that need to be covered:
- How some extra work can be requested by the client;
- Whether work can be chosen to be accepted or rejected; and
- What amount of fees can be charged for the extra work.
Numerous issues about advertising agreements are about the scope of work. The need to be specific about what will be provided so that misunderstandings can be reduced is pretty evident.
An advertising agreement should set out clear and specific terms of payment. This will improve the inflow of cash for the advertisement agency as the clients will understand how and when to pay for the services.
Alternatively, clients will be willing to pay only if the work is completed by a certain date or the desired results are achieved.
The terms of payment shall include actions that will be initiated if the client fails to pay for the services. For example, one might feel like reserving the right to halt the work if they have not been given their fees within a set number of days or weeks or the said specific period of time.
In a case where the client is not paying up, one might want to:
- Seek to charge the interest on invoices left unpaid ;
- Engaging the people who collect the debt; or
- Reporting to a credit reporting agency about bad debts.
In some instances, clients may have disputes with an invoice. It is always a great thought to involve a clause that mentions a provision that will make the client pay for services that are not in dispute so that we still get paid for some part of the work.
4. Confidential information
Confidential information about the business will be shared by the clients. One must ensure that the meaning of the term “confidential information” is defined and how such information will be kept a secret.
The fact that any information is not confidential information if such information is already out in the public must be clearly stated or the client has to let the agency know (usually in writing) that such information can be disclosed.
Accountability regarding confidentiality should be reciprocal so that the client will keep the agency’s confidential information a secret. When a contract expires, both the client and the ad agency have to give back each other’s confidential information.
5. Resolving the dispute
Hurdles and issues under any aspect can be inordinate for advertising agencies. It is significant to have a dispute resolution clause that clarifies what both parties can do when a dispute arises.
In preference, this shall start with a colloquial confrontation among both the parties to solve the dispute in an internal manner itself. If that does not work by any chance, mediation is the next step to be taken. A mediator from the same state and territory can be appointed. As far as possible, going to court needs to be avoided. Litigation is in general expensive, strenuous and even the results are not ascertained to be in our favour.
6. Intellectual property
The advertising agreement should most importantly specify how the intellectual property (IP) created is handled.
Examples of IP created include templates used for advertising that are generally used to plan out a client’s marketing campaign or reports that are specific in nature being generated from a client’s business data.
IP can either be assigned or licensed. Assignment means transferring the ownership of IP. If IP is licensed, ownership will not pass on to the client.
One has to clarify at which point of time either party can choose to end the contract. The client should on the other hand also be able to end the agreement if the agency has infringed the agreement eventually, such as inability to execute the tasks taken up to an adequate level.
On the other hand, there may be different reasons for ending the agreement. For example, one might want to end the agreement under the following circumstances:
- The client is not giving proper instructions to the agency;
- If the agency feels that it can no longer work with the client;
- If the client gives the agency any intellectual property that does not belong to them but falsely claims it as theirs;
- If the client snatches any of the agency’s intellectual property; or
- If the client hires one of your employees.
The mode of serving the notice (in-person, email, or by phone) and the amount of fees payable on termination need to be mentioned and decided.
For example, aspects such as does the client pay the agency for all the work done until that moment until the contract was terminated? Will the ad agency provide a sectional or fractional money-back if a client pulls out before the contract is due to end? An in-depth termination clause will make sure that the ad agency and the client can part ways amicably.
Agreement between advertiser, agency, and broadcaster
This Agreement made this _____________ Day of _____ 2021.
(Names and addresses of the advertisement agency and client shall be specified)
This is the first part of the contract and it should be at the top as it clearly shows who will be entered into the agreement.
The draft shall continue as follows:
A company incorporated under the provisions of the Companies Act, 2013 and having its registered office situated at (hereinafter called the “advertiser”), as the first part;
_____________________, LLP incorporated under the provisions of Limited Liability Partnership Act, 1932 and having its registered office located at ________ (hereinafter called the “broadcaster”), as the second part.
- The advertiser and the broadcaster are positively looking forward to entering into a business commercial relationship.
- The advertiser is engaged in the manufacture, sale, marketing, and distribution of goods and services in different categories such as.
- The broadcaster is engaged in the business of broadcasting, phishing operations through its network of TV/ media channels.
The parties under this specific agreement shall be individually referred to as “advertiser” and “broadcaster” respectively and shall be referred collectively as the “parties”.
The advertiser has agreed to marketing of the brands, services, and products and the broadcaster has agreed to telecast advertisements on the negotiated rates. The parties acknowledge the terms and conditions, as stated below.
For advertising agreement, the following terms and expressions shall help us to understand the concept and terminology:
- “Advertisement commercials”
- “Release order”
Booking and scheduling
Under this clause, the advertiser shall agree to authorize the broadcaster in connection with the advertisement of the products or services of the advertiser for a term (“term”) as hereinafter provided.
The clause can be drafted in the following format;
- The broadcaster shall post advertisements of the advertiser’s products/ brands/ services and shall advise that such booking shall be through a release order and that needs to be communicated in the written form by the advertiser.
- The advertiser shall provide such schedules in a soft and/or hard copy in the form of release orders. The release orders communicated electronically as soft copy shall be binding on the advertiser for consideration.
- The broadcaster shall telecast the advertisements booked by the advertiser as per the activity scheduled by the advertiser through the release order.
- The advertiser may in need reschedule the spots with a minimum of 10 days’ notice and the broadcaster shall, at its own discretion, agree to re-scheduling. And once the broadcaster has agreed to re-scheduling, such an amended schedule shall by default be considered as the original schedule.
- The broadcaster may at its own discretion, may refuse to transport any advertisement or commercial marketing or branding that in any case is found to be infringing and breaking any laws that are in force at the relevant time.
Consideration and payment terms
Anybody would not like a payer to be pounded for late payment or an overdue invoice. It’s tiring and disheartening and can affect the relationship of the parties.
The best way to avoid this kind of an issue is to have a clear payment schedule outlined from the very moment the advertiser starts working with the agency and broadcaster. This part of the agreement has to characterize the total amount that will be paid, how they will make payment, and whether the payment is refundable:
- The amount of compensation for the advertising commercials and the other required essentials as agreed by the parties shall be binding during the entire term of this agreement.
- The broadcaster shall agree to make good the value in the event of significant distribution reduction which might be a result of either blocking of advertisements or programs by cable operators or power failures.
- All the rates included in this agreement are inclusive of 20% p.a. as agency commission and also include applicable taxes.
- The invoice notice sent to the advertiser shall be paid by the advertiser within sixty (60) days from the receiving of the invoice.
- In case of disputed invoices either completely or partially, the entire invoice will remain pending until such time the dispute is resolved. The broadcaster and the advertiser undertake to resolve disputes within fifteen (15) days of receipt of the invoice.
Such other aspects that may need to specified shall be included under this clause for the ease and understanding of both parties.
Changes in agency
The clause can be uniquely drafted as below;
- In the event where the advertiser is changing the agency, all the obligations, terms, conditions, entitlements, and rights of the advertiser and the broadcaster shall remain unchanged and fixed.
- Any such change in the agency shall be approved in written form by the advertiser.
- The advertiser hereby agrees to settle all outstanding dues, commission payments that have fallen due with the existing agency before business shall be routed through the new authorized agency.
Intellectual property and trademarks
The broadcaster shall agree that all the technical data, commercial information made available by the advertiser must be known as intellectual property of the advertiser and further, the advertiser is the registered user and the absolute owner of all trademarks, copyright, trade names, artistic works in the data, designs, documentation and other work made available or communicated or provided by the advertiser to the broadcaster.
The advertiser shall also agree to the same as above and also a list of what the broadcaster and advertiser should not do so that they do not violate the IP of each other shall also be specifically mentioned and listed.
Warranties, obligations, and undertaking
The clause can be drafted as below;
The parties shall warrant and undertake that throughout the term each of them has and will continue to have full authority to enter into this agreement and to undertake each and all of the particular obligations on their respective parts contained herein.
Both the advertiser and the broadcaster should confirm the contents of the advertisements and the relevant laws under which they conform the same shall also be mentioned. The copyright restrictions and violations must be clearly discussed in another paragraph here under this clause.
The parties shall fulfil all of their obligations and strictly comply with all applicable laws, by-laws, and regulations of the government of India and other concerned authorities.
The clause can be drafted as below;
- Subject to the following provisions, this agreement shall come into force on the date of __________ and shall continue thereafter unless terminated by either party giving the other at any time not less than one month’s prior written notice to expire on or at any time after the end of a one (1) year period following the commencement date.
- Notwithstanding anything contained herein, either of the party may terminate the agreement with prior notice of forty-five (45) days to the other party only under the below mentioned situations:
- If an event of force majeure has lasted more than four (4) months.
- If the other party infringes any terms or conditions of this agreement.
Consequence of termination
The clause can be drafted as below;
- If for any reason this agreement shall be terminated or expire.
- The broadcaster shall promptly pay all outstanding unpaid invoices rendered by the advertiser in respect of the products, which shall become immediately due and payable by the broadcaster, and, in respect of products or services ordered prior to termination but for which an invoice has not been submitted, the broadcaster shall pay immediately upon submission of the invoice. The advertiser shall be entitled to modify or rescind the terms of any credit arrangement extended to the broadcaster for the remainder of the notice period.
- Except insofar as is reasonably necessary to sell any remaining stocks of the products, the broadcaster shall cease immediately to use the advertiser’s name or trade-marks to promote the products or services or to make any other use of the advertiser’s intellectual property rights.
- The termination of this agreement will not for any reason affect any rights or liabilities that had built up prior to such termination.
- The termination or expiry of this agreement shall not of itself give rise to any liability on the part of the advertiser to pay any compensation to the broadcaster for loss of profits or goodwill.
The ad agency and advertiser should agree to a non-compete clause in the contract to protect both parties from revealing trademarked or proprietary information to competitors.
The clause can be drafted as below;
The broadcaster shall keep confidential and only use for the purpose of this agreement all confidential information, and the broadcaster shall ensure that such information, documentation, and materials are not disclosed to any third party without the advertiser’s prior written consent.
The obligations set out in aforesaid sub-clause, shall not apply to any information or part thereof which:
- Is already in the public domain or comes into the public domain through no fault of, or breach of this agreement by the broadcaster or his agent or representative.
- Is disclosed to the broadcaster by a third party has a legal right to do so.
- Is developed by the broadcaster independently of any confidential information disclosed to the broadcaster by the advertiser.
- The broadcaster is obliged to disclose by reason of any law or body having the force of law. in which case the broadcaster shall give the advertiser prompt advance written notice of the disclosure (where lawful and practical to do so) so that the advertiser has sufficient opportunity (where possible) to prevent or control the manner of disclosure.
- Without prejudice to the aforesaid clause, upon demand, the broadcaster will return to the advertiser all such confidential information and materials and all copies thereof.
The clause can be drafted as below;
- The broadcaster shall provide all information reasonably requested by the advertiser in respect thereof. The broadcaster shall be solely responsible for and shall indemnify the advertiser against any claims, statements, or representations made in respect of any product or service that the advertiser has not approved in writing in advance.
Broadcasters owning the sole marketing rights and copyrights to all the programs aired might as well be included and also the time period under such indemnity shall be discussed. In the end, it needs to be mentioned that the broadcaster shall indemnify the advertiser against all the losses and damages. That is how this particular clause can be concluded.
- Any notice to be provided in this agreement shall be in written form and shall be addressed or delivered or faxed by suitable electronic means as may be communicated to the other party.
- Any notice shall be effective on receipt or within seven (7) working days of mailing or upon transmission in case of fax transmission/electronic.
The broadcaster does not assign or sub-contract, in whole or part, any of its rights under this specific agreement without the written consent of the advertiser beforehand. Without prejudice to any other rights to which the advertiser may be entitled if the broadcaster seeks to assign or sub-contract its rights in breach of this clause, the advertiser shall be entitled to terminate this agreement with immediate effect.
Under this clause, it needs to be clearly specified that if any provisions under the agreement are given no effect then they shall be deemed to have been excluded from the agreement completely. The parties can always make attempts to restore or replace such excluded provision from the agreement.
Either party shall be excused from performing its obligations under this agreement during the time and to the extent that it is prevented from performing by an unforeseeable cause beyond its control, including but not limited to: any incidence of fire or flood; strike; acts of God; commandeering of material, products, plants or facilities by the federal, state or local government; when satisfactory evidence of such cause is presented to the other party and provided further that such non-performance is unforeseeable, beyond the control and is not due to the fault or negligence of the party not performing.
Governing law and jurisdiction
The clause can be drafted as below;
The interpretation, construction, and enforcement of this agreement and the terms and conditions and matters relating to them shall be governed in all respects by Indian law and the parties hereby submit to the exclusive jurisdiction of the High Courts.
The clause can be drafted as below;
In case of any dispute or disagreement arising out of this agreement, the parties shall:
- Firstly, an attempt to settle the dispute cordially shall be made.
- In a situation where there is a failure to reach a cordial agreement, the dispute shall be referred to an arbitrator which shall be conducted under the governance with the provisions of Arbitration and Conciliation Act, 1996, or statutory re-enactment or any amendment thereof, as may be in force.
- And each party to the arbitration shall bear its respective costs and expenses related to the proceedings of the arbitration.
As expressed in the terms of this agreement, no variation or amendment under this particular agreement shall be effective until and unless it is in a written form and signed by an authorized representative duly appointed by each party.
No waiver by either party of any default shall be considered as a waiver of any default of the provisions of this agreement.
- This agreement and the terms and conditions constitute the entire agreement between both the parties and shall usurp all other/prior written or oral understandings or agreements of the parties concerning the subject matter hereof which may not be changed or terminated except as set forth in this agreement.
- In the event of any difference of opinions between the requests of this agreement and the terms and conditions, the provisions of this agreement shall prevail.
As witness whereof, the hands of the parties or their duly authorized representatives on the date set out above.
Signed and Delivered
For and behalf of the advertiser
For and behalf of the broadcaster
This article is to help assist individuals in drafting a worthy advertiser and broadcaster agreement. It contains all the necessary elements that need to be included and also the sample clauses that can help beginners. It can be said that it is better to delegate the process of finalizing the agreement to a staff attorney or outside counsel who has been involved in the search process. These people have more understanding of the issues involved and have detailed knowledge of the discussions happening during the search process.
An advertising agreement is a great way to make everything clear between both parties in order to avoid any kind of miscommunication. Such an agreement can be the best idea for the following situations:
- When there is a need for a marketing professional or firm to promote your products or services.
- When one himself/herself is a marketing professional being hired to promote goods and services.
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