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This article is written by Karan Jayesh Shah, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com. Here he discusses “Key Terms in an Advertising Agreement.”

Introduction

Advertisement is a way of promoting a product and is carried throughout the world in different forms and manner. It is one of the important factors in the success of a product as it helps in reaching the mass. The medium of advertisement may be graphical, audio, multimedia or print. 

An Advertising Agreement is a document that is signed and executed between an Individual/ Corporation/Company 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 Agreement should be preferred to be in the express form (written) because if there is any conflict/disagreement/dispute between the parties then their legal interest would be protected by the written agreement and it would be easy for the court of law or for any adjudicating agency to resolve the matter. 

Therefore, the terminology and wordings used in the agreement should be constructed thoroughly. 

Key terms in Advertising Agreements

  • Medium

Medium in simple terms refers to a method or way of expressing something. When it comes to advertising agreement here it means the channel or group of channels used to convey the message to the public at large. The channel/medium of advertisement may be in the form of television, magazines, radio, cinema slides/ads, websites, hoardings, billboards, journals, magazines, etc.

Therefore, it is important to cite proper medium through which advertisement needs to be carried out in the agreement with explicit details such as throughout the term whether the party could be allowed to change the medium of an advertisement from one to another, whether to utilize a single channel or group of channels for advertising the products, etc.

  • Payment 

Payment refers to the action or process of paying someone or something in exchange for goods/services rendered to them. When it comes to advertising agreement here it means the consideration paid by the company to the advertiser for providing the service of advertising.  

Therefore, it is important to set out all the details explicitly in the agreement with regards to the payment such as total consideration that needs to be paid for the service rendered by the advertiser, when the payment needs to be made, when is the payment due, what duties are to be performed before the payment, what is the payment type, whether instalments or lump sum amount needs to be paid, which party will bear any extra expense that might come up in creation and publishing of the advertisements in various media, how will an untimely contract termination affect the payment, etc.

  • Special Requirements

At times in the advertising agreement, all the scope of work might not be covered. Therefore, the drafting of the agreement should be done in such a way that in lieu of the payment by the company, the work should be carried out by the advertiser.

For example, the advertiser might require taking up additional campaigns for special purposes like a product launch, subject to additional payment usually in premium by the company.

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  • Competition

The Non-Compete clause comes into picture when we discuss competition in an agreement. It is a usual practice that in an agreement, a non-compete clause is inserted wherein the advertiser is restricted from advertising a similar product or from entering into similar contracts with competitors of the company during the pendency of the agreement.

Therefore, it is important to set out all the details explicitly in the agreement with regards to non-compete clause like neither the advertiser nor its affiliates would be allowed to enter into a similar contract with competitors of the company during the term of the agreement, what shall be the consequences in case of breach by the advertiser, etc.   

The Supreme Court of India in the landmark case of Percept D’ Mark (India) Pvt. Ltd v. Zaheer Khan, discussed section 27 of the India Contract Act, 1872, and laid down that if a restrictive covenant in the agreement is framed in such a way that it extends even after the terms of the contract has expired, then such a covenant in the contract will not be enforceable.

  • Confidentiality

Confidentiality with regards to the information, documents, records, etc shared by the company to the advertiser during the scope of this Advertising Agreement or in negotiation thereof shall be maintained and must not be shared with any third party. 

The Advertiser shall undertake that they shall not expose any confidential information except with the prior written consent of the Company or if directed to do so by a competent Court provided always that such information has not previously entered the public domain by other means.

Therefore, it is important to set out all the details explicitly in the agreement with regards to what shall be the consequences in case of breach of confidentiality, etc. 

In the case of Schroeder (A) Music Publishing Co. Ltd. v. Macaulay, the court held that a covenant that is reasonably necessary to protect an employer against the betrayal of trade secrets or confidential information is not void merely because it unavoidably protects the employer against competition.

  • Legal Issues

Thorough research should be done by both the parties before entering into the contract with regards to what all legal complications and issues could be there and how to handle it to prevent further issues. For example, liquor advertisements are banned in media, like television. The lawfulness of communication of advertisement is of paramount importance.

Therefore, it is important to set out all the details explicitly in the agreement with regards to whose obligation it will be and who will bear the consequence of any legal implication arising during the term of the agreement.

  • Reports

The Advertiser should provide a complete report to the company about the response, views, inquiry they receive from the intended buyers towards such advertisements. Such information would be available in certain media like television, internet, etc.

Therefore, it is important to set out all the details explicitly in the agreement with regards to: in what form the report shall be made, at what regular intervals it needs to be submitted, how many reports are required to be made at a time, what shall be the consequences in case of non-submission of the report by the advertiser, etc. 

  • Intellectual Property

Intellectual Property in simple terms refers to the creation of the human mind. The Advertiser has to keep in mind while creating and publishing the advertisement that they are not violating any third party intellectual property rights. Also, in the advertising agreement the parties need to set out who will be the owner of the Intellectual Property, if any created during the term of the agreement by the advertiser.

Therefore, it is important to set out all the details explicitly in the agreement with regards to whether any additional remuneration would be payable by the company to the advertiser for creating any Intellectual property, consequences for non-disclosure of intellectual property, whether the advertiser after the termination of the agreement would be allowed to use the intellectual property, etc.

In the case of Stewart v Casey, the court held that an assignment of an existing deed is a legal assignment. Therefore any Intellectual Property which is created by deed can only be assigned by a deed.

  • Indemnification

Indemnification refers to the security against legal liability for one’s actions. When it comes to advertising agreement, it means the responsibility of both parties towards indemnifying each other for any losses incurred out of any breach or other act that is expressly provided in the agreement. 

The concept of Indemnity is embodied u/s 124 of the Indian Contract Act which states that, “a contract whereby one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person is called a contract of indemnity.”

For example, it may be a violation of trademarks or other Intellectual Property of a third party on part of the advertiser.

Therefore, it is important to set out all the details explicitly in the agreement with regards to what all actions are covered under indemnification by which party to the agreement.

  • Territorial Extent

From the viewpoint of the Advertiser, it means the reach/area coverage of a company wherein they can provide the service of advertisement in a territory. When it comes to the viewpoint of the Company who wants to advertise their product, it means the territory/area wherein they want to promote their products via the medium of advertisement.

Therefore, it is important to set out the area by the company wherein they want to advertise the product and shall also include, among other things, the language details in which the advertisement should be created. 

Conclusion

Advertisement is one of the most important factors in the success of a product and involves a lot of money to advertise a product. Therefore, to safeguard the interest of all the stakeholders, the company must always try to enter into a written agreement with the advertiser wherein all the rights and responsibility, terms and conditions of the advertising agreement would be set out. While doing so, the parties must keep in mind the terms used in the agreement because, at the time of conflict/dispute/disagreement between the parties, the adjudicating agency or court of law would refer to the written agreement.

The above discussed are few of the important key terms in the advertising agreement. The list is not exhaustive. When a word can have more than one meaning and is required to be used in the advertising agreement then it should be defined in the definition clause of the agreement to avoid any further misinterpretation which could lead to conflict/dispute/ disagreement between the parties. 

References 

  1. Advertising Agreement (March 29, 2020, 12:41 PM IST), https://legaldesk.com/advertising-agreement.
  2. Appeal (civil) 5573-5574 of 2004.
  3. Agreement in restraint of trade, void.
  4. (1974) 3 All. E.R.616.
  5. (1892)9 RPC, 9.

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