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August 14, 2002  
Contracts: Establishing Your Future

By Adultinternetlaw.com.

Every client says it; "Do I really need a contract?" The answer is "YES, YES and YES!" In this article, we explain WHY you should use contracts.

What Is A Contract?

Simply put, a contract is an enforceable agreement between two or more parties. The contract contains the promises made by the parties to one another, which are legally known as "consideration." These promises define the relationship being undertaken as well as what will happen if the relationship doesn't work out. If one party fails to act according to their promises, then they have "breached" the contract and can be found liable for damages. The damages typically equate to what the non-breaching party would have received if there had been no breach.

Oral Contract v. Written Contract

You just attended Internext and met a person with a great backend [program, not body part]. Over drinks at a party, you agreed to provide him with midget content in exchange for exclusive marketing rights and half the revenue. You sealed the deal with a shot of something you don't want to remember and the old, "I'll call you when I get back to…" You have created what is known as an "oral contract." He has promised to provide you with a backend program and you have promised to provide him with content and marketing. Is the agreement worth anything?

Unfortunately, the answer is probably not. Why? In most states, oral contracts are not enforceable if they carry an inherent value in excess of $500. The reason for this is that it is so difficult to establish the terms of an oral contract in a dispute that the legal system tries to discourage them. In fact, this legal restriction is generally known as the "Statute of Frauds". Turning to the above example, what if you thought you were going to get 60 percent of the revenue while he remembers it as 50 percent? What if you can't resolve it and he insists he has the right to continue to use your content? The end result is that you end up in court and it comes down to who the judge or jury believes. Are you really willing to take that gamble? You should not be. With a written contract, you can point to clause 4 in which it clearly says you shall receive 60 percent of the revenues. If he is an ass and makes you go to court, he is asked if his signature is on the bottom, the clause is read and you win. The contract should also contain a clause requiring the "prevailing party" to be reimbursed for their attorneys fees and costs. In short, he has to pay your bills as well.

An additional benefit to a written contract is using the negotiations as a means for finding out if the other person is blowing smoke. I realize you will be shocked to learn that there are scam artists in the adult industry, but a few well placed questions will often alert you to problems with the other party. What if you come to find out that the person with the program in the above example is still "working out the bugs?" In negotiating the contract, I would require that the program be running without bugs within 30 days or the entire thing is off. What if he starts squirming? It is probably a pretty good sign that the program is not ready or doesn't even work. Might this give you pause before you commit to sending him traffic and providing content? By finding this information out before you start doing business, you have saved yourself a lot of headaches.

Assuming both parties are legitimate, putting the terms in writing will also clarify critical issues before emotions are running high during a dispute. As an example, one issue that always comes to the forefront is the use of content if the contract is terminated. I have reviewed more than a few contracts submitted to our content providing clients that call for an "exclusive license for the life of the site." If this language is going to stay in the contract, a few more commas and zeros are going to have to be added to the price! Taking the opposite view, you want to make sure you are going to have a right to use the content for at least a certain amount of time if the deal falls apart. After all, you have undertaken marketing efforts to get things rolling. You don't want to put it all up and then have the other party try to pull the content after two months. Working these issues out in a written contract will save you a ton of aggravation if things fall apart later on.

In summary, a written contract should be a mandatory bullet in your arsenal. Using written contracts will allow you to clearly layout your business efforts and avoid hucksters in the industry. By using written contracts, you have protection in the future if something goes wrong. It will help you sleep better at night, particularly in light of Murphy's law.

The above discussion is intended to be a general commentary on affiliate program issues. Each situation is different and this article is not intended as legal advice for your specific situation. Further, nothing in this article is intended to create an attorney-client relationship. If you have additional questions, please contact Joe Obenberger at AdultInternetLaw.com.



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