In one form or another, limitation of liability clauses are almost always in digital marketing contracts.  They typically attempt to exclude certain risks that a party deems appropriate, and provide that one party’s liability on a campaign may not exceed a stated cap.

When negotiating performance marketing agreements, marketers need to understand the legal significance of what they are being asked to agree to or, unfair as it may seem, the unsuspecting signatory may find itself without economic recourse for another’s material breach of contract, and unlawful actions or omissions.

Limitation of liability provisions are also closely tied to contractual “disclaimer” language that may provide, without limitation, that marketing services come with no (or severely limited) warranties and/or that  a party is not entitled to recover consequential damages.  Consequential damages are damages that go beyond the contract itself and that flow from the breach of contract (e.g., lost profits).

The intent is usually as simple as this.

Consider the likelihood that one party is attempting to limit exposure from potential claims that may arise.  Perhaps a party is doing so because it does not possess applicable insurance.  For example, a party may be seeking to limit liability for the actions of its sub-affiliates or for the advertising content that it provides.

Consult with an experienced digital marketing law attorney before agreeing to limitation of liability and disclaimer provisions, or when drafting them to achieve maximum protection.

Aggregate upper limits on liability for direct damages often appear in industry contracts.  One party typically prefers certainty with respect to potential risks, and caps are usually tied to amounts paid over a defined period of time.  The other party in this situation will need to consider whether a cap with no specific dollar amount as a minimum floor is a practical risk that it is willing to take.  For example, what if a breach occurs early on in the relationship before any significant services have been rendered and paid for?

Generally speaking, sophisticated parties to an arm’s length transaction are free to negotiate whatever deal they deem acceptable and are often ordered to live with those consequences.  Sometimes, however, there may exist public policy-based defenses to contractual limitation of liability clauses that seek to grant a party immunity for intentional wrongdoing – like fraud – with no legitimate economic self-interest.

These short clauses are often slipped into marketing contracts amongst big blocks of text and can be easily overlooked.  If not addressed, they can severely limit a party’s remedies in the event of a breach.

Conversely, when drafting limitation of liability provisions, it is critical to consider issues such as whether the language is sufficiently specific, conspicuous and otherwise enforceable.  It is also worth considering what specific exceptions to limitation of liability language should be included, such as indemnification and defense obligations, the failure to comply with applicable legal regulations, and intentional misconduct.

An issue often overlooked by parties is whether payment obligations could potentially be swept-up in the limitation of liability provision.

In the event of dispute with an ad network or a publisher, consider that negotiations and redlines of drafts may be relevant, and discoverable.  Save drafts.

If you are interested in learning more about this topic or ensuring that your digital marketing contracts afford ample protection, please email the author at rnewman@hinchnewman.com.

Richard B. Newman is an FTC defense attorney at Hinch Newman LLP.  Follow him on Twitter @ FTC Defense Attorney.

Informational purposes only. Not legal advice. May be considered attorney advertising.