This article has been written by Ms. Indrakshi Chaku, an upcoming law student

Introduction

An agreement refers to the mutual understanding reached between two or more parties. As per section 2 (h) of the Indian contract act, 1872, an agreement enforceable by law is called a contract. A basic advertising agreement defines the rights and responsibilities of the parties entering into the same. Broadly speaking there are three types of parties to an advertising agreement:

• Advertiser: The party who wants to advertise its product (both goods and services)
• Advertising agency: The party who provides advisory services like enhancing brand communication, finding branding solutions, booking platforms for advertising and other ancillary activities
• Broadcaster: The party responsible for phishing and broadcasting operations through its media channels

A basic advertising agreement is drafted in a written form after taking consent from all the involved parties. Once the consent is achieved, the agreement becomes legally binding and thus gets converted into what we call an advertising contract. 

Importance of a written advertising contract

Advertising is the most promising marketing strategy for brands to promote their products (goods & services) and scale up their revenue. The advent of social media and multi media platforms has also made the use of digital advertising more prominent. Attributing to these circumstances, the long-accepted tendency of entering into oral advertising agreements has become redundant and unreliable. Although in Alka Bose vs. Parmatma Devi & Ors [CIVIL APPEAL NO(s). 6197 OF 2000], the Supreme court of India held that an agreement can be oral and also valid as long as it falls within the ambit of section 10 of Indian contract act, proving the existence of such an agreement or the exact terms of such an agreement requires an exorbitant amount of time, money and other resources. Moreover, oral agreements do not provide for any specific mechanism of resolving potential disputes. Creating a written advertising contract offers an enormous advantage to both the advertiser and the advertising agency. It pens down the scope of their duties, deadlines and demands towards each other. In case of a dispute, it also clearly specifies the resolution mechanism for the same. In addition to this, any scope of ambiguity in the areas of payment, ownership rights, indemnity and further negotiation tips is completely eliminated. In case of any confusion, the involved parties can refer back to the provisions of the contract at any given point of time. The existence of such agreements is also easy to prove in the court of law as compared to oral agreements.

Components of an advertising contract

The components of an advertising contract vary depending upon the format of the advertising job and the parties involved in the agreement and the requirements of the party. However, there are certain basic components which are necessary to include:

• Name and information: The first and the foremost thing to be included in an advertising contract is the name of the client, advertising agency and the broadcaster (if applicable). In addition to this, the contract should also include any material information about the involved parties. In case of client, this can be the information about his/her business, his/her location and his/her contact details. In case of the advertising agency, this can include information about the services offered by the agency, its identity as a brand, the creative specializations it offers, previous campaigns etc. In case a broadcaster is also a party to the contract, he/she must reveal the reach of his/her media channels, the nature of services offered, target audience etc.
• Duration: most ad campaigns are time sensitive, therefore it becomes necessary to include a start date and an end date in the contract. This prevents ads from running too early or continuing to run after your event is over. If ads are being run on a radio or TV, the time of day or specific show during which your ad or ads should run must be included
• Duties and responsibilities: this section lays down what is expected of each party in the contract. This includes the scope of rights and duties of the advertising agency, client and the broadcaster (if applicable) in detail. It mentions things like purpose of the advertisement, medium of advertising, dos and don’ts, manpower required for the project etc. This section should provide a fair estimation of amount of time required to complete the advertising campaign
• Payment conditions: Contracts are incomplete without considerations. Indian contract law, 1872 defines consideration as something being done or something being abstained from doing at the desire of promiser. In case of commercial contracts this gets translated into an exchange offered by one party to the other in return of the rendered service. Usually, this exchange is monetary in nature. The advertising contracts involve a promise of payment between the client and the advertising agency. The contract must mention the schedule of the payment, the mode of the payment and the steps to be taken in case the payment is overdue. The advertising contract must also involve the details about the budget of the project.  For this, a comprehensive and precise quotation must be prepared by studying the project’s scope because the budget will be based on that only. The budget details should be emphasizing the amount of money put on the stake in the contract and there should be specific marking on how the client would pay money to the agency
• Confidentiality clause: during the course of operations, a plethora of material data is revealed and exchanged between the parties.  The advertising contracts must include clauses which protect any party from leaking this data to the outside sources. These confidentiality clauses must be prepared in the lieu of existing rules and regulations. Post contractual confidentiality, if required, must also be laid down clearly in this section
• Indemnity clause: Section 124 of the Indian contract act, 1872 defines contract of indemnity as a promise by one party to save the other party from loss caused to him/her by the conduct of the promisor himself/herself. Indemnity clause in an advertising contract obligates the client to mitigate or compensate the advertising agency for any losses suffered by it due to client’s breach of the contract. The same liability extends to the advertising agency in case the losses are suffered by the client due to the agency’s inability to meet the conditions of the contract. Indemnity clauses are imperative as they insure both the client and the advertising agency against any potential losses which are not caused because of their own doings or undoing’s.
• Intellectual property rights: The intellectual property must be identified, registered and specifically included in the contract itself. Specific processes and innovations should also be identified as per the various acts pertaining to intellectual property. In addition to this, if any elements owned by a third party are being utilized, the indication should be given that those properties belong to a particular third party.
• Breach of contract and dispute resolution mechanisms: Breach of contract refers to a party’s failure to perform its obligations as stated in the contract. Sections 73 to 75 under the Indian contract act 1872 provide for the consequences for a breach of contract. In lieu of these rules, an effective advertising contract should involve implementing sanctions for contract breach by either party. These sanctions ensure the fulfilment of the responsibilities given to both parties. They may include hefty fines, lawsuits, termination of the contract etc. The contract should also clearly mention the way of resolving any potential disputes in detail. The chosen jurisdiction, the seat of arbitration, the working language of arbitration and the governing law must be clearly specified along with other optional elements such as mandatory pre arbitration settlement negotiations, right to directly approach the court during arbitration etc.

Conclusion

Advertising, one of the most persuasive marketing strategies used by brands to promote and establish themselves, is too important of an industry to be governed by oral contracts or agreements. It’s the major driver of revenue not only for the advertisers, but also for advertising agencies and the broadcasting channels. This makes it imperative to end the reliance on oral agreements when it comes to negotiating advertising agreements. Instead, a shift should be made to written agreements which upon legal backing attain the status of an advertising contract. Proving existence of such a contract and the terms therein in the court of law is relatively easy in case of disputes. Although the components of such contracts are variable, there are some essential elements which must be included, namely: name and information of the parties, duration of the contract, duties and responsibilities of the parties, payment conditions, intellectual property clauses, indemnity clauses, confidentiality clauses and dispute resolution clauses.

Reference:

https://indiankanoon.org/doc/1090967/

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