Funding Law

The other day I wrote a post on my reasons not to use the term "affiliates" in licensing agreement negotiations.  See post here.  My general point is that the term has no common meaning in the law and may create ambiguity in the contact.

I addressed several different definitions of the term in laws, but the term is not only defined differently in law, it is also used differently in business.

For accounting companies, for instance, the Interstate Commerce Commission defines the term as companies controlled by the accounting company alone or with others under a joint agreement.  So, “affiliates” falls outside of typical entity ownership structures and to companies with controlling interests through contractual relationships.

In the banking industry the term is commonly used to refer to an FIB which processes credit card data for other financial institutions or financial institutions that issue MasterCard or Visa cards.  The term here has nothing to do with ownership structures.

In television and radio industries, affiliates are companies not necessarily under common ownership which have contracted with a network to broadcast its programs.

In the Internet world a marketing affiliate refers to a company who links to another company via a weblink which then allows the hosting company to obtain a commission on sales made as a result of user’s clicking through that link.

"Affiliate" is a term that is used in contracts when the parties want to refer to an entity relationship but do not want to take the time (or don't know how) to define it.  Again, it is best to avoid this term, but if you must use it, make sure to define it clearly in the contract. 



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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.