How to Build a Fortress Around Your Business

If data truly is “the new oil”, then how are you supposed to protect yourself from the liability and risk that pervade the affiliate marketing landscape?  No doubt you have taken the requisite technical measures to protect your sizable investment in your business, and frequently consider what more can be done.

But, what do you do when something breaches the defenses?  What happens when clients, customers, or the public begin making demands “to be made whole”?

There are two defenses that each company needs, regardless of size, in order to withstand the attack: (1) strong licensing agreements, and (2) insurance.

A strong, well-written, licensing agreement is the first step to limiting the liability each company faces after a catastrophic event. The licensing agreement serves to limit liability and clearly define relationships. In most cases, it will effectively enable the parties to resolve the dispute and continue the mutually beneficial relationship they entered in the first place.

However, the license agreement will not stop some parties from seeking an additional “pound of flesh” from you after an unfortunate event. In fact, you may have acted within the licensing agreement and still face a lawsuit.

This is where insurance comes in. Insurance is the security blanket in case catastrophic events or when an aggrieved party seeks further payment for their injuries.

Your company should obtain insurance that protects against data privacy breaches, intellectual property violations, breach of contract, and media/advertising risks.

With this protection, you have the insurance policy to defend the lawsuit and pay damages as necessary.

Here are a few examples:

Scenario 1:

• Major Oil Company with 10,000 stations
• Outsources credit card processing/Point of Sale network to third party
• System fails for 6 hours
• Claim of 20 lost sales per station at an average of $30 per sale (Total claimed loss of $6M)
• Arbitration panel awarded claim of $4M to Oil Company on Breach of Contract claim

Scenario 2:

• Company deceived into selling customer information to con artist
• Data included financial data and other important personal information
• Class action lawsuits and 43 states Attorneys General became involved
• Estimated total cost to company $33.8M

Scenario 3:

• Retailer loses customer specific information over the span of two years through firewall security breach
• 20 class action lawsuits are filed
• Retailer had to reimburse expenses for some customers, undertake data security measures and system evaluation, address identity theft for all lost records
• Estimated Total Cost $156M

These scenarios highlight loss of data events and a loss of network/service event.  All three scenarios could present hurdles too significant to overcome.

By structuring the proper licensing agreement and then complimenting it with the proper insurance policy you will have the best chance to operate a successful affiliate or online marketing business in today’s volatile business climate.

Ryan is a partner with Citadel Program Managers which offers insurance services and can be reached at rosborne@citadelus.com.

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