Sequential Liability

Douglas J. Wood
Reed Smith Hall Dickler

In the aftermath (we hope) of a recession that saw bankruptcies of both advertisers and advertising agencies, the concept of sequential liability was widely debated' Its application to the advertising industry, however, remains unclear' As advertisers begin to substantially increase their media spending, now is a good time to  review the concept and history of sequential liability and discuss its future'

Bankruptcies and Early Media Liability

In the early 1900s, advertising agencies worked for the media, not the advertisers, receiving commissions from the media' The advertising agency was not working as an agent for the advertiser, but essentially on its own account' From this relationship grew the tradition that the advertising agency, not the advertiser, was  responsible for payments to the media' This concept was eventually adopted by the American Association of Advertising Agencies (AAAA) and remained the rule for decades' In a 1988 release, the AAAA defended the policy that the agency should be solely liable to media as something in the 'best interest of the industry as a whole and advertising agencies in particular'