Question on affiliate links / cookie stuffing
I've come across several threads here on cookie stuffing and the like, as well as people placing Adwords/Overture ads using affiliate links.
I run a marriage proposal and engagement ring buying website -- I not only sell my own products and services, but I have several affiliations with diamond/jewelry sites.
I've always done the affiliate links the normal way, but when I heard about all this cookie stuffing and the like, it made me a bit confused. First, isn't it illegal to have your affiliate link under an Adwords/Overture ad? I don't even think Adwords lets you have a trademark name mentioned in the ad. How is this then still being done and talked about?
And outside of cookie stuffing, are honest affiliates doing anything different to get more click throughs (besides just posting a link and any deal a merchant might have)?
I apologize if I seem a bit uneducated in all of this stuff, but thanks for your help!