Problem: Duplicate Content Knocks Your Pages from Search Engines
Some affiliate networks provide affiliates with direct links to your site with an appended URL including an affiliate ID. An example would be http://www.yoursite.com/?affid=123456.
When search engines visit your affiliates' websites, unless your affiliate has added a "rel=nofollow" attribute to the link to tell search engines not to follow the link, the search engine will follow the link and index the landing page -- a duplicate copy of your home page, category page or product page, wherever the link was pointing. If an affiliate builds up link juice with keyword-rich anchor text to its own copies of your page (for example, buying paid links on blogs), it's possible that http://www.yoursite.com/?affid=123456 outranks http://www.yoursite.com. What's worse is that the duplicate content filter might wipe out your page for showing in results for that keyword/s, especially when you have thousands of affiliates and thousands of duplicate pages. This means you pay commissions on sales from organic search that you otherwise could have attracted yourself.
2 Possible Workarounds
A 301 (permanent) eliminates this possibility as you tell the search engine that http://www.yoursite.com/?affid=123456 is forever the same as http://www.yoursite.com. And yes, any Page Rank the affiliate URL has will be passed on to your site. To do this, you likely have to bring your affiliate program in-house and create a proper tracking system so affiliates get their commissions.
Another workaround tip from Stephan Spencer is to require your affiliates to post a disclosure statement on their Legal Notices page stating that they are an affiliate of the merchant and that neither party is an agent, partner, joint venturer, franchisor, franchisee, employer or employee of the other, linking back to your home page from the statement. Legal Notices are typically liked site-wide and rarely link off to other pages so you get some nice link juice from the page.
Affiliate Programs as an SEO Strategy
Many networks like LinkShare and Commission Junction use 302 (temporary) redirects which will not be followed because the 302 essentially tells the search engine bots that the page will be moved soon, so there's no need to transfer any link love to your site from the affiliate site. So don't expect any SEO benefit from these systems.
SEO-savvy affiliates can also block any Page Rank from passing from their site to yours by cloaking, creating their own redirection or no-following links to your site or adding the nofollow attribute to its Legal Notices page (the latter would be a good idea for them to do anyway). If they want to do these things, let them. Affiliate programs are not intended to be a substitute for SEO and link building activities and you don't want to tick off good affiliates (who more than likely have a clue when it comes to SEO anyway). The 301 redirect protects you from duplicate content issues, and as long as you properly credit referred traffic this is fair to your affiliates. If you get a bit of SEO boost from some, that's gravy.
Thanks again to Stephan Spencer for sharing his expertise. For further reading on the subject you can check out: