It's a legal question. To be sure you need to have a lawyer look at the specific case and circumstances because it is entirely possible that technicalities can change around the answer.
In practice though most affiliates are easily bullied and they seldom have any power. They are looking to get money owed to them by the sponsor/company or they are afraid of a legal battle or threat. Personally if a sponsor did this to me I would just assume that eventually they are going to find another way to screw me out of the money because they are showing that they see me as a liability and not an asset.
I pointed it out in FNCash thread but there are potential issues which may not make the sponsor's claim to the domain so clear cut:
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3. Failure to enforce your rights against infringers. If you continually allow known infringers to violate your trademark rights, you effectively give up the right to challenge their use. While this might not result in cancellation of your registration, you are undermining your trademark by wilfully adopting a very narrow scope of protection.
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http://indianaintellectualproperty.w...demark-rights/
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Failure to take action against a trade mark infringement may bar action at later date
One of the defences to trade mark infringement under the Trade Mark Act 1994 is where a trade mark owner has knowledge of the use of a potentially conflicting mark and has failed to take action for a period of more than five years after discovering the same. In such cases the trade mark owner will be taken to have effectively given up his right to challenge this use.
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http://www.lawdit.co.uk/reading_room...ter%20date.htm
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Wrongful or groundless threats of infringement
Various jurisdictions have laws which are designed to prevent trademark owners from making wrongful threats of trademark infringement action against other parties. These laws are intended to prevent large or powerful companies from intimidating or harassing smaller companies.
Where one party makes a threat to sue another for trademark infringement, but does not have a genuine basis or intention to carry out that threat, or does not carry out the threat at all within a certain period, the threat may itself become a basis for legal action.[18] In this situation, the party receiving such a threat may seek from the Court a declaratory judgment; also known as a declaratory ruling.
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http://en.wikipedia.org/wiki/Trademark
Companies tend to think they can get away with just about anything but often the reality is the main reason they are able to get away with it is because few choose to fight them hard on their actions. It's just like how technically shaving is usually fraud and breach of contract. In theory under certain circumstances and with a good enough case it could lead to criminal penalties.
If one ever does find themselves in this situation be very careful with what you say to the sponsor/company as your words could come back to haunt you. Remember that the company probably has a legal team and they may be trying to get you to say or do certain things in order to improve their own legal position. Ideally you need a lawyer to represent you and your interests. If not you need to be very savvy and read all you can on the laws.