Developing An Effective E-commerce Presence

Transacting business over the Internet typically occurs through specific software programs that run e-commerce Web sites performing such functions as product display, on-line ordering or even inventory management. E-commerce is commonly broken down into two categories: transactions between businesses known as business-to-business (B2B), and consumer-related transactions known as business to consumer (B2C).

Why is e-commerce important? First and foremost is its economic impact. Not only is e-commerce rapidly becoming an important market sector, but it is also enabling companies to transact business in a completely different way, utilizing different efficiencies and resources. From the public perspective, e-commerce is the societal centerpiece for issues involving privacy rights and fraud. For these reasons, companies must know not only what their rights and obligations are in establishing an e-commerce presence, but they also must protect themselves in their interactions with customers and the public.

The following three articles provide a road map for establishing and maintaining an effective e-commerce presence over the Internet.

Steve Silverman is Co-Chair of the firm’s Technology Practice Group. For more information on this topic, please contact Steve at (412) 594-5609 or via e-mail at ssilverman@tuckerlaw.com.

Establishing an E-Commerce Presence

Coordinated Domain Name/Trademark Search. Even though a domain name may exist and be available, registration and use of that domain name for a business that is in competition with a company that has a registered trademark of the same or substantially similar name may result in trademark infringement. For this reason, it is important for you to review both the agreement with the company that registers your domain name and your Internet Service Provider ("ISP") to ensure that you have complete ownership of your domain name. Depending upon the nature of your business, you may want to consider having a third party actively search for registered domains that may infringe upon a trade name or mark. This can be done either by a law firm or by a company that provides independent trademark searches.

Web Site Development Agreements. Once you have chosen a domain name and are satisfied that it has not infringed upon any trademarks, you must develop a Web site. Although some have the ability to develop their own Web sites, most choose to hire a Web site developer. The contract governing that relationship is typically known as a Web Site Development Agreement. The key issues to be aware of for such agreements include:

• Ownership. The Web Site Development Agreement should be reviewed to ensure that the content anddesign of the Web site does not become the property of the developer.
• Performance Standards. The Agreement should spell out the vendor’s obligations, timetables and deadlines for completion of daily, monthly, quarterly or annual functions. It should also provide other service standards and a mechanism to review and correct deficient service levels.
• Work-For-Hire. The Agreement should expressly state that all work done by the programmer/consultant is on a work-for-hire basis, and a consultant/programmer expressly assigns all rights in the work to you. Does the consultant retain any rights? If so, they should be clearly spelled out. · Deliverables. The Agreement must spell out exactly what the developer is to do for you and what must be delivered to you at the end of the project. Defining this scope-of-work is critical to avoid disputes down the line. There should also be a written mechanism requiring signatures of both parties when these deliverables are changed or revised.
• Originality/Non-Infringement. The programmer/consultant should warrant that the work will be original or at least will not infringe any copyright, trade secret or other intellectual property right.
• Remedies/Dispute Resolution. The Agreement should permit you to withhold transaction fees as a consequence of substandard performance. Consider providing for alternative dispute resolution such as binding arbitration.
• Other Miscellaneous Considerations. Does the Agreement provide you with flexibility to terminate without penalty? Does the Agreement provide for up time and availability warranties? Does the Agreement provide for continuity of services through catastrophic events such as back up or disaster recovery scenarios? Finally, the Agreement should require the vendor to assist you in the transition to a new service vendor by providing copies of data files and other transition services.

Hosting Agreements. Some businesses contract with the Web page developer (or another third party) to "host" the Web site. To "host" means to allow the computer files contained in the Web site to reside on a third party’s computer and to receive all user traffic ("hits") to the site. In addition to the contract issues detailed above, a Web Hosting Agreement should address these additional issues:

• Up Time and Band Width Guarantees. The Hosting Agreement should set out acceptable standards of continuous availability and traffic capacity so that your site is available on the Internet on a reliable basis. · Security. The Web Host should use secure server/encryption technology that ensures that sensitive customer information will remain secure. The Agreement must spell out whether security is your responsibility or the Host’s.
• Back Up and Disaster Recovery Capacity. Will the Host back up the site and, if so, how often? Does the Host have a back-up server to continue your services in the event of a major server failure?
• Termination/Portability. The contract should be easily terminable so that the site can be moved to another Host. Is the Host required to cooperate by providing copies to you of all files so that changing hosts is simplified?
• Reporting. Does the Agreement spell out what statistics the Host is required to report to you? For instance, the Host can track the number of hits to the site or hits to various subparts of the site or even to links.
• Protecting Your Marks. If you own the images or content on your Web page, you must put other users on notice of your ownership. You must make sure that all content is marked properly. It is imperative that you understand the use of the symbols ©, ® and ™, and use them properly.

Taking steps to ensure that these issues are adequately addressed will help make your company’s e-commerce venture a profitable one.

© The Copyright Act does not require that any symbols be used to indicate that works are subject to copyright. However, if you are going to distribute your work to the public, you should use the copyright symbol to let others know that the work is protected.

® and ™ There are two different trademark symbols that you can use. The most common is the letter R with a circle around it, which indicates that the trademark is registered. This symbol should only be used if the trademark is in fact registered. The letters "TM", indicating trademark, can also be used. "TM" can be used regardless of whether the mark is registered.
 

Minimizing Liability for Web Site Content
 

Once you have designed your site and found a host, you must
protect yourself from claims arising from the Web site’s content. The following issues must be considered:

Regulatory Issues. Traditional regulations on advertising that apply to print and publication also apply to Web-based advertising. These may include comparative advertising, deceptive advertising, consumer protection issues, fair trade practices, and copyright or trademark infringement. Depending upon the nature of the business, you may also be subject to industry regulations (i.e. banking, medical, legal, etc.).

Third Party Content. Avoid unauthorized use of Web-based content from other sites. Simply because images, designs and data can be easily copied does not make it legal. If you intend to use content from a third party, make sure you have permission to do so. You must review and keep licensed content up to date.

Linking/Framing. It is possible to "use" third party content illegally without actually "posting it" on a Web site. You must avoid framing third party content in such a way as to make others believe that the content is yours, which may violate copyright laws. You must also realize that linking may imply sponsorship. If your Web site contains links to other sites, consider including a disclaimer notifying users that your Web site does not control or monitor the content of the linked page and makes no warranty or endorsement of the content. It is also imperative that you establish a policy regarding linking to your site and that you closely monitor who is doing so. Outside links may imply affiliation with a third party where none is intended.

Utilizing Third Party Advertisers.  If you plan to sell (or give away) advertising space on your Web site for complimentary businesses or services, public services, or special events, you should have an agreement with each business or entity whose advertisement appears on your site. Such an agreement should address the following:

• Limitation of Liability. You are at the mercy of your Web site designer and host, so you should not be exposed to liability if the site crashes, or if the advertising link is not accessible. If this is not possible, consider requesting that the Host indemnify your company.
• Infringement/Unfair Trade.  Practices/Defamation Indemnification. Does the agreement protect you in case the advertisement infringes the rights of a third party, constitutes unfair or unlawful trade practices, or defames some other person, product or business?
• Other Concerns. You should be able to terminate any advertisement at any time (perhaps with a partial refund of any fees paid). The agreement should prohibit advertising materials that are false, misleading, targeted primarily to children or are otherwise unlawful or obscene.

Using Disclaimers and Notices.  Notices and disclaimers are, by definition, intended to "notify" users of certain facts. Make sure that they are located in a prominent location on all pages thatcontain applicable content. Understand that users need not use the "front door" to access the Web page, and post notices accordingly to assure that they will be viewed.

Understand the Limitations. You cannot possibly disclaim all warranties and/or liabilities through written disclaimers. Understand the limitations and use where appropriate.

Trademark and Copyright Notices. Certain intellectual property violations may require that the infringing person was on notice that the information or trademark belongs to the business.

Although not a panacea, disclaimers and notices provide an integral part of every Web site in order to protect their owner. Using the above guidelines will both reinforce and bolster these protections.

Maximizing Enforceability of Online Contracts

Regardless of whether it is express or implied, every e-commerce
transaction results in a contract being formed between a business and its customer. To be enforceable, an electronic contract must satisfy the same elements present in a written contract. The most likely area of dispute between you and your customer is determining exactly what are the established terms of the electronic contract on which the parties have supposedly agreed.

Issues Unique to Electronic Contracts. Unlike a written document, the terms of an electronic document may be easily changed. You must consider how you can prove that the terms were agreed upon. If you are trying to enforce a contract, you must have some way to show that the other party consented to the terms. For this reason, you must employ a mechanism to verify the party with whom you are contracting. If you enter into repeated sales with established customers, you may be able to implement a password or "key" verification process. If the sales are direct or retail, consider the verification standards used by credit card companies.

Regardless of the method for verifying who the parties are, at a minimum, an online business must take the following steps to ensure the enforceability of its transactions:

• Create an Audit Trail. The purpose of an audit trail is to track and identify key information related to the contract. It is helpful to track the version of terms and conditions applicable at the time of the contract, the fact that the user accepted the terms and conditions, applicable pricing structure, and other pertinent terms.
• Making the Contract Terms Obvious and Accessible. The "customer contract" should require some "click-through" action by the customer to show agreement.
• Consider Using Digital Signatures. A digital signature is an electronic signature that can be used to authenticate the identity of the sender of a message or the signer of a document, and to ensure that the original content of the message or document that has been sent is unchanged. In essence, a digital signature simply ensures the receiver of the message (usually the business) that the previous identified sender’s identity and message arrived intact. Digital signatures also allow a third party certifying authority to ensure verification. Digital signatures can be attached or embedded into an agreement to preserve their terms. Digital signatures will soon be standard for entering into all online contracts.
• Applicable Law. If you "conduct business" with customers in other states or countries, it is possible that you may be subject to the laws of those other states or countries. For this reason, the online contract should clearly and conspicuously contain provisions stating which state’s law applies and which courts the customer must bring claims in. Obviously, you should use your home state’s laws and courts of local jurisdiction.
• Warranties and Disclaimers. The online contract should clearly and conspicuously state the limits of your liability (i.e. repair or replacement, refund of purchase price, etc.). The contract should also disclaim all warranties other than those expressly intended. This is particularly important since Web sites often contain marketing and sales materials which would not ordinarily be included within a written contract.

Because of the seeming "facelessness" of doing business over the Internet, there may be even more pitfalls in enforcing e-commerce contracts than found in the traditional paper contract. However, these pitfalls can be minimized by adhering to the above standards.

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