Intellectual Property Law

Legalities of a Website

By IBLS Editor

E-commerce not only provided the opportunity to establish virtual-only businesses but also created unlimited opportunities to expand trade for traditional brick-and-mortar businesses.  But, just as traditional business entrepreneurs need to follow construction or city code rules to set their businesses; the e-commerce entrepreneur need to track website legalities to avoid liability.  While there is no specific rule or format establishing the precise requirements of a website, careful legal advice may be noteworthy depending on the complexity of the e-business.   For instance, websites offering banking or financial services are subject to the general legalities of websites and to those specifically applicable to this industry.   Websites offering professional legal services are also subject to the general website rules and those rules set by the respective Bar Association with jurisdiction on the professional hosting the website.  This article informs on the legalities or general requirements any e-business or website must follow in the United States.

As said before, there is no specific manual setting the legal requirements for a website.  Most of the general rules applicable to a website are derived from a variety of laws like intellectual property, marketing & advertising, contractual & commercial laws, privacy, security, online payments laws, and other criminal law statutes addressing specific issues like online pornography, cybercrime, identity theft, etc.

Website & Software Development

The first legal issue any e-commerce entrepreneur faces is the contract for the construction of its website, including software.  This contract deserves careful attention because detailed legal issues must be clear to the e-entrepreneur and the website developer.  For instance, developing price; development term, size and content of the site; functionality of the site, including flash effects; software required by the site, and intellectual property rights on the design, images, and content of the site must be addressed.  Among the above legal issues, the last two issues are the most important issue to be considered.  Some websites, (e.g. B2C, stock tracking sites, search engines and portals) required the use of software.  This is called ?Software Development Agreement? (?SDA?). A SDA must have clear clauses on who will own the intellectual property rights (?IP?) over that software, including copyrights.  A B2C site whose owner does not hold the IP rights on the software used by its virtual business, must at least know for how long the software is licensed, if it could be renewed, confidentiality, security, jurisdiction disputes, responsibility of the developer, term of the agreement, if updates are included in the prices, etc.  Losing the property rights on the software or its licensing agreement could imply ?closing the virtual business.?    Additionally, the website owner must know everything about the IP rights on the website design, images and content of his site. It is not attractive that an e-commerce entrepreneur starts his virtual business by infringing upon others? intellectual property rights on images or content. 

Hosting Contracts

The Hosting Contract is the second and obvious legal contract an e-business entrepreneur must sign.  The hosting company is the company managing the e-business functionality in a daily basis.  The e-business entrepreneur must know whether an alternate back-up server is available; whether service may be available 24/7; how problem shooting difficulties will be solved, especially in regards to time; how to face peak traffic hours; how content is going to be protected, and hosting terms and price.

Some website developers offer packages that include hosting services.  Thus, the website owner may not directly contract with the hosting company but he must know, at least, the above-mentioned terms of those hosting contracts.

Privacy & Security Policies

According to United States Privacy laws, websites handling personal information shall include its privacy policies in a visible part.  Personal information refers to any information required to indentify the website user.  For example, name, nationality, social security number, gender, address, phone number, credit card numbers, etc.   The website shall have a specific section informing users how their personal information will be treated, how their personal information is used, if there is confidentiality when providing personal information to the site, whether the information will be shared with other public or private institutions, whether the site uses ?cookies? and log files (these are technological means to collect information without directly requesting the information from the user), among others. 

If the website collects sensitive information like bank accounts, credit cards, etc., the website must inform their users on whether information is encrypted. Must B2C sites offer online payment options; these sites must encrypt sensible information to avoid liability for mishandling of personal and sensitive data.  In addition to encrypted data, some websites, especially those accepting online payments, use the services of third party certifying companies that verify and assure the security of that site (e.g. VeriSign).  These companies provide security certificates (?SSL?) so users are assured that the site and e-commerce company?s network is protected.   Signing contracts with these security companies is a straight forward transaction when the e-business deals with an internationally known company. 

Websites offering information for children less than 13 years of age must include a privacy policy according to Children Online Privacy Protection Act (?COPPA?).  The site must inform that verifiable parental consent is required before the website can disclose or use personal information about the child; and only online information necessary to the child?s online activity may be collected. 

Term of Use Information

 ?Terms of Use? are the contractual terms between the website company and its user.  It expresses the terms under which the user may utilize the website; what the user is allowed or is not allowed to do.  These terms refer to whether the user may copy, republish, download, distribute, reproduce, or otherwise use the content of the site.  If the site links or publishes third party content, it should also include a disclaimer as to the website?s responsibility for that content.  The Website owner does not want to be responsible for third party?s IP rights violations.   Websites offering user accounts must also inform on how the account can be used, it should provide a user name and password, the security of the site, and the rules for the account activity. 

 E-commerce sites holding e-commerce patents may also display this information on this section.  This may provide legal information to users as to the prohibition to copy the specific business model since it enjoys IP protection. 

Other Intellectual Property Issues

Besides the IP issues mentioned above, websites must vigilant on the domain name selection and use of trademarks.  The use of well- known trademarks as domain names may create conflicts for the website owner if he is not the holder of the mark.  Domain name disputes may be avoided by carefully selecting the company?s domain name. Otherwise, website owners may face liability under the Anti-cybersquating Consumer Protection Act (?ACPA?) or face arbitration proceedings before the Internet Corporation for Assigned Names and Numbers (?ICANN?). 

Additionally, the use of others? trademark on meta tags or keywords may bring IP conflicts for the e-business.  These Meta tags are usually entered by the website or software developer but the e-business owner must be aware of this action because the e-business would be the one liable for trademark infringement.  Yet, the IP laws of the U.S. establish exemptions to liability for the use of a trademark.  Depending on the specific business model, it is worth to have legal advice on when the website may use those trademarks in Meta tags. 

IP issues are also relevant for those websites offering content-only services.  They must seek help from a legal professional to draft a Content License Agreement.  These are complex agreements that must clearly specify the license, compensation, content provider responsibility, rights of the company receiving the service, rights of the content provider, ownership of the content, term of the license, termination causes, effects of termination, confidentiality, warranty and indemnity, payments, jurisdiction and dispute mechanisms, rights on successors, assignability, severability, etc. 

Other Legal Issues

Advertising and Taxation laws are the other two important set of laws any website owner must review.  The United States Federal Trade Commission Act prohibits any misleading or false advertisement in the United States.  Thus, the content of the site must clearly offer true information as to the goods or services offered.  If the website refers to some definite service like professional or financial services they must also conform to the marketing rules of the respective regulatory entity.  If the website offers products for adults only, like liquor or cigarettes, they must include the respective disclaimer and information regarding the prohibition of sale this products to minors.

Taxation laws are some of the most important legal issues that a website owner faces.    According to the United States Moratorium on Internet transactions, e-commerce cannot be taxed on their Internet transactions.  Yet, e-commerce business may be liable for state sales and use taxes depending on the jurisdiction where their users/buyers are located.  For more information see the IBLS article titled: Are Online Businesses Subject to Corporate Income Tax in the United States?

Full post as published by IBLS Internet Law Blog on February 18, 2008 (boomark / email).