Traditional
Companies are Flocking to the Internet
Designing and maintaining
a web site has become the rule as opposed to the exception for contemporary
entrepreneurs. Those who chose to ignore the profit potential of the
internet are destined to go the way of the buggy whip manufacturer and
the eight-track salesman.
In business as
in nature though all things must balance each other. The sun rises and
sets, the tides roll in and then retreat, and an opportunity to prosper
also means there is an inherent chance to incur damages and financial
liability. The pros far outweigh the cons though, and business savvy
entrepreneurs are pouring big dollars into web site design and internet
marketing to expand their client base.
Traditional bricks
and mortar companies are flocking to the internet in droves. The internet
is no longer just a haven for "virtual companies," online
shopping and pure electronic commerce. It is a legitimate venue for
established companies to show their wares to a rapidly growing, and
highly sophisticated, global audience. The lucrative practice has become
known as Ecommerce and the smart players are getting positioned as the
economy heats up yet again.
The costs can be
considerable though, with web site designers charging anywhere from
$5,000 to well over $100,000 for an aggressive web site capable of attracting
real buyers. Domain names can be expensive as well, and numerous issues
of intellectual property rights come into play when corporate players
decide to step out of their comfort zone and establish their companies
on the Internet.
The following are
just a few aspects of internet commerce that all entrepreneurs should
familiarize themselves with in order to potentially avoid costly pitfalls.
Domain names are
available directly from companies such as NameSecure and GoDaddy for
as little as $12 a year. There are numerous resellers in the game now
though, who sell catchy web names for tens if not hundreds of thousands
of dollars to companies banking on making big bucks on the web. The
URL or Domain Name typically includes the name of the company in one
form or another or is short enough for people to remember.
This Domain Name
is then typically registered on a first come, first serve basis with
an Internet Service Provider (ISP). In the event the name desired incorporates
your company name or brand name but is already in use by another site,
there are issues of copyright infringement that must be considered.
In some cases resellers
register an established brand as a domain name with the intention of
ransoming back to the rightful owner of the brand name. Although still
prevalent, this practice has become all but outlawed in the US by the
Federal Trademark Dilution Act of 1996 and the Anti-Cybersquatting Consumer
Protection Act.
All domain names
registered since January 1, 2000, include ICANN's Uniform Domain Name
Dispute Resolution Policy, which makes mandatory the referral of such
disputes to an administrative panel of one person or three members.
The filing fee for an ICANN resolution is $5,000, so that many such
disputes are settled for $4,999.
It is advisable
to register as many combinations (including misspellings) of your name
as possible so that you obtain maximum protection and customers can
locate you easily. Once you have decided on the domain name(s) you must
complete the registration template provided by the ISP so that it can
be emailed to the relevant registrar. Note the renewal requirements
to avoid difficulties of the registration lapsing. As always, record
keeping is advisable.
In addition, if
you decide to buy an existing name, make sure that you immediately change
all passwords and access codes to prevent hacking or worse hijacking
of your website.
Once you have secured
your name you will need to consider the website itself. Unless you have
specific expertise in-house you will need to engage the services of
a website developer and possibly a designer also. The contract you have
with them will be crucial in ensuring that creation and operation of
your website is a hassle free experience.
When entering into
a contract with a website designer there are several key elements that
must be addressed:
Intellectual Property Rights - It must be established that
you and not the web designer own the copyright to the design and content
of your site. If the contract fails to address this point you are
unlikely to have any rights to the design and content at a later date.
The contract should include an assignment of these rights to your
company or, at the least, an exclusive, world wide, free license.
The software code (or source code), which enables the website to function
in the way that you require, may remain in the ownership of the developer.
If it does, you should ensure that you are entitled to a license to
use the source code should you wish to have your website hosted by
someone other than the developer and that a copy is stored by an independent
escrow agent and is available to you should the developer become insolvent.
Technical
Specifications and Testing
- Try to be as specific as possible in your requirements as to the
functioning of the website, its image and general performance. You
may need external technical assistance in drawing up these specifications.
The more specific you can be the easier it will be to withhold payment
if the website is not what you had expected. You should ensure that
you have the opportunity to test the site at certain intervals throughout
the contract and even have a pilot version to test on a selected area
or group of people to gauge the effect on potential customers. Consider
testing to establish that the site can cope with the anticipated level
of traffic.
Deadline
for Completion
- You will have a deadline in mind and this should be committed to
paper and agreed upon with the developer. There is likely to be some
variance, especially if you are going to make changes along the way
as the site develops. However, a deadline is still a tentative completion
point and will keep your web developer focused on getting the project
done so you can get down to generating revenues.
Terms of
Payment
- Like any vendor, a web developer will submit a quote to you that
is basically a flat rate for the services to be rendered. The payments
should be made to the web designer in trenches or stages as specific
portion of the work are completed, the final payment to be submitted
upon satisfactory completion and operation of the web site. Financial
provisions will often be included for breach of the contract including
a default rate of interest on late payment of any installment.
Site Maintenance
- Consider whether the developer will also maintain and update your
site (fulfilling the duties of a webmaster) on your behalf and agree
to an ongoing fee for this work. Once again, the governing contract
should be specific as to what is included in the maintenance fee.
Security
and Content Monitoring - Your website is on a largely open network
and you will need to consider the latest security devices for protecting
information given or received over your website. This could include
encryption devices or digital signatures both of which are of greater
significance if your customers pay for goods via your website. Antivirus
software is now a must for all websites and this should be updated
in line with advances in technology. Consider who will be responsible
for policing any chatrooms or message boards to check they contain
no offensive or defamatory material. You may incur substantial legal
liability if you fail to do this - in the same way that newspapers
are liable for repeating libelous comments, you may be liable for
any comments posted on the site - even if these are clearly not your
own views. If your developer is responsible for updating the site
consider requiring that it ensures that such material is detected
and removed as quickly as possible.
One of your key
relationships will be with that of your Internet Service Provider or
ISP, the entity that connects you to the Internet.
In order to be
accessible your website must be hosted on a server which is connected
to the web. Your chosen ISP may host your website on their server or,
for larger businesses, simply provide a connection between your dedicated
server and the web. In choosing your ISP consider their capacity to
deal with large volumes of traffic as this will govern how quickly customers
can gain access to your website. The number and location of the ISP's
points of presence on the web will be important as, generally speaking,
the greater the presence the more traffic the ISP can deal with without
delay or difficulty. You should also check that the ISP will block as
much spam (unsolicited junk e-mail) as possible to reduce the risk of
overload and of viruses arriving with these e-mails. Terms that should
be included in the contract with your ISP include:
Service Level Guarantee - The most important task of the
ISP is to make the website available to visitors as quickly as possible
and the contract should impose levels of speed of response times over
the ISP's own network. Inevitably the ISP's network may not always
be available to visitors as the server may crash. You may wish to
impose availability (uptime) requirements for a certain percentage
of the time over a certain period. Failure to hit these targets could
give you the right to a refund of a portion of the fee or termination
of your contract with the ISP. It is unlikely the ISP will take responsibility
for problems beyond its own network.
Liability
and Indemnities
- The ISP will require some assurances as to the content of the website
(no defamatory or offensive material or material which breaches another's
intellectual property rights) as it may be liable to third parties
for unlawful content. Generally any liability accepted by the ISP
will be limited to a specific sum - usually expressed as the amount
received by the ISP under the contract or possibly a multiple of this
figure. There is some doubt as to whether any arbitrary limit on liability
will be effective but, to be on the safe side, assume that the limit
will be enforceable and negotiate it upwards if you believe it will
not be sufficient to compensate you. Consider limiting your liability
under the contract in the same way as the ISP limits its own. Try
to avoid the ISP excluding liability for any consequential loss (such
as loss of profits, business etc).
Security
- A firewall put in place by the ISP can prevent viruses from infecting
your data. Any protection your ISP can provide to reduce the risk
of infection is invaluable. Antivirus software should be updated regularly.
When deciding what
appears on the site one should a variety of factors including marketing,
ease of navigation by viewers, and how to convert these viewers into
buyers. Also as important are several legal considerations. In addition
to material that is a breach of intellectual property rights (use of
another's text or design without their consent), it must be established
whether or not material content may be deemed defamatory and offensive.
If so, you may be held liable.
Each website should
contain terms of use, privacy statements and disclaimers, all of which
may be grouped together as "legal notices". Consider the policy
statements and disclaimers that you wish to use, including a copyright
notice, trademark notice (if applicable), possible age and geographical
restrictions (depending on the market the site is intended for), applicable
laws, a restriction on downloading images and a specific disclaimer
pertaining to warranties and liability.
This last statement
could, for example, include a disclaimer of responsibility for viruses
carried away by visitors to your website and an exclusion of any implied
warranty that information is suitable for any purpose, accurate or up-to-date.
Usually implied warranties are excluded to the fullest extent permitted
by law.
In addition, your
website should have a privacy statement explaining how information gathered
from the website will be used, and assuring viewers that their will
not be shared except as agreed upon and for valid business purposes.
Consider also establishing
the jurisdiction under which any contract is concluded. The very nature
of the Internet has led to jurisdictional difficulties.
It is all but guaranteed
that your website will be viewed by customers from other jurisdictions.
If a client from Amsterdam contracts your services or purchases your
product and you are located in New York, what is the appropriate venue
to resolve a potential dispute? In many cases the consumer protection
laws of that country may apply to your site.
These difficulties
can be partly resolved with a choice of law jurisdiction clause.
The simplest way
to overcome this problem is to create a release form or include a clause
in your disclaimer that establishes venue for resolving disputes. Although
not a perfect solution, this practice can effectively reduce potential
difficulties.
Last but not least
you will need to consider how your customers will contract with you
over the web. An internet contract is valid and enforceable if it can
be proved that a written agreement was actually electronically signed
and that it contains the terms that are to be enforced. An internet
contract can be established through e-mails between you and your client,
when a client completes a form and pushes the "submit" or
"send" button and when two computers automatically exchange
Internet messages on behalf of trading partners, the method known as
electronic data interchange, or EDI.
However, to establish
the terms of the Internet contract, it is advisable to have a specially
customized version of your standard set of terms and conditions that
applies to contracts concluded in this manner. In order to incorporate
these standard terms into your client contracts, the viewer must be
forced to view the terms and click their acceptance before proceeding
to the ordering stage.
If only given an
opportunity or the option to view the terms and (through a hyperlink
connected to your terms, for example) it is unlikely to be sufficient
to make them applicable to the relevant contracts. The same practice
applies to disclaimers and privacy statements - customers should be
forced to view these and click acceptance before proceeding.
There are other
many other areas to consider such as advertising and sponsorship, links
to related sites, how to monitor visitors and sales tax treatment of
internet business, and staying current with the latest advances in online
security. As the internet becomes more regulated it is imperative that
Ecommerce merchants understand the basic legal considerations before
wasting hard-earned dollars on situations that could have been easily
avoided.
Because of our
strong internet presence, Legal & Compliance, LLC is well versed
in the practical applications of internet marketing and electronic commerce.
Our attorneys combine an extensive working knowledge of traditional
corporate and contract law with cutting edge information pertaining
to internet entrepreneurs and a variety of Ecommerce businesses.
The resulting synergy
allows us to confidently represent our clients in all aspects of internet
commerce from a strong platform of firsthand experience. After all,
how effective can a law firm be in the area of internet law if they
conduct no internet business of their own? There is no replacement for
practical, firsthand knowledge of internet commerce.
Whether you are
a well established company with a deep six-figure budget or a start-up
entity seeking to start out on the right foot, the time to contact us
is now. Establishing a profitable internet presence can be expensive
and time consuming, so it only makes good business sense to avoid problems
before they occur.
