United States: Crash: Avoiding Legal Disaster On The Information Superhighway

Chances are that your company has a Website. Chances are just as likely that your site content is constantly changing. The rapid changes in the Internet environment are paralleled by an ever- changing legal landscape in which courts have no choice but to take old law and apply it to the "new economy." What defies definition, however, is the standard of due care to be exercised in the Internet "space," while the law plays catch- up in applying established legal principles to Internet transactions. The corporate entity must make certain that regardless of whatever legal principles evolve, it can defend itself by showing it was following industry "best practices" and/ or by showing that its actions were commercially reasonable.

Since intellectual property issues abound, it is imperative to have a Website development agreement that defines obligations and allocates risks between the developer and the corporation. While the corporate client should obtain ownership of as much of the Website design as possible, the developer usually comes to the table with a certain amount of prior knowledge that it will seek to protect. Most negotiations will focus on ownership rights, and it is important to preserve these rights in order to provide maximum flexibility for the future.

Attention must be given to so- called "residual" clauses— generally, they should be kept to a minimum— in which the developer retains the right to reuse certain know- how in site developments for future clients. Most agreements contain reasonable restrictions on the ability of the developer to work on sites for competitors that mitigate against the re- use of the knowledge to the detriment of your business objectives. The developer customarily warrants the originality and non- infringement of all code used in the site’s development and operation and usually obtains necessary licenses from third- party vendors of software used in the site. Indemnification provisions are used to shift the burden of these IP issues to the developer.

As the site matures, the corporation should monitor added features to make certain that these licensing issues remain covered by the existing development contract. Often, the agreement contains exhibits listing third- party software used; these exhibits should also be updated over time to ensure maximum protection.

Ownership and licensing rights become important when there is a change in the site’s development function. The agreement must ensure that the client will have sufficient IP rights to be able to continue operation with a new hosting service or as an internal function. Termination provisions should be included to allow for such changes at the discretion of the company or in the event that the developer cannot provide the level of service required.

The corporate practitioner also needs to follow the evolution of its site and determine when changes call for modification of the earlier agreement or a new agreement altogether. Indeed, once the relationship has been established, the legal department may be "out- of- theloop" as IT professionals work directly with the developer to provide continual site upgrades. Prior reporting requirements and terms regarding interim deliverables probably relate to the initial site launch. Therefore, new agreements need to be put in place to cover substantial enhancements that may require prior approval and a more vigilant watch over proprietary rights. A development contract that was entered into when the site was purely informational in nature may either have expired once the site was launched or, if still in effect, have no relevance as the site expands into a b2c e- commerce or b2b exchange site. Though the agreement was drafted in an effort to accommodate technological change, in hindsight it may not fulfill that goal as well as it could because jargon, content delivery standards and other technical specifications may have changed enough to make the agreement difficult to enforce. New uses demand new specifications and requirements as to adequate performance, maximum server response time and the like. Moreover, the company should add provisions that may be lacking from earlier agreements, including but not limited to the right to thorough acceptance testing to decide when the site qualifies as a conforming or acceptable product and what deficiencies need to be cured. The agreement also needs to make certain that old warranties cover new uses.

Sometimes a developer may contract with a third- party hosting company responsible for "hosting" the Website on a server connected to the Internet. Later your company may choose to host the site in- house, contracting out only for design elements. These arrangements create complicated issues, particularly with respect to the allocation of risks of downtime. The practitioner must ensure that the various contractual arrangements are compatible and that all performance aspects have been warranted.

An attack by an outsider can cripple service, making Website access impossible. Web hosting contracts may already allocate the risks of such third- party disruptions. However, as the site matures, it is important to revisit the clauses of the hosting or development agreement to ascertain your duties under them. For example, if a company has been warned about a thirdparty attack threat, the obligation to protect against disruption is heightened after an attack. Does the developer have an obligation of due diligence to protect against an attack once it is warned of possible disruption? The terms of the development/ hosting agreement should be reviewed to determine whether the provisions adequately address this issue.

Savvy Internet operators used to register names and turn a quick profit by reselling them. The Anticybersquatting Consumer Protection Act, along with the implementation of a new forum to deal with these disputes administered by the Internet Corporation for Assigned Names and Numbers (ICANN), has significantly enhanced the available protections for domain names.

In the rush to lock up a good idea, many entrepreneurs have been buying and registering domain names at Internet speed, and the rush often results in a lack of due diligence to the legal issues that might exist. Therefore, searches should be conducted to determine whether trademarks exist for prior uses of the registered domain. This in turn could eliminate possible future liability problems.

Linking allows Website visitors to take a one- click jump to another site. Though this is convenient, these "deep" links often create an advertising revenue problem because visitors can get deep into the site without first viewing the advertisements on the homepage. Several cases, most notably the Ticketmaster case (C. D. Cal. 1997), have been premised on the idea that bypassing homepage advertising causes harm to the site owner. Therefore, it is advisable to have an agreement in place before linking to other Websites because it protects against liability for trademark infringement and unfair competition claims. However, there is also a risk of trademark dilution claims by owners of the linked sites on the theory that the more a trademark is used by parties other than its owner, the less value it has. Moreover, indemnity provisions can be included to protect against liability arising from defamatory material contained on the linked site. Linking agreements are usually non- exclusive arrangements, although a more formal "co- branding" agreement may also be appropriate in certain circumstances. In the latter case, the agreement typically cross- licenses use of the trademark and may include details on how a trademark may be used as well as its location and relative prominence on the page.

Framing involves a more sophisticated link that allows a second site to be accessed, but in a manner that enables the visitor to view the linked site in a smaller frame such that the graphic of the first site remains on the screen. Framing has been alleged to cause substantial confusion about the source of the site content and the relationship between the two sites. Liability can result if there appears to be sponsorship, authorization or some other relationship that may not exist.

The admissibility of site content is governed by the same evidentiary rules as any other evidence. Indeed, it is a credit to the drafters of the evidentiary rules that they seem to work as well with electronic evidence as they do with documentary evidence. For the most part, Web content has been considered unreliable in establishing factual issues, and courts have required proof of the matters asserted in the site by more traditional means of proof.

Litigators use sites to come up with discovery requests, and the site content needs to be evaluated in light of pending or anticipated litigation. Content must be evaluated to make certain that statements are accurate and substantiated by other corporate documents. Witnesses need to be prepped to respond to claims on the Website. Written promotional materials must be compared to similar claims on the Website not only for consistency in content but to ensure that disclaimers are as prominently positioned and easily acceptable in one form as in the other. Prohibitions on the use of Website evidence break down when evidence is introduced not for the truth of the matter asserted but rather to demonstrate inconsistencies in testimony or documentary evidence.

Active, aggressive Website monitoring can, in many circumstances, prevent future liabilities; however, it involves much more than making sure that the site has the appropriate disclaimers for content and performance. The corporate legal department must consider the implications of the Website in a wide array of circumstances as it evolves into a predominate part of the overall business objectives.

This article previously appeared in the June issue of The Metropolitan Corporate Counsel and is posted with permission.