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E-Commerce Agreements

This article discusses various terms and conditions contained in many e-commerce agreements as well as related issues, pitfalls and problems. For sample e-commerce agreements, visit our legal forms section and follow the links.

If you are selling goods or services through the Internet, there are a number of items that should be included on your web site to protect your business. For example, you should identify your trademarks and copyrights, use care when referring to others' trademarks, make sure any privacy policy is workable and modifiable, ensure that terms and conditions contain the appropriate jurisdiction, disclaimer of liability, limitation of damages and arbitration clauses, etc.

  1. Legends.

    A "legend" is one or more statements regarding ownership, etc. that appear on your web site. Almost always these should be placed on the main page of the web site so they are prominent; often they appear at the bottom of the main page.

    1. Copyright Notice. Although copyright notices are not required, they are strongly recommended so that others cannot claim an "innocent infringer" defense by saying that they thought the work had been released into the public domain.

      1. A copyright notice should be in the following form:

        Copyright 2003-2005 Bruce E. Methven. All Rights Reserved.

      2. You can also use the © symbol in place of "Copyright", but do not use just (c).

      3. The first year that the work was created must be included. (Designating a first year later than the real one can invalidate copyright rights, so error on the side of the earlier year.) Subsequent years where substantial changes were made can be added either as a range (2000-2003) or singly (2000, 2002).

      4. The "All Rights Reserved" provides additional protection in several South American countries.

    2. Legends for Other Parties’ Material. If you are going to mention other parties’ trademarks or use other parties’ material on your site, it’s best to provide a legend stating that the names and material are the property of their respective owners, that you have no affiliation with them, and that they have not approved your site.

      1. The purpose is to prevent accusations by those parties that you are implying they are endorsing your goods or services.

      2. Of course, if you are mentioning other parties’ trademarks, be sure to use the superscript SM or TM or the ® just the way they do with their trademarks.

    3. Your Material. You also want a legend stating that you hold all other rights to the site, that your material and trademarks are not in the public domain and that unauthorized use of your material or trademarks is forbidden.

    4. Links. Particularly if you are going to be linking to other sites that may be problematic, you may well want a legend stating that you are not responsible for the content on these other sites.

  2. Protecting Your Trademarks.

    You definitely will want to protect your trademarks on your web site by indicating that you are laying claim to them.

    1. Federally Registered Names. If and only if you have a federally registered mark, an ® must be used after the mark to get the full legal benefits of registration. This symbol can ONLY be used for marks registered with the federal government. (Registration on a state register is not sufficient, nor is a pending federal application where the registration has not yet issued.)

    2. Other Names. For names that have not received federal registration, your rights can be strengthened by adding a superscript TM(standing for "trademark" for goods) ora superscript SM (standing for "service mark" for services) after the name.

  3. Using Other Parties’ Material and Names.

    1. Copyright Issues. Just because someone else's web page does not contain a copyright notice does not mean that the material is in the public domain. The only way you can be certain you are safe is by either getting express permission from the owner to use the material or finding a statement on that site that allows you to use the material. (Many sites allow you to use their material for non-commercial purposes only.)

      1. There is a "fair use" exception to the copyright law that allows you to use part of another’s person’s work (not the entire work) without consent for purposes of review, comment, etc., particularly if the use is non-commercial. Basically, the more of the work that is taken and the more commercial the use to which it is put, the less likely that this exception applies. Because this can be complicated, talk to an attorney before trying to use the "fair use" exception.

    2. Comparisons With Competitors. Note that you are perfectly free to refer to competitor’s products for comparison purposes as long as what you say is true.

      1. What you cannot do is use a competitor’s name or trademark in your site’s metatags or do anything that misleads purchasers into believing you are affiliated with that competitor.

      2. Similarly, you can’t link to other sites or use frames in such a way that it seems like someone else's web page is part of your website or material. In other words, it needs to be clear when a user is accessing material on another site.

  4. Privacy Policy.

    Privacy policies are not required but many sites have them and some users actively look for them. Whatever your privacy policy is, it must be truthful and you must be willing to live by it. All privacy policies should have a provision stating that you may amend them by posting the changes on the web site for a minimum period of time (often 30 days) before they take effect – and if the user continues to use the site beyond that point, the user is bound by the new provisions.

  5. Terms of Use for "Community" Services.

    If you are going to be providing your users with chat rooms, message boards, e-mail server lists or other community services, you will want to have terms of use with specific provisions.

    1. Prohibitions. These terms of use should state that users agree not to violate any law, threaten or harass another user, post or transmit ads (unless the site allows that), impersonate another user, post false information, or do post anything that is pornographic, defamatory or that infringes on another party’s intellectual property rights. Obviously, the terms should state that the site owner can ban a user for any violation.

    2. Indemnification. The terms of use should specifically require the user to indemnify the site owner for any violations.

    3. Disclaimers. The terms and conditions should make it clear that the site owner is not responsible for the truthfulness or accuracy of posts made by users.

    4. Privacy. In addition, the terms of use should make clear that the site owner cannot guarantee that the real-life identity of the user will not become known.

    5. Public Domain. In most cases the site owner will want the user to agree that any comments you post to any bulletin boards, blogs, chat rooms, email server lists, etc. associated with the site become part of the public domain.

    6. Digital Millennium Copyright Act. The site owner can help avoid liability for copyright violations by others using the site by registering under the Digital Millennium Copyright Act. (See http://www.copyright.gov/onlinesp/.)

    7. Amendments. As with privacy policies, the terms of use should have a provision stating that the owner may amend them by posting the changes on the web site for a minium period of time (often 30 days) before they take effect – and if the user continues to use the site beyond that point, the user is bound by the new provisions.

  6. Ownership of Work on the Site

    1. Employees Versus Independent Contractors. If your webmaster/mistress is your employee when your site is created or updated, you own the work. That is not true with independent contractors: the contractor owns the work unless there is a written agreement to the contrary. (Without a written agreement, you have only a non-exclusive license to use the work.)

    2. Assignment. Your agreements with independent contractors should not only state that you own the work, they should also include an assignment of ownership rights in the resulting product to your company. "Work for hire" clauses alone may not be sufficient.

      1. In California many companies forego the "work made for hire" language because California Labor Code Section 3351.5(c) and California Unemployment Insurance Code Sections 621(d) and 686 treat anyone working under such a clause as an employee for unemployment and disability insurance purposes.

      2. You may want to give yourself a power of attorney to sign copyright documents on behalf of the contractor as well.

      3. It’s fine to let a web contractor retain the rights to any underlying software or scripts that operate your site, so long as you have an irrevocable, royalty-free license to use them.

  7. Children's Online Privacy Protection Act

    The Children's Online Privacy Protection Act ("COPPA") requires websites to obtain a parent's permission before children under 13 disclose information. (Children under 18 should not be permitted to view information which is adult in nature.) Also note that children under 18 may not be bound by any agreements that you have. You ARE entitled to rely on a user’s statement that he/she is over 18 unless you have some reason to believe they are not telling the truth.

  8. Purchase Agreements

    1. "Click-Through" Agreements. If you have an agreement for your purchasers on the web site, it is best to force them to step through a "click-through" agreement. These are the ones where the purchaser, as part of the purchase process, must scroll through the agreement and click a button at the bottom that says the user agrees to these terms. Alternatively, you can have the purchaser click a page that states that the user agrees to the site’s terms and conditions, as long as it provides a link to those right there and a way for the purchaser to exit the purchase process if those terms are not accepted. If you do not do something like this but only post your agreement or terms and conditions on another page, you run the risk that the customer may later claim that they are not bound by those terms.

    2. Implied Warranties. Unless care is taken, implied warranties can arise from material on the web site, other advertisements, brochures, etc. Because in many situations software is considered "goods", the Uniform Commercial Code may also automatically create warranties of merchantability (a vague warranty of good, fair quality) and fitness for a particular purpose.

      1. Disclaimers. One way a purchase agreement can minimize or eliminate this problem is if it states that there are no other warranties except as expressly set out in the agreement, including any warranties of merchantability or fitness for a particular purpose. (The latter two have to be specifically rejected.)

        1. Disclaimer language generally must be conspicuous, e.g., in capital letters or bold type; otherwise consumers (and others) may not be bound by it.

    3. Remedies/Limitations of Liability. Because claims by a disgruntled purchaser may be large relative to the amount of money the site owner is making from the transaction, the owner will frequently want to include various provisions to limit the owner’s liability.

      1. Replacement or Repair. One provision that can be used expressly limits the purchaser’s remedy to replacement or repair of the goods or services at the seller’s option. If this is not done, the purchaser may go out on his/her/its own and replace or repair – at prices far higher than the owner would incur – and then try to force the site owner to pay for it.

      2. Consequential Damages. Another provision that can be added states that in no circumstances will the site owner be liable for special or consequential damages or lost profits (or lost data). Often the consequential damages (alleged lost profits, etc.) will be vastly more than the direct damage.

      3. Liability Limit. Yet another provision can state that in no case will the site owner’s liability exceed the amount paid by the purchaser. Obviously, this is to prevent damages that could otherwise exceed the amount the site owner receives from the purchase.

        1. This should be a separate paragraph from the disclaimers of warranty, since some courts that strike a disclaimer clause will also strike a limitation of liability clause if they are part of the same paragraph.

    4. Invalidity. Because some states (and countries) have laws limiting what can be done with disclaimers and limitations of liability (particularly with consumers), the agreement should include a provision saying language along the lines that if any provision is found to be void or unenforceable, then the narrowest portion possible is removed and the remainder of the agreement continues to apply.

    5. Jurisdiction and Choice of Law.

    6. Jurisdiction. The site owner should definitely have a paragraph stating that lawsuits (and arbitration) may only be brought where the owner’s headquarters is located; otherwise often the purchaser can bring litigation where the purchaser is located. Particularly if the owner is selling to purchasers who are widely scattered, the licensor will not want the risk of being sued all over the country.

      1. Choice of Law. The site owner also should have a provision stating that the law of its state will govern any disputes.

        1. In doing this it is important to say that the state’s law – excepting its conflicts of laws provisions – governs the agreement. Otherwise the state’s law regarding contracts made across state lines may put the litigation in the purchaser’s state.

    7. Arbitration

    8. Definitions. Arbitration, also known as "private judging", is where an arbitrator is appointed to hear evidence and make a decision that is generally binding on the parties.

      1. Advantages and Disadvantages. Arbitration is often faster and less expensive than litigation. In addition, while court cases are a matter of public record, arbitrations are private. Some also feel that arbitration tends to favor defendants somewhat more than litigation does, which may be an advantage to a seller. In any case, if arbitration (and/or mediation) is desired, it must be specified in the agreement.

      2. Class-Action Arbitration. The site owner may well want to ensure that the arbitration clause states that class-action arbitration is not allowed. Otherwise if there is arbitration, a number of other purchasers may join in.

    9. International Agreements

      1. International UCC. If the seller is selling goods to people or entities in other countries, the agreement should expressly exclude application of the United Nations Convention on Contracts for the International Sale of Goods (sometimes called the International UCC), which imposes a number of terms that the seller may not want. It applies automatically otherwise (at least in those cases where the "goods" are involved).

      2. Payment. Note that different countries have different rules about cancellation of credit-card charges; some have much easier payment-cancellation policies than the U.S.

      3. International Arbitration. Where a U.S. company selling to people or businesses with no assets in the United States and there is a chance that the seller will have to take collection actions for a substantial amount of money, the agreement should include an international arbitration provision.

        1. It is much easier to get a foreign court to enforce an arbitration award than a judgment obtained in the U.S. court system.

        2. If international arbitration is desired, the agreement needs to state that the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards will apply. Otherwise enforcement can be difficult.

          1. A list of countries that have signed the Convention may be found at http://arbiter.wipo.int/arbitration/ny-convention/parties.html

          2. Note that some countries do not recognize this Convention – and some countries make it impossible to obtain enforcement in any case.