Doing Business over the Internet

Contracts over the Internet

Contrary to what one might think, "writings" and "signatures" are not a significant problem.

  • Generally, an offer may be accepted "in any manner and by any medium reasonable in the circumstances." (U.C.C. 2-206(1)(a).) A signature is not required.
  • The so-called Statute of Frauds generally does require a "writing" if the goods are valued at more than $500 or the contract is not capable of being performed within one year. However, electronic transmissions that are recorded in a tangible medium should suffice. (U.C.C. 1-201(46). See also, People v. Avila, 770 P.2d 1330 (Colo. Ct. App. 1988): recording on computer disk is a writing.) However, copies (whether on disk or otherwise) should be kept of electronic acceptances.
  • The risk that the purchaser will deny entering into the agreement are probably no worse than dealing with credit-card transactions now. (1) For large or sensitive contracts, verifiable "digital signatures" can be used. (See, e.g., CivicLinkl; Verisign, Inc.) (2) For small charges (e.g. charging for access to an article or data), electronic cash systems are now becoming practical. (See
  • Special care should be taken to include a jurisdiction clause–or any litigation may be brought at the buyer's end. c. Interestingly, "Web wrap" licenses may be more enforceable than shrinkwrap licenses.
  • "Shrinkwrap" licenses are agreements that the purchaser accepts by breaking open the plastic encasing the product (as opposed to signing a license agreement).
    (1) Essentially, such licenses are valid in the United States if the purchaser has an opportunity to review the entire license prior to making the purchase. This can difficult, since generally companies want to use the exterior of the package for marketing.
    (2) If the entire license is not visible, it may not be sufficient to merely giving the purchaser a period of time (perhaps 30 days) to return the product for a full refund if the purchaser is unwilling to consent to the license. (The courts are split on this issue. Compare ProCD, Inc. v. Matthew Zeidenberg, 1996 U.S. App. LEXIS 14951 (7th Cir., June 20, 1996) with, e.g., Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3rd Cir. 1991).)
  • With online sales, one approach is to make the entire license agreement available on the Web page for review in an easily accessible place. Ideally, the purchaser should have to travel through the license agreement screen before being able to order.
  • Of course, any license agreement should contain disclaimer of warranty provisions and limitation of liability provisions. These must be in bold or in capital letters or otherwise highlighted so that they stand out from the rest of the text. Otherwise, they may not be effective.

Domain Names

With the increasing popularity of the Internet, a company may find that someone else has registered its name or trademark as the name of an Internet site (a domain name).

The best prevention is to register i) a federal trademark on the principal register or ii) the corresponding domain name as soon as possible. (Registering the trademark federally requires that the applicant already be using the mark across state lines.)

Domain names may be registered through Network Solutions, Inc. (InterNIC) via the following:

InterNIC will "freeze" use of a domain name if a complainant has obtained registration (not merely an application) of the name on the federal principal trademark register or on a foreign trademark register prior to the other party obtaining the domain name.

In other situations litigation is the only recourse.

Liability for Web Pages and Internet Providers

Two relatively recent cases imply that sites on the Internet–both service provider sites and Web sites–may have liability for infringing materials and defamatory remarks posted by visitors to those sites.

In Religious Technology Center v. Netcom On-Line Communication Services, Inc. (907 F. Supp. 1361, N. Dist. Cal. 1995) the Court held that Netcom might be liable for contributory copyright infringement because of an infringing posting made by a BBS user to a newsgroup through Netcom. The post was on Netcom's computer for only 11 days, but Netcom had taken no action during that period after the plaintiff told Netcom that the post was infringing.

  • The message is that if you are informed that a post is infringing, the safest course of action is to remove the post immediately.
  • What if you do not want to remove the post? The Court did admit that there is no liability where one "cannot reasonably verify a claim of infringement, either because of a possible fair use defense, the lack of copyright notices on the copies, or the copyright holder's failure to provide the necessary documentation." However, in Netcom's case, the Court allowed the lawsuit to proceed to determine if Netcom had acted reasonably. In other words, if you decide to leave the post because you believe one of these defenses applies, you may well have to prove that your decision was reasonable.

In Stratton Oakmont, Inc. v. Prodigy Services Co.(1995 N.Y. Misc. LEXIS 229) the Court held that Prodigy was liable as a "publisher" for a defamatory statement posted by a user because Prodigy exercised editorial control over its bulletin boards by editing posts for "offensiveness and bad taste." However, the Court also found that bulletin-board operators who did not edit their boards would not be liable for defamatory postings made by their users.

  • On the other hand, it is likely that the new Communications Decency Act (47 U.S.C. 223), which went into effect on February 8, 1996, effectively overruled this decision. Among other matters, the Act provides that "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider."
  • However, this provision–which may be limited to "protection for 'Good Samaritan' blocking and screening of offensive material"–has not yet been interpreted by the courts, and it is not clear how much protection it will provide.
  • Editing for other reasons–e.g., because of disagreement with the author's point of view–might bring classification as a "publisher" again.

Content Ownership

The "fair use" exception to copyright infringement generally does not apply in commercial situations.

(Essentially, the "fair use" exception allows the free use of a portion of another work for purposes of commentary etc.)

Also, the fact that a work is available online and shows no copyright notice does not necessarily mean it is in the public domain.

  1. Copyright notices used to be required under U.S. copyright law. However, since the U.S. acceptance of the international Berne Convention on copyright became effective on March 1, 1989, a copyright notice is no longer mandatory.
  2. Using a copyright notice is still strongly recommended, however.

Permission to use material may have to be obtained from multiple rights holders. With a film clip, for example, performers, writers and musicians may hold rights in addition to the film company.

  • Also, certain rights to a work may be in the public domain while others are not.
  • In addition, the owner of a new work based on a public-domain work may well have copyright rights.

"Moral rights" of authors/artists (to prevent changes in their works) may also pose problems, particularly internationally. Assignments of rights should include a specific transfer of moral rights.

In general, a "work for hire" agreement should not be relied on to transfer ownership rights; assignment agreements should be used instead or in addition.

Internet and E-mail Use Policies.

An employer may be held liable for an employee's Internet transmissions containing defamatory or harassing statements, infringing material or sexually explicit matter.

In addition, an employer who reviews employee electronic transmissions may run the risk of violating an employee's reasonable expectations of privacy. (See generally, O'Connor v. Ortega, 480 U.S. 709, 718-20.)

An e-mail policy that reminds employees that the e-mail system belongs to the employer and that the employer has a right to examine all e-mail goes a long way to eliminating any expectation of privacy.

Among other items, the policy should specifically prohibit use of the e-mail system to transmit any defamatory, threatening or obscene material. Ideally, of course, the employer should have the employees sign a form acknowledging the employer's right to access all e-mail messages, though that may not be workable in all situations. Some employers even post brief notices that appear when the employee accesses the system.

Use of Personal Information

In general, the Electronic Communications Privacy Act ("ECPA") prohibits anyone other than the sender and the intended recipient of an electronic message–including Internet service providers–from intercepting, accessing or disclosing the contents of the communication. (18 U.S.C. 2511 and 2701.)

The two main exceptions to this are when:

  • At least one party to the communication gives prior permission.
  • The information is necessarily related to the providing of the service or to protection of the rights or property of the provider of the electronic communications service. (For example, the employer can monitor employee e-mail to ensure that proper service is being provided to customers.)

Taking information from customers–even from their Web searches–may be a problem unless the user consents in advance. Ways to accomplish this include i) providing a notice that appears on the screen each time a user activates the service that informs the user how the information will be used or ii) including a consent clause in any agreement that the user is required to enter into before using the service.

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Copyright 2004 Bruce E. Methven, All Rights Reserved.

The foregoing article constitutes general information only and should not be relied upon as legal advice.