Advice to Widget Multimedia Ltd, who are considering commissioning a web site and using it for commercial transactions.
Article by Jonathan Berman.
Introduction.
The Internet is the largest network of computers the world has ever seen, connecting the user to computers all over the world. The reason that the Internet has exploded in the last 3 years is due to the World Wide Web (WWW) which allows the user to browse information by clicking on a point of information and to be taken instantly (mostly), for example, from a server in Cincinnati, containing the link, to one in Edinburgh where the information is held.
The Internet has gone through a number of phases. It began in the late 1960's as a solution for the US military to the problem of communicating after a Russian nuclear strike. It was then used by the Military as a general communications tool. Academic and other large organisations began to use it to exchange information and electronic mail (email). In 1993 with the advent of the WWW it became possible for ordinary people to use the Internet and to find information in a user friendly way. Up to this point commercial activity was completely prohibited by common consent.
We are now in the midst of the next phase, which is the Internet becoming a vehicle for International commerce. Before this transition is complete a few hurdles must be overcome. Amongst other things are the security of financial transactions, security in general and the technology being easier to use, for the average user.
Should Widget Multimedia Ltd be on the Internet and what are the dangers?
Widget Multimedia Ltd, a fictitious client has come to me for advice as they are considering having a presence on the Internet and allowing some of their employees to use the Internet. They intend to sell their products on the Internet and also will sell other of their products by conventional mail order, but orders will be taken on the WWW site. What follows is my advice to them.
Why is the Internet so important to your future?
- It provides a global communication tool.
- A web presence offers 24 hour availability to anyone from individuals to small companies up to the largest multinational Plc's - affordable, accessible, it offers a level playing field, never available before. The possibilities appear limitless.
- Provides a link to customers that is always available, as a source of information and a contact point, and it allows for instant updated information at very low cost.
- Email provides a cheap fast method of sending information around the world.
- The Net is not controlled by anyone, this may be both a good and a bad thing, but it is the ultimate democratic tool allowing almost total free speech.
- It is a great research tool but you need to sift the wheat from the chaff. There is no quality control however. It can be a great time waster.
In the not too distant future, if not already, it will be as nonsensical for a company not to have a web presence of some description, as for it not to be connected to the telephone system.
The dangers arise from getting involved without being aware of the implications of being part of the global village of cyberspace with the potential customer base of 60 million people which is growing exponentially on a daily basis. Nothing unique is being done on the Internet; it is merely being done in a unique environment.
Cyber law
This did not exist as a branch of law until very recently, if it in fact does exist. I will deal very briefly with the issues arising from the decision to have a presence on the Internet and the operation of the website and all that involves.
Procuring a website.
The issues here are mostly related to the contractual arrangements involving the design of the site, having it placed on a computer server and providing access to the site. To protect your interests, the design contract with the website designer should have a very clear specification of the proposed contents of the site, the time frame for the construction, payment methods (whether up front or in stages), acceptance testing during the construction of the site and final acceptance before the site goes live and agreement on the supply of content (text, graphics, video, logos, trademarks), with consideration of the copyright implications of the material provided.
You already have a catalogue of products and you are going to make this available on the WWW. You may own the copyright In the brochure but this may not extend to the same brochure being used electronically on your site. When the site is completed you must ensure that the copyright in the completed website is assigned to you by the designer. This will usually occur on final payment of the project price. There may be elements that the designer is not willing to assign, for example CGI scripts integrated in the site.
The contract should deal with the provision of access to the site as this will usually be by a third party. You want to ensure that anybody can access your site 24 hours a day. The designer will probably be maintaining the site once it goes live and be modifying it to keep it up to date. This contract will deal with the cost of this service as either being part of the design or as a separate contract. There should be provisions in the contract in the event that you decide to sever your relationships with the designer and/or the access provider by taking your site elsewhere. A properly drafted copyright assignment provision should make this possible.
Once your Website is live.
You must ensure that the designer has included all necessary disclaimers on the site to ensure that your copyright over the content is protected, that you are protected as far as you can be, by excluding liability in negligence for advice given on the site and any other appropriate disclaimers.
On-line contracts.
As you intend entering into commercial transactions via the site, you must ensure that the mechanism exists to establish a binding contract with your customers incorporating all the necessary terms and conditions, including setting out the jurisdiction for any disputes. You do not want to have to defend yourself in an American court if avoidable. You may need different contracts for "goods" supplied over the Internet as opposed to those you intend shipping by post. The recent case of St Albans v ICL has still not settled the question of whether software is goods or services. The court differentiated between software provided on a disk (goods) and that supplied over the Internet (services). This has implications with regard to terms implied into the contract of fitness for purpose and satisfactory quality, which differs depending on whether you are supplying goods or services.
You will need to comply with advertising regulations, consumer protection laws and financial services regulation. This gives rise to one of the fundamental issues of the Internet. If you aim your activity anywhere outside of the UK, which is likely, you may fall foul of regulations existing in any country where your site is being accessed. This issue is keeping many individuals and organisations busy at the moment.
Methods of payment.
What methods of payment are you going to accept from your customers? This is probably the most important issue preventing the commercial exploitation of the Internet. Customers are still reluctant to provide credit card details on the Internet, although Visa and Mastercard and others are working on providing a secure payment method. There will be moves in the near future to provide virtual cash as a method of payment, some form already exists today but is not very widely used.
Defamation.
Defamation is a real issue on the Internet if you allow people to post messages on your site or if your employees send email or leave messages on other sites. You should be aware of the UK Defamation Act which came into force on 4 September 1996 and ensure that you fall within the "innocent dissemination" defence which may be available, if what you are doing falls within the ambit of the Act. The Bill received much criticism when it was going through Parliament and we will require some case law to see how it will work in practice.
Employee use of the Internet.
You should ensure that your employees are fully versed in all the relevant issues involving use of the Internet and that your contracts of employment set out the consequences of not adhering to rules set out by the company for use of the Internet, which will become of feature of everyday use by company employees. Will you allow private email to be sent? Will you prohibit certain categories of information to be viewed, pornography, for example? What about virus checking of files that may be downloaded vie the FTP protocol? Should you be monitoring their activity to ensure that it is being used for work and not pleasure at your expense? It is worth remembering that under the doctrine of vicarious liability your company could be liable for the acts or omissions of your employees.
Trademark issues.
There is the possibility that you may inadvertently be infringing another company's trademark when you go on the Internet. This is another of the unresolved issues in cyberspace. A trademark issue may arise when you apply for a domain name (your website address, in the name of your company eg Widget.co.uk). You may find that this is already being used by someone else. Harrods are currently suing various people who are using Harrods.com. You may also consider trying to get the address Widget.com, which was originally reserved for US or Multinational sites but the registration has become more relaxed. It is prudent, prior to going onto the Internet to carry out traditional trademark searches and searches on the Internet.
Conclusions
Your company will have no choice but to have a presence on the Internet, which undoubtedly offers amazing business and communication possibilities. If you go onto the Internet without taking sound legal advice you will be seeking such advice to deal with problems that could have been avoidable.
We have devised template contracts covering all the issues involved in the Specification, Design, Maintenance and Operation of a web site. We provide in-house seminars on the legal implications involved in having a web presence. We are hosting a seminar for web designers and other interested parties on 13 November 1996.
Jonathan Berman is a lawyer with Sprecher Grier Halberstam, a firm specialising in computer and Internet law.
© This article is copyright Sprecher Grier Halberstam LLP 2008 and should not be construed as legal advice or opinion in any specific facts or circumstances. the contents are intended for generic information purposes only. You are urged to contact a suitably qualified lawyer for specific advice.