United States: 10 Important Considerations for Your E-commerce Business

Most companies are now either operating or considering an e-commerce business. No matter how compelling the opportunity, engaging in e-commerce typically poses risks that implicate a variety of legal issues and that span the laws of many countries. In this article, we identify and briefly discuss ten important issues that should be considered when you set up an e-commerce Web site.

1. Adopt a Strategy Concerning Business Method Patents.

In the U.S., patents can be obtained on business methods. These patents are now being applied for and issued in large numbers. Many implicate ways of doing business on the internet. For example, Amazon.com has received much attention for both its "1-click" patent (U.S. Patent No. 5,960,411) and its recently issued "affiliate" business model patent (U.S. Patent No. 6,029,141). The emergence of business method patents has made it imperative for e-commerce businesses to adopt a business method patent strategy. In particular, you should audit your e-commerce business to determine whether business method patent applications can be filed, even if there is no plan or desire ever to assert such patents against others. In the event that a claim alleging infringement of a business method patent is received, it is usually advantageous to have patents to assert or to offer as part of a cross-license. E-commerce businesses should also determine whether insurance policies and agreements with suppliers, content providers, etc., include sufficient protections against claims for infringement of business method patents.

An e-commerce business generally has agreements or arrangements with various providers and distributors of content, goods, and services. Each of these fulfillment agreements should be legally enforceable (preferably in writing), should extend for a sufficient length of time, and should set forth adequate service level obligations and volume commitments. For example, an increase in public awareness or popularity of a Web site can result in a surge of orders far greater than initially anticipated. When this happens, the providers and distributors relied on by the site may not be obligated, or even able, to accommodate the increased demand. Fulfillment agreements should address such contingencies and provide effective recourse for the Web site operator.

3. Make Sure that Rights to Computer Software Are Adequate.

An e-commerce business inevitably uses computer programs. Because these programs are often created, in whole or in part, by another company or by an outside consultant, having a written agreement is essential to ensure that your e-commerce business has adequate rights in the computer programs being used. For programs that your business has hired someone else to create (new programs or customized applications, for example), the written agreement should include provisions adequate to establish that your business owns the intellectual property rights in these programs, including all copyrights and patent rights. For commercial "off-the-shelf" software, the written agreement should include provisions that are adequate to authorize your business to use the programs in connection with its e-commerce activities. For example, you should make sure that the rights conferred are adequate to permit current and future affiliates and subsidiaries to use the programs, and to permit the continued use of the programs in the event of an IPO, a sale of the company, or a change in control of the company.

4. Make Sure that Your Rights to Use Trademarks, Brand Names, Logos, and Slogans Are Adequate.

Virtually every e-commerce Web site displays trade marks, brand names, logos, slogans, or other source designators. You should make sure that your e-commerce business has adequate rights to use these source designators at least in every country where business will be transacted. If your e-commerce business does not obtain rights in a particular country to use the source designators that you display on your Web site, your business runs the risk that someone else with rights to use a similar source designator could block your use of a particular source designator on your Web site.

E-commerce businesses typically display or provide access to content that originates with other sources, rather than the business itself. For example, a Web site may aggregate data or provide access to information supplied by others, may display photos or graphic images created by others, may play music or video clips performed by others, or may simply display a banner ad with the name or logo of another business. Whenever your business displays content that originates with someone else, you should make sure that your business has adequate rights to use the content, and adequate protection against claims by others resulting from your use of the content. In general, you should have a written agreement from all owners of rights in the content. That agreement should be broad enough to authorize the use of the content in connection with your e-commerce activities. It should also contain indemnity and warranty provisions that protect your business against claims by others resulting from your use of the content.

6. Consider Implementing a Privacy Policy.

A privacy policy describes the extent to which your business will safeguard certain personal information that it obtains, such as names, social security numbers, credit card details, residence or e-mail addresses, and telephone numbers. Even though your e-commerce business may not be required by law by protect personal information from disclosure unless your business extends to the European Union, adopting a privacy policy can nonetheless be beneficial. Such a policy will likely raise consumer confidence in your business by providing an affirmative statement that your business respects the privacy of information that customers submit. It will also serve as evidence that your business has expressly disclosed to customers what information is being collected and how that information may be used in the event that there is a claim that collected information has been misused. When a privacy policy is adopted, your business should make sure that adequate safeguards are implemented to ensure that the policy is adhered to both internally and by anyone who is given access to collected information.

7. Consider Implementing Enforceable Terms and Conditions of Use.

Terms and conditions of use typically describe what users of the Web site are permitted and not permitted to do, and what actions the web site operator may take against users who fail to comply with those terms and conditions. Though terms and conditions of use may not be legally required, they can provide certain benefits. In certain cases, such terms may provide some protection against claims by Web site users arising in connection with their use of the Web site. For any terms or conditions that are particularly important, you should consider increasing the likelihood that users will be legally bound to comply with them by implementing a "click wrap" procedure which requires users to affirmatively "accept" or agree to them before being allowed to proceed with their use of the Web site. Such procedures can be implemented, for example, using a pop-up screen that appears when a user seeks to access Web site pages from the home page, or by requiring users to submit a registration that includes an express acceptance of the terms and conditions.

8. Consider Implementing a Strategy to Protect Against Domain Name Piracy.

Any domain name that is not identical to a domain name that is already registered can be registered. Thus, even though you have successfully registered the domain name "YOURBUSINESS.COM", someone else can still register "YOUR-BUSINESS.COM". While the United States recently enacted the Anticybersquatting Consumer Protection Act to provide a new legal recourse against domain name pirates, e-commerce businesses should consider two fairly inexpensive measures that will help to deter cyberpiracy. First, a trademark registration should be sought for any top-level domain name used by your e-business. In many cases, a trademark registration will allow your business to resolve a domain name dispute – without having to go to court – by using ICANN dispute resolution policies. Second, because domain name registrations are fairly inexpensive (about $200), you can register slight variations of important domain names to prevent these variations from being registered by would-be domain name pirates.

In the U.S., if a dispute arises you may be sued in any state where you transact your e-commerce business. You could also be subject to a lawsuit in any state where your Web site causes an injury. Because your Web site is accessible outside the U.S., your e-commerce business is also exposed to the possibility of being sued in a large number of different countries. To reduce the possibility of lawsuits around the world, your business should consider implementing a policy regarding legal disputes. For example, where your e-commerce business is limited to specific states or countries, you should consider implementing a mechanism to prevent users located in other states or countries from transacting business on your site. These mechanisms can range from a simple territorial disclaimer such as "this Web site offers goods and services only to residents in the United States [or particular states] and is not intended to solicit or offer goods or services to residents of any country [or state] outside this area," to mechanisms that cancel orders based on user-submitted information. You may also want to consider requiring users agree to a specific dispute resolution procedure before they access your site. For example, using a "click wrap" procedure (see point 7 above), you could require users to agree that the law of a particular state or country governs any dispute, that disputes will be resolved by a particular dispute resolution process such as binding arbitration, or that any lawsuit must be filed in a particular state or country.

When entering into agreements related to your e-business, the provisions that set forth the terms of payment should be carefully reviewed. Where possible, avoid terms that tie the amount your business will pay to the number of hits, to the amount of traffic to your Web site, or to the revenue generated by your site. These provisions may be inexpensive initially, but as your e-commerce business grows, the magnitude of traffic to your site may cost your business far more than the service being provided is reasonably worth.