News and Articles

Internet Law, Commerce and Liability

Erin Lloyd - Saturday, October 18, 2014

There is no denying the impact of the Internet on commerce. Many businesses utilize websites, social media, and other web-based platforms to promote their products and services. In fact, an entire industry has emerged comprised of what are now commonly known as “e-commerce” based business – entities that rely solely on the Internet as their means of engaging in commerce. Similarly, consumers are using the Internet as a primary source of information to make decisions on what they will purchase or from whom they will retain services – whether it is a simple “Google” search or an analysis of consumer reviews. Besides consumers, both employers and employees are increasingly making it a point to search the Internet before making a decision to hire an individual or to apply for a job. In this regard, websites provide an opportunity for businesses to connect to their customers/clients and future employees by instantaneously sending a message about their brand to the world.

Soliciting such a large audience requires businesses to be thoughtful of the obligations and responsibilities that go along with having a presence on the Internet. While creating a website for advertising businesses has become increasingly popular, entrepreneurs should be mindful of the potential for exposure to legal liability. Various federal and state laws govern businesses’ ability to advertise on the web. These restrictions depend in large part on the company’s location, where their customers live, and the industry in which they operate.Special consideration should be taken by businesses that actually engage in e-commerce (selling goods or services over the Internet), since their activities may involve more legal issues than a website that merely uses the web for advertising purposes. However, even websites that are only created for advertising purposes should be mindful of best business practices to protect themselves from liability.

Since these considerations are more general, this article will explore the general business and legal issues for non-e-commerce websites first, followed by a separate analysis specific to e-commerce websites, and finally some general considerations for both.Finally, each business is unique and the information provided in this article should not be relied on as legal advice, so an individualized and customized legal review of your website and business is recommended. 

Non-E-Commerce Websites

To begin with, just about anyone in the world can visit a website.Since a website is the face of your business, and is created for a particular purpose, a business should actively control and limit the activity that can take place on its website and be thoughtful of the legal implications triggered by the mere use of a website site.For the purposes of this article, a non-e-commerce site is referred to as a “banner site.”Some businesses that initially start off using a website simply as a “banner” page sometimes decide to use the data from their site in a more sophisticated manner.For example, some businesses analyze the traffic on their site, including the search terms that get consumers to their page to make marketing and other strategic growth decisions.Some businesses focus on search engine optimization (“SEO”) – meaning having a business or name appear at the top of the list of any search done on common Internet search engines such as Google or Yahoo.Some businesses use customer data, such as email addresses submitted on their site, to send specific marketing and promotional materials.Some companies are in the business of buying and selling those customer lists. The point is that you never know how you will end up using your site in the future, so we recommend having a thoughtful infrastructure (terms of use, privacy and security policies, etc.) in place even for simple banner sites.Many of the considerations below are applicable to e-commerce based businesses as well, however, some distinctions applicable to e-commerce businesses are discussed in more detail below.Notwithstanding this, the following “infrastructure” ought to be considered by any business with a website.

Terms of Use

One of the most basic legal protections a business can include on its website is a “Terms of Use” agreement – also known as “terms and conditions.” This creates a contractual agreement between the website host and the user and ensures that both parties understand the circumstances under which the website and its information may be accessed and used. [1] Generally speaking, the Terms of Use should clearly state the policies of the site, the contractual rights and obligations of the site host and users, any legal notices or disclaimers required by state and federal law, and assert ownership of intellectual property.When visiting a website, the Terms of Use are typically displayed through a link at the bottom of a website.However, the more visible the Terms of Use are and the more interactive the host makes them (e.g., requiring a user to click “I agree” before proceeding), the more likely the terms of use will be enforced as a legal contract.Additionally, it is useful to state the Terms of Use in plain English and to keep the notices short and simple – this increases the chances that the average user will actually read through and understand them and thereby enhances the likelihood of the contract being enforced.

The point of creating an enforceable contract through the Terms of Use is twofold: to prevent the need for litigation down the road, and to protect your rights in the event that litigation becomes necessary.Any disclaimers that may be required of your industry by state or federal law should also be included here, unless they are required to be conspicuously posted on the home page. [2]

Security and Privacy Policies

A Privacy Policy serves to explain security practices to consumers and puts them on notice as to whether and how their information will be collected and used while visiting a website (such as whether cookies are used to track a user’s browsing history).Consumers have become increasingly aware of the use of their private information and actively look to these policies when determining whether to do business with a particular company.In this vein, a Privacy Policy can serve to assure consumers that their information will not be sold to a third party or used for any purpose other than providing the company with information on their customer base.Alternatively, companies that may want to reserve the right to collect and sell consumer information should be sure to do so within the Privacy Policy in order to prevent potential claims of privacy violation.

Businesses should also establish security measures to prevent against hacking and the theft of sensitive consumer information.In the event of a security breach, New York State law requires that businesses follow certain procedures to notify consumers whose private information may have been accessed by unauthorized parties. [3] Including a notice to consumers about what steps will be taken by the company in the event of a security breach is a good idea because it forces companies to flesh out what those procedures are and it assures consumers that the company takes security seriously. Consumers should also be advised that the website host makes no representations as to the security or validity of information that may be obtained through links that lead to other websites.

Moderation policy

If there is a blog related to the website that allows users to post comments, or any other forum for visitors to leave comments or reviews, there should be a clear policy of how contributions by visitors will be reviewed and approved.This helps to protect both the website host and the consumer from Internet “trolls” who post comments solely to harass and annoy others or comments that are misleading or violate the law.Additionally, posting clear guidelines on what sort of posts will be approved allows consumers to contribute valuable feedback to the benefit of the business and their client base.

Intellectual property 

Businesses seeking to protect their intellectual property rights should include notices that unequivocally claim ownership over all the language and material on the site, including the brand name. Providing these notices in a clear and understandable manner helps avoid customer confusion as to what rights and obligations are triggered when accessing a business’ website.

Protection your website’s intellectual property is one of the most important functions of the Terms of Use.This is relevant to all websites, no matter how big or small, because protecting your brand is the online equivalent of protecting your reputation.A few considerations to keep in mind when drafting your intellectual property notice: 

  • Content development: Be sure to execute written agreements with those that are contracted to provide or develop material for the website to ensure that the content remains the property of the website host.
  • Licensing: If stock photos are used, be aware of what type of license applies to that copyrighted material.Just as you do not want others infringing on your intellectual property, you should do everything in your power to avoid infringing on the property rights of another.
  • Copyrights: These protect works of authorship. 
    • Putting a copyright “©” notice at the bottom of your home page may deter others from using the language that is on your site, but actually filing for copyright protection of that material is the only way to secure your rights under Federal law in the event that someone copies your material and you decide to sue them for copyright infringement.Keep in mind, however, that copyrighting the material on your website does nothing to protect the brand name of your business.
  • Trademarks: These protect brand names and logos.
  • Prior to acquiring a trademark for your business, you should perform a trademark search to be sure you are not infringing on an existing trademark.
  • Using “™” next to your company name gives you minimal trademark protection and puts others on notice that you have already claimed the brand for use in commerce.
  •  
    For the highest protection available, your brand name should be registered with the USPTO, but keep in mind there are various additional considerations to take into account with that process (such as the application being rejected), which are outside the scope of this article.

    E-Commerce Websites

    For the purposes of this article, e-commerce businesses are generally entities that sell products or services exclusively through their websites, or who in large measure rely on the Internet to execute major portions of their operations.Many e-commerce based businesses are structured so that most of the interaction with the consumer takes place online.Typically, customers select the products or services they desire and complete their purchase all on a company’s website, which often includes selecting a method of delivery of the product. For issues or questions, customers can sometimes even communicate live electronically with customer service representatives through a chat system on the company’s site. Naturally, e-commerce businesses are subject to a higher potential of liability through their websites than a business utilizing only a Banner Site.At a minimum, the amount of customer data that is collected by such a business creates legal obligations for these businesses regarding the manner in which their customer data is handled and protected.

    While the general points discussed above are all applicable to e-commerce businesses, e-commerce websites also need to outline clear sales and return policies, be more stringent about their advertising practices, and comply with myriad federal and state tax laws.Due to these added considerations, businesses should strive to structure notices under the terms of use to resemble a binding contract as much as possible with the following considerations:


    Terms of Service

    In addition to the Terms of Use, e-commerce based websites should include a Terms of Service agreement.While the Terms of Use dictate the limits on the use of a website, the Terms of service govern transactions between the website host and the user.In other words, terms of Service define in more specificity the exact activity that is engaged in by the parties. Some important provisions to consider in the Terms of Service agreement also include choice of law and forum clauses, which allow the business to designate how and where disputes will be handled and are especially important for businesses that have customers based in other states or countries. By including these provisions, a company predetermines whether disputes will be handled through arbitration or litigated in court, and chooses a jurisdiction convenient to the company. In this way, businesses can often avoid spending precious time and money litigating customer grievances in a foreign state or country.

    Similar to the Terms of Use, the Terms of Service should be structured so that it stands the test of a challenge.Businesses should consider requiring consumers to affirmatively check a box manifesting their agreement with the Terms prior to placing an order or paying.These Terms should also ensure that consumers are of legal age to make online purchases and should be presented in a format that allows customers to save and print them to increase the chances that they are read and understood.

    Sales and Return Policy

    Customers placing an order through a website should be able to easily access the company’s Sales and Return Policy prior to completing a purchase.The terms of the policy should be clear and unambiguous and allow for customers to print and save them.Employing these safeguards will help avert customer confusion and the need to deal with complaints down the road.

    In New York, a company may not advertise or accept orders over the Internet for merchandise that cannot reasonably be shipped within thirty days, unless they conspicuously disclose in the online advertisement the potential for delay. [4]

    Taxes

    In addition to Federal tax, businesses venturing into e-commerce must be sure to comply with all local and State sales tax laws for the localities in which they engage in business or customers reside.

    Miscellaneous Considerations

    Advertising

    All websites are a form of advertising, generally speaking, and all business advertising in New York – on the Internet or another medium – is governed by General Business Law §§349 & 350.These statutes in sum and substance prohibit deceptive and fraudulent advertising.

    These statutes allow any individual deceived by advertising to sue businesses for deceptive advertising or to file a complaint directly with the Attorney General, who may choose to investigate and prosecute violators of the GBL. [5] These statutes, and others like them, bar many types of deceptive/fraudulent practices that businesses should be aware of.Some examples include:

      • Spamming – sending unsolicited emails in bulk.
      • Spoofing – falsely soliciting business through another person’s email account is considered fraud.
      • Astro-turfing – posting fake positive reviews for your own business.One company paid a $300,000.00 settlement with the NYSAG for astro-turfing. [6]
      • Adware & Pop-ups – Adware is the software that generates pop-ups, which are unsolicited advertisements.Those advertising through adware must provide users with full identification and descriptions of any adware downloaded on to their computers, and obtain their consent before downloading and running the software.
      • Burying notices – Notices to consumers that they have a right to know about cannot be buried in lengthy, fine-print web pages, such as automatic renewal charges.
      • Unsupported claims – Businesses cannot make unsupported claims and assume that they will be regarded as ‘mere puffery” rather than fraud, e.g., claiming to be the number one law firm listed on Google, but only showing up in searches 50% of the time.
      • Shill bidding – bidding on items you have put up for online auction in order to inflate the price.
      • Games of Chance – Statements must be filed with the AG for any games of chance that are used for advertising or promoting where the value of the prize exceeds $5,000.
      • Domain Names – cannot be registered if they use the name of another living person without their consent for profit.
      • Advertising to Children - In the case of businesses that are actively marketing to children, their websites must comply with the federal Children’s Online Privacy Protection Act (COPPA), which imposes certain restrictions on advertising directed to children under 13 years of age.

    Industry-specific legal notices and disclaimers

    Depending on the industry your business is engaged in, there are specific disclaimers required by law.Below is a list of some of the professions/industries and the corresponding statutes imposing such requirements. It is important for the implicated business to be in compliance with the requirements of these statute as it relates to their website.

    • -Doctors 
    • -Attorneys 
    • -Auctioneers
    • -Tax Preparer
    • -Consumer Credit Report
    • -Free Trial Offers
    • -Internet Dating Sites
    • -Peer to Peer Applications


    While this article attempts to provide a general analysis of the Internet, online commerce, and ensuing liability today, the fact is that technology is advancing at such a rapid pace that many of the points in this article will be become obsolete or irrelevant in short order. In fact, many of the laws that we now have on the books are already starting to come into conflict in some instances with the realities of e-commerce and are creating ambiguities with regards to the legal liability and exposure businesses face in this ever-changing environment. At the same time, the law is managing to adapt in certain areas of this new reality (albeit slowly), as highlighted in this article, and while this area continues to grow and develop, the obligation of businesses to remain compliant must also grow and develop.


    This article was prepared by Yogi Patel, partner Lloyd Patel LLP with the assistance of Susan Reyes (Summer Associate), August 20, 2014, for educational purposes only. The article is intended to provide general information on a wide range of issues, including but not limited to legal issues. It is not intended to provide specific legal advice and no legal advice is given. This blog does not create an attorney-client relationship and should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.


    [1]The enforceability of terms of use agreement as a contract depends on several factors, such as how visible the notice is on the site, how interactive it is (whether a user has to affirmative click to demonstrate their assent), how easy it is to understand, and whether the actual terms conform to the requirements of a contract (e.g., the terms are not unconscionable or illegal, etc.).

    [2]Where appropriate (depending on the content of a website), businesses should make sure that children under 18 years of age cannot access explicit material on their websites by including a notice that requires users to affirm they are over 18. For businesses actively advertising to children under 18, please refer to the advertising section below for a summary of applicable federal law.

    [3]N.Y. Gen. Bus. Law § 899-aa.

    [4]N.Y. Gen. Bus. Law § 396-m

    [5] http://www.ag.ny.gov/Internet/online-forms.

    [6] http://www.ag.ny.gov/press-release/attorney-general-cuomo-secures-settlement-plastic-surgery-franchise-flooded-Internet.

     

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