Most people suggest doing business on the Internet carries little legal risk. Are they right? As an Internet business lawyer, I can tell you the answer is NO! [Yes, I’m yelling it.] The risks are no different than operating any business. The potential for legal problems is often higher because of the worldwide reach of the web. The good news is the terms and conditions for a website can limit the potential exposure you face running a business online.
Customized Terms and Conditions
Websites are all the same, so you should be able to use any old set of terms with your site, right? There are plenty of non-lawyers suggesting as much on the web. Pity they are utterly wrong.
The first thing to realize is websites face different legal risks. Consider a dating site. The typical dating site faces the following legal issues:
- Members slandering each other,
- People uploading content that violates intellectual property rights of other parties such as images,
- Members spamming other members,
- Individuals posting comments or pictures that are obscene or rude,
- Members harassing one another, and
- People meeting and assaulting each other offline.
Don’t think these types of issues arise and are serious problems? Match.com would beg to differ.
a. Match.com’s Bad Match
In 2010, Mary Kay Beckman met Wade Ridley through the “suggested match” system on the website. Beckman and Ridley met a few times, but Beckman decided to end it and move on. Ridley did not react well. After sending harassing emails to her, Ridley eventually ambushed Beckman in her garage stabbing her ten times and kicking her nearly to death.
Beckman sued Match.com for negligence, negligent misrepresentation, deceptive trade, failure to warn, and negligent infliction of emotional distress. She claimed $10 million in damages. A judge ultimately dismissed the case based on the disclaimer of any such duties in the terms, but the California Attorney General investigated Match.com and other large dating sites as well. Ultimately, the companies agreed to institute background checks.
If you run a dating site and do not address topics such as background checks and members meeting offline, then legal problems beckon. Sooner or later, members are going to clash and lawsuits will fly. Your terms must be expertly drafted to address the liability associated with these events.
Still think template terms and conditions are acceptable to use with your website? Let’s look at how the terms for an e-commerce site differ from a dating website.
E-Commerce Terms and Conditions – Addressing Your Customers
Whereas a dating site faces legal issues primarily related to member conduct, the terms and conditions for an e-commerce website are tailored more towards the direct interactions between the website and the customers.
Common issues you must address in the terms of an online store include:
- The pricing of products,
- Refund policy,
- Return policy,
- The rules around customer reviews of products,
- Creation of language allowing the use of user reviews in-store and marketing materials,
- Data security,
- Disclaimer of liabilities for the products and website,
- How to handle claims of counterfeit goods, and
- Bans against reverse engineering.
Do these issues look anything like those found in our previous list for dating sites? No. There are many different types of websites online, and each raises unique legal issues. The simple fact is the idea of using generic terms and conditions for a website is a recipe for disaster.
Okay, So How Do Terms and Conditions Protect Me?
Lawyers such as myself use terms and conditions to protect online businesses in two ways. The first tactic is to define the relationship between users and your business in a manner favorable to the company. The second technique is to maximize the rights granted by the user to you while minimizing the flow of rights in the other direction. Let’s look at a few critical areas where we implement these strategies.
A. User-Generated Content
User-generated content refers to any data uploaded to your website from a user – images, graphics, music, text, and even reviews of a product. Under antiquated copyright law, the user owns the rights to such content even though they have voluntarily uploaded it to your store. The terms and conditions for the site must contain a licensing clause both allowing the business to display the content as well as use it in locations the user may not have anticipated such as advertising.
However, legal counsel must draft language that is somewhat balanced. If the language is excessively one-sided, the result can be a social media backlash or invalidation by a court based on an “adhesion” interpretation. An adhesion contract is an agreement written by one party that is so one-sided that a court will not enforce it because of simple fairness issues.
B. User Conduct
The Internet has evolved to the point where most websites now allow users to interact with one another through anonymous avatars. One negative aspect of this anonymity is people tend to become “brave” and abusive. Bullying, harassment, racism, genderism – it all occurs online. As one famous author has said about selling his books on Amazon.com – “Never read the reviews.”
If your website allows user interaction, rules governing the conduct of users must be developed and then included in the terms and conditions. The rules should define the type of behavior that will result both in the removal of the corresponding statements from the site as well as the termination of the individual’s account. Language must also be included detailing how the business will respond to requests from legal authorities investigating the situation.
Litigation is expensive. Arbitration is also costly, but less so. Online and offline businesses should always strive to direct disputes with customers and clients to arbitration. Retired judges and attorneys decide arbitration hearings, not juries, and both of whom are less likely to return judgments against the business. If the arbitrator rules against you, the amount of money awarded is usually smaller than with a jury. Arbitration is also an excellent choice because a company can use it to prevent class action lawsuits in certain situations.
Online businesses face an inherent difficulty with arbitration clauses, however. Courts have been reluctant to enforce such clauses when included in the terms and conditions for a website. The Supreme Court and other courts have issued guidance in recent years, but it is highly technical. Terms and conditions that do not include the properly drafted language are at risk of being invalidated. This one decision can be the difference between your business minimizing the cost of a legal error or facing a substantial judgment via a class action lawsuit.
D. Choice of Forum
People rarely mention the choice of forum clause in discussions regarding terms and conditions for a website. What a pity. This single clause can neuter a lawsuit before it gets started and is particularly crucial in e-commerce terms and conditions.
Consider a business located in San Diego that sells clothes online to customers around the world. Any of those customers could file a lawsuit against the clothing company in their local courthouse. The company management is then forced to travel to New York, London, or some other location to defend the matter.
The choice of forum clause solves this problem nicely. It allows an online business to select the location where the parties must resolve all disputes arising from the website. For our San Diego clothing company, we would designate the Superior Court of San Diego as the choice of forum. If a customer attempts to sue the clothing company in another jurisdiction, we can object to the proceedings citing the choice of forum clause, and the court will often dismiss the case.
A choice of forum clause is controversial for the simple reason the language often deprives a person or business of their day in court. Given this, the language we use in the provision must be carefully crafted and devoid of any ambiguity to prevent a judge sympathetic to a customer from ruling the clause invalid.
E. Hacking Provisions
The media loves to glamorize situations where hackers successfully target a large company or government agency. What gets less attention is the fact smaller business sites are hit frequently by hackers, resulting in untold damage.
Laws such as the Computer Fraud and Abuse Act [18 U.S.C. Section 1030] and the Electronic Communications Privacy Act [18 U.S.C. Section 2510] exist to criminalize the practice of hacking. However, these laws are not a great foundation to build a civil case against anyone who hacks your site.
The terms and conditions for a website represent an incredibly valuable tool for protecting yourself when conducting business online. When launching a website, every business should spend the time and money necessary to work with an attorney to develop customized terms that fit the characteristics and practices of the site in question like a snug coat in winter. Otherwise, you are risking everything.
Contact me today to discuss how to use terms and conditions to protect your business online.
Richard A. Chapo, Esq.