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. Actually, 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.
But First – Why Customized Terms and Conditions Are Critical
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 the legal risks associated with particular websites differ dramatically. Consider a dating site. The typical dating site faces the following legal issues:
- Members defaming each other,
- Members uploading content that violates intellectual property rights of other parties such as images,
- Members spamming other members,
- Members posting comments or images that are obscene or rude,
- Members harassing one another, and
- Members meeting and assaulting each other offline.
Don’t think these types of issues arise and are serious problems? Match.com would beg to differ.
In 2010, Mary Kay Beckman was introduced to 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. The case was ultimately dismissed based on the disclaimer of any such duties in the terms, but Match.com and other large dating sites were investigated by the Attorney General of California – ultimately agreeing 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,
- When and how refunds are handled,
- When and how returns are handled,
- The rules around customer reviews of products,
- Creation of language allowing the use of user reviews in store and marketing materials,
- What occurs if a customer account is hacked and illegal charges are made,
- 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 carefully the relationship between users and your business in a manner favorable to the online business. 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.
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, the language must be 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 it cannot be enforced because of simple fairness issues.
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 conduct 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 expensive, but less so. Online and offline businesses should always strive to direct disputes with customers and clients to arbitration. Arbitration proceedings are heard by attorneys and retired judges, both of whom are less likely to return judgments against the business. If a judgment is returned, the amount awarded is usually smaller than with a jury. Arbitration is also an excellent choice because it can be used to prevent class action lawsuits in certain situations.
Online businesses face an inherent difficulty with arbitration clauses, however. Courts have been loath to enforce such clauses when included in the terms and conditions for a website. The Supreme Court and other courts have passed down instructions on how the matter can be accomplished 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 very large judgment via a class action lawsuit.
Choice of Forum
The choice of forum clause is rarely mentioned 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 court house. 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 any and all disputes arising from the website will be heard. For our San Diego clothing company, the choice of forum would be designated as the Superior Court of San Diego. If a customer attempts to sue the clothing company in another court, the choice of forum clause can be raised as a legal challenge to the lawsuit 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 used in the clause must be carefully crafted and devoid of any ambiguity to prevent a judge sympathetic to a customer from ruling the clause invalid.
The media loves to glamorize situations where a large company or government agency is hacked. 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 Electronic Communications Privacy Act [18 U.S.C. Sections 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.
A better approach is to craft a clause in the terms wherein users agree not to hack or take other nefarious actions against the site. This prohibition includes everything from joining and then hacking the backend of the site to send spam to uploading malware to customer or member areas. If one of these events occurs, a simple breach of contract lawsuit can be filed against the offending party to recover monetary compensation for the damages caused to your business.
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 website in question like a snug coat in winter. Otherwise, you are risking everything.
Contact me today to discuss how terms and conditions can be used to protect your business online.
Richard A. Chapo, Esq.