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INTERNET LAW - Legalities of a Website

E-commerce not only provided the opportunity to establish virtual-onlybusinesses but also created unlimited opportunities to expand trade for traditional brick-and-mortar businesses. But, just as traditionalbusiness entrepreneurs need to follow construction or city code rules

to set their businesses; the e-commerce entrepreneur need to trackwebsite legalities to avoid liability. While there is no specific rule or format establishing the precise requirements of a website, careful legaladvice may be noteworthy depending on the complexity of the e-business. For instance, websites offering banking or financialservices are subject to the general legalities of websites and to thosespecifically applicable to this industry. Websites offering professionallegal services are also subject to the general website rules and those

rules set by the respective Bar Association with jurisdiction on the professional hosting thewebsite. This article informs on the legalities or general requirements any e-business or websitemust follow in the United States.

As said before, there is no specific manual setting the legal requirements for a website. Most of 

the general rules applicable to a website are derived from a variety of laws like intellectualproperty, marketing & advertising, contractual & commercial laws, privacy, security, onlinepayments laws, and other criminal law statutes addressing specific issues like onlinepornography, cybercrime, identity theft, etc.

Website & Software Development

The first legal issue any e-commerce entrepreneur faces is the contract for the construction of itswebsite, including software. This contract deserves careful attention because detailed legalissues must be clear to the e-entrepreneur and the website developer. For instance, developingprice; development term, size and content of the site; functionality of the site, including flasheffects; software required by the site, and intellectual property rights on the design, images, andcontent of the site must be addressed. Among the above legal issues, the last two issues are the

most important issue to be considered. Some websites, (e.g. B2C, stock tracking sites, searchengines and portals) required the use of software. This is called 'Software DevelopmentAgreement" ("SDA"). A SDA must have clear clauses on who will own the intellectual propertyrights ("IP") over that software, including copyrights. A B2C site whose owner does not hold theIP rights on the software used by its virtual business, must at least know for how long thesoftware is licensed, if it could be renewed, confidentiality, security, jurisdiction disputes,responsibility of the developer, term of the agreement, if updates are included in the prices, etc.Losing the property rights on the software or its licensing agreement could imply ‘closing thevirtual business.' Additionally, the website owner must know everything about the IP rights onthe website design, images and content of his site. It is not attractive that an e-commerceentrepreneur starts his virtual business by infringing upon others" intellectual property rights onimages or content.

Hosting Contracts

The Hosting Contract is the second and obvious legal contract an e-business entrepreneur mustsign. The hosting company is the company managing the e-business functionality in a dailybasis. The e-business entrepreneur must know whether an alternate back-up server is available;whether service may be available 24/7; how problem shooting difficulties will be solved, especiallyin regards to time; how to face peak traffic hours; how content is going to be protected, andhosting terms and price.

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Some website developers offer packages that include hosting services. Thus, the website owner may not directly contract with the hosting company but he must know, at least, the above-mentioned terms of those hosting contracts.

Privacy & Security Policies

According to United States Privacy laws, websites handling personal information shall include itsprivacy policies in a visible part. Personal information refers to any information required toindentify the website user. For example, name, nationality, social security number, gender,address, phone number, credit card numbers, etc. The website shall have a specific sectioninforming users how their personal information will be treated, how their personal information isused, if there is confidentiality when providing personal information to the site, whether theinformation will be shared with other public or private institutions, whether the site uses ‘cookies'and log files (these are technological means to collect information without directly requesting theinformation from the user), among others.

If the website collects sensitive information like bank accounts, credit cards, etc., the websitemust inform their users on whether information is encrypted. Must B2C sites offer online payment

options; these sites must encrypt sensible information to avoid liability for mishandling of personaland sensitive data. In addition to encrypted data, some websites, especially those acceptingonline payments, use the services of third party certifying companies that verify and assure thesecurity of that site (e.g. VeriSign). These companies provide security certificates ("SSL") sousers are assured that the site and e-commerce company's network is protected. Signingcontracts with these security companies is a straight forward transaction when the e-businessdeals with an internationally known company.

Websites offering information for children less than 13 years of age must include a privacy policyaccording to Children Online Privacy Protection Act ("COPPA"). The site must inform thatverifiable parental consent is required before the website can disclose or use personalinformation about the child; and only online information necessary to the child's online activitymay be collected.

Term of Use Information

"Terms of Use" are the contractual terms between the website company and its user. Itexpresses the terms under which the user may utilize the website; what the user is allowed or isnot allowed to do. These terms refer to whether the user may copy, republish, download,distribute, reproduce, or otherwise use the content of the site. If the site links or publishes thirdparty content, it should also include a disclaimer as to the website's responsibility for thatcontent. The Website owner does not want to be responsible for third party's IP rights violations.Websites offering user accounts must also inform on how the account can be used, it shouldprovide a user name and password, the security of the site, and the rules for the account activity.

E-commerce sites holding e-commerce patents may also display this information on this section.

This may provide legal information to users as to the prohibition to copy the specific businessmodel since it enjoys IP protection.

Other Intellectual Property Issues

Besides the IP issues mentioned above, websites must vigilant on the domain name selectionand use of trademarks. The use of well- known trademarks as domain names may createconflicts for the website owner if he is not the holder of the mark. Domain name disputes may beavoided by carefully selecting the company's domain name. Otherwise, website owners may face

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liability under the Anti-cybersquating Consumer Protection Act ("ACPA") or face arbitrationproceedings before the Internet Corporation for Assigned Names and Numbers ("ICANN").

Additionally, the use of others' trademark on meta tags or keywords may bring IP conflicts for thee-business. These Meta tags are usually entered by the website or software developer but the e-business owner must be aware of this action because the e-business would be the one liable for 

trademark infringement. Yet, the IP laws of the U.S. establish exemptions to liability for the use of a trademark. Depending on the specific business model, it is worth to have legal advice on whenthe website may use those trademarks in Meta tags.

IP issues are also relevant for those websites offering content-only services. They must seekhelp from a legal professional to draft a Content License Agreement. These are complexagreements that must clearly specify the license, compensation, content provider responsibility,rights of the company receiving the service, rights of the content provider, ownership of thecontent, term of the license, termination causes, effects of termination, confidentiality, warrantyand indemnity, payments, jurisdiction and dispute mechanisms, rights on successors,assignability, severability, etc.

Other Legal Issues

Advertising and Taxation laws are the other two important set of laws any website owner mustreview. The United States Federal Trade Commission Act prohibits any misleading or falseadvertisement in the United States. Thus, the content of the site must clearly offer trueinformation as to the goods or services offered. If the website refers to some definite service likeprofessional or financial services they must also conform to the marketing rules of the respectiveregulatory entity. If the website offers products for adults only, like liquor or cigarettes, they mustinclude the respective disclaimer and information regarding the prohibition of sale this products tominors.

Taxation laws are some of the most important legal issues that a website owner faces.According to the United States Moratorium on Internet transactions, e-commerce cannot be taxedon their Internet transactions. Yet, e-commerce business may be liable for state sales and use

taxes depending on the jurisdiction where their users/buyers are located. For more informationsee the IBLS article titled: Are Online Businesses Subject to Corporate IncomeTax in the United States? 

INTERNET LAW - Legalities of a Website

IBLS Editorial Department Thursday, February 21, 2008 

E-commerce not only provided the opportunity to establish virtual-onlybusinesses but also created unlimited opportunities to expand trade for traditional brick-and-mortar businesses. But, just as traditionalbusiness entrepreneurs need to follow construction or city code rulesto set their businesses; the e-commerce entrepreneur need to trackwebsite legalities to avoid liability. While there is no specific rule or format establishing the precise requirements of a website, careful legaladvice may be noteworthy depending on the complexity of the e-business. For instance, websites offering banking or financial

8/7/2019 INTERNET LAWghj

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services are subject to the general legalities of websites and to those specifically applicable tothis industry. Websites offering professional legal services are also subject to the generalwebsite rules and those rules set by the respective Bar Association with jurisdiction on theprofessional hosting the website. This article informs on the legalities or general requirementsany e-business or website must follow in the United States.

As said before, there is no specific manual setting the legal requirements for a website. Most of the general rules applicable to a website are derived from a variety of laws like intellectualproperty, marketing & advertising, contractual & commercial laws, privacy, security, onlinepayments laws, and other criminal law statutes addressing specific issues like onlinepornography, cybercrime, identity theft, etc.

Website & Software Development

The first legal issue any e-commerce entrepreneur faces is the contract for the construction of itswebsite, including software. This contract deserves careful attention because detailed legalissues must be clear to the e-entrepreneur and the website developer. For instance, developingprice; development term, size and content of the site; functionality of the site, including flasheffects; software required by the site, and intellectual property rights on the design, images, and

content of the site must be addressed. Among the above legal issues, the last two issues are themost important issue to be considered. Some websites, (e.g. B2C, stock tracking sites, searchengines and portals) required the use of software. This is called 'Software DevelopmentAgreement" ("SDA"). A SDA must have clear clauses on who will own the intellectual propertyrights ("IP") over that software, including copyrights. A B2C site whose owner does not hold theIP rights on the software used by its virtual business, must at least know for how long thesoftware is licensed, if it could be renewed, confidentiality, security, jurisdiction disputes,responsibility of the developer, term of the agreement, if updates are included in the prices, etc.Losing the property rights on the software or its licensing agreement could imply ‘closing thevirtual business.' Additionally, the website owner must know everything about the IP rights onthe website design, images and content of his site. It is not attractive that an e-commerceentrepreneur starts his virtual business by infringing upon others" intellectual property rights onimages or content.

Hosting Contracts

The Hosting Contract is the second and obvious legal contract an e-business entrepreneur mustsign. The hosting company is the company managing the e-business functionality in a dailybasis. The e-business entrepreneur must know whether an alternate back-up server is available;whether service may be available 24/7; how problem shooting difficulties will be solved, especiallyin regards to time; how to face peak traffic hours; how content is going to be protected, andhosting terms and price.

Some website developers offer packages that include hosting services. Thus, the website owner may not directly contract with the hosting company but he must know, at least, the above-mentioned terms of those hosting contracts.

Privacy & Security Policies

According to United States Privacy laws, websites handling personal information shall include itsprivacy policies in a visible part. Personal information refers to any information required toindentify the website user. For example, name, nationality, social security number, gender,address, phone number, credit card numbers, etc. The website shall have a specific sectioninforming users how their personal information will be treated, how their personal information is

8/7/2019 INTERNET LAWghj

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used, if there is confidentiality when providing personal information to the site, whether theinformation will be shared with other public or private institutions, whether the site uses ‘cookies'and log files (these are technological means to collect information without directly requesting theinformation from the user), among others.

If the website collects sensitive information like bank accounts, credit cards, etc., the website

must inform their users on whether information is encrypted. Must B2C sites offer online paymentoptions; these sites must encrypt sensible information to avoid liability for mishandling of personaland sensitive data. In addition to encrypted data, some websites, especially those acceptingonline payments, use the services of third party certifying companies that verify and assure thesecurity of that site (e.g. VeriSign). These companies provide security certificates ("SSL") sousers are assured that the site and e-commerce company's network is protected. Signingcontracts with these security companies is a straight forward transaction when the e-businessdeals with an internationally known company.

Websites offering information for children less than 13 years of age must include a privacy policyaccording to Children Online Privacy Protection Act ("COPPA"). The site must inform thatverifiable parental consent is required before the website can disclose or use personalinformation about the child; and only online information necessary to the child's online activity

may be collected.

Term of Use Information

"Terms of Use" are the contractual terms between the website company and its user. Itexpresses the terms under which the user may utilize the website; what the user is allowed or isnot allowed to do. These terms refer to whether the user may copy, republish, download,distribute, reproduce, or otherwise use the content of the site. If the site links or publishes thirdparty content, it should also include a disclaimer as to the website's responsibility for thatcontent. The Website owner does not want to be responsible for third party's IP rights violations.Websites offering user accounts must also inform on how the account can be used, it shouldprovide a user name and password, the security of the site, and the rules for the account activity.

E-commerce sites holding e-commerce patents may also display this information on this section.This may provide legal information to users as to the prohibition to copy the specific businessmodel since it enjoys IP protection.

Other Intellectual Property Issues

Besides the IP issues mentioned above, websites must vigilant on the domain name selectionand use of trademarks. The use of well- known trademarks as domain names may createconflicts for the website owner if he is not the holder of the mark. Domain name disputes may beavoided by carefully selecting the company's domain name. Otherwise, website owners may faceliability under the Anti-cybersquating Consumer Protection Act ("ACPA") or face arbitrationproceedings before the Internet Corporation for Assigned Names and Numbers ("ICANN").

Additionally, the use of others' trademark on meta tags or keywords may bring IP conflicts for thee-business. These Meta tags are usually entered by the website or software developer but the e-business owner must be aware of this action because the e-business would be the one liable for trademark infringement. Yet, the IP laws of the U.S. establish exemptions to liability for the use of a trademark. Depending on the specific business model, it is worth to have legal advice on whenthe website may use those trademarks in Meta tags.

IP issues are also relevant for those websites offering content-only services. They must seekhelp from a legal professional to draft a Content License Agreement. These are complex

8/7/2019 INTERNET LAWghj

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agreements that must clearly specify the license, compensation, content provider responsibility,rights of the company receiving the service, rights of the content provider, ownership of thecontent, term of the license, termination causes, effects of termination, confidentiality, warrantyand indemnity, payments, jurisdiction and dispute mechanisms, rights on successors,assignability, severability, etc.

Other Legal Issues

Advertising and Taxation laws are the other two important set of laws any website owner mustreview. The United States Federal Trade Commission Act prohibits any misleading or falseadvertisement in the United States. Thus, the content of the site must clearly offer trueinformation as to the goods or services offered. If the website refers to some definite service likeprofessional or financial services they must also conform to the marketing rules of the respectiveregulatory entity. If the website offers products for adults only, like liquor or cigarettes, they mustinclude the respective disclaimer and information regarding the prohibition of sale this products tominors.

Taxation laws are some of the most important legal issues that a website owner faces.According to the United States Moratorium on Internet transactions, e-commerce cannot be taxed

on their Internet transactions. Yet, e-commerce business may be liable for state sales and usetaxes depending on the jurisdiction where their users/buyers are located. For more information

see the IBLS article titled: Are Online Businesses Subject to Corporate IncomeTax in the United States?