ECOMMERCE

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What is e-commerce?

A very broad definition of e-commerce would encompass all commercial activity negotiated with the aid of electronic devices, including the promotion, marketing, supply, order or delivery of goods and/or the performance of services. E-commerce isn’t limited to transactions conducted over the Internet and extends to all business transactions perfected electronically involving Electronic Data Interchange (EDI).

However the primary focus of this section is on internet mediated transactions entered into by online traders entering into contracts for the sale or both physical items and digital goods and/or the provision of online services.

The unique distributed architecture of the internet, it’s packet switching technology, and communication protocols have given rise to a spectrum of unique legal challenges deserving of a separate body of law known as internet law or cyberlaw. Businesses involved in e-commerce face a variety of challenges in a number of areas of law which is still trying to catch up with new and emerging technologies.

IS THERE A SEPARATE LAW OF THE INTERNET?

Judge Frank Easterbrook’s famous quote “there is no more a law of the internet than there is a law of the horse’, has been under siege with the proliferation of books, courses and the development of organisations and international alliances to try to deal with the emerging body of cyberlaw.

Cyberlaw, (referred to variously as digital law, internet law, virtual law, or cyberspace law) is the body of law which has evolved to regulate activities which occur in cyberspace. The term includes the laws of electronic commerce (e-commerce), laws regulating consumer law, privacy law, spam, and online defamation.

E-commerce law is a composite of laws which touches on the validity of electronic contracts, the operation of electronic payment systems, aspects of intellectual property law, content regulation, security and cybercrime.

In resolving disputes involving online activities, including ecommerce disputes, the Courts are drawing upon ancient legal doctrines founded in tort, contract, principles founded in equity and newly enacted laws to resolve disputes arising from online activities.

Cyberspace law is a not an entirely new body of law; over a decade has passed since the advent of the world wide web, a term often conflated with the internet. On the other hand cyberlaw is still in the process of being established as Courts struggle to retrofit and strain ancient legal doctrines such as the torts of trespass and conversion to solve internet specific disputes.

The unresolved debate as to whether to regulate the internet at a global level, including proposals to establish a World Internet Court, have led some countries such as the US to enact their own special internet laws, one example being the US Anti-Cybersquatting Protection Act .

Courts are still dealing with the enforceability of clickwrap and browsewrap agreements, End User Licence Agreements (EULAs), Terms of Service Agreements (TOS) or Acceptable Use Policies (AUP), which have become ubiquitous in software and electronics contracts, and greeted by consumers with varying degrees of reverence and enthusiasm. Tensions are also apparent in dealing with the conflict between copyright and contract.

Numerous legal issues have come to the fore in recent years because of the interaction of copyright and contract, but the difficulties that have arisen in this context aren’t confined to copyright. They apply more broadly to a whole range of issues, calling into question what internet users tend to assume, namely that end user licence agreements, terms of service and browsewrap agreements are all valid and enforceable.

There has been a massive increase in the use of EULAs on the internet, signalling a shift from relationships occurring in a fully negotiated environment to one where users in an online environment are left with the alternative of being bound by the terms of the EULA or rejecting them wholesale.

Legal uncertainty abounds regarding the enforceability of features of these agreements. The legal recognition of clickwrap and browsewrap agreements grew out of the legal recognition of shrinkwrap contracts which were used primarily in the context of the sale of computer software. US Courts have, by and large, tended to accept that these contracts are enforceable (see ProCD v Zeidenberg, Hotmail v VanMoneyPie)

The enforceability of browsewrap agreements appears to be less certain, particularly under circumstances where a user is not given any opportunity or election to accept or reject them.

In the US, due to the growth of EULAs there was a legislative move to legalise them to encourage their enforceability via the enactment of the Federal UCC 2B which then became the Uniform Commercial Information Transactions Act (UCITA).

This was intended to be a code which could then be enacted by other US states, but has not proven to have been a success, with only two US States having enacted it. Secondly, even though the agreements themselves may be enforceable, as a matter of legal principle, their actual terms and conditions must also be acceptable under principles of general law.

In Australia, law review committees have questioned the enforceability of EULAs in terms of whether they inappropriately exclude rights granted under copyright law and in other specific areas of law.

There appears to be a dichotomy between what EULAs prescribe and how the Courts are interpreting the provisions of EULAs, which is particularly apparent in the context of cases involving inducement of copyright. This is also known as secondary liability, authorisation liability, or vicarious liability depending on the jurisdiction. ( See MGM v Grokster and Universal Music v Sharman.)

Although the above cited cases are copyright law cases, they have broader implications beyond intellectual property, raising the question whether website operators can merely contract out of intellectual and more importantly other legal rights, such as consumer laws, privacy law and content liability.

E-COMMERCE – A COMBINATION OF LAW AND CODE/TECHNOLOGY

Those engaged in e-commerce understand the need to come to terms with the practical, technological and legal challenges of operating online.

On the internet there are layers of code, rules and law which all interact to affect what kinds of activities you can engage in on the internet.

The idea of contracting online doesn’t arise just when you decide whether to enter into a legal contract to buy goods on the internet.

There is software code which can render contracts self-executing, so that your browser in effect acts as a human agent, due to the nature of the technology. Users have been held to have entered into a contract with a website owner agreeing to their privacy policy merely by virtue of having done nothing more than visiting that website.

An example of the increasingly important role that code plays in the online environment is digital rights management which is built into technology as discussed in the section on copyright infringement . Criminal offences now apply for dealing in devices which circumvent digital rights management software of technological protection measures which are aimed at physically preventing the copying of digital files. For practical purposes, these provisions allow owners of copyright to enforce contracts by the use of code built into their works without resorting to the legal system. However not all content which is protected by ‘code’ is in fact copyright material, or users may have fair use rights to the material.

However using certain software code or technologies ‘code’ can effectively trumping ‘law’, locking up works which don’t attract copyright protection.

LEGAL ASPECTS OF E-COMMERCE

The following are some of the legal considerations if you are considering engaging in any form of e-commerce:

1. jurisdiction, conflicts of laws, and how to deal with cross border disputes, register and where and how to enforce foreign judgements obtained from a court of law.

2. the formation of valid electronic contracts

3. whether clickwrap or browsewrap agreements used are valid and enforceable.

4. issues relating to identification and authentication of consumers you transact, security issues and the validity of digital signatures

5. the use of secure payment mechanisms

6. liability for spam, offensive content, and other potentially illegal content you either host or link to. (eg photos or text which infringe copyright, breach of privacy, defamatory material or defamatory or infringing copyright material either hosted or which you are linking to). With respect to intellectual property material hosted) – You may have a material hosted which infringes copyright under fair dealing or may be covered by the regime which exists for online intermediaries under the Copyright Act) See also hyperlinking, deeplinking, framing.

7. ensuring you understand the privacy regime and compliance issues concerning transborder data flows. Recall that when you are displaying photos online there is the issue of copyright and ownership, discussed here. There are also guidelines which have been issued by the State and Federal Privacy Commissioners on the use of photographs and websites in general discussed here. The issue of infringing photos may arise where you are dealing with customer photos or photos of products displayed on your website. This may only be an issue where you havn’t obtained permission. Often with photos owners may use watermarks or digital technology which prevents the use of their photos. There has been a recent innovation in reverse image search which enables a person to upload an image and find where it is being used on the web. The unique aspect of this is that it searches using the image itself. The tineye search engine is the first image search engine to use image identification technology rather than keywords, metadata or watermarks. When users submit a reference image, TinEye creates a unique fingerprint based on it’s composition and searches the billions of images for others with the same fingerprint or partial fingerprint match. This means it returns images that are the same as the original, as opposed to being images of a similar subject matter. It can find images of the original image which have been digitally altered which makes it a valuable tool for finding copyright infringers of photos.

8. the legislation dealing with content regulation on the internet

9. cybercrime

10. your obligations under consumer laws

11. an understanding of advertising and marketing law

There are also important legal considerations and the security of data with the advent of cloud computing solutions and the emergence of utility computing and platform-as-a-service offerings.

Recently, concerns over your liability for data stored in web-based applications have added another dimension fraught with complexities, with a large legal cloud looming over it.

Particularly where multiple clouds start talking to one another, the management and security of sensitive information held by enterprise cloud vendors becomes even more critical for businesses and consumers alike.

Developing your online presence

Depending on your business model you might want to establish a website of your own. The first step many people think of when building their online presence is to make arrangements for a web designer to build a website. However it is a good idea to do some research on the options available to you through free open source software that puts you in control of your own website such as Joomla and WordPress.

1. Register a domain name – register a domain name or domain name portfolio having checked relevant business and trade mark databases to avoid the risk of becoming involved in a domain name dispute.

2. Find a web host – Web hosting just means storing your website on a public server so it can be viewed by others on the internet. There are so many web hosting solutions to choose from. Some of the important factors are bandwidth, disk space, security, technical support, uptime and performance. A good cPanel will give you the option to install wordpress and joomla content management systems simply using an application called fantastico and this will enable you to expand your website as you develop it. Website templates which hosts offer are a good start but can be limiting.

3. Build your website using wordpress or employ a web developer to build your site

If you do decide to hire a web designer it is a good idea to enter into a web development agreement as oral agreements can lead to misunderstandings and differences in the expectations of parties. The term ‘website development’ itself may mean something different to the customer and the website professional. Web Developers often have interdisciplinary skills such as web, graphic design, copywriting, editing, security and SEO skills.

However web professionals may see “website development“ as being confined to the non-design aspects of building sites, namely the document production aspect such as the HTML mark up and coding. It might also include system integration with third party applications such as chat and search engines, e-commerce shopfronts, or extend to backend systems, and the integration of existing customer applications such as legacy systems.

Most customers will want to frame their Website Development Agreement so they have exclusive ownership and control over the website, whilst a web developer may want to retain certain rights in his work. As with software developers, Web Developers often recycle components from project to project, and for convenience, have a uniform set of tools or library (both object and source code) which they apply for clients.

These tools may have been independently developed by them or licensed wholly or in part from a third party. Ownership can be a contentious aspect of an agreement. Any contract needs to be tailored to the parties’ needs but below are some of the things you might want to think about when arriving at a suitable agreement:

1. ownership over what is developed by the Web Developer and/or any Contractor/s engaged in the project development, including clauses dealing with ownership, assignment and licensing of intellectual property
2. clear and comprehensive design and performance specifications
3. clear, unambiguous development criteria including features agreed upon (eg platform selection, browser optimisation, desired level of security, use of tracking tools, software and technological measures eg dropdown and order devices
4. defined milestones, accompanied by a milestone delivery schedule, shadow site acceptance, delivery and launch of the site, with remedies for failure to adhere to same
5. clearly and objectively defined measurable acceptance testing criteria
6. agreed pricing structure, whether based on retainer or hourly rate, with provision for deferred payments or progress payments, and any additional specified services, eg registering domain names, hosting, SEO, website analytics, link maintenance
7. the parties’ respective liabilities for delays
8. clauses providing for agreed upon variations or modifications to scope of project
9. quality assurance standards and tolerance measures in respect of software bugs, imperfections, and interoperability issues
10. a clause providing for source code to be placed in escrow in the event that the Developer refuses to supply access to it
11. an Intellectual Property indemnity from the Developer for legal action taken by a third party whose intellectual property rights have been infringed. A website developer may equally request a similar indemnity from customers providing IP to be incorporated into a website.
12 hosting standards, where relevant, eg accessibility, server response times, bandwidth capacity and operation, content control, site backup, site downloads, administrative and technical contact points
13.clauses to provide for non-disclosure of confidential information divulged by the customer to the developer for the purpose of the project
14. post-termination duties, including maintenance services, if any, to be supplied, such as periodic updates, checking of hyperlinks, provision of support services, agreed procedures for transitioning to a new provider to minimise business interruption
15.provision of periodic copies of websites in development to minimise data loss occasioned by an urgent forced transition to another developer
16. limitation of liabilities to the extent permitted by law for software quality and performance including monetary risks, data losses, viruses and system security breaches

You should negotiate to maximise your ownership over any software or source code used produced by the Web Developer, or consider an open source solution. The objective should be to assert the maximum degree of control over the ownership of your website, any software programs and code. As stated in the section on copyright ownership, whenever a copyright work is commissioned for valuable consideration, default ownership rules vest ownership in the creator of a work in the absence of an agreement to the contrary, subject to limited exceptions. To be binding under the Copyright Act such an agreement must be in writing and signed by the parties. S196

Ensure assignments are properly effected in respect of any intellectual property and there are clearances in respect of IP licensed from third parties. Control of your intellectual property enables you not just to exploit your intellectual property to the exclusion of others, but also to make modifications, and effect minor incremental updates to your website without being at risk of infringing intellectual property rights.

What kinds of Intellectual Property Rights reside in a Website?

A whole host of IP may reside in a website depending on it’s level of sophistication. Websites may comprise not only graphic and textual elements, but also multimedia works in addition to databases and computer programs which hold the website together. The following are just some examples:

* copyright in the website as a compilation, an original literary work S10(1)
* copyright in any computer programs or compilation of programs as an original literary work (source and object code) S10(1)
* published edition copyright in the typographical layout and presentation of written material, including the juxtaposition of text, photographs and use of headlines. S88
* Copyright in individual literary, artistic, musical & dramatic works
* Copyright in various factual compilations (eg charts, price sheets, contact forms, customer databases, sets of links, delivery schedule tables) S10(1)
* Copyright in textual material, including but not limited to content, privacy, affiliate marketing and other policies, terms and conditions.
* Examples of artistic works appearing on websites - logos, drawings, diagrams, maps, photos, designs, fonts
* Copyright in audiovisual materials & multimedia presentations eg videos, podcasts, vlogs, separate copyrights for sound recordings, including copyrights in any underlying Part 111 works literary, musical, dramatic and artistic works embodied therein
* Patent rights in business methods patents
* Trade Secrets such as customer lists, confidential data, relationships with business partners, eg wholesalers, suppliers, distributors, retailers and agents
* Trademarks and trade dress including the get up, colour schemes and “look and feel”
* Registered Designs
* Licence rights over domain names

A useful preliminary step to developing a website development agreement, and ideally within the business development phase, is to conduct an IP audit to establish an inventory of all IP and related rights pertaining to your business. Once an IP register is established, databases can be used to maintain and monitor the maintenance and development of existing and newly developed IP, both registered and unregistered.

An organisational IP Policy is a useful adjunct to developing and maintaining control over your IP asset portfolio. Clean control over IP maximises and early resolution or prevention of any potential ownership conflicts, enhances your ability to exploit it by entering into licensing agreements with third parties, or exploring franchise opportunities in the context of any short and longer term business objectives. An effective commercialisation strategy relies upon control of IP, and to the extent to which your IP is published online, taking precautions, both legal and/or technological to protect it from misuse. Building a suite of IP will not only protect your asset base, but assist in attracting investors, Joint Venture partners and monetising your intellectual capital.

Ownership of IP is always a history lesson.

Disclaimer: This site is intended to operate purely as an informational resource, a general overview of intellectual property and other related legal issues arising online. It isn’t a substitute for professional legal advice from a lawyer certified to provide legal advice in your jurisdiction. Neither is it intended to create an attorney-client relationship. The law varies in each jurisdiction and we do not warrant the accuracy, completeness or usefulness of any material you read here.

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