WHY YOU NEED A "WEB SITE AUDIT," AND THE SOONER THE BETTER

Avoiding Lawsuits

New technologies drive businesses into frontier territories where, like the Old West, there are no rules and almost anything goes. Eventually, however, the law catches up - governments enact new legislation, old legislation is applied to new situations in new ways, and creative litigants bring claims that lead to new and unforeseen liabilities. When this occurs, established business practices become dangerously unlawful, almost overnight. Those who quickly adapt to the new rules of doing business prosper; those who do not, fail. It happened with the production line; it happened with plant automation; it happened with the proliferation of computers in the work place.

And now, at an unprecedented rate of change, it is happening with the Internet. If you have a web site - and who doesn't - you need to account for the new rules, risks and liabilities that are emerging at a dizzying pace from courts and legislatures. For many businesses, particularly those who use their web sites as something more than just a passive on-line brochure, their very existence will depend on how well they learn and implement the new rules of the game.

That's the bad news. The worse news is that there is no practical way for most business people to keep up with and understand it all. It is simply too hypertechnical and fluid. A little knowledge in this area is, truly, a dangerous thing.

So what do you do? Our answer to our clients has been to develop a "Web Site Audit" service. This involves periodically testing a web site against a carefully-prepared and researched checklist that encompasses the latest legal and practical requirements and risk-avoidance techniques tailored to the business in question. The audit results are then used to fashion and prioritize a "preventive law" plan that minimizes the web-related legal disasters that are becoming commonplace.

Set forth below is an overview of the major "Web Site Audit" checklist items that should be applied to almost any commercial web site. In future issues we will provide more details on selected "Web Site Audit" topics, and we will highlight the cases that the courts are handing down almost weekly, some of which have already surprised various web site operators into insolvency. Hopefully, this article will help you to avoid becoming one of the unfortunate examples from which the rest of us learn.

Do you really own the graphics and images on your web site? Many companies use independent web site designers to develop or revise their web sites. The companies are looking for graphics, images and design elements that will distinguish them from competitors and capture attention. However, the copyright laws provide that, absent an agreement to the contrary, the independent designer, not the company that hired the designer, owns the design elements that the company considers part of its proprietary corporate image. When the company tries to extend its graphics and images to a subsidiary, or sell them to an acquiring company, or use them in corporate sales documents or as part of a promotional campaign, copyright violations are triggered, and the consequences are ugly and expensive.
This is to be distinguished from a situation in which a company's bona fide employee develops the material; in that event, the company, and not the employee, owns the rights. But be careful - the distinction between a true employee and an independent contractor can get dicey.
Do you really own all of the written content on your website? The same holds true for written content developed by non-employee third parties: without the right kind of agreement going into the relationship, or an assignment of rights at the back end, you do not own your content. As a result, you can't use it in other media, you can't extend it to your next web site design, and so on.
Are you violating someone else's copyright? What happens if, without your knowledge or consent, your web site developer provides you with images, graphics or web content that was really authored by someone else? Surely you can't be liable for your completely innocent violation of someone else's copyright, right? Wrong. The copyright laws provide for what amounts to strict liability. If the copyright belongs to someone else, and the material is on your site, you are liable. You need to make sure you have indemnities from your web site designer, and that your web site designer has the wherewithal to protect you in case of a problem.
Do you really own the imbedded codes and applications on your web site? Web site designers will normally have in their design "toolbox" various HTML code, programs, JAVA applications and other intellectual property. They will want to retain all rights to these materials, which is fine, so long as they were not developed specifically for your web site and at your expense. But suppose these tools do not really belong to the designer? For instance, consider a situation in which your designer, in an engagement for a prior customer, wrote some code that creates a distinctive web site effect. The prior customer retained the copyright to that code in the fine print of its contract with your designer. Your designer, perhaps innocently, now uses that code on your web site. That makes you a copyright infringer. If the prior customer registered the copyright, you might be liable for $150,000 in statutory damages, plus counsel fees. Again, you need to review that possibility, and protect yourself against it.
Have you done all you can to keep the competition from copying your website? For many businesses, their web site is an important, maybe the most important statement of who they are and what they do. It includes images and design elements that are distinctive to the business, and serves to identify the business in the minds of customers. Yet, surprisingly, many companies do not do all they can to protect their website from being copied by the competition.
This is an extremely complex area that is still developing. Under current law, you cannot protect the "look and feel" of your web site, but there is still much you can do to protect its more tangible elements. First, you can copyright your website, which can provide significant protection. But do not just settle for a copyright notice at the bottom of the page - make certain you register your copyright with the Copyright Office. Although registration is not mandatory, it will provide you with the right to sue, the right to collect "statutory damages" of up to $150,000 per infringement (very handy when you cannot prove that you suffered actual damages), and the right to recover counsel fees.

You can also trademark certain elements of your web site (including, in some cases, your URL), and obtain rights against those who might seek to capitalize on your good will and reputation, diverting business from you in the process.

There are many other protective devices you can employ which are beyond the scope of this overview. This is an exceedingly important area on any "Web Site Audit" checklist, and deserves the utmost attention from any business with a web site that it values and intends to use in the future.
Have you considered patent protection for your web site business methods? In July 1998, a federal court reversed a 100-year old rule prohibiting patents on business methods. This has led to a flood of business method patent applications - 1,300 were filed in 1998, and 2,600 were filed in 1999. Amazon successfully patented its "one-click" shopping method (and has since obtained injunctions precluding others from using it), Dell has patented various aspects of its web site selling methods, and so on.
This is a highly controversial area in which the Patent Office is being subjected to incessant criticism from those who believe that such methods should not be patentable. However, if you have a business method that is valuable, original and unique, you should carefully explore the viability of this sort of protection. A patented business method can be one of your most valuable business assets.
Have you educated those responsible for design and content regarding trademark, copyright and patent risks? Educating upper level management is important, but it is not enough. If your employees are responsible for any aspect of your web site, you need to educate them against the potential risks. This can and should be done by a training program. For instance, a training session for our clients' content managers and designers takes an hour - it can be done over a lunch. If you do it twice a year or so, you will keep risk avoidance in the forefront of their consciousness. They will see the "red flags" in copying content from another web site into your web site; they will understand how to contract with independent contractors; they will understand the risks in imbedding certain links; and so on.
Do you monitor references to your site, or your copyrighted, trademarked or patented materials, on other sites? As a web site operator, you need to monitor other web sites to see if they are infringing on your intellectual property. Put key terms into various search engines and see what turns up. The failure to diligently protect copyrighted or trademarked materials can diminish your rights.
In addition, note that some search engines are set up to trigger "pop up" advertisements in response to certain terms. For instance, Playboy Enterprises sued the Excite search engine after discovering that in response to the search terms "playboy" or "playmate," Excite displayed advertisements for hard core pornography.

Also, you should search newsgroup postings, which can be done through www.dejanews.com.
Are you being victimized by unlawful "meta-tags" or similar techniques? A "meta-tag" is an imbedded instruction in a web page that can be used to influence a web browser. It is invisible to the reader of the web page. Here's how it can work. Suppose World Wide Durmish is the leading durmish manufacturer. National Durmish, a start up, wants to break into the market. National Durmish places a meta-tag which includes the term "World Wide Durmish" in its web site. The result is that when a customer searches for "World Wide Durmish," the customer will also get National Durmish in the search result. The use of deceptive meta-tags can also influence certain browsers to place a web site higher in the list of search results which, given the fact that most customers focus on the top web sites reported by the browser, can be extremely important.
The extent to which such use of meta-tags can be unlawful is complicated and evolving, but every popular web site operator must be on guard against the possibility that customers are being driven to other sites through these kinds of tactics.
Are you being victimized by "typo sites"? Type www.amazn.com into your browser, and you won't get Amazon, the book seller. Type in www.eebay.com, expecting to get E-Bay, and you won't. Human creativity knows no bounds. The law is starting to develop in such a way as to provide some protection against those who capitalize on typos. Make sure you are not being victimized by such sites.
What about links to other web sites? A link in one web site to another web site is not itself illegal, and is characteristic of the World Wide Web. However, in some instances, the link can be deceptive. For example, a link in architect A's web site might lead to an image of a building designed by architect B. That link might be used to show an example of a type of structure, but it might also be used to mislead the web site visitor into believing that the building was designed by architect A.
Often, the "click here" instruction makes it plain that the web site visitor is being directed to someone else's web page, and there will be a logo on the web page to which the link leads that makes the situation plain. But that is not always the case. In addition, some web sites include what are known as IMG links, which instruct one web page to automatically display content from a second web page - to the web page visitor, it will all seem to part of one web site, which could be misleading. Moreover, even if the visitor knows that the link leads to someone else's web page, the use of the linked web page might be unauthorized, or constitute a copyright or trademark violation, depending on the context.

This is a developing area of law, and all that can be said now is that if you are linking to other sites without written permission, obtain advice of counsel.

Note that in the www.hotbot.com search engine, you can select "links to this URL" in the "Look for" pull down menu. Insert the URL of a particular page of your web site, and you can obtain at least some data regarding who is linking to it.
Are you aware of the jurisdictional and regulatory issues that arise from an "interactive" web site? "Jurisdiction" is a legal concept that determines whether, for instance, someone in Idaho can sue a Pennsylvania company in an Idaho court. Basically, the law says that the Pennsylvania business cannot be sued in Idaho unless, through its business activities, it has established "minimum contacts" in Idaho. The issue is important: if the Pennsylvania company is subject to jurisdiction throughout the country, everything from its insurance to its boilerplate terms and conditions must be reviewed very carefully.
Suppose a tourist from Idaho stops into your Pennsylvania bookshelf shop and buys a bookshelf. The Idaho customer takes it home, and two weeks later he claims that the bookshelf collapsed and caused serious injury. He tries to sue you in Idaho. You've never done business in Idaho. You will prevail in your claim that Idaho does not have jurisdiction over you. If he wants to litigate, it will have to be in Pennsylvania. Now let's say that you decide to sell your bookshelves over the web. You establish a web site out of your home, in Pennsylvania, and solicit orders from customers. You get an order from Idaho. You make delivery. Two weeks later, your customer says that your bookshelf collapsed and caused an injury. He files a claim in Idaho. Now what?

There's a good chance that you can be sued in Idaho. The cases are evolving, but the law seems to be heading in the direction of saying that, depending on the extent of interactivity, jurisdiction will be permitted wherever you do business over the web. If you are interactive to the extent of actually taking money from Idaho residents and shipping them goods on a regular basis, you will most likely be determined to have sufficient "minimum contacts" in Idaho.

It gets worse. Are you also subject to Idaho regulations? Do you need a license? What about taxes? What about insurance?

This is complicated. There are lots of qualifications and exceptions, and lots of cautions you will need to follow if your site is interactive, and not just informational. Consult counsel.
Does your site include message boards or chat rooms? Have you used the new "safe harbor" provisions to protect yourself? Suppose that to drive traffic to its web site, World Wide Durmish establishes a durmish message board and chat room on its web site. It hopes this will make it a place where durmish buyers come for information, thereby helping the company achieve industry-leader status. Suppose further that a visitor to the web site posts copyrighted materials on the message board and in the chat room? Can World Wide Durmish be held responsible for copyright infringement?
Absolutely. But there may be a preventive mechanism. The recently-enacted Digital Millennium Copyright Act provides a "safe harbor" provision which, when followed, may take World Wide Durmish off the hook. This federal Act was written mainly for Internet service providers who did not want to be liable for the unlawful ways in which subscribers might use their service. There is at least an argument to be made that a web site that provides services such as a message board and chat room also qualifies under the Act, however, and any web site that operates in this fashion should therefore take advantage of the Act's provisions. Basically, this requires posting a prescribed "terms of service" agreement, designating and registering an agent to receive infringement notifications, and establishing certain "take down" procedures when an infringement occurs. This is only a summary; the procedures and requirements are complex, the law is developing, and the process will require the assistance of counsel.

Message boards and chat rooms also raise the possibility of your site being used for defamation and other unlawful purposes. There is no guaranteed "safe harbor" against such liabilities. Web site operators must establish and post appropriate policies, and must monitor the site for improper use utilizing criteria established by counsel.
Does your site properly display your "terms and conditions" and "disclaimers" so they are legally enforceable? Chances are that when you sell whatever it is that your business sells - products, information, services - you have some sort of standard agreement or term sheet or confirmation that includes the "boilerplate" that your attorney drafted. This "boilerplate" - i.e., your standard terms and conditions - can be of monumental importance. It is often the difference between business failure or survival. It can determine everything from your right to get paid, to whether and to what extent you can liable if something goes wrong.
In a face-to-face transaction, business people generally know how to deal with these terms and conditions (although this, too, is complicated, and will be the subject of a future issue of "Avoiding Lawsuits"). But what about your web site? How do you maximize the chance that your terms and conditions - the provisions that might save you from a million dollar verdict - will be effective?

The answer is that the terms and conditions must be posted in such a way as to become part of the transaction. How this is accomplished depends on the type of transaction. There are various ways to do this - for instance, requiring the customer to click through the terms and conditions as part of the transaction. What might not be enough, and what a lot of web site operators are depending on, is merely posting the terms and conditions in fine print, buried somewhere on the web site. It all depends on what you are selling, how you are selling it, and the nature of your web site. Plainly, however, this inquiry must be a key subject of any "Web Site Audit."

SUMMARY: The liability landscape for businesses with web sites is in the process of being charted. The stakes are enormous. Businesses with web sites must take appropriate action to minimize the potential liabilities on an ongoing basis. We believe the most efficient and cost-effective means to this end is a periodic, properly-constructed and implemented "Web Site Audit."

Powell, Trachtman, Logan, Carrle & Lombardo, P.C. is a full service law firm with offices in suburban Philadelphia, PA, Harrisburg, PA and Cherry Hill, NJ. Powell Trachtman represents a variety of commercial enterprises, entrepreneurs and business executives in respect to their litigation, litigation avoidance planning, business formation, business transactions, estate and tax planning, and other needs. We are also approved defense counsel for numerous insurance carriers in matters pertaining to professional malpractice, products liability, employment practices, directors and officers liability, and many other fields. For more information, contact us at info@powelltrachtman.com and visit our website at www.powelltrachtman.com.

©Copyright 2003 CCG Properties LLC. All rights reserved, except that recipients hereof are permitted, for noncommercial purposes, to provide copies or excerpts, with full attribution to us, to other interested persons for their personal use. Avoiding Lawsuits is distributed for general informational purposes only. It is not a substitute for personalized legal advice from a competent attorney.