Business Objectives: Digital delivery of goods and services: Sales, Payment delivery (on and offline), Dialogue or interactive services
Digital Sales of Goods and Services
The Internet has become the paradigmatic mechanism for delivering digital products and services. Based on universally accepted protocols, design and interconnection standards, the Internet and its glossy, interactive progeny the Web, have created a unique mix where the marketplace and the mode of value exchange occupy the same space.
The unique business mix formed by the Internet and Web also creates an interesting paradox for business owners and their lawyers. As an example, a customer may download an update to a particular software package that may have been purchased at a local retailer. Even in this simple example there may be several if not dozens of different service providers and vendors.
Generally, there are issues of whether the electronic fulfillment satisfies the retailer’s contractual obligations to the customer. For instance, what if the online download service becomes unavailable? What are the procedures for ensuring systems compatibility requirements are met? Are there customers in different geographic areas that require instructions tailored to their local language?
Fortunately, many of these issues can be addressed due to the fact that you have a captive audience. This provides you an opportunity to remind the customer of the terms of sale to using a click through agreement. In addition, the customer should be able to access the terms of use for the Web site from any page within the Web site. Ensure that sale terms and conditions are consistent with terms and conditions stated in the Web site terms of use. Consider additional terms that may apply only to electronic transactions. Depending on how the transaction is structured, you may have to give the customer an opportunity to reject the terms and receive a refund.
Which of course raises the issue of how returns and refunds will be addressed. What are the delivery and return mechanisms (e.g. download, FTP, email)? Are they secure? Is the integrity of the delivery itself protected? To protect yourself, ensure that you are using appropriate underlying technology. Draft your contracts to address faulty delivery or unavailability. In addition, make provisions for support, be it online, telephone or in-person.
Lastly, a key area of concern for any Web site is the accuracy of the content. The law is clear that the original publisher of any media, i.e. newspaper, magazine or Web site, is responsible for the accuracy of the material they publish. You should take steps to ensure that all material on your Web site is complete, accurate and up-to-date.
Traditional (Offline) Delivery
The sale of tangible products through the Internet is comprised of selection, ordering and payment. Tangible products are then shipped using the traditional ground freight method. The issues here are geographic availability of the product, channel conflict (e.g. whole sale versus retail sales and distribution) and issues relating to the existence, enforceability and fulfillment of contracts entered into online.
To avoid “jurisdictional entanglements” clearly indicate on your Web site which geographic areas are eligible and localize content to ensure comprehension and enforceability. Finally, do not process transactions from ineligible locations. To avoid channel conflicts, examine the PAC pricing structures between online and offline distributors/vendors of your product.
Since there is no paper contract to memorialize an online transaction, the following basic contract issues arise: 1) what are the contract terms, 2) what constitutes contract acceptance, 3) how can these terms be enforced, and 4) what payment method will be used and how is security maintained. The terms of an online sale should mirror those of a traditional sale. Ensure that online terms are consistent with on-the-package product warranty and limitation of liability information. Again, issues of return and refund must be addressed, see above. Although there is case law holding that payment, acceptance and use of a product purchased online are a form of assent to the contract terms contained on a Web page, a FAR better approach is to have the customer view a click-through agreement and affirmatively accept or reject the terms of the sale. Here too, additional links to the Web site terms of use and privacy policy should be included.
Enforceability issues usually involve unsatisfactory product performance and warranty claims. Examine your warranty and limitation of liability provisions carefully. Check local and statutory laws on consumer protection.
Payment processing and security are two of the most often asked about issues in ecommerce. Consult an information technology expert about your transaction methods and software. Consider alternatives such as telephone orders. Ensure that encryption tools comply with government regulations. Have policies in place for addressing fraud and nonpayment issues.
Lastly, ensure that personal data collection policies are clearly worded and conspicuous.
Online Delivery
In addition to almost everything that was said above, pure online sales, payment and distribution raise additional concerns. Digital content, whether it is text, music, or even video, is easily duplicated, altered and distributed in vast amounts with little hassle. Licensing of content is ripe for piracy and unauthorized use.
Audit your intellectual property (“IP”) (copyrights, trademarks and patents) to determine whether you have done all you can to protect your IP assets. Make sure you have the right to duplicate or distribute third party products.
Verify that the license you are granting indicates the duration, geographic scope, assignability and materials to which it applies. Check for channel conflict (see above).
Recent efforts to protect against piracy or unauthorized use have been met with limited success. One should ask whether the material should be delivered online at all and what the value of online delivery is versus the potential risk of unauthorized use or piracy. Ask yourself how, if, when and whether you will be able to enforce your rights and remedies.
Dialogue or Interactive Services
Once the only function of the Internet, communication services have evolved from machine-machine to person-person and person-community. No longer constrained by geographic or temporal bounds, global communities exist and interact online.
Immediately apparent are the issues of geographic availability of interactive services and communities. Clearly indicate on your Web site what geographic areas are eligible, localize content to ensure comprehension and enforceability as well as compliance with local laws.
Finally, do not process transactions from ineligible locations. To avoid channel conflicts, examine pricing structures between online and offline distributors/vendors of your product.
Since Web site operators can be viewed as “publishers”, there exists the possibility of liability for messages posted on Web site common areas or “forums” by third parties via bulletin boards, chat rooms or listservs. Section 230 of the Communications Decency Act of 1996 (CDA) prevents Web site owners and Internet service providers from being treated as the publisher or speaker of any information provided by another content provider. The CDA also protects Web site owners from liability when the owner makes voluntary, good faith efforts to monitor and restrict third parties from posting objectionable material.
You should still provide clear and specific disclaimers and notices regarding the accuracy of information on your Web site or of information on other Web sites if links are provided. In addition, you should have clear and specific policies for handling complaints when users occasionally make offensive or otherwise objectionable comments online.
Lastly, the Digital Millennium Copyright Act (DMCA) adds additional protections for Web site owners and online service providers that knowingly or inadvertently post, link to or transmit infringing material provided by third parties. To be protected by this safe harbor, Web site owners must register with the Copyright Office and put in place a policy for reporting possible copyright infringement on their Web site. The DMCA is only intended to protect Web site owners from copyright infringement in material posted by third parties, not from material the owners publish on the Web site.
NOTICE. The information provided in this article is of a general nature and is designed for informational purposes only. The information does not constitute legal advice. Because every business situation is unique, and every legal situation dependent on the particular facts of the case or transaction, you should seek the personal assistance of a qualified attorney who can thoroughly review and analyze all aspects of your specific business or legal situation.
David M. Adler, Esq. & Associates, PC is law firm
focused on the needs of media, science and
technology companies.
David can be reached at davidadler@ecommerceattorney.com.
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