Defending The Digital Workplace

An ebusinesscounsel.com publication

Terms of Service for Maximizing E-Commerce Success

With UFC 94 coming up on January 31, 2009 (Go BJ Penn!) and Superbowl XLIII on February 1, 2009, one is reminded that it is the big play that brings people to their feet, whether it is the home run, the slam dunk, the long touchdown pass, or for mixed martial arts, the knockout. But business leaders realize that, while these big plays are spectacular, it is the subtle and often mundane that creates the opportunity for big play business success.

For example, in martial arts, the clinch is essential for success. There are several variations of the “clinch,” including the Muay Thai Clinch, a Dirty Boxing Clinch, and Wrestling Clinch. But the clinch is not very exciting in isolation. And regardless of the variation, it still looks like two fighters hugging or horribly dancing (and in mixed martial arts the fighters are generally big, sweaty men, which is not a cool image). But in actuality, the clinch is essential for wearing an opponent down or directly setting-up a big play knockout.success-in-digital

While a Website  is no longer a “big play” event, business organizations have incorporated Websites into every aspect of their commercial enterprise. And now more business organizations are using social networks/Web 2.0 technologies for business pursuits, e.g., recruiting purposes and promoting or improving the company, products, and services. These innovations, however, do create new legal considerations to consider (I know, d*mn the lawyers).

Websites, regardless of content and functionality, generally post a link to an online agreement, typically referred to as the “Terms of Service” (TOS) or “Terms of Use.” Similar to the clinch, the TOS accompanying a Website are about as exciting as it would be to watch Chief Justice John Roberts write a hundred times on the blackboard, ” … I will faithfully execute the office of President of the United States.”  But as important as those words are to the United States, the TOS are equally important as a starting point for reducing on-line liability risks and protecting business interests.

For example, Dell’s IdeaStorm lets customers/third parties submit ideas to Dell. It is worth noting that Dell’s TOS, read, in part, “You grant to Dell and its designees a perpetual, irrevocable, non-exclusive fully-paid up and royalty free license to use any ideas, expression of ideas or other materials you submit (collectively, “Materials”) to IdeaStorm without restrictions of any kind and without any payment or other consideration of any kind, or permission or notification, to you or any third party.” (I’ll leave it up to you to decide if a discount on a laptop would be worth granting such a broad license for something that could be a a market game changer).

Dell also tries to limit its liability by including in its TOS a provision that reads, “[y]ou agree that the Materials you submit: (i) are original with you and accurate, and (ii) do not violate and will not violate the rights of any third party or any local, state, national or foreign law, including any right of publicity, right of privacy or any other proprietary right.” Dell, like most responsible (and self-interested) businesses organizations, does not want to wrongfully acquire intellectual property (IP) or, at least, get dragged into litigation for doing so.

TOS may also take advantage of legal protections under applicable statutes. For example, the Digital Millennium Copyright Act (DMCA) provides in part some limitations on the liability of certain on-line service providers for copyright infringement. These limitations, however, require specific Website content information and additional steps to follow, all of which is considerably less costly than litigating a copyright violation. Thus, taking advantage of such “safe-harbors” goes a long way to limit exposure to potential litigation costs and damages.

Like the clinch, TOS are also used offensively. In this regard, Craigslist recently filed a number of suits concerning the violation of Craigslist’s TOS under the Federal Computer Fraud and Abuse Act. In its litigation, Craigslists is generally going after “auto posting” software and service providers and those involved with the distribution of software that is used on Craigslist. Craigslist alleges that for the software to be developed the Defendants had to access and copy its website to develop, test, implement, use and provide the software, programs, devices, and services. This access was unauthorized and contrary to the user agreement on the Craigslist website.

Business professionals also need to appreciate the consequences of poorly drafted TOS. For example, I reviewed a Web site’s TOS (just for fun and not for a client — I know, I really need to get a life).  It had a statement that read “[Company X] is responsible for the confidentiality of its clients, their records and future business plans.” (emphasis added). This was clearly not what any company trying to limit its exposure to risks intended and I contacted “Company X” to confirm this. I never received any response, but a few weeks later I checked back to see that TOS had been changed to “is not responsible.” You are welcome Company X.

Business professionals also need to appreciate the consequences of making representations in their TOS. For example, many Websites include a statement as to maintaining the privacy of its user’s information. But the Federal Trade Commission (the agency responsible for enforcing these provisions) takes these representations serious and will put companies into the legal equivalent of a clinch and pummel away, i.e., impose significant fines and other remedial requirements, if these representations are false or breached.

So the take away is to make sure you say what you mean, mean what you say, and be prepared to back it up.

Finally, business professionals should appreciate the consequences of changing TOS. It is common for companies to unilaterally modify their Websites, including TOS and simply post the new TOS on the company’s Website with no further notification to users. But Courts have refused to enforce such changes. In Douglas v. Talk America, Inc., the court held the “[p]arties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side.” Accordingly, the court concluded that the revised TOS were not enforceable because posting the new terms at the service provider’s web site was not sufficient notice. Examples like the Douglas case provide a road map for business professionals to follow in making sure revised TOS are enforceable.The economic downturn is prompting business owners — by necessity or by opportunity — to re-examine contracts with suppliers, vendors or landlords and come up with creative deals. And in many cases, they are saving a substantial sum of money.

At the end of the day, legal risks should not act as a barrier to any innovation in the marketplace. But prior to investing in an innovation, smart choices need to be made to maximize its return while limiting its risks.  A well-drafted terms of service for your Website — while not a game changer — provide an essential means to deliver that game changer by maximizing an e-commerce strategy, reducing legal risks, and protecting business interests.

I would be interested, however,  to hear about any TOS that were exceptionally over the top or otherwise notable. The winner – as chosen exclusively by me – will get two tickets to the 2010 Superbowl, subject to the following terms of service: (i) The Detroit Lions must be one of the teams playing in the 2010 Superbowl; (ii) This Offer excludes any Superbowl that may be played in January or February; (iii) This offer is null and void if every other team in the National Football League ceases to exist or is otherwise unable to play in the 2010 Superbowl making the Detroit Lions the Superbowl participant by default; (iv) Your participation in this offer or by blinking at any point in the next seven (7) days represents your agreement to be conclusively bound by these terms of service along with any other proclamation I may make from time to time; and (v) You further agree that such terms of service may be changed, including retroactively to the beginning of time and prospectively to the end of time, or any point in between, unilaterally, without notice to you, and simply because I say so.

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