Methven and Associates, the Business Law Counselors | Rule 506 Private Placement Offerings

KEEPING OUT OF TROUBLE WITH WEBSITES

It is easier to get in trouble with a website than you might think. What follows, then, are a few tips to help keep your website clear of problems. A word of caution: the law is changing in this area, and the specific facts of each case make a huge difference.

DOMAIN NAMES
1. Before you register a domain name, be sure to check for existing trademark registrations. If you don’t, and there is a pre-existing trademark, your domain name may be taken away from you.
  1. Check the California business-name list. (http://kepler.ss.ca.gov/list.html)
  2. Conduct a search of the federal trademark register.
    
    (http://tess.uspto.gov/bin/gate.exe?f=tess&state=1lg2ke.1.1)
  3. Perform an Canadian search.
    
    (http://strategis.ic.gc.ca/cgi-bin/sc_consu/trade-marks/search_e.pl)
  4. Also do a Dialog or similar search for state and business-name registries.
2. Even if you obtain a domain name, you may lose that name if you do not use it for a real website. (A pure "under construction" page will not suffice, so get some sort of content and contact information on the site.)
LINKING AND FRAMING
1. Several website owners have been sued because their sites either a) linked to other Web pages without appropriately identifying the target page or b) framed other sites so that it seemed like someone else's Web page was part of the framing website.
2. Basically, the problem is one of misidentification: the offending website links or frames in such a way that the viewer doesn't realize who really owns the target site. Similar to plagiarism, it's taking credit either expressly or by implication for Web pages other than your own.
  1. For example, linking without attribution was the basis of the Ticketmaster Corp. v. Microsoft Corp. case. There, Ticketmaster sued Microsoft for using links that took users directly to the ticket-sales pages of Ticketmaster's site, circumventing advertising and Ticketmaster's home page.
  2. Framing was the issues in Washington Post v. TotalNEWS, Inc. There the complaint alleged that "Specifically, Defendants' website is designed to feature the content of Plaintiffs' and others' websites, inserted within a "frame" on the computer screen that includes Defendants' totalnews.com logo and URL as well as advertising that Defendants have sold." Obviously, the defendants were trying to make Washington Post content look like their own.
3. So what should you do?
  1. Well, the most conservative course is to either:
    1. get permission for every link or
    2. link only to other folks' pages where those pages themselves clearly identify the owner and contain any advertising that the owner uses.
  2. This approach is not practical in most situations, of course. Where it's not, at least do the following:
    1. When you insert links in your Web page, make sure they identify (correctly) the owner and name of the target page.
    2. If you use framing to pull up other folks' Web pages within your own, make sure you don't imply in any way that the site within the frame is yours.
    3. If a site has a linking policy posted, be sure to follow it.
TRADEMARKS AND TRADE NAMES
1. Another set of problems arises from using someone else's trademarks or trade names as part of your website, either in the main text or in "metatags".
2. Metatags are key words and phrases used to help search engines categorize a website; they are normally hidden from the user's view, although they are in fact part of the website. When a user performs a Web search using one or more key words or phrases, some search engines prepare a list of sites based on matches with the metatags embedded in those sites. Some search engines also analyze the readable text of websites in their matching functions.
3. Here the problems have arisen where a website uses others' trademarks or trade names or a competitor's trademarks or trade names to draw traffic to its site. (This is not limited to officially registered trademarks: Even if a name isn't registered, the owner may have rights in the name simply from using it.)
4. Having said this, there are some exceptions:
  1. For example, comparative advertising which names a competitor in a non-confusing and truthful comparison does not constitute infringement.
  2. In addition, you can use another's trademark or trade name to identify the source of the goods or services of which you are complaining or discussing. In one famous case, a disgruntled former Bally Fitness customer was permitted to keep "www.ballysucks.com" because he was using it to criticize Bally.
  3. There is also an exception if the words used are truthfully descriptive. For example, there was no liability for a former Playboy "Playmate of the Year" who built a website that used the plaintiff's "Playmate of the Year", "Playmate of the Month" and "Playboy" trademarks, both on the site itself and as metatags. (Playboy Enterprises, Inc. v. Terri Welles.)
5. Recommended approach:
  1. Even if you are going to use another's trademarks or trade names in a permitted way, to avoid trouble be sure to minimize their use, make it clear that those owners are not endorsing your site, and be sure to use disclaimers.
    1. (Disclaimer here means a statement along the following lines: "'Coca Cola' and the other trademarks and trade names mentioned in this site are the property of their respective owners. We have no affiliation with these companies and this website is not endorsed by them.")
  2. Also, if the owner of the trademark uses the "R" within a circle or the superscript "TM" symbols with the name, be sure to include that whenever you use the trademark.
COPYRIGHTS
1. Just because someone else's Web page does NOT contain a copyright notice does NOT mean that the material is in the public domain. The only way you can be certain you are safe is by either getting express permission from the owner to use the material or finding a statement on that site that allows you to use the material. (Many sites allow you to use their material for non-commercial purposes only.)
2. There is a "fair use" exception to the copyright law that allows you to use PART of another’s person’s work (not the entire work) without consent for purposes of review, comment, etc., particularly if the use is non-commercial. Basically, the more of the work that is taken and the more commercial the use to which it is put, the less likely that this exception applies. Because this can be complicated, talk to an attorney before trying to use the "fair use" exception.
DEFAMATION AND PRIVACY
1. Remember that just being on the Internet does not protect you against claims of libel. If you put something defamatory on your website or type it in a chat room or post it on a bulletin board you can be sued just the same as if you were handling out leaflets.
2. There are, of course, two classic defenses here: truth and opinion. If you state things that are clearly true or you clearly identify a statement as only your opinion or belief, generally you can speak freely.
3. However, even then, you may run into trouble if you disclose private facts about someone else or you cast them in a false light, even if not in a defamatory fashion (for example, deliberately stating that a life-long Democrat is a neo-conservative Republican).
4. Because the entire area relating to defamation is complex, it might be wise to run any statements you are unsure of past an attorney before posting them.
5. If you host a bulletin board or chat room on your website, you run the risk of potential liability if others post obscenity, libelous remarks, material taken without permission, links to sites that allow illegal free downloads of commercial software, etc.
  1. You should make each user of a bulletin or chat room use a "click through" user agreement where they consent not to post pornographic, defamatory or infringing materials or links to sites conducting illegal activities. They should also consent to your company not being liable for other users taking such actions.
  2. If you are a service provider or are hosting a bulletin board or chat room, you can help protect yourself against liability for copyright violations by others using your site by registering under the Digital Millennium Copyright Act. (See http://www.copyright.gov/onlinesp/.)
OWNERSHIP
1. If your webmaster/mistress is your employee when your site is created or updated, you own the work. That is NOT true with independent contractors: the contractor owns the work unless there is a written agreement to the contrary. (Without a written agreement, you have only a non-exclusive license to use the work.)
2. Your agreements with independent contractors should not only state that you own the work, they should also include an assignment of ownership rights in the resulting product to your company. "Work for hire" clauses alone may not be sufficient.
  1. In California many companies forego the "work made for hire" language because California Labor Code Section 3351.5(c) and California Unemployment Insurance Code Sections 621(d) and 686 treat anyone working under such a clause as an employee for unemployment and disability insurance purposes.
  2. You may want to give yourself a power of attorney to sign copyright documents on behalf of the contractor as well.
  3. It’s fine to let a web contractor retain the rights to any underlying software or scripts that operate your site, so long as you have an irrevocable, royalty-free license to use them.
CHILDREN'S ONLINE PRIVACY PROTECTION ACT

The Children's Online Privacy Protection Act ("COPPA") requires websites to obtain a parent's permission before children under 13 disclose information. (Children under 18 should not be permitted to view information which is adult in nature.) Also note that children under 18 may not be bound by any agreements that you have. You ARE entitled to rely on a user’s statement that he/she is over 18 unless you have some reason to believe they are not telling the truth.
PROTECTING YOURSELF
1. Although a copyright notice is not required on a website, it is good practice, since it puts others on notice that you are NOT putting that content in the public domain. (This helps overcome any alleged "innocent infringer" defense.) A copyright notice should be in the following form:
  
  Copyright 2000-2003 Bruce E. Methven. All Rights Reserved.
  
  You can also use the © symbol in place of "Copyright", but do not use just (c). To place this on your website, you would place © in the html and the browser will display the © symbol. The first year that the work was created must be included. (Designating a first year later than the real one can invalidate copyright rights.) Subsequent years where substantial changes were made can be added either as a range (2000-2003) or singly (2000, 2002).
2. Jurisdiction is a big issue. If you are selling goods/services over the Internet, you should have your agreement state that lawsuits may only be brought in California. Otherwise, the customer can sue you wherever the customer is located.
3. If you are engaged in e-commerce, you should have a click-through agreement on your website that your customers must use. It is not enough to simply have your agreement on the site; if the customer is not required to "click through" it, it may not be binding.
4. Implied warranties can arise from statements, advertisements etc.
  1. With goods–including software–the law creates warranties of merchantability and fitness for a particular purpose.
    1. Implied warranties must be expressly disclaimed: State that there are no other warranties except as expressly set out in the agreement, including any warranties of merchantability or fitness for a particular purpose.
    2. DISCLAIMER LANGUAGE MUST BE CONSPICUOUS, E.G., IN CAPITAL LETTERS O R BOLD TYPE. Otherwise consumers (and others) may not be bound by it.
  2. It doesn’t hurt to use these disclaimers even if you are providing services rather than goods.
5. Whether you are providing goods or services over the Internet, you want your agreement to contain limitations of liability and remedies.
  1. Expressly limit the remedy to replacement and/or repair (or correction of the services) at your option.
  2. State that in no circumstances will you be liable for special or consequential damages or lost profits (or lost data).
  3. State that in no case will the your liability exceed the amount paid by the customer. This should be a separate paragraph from the disclaimers of warranty.
  4. Distributors should state in their contracts with customers that the only warranty that applies is the manufacturer’s warranty. (Distributors should try to obtain an agreement from the manufacturer indemnifying and defending them against any litigation brought regarding the product.)
  5. Note that some states have laws restricting limitations of liability and remedies, so a clause should be included stating that if any portion of the agreement is found to be invalid, then the narrowest segment possible is to be held to be excised from the agreement, and the remainder continues in full force and effect.
6. Unlike in Europe, outside of COPPA, health-care companies and financial-services companies, U.S. federal and state laws do not generally (so far) require that a website that collects user information have a privacy policy. On the other hand, consumers increasingly look for them.
  1. Just be sure you can live with whatever you put into your privacy policy, since the Federal Trade Commission ("FTC") has come down hard on companies that violate their own policies.
  2. It’s also an excellent idea to state in your policy that it may be subject to change by your posting an upcoming amendment to it on your site and then proceeding with the change after 30 days except for users who affirmatively opt out.
  3. The FTC does have certain regulations that apply to all direct marketers, including e-commerce websites. For more information, see http://www.ftc.gov/bcp/conline/pubs/buspubs/checklist.htm.
7. Never put anything on your website that would matter if it were stolen. Even though you may have the right to pursue the offending party (assuming you can identify them), the cost may be prohibitive and the thief may be judgment-proof.
8. Several insurance companies offer "cyber-liability" policies. If you have an e-commerce site, talk to your insurance broker about obtaining this coverage.
  1. Lastly, with rare exceptions, you cannot offer stock via your website: this constitutes "public advertising" and is forbidden.
CONCLUSION
1. Remember, the general rule is that if something is a legal issue in the real world, it’s also a legal issue on the Internet.
2. Most of the litigation has stemmed from "commercial" websites, meaning websites that offer or promote the owner's goods or services. With these you need to be more cautious, particularly with regard to competitors. Personal websites, purely informational websites, websites devoted to a particular topic etc. tend not to face as great a risk.

June 25, 2003