The term e-commerce or e-business basically means doing business on the Internet. The laws regulating the Internet and doing business online are still evolving.
Electronic transactions fall into two general categories: pure electronic and hybrid. Pure electronic transactions are transactions conducted entirely online, without the use of any traditional writings. An example is the point-and-click agreement found on many Web sites. The visitor to the Web site is presented with an online agreement and asked to click on a button to accept its terms. Hybrid transactions involve the use of written agreements, frequently called trading partner agreements, which are entered into before any electronic transactions take place. The parties draft these written agreements to specify the manner in which they anticipate electronic transactions are to be conducted.
The legal analysis of online transactions is basically the same as for traditional written agreements. Consideration, warranties, and other basic legal issues are analyzed in substantially the same way as with written agreements. The two biggest issues regarding e-contracts are: (1) Whether an electronic contract is a writing for purposes of the statute of frauds; and (2) Whether the agreement can be properly authenticated.
Under the Uniform Commercial Code (“UCC”), a contract for the sale of goods may be made in any manner sufficient to show agreement, which includes conduct by both parties that recognizes the existence of the contract. The statute of frauds requires certain types of agreements to be in writing and to be signed by the party sought to be bound by the agreement. The purpose behind the rule is to prevent a nonexistent agreement, allegedly made by one of the parties, to be proven by fraud or perjury.
The statute of frauds normally does not apply if it is possible under the terms of the agreement to perform the contract within one year. If a contract provides for the sale of goods with a price of $500.00 or more, this type of contract must ordinarily be in writing. Of the contracts statutorily required to be in writing, those most likely to be encountered online are agreements that cannot be performed within 1 year and agreements for the sale of goods costing more than $500. However, the majority of daily transactions on the Internet are one-time purchases for substantially less than $500 (for example, purchase of a music compact disc or a book). These transactions need not be in writing.
The statute of frauds requires a writing to evidence the contracts which it states must be in writing. This does not necessarily have to be a formal contract signed by both parties. It can be a letter signed by only one party setting forth the terms of the oral agreement. However, the writing, whether it be a letter or memorandum, must be signed by the person “to be charged.” This means it must be signed by the person against whom you are seeking to enforce the contract. The writing must contain all of the material terms of the contract. However, the UCC provides that transactions between merchants involving the sale of goods need not be signed by the party to be charged as long as a written confirmation of the contract is sent within a reasonable time. The written confirmation will satisfy the statute unless written notice of objection to its contents is given within 10 days after the confirmation is received.
It is uncertain how the applicable law will be applied in the context of online agreements since there is no clear guidance as to whether a purely electronic transaction will constitute a writing for purposes of the statute of frauds. Part of the uncertainty is attributable to the definition of writing contained in the UCC. Writing includes printing, typewriting, or any other intentional reduction to tangible form. The UCC’s definition did not contemplate a technology in which data is stored in a computer memory and not on paper. An argument can be made that data stored in computer memory is not considered sufficiently tangible to satisfy the statute of frauds. However, the data can be printed at any time. If storage in a computer’s memory is not sufficiently tangible, the electronic information can be produced in tangible form by simply printing it. In addition, electronic transactions are really no different than telegrams and telexes, both of which have been held to satisfy the writing requirement of the statute of frauds.
Once it has met the standards for a writing, the online agreement must meet the subscription requirement. The subscription (signature) requirement of the statute of frauds can be satisfied by a single writing or by a series of writings. For purposes of the statute, if one of a series of papers relating to the same matter is signed by the party to be charged, that is sufficient, as all the papers are to be considered together in evidencing one contract or memorandum. The UCC has no formal requirements for a signature, only that it appears for the purpose to authenticate the writing. Instead of a name, the signature arguably can be an initial or a symbol.
If an e-mail is sent, the sender identification in the header of an e-mail will be sufficient to show authentication. However, will use of the individual’s initials or name at the end of the message satisfy the signature requirement? E-mail software can create a signature that includes name, job title, and phone number. A digital signature provides a means of authenticating both the content and creator of an electronic document through use of public key encryption. With public key encryption, each user is assigned two keys or passwords: one private, the other public. The public key is distributed freely. The owner may post its public key on its World Wide Web site or may make the key available through one of the public key databases maintained by third parties on the Internet. As for the private key, only its owner knows the password. As long as a user’s private key remains secure, public key encryption allows for the delivery of confidential and verifiably authentic documents.
Trading partner agreements
Largely because of the uncertain state of the statute of frauds in the online environment, there is a growing trend for parties to enter into written trading partner agreements before they engage in electronic transactions. Trading partner agreements attempt to resolve unsettled legal issues, such as the application of the statute of frauds, through written contractual provisions.
Some trading partner agreements include waiver clauses in which the parties expressly agree not to raise the statute of frauds as a defense in a dispute over the enforceability of subsequent electronic transactions. Other agreements include definitions of writings and signatures specifically directed to the type of electronic communications the parties will use in forming their online agreements.
Proposed Article 2B of the Uniform Commercial Code will likely resolve many of the issues surrounding the statute of frauds in online contracts. Originally designed to address only software licenses, Article 2B has grown to include online licenses, subscription agreements, and other forms of electronic contracts.
Many of the transactions conducted online relate to the sale or lease of consumer goods. State and federal consumer protection laws (e.g., Magnuson-Moss Warranty Act) govern these transactions, which regulate advertising, warranties, and disclaimers. These laws also provide consumers with remedies not normally available under common law or the UCC. In addition to general consumer protection laws, many states have adopted or are in the process of adopting specific laws directed at electronic transactions to protect consumers. It is important to check for the latest development of consumer protection law intended to cover Internet transactions.
The Electronic Signatures in Global and National Commerce Act validates contracts executed by electronic signature and serves to protect consumers by requiring consumers to provide adequate consent to an electronic transaction. The Act establishes the validity of certain transactions in or affecting interstate or foreign commerce. Specifically, it provides that a signature, contract, or other record relating to such transactions may not be denied legal effect, validity or enforceability solely because it is in electronic form. A contract relating to interstate or foreign transactions may not be denied legal effect, validity or enforceability solely because an electronic signature or electronic record was used in its formation. The Act defines an electronic record as a contract or other record created, generated, sent, communicated, received, or stored by electronic means. An electronic signature means an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed by or adopted with the intent to sign the record. However, this act only applies to interstate and international commerce. It would therefore only affect transactions between buyers & sellers in different states, or in different countries.
The Uniform Computer Information Transactions Act (UCITA) was proposed for state adoption to eliminate the requirement for tangible writings and signatures in the purchase of “computer information”. Unfortunately, only about 2 states have actually enacted a version of this proposed act. Most state legislatures are not expected to create or adopt a version of that law; therefore, it is not likely to provide much of a uniform solution.
The Uniform Electronic Transactions Act (UETA) was proposed for amendment of state commercial codes to eliminate the requirement for tangible writings and signatures in the purchase and sale of “goods”. Some version of this legislation has been adopted in 47 states and the US Virgin Islands. Even if it is adopted in all 50 states, it will only govern transactions for procurement of goods, and not services or computer information.
UCC Article 2B revisions, as proposed for adoption by National Conference of Commissioners for Uniform State Law, would change some of the requirements for a writing and a signature. Contracts formed electronically would therefore be enforceable. It will be years before that recommendation is universally adopted and incorporated into state commercial codes. There is also little case law interpreting such legislation. Therefore, it may be some time before this UCC revision provides a viable solution to address the requirements for a writing and for a signature.
It should also be reiterated that UCC and state commercial code requirements are not applicable to services. Therefore, an electronic contract may be binding to a services transaction, even though it might not have been enforceable for a commodity purchase.
Advertising in E-Commerce — Section five of the Federal Trade Commission Act, prohibits “unfair or deceptive acts or practices.” This prohibition covers:
- Advertising claims;
- Marketing and promotional activities; and
- General sales methods
This Act ensures consumer protection online as well as in traditional print, television and other communication modes. In fact, since about 1999, the commission has taken a number of actions to prevent online fraud and deception.
The contents of an advertisement must comply with three basic principles:
- An ad must be truthful and not misleading. So, if an ad is likely to mislead an average consumer and that misperception influences a customer’s decision to buy or use the product, it is considered deceptive.
- Advertisers must be able to substantiate their claims. If you’re going to run an ad, you must have support for the claims the ad conveys. For example, if your ad claims that tests show xyz.com is a better search engine than abcd.com, you should have some test results to back that up. If there is more than one reasonable interpretation a consumer can make, the ad has to substantiate each interpretation.
- An ad cannot be unfair. It’s unfair if, according to the FTC, it causes (or is likely to cause) serious consumer injury that couldn’t have been reasonably avoided, and isn’t justified by the potential benefit to consumers or competition. For example, you must disclose all hidden fees. It’s also considered unfair if you don’t admit that you paid individuals for endorsements.
Make It Clear and Conspicuous: Much of the FTC’s Dot Com Disclosures Guide is devoted to a discussion of what constitutes a “clear and conspicuous” disclosure. The requirements depend on the nature of the advertisement. To determine if your ad complies, the FTC recommends adopting the perspective of a reasonable consumer and then asking yourself if the disclosure is presented in a way that you would both notice and understand.
There are a number of factors to consider, including:
- Whether a single disclosure is sufficient or whether the disclosure needs to be posted at various points throughout the site;
- Whether anything on the site distracts attention from the disclosure;
- The location of the disclosure, including where it is in relation to the advertisement; and
- The prominence of the disclosure.
The FTC emphasizes that its rules and guides using the terms “written” or “writing” apply online as well as offline. The FTC also cautions that certain advertisements sent by e-mail may be considered “direct mail advertisements” and thus be subject to certain prohibitions under the direct mail solicitation rules. Ultimately, if you run an ad on your Web site that a reasonable consumer will understand and that will not deceive that consumer, you should be fine. If, however, you run an ad that is even slightly deceptive or somewhat confusing, and you fail to “clearly and conspicuously” disclose, you may have a problem.
Site Use Agreement — Do you know those agreements on Websites, which no one reads, but on which we all click, “I agree?” Those agreements are called clickwrap agreements, terms and conditions, and site user agreements. They all serve a similar purpose. The term “clickwrap” has evolved from the word “shrinkwrap” which describes the agreements in shrunken font size that are often wrapped around software disk boxes or envelopes.
A contract is an agreement between two parties. The parties can agree to almost anything that isn’t illegal. So in a clickwrap agreement, you can set forth all the possible restrictions on the use of your Website, and the purchase of products or services through it. You can lower your business risks by limiting your liability for things that you might be sued for, and you can accomplish other helpful objectives, such as waiving warranties that are implied by law into the purchase of products, and choosing the location for litigating disputes.
The law generally presumes that everyone has the capacity to contract. Parties to an agreement must have contractual capacity before the agreement will be binding on both parties. Contractual capacity is the ability to understand that a contract is being made and to understand its general nature. The fact that a person does not fully understand the meaning and all ramifications of a contract does not mean that the person lacks contractual capacity. But if a party does lack capacity, then the contract is usually avoidable (or voidable) and the party without capacity may avoid the contract.
Some classes of persons such as people under the age of 21, or in most states, under the age of 18, are deemed by law to lack contractual capacity. People under 18 are considered to be minors. With some exceptions, a contract made by a minor is voidable. The minor, in other words, may avoid the legal liability under a contract. Upon reaching the age of majority, a minor may affirm or ratify the contract and therefore make it contractually binding on him. Any expression of the minor’s intention to avoid the contract will accomplish avoidance. Because of this age issue, you may want to restrict the use of your site to persons over 18.
You must also consider persons in other countries. Keep in mind that there is a good chance that you will not be able to get a foreigner into court in the U.S. Also, if you’re sued abroad by a user, the foreign judicial system may not uphold the U.S. contract, and may apply their own law instead — even if the contract says that U.S. law applies. Keep in mind that US law restricts us from doing business with certain countries like Cuba, Iraq, Syria and others — in fact, it’s illegal to do business with some of them. Having persons in these nations make purchases or download software from your Website would almost certainly be considered “doing business” with these countries. It’s also considered exporting, which is in some cases completely prohibited, while in others, it just requires an export license.
Clickwrap Agreement Terms or Clauses
Parties — As with any contract, it is essential to know who the parties are to the agreement. The user is the person clicking onto the site and downloading it onto his or her computer. Since the provider wants the contract to be binding, any definition of user should include a representation that the user can legally enter into the agreement.
For example, is the user a person individually or an agent for others, including a corporation? Does the user have the ability to enter into a contract or is he or she a legal minor or otherwise incapable of entering into a binding contract? An affirmation by the user that he or she is legally capable of entering into a contract or license agreement should be included. On the other hand, the provider must be identified as well. The Web site may be a subsidiary or agent of another company that may hold the copyright, trademark, or other rights, so it is important to name the correct party. This may mean making sure that a subsidiary or agent has been properly given the rights to use copyrighted material, trademarks and the like on the site.
Agreement that the users are over 18: This can help ensure that the user is either over 18 and bound by the contract, or supervised by a parent who agrees to the contract and the minor’s use.
Agreement that the user is truthful in information disclosed on the site, agrees to what he or she is buying, and agrees to pay for it: This can provide a remedy against the user if fraudulent credit card information, contact information or other information is provided, or if the user disputes the charge later. Threat of litigation regarding the agreement can sometimes result in faster resolution of payment disputes.
Agreement that the user agrees not to copy materials on the site. Agreement not to reverse engineer or break into the site, and not to use the Website materials, products or services to violate law.
Agreement that the user will use the site in accordance with the instructions, and will not to disclose his password to others for use, and that the site has a license (permission) for use of anything the user submits or posts to the site.
Agreement that the use of the site is at the discretion of the company, and that any use may be terminated by the company at any time.
Terms of Purchases or Services Provided — The clickwrap agreement should obtain the user’s agreement to any policies regarding the purchase, including warranty, shipping, returns or otherwise, of products and/or services. It is important to be aware that FTC regulations and other laws govern sales of products over the Internet, as they do mail order and store purchases.
The clickwrap agreement should include language that waives legal warranties that are implied by law regarding the sale of products (goods) under the Uniform Commercial Code. The UCC implied warranties include the following.
Warranty of Title — Every seller, by the mere act of selling, makes a warranty that the seller’s title is good and that the transfer is lawful as to passage of title.
Warranty Against Encumbrances — Every seller, by the mere act of selling, makes a warranty that the goods shall be delivered free from any lien of which the buyer at the time of the sales transaction had no knowledge.
Warranty of Fitness for a Particular Purpose — A buyer may intend to use the goods for a particular or unusual purpose, compared to the ordinary use for which the goods are customarily sold. If so, the seller makes an implied warranty that the goods will be fit for that purpose when:
- the buyer relies on the seller ‘s skill or judgment to select or furnish suitable goods, and
- when the seller at the time of contracting knows or has reason to know the buyer’s particular purpose and of the buyer’s reliance on the seller’s judgment.
When the buyer makes the purchase without relying on the seller’s skill and judgment, no warranty of fitness for a particular purpose arises.
Warranty against Infringement (merchant seller).
Unless otherwise agreed, every merchant seller warrants that the goods will be delivered free of the rightful claim of any third person by way of patent infringement, trademark infringement, or any other intellectual property law infringement.
Warranty of fitness for normal use (merchant seller).
A merchant seller makes an implied warranty of the merchantability of the goods sold. This warranty is in fact a group of warranties, the most important of which is that the goods are fit for the ordinary purposes for which they are sold.
Disclaimer of Warranties — The seller will want to disclaim all warranties, expressed or implied, as to merchantability, fitness for a particular purpose, or non-infringement. These disclaimers should be in the form required for disclaimers under the UCC and other applicable laws — i.e., they should be conspicuous, (all caps, bold, etc.). These warranties apply to the sales unless they are appropriately waived or disclaimed in writing.
Copyright — This term should state that the materials on the Web site are copyrighted. As such, they may not be modified, published, transmitted, reproduced, posted, or displayed in any media, including but not limited to electronic, print, mechanical and photocopying, other than for the personal use of the user while he or she visits the site.
Trademark — If the Web site contains any of the provider’s trademarks, logos, and/or service marks, their use must be restricted. To the extent that the various marks can be identified and listed, they should be. Users should be put on notice that they are not being granted any license or right to use any of the trademarks, logos and/or service marks, other than to download them for personal use while visiting the Web site.
Other Laws. The agreement should state that the user agrees to be bound by all applicable laws and regulations that may pertain to the site, including U.S. export and reimport laws and regulations.
Accuracy. The provider should disclaim any representations or warranties as to the accuracy of information on the site or any omissions or other errors in the content.
Limitation of Liability. The seller will want to put the user at risk for use of the site. This would include disclaiming liability for damages, direct or indirect and actual, consequential, or punitive, arising out of or in connection with the use of the site.
Viruses. The seller will want to disclaim any representations that the site as downloaded by user is virus free. At most, the provider may want to state that it has taken reasonable efforts to ensure that its site is virus free but that it cannot guarantee or warrant that it is virus free when it is downloaded by the user.
Activity on the site. To the extent that a site user is able to post information on the site, the provider of the site should state that it does not monitor, but reserves the right to monitor, the site for the content of postings. The provider should assume no responsibility for or liability for such monitoring. It should prohibit the user from placing or posting on the site any statement that is defamatory, libelous, false, obscene, pornographic, profane, or inaccurate.
Privacy. The site should post a public policy concerning privacy on the site. The agreement, or a separate policy statement, should disclose to what extent the site collects information on users, the type of information collected, whether the individual user can be identified, what the information collected is used for, who has access to the information, whether the information is sold or otherwise made available to third parties, and how the user can restrict the use of the information.
Confidentiality. The provider should inform the user that information the user posts on the site is deemed non-confidential and nonproprietary.
Indemnification. The user should be required to defend, indemnify, and hold harmless the provider from and against all claims and expenses, including attorney fees, arising out of the use of the Web site.
Choice of law. The agreement should include a choice-of-law provision.
Venue. The agreement should include a provision as to where venue would be proper. It also should include language identifying where the service is being performed or other similar information to bolster the venue choice.
Termination. The provider should be able to terminate the agreement if the user violates any provision of the use agreement or any laws or other regulations.
Acceptance. That the site is covered by a use agreement should be made clear to the user in a conspicuous manner. The user should be required to acknowledge that he or she has read the terms of the agreement, understands them and agrees to be bound by them. Ideally, the user should acknowledge agreement by being required to type in a phrase such as “I accept.”
FAQ E-Commerce
What is E-Commerce?
The term e-commerce or e-business basically means doing business on the Internet. The laws regulating the Internet and doing business online are still evolving.
What other laws specifically govern E-Commerce?
A number of new laws have been enacted that pertain specifically to the Internet. For example, federal laws such as the Digital Millennium Copyright Act provide stiff civil and criminal penalties for pirating and other unauthorized use of software. If a licensor brings a civil action against you, for example, it may be possible to obtain an injunction and monetary damages. The licensor may then choose between actual damages, which includes the amount lost because of infringement, plus any profits attributable to the infringement. In addition, the government can criminally prosecute you for copyright infringement. If convicted, penalties can include up to five years in prison and a fine of up to $500,000. Second-time offenders risk 10 years of prison and a $1,000,000 fine.
Many of the transactions conducted online relate to the sale or lease of consumer goods. State and federal consumer protection laws (e.g., Magnuson-Moss Warranty Act) govern these transactions, which regulate advertising, warranties, and disclaimers. These laws also provide consumers with remedies not normally available under common law or the Uniform Commercial Code (UCC). In addition to general consumer protection laws, many states have adopted or are in the process of adopting specific laws directed at electronic transactions to protect consumers.
The Electronic Signatures in Global and National Commerce Act validates contracts executed by electronic signature and serves to protect consumers by requiring consumers to provide adequate consent to an electronic transaction. The Act establishes the validity of certain transactions in or affecting interstate or foreign commerce. Specifically, it provides that a signature, contract, or other record relating to such transactions may not be denied legal effect, validity or enforceability solely because it is in electronic form. A contract relating to interstate or foreign transactions may not be denied legal effect, validity or enforceability solely because an electronic signature or electronic record was used in its formation. The Act defines an electronic record as a contract or other record created, generated, sent, communicated, received, or stored by electronic means. An electronic signature means an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed by or adopted with the intent to sign the record. However, this act only applies to interstate and international commerce. It would therefore only affect transactions between buyers & sellers in different states, or in different countries.
The Uniform Computer Information Transactions Act (UCITA) was proposed for state adoption to eliminate the requirement for tangible writings and signatures in the purchase of “computer information”. Unfortunately, only about 2 states have actually enacted a version of this proposed act. Most state legislatures are not expected to create or adopt a version of that law; therefore, it is not likely to provide much of a uniform solution.
The Uniform Electronic Transactions Act (UETA) was proposed for amendment of state commercial codes to eliminate the requirement for tangible writings and signatures in the purchase and sale of “goods”. Some version of this legislation has been adopted in 47 states and the US Virgin Islands. Even if it is adopted in all 50 states, it will only govern transactions for procurement of goods, and not services or computer information.
UCC Article 2B revisions, as proposed for adoption by National Conference of Commissioners for Uniform State Law, would change some of the requirements for a writing and a signature. Contracts formed electronically would therefore be enforceable. It will be years before that recommendation is universally adopted and incorporated into state commercial codes.
I understand that certain types of contracts must be in writing to enforceable. How does that affect the enforceability of making contracts on the Internet?
You are correct. The law does require that certain contracts must be in writing in order to be enforceable by a Court. The state statutes that require certain contracts to be in writing are called statutes of fraud. Statutes of fraud require that either the contract itself be in writing and signed by both parties or there must be a sufficient memorandum of the agreement signed by the party being sued for breach of contract.
- The statute of frauds normally does not apply if it is possible under the terms of the agreement to perform the contract within one year. If no time for performance is specified in the oral agreement and the performance will not necessarily take more than one year, the statute of frauds would not apply.
- An agreement that cannot be performed within one year after the agreement is made must be in writing.
- Contracts involving the sale of land must be evidenced by a writing.
- Another type of contract that must be in writing is the promise to answer for the debt of another person.
- A promise by the executor or administrator of an estate to use personal funds to pay a debt of the estate must be in writing.
- A promise made in consideration of marriage must be in writing. An example of this would be a prenuptial agreement.
- If a contract provides for the sale of goods with a price of $500.00 or more, it must ordinarily be in writing.
It is uncertain how the applicable law will be applied in the context of online agreements since there is no clear guidance as to whether a purely electronic transaction will constitute a writing for purposes of the statute of frauds. Part of the uncertainty is attributable to the definition of writing contained in the UCC. Writing includes printing, typewriting, or any other intentional reduction to tangible form. The UCC’s definition did not contemplate a technology in which data is stored in a computer memory and not on paper. An argument can be made that data stored in computer memory is not considered sufficiently tangible to satisfy the statute of frauds. However, the data can be printed at any time. If storage in a computer’s memory is not sufficiently tangible, the electronic information can be produced in tangible form by simply printing it. In addition, electronic transactions are really no different than telegrams and telexes, both of which have been held to satisfy the writing requirement of the statute of frauds.
Once it has met the standards for a writing, the online agreement must meet the subscription requirement. The subscription (signature) requirement of the statute of frauds can be satisfied by a single writing or by a series of writings. For purposes of the statute, if one of a series of papers relating to the same matter is signed by the party to be charged, that is sufficient, as all the papers are to be considered together in evidencing one contract or memorandum. The UCC has no formal requirements for a signature, only that it appears for the purpose to authenticate the writing. Instead of a name, the signature arguably can be an initial or a symbol.
If an e-mail is sent, the sender identification in the header of an e-mail will be sufficient to show authentication. However, will use of the individual’s initials or name at the end of the message satisfy the signature requirement? E-mail software can create a signature that includes name, job title, and phone number.
Proposed Article 2B of the Uniform Commercial Code will likely resolve many of the issues surrounding the statute of frauds in online contracts regarding the sale of good. Originally designed to address only software licenses, Article 2B has grown to include online licenses, subscription agreements, and other forms of electronic contracts.
Other Acts that will provide some relief from the statute of frauds and which are discussed above are:
- The Electronic Signatures in Global and National Commerce Act;
- The Uniform Computer Information Transactions Act; and
- The Uniform Electronic Transactions Act.
What are the legal requirements for creating a Web page?
There are really very few legal requirements in creating a Web page. The first thing you have to do is to secure the rights to use the domain name that you choose. This requires registering the name with a domain administrator. There are a number of domain name registration services around the world. The one you use should be accredited by the Internet Corporation for Assigned Names and Numbers (“ICANN“). ICANN is a nonprofit corporation that has been delegated responsibility by the U.S. government to coordinate Internet technical functions, including management of the Internet domain name system.
Once you are able to secure domain name registration, the process of starting an e-commerce business will be much the same as any other business enterprise. For example, you may want to incorporate your business. You will also need to enter into numerous contractual relationships in order to secure the services and products that are required to get the business up and running. You should pay close attention to any contracts that you are asked to sign, as they may have long-reaching effects. You should also be very careful about the scope and extent to which you use various products.
You also have to be very careful about intellectual property rights. One question to ask yourself, for example, is whether or not it is appropriate to incorporate source code into your Web site that you have taken from a commercial software company. It is oftentimes contemplated by a software license that the user is allowed to reproduce and distribute a software product as part of its own product, provided that usage is adding significant and primary value to the underlying software, along with numerous other limitations and restrictions.
Licensing your business can also be problematic. Wherever you have a home office, it is almost a certainty that you will need to obtain a business license. There may be other requirements in the locale where you are located. You must also undertake due diligence to see what requirements may be on the other end where your customers are. This is sometimes called part of the “fulfillment” process, which could be exceedingly complex depending upon the nature of your business and where your customers are located.
Once your business is up and operating, compliance issues are ongoing. A business activity that is illegal in one medium is not going to become legal simply because you are doing it over the Internet. Given the lack of restrictions in accessing and using the Internet, it is also sometimes easier to fall into traps for the unwary. Examples would include posting unauthorized materials on a Web site, infringing upon intellectual property rights, or engaging in unlawful solicitations (for example, spamming). In some instances, it is also much easier to get ripped off over the Internet by, for example, sending money to someone via an online auction to purchase an item that is never sent to you.
What is “spamming” and is it illegal?
Spamming can take on many forms and is difficult to precisely define. Generally speaking, though, it consists of mass posting or cross-posting of unsolicited e-mail for commercial purposes. Under federal law, it’s unlawful to send junk mail by facsimile, with the possibility of civil liability of up to $500 per copy. Efforts have been made to extend this law to spam sent over the Internet, but isn’t clear if this law applies to spamming.
Some states like California have gone further. Under legislation approved in September 1998, unsolicited commercial e-mail messages must include opt-out instructions and contact information. An opt-out request must also be honored. Certain messages must also be identified in their subject lines as being advertisements. A service provider may also sue a sender of unsolicited commercial e-mail for violating the provider’s policies if the sender has actual notice of such policies and if the spam is sent out through the provider’s facilities located in California.
