LEGAL IMPLICATIONS OF E-COMMERCE

The global marketplace offered by E-Commerce imposes several issues including the choice of legal jurisdiction and the increased probability of intellectual property infringement. Other issues to consider include:

• When you are selling your goods and services to the world, who is the ultimate guardian of consumer protection?
• What right does a trade mark owner in one country have to a domain name in another country?
• Should trade marks be considered at all with respect to domain names?
• Can an e-mail be considered as a contract?

Common to all contractual relationships, there are a number of conditions, which must be satisfied for a contract to exist. There must be:

• two or more parties
• offer
• acceptance
• consideration (A deed does not require consideration but its does require stamp duty and to be executed using a particular method.)
• certainty
• an intention to create a legal relationship
• agency

There is no need for a formal written contract to exist for an agreement to be binding. Contracts may be in the form of:

• an oral contract
• an oral contract supported in part by cross letters
• signed letters
• brief formal contract or deed
• formal contract

There are already a number of legal cases in which correspondence by e-mail was considered to be a binding contract. With an increase in the use of digital signatures, and the extensive use of e-mail on businesses today, it is important that every business have policies in place which clearly outline to employees the consequences which may arise from representations sent by e-mail.

The Internet is seen by many as the brave new frontier for global commerce. The legal aspects of operating an Internet based business are still being established and need to be carefully considered.

Did you know that if you engage a developer to create an Internet site the copyright in the site will most likely be owned by the developer and not you unless an assignment of copyright has been signed? This means that you would not be able to copy or use the material produced for the web site unless the developer agrees to such reproduction or use. The developer also has to take precautions if a customer has requested that certain material be incorporated into the site. The developer should seek an indemnity from the customer that that material does not infringe the copyright of any other party. If no indemnity is provided and the developer uses a copyright work, they may be sued for copyright infringement. In addition, remember that if your site distributes, unauthorised copyright material, misleading or deceptive material or is defamatory you may be sued.

There have seen many recent cases, mainly in the US, of individuals registering domain names that suggest an affiliation with a well known corporation which they hope to sell to the corporation in question. As found in Panavision International v Toeppen this practice can violate the US Federal Trademark Dilution Act. Mr Toeppen was ordered to stop using the trademarks “Panavision” and “Panaflex” as domain names and to transfer the registrations of the domain names “panavision.com” and “panaflex.com” to Panavision International. Interestingly, Toeppen who is a resident of Illinois was sued in a California Court as his infringement was directed at a Californian business. Have you considered the expense you may incur if you were sued by an international firm for a similar infringement?

In The Shetland Times Ltd v Wills and Zetnews Ltd, Shetland Times (ST) published a newspaper - The Shetland Times and the defendants published another newspaper - The Shetland News (SN). ST have recently established a web site on which they feature various articles from their paper. SN also operates a web site which had links to headlines on ST's site. By using these links, readers bypassed the need to visit ST's home page and did not see the advertisements placed there. ST claimed infringement of copyright as SN reproduced the headlines from ST when providing the links and the text of the articles when it was displayed on the users screen. An interim injunction preventing SN from using such links was granted by the Scottish Court on the basis that incorporation of links to headlines provided at another site constituted an infringement of the copyright which subsisted in the headlines and their articles as cable programs and the headlines alone as literary works. The matter of whether a copyright infringement has occurred is expected to be finally determined by the Court later this year. If providing links to other sites, it may be prudent to obtain written authorisation before doing so.

The dangers of using content from another party's web site without their permission were also considered in the US case of Ticketmaster Corporation v Microsoft Corporation. Microsoft linked one of its web sites ( http://seattle.sidewalk.com) to the Ticketmaster web site ( http://www.ticketmaster.com). Ticketmaster claimed that this linking enhanced the value of Microsoft's web site while diminishing the value of Ticket master's web site by, amongst other things: depriving Ticketmaster of advertising opportunities; publishing erroneous information; and diluting the value of Ticketmaster's relationship with MasterCard, a major advertiser. Ticketmaster is pressed claims for, amongst others, trade mark infringement and misleading and deceptive conduct. Even if your intentions are to bring more business to the linked site, you should obtain permission before establishing a link to the site to avoid possible legal ramifications.

In February 1997, a complaint was lodged by The Washington Post, Time Inc, Cable News Network, Times Mirror, Dow Jones and Reuters New Media against Totalnews in the New York District Court. The plaintiffs claimed that Totalnews had, by “framing” and “linking” to their content on the Totalnews site, amongst other things, misappropriated valuable commercial property, engaged in false representation and advertising, committed Federal Trademark dilution, infringed their registered trade and service marks and copyright (including domain names). As income derived from advertising on the Internet continues to grow, so to do the risks and potential damages, which may be awarded against an infringing party. As with all other forms of copyright works, permission should be obtained from the author prior to using the work in any way to avoid risky and expensive litigation.

The French-Defence Association sued Georgia Tech Lorraine, which is the European platform of the American Georgia Institution of Technology, because its home page is only presented in English. A 1994 law requires that public communications such as advertising and restaurant menus must be in French and if they are also translated, it must be into more than one language. It is also required that goods and services be offered in French in addition to any other language used.

Are the goods and services you are offering legal in other countries? In December 1996, the Minnesota District Court ruled that the State of Minnesota had jurisdiction over Granite Gate Resorts Inc and its President, who are based in Nevada. Granite Gate provided a commercial sports betting service which is illegal in Minnesota but represented that such a betting service was legal. The agreement between Granite Gate and its customers provided that all claims against Granite Gate must be commenced in Belize, whereas claims against customers could be brought in the customer's home state. The Court used a five-factor test (This test differs in Australia and other US States) to determine whether Minnesota Courts had jurisdiction and considered:

• the quantity of contacts
• the nature and quality of the contacts
• the connection with the cause of action with the contacts
• interest of the State in having the matter before the Courts of Minnesota
• convenience of the parties

Records produced by Granite showed that Minnesota residents had both Internet and telephone contacts with Granite and as the defendants had an advertisement on the World Wide Web, accessible by Minnesota residents, it was ruled that the State of Minnesota had jurisdiction to take consumer protection action against the defendants.

In 1981 in the US, Playboy Enterprises Inc obtained an injunction against Chuckleberry Publishing Inc and Tattilo Edtrice SpA to prevent them from selling their magazine Playmen in the US. The injunction prevented Tattilo from using the trade marks “Playboy” or “Playmen” or any other confusingly similar word in conjunction with the sale or distribution of English language publications and related products in the US. Fifteen years later In Playboy Enterprises Inc v Chuckleberry Publishing Inc & others , the Court found that by offering access to American customers via the Internet, Tattilo was in contempt of Court by breaching the injunction. Tattilo was ordered to :

• shut down its Internet site in Italy or refrain from taking new subscriptions from US residents
• invalidate user names and passwords previously purchased by US residents and refund the remainder of their subscriptions
• pay to Playboy, all gross profits earned from its Internet services provided to US residents
• revise its Internet site to indicate that no subscriptions are available to US residents
• pay Playboy's legal costs

pay US$1,000 per day until it complies with this order. This order is particularly important as the judgment for damages could most likely be transferred to Italy for enforcement under international convention obligations whereas the injunction may not.

If you are offering goods or services over the Internet, you should consider whether your rights in relation to the goods and services allow to you to offer same to the world. In many distribution agreements, the territory may be expressed to exclude distribution by electronic means. It is particularly important if your are appointing distributors for your own product and want to retain sole control over electronic distribution that the territory allotted to the distributor(s) expressly excludes distribution via the Internet.

A US matter of A & A Records Inc and Ors v Internet Site known as Fresh Kutz and Anor saw various record companies applying for relief from the Court including an order that the Internet Service Provider which hosts the web site prevent any access to the site to prevent further copyright infringement and to prevent destruction of evidence. Fresh Kutz provided illegal copies of musical recordings at no fee and enabled visitors to the site to download and create further illegal copies. Despite the fact that the owner of the web site was unknown at the time, the Court ordered, amongst other things, that the owner of the web site or its agents from continuing to infringe the record companies' copyright, from destroying any records and computer files connected to the web site, and to block access to all infringing copies of musical recordings on the web site.

Web site owners should expect that Courts around the globe will continue to order heavy penalties for activities on web sites which involve infringement of copyright. The potential orders against web site owners for the loss and damage caused by their actions should be borne in mind when adding any material to your web site which may potentially be infringing someone else's copyright.

Trade marks are becoming more significant in the IT industry, particularly in their use on the Internet in domain names.

The allocation of domain names around the world tends to be on a first come, first served basis. It is possible that there will be more than one business or individual interested in owning certain easy to remember domain names. In the UK matter of Pitman Training Ltd and Anor v Nominet UK and Anor, two businesses which originated from a break up of the Pitman business both claimed they had the right to own the domain name “pitman.co.uk”. Pearson was the first to register the domain name as its own. During the time when Pearson's web site was being developed, unknown to it, its registration was transferred to PTL. Both PTL and Pearson spent money advertising their web sites. When Pearson realised its domain name registration had been transferred, it persuaded Nominet, the body responsible for registering domain names in the UK to reassign the domain name to Pearson. PTL commenced legal proceedings against both Pearson and Nominet to regain control of the domain name. PTL was unsuccessful as not only had it been the second party to apply for the domain name, it was also bound by reason of the original break up and sale agreement to only use the word pitman in conjunction with the word training, unlike Pearson which was able to use the word pitman alone.

In Australia, you may apply for a domain name which has some relationship with your company or business name or which is a combination of two or more common words. Without a pre-existing registered trade mark and/or substantial market recognition of your company or business name it may be very difficult to have a domain name reallocated to you should another party register it before you do.

In November 1997, the UK decision in British Telecommunications and Ors v One in a Million and Ors followed the US decisions in finding that the registration of famous trade marks as domain names and their use would constitute a trade mark infringement even though the marks were not used by the defendant. The relevant marks were marksandspencer.com; marksandspencer.com.uk; j-sainsbury.com; sainsburys.com; ladbrokes.com; virgin.org, bt.org; and cellnet.net. The Court ordered that One in a Million be restrained from the use or sale of the domain names in question and be compelled to assign the domain names to the plaintiffs, the trade mark owners.

Even though the domain names in question included a number of non-UK names (in that they did not end in the .uk suffix) the UK Court found that actions involving these names occuring in the UK fell within its jurisdiction. If you register a domain name in a foreign country, you cannot consider yourself immune from legal action within your own jurisdiction, if that domain name infringes a trade mark.

There is an increasing number of legal actions being initiated in Australia and around the world to claim right to a domain name registered by another party. These actions frequently involve multinational companies who maintain that their worldwide market presence grants them the exclusive use of their domain name with every country's extension, for example bigcompany.com.au.

Trade marks are not only relevant to domain names. Due to the massive proliferation of web sites, there is a great deal of competition to attract potential visitors to your site in preference to numerous other sites which may have similar information. One method used is to include “meta tags” on the pages, which constitute your site. Meta tags are a form of computer code, which is analysed by the search engines, but not visible in the normal viewing layout of a web site page. Commonly, meta tags will include subject headings which you anticipate people will use to find the information contained on your web site. An American law firm, Oppedahl & Larson, which offers information in regard to intellectual property law on its web site, issued a complaint against a number of domain name owners who used the words “Oppendahl” and “Larson” in their meta tags. Effectively the domain name owners were profiting from the reputation of Oppendahl & Larson and diverting visitors who were attempting to visit the Oppendahl & Larson site to their own sites instead.

There are many developments, which we should expect to see in the near future which will see electronic commerce spreading widely throughout the world. Whenever there are such huge changes in technology, there is always a lag period before our laws can be updated and modified to suit the new commercial environment. Pioneers in electronic commerce should take particular care that their activities do not drop them in hot water in regard to both Australian and International laws.

STEVE WHITE
WHITE SW COMPUTER LAW
APRIL 1998

www.computerlaw.com.au

© White SW Computer Law 1998

This article is a guide only and should not be used as a substitute for proper legal advice, readers should make their own enquiries and seek appropriate legal advice.