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Donald J. Kunz - "E-commerce: Legal Issues"

November 1, 2002

Kunz, Donald J. "E-commerce: Legal Issues." Detroiter, Technology Issue, Volume 24, Number 11, Nov. 2002

If you're taking the e-commerce plunge, here are some things you need to know

E-commerce is undeniably an important and growing segment of today's economy. Government statistics place the amount of retail e-commerce business in the United States at more than $9.8 billion for the first quarter of 2002, up almost 20 percent from last year. And shoppers are becoming increasingly comfortable with Internet purchases for both personal and business purposes.

At the same time, the development and enforcement of the laws and business conventions that govern e-commerce are in their early stages. Like the young men that followed Horace Greeley's exhortation to "Go West" in the 1840s, businesses that are considering getting into e-commerce today face a new frontier with great potential, but with a whole new set of risks.

What should you be on the lookout for? Here are some tips, gleaned in many cases from helping clients get out of the cyberspace equivalent of the hoosegow:

  • Just because others are doing it doesn't mean you should, too. There are many examples of Internet activity – like online gaming, sales of pharmaceuticals and music downloading – where the laws, or those enforcing the laws, haven't caught up with all of the violators. In some of those cases, offshore entities have been able to do things that you can't do, because they're outside U.S. jurisdiction and the long arm of the law hasn't yet caught up with them. Be careful, and don't assume that everything that you see others doing is safe to do. Additional areas of particularly intense legal development at the moment include privacy protection and sales tax collection on Internet sales.

  • Beware of business-method patents. In recent years, the U.S. Patent Office has granted a number of "business-method" patents, covering e-commerce processes like Amazon.com's one-click checkout method, Priceline.com's reverse auction method and DoubleClick's banner advertising system. You may have a lot of difficulty determining which e-commerce tools are legally protected and which you are free to use. Unfortunately, the developer of your e-commerce tools may have the same difficulty. Since this area is developing so quickly, the issues can be very technical and many developers are much more technically competent than they are legally savvy. You need to make sure that someone is ensuring that you're not infringing someone else's patents.

  • Understand your rights to your e-commerce tools. You need to understand what rights you have in what's developed for you. Will you own anything that's developed for you, or just have the right to use it? Will your developer be able to sell those tools to its next customer? To your arch-competitor? You should consider what sort of legal protection you can get for the intellectual property that's created by or for you. You should also negotiate carefully your arrangement with your developer.

  • Contracts still matter. Although the world of e-commerce is much closer to paperless than many ever expected, it isn't free from contracts (or from the lawyers that come along with them). The disclaimers, policies, licenses and other language contained in your Website will be heavily influenced by the terms of your arrangement with your customer. Don't just copy something you find somewhere else; be careful when you set forth the terms of your dealings and get good advice on the legal principles that will affect those dealings.

  • You can't be too concerned about security. There are a lot of horror stories about firms who've been hacked and all of the bad things that can happen to good people who are careless about system security. Listen to them; believe them; and don't become one of them. Your business fortunes, and your good reputation, can take a dramatic turn for the worse if you don't take precautions to protect your system from viruses, catastrophe and unauthorized access. In many areas, it makes sense to start small, and to add features and capabilities only as you and your e-business grow. Security is not one of them. Be vigilant, be safe and you'll sleep – and live – better.

Donald J. Kunz is a partner at the law firm of Honigman Miller Schwartz and Cohn LLP.