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Donald Kunz quoted, "It's A Tangled Web"

November 18, 2002

Dietderich, Andrew, "A Tangled Web." Crain's Detroit 18 Nov. 2002: Vol. 18, No. 46.

Legal issues must be addressed before building an online business, experts say

When it comes to e-commerce, the biggest question used to be "when?" – as in, when should a business consider moving at least some of its business transactions online.

As more business move toward adopting some form of e-commerce, the most important question may be "how?" Specifically, how can a company considering online commerce legally protect itself and its clients?

E-commerce is short for electronic commerce, or business transactions conducted via computer.

Attorneys say online commerce is a potential legal minefield filled with intellectual property and patent issues. Companies that hire an outside vendor to support their online endeavors need to move carefully and read their contracts thoroughly.

"This is definitely a situation where the technology has outstripped the legal thinking of the technology providers," said Donald Kunz, partner at Detroit-based law firm Honigman Miller Schwartz and Cohn LLP.

Common pitfalls include not establishing who owns the rights to the technologies used, such as checkout methods, and failure to determine what might happen if a company decides to use another vendor.

Susan Kornfield, partner and chair of the intellectual property practice group at Ann Arbor-based Bodman, Longley & Dahling L.L.P., warned that some vendors design contracts to keep clients captive, meaning that the clients are obligated to stay with the vendor for one reason or another.

For example, she said, she has one client who tried to move its Web site to a different vendor and service provider.

However, the vendor that developed the site two years ago said her client couldn't move the site because it didn't have the license rights to the design or software tools. The vendor even went so far as to demand her client pay for training on how to operate the site.

"Businesses need to be careful because most vendors don't grant customers broad license rights," Kornfield said. "And if that's the case, the move to a new vendor can be very expensive and very inefficient."

"Customers used to not even think about legal issues. It was an entire area that went overlooked," said Jacques Habra, president of Ann Arbor-based Web Elite Inc. "They are definitely being more proactive and asking more questions now."

Some companies such as Web Elite that provide back-end tech support draw up lengthy contracts and review them with clients, while others, like Clinton Township-based Web Information Technologies Inc., operate on a work-for-hire basis.

The difference? Companies that work with Web Elite know up front exactly what they have the rights to in terms of software and method patents, while companies that work with Web Information Technologies have more freedom to go to other vendors if they choose.

Most of our clients contract us on a work-for-hire basis. … They can go to another company anytime they want," said Quaid Saifee, director of Internet services at Web Information Technologies.

However, Saifee said that in the seven years he's been in business, he's never encountered a situation where the legality of any work or components of work he'd done has been an issue.

But that doesn't keep attorneys from warning those involved or soon to be involved in e-commerce to be on the lookout for potential problems.

"There are a lot of creative people providing technical solutions that have to deal with many legal issues that are beyond their capacity." Kunz said. For example, he had a client who had worked with a developer to come up with an extremely creative and different e-commerce site. However, problems arose when the developer laid claim to the design and started trying to sell it as part of his toolbox of offerings to other companies.

"That's just one of the things to consider before contracting with a company to develop its e-commerce business," Kunz said.