White SW Computer Law
|
| Intellectual Property, Information Technology &
Telecommunications Lawyers |
| Postal Address: PO Box 452 Collins Street West, Melbourne Victoria 8007 AUSTRALIA |
| GPO Box 2506, SYDNEY New South Wales 2001 AUSTRALIA |
| Telephone: +61 3 9629 3709 Facsimile: +61 3 9629 3217 |
| Email : wcl@computerlaw.com.au Internet : http://www.computerlaw.com.au |
Web site development involves the creation of a presence on the Internet and so introduces the customer to the myriad of legal issues that must be considered. A web site development agreement should determine which legal risks the customer is taking and which risks the developer will bear. A written agreement is an important first step to be completed.
The Internet contains Web sites for an ever increasing range of businesses and individuals. Many businesses use the Internet as a form of advertising and customer support by developing a Web site.
As part of a relatively new and rapidly expanding industry, Web site developers have many issues to consider in order to protect their own interests. Being a new industry, the legal perils of Web site development have yet to be fully examined by the Courts around the globe but there are some dangerous trends developing for developers. There are also a number of commercial and legal issues for businesses to consider when engaging a Web site developer, for example:
Legal issues arise for the developer even before a formal contract is negotiated. The developer may be asked to put forward a proposal, which outlines their ideas for the format of the Web site. This can be an unrewarded, costly and time-consuming exercise if the developer is not eventually engaged to build the Web site. Without an agreement prohibiting disclosure or use of the developer's proposal, the developer may be left without recourse should they discover that their site plan has been incorporated into a site created by another developer.
Copyright ownership is another important consideration, particularly in relation to library code. The Australian Copyright Act 1968 (Cth) sets out:
Accordingly, unless the copyright in the Web site is assigned to the customer in writing, the copyright will normally be owned by the developer provided that they are not a full time employee of the customer and acting within the scope of their employment at the time when the Web site was developed.
If a variety of different works are incorporated to form a multimedia presentation, the copyright protection becomes slightly uncertain. The extent of the copyright protection is more difficult to determine as the complexity of the Web site design increases. Many Web sites will include graphic, audio, musical and literary works in addition to the computer programs, which hold the site together.
While each component clearly has copyright protection, when you examine the definitions above, the multimedia product as a whole does not, in its own right, neatly fall into any existing category of copyright works, save for possibly being classified as a computer program.
Once the developer has been engaged, the following points should be considered for inclusion in their Web site development agreement:
The English High Court ruled in the matter of Laurence Godfrey v Demon Internet Limited that an Internet service provider may be held liable for defamation if they allow the publication of material which they know to be defamatory. In this matter an obscene positing, defamatory to Laurence and purporting to have been sent by Lawrence [sic] Godfrey was sent to a newsgroup and published by Demon Internet. Laurence sent a fax to Demon Internet stating that the email had not been sent by him and requesting that it be removed. Despite being able to remove the posting at any time, Demon Internet chose to leave the posting visible to Internet users until the automatic deletion date approximately a fortnight after the message was posted.
Australian ISPs should be wary of this decision. The Judge made the point of distinguishing the law in England from that in the US, where the First Amendment has led to a divergence between US and English defamation law. It is likely that Australian Courts will consider the judgment of an English Court to be more binding than that of an American Court, due to the similarity of Australian and English defamation laws. If an ISP is notified that a posting is defamatory, it would be prudent for the ISP to take prompt action to remove the allegedly defamatory posting from access by Internet users.
It is common for a customer to engage a Web site developer to provide a wide range of services including:
Before any contractual relationship is created, the customer should ensure that they have a definite plan for the scope of the project unless they are prepared to spend a large amount of money on a time and materials basis to investigate the options. In a Web site development project variables such as the style, size and included features should be defined before the project commences.
The customer should ensure that the Web site is thoroughly tested to determine whether all hyperlinks perform properly and that the Web site conforms with all the customer.s requirements. When testing is complete, the Web site should be ready to go live. Once the development phase is over, the customer needs to consider ongoing maintenance including updating of material and revisions of links.
Before commencing a Web site development project, a customer should consider the following issues:
The case of Chippendale Printing Co Pty Ltd v Spunaline Pty Limited (unreported, Federal Court of Australia, 20 September 1985) examined the damages which could flow from an inadequate software development. An award of damages of $26,000 and legal costs was made to Chippendale resulting from a supply of software and hardware which did not live up to the promises of Spunaline. A director of Chippendale, having no knowledge of computers, engaged Spunaline to provide a computerised solution to calculate and record estimates and invoices for print jobs. A director of Spunaline was known to be an expert in the area of costing for print jobs and claimed to have knowledge of computers. It was made clear that the supplier would have to assist Chippendale in implementing the computerised system. The supplied hardware and software failed to provide the capabilities Spunaline had claimed they would (and as a side issue the supplied software and manuals appear to have been unauthorised copies). The director of Spunaline and Spunaline were both found to have engaged in misleading and deceptive conduct.
If the customer makes it clear that it is relying upon the developer.s advice it will be more difficult to defend a claim of misleading and deceptive conduct made against the developer.
In a UK case, Virgin Interactive Entertainment (Europe) Ltd v Bluewall Ltd, Virgin agreed to a variation of the delivery date, but there was no written agreement prepared which outlined what was to be delivered and when, under the revised agreement. Bluewall was developing two computer games, which they were unable to deliver on the delivery date. They claimed that Virgin had agreed that the revised delivery dates were flexible and that the product was to be delivered at an Alpha version stage. Virgin refuted both these points. The Court found in favour of Virgin. One wonders if the developer had a limitation of liability clause in the contact in order to limit the damages payable in such a dispute.
The long term use of the developed Web site by the customer could be compromised if they do not own the intellectual property. Without a written assignment of copyright, the customer.s continuing use of artwork or other copyright works, will be dependant upon the copyright owner granting them a licence to do so. Many people consider that artwork prepared for a business is the business. property but this is usually not the case.
In the Victorian case of KMA Corporation Pty Ltd v G&F Productions Pty Ltd, this issue was examined with an earlier decision being appealed by KMA. G&F had supplied artwork to Bingo 2000 and at Bingo 2000.s request to KMA for an express and limited purpose. KMA used the artwork, without licence, in newsletters it produced for Bingo 2000 and G&F successfully sued KMA for infringement of copyright. The Court originally ordered that KMA be restrained from using the artwork without the express consent of G&F and that KMA pay to G&F a sum equal to the sum paid by Bingo 2000 to KMA for producing the newsletter. KMA was unsuccessful in its appeal and the Court reiterated that G&F had not granted a licence to Bingo 2000 or KMA to use the artwork in the newsletters.
To be binding, the Copyright Act requires that an assignment of copyright must be in writing and signed by the owner. In order to have continued use of copyright works, either a licence or an assignment should be obtained. If no agreement is in place, there may be nothing to prevent artwork prepared on the customer.s behalf being used by other parties if the copyright owner authorises such use.
Through the use of frames, materials from a Web site may be imported into another site. This form of linking is considered to be a possible source of copyright and trade mark infringement. Customers should consider prohibiting their developer from framing any third party materials to avoid the legal ramifications which may arise from this form of reproduction. It is always advisable to obtain permission from the owner of a Web site before linking to their Web site. The customer should clarify with the developer that all links have been approved by the target Web sites. owners.
The dangers of using content from another party.s Web site without their permission is examined 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 Ticketmaster.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 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 disputes. As income derived from advertising on the Internet continues to grow, so too do the risks and potential damages that may be awarded against an infringing party.
The owners of a Web site should also carefully consider their liability for copyright infringements, which occur on their Web site. In the US district court case of Playboy Enterprises Inc v Webbworld Inc, Webbworld, who operated a Web site from which you could download R Rated images, was sued for copyright infringement by Playboy. It was proven to the Court that Webbworld had copied 62 images, which had previously appeared in Playboy publications. The Court awarded damages in Playboy.s favour in the sum of $310,000 (62 x $5,000) as a result of the copyright infringement. Webbworld.s principal operators, Bentley Ives and Benjamin Ellis were found to be vicariously liable for the actions of Webbworld and it was ordered that they be held jointly and severally liable to Playboy for the payment of the $310,000 damages. WebbWorld, Ives and Ellis were unable to rely upon defences, which are available to Internet Service Providers (ISPs) in the US, as they charged a monthly access fee which did not include Internet access at large. Similar laws apply in Australia with respect to liability for copyright infringement and company directors should not operate under the misapprehension that they are protected by the corporate veil against legal actions for copyright infringements initiated against their company.
The extent of coverage offered by insurance policies and the statutory protection provided by the Trade Practices Act 1974 (.TPA.) to those involved in the sale and purchase of goods and services depends upon, amongst other things, whether goods or services are being provided and whether or not the customer is a .consumer. of goods or services. The definition of .consumer. under the TPA includes a purchaser of goods or services for less than $40,000 or alternatively a purchaser of goods or services which are of a kind ordinarily acquired for personal, domestic or household use or consumption.
The categorisation of computer software as goods or services for relief under the TPA is not clearly defined and may fall into either category, although recent case law tends to suggest that it will be considered to be a service. Some insurance policies may limit the coverage of the policy to either the supply goods or the supply of services. If a policy is limited in its coverage to loss and damage arising from the supply of goods, it may not be adequate to cover the activities of a Web site developer. If Web site development is considered to be a supply of services, different protection is afforded by the TPA to the consumer than if the supply of such software is considered to be a supply of goods.
The customer should consider whether the scope of the warranties offered by the developer is adequate for its needs.
When drafting the Web site development agreement, an analysis of the potential sources of liability should be used to ensure adequate legal protection is afforded by the agreement.
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 .Oppedahl. and .Larson. in their meta tags. Effectively the domain name owners were alleged to be profiting from the reputation of Oppedahl & Larson and diverting visitors who were attempting to visit the Oppedahl & Larson site to their own sites instead. Although the Internet is often described as being a lawless jurisdiction, the laws, which protect intellectual property, still apply. The damages which may potentially flow from an infringement of intellectual property on the Internet may be far greater than other forms of infringement because the potential audience is so large and the speed of transmission so great. Tempting though it may be to profit from other successful Web sites, care should be taken not to infringe copyright, trademarks or other intellectual property.
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:
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. The customer should consider whether visitors from any jurisdictions should be barred from ordering goods or services from the Web site.
In a similar case, Georgia Tech Lorraine which is the European platform of the American Georgia Institution of Technology was sued by the French-Defence Association because its Web site home page was only presented in English. A 1994 French law requires that public communications such as advertising and restaurant menus must be written in French and if they are also translated, it must be into more than one language.
In another US matter, Cybersell Inc v Cybersell Inc it was suggested that if your Web Site acts only as a means of advertising or as a source of information, the US Courts will not be able to assert jurisdiction. If, however, you sell goods and/or services over the Internet, it is possible that a US resident or business could issue legal proceeding in the US against you or your business. To reduce the risk of such litigation, you should consider having a requirement that the potential customer submits to the laws of Australia governing the agreement before the transaction has been completed.
In 1981 in USA, 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 , 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:
In the US case of Patmont Motor Werks, Inc (.Patmont.) v Gateway Marine, Inc, et al (.Gateway.) Patmont issued legal proceedings against Gateway and Anthony DeBartolo (.AB.) as a result of AB using Patmont.s trade mark on a web site which mentioned Gateway.s name and address as a contact point. AB.s use of the trade mark was found by the Court to merely be descriptive of the type of motorized Scooters which he was offering for sale. AB and Patmont had also entered into an licensing agreement which had been terminated by AB. A clause of the agreement prohibited AB from using Patmont.s trade mark as part of any e-mail address. The Court correctly found that AB.s use of the trade mark Go-Ped as part of the URL www.idiosync.com/goped was not a breach of this term.
The use of trade marks on your web site should be considered no differently to the use in any other form of advertising. If the trade mark is merely used to describe a product that you are legally selling, it would be difficult for the trade mark owner to claim that such use was an infringement of their rights. It is always good commercial practice to make a note on your web site or advertising material which states the owner of the trade marks which you have used. If you have any doubts as to whether your use of the trade mark would be permitted by the owner you should obtain written permission before the marks are used. The customer and developer should clarify who has the responsibility to determine whether trade marks used on the site infringe any other parties. intellectual property rights.
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. If the customer was sued by an international business, for a similar infringement, there could be a large legal bill incurred to settle the matter.
In November 1997, the UK decision in British Telecommunications v One in a Million followed 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 occurring 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.
The US Court of Appeals matter of Data Concepts, Inc v Digital Consulting, Inc reconsidered Data.s use of the domain name .dci.com. and the unregistered trade mark .DCI. and whether its use was an infringement of Digital.s registered trade mark .DCI.. The Court considered the following issues:
The Court reversed the decision of the District Court to grant a motion for summary judgment based upon the opinion that Data.s use of the domain name was likely to cause confusion and found that the matter should be tried to determine the likelihood of confusion. The Court found, amongst other things, that the District Court did not properly assess the significance of evidence of numerous other instances of third party use of the DCI mark such as the incorporation of .DCI. into over ninety web sites. The Court questioned whether Data.s use of a domain name was merely a means of communication, or whether the domain name was used to identify its goods and services.
It cannot be assumed that the ownership of a trade mark alone gives the sole right to use the corresponding domain name. However, in some instances, such as for the ..com. domain names, the relevant domain name registry may have a policy that requires a domain name user to justify the continued use of a domain name if the owner of the corresponding registered trade mark objects to the other party.s use of the domain name.
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.
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 v Nominet UK, 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 June 1998, the High Court of New Zealand handed down orders in the matter of Oggi Advertising Limited v Cameron Bruce McKenzie and Ors. McKenzie had registered the domain name www.oggi.co.nz, allegedly for a Canadian, Mr Elliot Oggi. Oggis Advertising claimed that McKenzie and two other defendants had sought to take advantage of the fact that Oggi Advertising had not registered the domain name, by registering it themselves and seeking financial gain to relinquish same. Following case law from the US and the UK, the Court ordered, amongst other things, that the first three defendants be restrained from dealing with the word .oggi. or the domain name .www.oggi.co.nz., or any similar name or domain name which would be likely to dilute the value of Oggi Advertising.s trade name or trade mark and that the domain name .www.oggi.co.nz. be assigned to Oggi Advertising.
There is similar case law in many jurisdictions, which suggest that the registration of domain names with the intention to profit from the sale of the domain name to a party whose trade mark or trading name is similar to the domain name will give rise to a claim against the parties registering the domain name for actions including trade mark infringement and misleading and deceptive conduct.
Web site developers and customers need to keep up to date with changes to legislation and new case law as we are seeing rapid change in the application of laws to the Internet. In the coming year, the Broadcasting Services Amendment (Online Services) Act and reforms to copyright laws will be two issues that will need to be considered when drafting a web site development agreement.
Web site development is largely about trade and consequently involves potential disputes. Developers and customers should both make sure that they protect themselves with an appropriately drafted Web site development agreement, which, amongst other things, allocates the risks between the parties and clarifies the ownership and use of the intellectual property created.
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© White SW Computer Law 1999
This article is a guide only and should not be used as a substitute for proper legal advice, readers should make their own enquires and seek appropriate legal advice.