Website Specification Agreements, exemption clauses in web sales and Cyberspace Internet Liability Insurance.

Website Specification Agreements

Please be aware that the Law may have changed since the publication of this article.

This article will look at some of the most important contractual issues relating to Website agreements and focuses specifically on the Website Specification Agreement.

Making the terms effective

It is vital that any prospective client is given the opportunity to consider the terms of an agreement and signs that agreement before the website designer carries out any work. Designers should have a standard procedure so that any enquiry from a prospective client is responded to by the despatch of a copy of the relevant agreement. This should be incorporated into the designer’s order form.

Limitation of liability clauses

You should always keep in mind that there is no such thing as a limitation or exclusion of liability clause that is bound to be upheld by a court. The courts simply do not like them and as far as they are concerned, it is always a question of reasonableness in the eyes of the court. The court will look at many factors in determining reasonableness.

Should you feel a need to include such a clause, it is probably best not to merge all the provisions together into a single sub-clause but to leave them as separate sub-clauses. For example, should a court hold just one element of a limitation of liability clause to be unreasonable, it may disallow it. If all the provisions are merged into a single clause and the court objects to that one element of the clause, the whole clause may become ineffective, even though the majority of the clause was reasonable.

As regards setting a contractual cap on its liability, the website designer must give very careful consideration to the figure chosen. If the figure set has an obvious rationale, such as being tied into the designer’s level of insurance cover this is also likely to be taken into account by the courts.

Dispute resolution

Another issue to consider is whether instead of arbitration, the agreement should provide for alternative dispute resolution (ADR). This is said by its supporters to be more time and cost effective than arbitration or litigation. Furthermore, because of the less confrontational approach of ADR, it is likely to enable a more amicable outcome, providing for an ongoing business relationship between contracting parties.

Intellectual property rights

In most cases, the client will provide the material to the website designer that enables the designer to create the website. The material will be made up of literary, photographic, video and other types of material. It is absolutely essential that the designer obtains a warranty and an indemnity from the client stating that the client owns or is otherwise entitled to provide the source material to the designer.

This gives the designer a degree of protection in the event that the material he uses unwittingly infringes third party intellectual property rights. It is quite possible that despite appearances and reassurances to the contrary, the rights may be owned by a different company in the same group as the client or by another entity completely unrelated to the client.

An example would be the situation where the client gives the designer a copy of their publicity brochure which includes a photograph which the designer incorporates in the design. It then turns out that copyright for electronic transmission of the photograph over the internet has been retained by the original photographer. The photographer then sues the designer for breach of his copyright.

The law provides that copyright and other intellectual property rights in a work belong to the author of that work. The two exceptions are where the author is an employee of another entity in which case the employer will own the intellectual property rights and where a document signed by the author transfers the intellectual property rights to another entity.

In principle, the designer should end up owning the intellectual property rights in the specification and the client cannot legally take away the specification for use by another website designer. However, it is wise to have this settled contractually to avoid any implication to the contrary.

If the client does want to have the specification implemented by another designer, then the original designer would be at liberty to charge a supplemental fee for assignment of the intellectual property rights. Such a clause is particularly useful if the designer has made little or no profit from creation of the specification.

If the client complains about this clause and wishes it removed or altered, the designer would be wise to wonder as to why, as it may well indicate an intention not to enter into a website design agreement with the designer and the designer should price the specification work accordingly.

Fees

The designer should issue the invoice for the fees at the same time as it provides the specification to the client. The contract should provide that the designer is entitled to payment for provision of the specification to the client, not that payment is conditional upon the designer delivering a document which meets with the client’s absolute approval.

Using exemption clauses in web sales

Suppliers of goods or services planning to do business on the web will need to comply with many regulations, old and new. Among the regulations which mostly pre-date the internet are those that relate to exemption clauses which are commonly found in contracts. Such clauses must be prepared with great care to avoid problems.

Exemption clauses fall into two categories:

  • Clauses which seek to exclude liability for specified breaches of contract; and
  • Clauses which seek to limit liability to a predetermined set sum or to particular types of loss.

When dealing with a consumer it’s pretty difficult to exclude liability. It is easier to exclude liability when dealing with a business, but there are a number of issues involved which we will go on to discuss.

An example could be a supplier who sells shelving units from its web site. Because of the large DIY chains, they operate on tight margins and in a very competitive market. The shelving supplier can usually achieve delivery within seven days, but is reliant on a steady demand, its own supplier and a third party courier service. The supplier may want to use a contract clause to limit damages payable for late delivery to consumers to £3 per day. In a business to business transaction, it may want to exclude liability altogether for lost profits caused by late delivery. The law regulates how far objectives like these may be achieved.

How to make an exemption clause

Recognising an exemption clause is not always as straightforward as you may think. Returning to the example of the shelving supplier, its terms and conditions may say that it will not be liable for any loss resulting from delivery up to 7 days after the date specified in the contract. Alternatively, the supplier’s terms may say that delivery is guaranteed to within 7 days of the delivery date. Whilst the effect of both is broadly the same, each may have different consequences.

What is significant is the incorporation of the exemption clause as an actual contractual term, so the clause must form part of the contract. A clause which only appears in a supplier’s e-mail communication confirming an order is unlikely to be incorporated into the contract terms and therefore will not be seen as being effective.

Is the exemption clause visible?

Closely linked with the issue of incorporation into the contract is the question of whether a supplier has done enough to draw attention to an exemption clause. Depending on the nature of the terms and conditions, a link to a separate page which displays them might not be enough. The best practice is to display them as part of an ordering process so that the website user must click to indicate their acceptance of them.

For example, there is a well known case of a hotel that had fixed an exclusion for liability clause regarding the loss of, or damage to guest’s property whilst staying at the hotel inside the room’s wardrobe. A guest had a fur coat stolen from their room and tried to recover damages from the hotel. The hotel tried to rely on the exclusion clause claiming that the guest should have been aware of the clause, but the court disallowed this defence. They stated that the clause came too late, as the guest would not have had the opportunity to see the clause prior to entering into the contract with the hotel, thus giving them the opportunity to choose a different hotel with less risk to their property. The court also stated that the hotel could have argued in favour of the clause more successfully, if it had been displayed clearly at the booking desk.

Advice should be taken on the precise wording of an exemption clause since, if there is any doubt about the meaning and scope of the clause, the ambiguity will be resolved by a court against the party who has inserted it and who is relying on it.

Unfair contract terms

The Unfair Contract Terms Act (UCTA) 1977 restricts the ability of businesses, including those trading on the internet, to exclude or limit liability.

What is Cyberspace Internet Liability Insurance?

Cyberspace Internet Liability addresses the first and third party risks associated with e-business, the Internet, networks and informational assets. Cyberspace Internet Liability Insurance coverage offers the latest protection for exposures arising out of Internet communications.

The idea of Cyberspace Internet liability takes into account first and third party risks. The risk category includes privacy issues, the infringement of intellectual property rights, virus transmission, or any other serious trouble that may be passed from first to third parties via the Web.

The fastest changing area of liability today is cyberspace liability. The hugely increased number of individuals accessing the Internet in the past few years has really grabbed the interest of businesses who are interested in promoting and marketing their products and services over the Internet. Cyberspace refers to the digital world represented by computer technology but more particularly to the access to the vast flow of information that is available on the Internet.

When do you need Cyberspace Internet Liability Insurance?

Anybody that has a website nowadays has the legal liabilities of a publisher.

The Internet has created a whole new and very complex area of liability exposures.

Having the website itself created is the easy part. The exposures to potential liability that come with it are not. Privately owned companies that carry out their business over the Internet face liability exposures that are emerging, evolving, and extremely complex.

Commercial companies that put out information to the public via websites face the same legal exposures as publishers, yet most have very little or no concept of their legal responsibilities. New legislation continues to create potential liabilities, particularly in the areas of user privacy, data protection and domain name infringement.

Businesses that are involved in setting up websites as well as anyone who puts out information to the public need to think about new risk scenarios such as:

  • Infringement of intellectual property rights
  • Breach of confidence or infringement of privacy
  • Misuse of any information which is either confidential or subject to statutory restrictions of use
  • Defamation
  • Inadvertent transmission of a virus

A fair amount of this may well boil down to adopting a careful, common sense approach but if you don’t, you could end up in a world of hurt. The copyright infringements can occur easily when you use material or an image from a client that turns out to belong to a third party. This is why you should always ensure the source material is free from restrictions by way of warranties and indemnity clauses.

Why you may need Cyberspace Internet Liability Insurance?

Traditional liability insurance coverage may not address Internet exposures and the risks involved in Internet business have grown almost as fast as the internet itself. That is why you may find it’s a good idea to be covered with a Cyber Internet Liability Insurance policy.

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