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Top Five Reasons to Post Terms of Use on Your Web Site

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In the current cyberage, Web sites have become a common business tool. While business-oriented Web sites come in all types and sizes, most companies today have some form of Web presence. Indeed, the use of Web sites has become so common it is easy to forget that there can be significant legal risks involved with operating a site. While expanding one's business into the electronic realm can offer exciting new business opportunities, failing to address legal issues adequately could hurt a company's business operations, expand liability, and in some cases, even expose corporate executives to criminal penalties. One of the most effective ways to respond to the legal risks that are inherent with Web site operation is to develop and post a terms-of-use agreement (the "Terms of Use") on every Web site that is publicly available.

While all companies operating Web sites share similar risks, there is no singular "form" Terms of Use that will work for all Web sites. The precise scope of a Terms of Use will depend upon a number of factors including the company's scope of operations, the content of the Web site, the type of visitors expected to visit the site and the company's level of risk tolerance. Still, while each company's requirements for Terms of Use is likely to differ, there are several main reasons for posting Terms of Use that are of importance to all companies: (1) compliance with applicable law; (2) protection of intellectual property; (3) manage liabilities; (4) establish other conditions and restrictions; and (5) improve consumer confidence and use of the Web site.

  1. Compliance with Applicable Law. Operating a Web site has the potential of implicating many different laws both in the United States and overseas. For example, in a recent case, Yahoo became subject to penalties in France as a result of having made certain Nazi-related memorabilia available through its Web site to users in France. Notably, a number of laws that may be applicable to certain Web-based operations impose criminal penalties on violators, some of which may even involve prison sentences. It is therefore very important for Web site operators to ensure that the Web sites under their control comply with applicable law. In many instances, having a properly drafted Terms of Use can help to reduce the risk that a company operating a Web site will be held liable for violating applicable law by virtue of its operation of the site.
  2. Protection of Intellectual Property. Posting Terms of Use can help a Web site operator to achieve two important goals related to intellectual property. First, by identifying and reserving the owner's rights to the intellectual property available on the site, the Terms of Use can help to protect a Web site owner's intellectual property. Second, by inserting proper disclaimers and warnings, a Terms of Use can help to insulate a Web site operator from potential liability that may result from allegations that the Web site is infringing a third party's intellectual property rights. It is important to keep in mind, however, that making materials publicly available by posting them on a Web site may jeopardize certain intellectual property rights in those materials if such materials are not adequately registered before such posting.
  3. Manage Liabilities. Terms of Use also permit a Web site owner to disclaim warranties regarding the operation and function of the Web site and the goods and services available on the site, as well as to disclaim liability for information and content contained on the site. For example, a site providing information should post Terms of Use disclaiming any inaccuracies or errors in the information, whether provided by the Web site or by third parties. This is particularly important if the information provided consists of stock quotes or other information with which individuals may make important decisions, such as those involving investments.
  4. Establish Other Restrictions and Conditions. Terms of Use are also necessary to establish other conditions and restrictions on users that are necessary in the course of business or that provide important legal protections. These conditions and restrictions include many of the same types of provisions that are usually needed in offline agreements, including forum selection, choice of law, the establishment of conditions upon which linking and framing may be permitted, the establishment of indemnification obligations, and the reservation of the Web site operator's right to disclose information if required by law. Further, many Web sites offer information or services from third-party content providers. Often, it will be necessary to include specific restrictions and conditions established by such content providers in the general Terms of Use for the Web site.
  5. Improve Consumer Confidence and Control Use of Site. Finally, legal considerations aside, Web site owners should post privacy policies and Terms of Use as good business practices. Terms of Use outlining prohibited practices and reserving the site owner's right to suspend use by an offender serve both to reassure consumers and to permit the site owner to enforce its policies.

While it is important to have a Terms of Use, such an agreement will be worthless unless it is enforceable. To improve the likelihood that a Terms of Use will be enforceable, Web site operators should take steps to ensure that (1) the user has reasonable notice of the agreement and (2) the user has assented to the agreement.

This article, which may be considered advertising in certain jurisdictions, does not purport to give legal advice pertaining to any particular situation and creates no attorney-client relationship. Readers should seek professional legal advice concerning any particular situation they face.

Jacqueline Klosek, an associate in Goodwin Procter? s Corporate Department, is a member of the firm? s Intellectual Property/Technology Practice. She can be reached at jklosek@goodwinprocter.com.

Copyright © 2001 Goodwin Procter LLP. All Rights Reserved.

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