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I. Creating the Website

In the 21st century, having a website is more important than a phonebook listing for small businesses and nonprofit organizations. A website is useful to provide basic information on your organization to the public. A website can also let users communicate with your organization on their own time. Having a website is key so that potential clients using internet search engines can locate your business. Google and company have supplanted the good old yellow pages and will relegate them to history in the next couple of years.

Creating a website is not as straight forward as it may appear. The creation of a website generally involves a 6 step (A-F) process described below. Each of these steps raises legal issues that need to be addressed. The main legal issues for each step are described below. If not properly addressed, these issues could make your organization liable for hefty statutory damages, and you may lose the marketing investment you have made in your organization’s site.

Many of the legal issues involved in the creation of a website are contractual in nature. Many businesses offering website development services will not have formal contracts that address the legal issues raised below. Because developing a website is not as tangible, as say building a fence, it will often be to the advantage of the developer or designer if there is no written contract that clearly identifies each party’s obligations.

For the all the contractual obligations between you and a third party, it is critically important that you have a written agreement. Both 17 U.S.C. § 204(a) (Copyright Act) and 15 U.S.C. §1060(a)(3) (Lanham Act – Trademarks) require that a transfer of ownership be in writing and duly executed by the parties. If the agreement is not in writing, the transfers may not be binding and it will cause many problems should anything go wrong during the creation of the website. You should always consult an attorney if you need a contract drafted or before you sign a contract.

A. Website Design

Creating the design or look of the website is generally the first step. A website design includes elements such as the organization’s logo, the presentation of menus used by users to access the different sections of the website, color schemes, banners, etc.

Many organizations offer website design services. When developing a website design, the designer will generally create two or more concepts or sketches of how the website will look. You will then choose one of these concepts and the designer will finalize it. During the finalization phase, you can ask the designer to make minor modifications to the concept if you want it to be slightly different than the designer’s proposed concept. The duration of the finalization phase will depend on how many modifications you require. The designer will generally limit the number of hours that can be worked in the finalization phase. If the work exceeds that amount, the designer will generally bill by the hour.

Once the website design is finalized, it must be converted into an HTML template. This template will serve as the foundation for all the web pages that makeup the website. The HTML template should conform to the XHTML 1.0 standard to ensure that the website will be displayed properly on a wide variety of web browsers and devices, such as phones and PDAs.

When a designer creates concepts for a website, the designer can go beyond producing art work. The designer might propose logos, names for your products or services, and slogans. These different elements will serve to identify your organization as the owner of the website. Since these elements serve to identify your organization as the owner or source of the site, they serve as trademarks and should be protected as such. Before you adopt any product name, service name, slogan, logo, etc., you should conduct a trademark search to ensure that it does not infringe on the rights of others. Using an infringing trademark can lead to an award of damages against you, and you will also lose the investment you made in popularizing your infringing trademark.

1. General Issues

Number of Concepts – How many concepts will be produced by the designer;

Finalization – How many hours of work are included in the finalization phase of the design creation;

Finalization Cost – What is the cost per hour if the finalization phase exceeds the planned number of hours;

Deadlines – What are the deadlines to produce the concepts and to complete the finalization phase;

Standards Compliance – The HTML template produced should conform to the XHTML 1.0 standard and other web based standards.

Payment Schedule – Usually the cost will be paid in two installments. The first installment for about 50% of the total cost will be due when the concepts are delivered. The second installment should be paid when the HTML template has been delivered and reviewed to ensure standards compliance.

2. Copyright Issues

Copyright – All rights, title, and interest in the copyright of all works (logo, website design, and HTML template) are assigned to your organization. Generally only the rights to the finalized concept are assigned to the client. If you want to ensure that no other business can use the other concepts produced, you will need to obtain the rights to all the concepts. This might have an impact on the price charged by the designer.

Infringement – The designer should have to indemnify you if the design that was created, or any part of it, infringes on the rights of a third party;

Derivative Works – Prohibit the designer from creating derivative works for other clients based on the finalized concept.

3. Trademark Issues

Trademark Rights – All rights, title, and interest in logos, names of products or services, and slogans that are developed by the designer are assigned to your organization. The provision should also cover logos, names, and slogans which have not been selected by you. By obtaining the rights to all the proposed variations, you will have options should there be a problem with your preferred option;

Infringement – The designer should have to indemnify you if the design that was created infringes on the trademark rights of a third party.

B. Website software development

An HTML template is essentially a static construct used to display your website’s content. The HTML template does not provide any functionality such as discussion forums, email lists, contact forms, or content edition. An HTML template can be used to create a static website or a dynamic website. A static website requires a person with knowledge of HTML to make any modifications to the contents of the website.

Dynamic websites are published using a Content Management System (CMS). A CMS enables the website owner or operator to manage the content that is made available to the website’s visitors. The main purpose of a CMS system is to enable non-technical users, i.e. users that do not know HTML, to add, modify, or remove content from the website.

Depending on the type of website, the CMS can be a freely available CMS systems such as WordPress, a customized version of a freely available CMS, or a custom built CMS. A custom built CMS will be required for specialized sites that require more advanced features than the simple publication of text.

Freely available CMS systems are generally licensed to users under an Open Source License. Any modifications made to the CMS software will have to be made freely accessible to third parties as required by the Open Source License.

Custom built CMSs can be licensed either using a non-exclusive license or an exclusive license. If you think the custom built CMS will provide your business with a competitive advantage, you should try to obtain an exclusive license so that the developer of the CMS cannot sell it to your competitors.

When building or customizing a CMS, a programmer or developer creates source code. The source code can be understood by humans. The source code must be converted into machine readable code so that the software can be executed by a computer. This process is called compilation. The compiled code cannot be read by a human, nor can it be modified to alter the features of the CMS.

If you are making a significant investment in the development of your CMS, you should obtain all the rights to the source code created by the developer. Without these rights, you will be unable to go see other developers to make modifications to your CMS. In fact, even the developer that built the site initially will be under no obligation to provide you with the source code or make modifications to it.

The development phase is only the first phase of a CMS life cycle. Once the development is completed and the CMS is put in production on a web server, some bugs or defects might be discovered. Thus, it is important to know who will be responsible for fixing any defects and what the cost will be. Generally, bugs or defects identified within a certain time frame – for example 6 months – should be fixed by the developer at no extra cost.

If you are building a customized CMS, you might have invented a new business method or process. It is possible to obtain patents on software applications in the United States and abroad. Inventions are more likely to occur if a specialized CMS is custom built for your organization. You must take the appropriate precautions not to hinder your patent rights. Generally, if you think you have created a patentable invention, you should refrain from using it until a patent application has been filed. If you engage in public use of the invention before the patent application is filed, you may lose your right to obtain a patent.

1.General Issues

Cost – The development can be completed either for a fixed cost that is established before the work starts or based on an hourly rate. If the development is done at an hourly rate, an estimate of the cost should be provided before the work starts. If costs are going to exceed that estimate, the developer should be required to notify you of the cost overrun and provide you with a new estimate for the remaining work.

Timeframe – The development has to be completed by a certain date. The development can also be divided into a series of phases that each has deliverables. For example, a development phase for each high-level functionality that the CMS will provide.

Payment Schedule – There will usually be an upfront payment followed by payments that should be spread over time and be tied to progress indicators, such as the completion of certain features.

Maintenance – 1) who is responsible for fixing any bugs or defects; 2) what is the timeframe to fix an identified defect; and 3) what is the cost to fix defects.

Security – If you collect personal information or financial information from your website visitors, the CMS should use adequate security measures to protect that information. These measures include encrypting sensitive information and using a one-way hashing function to store passwords.

2. Copyright Issues

What is covered – Does the license cover only the compiled code, or does it cover the source code.

Exclusive – Is the license exclusive or non-exclusive

Sub-licensing – Are you permitted to grant sub-licenses to third parties so that you may resale access to the application to third parties or to sale the application itself to third parties?

3. Patent Issues

Patent Rights – All rights, title, and interest in any invention conceived in the course of the development work are assigned to your organization.

Public Use or Disclosure – The developer should be prohibited from publicly using or disclosing information on the CMS. Disclosing this information can prevent you from obtaining patents.

C.Registering your domain name

Before a website can be made available to users, you need to select and register a domain name that the visitors will use to access the website using a web browser. A domain name can be registered with a Domain Name Registrar.

If the domain name is registered by the company you hired to create your website, it is important that the domain name be transferred to you. If the company selected the domain name, trademark rights might attach to this domain name. The trademark rights must also be transferred to your organization.

When selecting a domain name, you must be careful not to engage in cybersquatting. Cybersquatting is the practice of registering a domain name that is confusingly similar to a known trademark with the intent to profit from the goodwill associated with the trademark. Engaging in cybersquatting is a violation of the Anti-Cybersquatting Piracy Act (ACPA), codified at 15 U.S.C. §1125(d) and of the Uniform Domain-Name Dispute-Resolution (UDRP). If you engage in cybersquatting, you risk losing your domain name and all the investment you made in making it popular.

1.General Issues

A website development contract should contain provisions that address the following issues:

Transfer – The domain name and all rights to it are transferred to your organization. This will require that you create an account with a registrar and transfer the domain to that account, to ensure only your organization has control over the domain name.

2.Trademark Issues

A website development contract should contain provisions that address the following issues:

Trademark Rights – All rights, title, and interest in the domain name are assigned to your organization.

Cybersquatting – No domain names confusingly similar to a known trademark will be registered.

D. Website content

A website contains two types of content: visible content and search engine content. The visible content is what your website visitors see when browsing your site. Search engine content is content that is used by search engines to “learn” about your site’s content. It includes things such as metatags for keywords and descriptions.

Visible Content

If you create the content yourself, you need to ensure that you are not copying it from a source which does not allow reproductions of its works. If you hire a content creator to create content for your website or if you let visitors create content on your site, you must ensure they are not copying it from a source which does not allow reproduction of its works. You also need to obtain a license from the content creator or the visitor to ensure that you can make reproductions of their contribution without restrictions. If you fail to obtain a license, you will generally not be authorized to reproduce the content on a different website or in printed material. For information on obtaining licenses from your website visitors, see the Policies section below.

Another way to provide content is to use a frame. A frame is used to display another web page inside your own web page. You should not use a frame to display content from another site without having obtained the written permission from the site owner.

Search Engine Content

When specifying the keywords, description, and title of a web page, you must ensure not to use third party trademarks in a confusing way. An example of a use of a trademark that would be prohibited would be to place “Coca-Cola” in your keywords and use your website to sell “Another-Cola”. However, if your content consists of a critique of “Coca-Cola,” then you may use the keywords since to talk about “Coca-Cola” you must be able to use the trademark. This is known as a referential use of a trademark.

Copyright and Trademark Notices

You should place a copyright notice such as “Copyright © My Business – 2008” on each webpage of your site. This will put visitors on notice that you do not authorize reproductions of your website content.

When a page contains an unregistered trademark you place the following letters TM beside the unregistered trademark to put visitors on notice that you are using that name or symbol as a trademark. If the trademark has been registered with the United States Patent and Trademark Office, you should place the ® symbol beside it.

1. General Issues

Costs – The cost of creating content for your website should be specified. Either a fixed cost or an hourly rate.

2. Copyrights

Copyright – All rights, title, and interest in the copyright of all content created by a content creator (text, images, animations, etc.) is assigned to your organization.

Infringement – The content creator should have to indemnify you if the content that was created infringes on the rights of a third party;

Derivative Works – Prohibit the content creator from creating derivative works for other clients based on the content created for you;

Frames – Do not use a frame to display the content of a third party’s website without first obtaining written permission to do so.

3. Trademarks

Metatags – The metatags should not contain any known trademarks or words that are confusingly similar to known trademarks.

E.Policies

Before you make your website available online, you need to have the appropriate policies in place. Ideally, there should be a link to your policies from all the pages in your website. Whenever possible, visitors should be required to explicitly accept the policies. This can be done by requiring them to check a box to accept the policies when they create an account, order a product, or make a contribution.

1. Privacy Policy

The privacy policy should be divided into three main sections. The first section should describe what personal information is collected from visitors when they use the site.

The second section should describe how the information is used. This includes both for what purposes and with whom it is shared.

Finally, the privacy policy should provide instructions on how to correct any errors and how to make changes to the personal information that was initially provided.

2.Terms of Use

The terms of use should start by stating that by using the website visitors agree to be bound by the terms of use.

If website visitors can create an account to access portions of your website, the terms of use should indicate that they are responsible for keeping their password secret.

If you sell products or services on your website, your terms of use should specify that the product or service listings on your website are not an offer, but simply an invitation to treat. This is critical, especially if a mistake occurs when you specified the price of a product. If the site is construed as making an offer and a client purchases a product with the price error, a binding contract is very likely to be found to exist. This will force you to offer the product at the erroneous price. By specifying that the product listings are an invitation to treat, when the website visitor orders that product, the visitor is making you an offer to purchase the product at the price. Since the visitor is making the offer, you are free to refuse selling the product at the erroneous price.

If you are shipping products to visitors, the terms of use should specify the delivery times and costs.

If you developed a custom CMS for your website, your terms of use should prohibit the reverse-engineering of the technology. The terms of use should also specify that visitors only obtain a non-assignable and non-exclusive license to use the CMS on your servers.

If accessing your site is free, the terms of use should include a provision that you may discontinue service at any time with or without prior notice to users. If the service is a paid subscription, the terms of service should indicate that you may discontinue service at the expiration of the subscription period.

Finally, the terms of service should contain adequate disclaimers of liability and of warranties, such as implied warranties and conditions of merchantability, and fitness for a particular purpose.

3. Return/Refund Policy

If you are selling products or services, you should have a return or refund policy. The policy should indicate any time limits within which a return can be made. The policy should indicate the fees, if any, charged for returning a purchase. The policy should indicate what products or services can be returned or refunded and which ones cannot. The policy should indicate who shall pay shipping fees, if any, for returning the products. Finally, the policy should indicate any conditions that must be met to return a product. For example, the package cannot be opened.

4. Contribution Policy

A contribution policy is required if visitors can create and post content on your website. The contribution policy will indicate that the visitor grants your organization a non-exclusive license to reproduce the visitor’s contribution and to make derivative works based on the visitor’s contribution. If you are paying the visitors to create content, then the license should be an exclusive license.

F. Registering your rights

Once your website is fully created, you are now ready to register your rights with the appropriate government organization. For trademarks such as logos it is preferable to secure both copyright and trademark registrations. This will ensure maximum protection of your intellectual property rights.

1. Copyrights

If you have obtained the copyrights to a logo, a website design, or source code through a contract, you should register that transfer of ownership with the Copyright office. Registration of the transfer provides legal benefits.

Once all the transfers are registered, you can register the copyright on the logo, website design, or source code. The copyright office charges a $45.00 fee to register a copyright.

2. Trademarks

Before attempting to register your trademarks, you need to determine if they are confusingly similar to other trademarks. For more information on this, see our publication entitled “Protect Your Organization’s Goodwill through Trademark Protection.”

All the trademarks developed in the creation of the website should be registered with the United States Patent and Trademark Officer. The registration fee charged by the USPTO is between $275 and $375 per class of goods.

3. Patents

If a patentable invention was developed when your website CMS was created, you must not make a public use of the CMS, nor offer it for sale before a patent application is filed with the United States Patent and Trademark Office. If a public use or an offer for sale is made before the application is filed, you risk losing your patent rights in the invention.

Before seeking patent protection, you should engage in a cost-benefit analysis. A patent application can easily cost up to $25,000.00 to draft. There will also be regular maintenance fees to pay. These costs should be considered in light of the protection you obtain and in light of how long the new invention will be useful. Software inventions tend to become obsolete much faster than other types of inventions.

A patent application is a fairly complex document. Drafting the application will require time and interaction between the inventors and the attorney drafting the application. You should take this potential delay into consideration when making plans to launch the website.

II. Running the website

Now that you are happy with the new website’s look and functionality; it is time to make it publicly accessible. Your first step in launching the site is to find a hosting provider. If you intend on accepting online payments, you will need to find a credit card transaction processor.

Below are some issues that need to be addressed when launching a website and operating the website.

A. Hosting

There are two main types of website hosting packages: shared hosting and dedicated hosting. A shared hosting package means that your website will be running on a web server that also runs other websites. The number of sites being run from the server can affect the performance of your website. If there are too many sites on the same server, when web pages are accessed, they will take a long time to load. The advantage of shared hosting is that the hosting provider is responsible for the maintenance of the server, such as applying security patches. Most shared hosting packages give you access to standard web technologies. If your site has particular technological requirements, such as a need for a special software package, you may not be able to find a shared hosting package that will offer that software package.

A dedicated hosting package means that your website will be the only one running one or more servers. Generally, you will have complete control over the servers. That means your organization is responsible for the maintenance of the servers, such as applying security patches. Dedicated hosting will generally be more expensive than shared hosting. Because of the complexity of properly maintaining the server(s), you should opt for this type of package only if required.

Most modern websites store information in a database. It is of critical importance that your hosting provider makes nightly backups of your database. You should also obtain the daily backups and store them in another location than the server. That way if something goes wrong, you will have a backup copy of all the data.

Hosting packages, whether shared or dedicated, usually have some limits on the quantity of bandwidth that your website can use. You should ensure that your hosting package includes sufficient bandwidth for the traffic you expect. You should also ensure that the price for any additional bandwidth is not too expensive. The price of bandwidth can have an important impact on the cost of operating your website.

1. General Issues

Costs – The monthly cost of your package and what software packages are included should be specified.

Bandwidth – The amount of bandwidth included in your package should be specified. The price for any additional bandwidth should also be specified.

Backups – Your package should include nightly backups of the database and you should have access to the backups.

B. Online Sales

In order to make online sales, your website will need to be able to accept electronic payments. There are many options available. You should shop around for the best possible deal. Generally, the company processing the online transactions will charge a certain percentage on each transaction. That percentage, known as the discount rate, is generally around 2% of the total cost of the transaction. The discount rate can go up for some transactions depending on the total of the transaction and what type of credit card is used to make the purchase.

The processing company will generally require that you sign a long-term contract. That contract will usually have monthly penalties if you do not process enough transactions in a month.

The processing company might also have a certification procedure that your site will need to pass before you can start accepting online payments. You should keep this in mind when planning your launch date. The Payment Card Industry (PCI) Security Standards Council has created the PCI Data Security Standard for secure processing of transactions. Your website will have to comply with this standard.

When making online sales, you must also consider whether or not you must collect sales taxes. What taxes must be collected is beyond the scope of this tutorial. You should consult an attorney or accountant to ensure that you comply with your obligations. Failure to collect the appropriate taxes can have costly consequences.

C. Sending out emails (CAN-SPAM act)

The CAN-SPAM Act of 2003 (Controlling the Assault of Non-Solicited Pornography and Marketing Act) establishes the requirements that must be met when you send unsolicited emails. The act has four main requirements: no falsified header information (i.e. the address from which the email is sent), no deceptive subject lines; provide an opt-out mechanism for recipients and your organization’s physical address; and the email must be identified as an advertisement.

If you send to much unsolicited emails your email address will eventually be blacklisted. When your address is blacklisted, most of your email messages will end up in the SPAM folder of most recipients. This makes communicating via email unreliable.

D. Legal Notices

1.Copyright Notice

There should be a copyright notice on the bottom of each page of your website. This will put website visitors on notice that the content of the page is protected and that unauthorized reproductions are prohibited. The © symbol should be displayed beside your company name. For example Copyright © - My Organization.

2. Trademark Notice

There should be a registered trademark notice on the bottom of each page of your website that displays one of your registered trademarks. There needs to be a trademark notice for each trademark appearing on the page. The ® symbol should appear beside the trademark and your business name. For example My Product is a Registered Trademark ® of My Organization.

III. Conclusion

When properly done, creating and operating a website is not as straight forward as some might say. The various legal issues involved must be properly addressed if the website is to have long term success. Furthermore, the same legal issues will arise throughout the life time of a website, since your organization is very likely to change some aspects of the website and extend it. Failure to take into consideration the various legal issues described above could result in unpleasant surprises, penalties, and ultimately the loss of your investment in creating a web presence.

Thomas Legault is a Clinical Resident at the Michigan State University College of Law Small Business & Nonprofit Legal Clinic. For more information, the clinic can be reached at (517) 336-8088.

IV. Appendix A – Glossary

Term

Definition

Content Management System (CMS)

A content management system (CMS) is a computer application used to create, edit, manage, search and publish various kinds of electronic content. For more information see Wikipedia: http://en.wikipedia.org/wiki/Content_Management_System.

Domain Name

A domain name is used to map a human readable name with the IP address of the website. For more information see Wikipedia: http://en.wikipedia.org/wiki/Domain_name.

Domain Name Registrar

A domain name registrar is a company, accredited by the Internet Corporation for Assigned Names and Numbers (ICANN) or by a national ccTLD authority, to register Internet domain names. For more information see Wikipedia: http://en.wikipedia.org/wiki/Domain_name_registrar.

HTML

HTML stands for HyperText Markup Language. HTML is the main markup language used to create web pages. For more information see Wikipedia: http://en.wikipedia.org/wiki/HTML.

Metatags

Metatags can be used to specify page description, keywords and any other metadata for a web page. For more information see Wikipedia: http://en.wikipedia.org/wiki/Meta_tag.

Open Source License

An Open Source License is a copyright license for computer software that makes the source code available under terms that allow for modification and redistribution without having to pay the original author. For more information see Wikipedia: http://en.wikipedia.org/wiki/Open_source_license.

PCI Data Security Standard

The PCI DSS is a set of comprehensive requirements for enhancing payment account data security. For more information see

https://www.pcisecuritystandards.org/security_standards/pci_dss.shtml.

Source Code

Source code is any collection of statements or declarations written in some human-readable computer programming language. For more information see Wikipedia: http://en.wikipedia.org/wiki/Source_code.

Uniform Domain-Name Dispute-Resolution

The Uniform Domain-Name Dispute-Resolution is a process for the resolution of disputes regarding the registration of internet domain names. For more information see Wikipedia: http://en.wikipedia.org/wiki/Uniform_Domain-Name_Dispute-Resolution_Policy.

Website design

Refers to the overall look of a website. It includes elements such as a logo, the presentation of menus used by users to access the different sections of the website, color schemes, banners, and the disposition or layout of these different elements.

Website design refers to the visual aspects of the website, it does not include the software that implements.

XHTML 1.0

For more information see Wikipedia: http://en.wikipedia.org/wiki/XHTML.