The Key Agreements Every eCommerce Business Should Have
This post is Part 4 of a series covering core legal issues for eCommerce and Internet-based businesses.
Legal Agreements for eCommerce and Internet-Based Businesses
Businesses of all kinds rely on agreements to manage relationships and facilitate their various dealings and transactions among partners, vendors, contributors, investors, and customers. As such, it is important that all businesses employ clear and comprehensive contracts in all their dealings.
The Need for eCommerce Legal Agreements
Today’s companies face a multitude of legal issues related to their online presence, including issues relating to their company web site, blogs, social media, and related agreements with designers, web and software developers, web hosts and advertisers. Because eCommerce companies not only have a web presence, but also sell products or services over the Internet, they must also address commercial transactions, such as payment and delivery terms, warranties, as well as user content, data privacy, and copyright issues.
“Good fences make for good neighbors” is a mantra that all businesses should follow. It means that strong business relationships are based on clear and unambiguous understandings of each parties’ rights and obligations. The best way to avoid business disputes is to avoid misunderstandings and confusion, and this requires legal agreements that describe each party’s expectations clearly and comprehensively, and that address a range of potential situations that might arise over the course of the relationship.
Types and Forms of eCommerce Agreements
eCommerce business agreements can come in many forms, including:
traditional written agreements that are hand-signed by the parties;
PDF documents signed digitally (such as using DocuSign or a similar digital signature system;
“click thru” agreements that can be “signed” by a user clicking a button that says “Agree”, which we often see when installing a mobile application or registering for a website user account; and
other eCommerce agreements that aren’t signed at all, but merely reside on a webpage, such as a website Terms of Use.
These types of agreements have been consistently accepted by courts to create legally binding contracts. Thus, eCommerce businesses can use any or all of these various forms of eCommerce agreements to manage their business dealings and relationships.
The universality and anonymity of the Internet requires online companies to deal with a number of special issues beyond those faced in the offline world, such as:
Because web sites can be accessed from virtually anywhere in the world, compliance with a complex web of state, federal and foreign legal requirements can present significant challenges.
In addition, web sites may be accessed by children, which are protected by a number of state and federal rules.
In some instances, site users can post materials that infringe the intellectual property of third parties, creating potential liability for the site hosts.
Some web sites offer software and other technical data for download. These sites must ensure that the information is not exported in violation of U.S. trade laws or provided to terrorists.
Sites obtaining private data and financial information are often the target of cyber-terrorists, identity thieves and other criminals, so they must ensure their sites and the data are secure.
Finally, in the event of a dispute, there may be questions regarding where it would be proper to sue, whether the courts have authority over all the parties, and whether any judgment can be enforced.
In addition to dealing with typical business legal issues, eCommerce companies face a range of unique legal situations, such as:
negotiating deals with software and web developers
protecting rights in web designs, look and feel, brands and logos and other proprietary content
issues related to international transactions
use of images on the web site
content creation agreements
eCommerce issues and online sales
social media aspects and user content
Apple and Android Store agreements
GDPR and other privacy law compliance
creating entities and raising capital
enforcement of copyrights and other intellectual property rights against infringers
hiring contractors and employees
web terms of use and terms of sale
domain-name registration and transactions
deals with advertisers and co-marketers
data hosting agreements
Each of these matters should be clearly addressed in eCommerce agreements. Following is a discussion of several common agreements relating to operational aspects of eCommerce business.
Four Key eCommerce Legal Agreements
Website Development Agreements
For eCommerce businesses, a website is more than an advertisement or brochure; it serves as a storefront where customers make purchases and, in some instances, use the product or service, itself. As such, the website is a critical element of all eCommerce businesses.
Although many eCommerce businesses will develop their website internally using employees, many – especially start-ups and other early-stage companies – will engage outside contractors to create websites, or various features or elements of those sites.
To ensure ownership of important property and protection against a host of risks, it is important that eCommerce businesses enter into comprehensive web development agreements with those developers.
Key Provisions
Although each web development project will have its own unique challenges to address, some important considerations, and provisions, to cover in a website development agreement can include, among other things:
Detailed statement of work describing required site functionality and features
Schedule of benchmarks ties to payments
Ownership of intellectual property (IP)
Confidentiality and non-competition language
Language prohibiting infringement of third-party IP
Dispute resolution provisions
Indemnity and limits of liability
Product warranty
Training, maintenance, and support
Choice of law language
Common Pitfalls
A common dispute that arises in connection with web development involves a disagreement regarding the scope of the project and whether the client is receiving what they expected. This can be avoided by having a detailed statement of work describing the scope of the project, broken into phases with clear milestones, and tied to the delivery of progress payments.
eCommerce businesses can also get into trouble if the web developer uses IP owned by another person in the site, such as graphics or photographs, without permission from the IP owner. Even if the eCommerce owner is not aware of this use, they can be liable for IP infringement for any such materials appearing on their website.
Website Terms of Use
As noted above, the universality and anonymity of the Internet requires online companies deal with a number of special issues beyond those faced in the offline world. Many of these special situations can be resolved through contractual provisions between eCommerce business and their users called “Terms of Use” (or, “Terms”).
Terms govern all aspects of the use of the website by these visitors and is a great opportunity for eCommerce businesses to dictate what users can expect from the site: what services the eCommerce business is providing, what permissions and limitations users have, and outlining key other aspects of the relationship.
Although users who register on the site to create accounts can be asked to “Click to Agree” when they sign up, Terms are often not actively agreed to by users, but merely can be accessed from a link on the home page labeled “Legal” or “Terms of Use”.
Key Provisions
Each website Terms should address the specific elements and concerns associated with each eCommerce website, some important considerations and provisions to cover in a website development agreement can include, among other things:
IP Ownership
Permissible uses of site
Prohibited uses of site
User submissions
Disclaimers and limits of liability
Limited warranties
Privacy policies (or links to separate policies)
Choice of law and dispute venue
User representations and warranties
Common Pitfalls
Frequent errors made by eCommerce business website Terms include:
Copying provisions from another website – which may be instructive but could be inappropriate for a number of reasons
eCommerce businesses not following their own policies and obligations state – such as with respect to privacy or selling email addresses, etc.
Stale Terms that do not account for new website functions or features, or account for changes in legal requirements
eCommerce Terms of Sale Agreements
Although Terms are effective at addressing legal issues associated with website visitors, eCommerce businesses need contractual language to cover the sales and delivers of products and services.
These additional legal provisions can be incorporated into the Terms but are perhaps best included in a separate agreement known as “Terms of Sale” (or in the case of a subscription or membership-based website, “subscriber terms” or “membership terms”).
Key Provisions
Each web site Terms of Sale should address the specific elements and concerns associated with each eCommerce business’s sale and delivery of its products and services. Some important considerations and provisions to cover in a website development agreement can include, among other things:
Click-through website membership agreements
Electronic signatures/verification
Compliance with federal and state consumer protection laws
Information licensing
Disclaimers and waivers
Refund and returns
Shipping policies
Export controls and other trade regulations
Product warranties
Limits of liability
Sales tax
Common Pitfalls
Some common errors eCommerce businesses make with respect to their Terms of Sale can include, among others:
Failure to include liability disclaimers regarding third-party products and services
Addressing sales tax matters
Not including liability limitations and waivers
Warranty or refund policies not compliant with various laws
Ignoring international trade and transactional issues
Social Media eCommerce Sites
Some eCommerce businesses create an online community for their members and allow their members to upload content to their platforms. While these online communities have a range of benefits, they can be used for illegal, immoral, or infringing purposes. As such, to avoid their own liability, social media platforms must take action to ensure their members don’t break the laws or injure others while using the platform.
Key Provisions
Community Standards – Community Standards are the rules that members of a social media community must follow when they are on the platform. This often includes provisions prohibiting spam and abusive language but can also address illegal activities such as child pornography and making threats of violence.
DMCA Policies – Users of some of the most popular social media portals such as YouTube, TikTok, Facebook, and Instagram upload billions of pieces of content a day. Some of this material uploaded by users may contain copyrighted material owned by someone else. If a user uploads copyrighted material owned by someone else without their permission, this could constitute IP infringement. As the owners of the platform that was used in an infringement, the social media company could, itself, be held liable for infringement – even though it is likely that the social media platform wasn’t even aware the infringing material was posted on its platform.
One element of the Digital Millennium Copyright Act (DMCA) provides a “Safe Harbor” to protect social media platforms from liability for IP infringement that is caused by users of their platforms. Assuming the social media platform follows the rules of the DMCA in creating a DMCA policy and effectively following it, the social media platform cannot be held legally liable for IP infringement caused by its users.
Common Pitfalls
Although many of the pitfalls described above for Terms and Terms of Sale apply to social media eCommerce businesses, an easy way for a social media eCommerce site to find itself in the wrong side of a legal issue is for them to not have or effectively enforce the Community Standards and DMCA Policies.
Other Common eCommerce Agreements
In addition to the foregoing types of eCommerce agreement, some others can include:
Affiliate Marketing Agreements
A great way to market an eCommerce business is through referrals, and eCommerce businesses often create affiliate marketing programs to reward others for driving new customers to their sites. These affiliate marketing arrangements can be valuable but must be clearly defined in an affiliate marketing agreement or program terms.
Content Contributor Agreement
eCommerce businesses often rely on independent contributors to provide content for their sites, such as images, blog posts, or other creative works. It is important that eCommerce businesses clearly define their rights to own or use this content in their agreements with these contributors.
Influencer Agreement
“Influencers” is a broad term for people who have an online presence that is followed by a number of other others over whom they have some ability to influence. These influencers are found on Facebook, YouTube, Instagram, Tik Tok, and other social media platforms. Although past spokespersons were often famous athletes or movie stars, today some top influencers sometimes have millions of followers, which can make them valuable resources to promote eCommerce businesses. But eCommerce businesses who engage influencers to promote their products or services and/or serve as brand ambassadors should carefully negotiate and define all aspects of the relationship through an influencer agreement or similar brand ambassador agreement.
Sweepstakes / Giveaways
A giveaway contest, drawing or sweepstakes can be a great way for an eCommerce business to promote its products or services. However, these games are regulated by a number of state and federal laws, so eCommerce businesses must ensure their sweepstakes and giveaway contests do not run afoul of any of those laws.
Other Agreements
In addition to the above-referenced types of matters, there are a number of “offline” legal issues involved in eCommerce business, such as:
Outsourcing agreements
Search Engine Optimization (SEO) agreements
“Software as a Service” agreements
Technology transfers
Web hosting agreements
Listing agreements
Hosting terms of service
Website sales and lease agreements
Nondisclosure Agreement/Confidentiality Agreements
eCommerce Businesses Should Ensure To Have the Key Legal Agreements Relevant to Their Specific Business
Businesses of all kinds rely on agreements to manage relationships and facilitate their various dealings and transactions among partners, vendors, contributors, investors, and customers. As such, it is important that all businesses employ clear and comprehensive contracts in all their dealings.
While all companies with a web presence should address Internet law issues, eCommerce companies have additional legal issues to resolve. As such, eCommerce businesses should consult with experienced eCommerce lawyers to ensure their eCommerce agreements adequately protect their interests and avoid potential disputes that can destroy valuable business relationships.
To view previous articles in this series:
Part 1: eCommerce Law for Internet-Based Businesses
Part 2: Privacy Law and Requirements for eCommerce Businesses
Part 3: Understanding and Protecting IP in eCommerce Business
ABOUT THE AUTHOR: Jim Chester is a 25-year technology business lawyer, professor and entrepreneur. He is a recognized authority in buying and selling technology businesses, global technology transactions, and providing strategic legal counsel for innovation-based companies. For more on Jim, visit his professional profile. You may email Jim at jim.chester@klemchuk.com.
For more information on eCommerce data privacy, see our Internet Law and eCommerce Legal Services and Industry Focused Legal Solutions pages.