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Legal Watch: The Trouble With Websites

Fri, 02/08/2013 - 4:45pm
Fred Mendelsohn, Partner at Burke, Warren, Mackay & Serritella, P.C. in Chicago

This article first appeared in the 2013 Industrial Distribution January/February issue. You can view it here.

There are now over 600 million active websites available on the Internet, and this number continues to grow every day. In a world ruled and fueled by technology, creating a website has become increasingly easy—as simple as choosing a hosting site, selecting color schemes, inserting text, and clicking “Okay.” While easy to do, website creation has spawned an array of legal concerns that are important for businesses to consider. Intellectual property rights are just the tip of the legal iceberg: avoiding the use of images that do not belong to you; having the necessary disclaimers in place to avoid privacy concerns; being sure not to copy the original work of others; and not infringing on the trade or service marks of others are all important considerations. Beneath and beyond these basic “Do’s & Don’ts” lie the larger and more treacherous hazards.

Every successful business manages its legal rights and obligations associated with operating the business. While even passive websites (i.e., ones that convey information only) can expose a business to any number of legal claims – including misrepresentation (either fraudulent or negligent), defamation, false advertising, and claims of unfair competition – interactive websites carry an additional level of exposure arising out of conducting business on the site. These sites typically allow visitors to place orders for goods and/or services, interface with customer service representatives, and obtain product and service information. For businesses who operate fully interactive websites, all of the fundamental transactional terms involving purchase, delivery, returns, and warranties must be made intrinsic to the website’s operation, to minimize exposure to legal claims.

In this context, it is important to determine exactly who the potential customers of the business are. Sales into foreign jurisdictions – interstate as well as international – can possibly expose your business to lawsuits in those jurisdictions, as well as the laws of the outside jurisdiction, particularly if your website disclaimers fail to adequately address issues such as in what courts (or other venues) your business may be sued, and what substantive law applies to any disputes involving your company.

Even within the United States, businesses can be sued in states beyond the operations of their physical location. Several courts have held that companies’ internet transactions directed to a state other than their “home” state (e.g., advertising activities, order placement, and online returns, service and warranty support) can rise to the level of “purposeful availment” and prove sufficient to allow for suit to proceed in another state.  While there is no “one size fits all” test to determine when a business can be sued in a foreign jurisdiction or in another state, the costs of litigating in another jurisdiction can be burdensome to say the least, and there is a potential to lose “home state advantage.” The lesson here is to ensure that disclaimers are properly drafted, covering key legal issues such as choice of forum and choice of law, to avoid foreign claims.

Regardless of how interactive the website, businesses must be cautious and precise with what is actually said on their sites. Companies looking to file suit as to a failed good or service, or some other defect in the business conducted with your company, will undoubtedly review your company’s website to see what it asserted about your products and services. Statements made as to the quality of your company’s performance, how its products compare to others, and similar statements oftentimes show up in lawsuits, whether or not the plaintiff does business with your company over the Internet. In one of my recent cases, many statements by the client about its capabilities with respect to the products and services it offered were used against it, heavily and offensively, in what turned out to be significant and costly litigation. Questions arose as to the truth or falsity of representations about the products and services, which were exacerbated by language on the company’s website. Businesses must ensure that any statement made on their website is accurate. If puffery or opinion is used, these statements must be clearly labeled as such, or (at a minimum) be so clearly hyperbolic that no reasonable person would take the statement seriously.

As with advertising in the Yellow Pages of yesteryear, most contemporary business owners find maintaining a website to be a competitive necessity. Business owners should proceed with caution and consider seriously the legal issues in marketing, sales, advertisements, and other components of selling goods or services on the Internet.

For more information on topics discussed in this article, please contact Fred Mendelsohn at fmendelsohn@burkelaw.com or at 312-840-7004.

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