Contract Law and High Technology
Electronic signatures and the U.S. E-sign Act.
It is a common misconception that the only way that two parties can enter into a contract is if they sign a piece of paper. However a contract merely refers to whether parties have reached an agreement by exchanging promises, not whether they have signed a piece of paper. People and Companies enter into contracts all the time without signing documents. They can talk on the phone or make agreements in personal meetings. Though they can be more difficult to prove than written contracts they are just as legally binding. There are some contracts which are required to be in writing and signed by both parties. These contracts are governed by the "statute of frauds". These include contracts relating to transactions regarding the sale of real estate, services which can not be performed in one year and others. Not all companies are subject to the statute of frauds and therefore do not need a written contract.
Technology, Contracts and "Writings"
E-mail faxes and other on-line communications has raised the question of whether electronic communications are sufficient to create a contract.
This question worked negatively against a man in at least one case. One Georgia man, Steven Earl Norris wanted to sue a construction company and the Georgia State DOT after his wife was killed in an accident at what he claimed to be a poorly built, designed and maintained intersection. The law required Norris to file a "notice of claim" within twelve months after the accident. In an attempt to comply Norris faxed the notice to the DOT which arrived before the twelve month period had expired. He also followed up with a paper letter sent through the mail which arrived one day after the twelve month period expired.
The Georgia State Appeals Court ruled that his claim should have been dismissed because a facsimile transaction did not cover what was commonly refereed to as writing. They stated "...the transmission of beeps and chirps along a telephone line is not a writing as the term is customarily used". Fortunately the Supreme Court reversed the dismissal of Mr. Norris's case. But not because of the fax issue. They overturned the dismissal based on other legal grounds. The Uniform Electronic Transactions Act UETA is a model statute that is designed for adoption by state legislatures. This law was approved by 38 states as of early 2002 and approved by the National Conference of Commissioners on Uniform State Laws (NCCUSL). The heart of the UETA states that a "record or signature may not be denied simply because it is in electronic form". Another law however, the Uniform Computer Information Transactions Act (UCITA) which only covers contracts in "computer information" such as software licenses has only been approved by two states, Maryland and Virginia.
The e-sign Act
In June 2000 Congress stepped in and made a federal law that to govern online contracts, or contracts entered into via high tech means. Congress passed the Electronic Signatures in Global and National Commerce Act (E-Sign Act). This act does not replace UETA. The e-Sign act specifically states that if any state has enacted the UETA then the e-sign act is preempted.
The primary purpose of the e-sign act is to provide legal validity to contracts entered into electronically. The e-sign act provides that "a signature, contract or other record relating to [a] transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form". The Act defines "electronic" as any technology having "electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities. The act makes any contract entered into through electronic means valid, assuming it concurs with all other aspects of a legal contract.
Though the law is a landmark move it does not apply to all transactions. It doesn't apply to Wills, family law transactions, notice of utility cancellation, health insurance cancellation, or product recalls. Because of the concerns of consumer protection groups the law also contains language that when another law requires a written notice or contract that law must be followed. In addition, the law states that the consumer must explicitly consent to receiving the electronic contract and that the consumer must be informed of other rights including the right to have the information provided in writing.
Though the e-sign act was designed to expand and enhance e-commerce it is not widely used yet. Despite the advantages of on-line contracting face to face agreements and the advantages of being in a personal situation when negotiating a contract are obvious.
Website Development Contracts
Website development contracts are intensely important. You can relate building your company's website to hiring a contractor to build the physical building that you would have your offices. You wouldn't enter into a contract with a construction company on a smile and a handshake and neither should you enter into a website development contract either. You website could constitute your entire on-line presence and should be considered very important.
In addition this contract should be a unique contract to your business. there are many "form" development contracts that can be found that you may be tempted to use. However since your company is unique and the needs of your company will vary from another you should consult with your attorney and potential website developer to create a unique contract.
Statement of Work
Like many other contracts the website development contract should include a "statement of work". A statement of work is essentially what the developer is being hired to create. This statement should be as specific as possible, possibly including a mock up of actual pages, site map and descriptions of on-site applications. However because many of these elements may not be immediately known or develop as the site progresses, the contract should also contain a "change order" provision. This provision outlines how changes to the statement of work can be made, whether the developer is obligated to accept them and how much they will cost.
Copyright Issues
You may be surprised to learn that just because a developer designs content or application or a site design for you that doesn't mean that you own the copyrights. The law states that whoever created the work owns the copyright unless the work is "work for hire" or the copy rights are transferred to the the site owner. This can have serious consequences, especially if the developer wants to block you or a future development contractor from changing the web site.
Copy right issues may not be so simple as when the work is done, the site owner obtains all rights to the work. The developer may want to grant full or licensed rights. The developer may be able to use certain applications or images etc. on another project and there for may only want to grant a broad use license. In addition the question of when the rights are transferred should be addressed in the contract as we.. Often a developer may not wish to grant right to his work until he receives full payment of any fees.
Warranties, Indemnification and Insurance
A hiring company may also want to include a clause in the contract that covers any copyright infringement cases that may be brought if the developer uses copyrighted material. The company may also want the contractor to maintain insurance against these types of law suits. The contract should also cover an "indemnification" clause which lays out what the obligations are of the developer if a copyright infringement suit is brought against the company.
Payments and Deadlines
The contract should also cover fees payments and deadlines. Usually a website developer can not determine all fees ahead of time. Often the developer is paid a certain amount ahead of time and then the balance as aspects of the project is completed. Due to the changing nature of developing a website the developer may wish to charge an hourly rate. The contract should also cover this and lay caps on times and fees.
Deadlines may also be a part of the contract. Deadlines provide incentive for the contractor to finish work on time. Especially if a significant portion of the payment will be received upon meeting the deadline. In addition you may want to provide bonuses for early completion, or fines for missing a deadline.
Confidentiality
Another aspect of the contract should be confidentiality. Because of the heavy negotiations, the contractor or developer may not wish to disclose the contract obligations to third parties. The developer may not want his fees to be discussed, the company may not want to tip off a competitor about his plans. In addition through a website development project much sensitive information may be exchanged.
Boilerplate
Wrapping up the contract and to address a number of legal issues, the contract should include "boilerplate" provisions. Some of these could include, among other things:
- Termination: What rights do the parties have to terminate the agreement, when can these rights be exercised, and what are the consequences?
- Jurisdiction: Where will the legal disputes over the agreement be decided?
- Alternate dispute resolution: In lieu of resolving any disputes in court, will they be decided by an alternative dispute resolution process such as arbitration or mediation, and if so, how will the process work?
- Assignment: Will either of the parties be able to assign the entire agreement to another party, for example, if the developer os bought out by someone else?
- Notices and responsible persons. To whom should notices under the agreement be sent and who will be each parties primary contact?
Some other high technology agreements include "click wrap agreements" "shrink wrap agreements" and "browse wrap agreements"
Shrink wrap agreements
These are agreements that are either printed on a box or included inside a box containing commercial software. They often include a lot of legal jargon including copyright clauses, commercial use limitations, and liability limitation clauses. The validity of these contracts have been debated and litigated and the enforceable has generally been upheld.
Click Wrap Agreements
These agreements are the type that you must click a box or link to accept the terms of use on a website or for software or other online purchase. Like shrink wrap agreements, click wrap agreements have been mostly but not universally enforceable.
Browse Wrap Agreements
This refers to agreements that are presented as a link or a page on a website, but don't require the user to take any action to indicate acceptance of the terms. These types of agreements are the least enforceable and are usually used to state broad policies on web sites that don't wish to "require" a user to click or accept a TOS statements in order to use their services.
Tips for creating binding online agreements
- if at all possible use click wrap agreements in lieu of browse wrap agreements. If you must use a browse wrap agreement be sure that the links to it are prominent throughout your website. Still, do not expect courts to enforce its provisions.
- Make sure no terms are obscured in smaller font, or poor coloring etc. and that particularly important provisions are made more prominent, such as bold faced or all caps. Some states require that certain terms, such as the limitations of liability and disclaimers, be made prominent
- Be sure that users can not proceed without clicking the "I agree" (or other appropriately labeled button)
- When presenting the agreement make sure the user can see all of it without altering it.
- Do not assume that any particularly unusual terms will be enforceable.
