Does your company’s website “comply?” This isn’t easy to answer as compliance comes in many different forms. Some websites may simply advertise your company’s services or products. Other sites may solicit orders. Yet others may allow for more interactivity such as chat rooms, bulletin boards, and content posted by others. Whatever the site does, there are numerous laws, regulations, guidelines at both the state and federal level that may impact your company’s site. In fact, even if your company is in full compliance with Massachusetts law, there may be numerous federal laws that impose additional requirements.
What Can Happen if My Company’s Website is Not in Compliance?
While compliance may be a broad and sometimes ambiguous concept, the risks of non-compliance are not. In fact, they are all too understandable. If your company fails to comply with certain laws or regulations, it can find itself subject to any number of legal actions. For example:
- Federal agencies such as the Federal Trade Commission can bring enforcement actions that subject your company and its practices to a great deal of public scrutiny and can result in the payment of restitution, fines, and penalties;
- State Attorneys General can also bring individual state enforcement actions and can impose fines and penalties as well. As a general rule, if one state’s Attorney General brings an action, it tends to attract the attention of other states, especially if your company is doing business in those states;
- In some cases, an individual plaintiff may be able to sue your company for monetary damages; and
- If enough people have been harmed by a particular practice, multiple plaintiffs may be able to sue your company as a class action lawsuit.
As detrimental as this can be, it’s only the tip of the iceberg. Legal proceedings of any kind, particularly those involving government agencies, tend to attract media attention. This type of negative publicity, whether warranted or not, can hurt your company’s image and bottom line.
What Should My Company Do?
It’s far less expensive and troublesome to determine if there are any issues with your site before serious legal problems develop. This is where we come in. We are proficient in a wide range of compliance issues across many industries. These issues can have a material impact on your business strategy. We are proactive in finding and correcting problems before they impact your company’s bottom line. Our web site audits examine every page of your site, including its content, layout, interactivity, agreements and licenses, privacy statements, and the overall usage and purpose of your site. We bring any potential problems to your attention and give you proposed solutions.
Don’t wait until you receive a demand letter or complaint from an attorney or government agency to learn of a problem! While many areas of a website can be a problem, here are a few of the main ones of which you should be aware and which we incorporate into our audit:
- Advertising;
- On-Line Contests and Promotions;
- Contracts;
- Intellectual Property;
- Defamation;
- Privacy;
- Linking; and
- Trade Secrets.
Advertising
Advertising your company’s products and services on the Internet could expose your company to federal and state liability. At the federal level, the Federal Trade Commission (“FTC”) ensures that companies do not engage in unfair or deceptive acts or practices in advertising and promoting products. At the state level, the Attorney General is typically responsible for ensuring that the state’s residents are not misled or harmed by advertisements.
Your company should minimize its liability associated when advertising its products or services. In the age of widespread and instantaneous communication, an advertising gaffe can quickly become a public relations nightmare.
The way in which you describe your company’s products or services on your website is important. The FTC applies 3 principles to on-line advertisements:
- Advertising must be truthful and not misleading;
- Advertisers must be able to substantiate their claims; and
- Advertisements cannot be unfair.
If these principles seem general and somewhat vague to you, you’re not alone. There are specific rules and guidelines that exist for certain types of products and industries. However, these principles are meant to give the FTC a great deal of discretion when deciding whether an advertisement or promotional practice is deceptive. The FTC will look at the “overall net impression” of an advertisement to determine its effect on the hypothetical “reasonable consumer.” In addition, the use of disclosures and disclaimers in these advertisements also receives a great deal of scrutiny and has many rules you must follow closely.
On-Line Sweepstakes and Promotions
On-line sweepstakes and promotions are common marketing tools. If they are designed properly and lawfully, they can attract new customers and provide important demographic information to your company. If they are designed improperly, the state and/or federal government can initiate an enforcement action against you. For example, in addition to federal laws, Massachusetts and all other states have laws that regulate whether a promotion (such as a sweepstakes) constitutes an illegal lottery. For a lottery to exist, 3 elements have to be present:
- Prize;
- Chance; and
- Consideration.
In order to have a lawful sweepstakes, one of these elements must be eliminated. In addition, depending upon the State where the promotion is held (and what the promotion is) there may be other regulations in place which must be followed. For example, in states such as New York, Florida and Rhode Island, you may have to register your sweepstakes before you start.
A “prize” can be anything of value. It could be a TV, a free vacation, a gift certificate to a Boston restaurant, or substantial savings off of a future purchase. Since “value” can be defined broadly, a prize can include many different types of things.
The element of “chance” refers to the how the outcome of the promotion is determined, i.e., it is fortuitous and not within the control of the participants. This can include randomly selecting a name from all customers who frequent a website, selecting the first 50 people who respond to the promotion, or predicting the winners of a sporting event. If the outcome is based on skill and not chance, then there is no lottery and the sweepstakes would be legal. Skill-based promotions are generally referred to as “contests” and not “sweepstakes”.
The element of “consideration” is often one of the more problematic areas for on-line promotions. Consideration means asking for something of value from participants. It could be the payment of money. It can also mean asking participants to spend a great deal of time to complete the promotion’s entry requirements. Asking an entrant to engage in numerous time-consuming steps to enter the contest could constitute consideration in some states. If your company is randomly giving away a prize on the basis of chance, the element of consideration must be eliminated. Otherwise, you could be running an illegal lottery and subject to sanctions.
If your company’s promotion is directed at children under the age of 13, then you must comply with the Children’s On-Line Privacy Protection Act (“COPPA”) and any FTC rules that have been developed in association with it. This is an area in which the FTC and many states have been extremely aggressive in pursuing violators. Children don’t have the necessary judgment to decide for themselves what personal information should be shared when they are completing entry forms for promotions (or simply registering to use a site). Federal legislation was passed that contains guidelines as to what steps a company must take when marketing to children. Violations of COPPA can result in substantial penalties.
In short, on-line promotions should be assessed carefully before making them available to the public. The above areas are just a few of the issues that should be evaluated. We can help your company develop appropriate promotions that are consistent with the many guidelines, regulations, and laws which govern their operation and legality while giving your company access to important marketing and demographic information.
Contracts
As mentioned in the Contracts section, it’s crucial to make sure that the contracts your company is using on its website are legally binding and appropriate. Perhaps your company’s site is licensing its content to others. Perhaps it’s advertising products and soliciting orders from all over the country. Whatever its purpose, your company’s entire business—no matter how ingenious, timely, or in demand it may be—is premised upon having legally enforceable rights. If your rights are enforceable, then your company will be able to make money and grow.
We will carefully examine the contracts on your site to ensure that they protect your company and that common ‘loopholes’ are not exploited to render them ineffective. We will offer suggestions and alternatives where possible and address potential problems before they have a detrimental impact on your company’s operations or bottom line. The best time to address these issues is before they become actual problems for your business.
Intellectual Property
Many people believe that because someone posts content on the Internet, such as a picture, recording, or newspaper article, it’s “free for the taking.” Nothing could be further from the truth. Using another party’s content on your site can result in liability under the copyright statute.
Copyright infringement is what’s known as a “strict liability” crime. This means that you could be liable even if you had no knowledge of the infringement. If the content belongs to someone else and you are using it without the owner’s permission, you could be liable. This could result in being forced to remove the content and the payment of damages and attorney’s fees. The problem can become even more complicated if you allow other parties to post content on your company’s site. The use of another’s trademarks could also create liability as well.
We will examine the content on your website, whether it is text, images, sound recordings, or video, to ensure that you have the legitimate rights to use it. We will review licenses, assignments, work-for-hire, and employment agreements to make sure that your company’s site doesn’t expose you to liability. We will also determine if your company qualifies as a “safe harbor,” which can exempt you from liability for the copyright infringement of others in certain instances. If we discover areas of concern, we will notify you and propose solutions before problems arise.
Defamation
The posting of content may not just violate intellectual property rights. Certain types of content can damage another person’s reputation. Defamation occurs when someone makes a false statement to a third party which injures another person’s reputation.
On the Internet, the number of third parties that can be reached instantaneously is nearly limitless. Defamatory material can take on a life of its own in cyberspace. It’s rapidly disseminated to other sites, often impossible to stop, difficult to find the responsible party, and easy to do. For example, an anonymous poster located in Boston can easily defame someone halfway across the country in Oregon (or beyond) with a single posting. Furthermore, due to the freedom of speech in this country and other First Amendment interests, defamation is one of the most complex areas of the law.
It’s all too easy on an Internet message board, chat room, discussion forum, or in an e-mail for a person to casually or intentionally make a defamatory statement about someone else. For example, comments impugning a person’s honesty or integrity are common, as are comments relating to a person’s health or family. There have been many cases brought by company executives, stock brokers, doctors, teachers, and others alleging damage to their reputations because of postings in cyberspace. If your company’s site allows for the posting of content from third parties, it’s critical to ensure that you have considered the available legal options when people raise allegations of defamation.
For instance, your company may actually be immune from liability for defamatory content posted by others in certain circumstances. Section 509 of the Telecommunications Act of 1996, commonly referred to as the “Good Samaritan” exception, can insulate a company from liability in many instances and provide broad protection. This exception only applies to content that is developed by a third party, and not to information that your company creates and posts on the Internet. Nevertheless, if your company posts content by others, it’s important to be aware of this important statute. We will review your content and determine if it is problematic. If so, we will outline the steps to take to lessen these risks.
Linking
The widespread use of hypertext linking has made the Internet a vast and rapidly growing network. It’s easy to place and add links to a website. The ease of linking, however, does not necessarily mean that there is no liability for linking to a site. Many links may not pose a problem, however, some may expose your company to liability. This is especially true if there’s no linking agreement in place between your company and the site to which it links.
For example, links which “frame” the content of another site in your company’s website can give rise to a claim of trademark infringement and/or unfair competition. This can be a problem if the overall impression falsely implies a commercial association between the two sites. “Deep links” that bypass another company’s homepage to link to particular content within that site may also be problematic. In addition, linking to sites that promote illegal acts such as copyright infringement could also expose a company to liability. Copyright and trademark liability could also arise if the link itself incorporates a protected work (such as a company’s trademark or copyrighted image).
There are instances when the widespread practice of linking can carry certain risks for your company. We can help identify these risks and mitigate them where possible. We can also negotiate and draft linking agreements on your behalf between your company and any other sites to which you wish to link.
Privacy
As mentioned in the Privacy section, don’t underestimate the importance of privacy to your customers and to your company’s public image. In addition to privacy laws at both the state and federal level, data security legislation like that passed in California can force your company to make embarrassing public disclosures when breaches occur. This can seriously impact a company’s financial future. This in itself should motivate most companies to carefully examine their privacy practices when handling customers’ information. We will review your company’s privacy policies and data handling practices to determine if they are appropriate, current, and offer the required level of protection.
Trade Secrets
As noted in the Trade Secrets section, in order for trade secrets to be protectable, the information must remain secret to all those outside of the company. Trade secrets are not always disclosed due to improper motives such as theft. Sometimes companies mistakenly divulge sensitive information on their own websites or in other forums to impress potential customers. While this could result in loss of the trade secret, it may be possible in some very limited circumstances to still maintain trade secret status. For this to happen, your company must act very quickly. In any case, your company shouldn’t divulge any more information than it has to.
