Website Legal Issues: Why Your Terms of Use May Be Critical

If you’re like most folks, you may be annoyed by those boxes you have to check to agree to a website’s Terms of Use when you register.  You may be thinking, “What’s all the fuss about?”

The fuss has to do with protection from the onslaught of potential legal claims that may be brought against a website owner.  The Wild, Wild, Web of mass communication can lead to far reaching and unprecedented liability for a broad range of legal claims from copyright and trademark infringement to tort city — defamation, trade liable, unfair competition, tortious interference with contract and prospective business relations, infliction of emotional distress, misrepresentation, fraud, and violations of rights of publicity and privacy just to name a few.

If your business is based on a website, especially if you allow users to post or upload content onto your site, your website’s Terms of Use can provide critical, legal protection.

Here’s how.

A website’s Terms of Use (or Terms of Service) is actually a legal contract between the website owner and the user.  US courts will recognize a properly drafted Terms of Use as a legally binding contract and enforce the terms and conditions that can limit a website owner’s potential legal liability.  There was a brouhaha about the enforceability of these types of contract in the early days of the Internet because a Terms of Use contract is a legal odd duck.  First, the site owner may not even know the identity of the other party to the contract — the website user.  The website owner essentially sends out an offer to use its website and people across the world may accept.  This acceptance by use is good enough to form a legal contract, but making a user click a box is an even better form of acceptance– hence the boxes required by the wary lawyers.   Second, the terms of the website contract can be unilaterally changed by the website owner at any time by its very terms.  Seriously, this freaks out old school attorneys who don’t practice Internet law but it’s very useful for website owners.  Terms of Use may be legally odd but they have been enforced by the courts.

Terms of Use can protect and help a website owner in many ways:

• A Terms of Use contract can limit and give only a specific court in the website owner’s backyard power over a far away plaintiff’s legal case.  This is critical for a website owner who doesn’t want to face litigation in any state  (or fight jurisdiction).  An arbitration clause in a Terms of Use may also get a website owner out of a nasty class action suit because of a lack of jurisdiction.
• The Terms of Use contract can also have a very broad disclaimer of warranties related to the terrible things that can happen because of using the website and relying on the correctness and safety of its content.  Hurt people want to blame someone and The Terms of Use can legally shift and limit blame.  Malware anyone?
• The Terms of Use can limit permitted conduct and content in social sites and let the companies shift blame for bad things including tortious conduct.  I love the Terms of Use for on-line dating sites.  Good luck trying to sue them for emotional distress from on-line social harassment or a bad date.  (ISPs may have some limited immunity under the Communications Decency Act for third party torts but it is complex and not well established.)
• The Terms of Use can also set up a DMCA Notice and Take Down procedure that can help shield a website owner from copyright infringement by users who upload infringing content.  For a safe harbor, however, you must strictly follow the DMCA rules.  See Heather’s post about getting DMCA protection.
• A Terms of Use contract can also give a website owner a license to the copyright or trademark rights of an owner who uploads it onto the website, once again preventing infringement claims.  A Terms of Use contract can even transfer IP ownership rights of uploaded content to the website owner.  Facebook tried it.  Apparently, some IP lawyer for Facebook thought it would be a good idea if Facebook owned the IP to the uploaded content and it changed its Terms of Use contract to include an IP assignment.  Some artistic Facebook users got hopping mad at the change and Facebook changed its term back to a license.
• Website/software owners can also license downloaded software in its Terms of Use and restrict how others use the software.
• Website owners can also require the users to give warranties that can give the website owner a basis to sue if the warranties are breached.  An example of a website user warranty would be a promise to obey the law.
• My favorite is that a Terms of Use contract can limit DAMAGES.  Yes, it is possible to greatly reduce a possible damage award using a contract term.  A Terms of Use contract can include this big disincentive to sue.  YEA!!!  No website owner wants to be sued.
• I also love that some sites require the website user to INDEMNIFY THEM for claims.  They really pass the legal buck.

There are many ways a Terms of Use contract can protect a website owner but the specific terms need to be based on the activities and interaction on the website.

For kicks, you may want to actually read the Terms of Use before you click the box.  It could enlighten you about the legal rights you are giving up and bestowing.

Jill Hubbard Bowman is an intellectual property attorney who helps website owners protect themselves with contracts.