American Internet Law & Electronic Commerce
This newsletter highlights some current legal issues in connection with the Internet and electronic commerce, including intellectual property matters, state laws, jurisdictional questions and international treaties.  Due to the mushrooming growth of Internet and digital technology, electronic commerce has developed rapidly.  Many businesses publish Web pages to increase their exposure on a worldwide basis.  International and jurisdictional legal implications of the Internet have caused controversy in legal circles.  A number of legal issues may affect the expansion and success of the Internet in electronic commerce.  

Trademarks & Domain Names
A business establishing its Web business should protect its trademark and future domain name through various procedures.  Initially, domain names and trademarks should be thoroughly searched.  The business may register its trademark as a domain name to prevent subsequent use by others and future litigation.  In a case of a trademark previously registered as a domain name, a third-party dispute resolution procedure may be initiated to stop an infringing use.  A business desiring to use a different, unregistered symbol as a domain name should undertake a trademark search to ensure it will not infringe another's mark.  If no conflicts are determined, the symbol may be registered as a trademark and domain name.
A mark used on a Web site may be registered provided it fulfills the requirements of the Lanham Act.  A domain name functions as a service mark if it is used to identify the applicant’s services and to indicate the source of the services.  A mark which is used only in the URL for a web site does not satisfy the requirements because it is functionally equivalent to a telephone number or address.  The requirements may be satisfied by several means.  Other questions include the class(es) of filing, acceptable specimens and use in interstate commerce.

Hyperlink Licenses
Hypertext links are popular WWW features which enable users to click on a text or image and be transferred to another web page.  The legal principles concerning these linkages are unclear.  Web browsing which utilizes hyperlinks using a company logo or graphical image as a link may give rise to trademark infringement because there may be an appearance of an association between a web page and a company to which it links.
The Lanham Act provides a cause of action against any person who uses a mark “on or in connection with any goods or services … which is likely to cause confusion, … or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, service or commercial activities by another person.”  Because the hypertext link may imply affiliation or sponsorship of a web page, use of a hyperlink may require a trademark license.  The business may place third parties’ hypertext links on its web pages in a manner that does not imply the third parties as the source of the business’ goods or services.
The most prudent approach is to obtain a trademark license before placing a hypertext link.  Hyperlinking licenses are often reciprocal.  Trademark licensors may need to exercise quality control over the products or services in order for the licensor to preserve its rights in the trademark.


State Laws
California has passed legislation which covers out-of-state vendors using the Internet to advertise, sell, or lease, goods or services.  The Business & Professions Code was amended to add to telephone, mail order or catalogue sales, leases, or offers of sales and leases in California " similar activities by use of the Internet, "or other electronic means of communication or telecommunications device" when engaging in one or more transactions aggregating more than ten dollars.  The legislature intended this law to apply to non-Californian vendors.
The law requires vendors using the Internet or other electronic means of communication to provide specific refund and return policies and certain disclosures to buyers in California.  Because Web pages may be viewed internationally, these laws may impose requirements on vendors throughout the world if any purchaser resides in California.  Although the law includes solicitations and sales, jurisdiction to enforce against a remote Internet seller may require purchases by California residents.

Red Flags
Businesses should establish their cyberspace business with caution.  It is important to avoid the pitfalls of exposure to personal jurisdiction of other states or the application of the laws of another forum.  Businesses using the Internet should take appropriate measures and monitor their activities to limit the scope of their interactions with other jurisdictions in order to eliminate unintended application of laws of those other jurisdictions. 
Internet advertising cannot feasibly be limited geographically.  Accordingly, Internet businesses should define their market area through appropriate notices on its Web page.  Businesses may take actions to refuse transactions from locations outside their circumscribed territory.
Businesses engaging in commerce on the Internet must consider the issues of jurisdiction and the impact use of the Internet may have on its exposure to lawsuits in remote forums.  In the case of Inset Systems Inc. v. Instruction Set Inc., the defendant, a Massachusetts computer technology company, had neither an office nor employees in Connecticut, and did not regularly conduct business there.  However, the Federal District Court held that the defendant was subject to jurisdiction in Connecticut because it did business in Connecticut by advertising on a Web page accessible to Connecticut residents using the name which plaintiff, a software marketing company, had previously trademarked, and by providing a toll-free telephone number which could be used by Connecticut residents to contact defendant.
The U. S. District Court for the Eastern District of Missouri followed the Inset decision in Maritz Inc. v. Cybergold Inc.  The court held that defendant was subject to jurisdiction in Missouri because it used its Berkeley, California, interactive Web site to solicit Internet users.  These cases involved activity on the part of the defendant in the forum state.  It appears that merely having a Web page accessible by users in remote forums probably may be insufficient by itself to confer personal jurisdiction.  The U. S. District Court for the Southern District of California held that merely having a Web site, without more, is insufficient to confer jurisdiction.
Vendors which advertise and process orders for merchandise via a Web site are at risk of being sued by their customers in other states and nations.  Vendors may reduce the risk by avoiding direct solicitations to consumers.  Providing for deliveries FOB the vendor’s place of business reduces one type of contact with customers’ states.  Online contracts may include a forum selection clause which is connected to the transaction and is properly disclosed.
Avoiding unintended contact with other jurisdictions may reduce exposure to lawsuits in remote forums.  A Web page should be designed with particular attention to the business' defined territory.  The market area should be clearly defined and limited on the Web page and the business should institute procedures to identify and prevent transactions originating outside the defined territory.

International Cases & Treaties
Jurisdictional issues in connection with the Internet are being addressed by the courts and through treaties.  In 1996, an Italian Web site operator was ordered by a U.S. court to shut down its site or prohibit U.S. users from accessing the site.  There are recent international treaties which establish international standards for the legal protection of digital property.  Protection of the works of new media business provides incentives to develop and capitalize on their digital property on an international basis.
Two treaties were adopted in Geneva in December 1996 under the auspices of the World Intellectual Property Organization (WIPO).  These new treaties entitled the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty deal with digital copyright protection and new copyright standards.  The treaties protect intellectual property distributed through digital means or in a digital form.  Text, images and music transmitted over the Internet are protected.  The protections are valuable to publishers because digitized works of art, software or movies can be readily duplicated and stolen.  Provisions state that member countries must implement adequate legal protection and effective remedies to prevent theft of digital property.
Under the treaties, member countries must provide sanctions against unauthorized removal or alteration of information identifying the work, its author or the owner of any right in the work when these items are attached to a copy of the work or appear in connection with the communication.  Other sanctions cover unauthorized importation, broadcasting or communication of works with the knowledge that electronic rights management information has been wrongly removed or altered.  The U.S. Senate recently passed legislation to implement provisions of the treaties, however a controversial provision providing protection for databases was eliminated.
The questions of liability for unauthorized use of works on the Internet are not addressed in the treaties and remain subject to country-by-country regulation.  New media businesses encounter difficulties in determining against whom they should enforce their rights when their content is used without permission.  Businesses which may be subject to liability include online services or Internet service providers, Web site owners, and telephone companies.

Trademarks Online
Trademarks are used online in advertising, product identification, online services and domain names.  Information retrieval services create and use trademarks to identify online-specific goods and services.  Online commerce may give rise to trademark infringement disputes. 
The global nature of the Internet may lead to conflict as formerly remote users go online.  Different parties in different countries may have rights to the same mark.  In many cases, it may not be clear which party has the rights to use the mark online.  The laws of different nations may conflict and enforcement rights may be difficult.  These complex legal concerns may not be resolved for several years.  However, there are a number of methods to avoid trademark disputes, including clearing marks for online use and consent and concurrent use arrangements.

Online Licensing
A license is required when the proposed use of technology or content may violate one of the licensor’s intellectual property rights i.e. copyright, patent, trademark, trade secret, publicity or privacy rights.  For example, the Internet permits distribution of content, including online newspapers and magazines, movies and recorded music.  Online distribution may consists of the transmission of a copy to a user’s computer where the copy is stored in the computer’s memory or on its disk drive.  Online distribution of copyrighted subject matter requires a license because it may infringe on the copyright owner’s exclusive rights to reproduce, distribute, publicly display the content.  In addition, trademark and publicity rights may be involved. 
Transmission of music and videos over the Internet permits the music and videos to be heard or viewed by computer users in real time.  These transmissions require a license because they infringe on the copyright owner’s exclusive right of public performance.  A Web page which enables users to play copyrighted music or videos on demand require a performance license from the copyright owners.  Companies which use music online face competing claims from mechanical and performance rights agencies with each agency asserting that online transmission of music falls within its rights.

 Digital Signatures
Secure electronic transmissions require some form of authentication in order to assure the identity of the transaction’s participants.  The purpose of a traditional handwritten signature is to associate a person with a signed document.  Signatures provide evidence of this association as well as a sense of formality.
A digital signature is an electronic signature used in a variety of electronic information transfers.  There are significant differences between digital signatures and other electronic signatures in terms of process and effect.  Digital signatures are more valuable for legal purposes.  Electronic signatures are not as secure as digital signatures, and may create uncertainty and disputes.  Digital signatures are based on mathematical theory and employ algorithms.  The holder of the signature has a two key system for signing and verification (one private and the other public).  It is essential to have a verifiable, trustworthy entity to create and distribute signatures.  These entities are called certification authorities.
A digital signature varies both with the signer and with each signed document.  When a recipient receives a digitally signed communication, the recipient’s computer runs a computer program containing the same algorithm and has function the sender used to create the digital signature.  The program automatically decrypts the digital signature using the sender’s public key.  If the program decrypts the digital signature, the recipient knows that the communication came from the sender and authenticity is verified.  The sender’s public key decrypts the digital signature encrypted with the sender’s private key. 
The program creates a second message digest  and compares the decrypted message digest with the digest the recipient created.  When the two message digests match, the recipient determines that the communication has not been altered, thereby permitting the recipient to verify its integrity.
The legal infrastructure for digital signatures is under development.  Laws will address the rights, duties and liabilities of parties using digital signatures, parties facilitating their usage and parties relying upon them.  Various states have developed legislation and federal legislation is under review.
The Digital Signature Act of 1999 (House Bill 1572) was designed to encourage the development of uniform standards for digital signature technology by focusing on federal agencies rather than commercial applications.  The proposal would require the National Institute of Standards and Technology (NIST), within six months of the bill's enactment, to establish technology-neutral guidelines for use of electronic signatures by federal agencies. It also makes recommendations regarding the development of a uniform national digital signatures infrastructure. 

Extra-territorial application of state law may have the effect of reducing the utility of Internet commerce.  Businesses which market on an international basis will have difficulties complying with applicable laws of 50 American states as well as those of other nations.  Businesses using the Internet may suffer unexpected burdens and liabilities through Internet business.  In the future, these problems may give rise to federal legislation and international treaties governing Internet commerce.
The well-established definitions of jurisdiction and territorial legal boundaries may be inappropriate for the Internet.  A stable legal framework should be established for electronic commerce to cope with the continuing rapid expansion of the Internet.  Businesses need to continually monitor and adapt to the generation of new international and domestic Internet laws and regulations.  

Home | Our Mission | Newsletters | Resources | About Us | Contact Us

31 Regatta Way, Napa, CA 94559 | (415) 571 8880
Copyright © 2014, Fukuda Law Firm     Disclaimer

Our newsletters do not provide legal advice or opinions. Legal questions may be complicated and experienced counsel
should be consulted in connection with particular cases.  Advice should be given relative to specific facts and conditions.