Internet/E-commerce and Law:
An Introduction
Professor Xuan-Thao Nguyen
Professor of Law
SMU Dedman School of Law
How Big is the Internet Today?
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1.6 to 2.0 Billion users
China (371M); Japan (93M)
German (52M); UK (47); Russia (38M)
US (233M); Canada (30M)
South America (80M)
Internet Language: English
What Types of Commerce
• B2B Commerce (supply chain; exchangers,
wholesalers to retailers, manufacturers to
distributors to vendors, support, etc.)
– China’s B2B Commerce: $800 B (2010)
– Korean’s B2B Commerce: $176 M USD (92.7% of
all sales)
– U.S. B2B: $$$ Trillion
• B2C Commerce
• C2C Commerce
• Transnational Communication and Commerce
E-commerce
• More than just buying and selling products & services
• Online process of developing, marketing, selling, delivering,
servicing and paying for products and services
• Electronic funds transfer, supply chain management, Internet
marketing, online transaction processing, electronic data
interchange (EDI), inventory management systems, automated
data collection system
E-commerce: A Brief Timeline
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1979: Michael Aldrich invented online shopping[2]
1981: 1982: Minitel was introduced nationwide in France by France Telecom and used
for online ordering.
1990: Tim Berners-Lee writes the first web browser, WorldWideWeb, using a NeXT
computer.
E-commerce: A Brief Timeline
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1994: Netscape releases the Navigator browser under the code name Mozilla.
– Pizza Hut.Pizza Hut (order online); Bank (online); Cars/bikes (online); Adult
content. Netscape 1.0 is introduced in late 1994 SSL encryption that made
transactions secure.
1995: Amazon.com. Dell and Cisco used Internet for commercial transactions. eBay is
founded by computer programmer Pierre Omidyar as AuctionWeb.
1998: Electronic postal stamps can be purchased and downloaded for printing from the
Web.
1998: Alibaba Group is established in China. And it leverage China's B2B and C2C,
B2C(Taobao) market by it's Authentication System.
1999: Business.com sold for US $7.5 million to eCompanies, which was purchased in
1997 for US $149,000. The peer-to-peer filesharing software Napster launches. ATG
Stores launches to sell decorative items for the home online.
2000: The Dot-com Bust.
E-commerce: A Brief Timeline
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2002: eBay acquires PayPal for $1.5 billion.[3] Niche retail companies CSN Stores and NetShops
are founded with the concept of selling products through several targeted domains, rather than a
central portal.
2003: Amazon.com posts first yearly profit.
2007: Business.com acquired by R.H. Donnelley for $345 million.[4]
2009: Zappos.com acquired by Amazon.com for $928 million.[5] Retail Convergence, operator of
private sale website RueLaLa.com, acquired by GSI Commerce for $180 million, plus up to $170
million in earn-out payments based on performance through 2012.[6]
2010: Groupon reportedly rejects a $6 billion offer from Google. Instead, the group buying
websites plans to go ahead with an IPO in mid-2011.[7]
2011: US eCommerce and Online Retail sales projected to reach $197 billion, an increase of 12
percent over 2010.[8] Quidsi.com, parent company of Diapers.com, acquired by Amazon.com for
$500 million in cash and plus $45 million in debt and other obligations.[9]
Topics
• Website Fundamentals
• Domain name (keywords, search,
branding)
• Content (copyrighted, non-copyrighted,
User-Generated Content)
• Terms of Use
Topics
• Terms of Use
• Online Contracts
• Jurisdiction, Choice of Law, Dispute
Settlements
• Access to & Control of Content
• UGC Content, Ownership & Liability
• Defamation, ISP Immunity
• Privacy & Website’s Policy
Validity of Online Contracts?
• A contract of adhesion?
• exists where one party has absolutely
no bargaining power
• or ability to change the contract terms
• a contract of adhesion is not
automatically unconscionable
Validity of Online Contracts
• Clickwrap contract
• Review/scroll through terms and
consent to the K by clicking “I Agree”
button
Validity of Online Contracts:
Browse-wrap Contracts
• Terms/conditions/agreement posted at the website or
accessible via hyperlink, no express assent
• Specht v. Netscape (2nd Cir. 2002)
– terms were not visible or only visible if the user scrolled
down the screen below the download button, no mutual
assent could be inferred, K not enforceable
• Barnett v. NSI, (Tex. App. 2001)
– user had to scroll through the contract before purchasing
the product, had opportunity to read & understand the
forum selection provision, K was upheld
• Register v. Verio, 356 F.3d 393 (2nd Cir. 2004): The
terms are visible to the user
Validity of Online Contracts:
Neither Click nor Browse
• Hotels.com v. Canales
• “I Agree to the Terms and Conditions Book
Reservation” Button
• “By proceeding with this reservation you
agree to all Terms and Conditions …
contained in the User Agreement”
• The User Agreement was a hyperlink
• Whether the link was sufficient notice of the
binding arbitration provision?
Company Name in Email:
Does it give sender authority to contract?
• From albert@recoveryexpress.com
• Re: purchase of out of service railcars
• “lynn, this is albert arillota from interstate demolition
and recovery express we are interested in buying rail
and cars for scrap paying you a percentage of what
the amm make ..”
• $115K invoice
• Email domain name (@recoveryexpress.com) cannot
be relied to cloak the message sender with apparent
authority to bind the company to a contract
Forum Selection Clause
• User Agreement
• “I Accept” button in order to register
• “must be resolved by a court located in
Santa Clara County, California”
• No bad faith or lack of notice
• Nazaruk v. eBay (Utah Dist. 9/14/06)
Forum Selection Clause:
Unreasonable
• EarthLink: Internet Service Provider, GA
• ISP subscriber agreement: arbitration in GA
to resolve billing disputes
• Forum selection clause: “unreasonable
geographic barrier”
• Aral v. Earthlink (Cal. Ct. App 2005)
• Travel 2,000 miles to arbitrate for a recovery
of a small monetary sum on DSL service
• class action waiver was unconscionable
Forum Selection Clause:
Unreasonable
• AOL: VA company
• Clickwrap Agreement
• Internet Terms of Service Agreement:
all disputes be litigated in Virginia
• Forum selection clause: unenforceable
as applied to claims that could be
brought in NY small claims courts,
• Scarcella v. AOL, N.Y. Sup. Ct.
Breach of Contract
& Consumer Fraud Claim
• Booking hotel reservation online
• You: U.S. citizen, in London
• Hyatt (based in Illinois): quoted price $502
USD per night for Moscow
• “the price paid at the time of hotel checkout
will be in the currency initially quoted and
displayed.”
• You: were billed in Russian rubles, more
than quoted price
Breach of Contract
& Consumer Fraud Claim
• Shaw v. Hyatt
• Lower Ct:
– insufficient connection to Illinois, no support for contention
for deceptive practices occurred in Illinois
– Express K between Shaw & Hyatt preempted the Consumer
Fraud Claim
• 7th Cir:
– reservations about the nexus ruling, but did not resolve it;
– consumer fraud argument relies exclusively on the express
promises made at the website; breach of contract claim
Internet & Personal Jurisdiction
Informational Web Site
• Non-resident Defendant: operates an
informational web site
• Contact info, mailing address, telephone
number at site
• Applied Zippo test
• Quality Design & Const. Inc. v. Tuff Coat Mfg,
(La. App. 1 2006) (first impression)
• No minimum contacts
Internet & Personal Jurisdiction
Interactive Web Site
• Non-resident Defendant Doctors: info, bio,
job description at Hospital’s web site
• Physicians register for continued education
courses at site
• No doctors interaction with patients online
• Schexnayder v. Daniels (Tx. App. 2006)
• No minimum contacts
Internet & Personal Jurisdiction
Single Unlawful Email
• Non-resident Defendant: a single unsolicited
email advertisement to a state resident
• Arizona-based mortgage broker sent an email
(allegedly unlawful message – spam mail)
• Fenn v. Mleads Enterprises (Utah Supreme
Court)
• No minimum contacts
Internet & Personal Jurisdiction
Repeated Conduct
• Georgia Buyer: purchased car at auction web
site; nonresident, Florida Seller
• Seller: No officers, employees, offices, or
business affiliates in Georgia
• regularly solicit business in Georgia through
the Internet
• Aero Toy Store, LLC v. Grieves (Ga. App.
2006)
• Minimum contacts
Internet & Personal Jurisdiction
Accessing Data & Email Servers
• Defendant: in Missouri, accessed former ER’s
data & email Servers in Texas
• Texas Ct. has personal jurisdiction over nonresident Defendant?
• Did not apply the Zippo’s spectrum of activity
test
• Applied Calder v. Jones “Effects” test
• Remote Access Constituted Minimum
Contacts
Internet & Personal Jurisdiction
“Electronic Contact”
• Earthlink v. Pope (N.D. Ga. 8/31/06)
• Spammers
– masking the origin of spam by routing it through
ISP’s mail servers;
– messages “originated” from ISP
• “this process of masking involved connections
to and from EarthLink’s network in Georgia”
• Personal Jurisdiction was also proper under
the “effects” test of Calder v. Jones
– burden imposed by spammers’ 8 billion email
messages on EarthLink’s network
borderless jurisdiction
• Spam Filter Co.: England; Spamming illegal
in the UK
• Blocking incoming Illinois spam in Britain
• Blacklist of spammers
• e360 Insight v. The Spamhaus Project
• Tortious interference; Default Judgment of
$11.7 million in compensatory damages;
Injunctive Relief
• No personal jurisdiction over Defendant?
Internet & Privacy
Online Publication of Already-Public Data
• NJ’s online publication of the personal
assets of casino gaming officials
• Public disclosure (paper records)
required by law
• No Privacy violation
• Price v. Corzine
Databases: Security & Breach
• Federal Trade Commission Act, Section 5,
codified as 15 U.S.C. §§ 41-58
• Companies with deceptive practices
• Claims: Use the best technology available to
protect consumer information
• But in reality the company fails to use
reasonable technology
• Consumer database is kept in readable form,
not encrypted
Databases: Security & Breach
• FTC case: BJ Wholesale Club (June 16, 2005)
• 150 warehouse clubs and operates in 16
eastern states
• Credit and debit cards purchase information:
stored in computer network that was easily
hacked
• Thousands of credit and debit cards were
compromised and several million dollars of
purchased occurred
Databases: Security & Breach
• FTC case: Petco.com (2004)
• “customers’ data is strictly protected
against any unauthorized access …
100% safeguard of your shopping
experience guarantee so you never
have to worry about the safety of your
credit card information.”
• Nonencrypted format
Databases: Security & Breach
FTC case: TowerRecords.com (2004)
• Your privacy is important to us…
Accounts are password protected.
Tower Records.com takes step to
ensure your information is treated
securely …
Databases: Security & Breach
FTC case: TowerRecords.com (2004)
• Unfortunately, no data transmission
over the Internet can be guaranteed
100% secure. While we strive to
protect your personal information,
TowerRecords.com cannot ensure or
warrant the security or services and you
do so as your own risk.
Databases: Security & Breach
FTC case: TowerRecords.com (2004)
• Once we receive your transmission, we
make our best effort to ensure its
security on our system
Databases: Security & Breach
FTC case: TowerRecords.com (2004)
• Consumer can review their purchase
record history
• TowerRecords.com redesigned their
“checkout” features and failed to
include “authentication code”
• Allowed others to view consumer’s
purchase record history
Consumer Databases:
Privacy & Misleading Policy
• FTC case: Gateway Learning Corp. (2004)
• Gateway does not sell, rent, loan … consumer
information
• Gateway promises to notify consumer if there
are material changes to its privacy policy
practice
• Gateway promises that it will provide
consumer means to opt-out. However,
Gateway sold consumer information to third
party
FTC Case: Vision I; March 10, 2005
• Vision I licenses shopping cart software (used
by merchants’ website at the checkout page)
• Merchants’ websites post Privacy Policy (“we
do not sell, rent, lease, loan, share consumer
information”)
• At the checkout pages, Vision I collects
personal info., credit card information
• Vision I sold the consumer information to
third party
Online Privacy Policy:
Binding Contract?
• In re Northwest Airlines Privacy
Litigation, 2004 WL 1278459 (D.
Minn. June 6, 2004).
• Online privacy statement was not a
binding contract
• Privacy Policy was merely a “general
statement of policy and discretion”
Internet & Privacy
Consumer Data
• NY State AG Office case (not FTC case)
• Privacy Policies posted at web sites
• “will never give out, sell, or lend your name
or information to anyone;” “would not
provide your email address to our business
partners”
• Gratis: 6 web sites offering free products;
data mining/sold info to email marketers
• AG Office’s earlier settlement with Datran
Media, $1.1M (customer of Gratis)
Internet & Libel
• Immunity to web site operators for third party’s
posting
• 47 U.S.C. 230(c)(1): “no provider or user of an
interactive computer service shall be treated as the
publisher or speaker of any information provided by
another content provider”
• Cisneros v. Sanchez (operated an online forum,
authored false postings about Plaintiff)
• Anthony v. Yahoo (created false profiles and posted
false statements about others in Yahoo’s online
dating services)
Internet & Libel
• Hosting embarrassing sex-related content
posted by a third party
• Web site operator added offensive descriptive
words, organized the content, publicized it to
search engines
• Landry-Belle v. Various
• Immunity under CDC sec. 230
• But see Whitney Info Network v. Xcentric
Ventures (11th Cir. 8/1/06): substantial
editing equals authorship?
Internet & IP:
Domain Names & Trademarks
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TLDs (.com, .gov, .edu, .biz)
57,713,945 (.com)
8,260,140 (.net)
5,140,425 (.org)
3,587,992 (.info)
Internet & IP:
Domain Names & Trademarks
• Yahoo v. Yahooahtos.com (E.D.Va.)
• No in personam jurisdiction over defendant
• Anticybersquatting Consumer Protection Act
(“ACPA”): In rem action against domain
names
• 1,865 domain names
• Publish notice of the action? Waived? Or
required?
Internet & IP:
Domain Names & Trademarks
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UDRP (Uniform Dispute Resolution Policy)
Worldwide, inexpensive
Binding UDRP decisions on U.S. courts?
TM owner v. domain name registrant; TM owner
prevailed; UDRP order to transfer domain name
• Losing party sought a declaratory judgment in federal
court that the TM is neither famous nor distinctive
• DJ plaintiff’s remedy? Injunction blocking an earlier
transfer order issued by a UDRP panel?
• Stenzel v. Pifer (W.D. Wa. July 26, 2006)
Internet & IP:
Bad Faith Use of Trademarks
• Lands’ End: affiliate program, 5%
commission on sales made to users referred
to the Lands’ End web site.
• Defendant owned a dozen typosquatting
domain names of the Lands’ End trademark
(landdend.com, landsennd.com)
• Route users to Lands’ End after it invisibly
taking users through one of the three
affiliates web site
• Lands’ End v. Remy, ACPA claim
Internet & IP:
Trademarks & Initial Interest Confusion
• Attempts to divert traffic to defendant’s site
• Australian Gold v. Hatfield, 10th Cir
– Plaintiff’s trademark in the meta tags
– the use of paid-search service triggered by queries
for the trademark
• Complaint filed in CNG Financial Corp v.
Google,
– TMs as keyword triggers to competitor’s site
• Offline world, competing products are on the
same shelves!
Internet & IP:
Virtual Property (from the Real World)
• Online fantasy baseball league
• Use MLB players’ names, their statistics
• Must the online company obtain a license?
Violate Right of Publicity?
• C.B.C. Distribution & Marketing v. MLB
Advanced Media (E.D. Mo. 8/8/06)
• Not taking “commercial advantage” of the
players’ identities; the fantasy league’s use
was not of sponsorship or endorsement
Internet & IP:
Virtual Property (from the Virtual World)
• Online interactive games
• MMORPGs: fantasy adventure games,
fantastic environment, combat, quests
• Anonymous players worldwide cooperate to
achieve the feats (develop characters)
• Virtual sweatshops in China, Latin America,
Eastern Europe: players 12 hours/day
(“Farming”)
• Secondary market of virtual characters
Internet & IP:
Compilation of E-forms
• Legal forms: “factual works”, no copyright
protection
• Defendant copied 350 of the 576 forms of the
compilation of E-forms
• E-form compilation: “copyright protection is
very limited and usually requires substantial
verbatim copying. 61% can hardly be
considered the ‘same’ selection”
• LawMode v. Lexis Nexis (6th Cir. 9/15/06)