E-Commerce Law: Common Issues Facing E-Commerce Businesses

Issue # 3: Website Terms of Use

From a legal standpoint, the most important page of any website may be its Terms of Use page, which describes the terms and conditions which govern the relationship between the user of the website and its publisher. Properly drafted Terms of Use can be an invaluable tool in protecting e-commerce businesses from frivolous lawsuits and crippling legal exposure.

Though the Terms of Use used by many websites are similar they are not a "one-size fits all" solution. Each e-commerce business has a unique relationship with its customers which must be reflected in its Terms of Use. Moreover, Internet contract law differs from jurisdiction to jurisdiction and changes over time, as more courts are called upon to interpret and enforce these agreements.

In addition to terms and conditions addressing the specific website content at issue, most Terms of Use contain clauses addressing one or more of the following issues:

Choice of Forum. Choice of Forum provisions permit the parties to a contract to select, with certain limitations, the jurisdiction in which any disputes pertaining to their relationship are resolved. In many instances, a website’s Terms of Use purports to require any legal action pertaining to the website to be brought in the jurisdiction in which the publisher is located, which may be quite inconvenient for a distant user of the site.

Choice of Law. Choice of Law provisions permit the parties to a contract to select, with certain limitations, which jurisdiction’s laws will be applicable to their relationship. Generally, a website’s Terms of Use will apply the law of: (1) the jurisdiction whose laws are most favorable to the publisher; (2) the jurisdiction in which the publisher is physically located; or (3) the jurisdiction whose laws are most familiar to the attorney who drafted the contract.

Limitation of Liability. These provisions permit one or both parties to place certain limitations on their liability for breaching the agreement of the parties. Properly written, Limitation of Liability provisions can cap a party’s legal exposure for certain conduct.

Indemnification. Indemnification provisions permit a party to shift the burden associated with an anticipated loss to the other party. In many instances, a website’s Terms of Use require the user of a website to indemnify the website’s publisher against any losses associated with the use of the website’s content.

Attorneys’ Fees and Costs. In the American judicial system, a party is generally required to pay his or her own legal fees and expenses, win or lose. However, parties to a contract may, with certain limitations, require that a party who loses in a legal action brought pursuant to the agreement pay the attorneys’ fees and costs incurred by the prevailing party.

As in the drafting of any other written contract, businesses should seek competent advice from a properly licensed attorney. The failure to do so may result in Terms of Use that provide no protection to the e-commerce business or, worst yet, may create legal exposure where none previously existed.

For general information on Internet contracts, see Internet Contracts on Squidoo.

Previous Posts in this Series

Issue # 1: Protection of Domain Names

Issue # 2: Protection of Original Website Content

Update (5/15/2006): Digg this post

"Common Issues Faced by E-Commerce Businesses" is a seven-part series appearing each Tuesday afternoon on E-Commerce Law. Readers are reminded that all of the information on this site is provided for informational purposes only and is not intended to be a substitute for legal counsel. No one should act or refrain from acting on the basis of any content included on this site but should instead seek the appropriate legal advice on the particular facts and circumstances at issue from a properly licensed attorney.

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