LEGAL IMPLICATIONS OF ELECTRONIC COMMUNICATIONS IN THE WORKPLACE

Business Law & Corporate Counsel Section Program

Speaker:

John G. Browning Thompson Coe

700 North Pearl Street, 25th Floor Plaza of the Americas Dallas, Texas 75201

(214) 871-8215

Author:

Irene Kosturakis BMC Software, Inc. 2101 CityWest Blvd.

Houston, Texas 77042 (713) 918-2689

irene.kosturakis@bmc.com

Thursday, June 10, 2010 9:45 a.m. – 10:30 a.m.

Irene Kosturakis Irene Kosturakis is Chief Intellectual Property Counsel at BMC Software, Inc., where she is responsible for all intellectual property matters for the Company, including patent acquisition, development and maintenance of the patent and trademark portfolios, patent litigation, copyrights, intellectual property transactions, and industry standards-setting efforts. Irene Kosturakis came to BMC in 2006 with over 16 years experience handling intellectual property issues at the Hewlett-Packard Company and Compaq Computer Corporation. At HP, she performed in the role of IP transactions attorney, including licensing, development agreements, and mergers and acquisitions for the business unit she supported. While at Compaq, Irene went through the two largest IT industry mergers at the time: Compaq/Digital Equipment and HP/Compaq. During the Compaq/DEC merger, Irene successfully merged the patent portfolios of the two companies. At Compaq, she managed the company’s patent portfolio, establishing strategy and processes for growing it into an assertable and valuable patent portfolio. Irene is licensed to practice law in the State of Texas and is a registered patent attorney. She is Past President of the Houston Chapter of the Association of Corporate Counsel, which currently has over 900 in-house lawyer members, and is currently on its Board. Outside of work, Irene is also an adjunct professor at South Texas College of Law for its International Business Transactions course. She is the Chairperson of the State Bar's Business Law Section E-Commerce Committee. In that capacity, Irene presided over the drafting of the State Bar’s comments to Texas’s Uniform Electronic Transactions Act, which was enacted during the 2001st legislative session, and over the consideration of the Uniform Computer Information Transactions Act (UCITA), which was drafted to be the uniform act on licensing. Her committee drafted an anti-botnet bill, which became effective on September 1, 2009. Irene is also a member of the Houston Intellectual Property Lawyers Association (HIPLA). Each year, together with Lynne Liberato and Michael Godfrey, Irene plans the Advanced In-house Counsel Seminar. She is also a Houston Volunteer Lawyer assisting indigent bilingual and handicapped clients on simple family law matters, including divorces. Irene has a Masters of Law in Intellectual Property from the University of Houston, a J.D. from South Texas College of Law, a Masters of Science in Civil Engineering from the University of Houston, and a Bachelor of Science in Civil Engineering from the University of Texas at El Paso.

E-LIABILITY IN AN E-WORLD

IRENE KOSTURAKIS1

BMC Software, Inc. 2101 CityWest Blvd.

Houston, Texas 77042 (713) 918-2689

irene.kosturakis@bmc.com

State Bar of Texas 7th

ANNUAL ADVANCED BUSINESS LAW COURSE October 22-23, 2009

Houston

CHAPTER 16

1 The views and opinions expressed in this Article are solely those of the author and do not reflect or represent the views of BMC Software, Inc.

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TABLE OF CONTENTS

I. INTRODUCTION.................................................................................................................................................. 1 II. DOWNLOADING INFORMATION AND SOFTWARE FROM THE WEB, AND ECOMMERCE ................ 1 A. Downloading Software and other Copyrighted Information............................................................................. 1 B. E-commerce and Formation of Electronic Contracts ........................................................................................ 6 III. BUSINESSES AND POTENTIAL ELIABILITY................................................................................................. 8 A. Online Advertisers, Conduits of Information, and Mass Information Providers .............................................. 8 B. Liability Associated with the Distribution of Computer Programs ................................................................... 9 C. Blogging by Employees and Resultant Liability ............................................................................................. 12 D. Linking to Another’s Web Site ....................................................................................................................... 14 IV. CONCLUSION .................................................................................................................................................... 14 Blogging Policy Tips ................................................................................................................................................... 15

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E-LIABILITY IN AN E-WORLD I. INTRODUCTION

We all use the Internet extensively, both in our personal and our professional lives. We use it to acquire information and content posted there, to communicate with others, and sometimes even to convey information about ourselves. Businesses in particular use the Internet to consummate business transactions, conduct research, and disseminate information about their companies and products. Potential liability varies depending on how a company’s employees use the Internet. Liability may be avoided or at least minimized and risk may be managed by giving employees a basic knowledge of copyright and other laws related to online transactions and counseling employees on their use of the Internet.

II. DOWNLOADING INFORMATION AND SOFTWARE FROM THE WEB, AND E-COMMERCE Company employees use the Internet to conduct

research and download information for their employer. Research is sometimes conducted by accessing informational databases to which the company subscribes, but the majority of the times, employees use content that is freely available on the Web. Mining the Web for information might be a necessary aspect of an employee’s job, or may be a diversion in which employees indulge from time to time.

A. Downloading software and other copyrighted information Online content is generally protected by

copyright. Informational databases and financial services that are available on the Web are accessible under subscriber agreements or express license agreements. License agreements are standard-form contracts that conditionally transfer information or technology or grant limited rights to use information or technology. Unif. Computer Information Transactions Act2 § 102 Official Comment 37 available at http://www.law.uh.edu/ucc2b/UCITA_final_02.pdf (For more information about license agreements, see infra III.B.4). Many times, however, online content is made available under an implied license grant under copyright law. 1. Copyright

Copyrightable works of authorship include literary works, such as stories, poems, magazine

2 The Uniform Computer Information Transactions Act has only been enacted in Virginia and Maryland, but is an excellent reference when drafting licenses.

articles, and even software’s human-readable source code; pictorial works, such as images, graphics, and works of art; musical works, their accompanying words, musical arrangements, and sound recordings; and dramatic works, choreographic works, movies, broadcasts, and video recordings. Digital Millennium Copyright Act, 17 U.S.C. § 102 (2008) (hereinafter “the Copyright Act”). These types of works are accessed or downloaded by millions of end users every day from the Internet. The copyright protection in original works of authorship springs into existence upon the work being “fixed in any tangible medium of expression.” Id. “Fixed” means that the expression has been captured such that the work can later be “perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” 17 U.S.C. § 102(a) (2008). For example, a speech delivered orally in a live setting is not copyrightable, but a recording of the speech as it is delivered is protected by copyright because it has been recorded and therefore “fixed” in a tangible medium. At the moment of recording, the speech becomes protected by copyright and, in the U.S., there is no other requirement, not even a copyright notice, for copyright to exist in a work. 17 U.S.C. § 401(a) (2008) (“a notice of copyright as provided by this section may be placed on publicly distributed copies . . .”) (emphasis added). Online content is “fixed” in a tangible medium because it has been captured such that the work can be perceived with the aid of a server, a computer, and a computer screen.

Copyright grants to the author certain exclusive rights. 17 U.S.C. § 106 (2008). The exclusive rights granted by the Copyright Act include the rights to (1) reproduce the work, (2) prepare derivative works based upon the work, i.e., to modify the work, (3) publicly distribute copies of the work by sale, rental, lease, or other transfer of ownership, (4) publicly perform the work, and (5) publicly display the work. Id. The copyright owner may license one or more of these rights to others, or not, at the owner’s discretion. Should another person exercise any of these rights without permission, the copyright owner may bring a cause of action for copyright infringement against the infringer. Proving copyright infringement requires proof of (A) ownership of a valid copyright, (B) factual copying, and (C) substantial similarity. Armour v. Knowles, 512 F.3d 147, 152 (5th Cir. 2007). Similarity is shown when the similarity between the allegedly infringing work and the infringed work is so striking that it can only be explained by actual copying rather than by coincidence, independent creation or prior common

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source. Id. at n. 3 (citing Selle v. Gibb, 741 F.2d 896, 904 (7th Cir. 1984)). If, for example, a literary work is reproduced or distributed and it is substantially similar to someone’s copyrighted work, the owner of the copyright may bring a cause of action for infringement. Copyright does not prohibit someone from using the facts or ideas contained in a work of authorship; it only prohibits someone from copying the author’s expression of those facts and ideas. 17 U.S.C. § 102(b) (2008) (“In no case does copyright protection for an original work of authorship extend to any idea, . . . regardless of the form in which it is described, explained, illustrated, or embodied in such work”); Feist Publ’ns v. Rural Tel. Serv., 111 S.Ct. 1282, 1289, 1296 (1991) (holding that names, towns, and telephone numbers from telephone directory white pages are uncopyrightable facts); Harper & Row Publishers, Inc. v. Nation Enters., 105 S.Ct. 2218, 2228-2229 (1985)(holding historical facts not protectable by copyright). 2. Implied Licenses

As mentioned above, almost all content on the Internet is protected by copyright, and yet most of it is not provided under an express or written license granting any of the rights under copyright. How is it then that we may access it, download it, and print it (thereby reproducing it) without violating the copyright owner’s exclusively-granted rights under copyright?

The case law around implied licenses assists us in finding an answer. A license is a defense to copyright infringement. Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 558-9 (9th Cir. 1990, cert. denied Danforth v. Cohen, 111 S.Ct. 1003 (1991). Consent to use a copyrighted work does not need to be verbally manifested; consent may be inferred from silence when the copyright owner knows of the use and encourages it. Field v. Google, 412 F.Supp.2d 1106, 1115-1116 (D.Nev. 2006). In certain cases, an author’s exclusive copyright rights may be granted under an “implied” copyright license. Lulirama Ltd., Inc. v.

Axcess Broadcast Servs., Inc., 128 F.3d 872, 879 (5thh

Cir. 1997); see also I.A.E., Inc. v. Shaver, 74 F.3d 768,775 (7th Cir. 1996); Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 557 (9th Cir. 1990, cert. denied Danforth v. Cohen, 111 S.Ct. 1003 (1991). An implied license is one that is non-excusive and not expressly stated; it is implied from the conduct of the parties, custom and practice in the relevant community, and the circumstances of the situation. To determine whether there is an implied license granted or not, we must consider the totality of the parties’ conduct. 3 MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT Sec. 10.03[a][7], at 10-49 (2008); see also Nelson-Salabes, Inc. v.

Morningside Dev., LLC, 284 F.3d 505, 515 (4th Cir. 2002). An implied license permits the use of a copyrighted work in a particular manner. I.A.E., Inc. v. Shaver, 74 F.3d 768,775 (7th Cir. 1996). In Field v. Google, the court granted Google summary judgment in its defense of implied license, holding that the plaintiff granted Google an implied license to display “cached” links to web pages containing his copyrighted works. Field v. Google, 412 F.Supp.2d 1106 (D.Nev. 2006). To assist in determining whether an implied license is granted, consider the following factors: (1) the conduct of the parties, (2) the community custom and practice, and (3) the circumstances of the situation. An analysis of these factors in the context of an end user accessing content online may give us some guidance, keeping in mind that because these are “implied” license rights, the boundaries of their scope and terms are not bright-line clear.

First, the conduct of the parties is examined. The author or copyright owner has posted the content on the Web, for all who access the website on which it is posted to see. Upon posting the content on a website, without requiring as a pre-condition to being able to access it that an express license be read and agreed to, the copyright owner is enabling the end user to do the following things. The end user inputs the website’s URL (or accesses it by clicking a search engine’s result) and arrives at the website where the content is posted. Upon clicking on the website’s URL or inputting it into the browser window, a copy of the content is “downloaded” onto the end user’s Internet service provider’s (ISP’s) server and onto the end user’s computer and displayed on her computer monitor. When a website is accessed in this manner, it is inevitable that two copies are made: a copy of the content is made on the end user’s ISP’s server and another copy is made on the computer being used by the end user. The copyright right of reproduction has indeed been exercised.

Examining next the second factor, the community custom and practice, it can be said that the practice is for the end user to view the content on screen and print the content on paper to be able to view it off screen. Again, the right to create paper (or any kind of) copies is an exclusive copyright right of the author or copyright owner. That exclusive right under copyright, therefore, is implicated. Finally, the third factor, the circumstances of the situation, is assessed by considering that the end user will use the information for its “intended purpose.” Just exactly what this intended purpose is, may be gleaned by the nature of the content itself. For example, if it is a recipe, the end user may use the recipe to follow its steps and make the subject of the recipe. If it is

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information about the Civil War, found while performing research on that subject, it may be used as reference material to create an original work of authorship, having different expression, containing historical facts about the Civil War.

So far, the conduct of the parties, the community custom and practice, and the circumstances of the situation, all support that the end user has not violated copyright. The author or copyright owner has the option of posting the content online, or not. The fact that the content is posted and accessible to all, including the end user, indicates that the author or copyright owner has granted implied license rights to make copies of the content on the end user’s (or her ISP’s) server and on her computer. The end user can not impede that from happening. It happens automatically upon accessing the website, and the copyright owner knows that is what will happen. As the Field v. Google court stated:

with knowledge of how Google would use the copyrighted works he placed on those pages, and with knowledge that he could prevent such use, Field instead made a conscious decision to permit it. His conduct is reasonably interpreted as the grant of a license to Google for that use.

412 F.Supp.2d 1106, 1116 (D.Nev. 2006) (citing Keane Dealer Servs., Inc. v. Harts, 968 F.Supp. 944, 947 (S.D.N.Y. 1997) (copyright owner’s knowledge of defendant’s use coupled with owner’s silence constituted an implied license). It is also safe to assume the copyright owner has inferred that the end user may display the content on her computer screen. Again, the end user can not keep that from happening, and the copyright owner knows that is what will happen. (The content being visible on the end user’s computer screen is a display of the copyrighted content, but probably not a “public display” as stated by Section 106(5) of the Copyright Act). It is expected by custom and practice that the end user will likely print out a copy of the content on her printer to make it possible to view the content off screen. How many printed copies may the end user make? Custom and practice would not permit that the end user make multiple copies of the content or distribute such copies to others, but making a single printed copy for the end user’s personal use is probably expected and customary. How about being able to distribute that one copy to another person? Again, these rights are not completely clear, so it may be best, as the conservative approach, to assume that the end user does not have an implied license to distribute any printed copies to others. (Although it could reasonably be argued that distributing the one copy to another person is no

different than the other person printing out her own copy).

As for the intended use, if the user is conducting research to create her own work of authorship, practice would dictate that the end user use the online content to read, internalize, and come up with original expression of her own. The user would also be expected to and should cite the web site as a source reference in her bibliography.

We can conclude that it is likely that the copyright owner who posts online content without requiring assent to an express license agreement is granting the following rights: the right to create copies on the server and end user node, the right to print a single hard copy, and the right to use the content for its intended purpose. These are all the rights that may reasonably be implied. 3. Relying on Copyright Protection

As mentioned above, when information or software is offered as online content without an express license, implied license rights are nevertheless granted. See supra § II.A.2. Relying on such implied license rights can be efficient: there is no express license agreement to display and to which assent by click is required. Moreover, there is no express license agreement to have to translate and localize into other languages so that end users in other jurisdictions may assent in a knowing manner. There is a benefit to the copyright owner posting the content online, i.e., the avoidance of the overhead cost and administrative burden of distributing the content under express license terms. By providing the information online without express license rights that restrict the use of the content, the copyright owner is relying solely on the protections of copyright law. While this is better than having no protection at all, doing this, however, has other consequences, which expose the copyright owner to liability in a greater way. There are several disadvantages to relying solely on copyright protection and not offering the content under express license rights. An implied license is deficient in that it fails to limit the copyright owner’s liability to the end user because (a) it does not disclaim warranties, (b) it does not limit the licensee’s exclusive remedies, (c) the implied (and unwitting) licensor (the copyright owner) may be subject to unlimited liability for the implied licensee’s damages resulting from infringement of third-party intellectual property rights, and (d) if the content is software, there is no express prohibition on the implied licensee against reverse engineering, decompiling, or disassembling the software.

Any savings in overhead cost and avoidance of the administrative burden of distributing the

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content under express license terms is cancelled by these additional fonts of e-liability that the copyright owner takes on when relying solely on copyright for protection. It behooves the copyright owner to consider offering the content under express license terms and conditions.

4. Fair Use of Online Content

As discussed in the above Sections, copyright prohibits the reproduction of copyrighted works of authorship, the public distribution, the public display and performance of the work, and the creation of derivative works, that is, the modification of the copyrighted work. See supra § II.A.1. Employers minimize their exposure to potential e-liability resulting from employees’ actions by training employees in the liability they can create by assuming that content on the Web is the employee’s to use. Untrained employees may think it perfectly harmless to use on-line content in the form of text, pictures, photos, or competitors’ logos in works of authorship they create for their employer. While the rights to download Web content and display it on a computer monitor may be implied (as discussed above in Section II.A.2.), the rights to make more than a single copy of the work, to publicly distribute copies of the work, to publicly display the work (for example, on another website), or to create derivative works of the original, are not implied. Furthermore, the right to use another’s trademarked logos in commerce is also not a right implied under trademark law. Such actions will expose employers to e-liability in the form of claims by the copyright owner of the original work for copyright infringement and by the trademark owner for claims of trademark infringement.

The implied license rights under copyright, which are discussed in the previous Section, avoid e-liability. Another way to avoid liability for copyright infringement is found in the Copyright Act’s fair use exception, Section 107. Section 107 states that notwithstanding the copyright owner’s exclusive rights to a work of authorship, fair use, including use by reproduction in copies may be made of the work without incurring infringement liability “for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research.” 17 U.S.C. § 107 (2008). Fair use is evaluated on a case-by-case basis and is not precisely defined. H.R. No. 94-1476, 94th Cong., 2nd Sess. (1976) available at 17 U.S.C.A. § 107 (2005) Historical and Statutory Notes, p. 241 (“Although the courts have considered and ruled upon the fair use doctrine over and over again, no real definition of the concept has ever emerged. Indeed, . . . no generally applicable definition is possible, and each case raising the question must be decided on its own facts.”). In determining whether fair use has been made of a work,

several factors are considered. The factors are (1) the purpose or character of the use, (2) the nature of the work, (3) how much of the work has been used, and (4) the impact the use has on the potential market for the original work or its value. 17 U.S.C. § 107 (2008).

The “purpose or character of the use” factor evaluates whether the use being made of the original work is a commercial use or is a use for nonprofit, educational purposes. The “fair use defense” is not precluded just because it is a commercial enterprise using the copyrighted content. Ass’n of Am. Med. Colleges v. Mikaelian, 571 F. Supp. 144, 152 (E.D. Pa. 1983), aff’d, 734 F.2d 3 (3rd Cir. 1984). Commercial use, however, is “is less favored than nonprofit use.” Id. The goal of this factor is to encourage education without raising the costs of educational institutions. Id. Even if the purpose for which a commercial entity copies the copyrighted material is for the education of its employees, however, the entity should be able to pay the copyright owner a fee for using the owner’s work. Id. Commercial enterprises, therefore, are not generally the intended beneficiaries of the fair use exception.

The next factor, “the nature of the work,” considers whether the original work is highly expressive or instead fact-intensive in nature. Examples of highly expressive works are books, stories, and poems. Their expressive nature argues against another’s fair use of them. On the other hand, factual compilations, derivative works, or works that do not rise to the level of creativity required to be “expression” might be considered to have “thin” or no copyright protection. Feist Publ’ns v. Rural Tel. Serv., 111 S.Ct. 1282, 1289 (1991); Campbell v. Acuff-Rose Music, Inc., 114 S.Ct. 1164, 1175 (1994).

Assessing the amount of the original work for which “fair use” has been made is the next factor. Using a de minimis or small portion of the work would argue in favor of permitting the fair use. Using large portions of the work, however, would argue against fair use. Harper & Row Publishers, Inc. v. Nation Enters., 105 S.Ct. 2218, 2228-2251 (1985) (holding that use by a magazine of 6 quotes, which amounted to 300 out of 200,000 words, was excessive and therefore was not fair use of the copyrighted expression).

The impact the use has on the potential market for or value of the original work of authorship is the fourth factor. If the use made of the original work minimally affects the market for it, fair use may be made of it. In the analysis of this factor, a court would take into account whether the new work (A) is “transformative,” such that a new work has been

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created, adding to the body of works of authorship, and (B) does not affect the market for the original work. Campbell v. Acuff-Rose Music, Inc., 114 S.Ct. 1164, 1175 (1994). For example, a parody or satire of a work would not affect the market or value of the original work. Id. (remanding for the lower court to make this assessment for a parody of Roy Orbison’s Pretty Woman song); Harper & Row Publishers, Inc. v. Nation Enters., 105 S.Ct. 2218, 2228-2229 (1985).

As an example, let us assess these four factors for the case in which an employee downloads online content, such as a marketing piece or advertisement, and uses it in the employer’s business, by making a copy, modifying the content, and including 85% of it in a marketing piece for the benefit of the employer. In such case, the first factor would argue against permitting the fair use because of the commercial purpose; the nature of the work, which is an advertisement, is considered to be an expressive work, which also argues against allowing fair use; using 85% of the original work is quite substantial and therefore would not weigh in favor of excused use; and the new advertisement created may not affect the market for the original copyrighted work of authorship, which weighs in favor of fair use. Taking all four factors into account, fair use would not be likely. As mentioned before, commercial uses of copyrighted works do not easily pass the fair use test.

The bottom line is that any unauthorized commercial use of a work will expose a company to potential claims of e-liability in the form of copyright infringement, as well as to negative publicity. 5. Other Ways to Avoid E-Liability

Besides implied license rights and the fair use defense, there are other ways that e-liability may be avoided. A Copyright Clearance Center license allows reproduction of copyrighted materials. When all else fails, the permission of the copyright owner should be sought.

a. Making Copies of Copyrighted Content

One way to safely make copies of copyrighted content such as magazine or journal articles is to obtain a license from the Copyright Clearance Center (CCC). Employees of a company that owns such a license may print copies of copyrighted works, which are listed on the CCC’s lists as being licensed. The rights under the work’s CCC license are limited to those permitted by the author, as disclosed on the CCC’s website. To purchase a CCC license, the business provides the CCC with the number of professional employees employed by the business. The CCC applies a dollar amount per employee, and the license is paid annually.

Not all publications are affiliated with CCC, but many are. See the following website:

http://www.copyright.com/ for information about CCC licenses, obtaining online permissions, and how to purchase a blanket annual license that authorizes employees to reproduce copyrighted works of authorship. Once a blanket annual license is purchased, employees can be trained to know that before they may copy or distribute an article to members of their team, they need to make sure the article is on the CCC list of publications. Coverage for a specific publication may be verified by inputting the requested information at the following website in the window found at the upper right-hand corner at: http://www.copyright.com/ccc/search.do?operation=show&page=annual.

This window requests a title or an ISBN/ISSN number. (Such numbers can be found on publications either on the back page or inside the cover, where the legal notices can be found. Newspapers have their ISBN/ISSN numbers directly below the masthead). Clicking on “GO” will cause a list to come up. “Permission Options” must be selected. The employee must scroll down below the heading “Annual License Options.” If there is coverage, it will state, “Covered by CCC Annual License – Business.” If there is no coverage, it will state “No coverage.” If there is not coverage for the publication, the employee must obtain written permission from the publisher or author to copy and distribute the article. b. Requests for Permission

The CCC license is good insurance against claims of copyright infringement against employees making copies of magazines, trade journals, newspapers, and other publications, but what if a commercial enterprise would like to use copyrighted content verbatim, graphs, images, or photos in its commercial work? In that case, permission must be sought and obtained expressly from the author, artist, or photographer before the work can be used. Getting the attention of an author or copyright owner is not always easy, and obtaining permission generally takes a long time and may come with a cost. The request is usually ignored because there is little to gain for the author/copyright owner. Some authors and copyright owners have the policy that they ignore such requests and that others who copy their content do so at their own risk. Some copyright owners and authors try to consider such requests and make a decision to grant the right to reprint (or not). The grant can be memorialized in a simple, signed writing, which serves as a license agreement, requiring the requester to include the phrase, “Used with Permission of [Copyright Owner]” next to the reproduction of the original work.

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c. Moral Rights Moral rights may also be a consideration, factor,

or impediment when there is a desire to use online content. In the U.S., moral rights apply solely to visual works of authorship and are protected under the Visual Artists Rights Act of 1990 as Section 106A of the Copyright Act. See 17 U.S.C. § 106A (2008). They are much more important under the laws of European and other foreign countries.

Moral rights are owned by the author of a work and consist of the author’s rights relating to reputation. Moral rights include the rights to (i) have control over changes or modifications to the work, (ii) decide who owns the work, and (iii) decide what use is made of the work. See Betsey Rosenblatt, Moral Rights Basics, available at: http://cyber.law.harvard.edu/property/library/moralprimer.html.

An example of a fairly simple request that became complicated due to moral rights considerations was a request to approve the use of a picture of The Louvre Museum in Paris for reprint in a calendar that was to be distributed to customers. The first step was to investigate the rights to use the picture, but it was what was in the picture that became problematic and eventually resulted in an inability to approve use of the picture. The picture in question can be found on Wikipedia at: http://commons.wikimedia.org/wiki/Image:Louvre_2007_02_24_c.jpg. The picture displays the glass pyramid that is physically located in front of The Louvre Museum. Under French laws, two permissions were required: one from the photographer, to use the photograph, the other from the architect of the glass pyramid. Authorization from the architect of the glass pyramid was required because under copyright law, the term for protection for architectural works (70 years from first publication) had not elapsed. Under French moral rights law, failure to obtain prior authorization from the architect could result in a maximum penalty of 300,000 Euros plus three years imprisonment! Attempts to contact the museum to find out how much authorization would cost were unsuccessful. (It should be noted that The Louvre has recently strengthened the enforcement of moral rights, making it more difficult to take pictures in front of The Louvre, in sight of the glass pyramid). Careful assessment of whether use could be made of the picture, which was available on the Wikipedia website, averted e-liability. B. E-commerce and Formation of Electronic Contracts

It is basic that when two parties contract, there must be capacity to contract, an offer, mutual assent, and consideration. During face-to-face or telephonic negotiations, it is fairly easy to determine if there is

mutual assent. The other party indicates her acceptance by nodding or saying “Yes,” and then signs a hard copy of the agreement. When contracting electronically, however, it is sometimes difficult to ascertain if the other party has understood the terms of the bargain sufficiently enough to assent. Even the consideration is intangible; usually it is a promise to have payment made by a credit card company or a future bank transfer. There is no hard-copy signature of either party, and authentication is always a problem: neither side is absolutely sure of the identity of the other contracting party.

Despite these shortcomings, electronic transactions occur trillions of times per day, many of them without using the security of digital signatures or encryption. Beware What You Swipe For: Electronic Fraud Up 10 Fold, THE JAKARTA POST, Dec. 12, 2008, available at 2008 WLNR 23818343.

A legal requirement, however, such as that agreement be set forth in pen and paper writings, “raises real barriers to the effective use of electronic media” and are impediments to the success of electronic commerce. Unif. Electronic Transactions Act, Prefatory Note p. 1(1999).

The Uniform Electronic Transactions Act (“UETA”), which can be found at: http://www.law.upenn.edu/bll/archives/ulc/ecom/ueta_final.pdf, deals squarely with the issue of the validity of electronic signatures and records. It was drafted to provide States a uniform law to “remove barriers to electronic commerce by validating and effectuating electronic records and signatures.” Unif. Electronic Transactions Act, Prefatory Note p. 1 (1999). The way this is accomplished is by clearly stating that if an electronic signature is provided, it is as valid as a handwritten signature to bind the signing party. This is a significant statement, and one without which e-commerce can never be successful.

Although written with government and commercial parties in mind, the UETA also applies to parties in other contexts as long as the parties have agreed to transact electronically. Unif. Electronic Transactions Act § 5(b) (1999). All that is needed is a party’s acquiescence to transact electronically. Acquiescence, however, may be inferred from a party’s actions. Thus, the agreement to contract electronically is assessed by looking at all the “surrounding circumstances, including the parties’ conduct.” Id. For example, handing out a business card bearing an email address infers that the person has agreed to communicate electronically for business purposes. In the absence of other conduct, however, it is not reasonable to assume that the person agrees to contract electronically.

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Unif. Electronic Transactions Act § 5 Comment 4.B (1999). Something more than handing out a business card with an email address on it would be required for there to be an inference that the owner of the business card has agreed to contract electronically.

If, however, the parties decide to contract electronically, the following is a provision that may be used in the contract to ensure that such intent is truly conveyed to satisfy the UETA:

Both parties agree that this Agreement may be formed electronically. By clicking, the ‘I Agree’ button or by otherwise performing an act that attaches or logically associates this contract to a communication from an authorized representative of each party signifying such party’s agreement, each party acknowledges (a) its agreement to these terms and conditions, including those in links provided, and (b) that each party is doing so with the intent to electronically ‘execute’ this Agreement. In the alternative, the parties will have their respective authorized representatives sign duplicate originals of this form with pen and ink in the spaces provided below.

Under the provisions of the UETA, a contract may also be formed between an electronic agent and an individual. Electronic agents, which are programmed machines, may contract on behalf of their principals and bind them as if the principals themselves were acting, without any review by a human. Unif. Electronic Transactions Act § 14 (1999).

Errors in electronic contracting also receive treatment under this Act. When a person makes an error in electronic contracting (such as pressing the “I accept” button inadvertently, or making a typo resulting in the ordering of 100 widgets instead of 10), liability may result. There are three main rules in the UETA’s Section 10 that discuss what happens when there are errors in electronic transactions. The first rule is that if the parties have agreed to use a security procedure to detect errors and one party conforms to the procedure, but the other does not, the conforming party may avoid the effect of the error. The second rule is that a party may avoid the effect of an erroneous electronic record, resulting from a dealing with the other party’s electronic agent, if no opportunity was provided for the prevention or correction of the error and the individual (a) promptly notifies the other party of the error and of the fact that the individual does not intend to be bound by the electronic record; (b) takes reasonable steps to return the consideration received as a result of the erroneous record; and (c) has not used or received any benefit or value from the consideration received. Third, the

parties’ arrangement and the law of mistake govern all other errors. Unif. Electronic Transactions Act § 10 (1999). The second and third rules described above may not be varied by contractual agreement. Id.

The Uniform Electronic Transactions Act provides clear rules with a goal of consistency and certainty for parties dealing in the electronic realm. Inconsistency and uncertainty make it more likely that parties will suffer e-liability. Furthermore, uncertainty means inefficiency, which results in barriers to e-commerce and unnecessary costs. Patricia Fry, Impressions on California’s Changes to the Uniform Electronic Transactions Act, Analysis & Perspective, Electronic Commerce and Law Rep. (BNA) Vol. 4, No. 48 (Dec. 22, 1999), p. 1193.

Congress realized that electronic contracting would not be successful if each state had its own set of requirements that contracting parties would have to meet in any given electronic transaction. Congress believed so strongly in the importance of the uniformity of an electronic signatures act, that it passed the Electronic Signatures in Global and National Commerce Act (“E-Sign Act”), which became effective October 1, 2000.

The provisions of the E-Sign Act are similar to those of the Uniform Electronic Transactions Act. Like the UETA, in Section 101, the E-Sign Act emphasizes that e-signatures and e-contracts may not be denied legal effect, validity, or enforceability solely because they are in electronic form. Electronic Signatures in Global and National Commerce Act (codified as 15 U.S.C. § 7001(a) (2008)). The greatest difference between the two acts appears to be in the area of consumer protections. While the UETA does not address the issue, E-Sign provides that electronic records should never serve as notices for certain hardship situations, such as notices for utility service terminations, property foreclosures, repossessions, and evictions; cancellation of health insurance coverage; product liability recalls; and documents required to accompany hazardous waste handling or transportation. 15 U.S.C. § 7003 (b) (2008). Section 101(c) of the E-Sign Act requires that in such situations, a special consent process be followed before an electronic notice can replace a legally-required written notice. 15 U.S.C. § 7001(c) (2008).

The E-Sign Act provides that it does not preempt a State’s UETA if it has been enacted without modification. 15 U.S.C. § 7004 (b)(2) (2008). Desirous of retaining state control over its laws, the 77th Texas Legislature enacted the UETA. Its effective date is January 1, 2002, and it can be found in the Business and Commerce code as Chapter 43 and online is available at:

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http://www.statutes.legis.state.tx.us/DocViewer.aspx?K2DocKey=odbc%3a%2f%2fSOTW%2fASUPUBLIC.dbo.vwSOTW%2fBC%2fS%2fBC.43%40SOTW&QueryText=%22electronic+transactions%22&HighlightType=1. Texas passed the UETA with some minor amendments none of which are expected to trigger preemption under the E-Sign Act. Forty-five other states have also enacted the UETA. For a map showing which states have and have not enacted the UETA, see: http://www.ncsl.org/programs/lis/CIP/ueta-statutes.htm. III. BUSINESSES AND POTENTIAL E-

LIABILITY There are several businesses that bear more

potential liability exposure in the electronic world than others. Advertisers, providers of mass information, and businesses that act as conduits of information over the Internet reach a great number of end users. Due to the sheer numbers of the audience, the liability for torts such as misrepresentation or the negligent provision of inaccurate information could be significant. Companies that develop, market, and distribute software also have to be concerned with e-liability, especially liability that may result from the use of third-party code, and, due to the advent and popularity of open source code, made available online, this is something they should be concerned with. Companies that develop or distribute software, or have it developed for them, worry (i) that the code “developed” not have been misappropriated from another party; (ii) about how their developers’ use third-party code in the employer’s proprietary code base and about complying with the third-party’s license terms and conditions; and (iii) that they be able to limit liability to their own end users. A. Online advertisers, conduits of information,

and mass information providers Businesses that provide information, act as

conduits to make information accessible to the public. Companies, such as Lexis, Westlaw, and financial information services, are purveyors of information to subscribers in the form of databases. America On-line, MSN, and countless others are conduits of information and content, i.e., Internet service providers (ISPs). Many companies advertise online products and services.

Potential liability arises from these online activities due to the possibility of distributing inaccurate or misleading information upon which someone relies and is harmed thereby. Whether the provision of information or advertisement is online or not, the same basic rules apply to causes of action alleging that the plaintiff relied upon inaccurate or

misleading information. Due to the millions of people who access information over the Internet on a daily basis, however, being an online mass provider of information, a conduit of online information, or advertising online provides greater exposure for the purveyor of such information.

The law around what a purveyor of information may be liable for when providing information is fairly clear and is surprising: except in very limited circumstances, mass information providers are generally not liable for inaccurate or negligent information or misrepresentations, even if it is foreseeable that the information will be relied upon and was relied upon to someone’s detriment. See generally, Joel Rothstein Wolfson, Electronic Mass Information Providers and Section 552 of the Restatement (Second) of Torts: the First Amendment Casts a Long Shadow, 29 RUTGERS L.J. 67 (1997) (hereinafter referred to as “Electronic Mass Information”).

On the other hand, those who do not fit the case law definitions of mass information providers are liable for negligently provided information. These are parties who have a special relationship with the person harmed. They include professionals (such as attorneys, accountants, and architects); semi-professionals (such as contractors or termite inspectors); banks and credit unions; real estate brokers, escrow agents, appraisers, and title companies; those with a fiduciary duty to speak (such as those who write securities offering documents); and those with a special relationship to the harmed party (for example, insurance companies). Electronic Mass Information at 77-81, 118.

Commercial advertisers, however, are generally not liable for negligent misrepresentation. Electronic Mass Information at 104. One major exception occurs whenever there is a seal or certification provided, i.e., a seal of approval. The Good Housekeeping seal is an example. Id. at 106. A seal of approval acts as a guarantee that the advertising claims made are truthful. The other instance where an advertiser has been found to be liable was in the Soldier of Fortune case, where a magazine published the advertiser’s ad, which offered services as a gun for hire, and the advertiser was in fact commissioned to assassinate someone and the person targeted for assassination was assassinated. Id. at 107. Braun v. Soldier of Fortune Magazine, Inc., 968 F.2d 1110 (11th Cir. 1992), cert. denied, 113 S.Ct. 1028 (1993).

The Uniform Computer Information Transactions Act (“UCITA”) also discusses the liability of online advertisers and provides some guidance. Even though it has only been enacted as a

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uniform law in Virginia and Maryland, the Uniform Computer Information Transactions Act is an excellent reference when drafting licenses. Its commentary not only contains a survey of licensing law, but it also provides in-depth analysis of how to approach information transactions of all types. The final version may be found at: http://www.law.uh.edu/ucc2b/UCITA_final_02.pdf.

The UCITA states that if it becomes part of the basis of the bargain, advertising relating to the information, descriptions of information, and demonstrations of a final product provided by a licensor, create an express warranty that the information will conform to the advertising, description, or demonstration. It is not necessary to use the “warranty” or “guaranty” words. Unif. Computer Information Transactions Act § 402 (1999). An express warranty is not created, however, by puffery or mere statements of opinion. Id. B. Liability Associated with the Distribution of

Computer Programs Implied license rights, which are discussed above

in Section II.A.2, and the ease of duplication and ease of dissemination of information over the Internet argue in favor of using a license agreement to limit a software provider’s potential liability. Like the standard form contracts that are used in many industries, licenses create huge cost savings and market efficiencies that result in widespread availability and relatively lower cost for users than if there were individual negotiations over rights. ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1451 (7th Cir. 1996) (quoting Rest. (2d) of Contracts § 211 comment a (1981)) (“Standardization of agreement serves many of the same functions as standardization of goods and services; both are essential to a system of mass production and distribution. Scarce and costly time and skill can be devoted to a class of transactions rather than the details of individual transactions”). To avoid e-liability, software developers and distributors of software should always provide the software under an express license agreement.

Companies who hire another to develop the software they need should ask to have the ownership of the software and its intellectual property rights be assigned to them. If, however, the ownership can not be assigned, a broad license grant from the developer should clearly grant all the rights the company needs, under all intellectual property rights owned by the developer.

1. Avoiding Trade Secret Misappropriation Claims

The company commissioning the work should also take care that code misappropriated from

someone else is not included in the code developed for it. Commissioning companies should ensure that their contractor, the software developer, warrant that the developer will not re-use code it developed in projects for others unless the contractor has retained all right, title, and interest in such code. The party who commissions the code development should obtain either an express warranty of title or a warranty that the developer has not misappropriated another’s code, is authorized to provide the license rights it is granting to the party, and an indemnification for breach of these warranties. The contractor’s economic viability and ability to stand behind such warranties should also be assessed. The reason these warranties should be requested is to ensure that the commissioning party does not receive developed code that has been misappropriated from another or infringes another’s copyright rights.

By nature, software embodies trade secrets. A trade secret is non-public information that gives its owner an advantage over its competitors that “(1) derives independent economic value from not being generally known or readily ascertainable by others who can obtain economic value from its disclosure or use, and (2) is the subject of reasonable efforts, under the circumstances, to maintain its secrecy.” Black’s Law Dictionary (8th ed. 2004). Texas Penal Code Section 31.05 states that, “trade secret means the whole or any part of any scientific or technical information, design, process, procedure, formula, or improvement that has value and that the owner has taken measures to prevent from becoming available to persons other than those selected by the owner to have access for limited purposes.” Texas Penal Code § 31.05(4) (1994), available at: http://www.statutes.legis.state.tx.us/DocViewer.aspx?K2DocKey=odbc%3a%2f%2fSOTW%2fASUPUBLIC.dbo.vwSOTW%2fPE%2fS%2fPE.31%40SOTW&QueryText=%22trade+secrets%22%3cOR%3e%22penal+code%22&HighlightType=1.

These definitions map to the definition in the Uniform Trade Secrets Act. (Texas is one of the few States that has not adopted the Uniform Trade Secrets Act). It provides:

Trade Secret means information . . . that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable

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under the circumstances to maintain its secrecy.

Unif. Trade Secrets Act, § 1(4) (1985), available at: http://www.law.upenn.edu/bll/archives/ulc/fnact99/1980s/utsa85.htm.

As can be seen from both subsection (ii) above and the Texas Penal Code statute for trade secrets, in order to maintain trade secret status, information must be maintained secret by its owner. Trade secret information loses its trade secret status if the owner fails to protect it as confidential.

Depending on whether the owner of the software has maintained its code confidential, software distributed to the public or offered for general sale to the public may nonetheless be a trade secret. The license agreement under which such software is licensed should clearly state that the software is considered trade secret or the confidential information of the licensor. Computer source code, the human-readable code, is almost always going to be a trade secret because human-readable source code is compiled via compiling machines into executables, which is the form in which end users can use the software. Viacom Intern. Inc. v. YouTube Inc., 253 F.R.D. 256 (S.D.N.Y. 2008) (holding that defendants were entitled to protective order barring disclosure of source code on the grounds that it was trade secret). License agreements generally contain, or should contain, restrictions against reverse engineering, de-compiling, or dis-assembling the executable code to discover its source code. 2. Copyright Infringement of Software

As mentioned above, software source code is copyrightable subject matter under the category of literary works. See 17 U.S.C. § 102 (2008). Copyright grants to the author of a work the exclusive rights to reproduce, prepare derivative works based on the work, distribute copies publicly, perform the work publicly, and display the work publicly. 17 U.S.C. §106 (2008). Notwithstanding the author’s exclusive right to reproduce the work, Section 117 of the Copyright Act, which is specific to computer programs, permits the making of copies when required to be made in order to use the program and for archival purposes. It states:

it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided: (1) that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is

used in no other manner, or (2) that such new copy or adaptation is for archival purposes only and that all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful.

17 U.S.C. § 117 (2008). Making copies for the purposes outlined in Section 117 will not incur liability for the licensee of the software.

Under the Copyright Act, the author of the work of authorship owns all rights to it. See § II.A. supra. Transfer of ownership of a copyrighted work must be by express language. Section 204 of the Copyright Act states, “[a] transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed.” 17 U.S.C. § 204 (2008). If a company commissions the development of software from another, it is desirable that the commissioner seek and obtain ownership of the software by an express writing, signed by the developer, especially if the software is custom developed for the commissioning party. The assignment must be obtained prior to the actual development of the software, when the commissioning party has the most leverage. If such party fails to obtain title to the software at that time, it may find that its competitors are receiving the value of the custom software it paid to develop and that the developer is not willing to assign over the ownership of the software.

3. Third-Party Code in Software

Frequently, software contains third-party code or software. That code or software may be proprietary to another company or may be open source software.

A software developer using another party’s code embedded within the developer’s computer program must have permission to incorporate the third-party code. Such permission is provided in the third party’s license agreement. The software developer must abide by such terms and conditions and usually, must pass on such terms and conditions to end users of the computer program for them to abide by. The developer should incorporate these terms into the developer’s end user license agreement, by adding them to the documentation, directly below the developer’s own license terms and conditions. The developer must require that its end users read and agree to the third-party terms prior to the end users being permitted to use the third-party software. Anything less would put the software developer in breach of its obligations to

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the third-party supplier. Forcing the end user to scroll through all of the terms and conditions, including those of the third party, before the end user assents will keep the software developer from incurring e-liability.

Many software licensors develop income-producing, proprietary software, retaining the trade secret status of their source code. Open source software is software whose code is made available by its developer(s) in source code form. Christian H. Nadan, Open Source Licensing: Virus or Virtue?, TEX. INTELLECTUAL PROPERTY L. JOURNAL, Vol. 10, No. 3, p. 352 (2002) (hereinafter Open Source Licensing). It is made available for other developers to use in their software developments and to build upon. The name “open source” means exactly that, i.e., that the source code is openly available. The Web has many developers’ sites where such programs’ source code is made available. In contrast to proprietary software, whose owners usually consider its source code to be a trade secret, developers of open source software make the source code of their computer programs available to others, who are free to modify it. See Open Source Licensing at p. 353. Open source software is also for the most part free of charge. The fact that open source software is made available freely and for free, however, does not mean that its use is free of restrictions. All open source code comes with license terms and conditions, some of them minimal; others onerous. The requirements might be something as minimal as providing attribution to the author of the software by printing her name and copyright notice in the software’s end user documentation or reproducing a disclaimer of warranty, or, the terms might be those of the GNU General Public License (“GNU GPL”). See http://www.gnu.org/licenses/gpl.html.

Among other things, the GNU GPL, Version 3, provides that it “guarantees your freedom to share and change all versions of a program – to make sure it remains free software for all its users.” It also provides that that anyone may copy and distribute copies of the program and its source code as long as the copyright notice and the disclaimer of warranty are published on each copy and that a copy of the license be provided with the program. GNU GPL, Ver. 3 (29 July 2007), §§ 4-5 available at http://www.gnu.org/licenses/gpl.html. (hereinafter “GNU GPL”). The license grants the right to charge or not charge for the code or offer support for a fee. GNU GPL § 4. Depending on how the GNU GPL licensed code is linked to the proprietary code with which it is included, the result of an employee using GNU GPL-licensed code in the employer’s proprietary software could be disastrous for the employer, which would no longer be able to maintain its source code proprietary or as a trade secret. There is a lot more to open source than is presented here. For broader treatment, see Dr.

Jose J. Gonzalez de Alaiza Cardona, Open Source, Free Software, and Contractual Issues, TEX. INTELLECTUAL PROPERTY L. JOURNAL, Vol. 15, No. 2, p. 159 (2007); Christian H. Nadan, Open Source Licensing: Virus or Virtue?, TEX. INTELLECTUAL PROPERTY L. JOURNAL, Vol. 10, No. 3, p. 352 (2002). Suffice it to say, however, that proprietary software developers are exposed to e-liability of significant consequences if open source code is not used in accordance with its license terms and conditions or if care is not taken in the linking of it to proprietary code. 4. End User License Agreements

The basic difference between software and goods is that goods are tangible and when they are sold, all right, title, and interest in them is assigned. There are no limitations on what the owner of the goods may do with them. An example of goods that are transferred when sold is the software media, i.e., the diskettes or CD-ROMs upon which the software is recorded. When sold, title to the media is transferred from the vendor to the end user, but not the bits and bytes of the computer program burned onto the media.

Generally the owner of a copy of a copyrighted work, such as a book, may re-sell or transfer ownership of the copy to someone else under the first sale doctrine of copyright law. 17 U.S.C. § 109(a) (2008). A transfer of a computer program, however, is not permitted under this doctrine. 17 U.S.C. § 109(b)(1)(A) (2008). Any transfer of the program must be expressly permitted by the license agreement under which the software is licensed. Media is considered a good, but its transfer is burdened by the license restrictions on the software, which is recorded on the media.

Because of (i) its intangible nature, (ii) the ease of reproduction with no degradation, and (iii) the ease of distribution, title in software can not be transferred like title in a tangible “good” is transferred. The only thing granted upon the distribution of software is a set of rights to use it, which arise under intellectual property laws.

When purchasing software, sometimes it is made available under a “shrink-wrap license,” which requires the user to tear into clear, plastic wrapping to assent to its terms. When downloading software off the Web, it is usually provided under a “click-wrap license,” which requires the end user to click on an “I agree” button to manifest assent to its terms. Avoiding liability in the electronic world requires that the provisions of such licenses be met by the end user, whether commercial or individual.

Employers must not tolerate the violation of the terms and conditions of shrink-wrap or click-

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wrap licenses for software used in the employer’s business. Violations of such license terms subject the employer to liability not only for breach of contract, but also for other causes of action such as copyright infringement and piracy (if the software is duplicated and copies are distributed without authority).

Shrink-wrap licenses have been held enforceable since 1993. Cases supporting the validity of shrink-wrap licenses are ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996); Hill v. Gateway 2000 Inc., 105 F.3d 1147 (7th Cir. 1997), cert. denied 118 S.Ct. 47 (1997) (shrink-wrap license held enforceable based on purchaser’s use without objecting to the contract for the computer); Brower v. Gateway 2000, Inc., 676 NYS2d 569 (NY AD 1998); M.A. Mortenson Co., Inc. v. Timberline Software Corp., 970 P.2d 803 (Wash. App. 1999), aff’d 998 P.2d 305 (2000); Arizona Retail Sys., Inc. v. Software Link, Inc., 831 F.Supp. 759 (D. Ariz. 1993) (shrink-wrap license terms enforceable where there was no prior firm agreement); Caspi v. The Microsoft Network, L.L.C. et. al., 732 A.2d 528 (N.J.A.D. 1999), certification denied 743 A.2d 851 (1999) (online contract’s choice of forum clause enforceable where consumer could review entire contract and click “I Agree” or “I Disagree”).

If the software licensed is “off the shelf,” the end user is faced with a “take-it-or-leave-it” situation. If she wants to use the software, she may only do so under the terms of the license agreement accompanying the software. In that respect, software license agreements are very much like the form contracts used for insurance policies. ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1451 (7th Cir. 1996) (quoting Rest. (2d) of Contracts § 211 comment a (1981)); see also supra § III.B. Such form contracts are upheld and permitted in commerce because of the efficiencies and lower costs resulting for consumers. If, on the other hand, the transaction is for a computer program to be developed for a commercial entity, the license agreement terms can usually be negotiated.

The most important term in an end user license agreement is the license grant. The license grant is important not only to convey specifically to the licensee what he can and can not do with the licensor’s software, but also to the licensor who at the time of breach, if any, must compare the licensee’s actions against the grant of rights. Clarity of license grant language is very desirable.

There should be sufficient nexus between the use of the software and the end user’s assent to the license terms. In other words, having the terms and conditions in a location where they may not be seen by the licensee prior to having to assent to the license terms is not effective. Specht v. Netscape Comm’ns Corp., 306 F.3d 17 (2d Cir. 2002). In the Specht case, the end users downloaded software that required assent to

terms and conditions, which were presented such that the end users would have had to have scrolled down to a next screen, which included an arbitration clause. Later, when the end users sued for violations of federal privacy and computer fraud statutes, the defendant sought to enforce the arbitration provision of the license agreement. The court held that by clicking on a “download” button, an end user does not assent to contractual terms if the offer does not make clear that clicking on “download” would signify assent to those terms. Id. at 29-30. In contrast, in the Register.com case, the same court held, “when a benefit is offered subject to stated conditions, and the offeree makes a decision to take the benefit with knowledge of the terms of the offer, the taking constitutes an acceptance of the terms, which accordingly become binding on the offeree.” Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004). The difference between the two cases is that in the Register.com case, the party assenting to the click wrap agreement was well aware of its terms when it assented. A “click-wrap” end user license agreement must clearly present all the terms and conditions and should require the end user to scroll through all of them prior to being able to assent. It is a good idea to also require the licensee’s agreement to contract electronically. An example of such provision is:

By clicking, the ‘I Agree’ button or by otherwise downloading the software, you acknowledge (a) your agreement to these terms and conditions, including those in links provided, and (b) that you are doing so with the intent to electronically ‘execute’ this Agreement.

C. Blogging by Employees and Resultant Liability

Blogging by employees is another way that businesses can become exposed to e-liability. Blogs, wikis, or other forms of online postings have become a common way to communicate and convey information. End users of these websites can participate by writing thoughts, opinions, questions, or answers to others’ questions. Through blogging, employees of businesses make statements about their employer’s products and services, answer questions from customers, and give their opinions about their employer and its business. Such statements are completely unregulated unless the employer has a Blogging Policy.

While many businesses do not need to worry that their employees will blog, certain businesses whose employees are likely to blog should be

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concerned about what information may be conveyed by their employees through blogging or wikis and what opinions employees are sharing. These employers should have a blogging policy that addresses what an employee needs to understand are the bounds and guidelines for that activity. Not having a blogging policy may result in an employee saying things that creates liability for her employer (a) to third parties by making statements seemingly on behalf of the company; (b) under some statutes, such as the National Labor Relations Act, which permits union and pre-unionization speech and collective bargaining activities; or (c) under SEC regulations for commenting on undisclosed financial results.

Without a blogging policy, the employee may blog without understanding her limits. This can result in termination of the employee for doing what the employee thought was her job, i.e., supporting customers and talking about the company’s products. (Termination for blogging now has a name: “Dooced”). http://www.mathewingram.com/work/2008/02/20/cnn-fires-producer-for-being-smart/. CNN Producer, Chez Pazienzia found this out the hard way. He was fired for unauthorized blogging, and complains that CNN did not have a clear policy against blogging. http://cityroom.blogs.nytimes.com/2008/02/14/cnn-producer-says-he-was-fired-for-blogging/?hp.

Blogs have many positive aspects for businesses. Customers with questions may obtain answers in quick order. Employees who interact with customers may cause customers to become excited about the business’ products and services. High-tech companies want to encourage such online participation by their employees to have an online presence. http://www.kayescholer.com/web.nsf/0/4406C18BF42EE63585257506006F763A/$file/BlawX2IHMG8.pdf?openelement (visited Dec. 12, 2008).

Employees of high-tech companies feel the need to blog on developer sites to collaborate and share their knowledge as a matter of professional development and job satisfaction. Their high-tech employers, however, should have the policy that their blogger engineers and developers may not disclose company trade secrets, donating them to the public domain, or make statements construing the company’s patented inventions in their blogs.

A blogging policy will be a reflection of the company’s culture. Perhaps, a company’s policy may be to not permit any employee to participate in a blog during working hours, prohibit blogging on work-related matters, and not permit employees to hold themselves out as company employees when participating in blogging during their personal time. On the other hand, a company can have the policy that all employees may participate in blogs as long as their

participation is according to the company’s published blogging guidelines. A middle ground is to have employees who have been trained and whose job it is to blog on behalf of the company, but not permit other employees to blog. Below are some things to consider when developing an effective blogging policy, which were provided by the Kaye Scholer law firm on a web page, which is no longer available:

1. Define objectives, do not dampen enthusiasm, but be prepared to act against employees making inappropriate comments. Employees should only write about what the employee knows so as to keep from making incorrect statements. Keep in mind that exercising supervision over online activities reduces a company’s legal immunity under some statutes, such as the Communications Decency Act. 2. Convey in the blogging policy that there is a nexus between it and other company policies, such as the company’s code of conduct and ethics. IBM, for example, in its “Virtual World’s Guidelines,” reminds employees to dress their avatars in appropriate clothing when dealing with IBM clients or conducting IBM business. 3. Consider requiring employees who are not authorized to speak for the company to add a disclaimer that views they express are their own and not the company’s. Provide contact information for someone who is authorized. 4. Prohibit employees from commenting on the company’s financial matters, especially undisclosed results. 5. Try to maintain the company and its business in a positive light by letting employees know that Web 2.0 activities and MySpace and Facebook pages do not carry an expectation of privacy. 6. Train employees on copyright and trademark infringement and how to avoid it. Under contributory and vicarious infringement, the company may be liable for the employee’s infringement and for resulting damages, attorneys’ fees, and costs. 7. Decide how to address in the blogging policy negative criticism that employees may put in blogs. You can take action against such employees, but if you do, you risk a backlash from employees and others outside the company when you are found out and you must be consistent in taking action against all other employees who also criticize the company. A concern is that the employee’s

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criticism could amount to protected speech or conduct under the First Amendment.

http://www.kayescholer.com/web.nsf/0/4406C18BF42EE63585257506006F763A/$file/BlawX2IHMG8.pdf?openelement (visited Dec. 12, 2008). D. Linking to Another’s Web Site

Hyper linking is showing links in online content to another’s web page. It might seem that this could be a possible source of e-liability. Hyper linking to a web page, however, is not a violation of copyright because no copying is involved. Ticketmaster Corp. v. Tickets.com, Inc., 54 USPQ2d 1344 (C.D. Cal. 2000). IV. CONCLUSION

With the ubiquity of Internet usage by company employees and the increasing use of e-commerce by businesses, avoiding e-liability is an important goal. This means that to limit their e-liability, commercial enterprises, management, employers, and their employees must understand not only copyrights, but also trade secret and other laws such as the Uniform Electronic Transactions Act. Employees must be trained in these laws and must adhere to their employer’s policies around online activities. Only in this way can a company avoid e-liability in this e-world.

E-Liability in an E-World Chapter 16

15

Blogging Policy Tips

http://www.kayescholer.com/web.nsf/0/4406C18BF42EE63585257506006F763A/$file/BlawX2IHMG8.pdf?openelement Many employees are interacting online with customers and others via blogging. While blogs increase a company’s online presence, create enthusiasm for company products, and are supportive of customers, whose questions are being answered by employees, employers need to inform employees what they can and can not do online. After all, they are using company resources, time, and property to carry on Internet communications representing the employer. The case of CNN producer, Chez Pazienzia, who was fired by CNN for unauthorized blogging, comes to mind. Mr. Pazienzia defended himself by stating that CNN had not let him know what he could and could not do through his popular blog. In developing the company’s blogging policy the article suggests considering the following:

1. Define objectives and do not overreach because there has to be a balance, i.e., do not dampen enthusiasm, but be prepared act against employees making inappropriate and unprotected comments. Sun Microsystems and other companies have suggested that employees should not embarrass the company and to write only about what the employee knows. Remember that exercising supervision over online activities reduces your legal immunity under for example, the Communications Decency Act. A restrictive approach would be to prohibit “Web 2.0” online activities on company time and property or forbid comment on work-related matters. Be careful to not run afoul of the National Labor Relations Act, which permits union and pre-unionization speech and collective bargaining activities.

2. Emphasize that all company policies apply to Internet activities and integrate references to Internet

usage in your policies. An example is IBM’s “Virtual World’s Guidelines”, which remind employees to dress their avatars in appropriate clothing when dealing with IBM clients or conducting IBM business.

3. Be mindful that employee’s postings may make the company liable to third parties. A blogging policy

should require employees who are not authorized to speak for the company to add a disclaimer that views they express are their own and not the company’s. Contact information for someone who is authorized should be provided.

4. Be especially aware of SEC regulations, which limit the financial information that a public company may

share. Prohibit employees from commenting on the company’s financial matters, especially undisclosed results.

5. Remind employees that Web 2.0 activities, even if under a pseudonym are not private and that they do

not have an expectation of privacy in such or in their MySpace or Facebook pages. 6. Remind and educate employees about copyright or trademark infringement that may result in their

postings. Under contributory and vicarious infringement, the company may be liable for the employee’s infringement and for resulting damages, attorney’s fees, and costs.

7. Realize that online activity may result in criticism, even from employees. Taking action against

employees who criticize the company may backfire because the employee’s conduct could amount to protected speech or conduct under the First Amendment. If you decide to not take action, be careful to be consistent and fair in your tolerance. Keep in mind that allowing employees to share negative thoughts on the company may benefit the company in several ways by: learning of ways to improve its products; creating a public image that the company is progressive in its dialogues with employees and customers; and employees helping to debunk public misconceptions or respond to critical consumer postings.

Obviously, a company’s culture will dictate what its blogging policy will ultimately be.