The internet is not a lawless territory where anything goes. An online business is subject to the same regulations as any other model, and there are pitfalls particular to this relatively new and constantly changing environment. Michael Sutton sets out regulation guidelines for developing and operating an online site so it won’t fall foul of the law
These days, every business seems to be online. From multinational corporations to one-man businesses, the low cost and relative ease of advertising online has lured many traders to create a website to promote their goods and services. Consumers are also attracted to the wealth of purchasing information that these traders are making available on the internet.
However, laws and rules apply to trading online, and you need to check before you begin that your site will comply with them. Dealing with problems after you’ve opened the site can be expensive and time-consuming, as well as damaging to your business.
The first issue to consider is the domain name. This is an address for a location on the internet and is used by a business as an easy way to find its website. An Australian business will most likely wish to register a domain name ending in ‘.com.au’. These may be registered through an accredited registrar. (You can find a list of these at www.auda.org.au/registrars )
The two main concerns when picking a domain name in Australia should be whether it meets the eligibility criteria, and whether it infringes the rights of third party.
To register a ‘.com.au’ domain name, there are certain eligibility and allocation rules (visit www.auda.org.au/pdf/auda-2005-01.pdf for a copy). Basically you need to be either an Australian registered company, be trading under a registered business name or have an Australian trade mark. The domain name must either exactly match or be an acronym of your company, business name or trade mark, or be closely and substantially connected to you because of the product or service you provide.
Assuming you meet the eligibility criteria, you need to check the chosen name does not infringe the rights of a third party. Just because you have a trade mark, company name or business name, does not necessarily mean you have the right to use the name as a domain name. Searches should be undertaken to discover whether it may infringe the company name, business name, trade mark or product or service offered by a third party.
The company and business name registers, IP Australia databases, the Yellow and White Pages and Google are all useful tools. You may also wish to consider what use is currently being made of the name overseas if you think there is the potential to operate your business internationally. While it’s impossible to guarantee a name can be used without recourse, from a risk management perspective thorough searches from the outset will improve your ability to grow the business without the need for future name changes.
Take the fashion brand Tsubi, for example. When the owners started the brand as a hobby, they may not have imagined its international success. Unfortunately, US footwear manufacturer Tsubo was not happy, and Tsubi is soon to be marketed as Ksubi outside of Australia. While a brand like Tsubi that thrives on notoriety is unlikely to be damaged by the name change, there will certainly be a financial cost in implementing the dual branding. More conservative businesses or brand owners may not be able to pull off a name change with such aplomb.
It’s unlikely that business owners are also talented website designers, so utilising one of the readily available, teach-yourself web design packages may be a thrifty option, and useful for a smaller business that simply wants to disseminate simple information about itself. If, however, a business wishes to fully utilise the power of the internet and make it a central focus for the business, it will most likely need to instruct a website designer to produce the type of slick, user-friendly websites that successfully promote a business.
Once a designer has been chosen and a price agreed upon, the two main considerations for a business owner include the ownership of the material and information that make up the website, and the need to take steps to ensure such material and information do not infringe the rights of third parties. These issues should be dealt with in a contract with the designer.
It is worth remembering the general rule that if you instruct a designer to create a website for you, the designer will own the intellectual property rights in the content of that website, including the text, images and layout. Copyright is a right that arises automatically, upon creation. The ‘author’ is the owner of the copyright at first instance. As with every rule there are exceptions, but you should ensure there is a clause in the design agreement that assigns ownership of all intellectual property rights in the content and design (including any future amendments) to you. Upon execution of the agreement you will own such intellectual property rights and may notify the world of your copyright ownership by adding “© 2006 [Name of your company/business]” at the bottom of each web page.
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You should also request a warranty from the designer that confirms they did not copy the content from a third party and that the content provided by them will not infringe the intellectual property rights of a third party. While it would be unlikely that a reputable designer would do such a thing, you don’t want to be sued because the designer has copied the design or content of the website from a third party. In the event you do need to make a claim against the designer, you should check that the designer holds sufficient professional indemnity insurance.
When your website is ready to go public, you need to find an internet service provider (ISP) to host your website. The service expected from an ISP depends upon the importance of a website to your business.
If your business model places great emphasis on your online presence, particularly if your products or services are sold online, you should request certain ‘downtime’ assurances from your ISP. Downtime refers to a period during which your website is inaccessible due to a hosting problem or ISP maintenance. Obviously you’d prefer to minimise this downtime, and certain targets or rebates should be written into the hosting agreement. While this may not be so crucial if a website simply states the name and address of a business, imagine the losses that a business like Amazon would incur if its website regularly crashed.
Online security is also an issue if you intend to collect sensitive customer data. You should satisfy yourself that the ISP has suitable measures in place to minimise the risk of unauthorised access to, or loss of, your data. Both physical access and on-site environment as well as appropriate technological measures are important.
Once created, a live website is not supposed to be a static creation. In the same way that a business will vary its advertising and marketing through more traditional media, similar attention should be given to your website.
The bottom line for whoever operates a website is that the information posted about a company’s business on its website remains a form of advertising of the goods &nb
sp; and services offered by that company and should be treated as such. It should be kept up to date and not mislead or deceive those viewing the website.
Australian website operators should be particularly wary of breaching Part V of the Trade Practices Act 1974 (the TPA), along with the various Fair Trading laws of each state that generally mirror the TPA. These prohibit misleading or deceptive conduct, including the making of false or misleading representations. You should be aware that it is unnecessary to prove the conduct actually misled or deceived anyone, just as it isn’t necessary to prove intention to mislead and deceive—it’s sufficient if the public is likely to be misled or deceived.
Breaches of these areas of the TPA are punishable by fines of up to $1.1 million for corporations and $220,000 for individuals. The penalties imposed by Fair Trading laws vary from state to state but may be up to $110,000 for corporations and $22,000 for individuals. The usual array of legal remedies is also available to those who suffer as a result of such misrepresentations, including a claim for damages and injunctive relief.
In 2002, Toyota’s website came under the spotlight of the Australian Competition and Consumer Commission (ACCC). Toyota was slow to respond to the detection of errors on its website relating to the features of one of its products. Following an ACCC investigation, Toyota undertook to periodically audit its website and compensate buyers who were misled.
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It’s not only large businesses that need to use caution. In 2005, a New Zealand restaurant was fined $3,000 plus court costs following a breach of New Zealand’s Fair Trading laws. This arose from a lack of action taken by the owner to correct various misrepresentations on the restaurant’s website about the availability and price of certain meals on the menu.
The ACCC has advised businesses advertising on the internet to carefully and systematically weed outdated material from their websites. The potential reach of any misleading information means that it is not enough for a website operator to claim that it did not have time to update its website, or that it did not have the technical knowledge to do so.
As with anything electronic, websites can develop problems. If you are not technically savvy and your website is an important part of your business, then you should enter into a website maintenance agreement. This would usually be with the website designer, or a similarly qualified third party. A periodic review of the content, as well as checking that all links and structure are correctly operating, can help maintain a professional image and continued customer satisfaction, as well as minimising the risk of complaints.
Legal Questions about your Website
The type of industry you operate in may necessitate the inclusion of certain information on your website. The requirements imposed upon your business are also likely to apply to your internet presence. If you’re unsure how to man
age or implement these requirements, you should seek suitable professional advice.
If applicable, you need to consider if there are any terms and conditions you require your online customers to agree to. When contracting online, the fundamentals of offer and acceptance should be set out to ensure you don’t bind yourself to a contract you can’t fulfil. It would be unfortunate to find yourself in the position of having a binding contract to sell one hundred plasma televisions for $500 each instead of $5,000 each simply because of a typo on your website.
Your obligations under the Privacy Act 1988 and related legislation also need some thought. These don’t disappear simply because you are dealing with information online. To minimise the risks when you start conducting your business online, you should meet with your lawyer, or other professional adviser, and consider these fundamentals as part of your early planning.
An online presence can be an exceptionally cost effective and lucrative way of operating your business. A real issue, however, is the often carefree attitude with which some businesses approach their online operations. The internet is not a lawless territory where anything goes, it’s often the case that what needs consideration in the ‘real world’ needs equal, if not more, attention when the internet is used.
A website operator should ask themselves the following when establishing and operating a website:
• Have I checked that I can use that domain name?
• Do I own the rights in the website design and content?
• Have I chosen the right ISP to host my website and meet my business needs?
• Am I being diligent in keeping my website content accurate and up-to-date?
• Am I able to make changes to my website as and when required?
• Is my website set up and structured to adequately cover both statutory and other legal obligations imposed upon my business?
• Does my website contain the necessary content to complement and reflect my business model?
• Have I discussed my needs, obligations and requirements with my professional advisers?
If you can answer yes to all of the above then you are well on your way to a happy, healthy, online presence. Now you just need to work out how you are going to attract visitors to your website.
* Michael Sutton is an associate of Dibbs Abbott Stillman lawyers, Sydney.
