When a website owner/operator asks a lawyer to review and revise the terms and conditions of the website, the lawyer is often instructed to only review the substance of the terms and conditions, not where they appear on the website or how they are presented to the users of the website. Website terms and conditions, however, are an area where contractual procedures have proven to be just as important as contractual substance, if not more so. Indeed, most court cases dealing with website terms and conditions turn on the presentation of the terms and conditions on the website and whether the user has agreed to them. As such, it is crucial that owners/operators of websites pay close attention not only to the contents of the terms and conditions, but also to the way they are incorporated into the websites.

Most of the cases dealing with the enforceability of terms and conditions of websites are from the United States. In many of these cases, the courts have relied on previous decisions regarding "shrinkwrap licenses" as a guideline for assessing the enforceability of website terms and conditions. A shrinkwrap license is the form of license included in off-the-shelf software packages, usually wrapped in plastic or cellophane, that is intended to bind the purchaser of the software.

Enforceability of shrinkwrap licenses has been the subject of a number of legal battles. The leading view in the US is the opinion pronounced in the ProCD v. Zeidenberg case. The court in that case held that there is nothing that makes shrinkwrap licenses inherently unenforceable, and that such licenses, when presented properly, are indeed enforceable. A number of factors led the court to find that the shrinkwrap license in the ProCD case was enforceable. Although the license did not appear on the outside of the software package for a purchaser to read before making the purchase, its existence was brought to the purchaser's attention by a note on the packaging stating that the software was subject to an enclosed license. Also, the license was displayed on the user screen every time that the software was started, and the user had to consent to the terms of the license before proceeding to use the program. The court also found that the user had the real choice of not accepting the terms of the license by returning the software for a refund.

The crux of most cases dealing with enforceability of terms and conditions of websites is whether the user had adequate notice of them, whether he or she was given a meaningful opportunity to review them and whether he or she indeed assented to them. Some examples from recent case law help to illustrate this point.

Ticketmaster failed in its claim against Tickets.com for alleged breach of the terms and conditions on Ticketmaster's website. Tickets.com deep-linked to Ticketmaster's website (i.e., linked to an interior webpage of the website thereby bypassing the home page), an act prohibited by the terms and conditions of Ticketmaster's website. However, the only link to the terms and conditions of the website appeared at the bottom of the homepage and required the user to scroll down the page before even seeing the link. Furthermore, although the terms and conditions stated that anyone going beyond the home page agreed to the terms and conditions, the user was not asked to indicate his or her assent, for example by clicking an "I Agree" button on the screen, and was not required to review the terms and conditions before proceeding further. Lack of adequate notice and lack of specific assent were the elements that the court relied on to reject Ticketmaster's claim based on breach of terms and conditions of its website.

America Online failed to have an action against it dismissed by a Massachusetts court based on a clause in AOL's terms of service agreement that required all actions against AOL to be brought in Virginia. The plaintiffs claimed that downloading AOL 5.0 software had caused unauthorized changes to their computers' settings. An important factor which led the court to refuse to enforce the AOL terms of service agreement was that AOL had set the default for reviewing the terms of service agreement to "I Agree" which the user could click in order to bypass viewing the terms altogether. Furthermore, the change of computer settings actually took place during the download process, before the notice regarding the terms of service was brought to the attention of the user.

Similarly, Netscape failed to enforce an arbitration clause in a license agreement that was intended to bind users who downloaded a certain software program from Netscape's website. A user to the site could download the software without assenting to the terms of the license or without even viewing the terms of the license. The only reference to the license agreement was an invitation to review the terms of the license before downloading the software. A portion of the invitation was highlighted, allowing the user to click and access the terms of the license. The invitation, however, appeared at the bottom of the download screen and required the user to scroll down before even seeing the invitation.

On the other hand, Microsoft was able to have a claim against it in an Ontario court dismissed based on a provision of its MSN online service "Member Agreement" that required all actions against Microsoft for the MSN online service to be brought in Washington State. Before subscribing to the MSN online service, users were required to view the terms and conditions and click on an "I Agree" button. Users were even told if they click "I Agree" without reading the terms of the Agreement, they still would be bound by its terms and conditions.

In another case, Network Solutions was able to enforce its online registration agreement despite the fact that the link to the agreement appeared at the bottom of the registration webpage, and the user was not required to assent to the terms of the agreement before proceeding with registration. What saved the day for Network Solutions was the fact that the user subsequently received an e-mailed invoice from Network Solutions stating that by making payments the registrant assented to the terms of the online registration agreement, and the user in this case had, in fact, proceeded to make the payment.

In a recent Canadian case, Rogers Communications was able to have the arbitration clause in its Internet access service agreement enforced. The arbitration clause was not in the original contract that was signed by the plaintiffs, since Rogers had added it to the contract later on. However, the original contract provided that Rogers was authorized to amend the contract at any time by posting a notice of the amendment on the Rogers website, by emailing a notice of the change to the subscribers or by sending a notice of the change to the subscribers by regular mail. Rogers chose the first method, but the notice of the amendment was not posted on the home page of the site. Rather, it was posted on the main page of the Customer Support Site. The plaintiffs claimed that they did not receive adequate notice of the addition of the arbitration provision to the agreement, and therefore, the added provision was ineffective. The court observed that Rogers could have done more to bring the change to the attention of the subscribers. Nevertheless, the court found that the notice given was adequate to make the amendment effective. The plaintiffs’ continued use of Rogers’ Internet services after notice of the amendment was posted constituted implicit assent to the amendment, which as a result, became enforceable against the plaintiffs.

The goal of website owners/operators should be to take all feasible steps to improve the chance that the terms and conditions of their websites are properly presented on their websites, rather than hoping that a court as sympathetic as the court in the Rogers case adjudicates a dispute. Here are some practical tips regarding presentation of website terms and conditions:

• Have the link to terms and conditions displayed in a visible font and at a visible location on each screen that does not require the user to scroll down before seeing the link. Avoid having the link in small fonts, fonts that are in hard-to-see colours, or on backgrounds that make the link hard to see. Make sure that user can print the terms and conditions easily and in legible format for his or her records.

• Design the website so the user has to view the terms and conditions before accessing any interior page of the website. If this is not feasible from a marketing point of view, then at least make the user view the terms and conditions before accessing any sensitive interior page of the website, such as pages where information that can give rise to legal issues may be located or pages where a transaction between the user and website takes place.

• Have the user explicitly agree to the terms and conditions by clicking an "I Agree" button before accessing the interior pages of the website. If this is not feasible, then at least make the user explicitly agree to the terms and conditions before accessing any sensitive page of the website or engaging in any transaction with the website.

• Make sure that the "I Agree" button is located at the bottom of the terms and conditions so the user has to actually scroll through the entire document before clicking "I Agree". Even better, have the terms and conditions appear in paginated form and have an "I Agree" button at the bottom of each page.

• Avoid any bypass button that allows the user to agree to terms and conditions that he or she has never viewed. Having a bypass button almost entirely defeats the purpose of an "I Agree" button in the first place.

The more of these steps that are incorporated into the design of a website, the less likely it is that the terms and conditions of the website will be attacked as unenforceable, and the more likely it is that, even if attacked, they will be found to be enforceable by a court.

The Canadian Internet Registration Authority (CIRA), the governing body for .ca domain names, has implemented a new dispute resolution policy effective June 27, 2002. This policy, referred to as the CIRA Dispute Resolution Policy (CDRP), was created to address .ca domain name ownership disputes. The CDRP is an administrative means for parties to obtain a quick and inexpensive resolution of disputes involving allegations of bad faith registration of .ca domain names. It is similar in structure to the Uniform Domain Name Dispute Resolution Policy or UDRP, which is the dispute resolution policy implemented by the Internet Corporation for Assigned Names and Numbers (ICANN) for generic top-level domain names such as .com, .org and .net. Parties may still resort to formal legal proceedings if they elect to do so.

There are three elements a complainant must prove in order to bring a successful complaint under the CDRP:

1. The disputed .ca domain name is confusingly similar to a trade-mark in which the complainant had rights prior to the date of registration of the .ca domain name and the complainant continues to have such rights; 
    
2. The registrant has no legitimate interest in the disputed .ca domain name; and
    
3. The registrant has registered the disputed .ca domain name in bad faith.

In order to initiate a complaint under the CDRP, the complainant must satisfy the same Canadian Presence Requirements that are applicable to registrants of .ca domain names. In essence, the complainant must have some connection to Canada. For example, the complainant must be a Canadian citizen or permanent resident or a Canadian entity. The Canadian presence requirement can also be met if the complaint relates to a trade-mark registered in Canada by the complainant.

Under the UDRP, the list of activities that are considered to constitute bad faith are non-exhaustive. Under the CDRP, however, circumstances that constitute bad faith registration are exhaustively defined. Bad faith will be found if and only if:

1. The registrant acquired the .ca domain name registration primarily for the purpose of selling or otherwise transferring the registration to the complainant (or the complainant's licensor or licensee), or to a competitor of the complainant, for an amount in excess of the registrant's actual costs for acquiring the domain name registration;

2. The registrant acquired the .ca domain name in order to prevent the complainant (or the complainant's licensor or licensee) from registering its trade-mark as a .ca domain name. This is provided that the registrant has engaged in a pattern of registering .ca names in order to prevent those with rights in the marks from registering those marks as .ca domain names; or

3. The registrant acquired the .ca domain name primarily for the purpose of disrupting the business of the complainant (or the complainant's licensor or licensee), who is a competitor of the registrant.

The CDRP provides that all contested cases are to be decided by a three-member administrative panel selected by an approved dispute resolution service provider from a list of candidates nominated by the parties. Currently, there are two accredited dispute resolution service providers: the British Columbia International Commercial Arbitration Centre, and Resolution Canada Inc. If the registrant fails to respond to a complaint, the complainant has the option of requesting a less expensive one-member panel. Under the UDRP, the default provision is to have a one-member panel, with an option to elect a three-member panel at the request of either party.

There are provisions protecting against reverse domain name hijacking under the CDRP. If the registrant in a CDRP proceeding is successful in proving that the complainant launched a complaint unfairly and without colour of right to cancel or obtain transfer of a .ca domain name, the panel may order the complainant to pay the dispute resolution service provider up to $5,000 in trust to offset the costs incurred by the registrant in preparing and responding to the complaint.

The CDRP expressly protects criticism websites and other non-commercial uses as a legitimate ground of interest for a registrant to register a .ca domain name. Under the UDRP, decisions that have been rendered thus far on this issue have been inconsistent.

For additional information on the CDRP, see
www.cira.ca. To view CDRP decisions, visit the website of the British Columbia International Commercial Arbitration Centre at www.bcicac.com or Resolution Canada at www.resolutioncanada.ca.

Helen Yu
 

TECH FAQs 

It is no secret that the venture capital industry has suffered enormously from the bursting of the technology bubble in 2000 and 2001. For many VCs, the past 24 months have been focused on ensuring the survival of the companies in their portfolios rather than on making new investments. But despite the continuing instability in the technology sector, VCs are starting to become more active. Deals are closing, but they are now closing under a much different set of investment rules.

In order to get that all-important first interview with a VC, you must first have a professional looking, realistic business plan and, in some cases, a reference from someone the VC knows and trusts. The key elements of such a plan will be the subject of a future article in this series. Assuming you get to the first interview stage, the VC will ask you a series of questions. Few, if any, of these questions will permit simple "yes" or "no" answers. Instead, the information provided by your answers will help the VC to determine whether it has enough confidence in your company, its product or service, your management team and your ability to exploit all of these things better and faster than your competition. If you can convince the VC, then the financing process could progress to the due diligence or term sheet stage.

Some of the questions that you can expect to field are as follows:

1. What is the market opportunity for your product or service? By asking this question, the VC wants to determine the financial potential of your company, whether it is large enough for the VC to pursue and whether it falls within the current investment focus of the fund. With respect to financial potential, the VC wants to achieve a significant return on its investment within a specific investment period (in Canada, usually 3 to 7 years). The exact criteria that drive a VC’s investment strategy will vary from fund to fund but, generally speaking, the VC is looking for a return on investment (ROI) of at least 40%. When answering this question, you should state the overall revenue potential for your industry, the growth rate, your company’s projected share of that market and the basis for all of these calculations. The more independent research that you have to support your calculations, the more confidence the VC will have in that information.

2. How will you use the investment proceeds? You must show how you will use the investment proceeds to advance your business in a manner that will maximize your market opportunity. You should provide a breakdown, by category, of how you will spend the money. These categories should include employee and management compensation, research and development and marketing. Most VCs will restrict you from using their funds to repay debt, including the repayment of shareholder loans.

3. How/why is your business unique? This question demands a very delicate answer. If the VC considers your business to be too common, it will be concerned about losing out to your competition. Conversely, if your answer shows that your business is too unique, then the VC may consider an investment to be too speculative (e.g., it will take too long to develop a mass market for your product or service).

4. What specific problem or need does your product or service address? If your product or service does not address a current market need, then it is only a "nice-to-have", not a "must-have". If you cannot show "must-have" potential, then the VC will be reluctant to invest in your business.

5. What are the capabilities of your management team? Your answer to this question must demonstrate how your team has experience in building a business and in working in your industry. You must also show that your team has the management skills to lead and grow with your company.

6. Who is your competition? In fact, the purpose of this question is to help the VC understand more about you, not your competitors. No matter how unique and special you think your product or service is, almost every company has at least one serious competitor. As a result, if your answer to this question is "none", then the VC will likely assume that you have not done enough research about your business or your industry. In some cases, the VC may already know of one or more competitors in your area – likely because those companies have also come to that VC seeking financing.

7. Do you have any intellectual property protection for your technology? The VC will want to know whether you own your technology and whether it is, or can be, protected by patent, copyright or trade mark. Having patent protection means that you will have a certain period of exclusivity in your market and the ability to challenge direct competitors. This in turn will allow your company to acquire a dominant market share in your industry – something that the VC will view as critical when deciding whether to invest. Your answer to this question should also address the life cycle of your products or services and your plan to continue research and development activities to create replacement or follow-on products or services.

8. When will your business become profitable? Obviously, the more quickly your company becomes profitable, the more attractive you will be to a VC. The key to answering this question is to be realistic in your projections.

9. Who are your customers/potential customers? Your answer to this question should show a solid knowledge of your industry and the marketing strategy that you will use to acquire and maintain a large and varied customer base. The VC will also want to know how much you anticipate it will cost you to get and keep your customers. You should consider how your sales and product cycles will impact on your marketing strategy.

10. Do you have any strategic alliances or partnering relationships? To a VC, a strategic partner can lend credibility to your technology by providing an independent assessment of its value or viability. The VC will also be looking at the value the partner will add to your business, such as by providing a distribution network or a competitive advantage with a complimentary product or service. However, the VC will be concerned if your partnering relationship limits your ability to market or service your customers (such as by granting exclusive distribution rights to the partner) or compromises your intellectual property rights (such as by giving the partner sole or joint ownership over any improvements or modifications to your core technology).

11. What are the risks in making an investment in your company? Do not focus solely on your competition when answering this question. You also need to consider such factors as a challenge to your intellectual property rights in your technology, the requirement for government or regulatory approvals, your ability to hire and retain key employees, general economic factors, product liability claims and shifts in market demand for your product.

12. What is your exit strategy or liquidity event for the VC? Most entrepreneurs answer this question with a simple comment such as "initial public offering (IPO) or strategic acquisition". However, you must understand that the post-bubble investment rules for a VC require a more detailed answer in order to give the VC sufficient comfort that its investment will generate the necessary ROI. If you believe that an IPO is a realistic option, then you should provide some basic information about it – while at the same time avoiding any specific commitments or guarantees (which may be in violation of British Columbia securities laws). If you believe that a strategic acquisition will provide a liquidity event for the VC, then you should discuss your potential purchasers (e.g., strategic partners, competitors, etc.).