The World-Wide Web of today is an important research medium. Very often, the first ‘port of call’ is to ‘google’ keys words to find information about a topic. With the proliferation of blogs, many services are emerging which seek to organize this wealth of information available on the Internet for commercial purposes.
Ironically, the easy access to this universe of information is one of the Internet’s greatest vulnerabilities, leading to potential liabilities for doing business in cyberspace. Many aspects e-commercial on the Internet raises novel issues of law. Companies doing business on the Web should seek proper legal advice on how to structure the relationships with clients and information providers.
This article focuses on legal issues arising in licensing agreements between service providers (“Provider”) that aggregate information from various sources (both from the Internet and otherwise) and create products based on the results of such aggregation for commercial distribution to clients.
Copyright
Under the copyright law of most countries, unless permission or a licence has been granted by the owner, any copying, reproduction, publication or distribution of copyrightable material (including those on the Internet) is generally illegal. Any commercial use of such data by Provider seeking to incorporate it, even in part, into a product for commercial distribution, must be authorised by the owner, usually in a licence or service agreement.
To identify the rightful owner of copyrighted materials, especially on the Internet, is not always an easy task, and may involve significant due diligence efforts. To the extent practicable, licence agreements should be sought with every owner of such material (“Licensor”). While information per se cannot be copyrighted, it is often difficult to distinguish between the information itself and the manner in which such information is presented, the latter being capable of copyright.
Once the licences are in place, copyright notices should be prominently displayed by Provider. If the products are distributed in hard copy, individual copyright notices should be prominently displayed in the body of the product, clearly identifying the licensor by a statement that materials have been reproduced under a licence. If products will be available online, or access to a database containing aggregated copyrighted materials will be provided to clients, a general copyright notice should be prominently displayed on the home page or log-in page and, to the extent possible, within the database components, stating: “All materials contained herein reproduced with the permission of its respective copyright owners. Any further reproduction is strictly prohibited. All Rights Reserved.”
Two other related issues must also be considered: (i) use of copyrighted material by Provider’s clients and (ii) indemnities for third-party copyrights in materials delivered by Licensor.
The licence or service agreement must clearly define the product and the data to be incorporated into the product. It is generally advisable to identify each product, rather than a product category and each source of information rather than using general terms like “any available sources” or “media”.
Careful attention must be given to defining terms like “Permitted Means of Distributions” and “Permitted Uses”. The terms “Permitted Uses” will generally be limited to the internal use of Provider’s products by its clients. In addition, Licensor may require that Provider bind its clients in a separate agreement (i) to specifically restrict the use for non-commercial and internal purposes, such as analysis and internal review, and (ii) to prohibit public exhibitions and dissemination, and restrict the use in legal matters. Licensor may also request that Provider, upon becoming aware of unauthorised use by its clients, cease the sale of products to such clients until it obtains assurances that violations will not continue and assist Licensor in exercising its rights. “Permitted means of distribution” usually means distribution or sale to Provider’s clients only.
The second significant issue: the responsibility and liability of Provider for distribution of material to which licensor does not hold the copyright. Depending on the source of the information incorporated into Provider’s product, the indemnity may be provided by either party. Licensors generally should not allow the distribution of information to which they do not hold appropriate copyrights. On the other hand, some materials may contain information from various sources to portions of which Licensor holds no copyrights, in which case Provider may require Licensor to obtain permission from the rightful owner for distribution. If such rights are not easily obtainable yet Provider wishes to use the information, Licensor may require that Provider assume responsibility and agree to indemnify Licensor for any third-party liability as a result of Provider’s activities.
Novel ‘Standard’ Terms
While there are certain terms considered standard in every licence agreement (such as scope of the licence, territory, exclusivity, distribution, marketing and promotion, basis of royalties), these standard terms when involving relationships in cyberspace must be drafted with care and often involve novel issues that require novel solutions.
As an example, for distribution of a product through the Internet, the term “Territory” presents a challenge. While a standard licence agreement would define “territory” based on physical attributes, i.e. distribution in a particular state or country, in cyberspace “territory” automatically covers the whole world. Therefore, a definition of “territory” should be tied to some physical attributes relating either to the location where product was created or location of clients’ place of business or some other aspect of the business relationship.
Among the other ‘novel’ items for consideration are the following:
The Contracting Party. The legal owner of copyright is not always clear, especially on the Internet. The owner may not be the entity which distributes or broadcasts the information, but the entity which created a particular product. It is advisable to verify who is the appropriate party to grant the rights.
Grant of Licence. A detailed description of the actual process by which the licensed material will be incorporated into Provider’s product should be used in defining the granted rights. There should also be a corresponding right to distribute Provider’s product in different formats (i.e. via the Web, e-mail, hard copy, etc.) The Licensor may choose (i) to reserve certain rights, in which case they should be clearly specified or (ii) to specifically exclude some rights from each category or format, in which case the excluded rights should be listed in order to provide a clear record of negotiated rights. There may also be rights which can be exercised only with the consent of Licensor or both parties or over a particular period of time.
The Data Format. As was stated above, if the licensed material will be available online or in other electronic format, it is advisable to describe in detail the product and the electronic environment in which the product will be commercially distributed. In addition, it is useful to include a “catch all” language to cover formats/media that may appear in the future.
Distribution of Products. Distribution over the Internet again defies the territorial restrictions. While a licence agreement may limit hard copy distribution to a country, an exception should be provided for distribution of electronic copies over the Internet to avoid any unintended breach of the licensing terms.
Archiving data. If Provider requires to retain licensed information for archiving purposes, such rights must be specifically provide for. Licensors are usually concerned with how the archived data will be used.
Accounting and Audit Rights. Again, since products may be distributed through the Internet, accounting for royalty payment can be complex, especially since, without the appropriate technologies in place, it is virtually impossible to audit how many electronic copies have been distributed or accessed by Providers’ clients. Novel ways have to be found to define the ‘payment unit’ for the materials (i.e. based on each screen of text, or a file of data or a complete story, regardless of the number of screens of its text, etc.). For audit purposes, Licensor may be provided with access to electronic log-files tracking access to data by clients.
Governing Law and Jurisdiction. Given many novel issues related to doing business and enforcing rights in cyberspace, it is advisable to specifically provide for applicability of the law of a particular jurisdiction.
Conclusion
As e-commerce soars, the legal community must strive to find novel methods to safeguard clients’ interests in cyberspace. To understand these issues, the lawyer must not only have a basic understanding of computers, he must have practical experience (whether directly or by proxy through his clients) with the intricacies of e-commerce and an understanding of its unique characteristics.