Typical Contract Clauses in Web Site Agreements


When confronted with the awesome inquiry from your latest client...

"Can you give me a 'simple' agreement for me to use for customers for whom I am preparing a web site?"

DON=T PANIC!

Similarly, if your client is a business that presents you with a form contract given to him or her by a web site developer for use by your client, don=t panic. In both situations you should feel confident that your basic understanding of basic contract law and your experience with contracts is useful in reviewing or drafting such a document. After all, whether it relates to the construction of an Internet web site or the construction of a house, basic contract law is applicable.

However, there are certain considerations and contract clauses which are of unique concern when reviewing or drafting a contract for the development and operation of a web site. This article is intended to familiarize the reader with the most often seen clauses and their implications; regardless of which party you represent.

WEB SITE AGREEMENT DEVELOPMENT CLAUSES

  1. STATEMENT OF WORK. Developer will provide the web site design, development, programming an other consulting services (AServices@) to create the AWork Product@ (as defined herein), all as set forth in each statement of work, or modification to statement of work, agreed to by the parties from time to time and attached and made a part hereof.

    As in any other contract, the subject of the contract must be included. And, in this case, specificity is to the advantage of both parties. The web site development contract should specify exactly what will be developed and how it will be developed. That is, will the web site development include not only writing the computer code for the site, but the design and appearance of the site as well?

  2. WORK PRODUCT LICENSE. Developer grants to Client and Client accepts a non-exclusive, non-sublicenseable, perpetual, worldwide license to publicly perform, publicly display and digitally perform the Work Product on the Internet.

    Whether it is only computer programming or more, the Developer will generally retain title to the Work Product. As such, in order for the Client to rightfully utilize the product as his or her own, it must be licensed, much the same way as any other intellectual property is licensed. In the clause set forth above, the license is quite restrictive; limiting the use of the product to the Internet (and presumably the web site created).

  3. OWNERSHIP.
    1. DEVELOPER=S PROPERTIES. As between Developer and Client, Developer will at all times be and remain the sole and exclusive owner of the Developer Properties, defined herein as any property, in any format used in or made part of the Work Product which is not provided by the Client or a Third Party. Except as expressly authorized in this Agreement, Client will not copy, modify, distribute or transfer (by any means), display, sublicense, rent, reverse engineer, decompile or disassemble the Developer Properties.

      As indicated above, it is usual for the Developer to claim title to all materials created by him or her; even if the development is paid for by the Client. This will include all copyrights and other intellectual property rights. These, in turn, are license to the Client, as in clause two above. The concept of not obtaining title to work created pursuant to a contract where one pays for the development may be new to some clients. However, it is the norm in the technology industry where the development of a software program is often paid for by a single customer, while the Developer retains title to the program and licenses the software to the customer.

    2. CLIENT=S PROPERTIES. As between Developer and Client, Client will at all times be and remain the sole and exclusive owner of Client Properties.

      It is expected that the client will supply subject matter to the Developer for use on the web site. This may include product trademarks, product logos, literary information, or practically anything else. These materials, so far as they are owned by the client, need to be protected in the contract. Therefore, a clause such as this one is included to reaffirm the client=s rights in its own materials.

    3. THIRD PARTIES= PROPERTIES. Except as otherwise set forth herein, nothing shall cause or imply any sale, license, or other transfer of proprietary rights of or in any third party software or products from one party to this Agreement to the other party.

      A typical web site is truly a collage of components often owned by multiple parties. Keep in mind that web sites may be audio, as well as visual, in nature and components included in the web site and which cause the web site to appear on a computer screen are likely to be the intellectual property of various parties. This clause makes it certain that there is no transfer of third party rights or any of the components of the web site.

      Such a clause is also important to prevent a Anew@ intellectual property. Section 101 of the Copyright Act of 1976 (17 U.S.C. 101, et seq., as amended,) defines a Acollective work@ as an assembly of separate and independent works. The aforementioned clause is intended to defeat the creation of an independent work under the Copyright Act.

  4. INDEMNIFICATION.
    1. INTELLECTUAL PROPERTY. If either party (the AIndemnitee@) promptly notifies the other (the AIndemnitor@) in writing of a claim against Indemnitee that any of the Developer Properties or Client Properties infringes a presently existing proprietary right of a third party, and if Indemnitee specifies in such notice that the claim is based to any extent upon an alleged infringement by any portion of Indemnitor=s properties, the Indemnitor, with respect to and the extent of the portion of the claim pertaining to the Indemnitor=s properties, shall indemnify and defend such claim at its expense and pay any costs or damages, including any attorney=s fees and/or expert witness or consulting fees, that may be incurred or finally awarded against the Indemnitee.

    It must be kept in mind that in a web site development agreement which leads to the publication of material, in this case on the Internet, there is a mutuality of submissions by both the Developer and the Client. The Developer, on one hand, will be submitting his or her computer software. The Client, on the other hand, will be submitting the content for the web page. Neither party, normally, in entering into a web site development agreement, or for that matter a web site hosting agreement, will conduct the due diligence necessary to confirm that the other party=s material is owned by that party and does not constitute an infringement on some third party=s property rights. Such infringements may most often include copyright infringement and trademark infringement, and even, in some circumstances, trade secret infringement or liability for unlawful disclosure. Accordingly, mutual cross-indemnifications are the norm.

    It should be noted that the Internet technology permits a web site owner to collect information about viewers. When a site is contacted, it is left with an imprint of the electronic address of the host machine of the viewer. This may give rise to a myriad of privacy issues and potential liability.

    It should also be noted that, as in any contract with indemnifications, you will find additional clauses dealing with control of litigation and settlements, as well as rights of the alleged infringing party to alternatively make the alleged infringing material non-infringing.

  5. WARRANTIES.
    1. DEVELOPER WARRANTIES. Developer represents and warrants that the Work Product does not and will not knowingly: (a) violate any law or regulation, including, without limitation, the laws and regulations governing export control; (b) be defamatory or trade libelous; (c) be pornographic or obscene; or (d) contain any viruses, Trojan horses, worms, time bombs or other computer programming devices which are intended to damage a user=s system or data or prevent the user from using same.

      Developer further represents and warrants that (a) it will use commercially reasonable efforts to insure the Work Product will substantially conform to the Acceptance Criteria (see paragraph 6 below) for a period of thirty (30) days after testing (provided Client makes no changes to the Work Product, the server, the hardware or any technology related to any of them; and (b) there is no outstanding contract, commitment, or agreement to which Developer is a party or legal impediment of any kind known to Developer which conflicts this Agreement or might limit, restrict or impair the rights granted hereunder.

      Developer does not warrant the Work Product to be error free.

      It is customary in software and web site development contracts for the Developer to include as a minimum a warranty that the work product will operate in accordance with certain applicable specifications agreed to by the parties. This warranty appears in the second paragraph above where the Developer warrants substantial conformance with acceptance criteria which have been prearranged, prior to contracting, between the parties.

      Additionally, it must be kept in mind that the World Wide Web is literally an international technology that knows no boundaries. The Internet raises unique issues with respect to United States export regulations since the dissemination of information and technology across international borders is instantaneous. Accordingly, sub-section (a) extracts from the Developer a warranty that the use of his or her product will not violate any such federal regulation.

      It is also standard for developers to warrant that the contents supplied by them will in no way be scandalous, libelous or pornographic. Since the latter is subject to community standard interpretation, it is no unusual to find great resistance on the part of a developer to offer a warranty against pornographic content.

      Should you find yourself representing the web site developer, it is wise to extract from the Developer=s client mutual warranties covering the same issues and concerns. The following is an example of such a complimentary warranty.

    2. CLIENT WARRANTIES. Client represents and warrants that the Client Properties will not knowingly: (a) violate any law or regulation, including, without limitation, the laws and regulations governing export control; (b) be defamatory or trade libelous; (c) be pornographic or obscene; or (d) contain any viruses, Trojan horses, worms, time bombs or other computer programming devices which are intended to damage a user=s system or data or prevent the user from using same.

      Client further represents and warrants that (a) Client has all rights necessary for the production, distribution, exhibition and exploitation of the Client Properties as part of the Work Product consistent with the license granted in this Agreement; and (b) there is no outstanding contract, commitment or agreement to which Client is a party or legal impediment of any kind known to Client which conflicts this Agreement or might limit, restrict or impair the rights granted hereunder.

    As the second paragraph above demonstrates, the Developer must be equally concerned with the source of the Client=s materials as the Client is of the Developer=s materials. In the event a third party files a copyright infringement suit against Client claiming that the Client has used copyrighted materials without permission, it is likely that the Developer will be named as a co-defendant either as an infringer or a contributory infringer.

  6. DISCLAIMER. THE FOREGOING WARRANTIES BY EACH PARTY ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NEITHER PARTY SHALL HAVE ANY LIABILITY WHATSOEVER FOR ANY COVER OR SETOFF NOR FOR ANY INDIRECT, CONSEQUENTIAL, EXEMPLARY, INCIDENTAL OR PUNITIVE DAMAGES, INCLUDING LOST PROFITS, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

    Although it may appear a though a web site development contract is a pure service agreement, case law has more or less determined that where the service is the development of a computer program, these contracts are to be treated as contracts for the sale of goods pursuant to the Uniform Commercial Code. See e.g., Chatlos Systems, Inc. v. National Cash Register Corp., 479 F.Supp 738 (D.N.J. 1979), Aff=d and Remanded 635 F. 2d 1031 (3d Cir. 1980), appeal after remand 670 F. 2d 1304 (1982), cert. dismissed 102 S.Ct. 2918 (1982); RRX Industries v. LabCon, Inc., 772 F. 2d 543 (9th Cir. 1985); AComputer Programs as Goods under the UCC@, 77 Mich. L.Rev. 1149 (1979).

    Section 2-719(3) of the Uniform Commercial Code states that Aconsequential damages may be limited or excluded unless the limitation ... is unconscionable.@

    As is the case in virtually every software development contract and every software licensing agreement, it is to be expected that one will find a limited warranty clause such as that set forth above followed by a limitation of liability clause such as that which follows:

    LIMITATION OF LIABILITY.

    DEVELOPER=S LIABILITY TO CLIENT FOR ANY REASON AND UPON ANY CAUSE OF ACTION, WHETHER SOUNDING IN TORT, CONTRACT, OR ANY OTHER LEGAL THEORY, SHALL AT ALL TIMES AND IN THE AGGREGATE BE LIMITED TO THE GREATER OF (A) $___________, OR (B) THE AMOUNT ACTUALLY PAID BY CLIENT TO DEVELOPER DURING THE THREE (3) FULL CALENDAR MONTHS IMMEDIATELY PRECEDING THE MONTH IN WHICH THE EVENT UPON WHICH LIABILITY IS PREDICATED FOR SERVICES PROVIDED BY DEVELOPER HEREUNDER, EXCLUSIVE OF ANY EXPENSES REIMBURSED PURSUANT TO SECTION ____ OF THIS AGREEMENT. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED OR IMPLIED HEREIN, DEVELOPER SHALL HAVE NO LIABILITY FOR ANY DAMAGES, WHATSOEVER RELATING TO THE TOOLS, THIRD PARTY PRODUCTS, OR ANY GOODS OR SERVICES NOT DEVELOPED OR PROVIDED BY DEVELOPER.

  7. DEFINITIONS.
    1. AClient Properties@ shall mean all text, pictures, sound, graphics, video and other data supplied by Client to Developer.
    2. ADeveloper Properties@ shall mean the Work Product except for the Client Properties.
    3. AWork Product@ shall mean all HTML and/or JAVA files, graphics files, animation files, data files, technology, scripting and programming (in object code form), all documentation, and each and every deliverable developed by Developer and delivered to Client in accordance with the terms and conditions of this Agreement, excluding Client Properties.

    As a matter of course, in all technology contracts, it is wise to provide a definition section. What may seem to be common verbiage, when used in the jargon cluttered technology world may, in fact, have multiple meanings. Utilization of a definition section will clarify the meaning of what might otherwise be ambiguous text for the interpretation of your agreements.

WEB SITE HOSTING AGREEMENT CLAUSES

The basic difference between a web site development contract and the web site hosting agreement is that the former calls for the development and delivery of a product, whereas the later is essentially an outsourcing agreement where a party agrees to provide continued service during the term of the agreement by maintaining one=s web site on its own server or on the server of a third party from whom it has contracted space.

It is not unusual for the web host to secure the domain site for its client. While the entire issue of domain selection is left for another presentation, suffice it to say that this step must be taken prior to putting a web site on the Internet.

  1. SUBSCRIPTION

    Company (AWeb Host@) agrees to provide, and you (AUser@) agrees to subscribe, during the term of this Agreement, for web hosting and telecommunications services to maintain the availability of your web site via the Internet (AHosting Services@). Hosting Services shall be provided by __________ to User in consideration of a payment of applicable fees and in accordance with the terms and conditions set forth in this Agreement. User understands that _______ is providing Hosting Services to User and other customers and that such services are non-exclusive.

    This paragraph sets forth the understanding that the web host will be maintaining the web site, but that the web site actually will be maintained on the Host Services provider=s computer.

  2. USER OBLIGATIONS.
    1. User shall be responsible for producing and uploading HTML files, execution scripts, applets and applications (AUploaded Materials@) to the Hosting Services, either electronically or through other means.

      The use of a web site development agreement will provide these materials for use in this web site Hosting Agreement.

    2. User hereby warrants that all Upload Materials shall be owned or licensed by User and shall not adversely impact the Hosting Service or violate any rights of any third parties.

      This rather short paragraph encompasses various concepts which we saw in greater detail in the web site development agreement above. It includes a warranty of title for the materials provided to the Hosting Service. It also provides a warranty against Trojan horses, viruses, worms and other non-desirable elements which may be found in software and infect the Hosting system.

    3. User shall be responsible for insuring that all Upload Materials function properly and as intended by the User. If Upload Materials are provided electronically, User shall be responsible for maintaining all computer hardware, software, telecommunications equipment and service required to produce Upload Materials to the Hosting Services.

    This paragraph shifts the burden of responsibility totally for the operability of the Uploaded Material to the User. Keep in mind that web sites are often updated daily or more often than that. Since there is a continual flow of updated information to the web host, the burden here is placed upon the User to make certain that the flow of data remains operable.

  3. HOSTING SERVICES= OBLIGATIONS.
    1. Hosting Services shall provide and is responsible for maintaining sufficient storage capacity and at least redundant T-1 access (1.54 megabits per second to the server on which User=s web site is loaded.)

      This essentially describes what a web site host is providing. As technology improves, the AT-1" line will be obsolete and needs to be replaced by the most current technology. Additionally, ideally there should be greater specificity with respect to the storage capacity to be provided. That way, there is a defined limit to the size of the web site in exchange for additional consideration while maintaining a guaranty from the host that adequate storage capacity will be available.

    2. Obtain, at the request of Client, on Client=s behalf and in Client=s name, an Internet Protocol address and corresponding Adomain name@ chosen by Client, and do all other acts necessary to establish the address of the Site. All right, title and interest in the domain name shall vest exclusively in Client. Hosting Service shall have no liability whatsoever in connection with or arising out of the domain name which is obtained for Client. Hosting Service=s use of the domain name shall be governed by this Agreement. Other than the Initial Fee, Hosting Service=s services under this section shall be at no cost to Client.

    In some but not in all agreements, the web site host has the obligation of securing the domain name for the Client. In some circumstances, this is made the responsibility of the Developer of the web site.

    As has been the case for the last several years, domain names have been registered with an organization known as Network Solutions located in Herndon, Virginia. Their web site can be found at www.networksolutions.com. Note, however, that the entire methodology of registering Internet domain names is currently being considered for major revisions on an international basis.

    At any rate, this section places the onus on the web site host to apply for and obtain

    the domain name for the Client=s web site.

  4. LIMITED WARRANTY.

    It is warranted during the term of this Agreement that the Hosting Services will substantially conform to the material portions of Hosting Services= then current published documentation. There is no warranty that your access to your web site by yourself or another party will be private, secure, uninterrupted or error free. If the Hosting Services are found to be defective, Company=s sole responsibility under this warranty shall be at Company=s sole discretion, to (i) advise the User how to achieve substantially the same functionality using a different procedure from that described in the documentation; (ii) correct the documentation or Hosting Services, (iii) replace the Hosting Services, or (iv) if these remedies are impractical, terminate this Agreement and refund any unused fees paid by User.

It is to be expected that the provider of Hosting Services will seek to limit its liability as any vendor does in two ways. The first is by the inclusion of a limited warranty such as that set forth above. It is to be noted that this vendor provides the option of terminating the service.

In addition to this limited warranty, a typical web hosting agreement will contain a limitation of liability clause such as that seen in the web site developing agreement as set forth above.

In the time and space allotted to me, I have attempted to highlight a few of the most unique clauses found in web site development and hosting agreements. As I stated at the beginning of this article, in many ways these contracts are not unlike any other contract. That is, in addition to the clauses highlighted here, don=t forget to include in these agreements, your typical contractual clauses including: choice of law, choice of forum, severability, non waiver, and integration clauses.


  • Dennis S. Deutsch is a partner in the Hackensack, New Jersey law firm of Ferrara, Turitz, Harraka & Goldberg, P.C. He also serves as an adjunct professor of computer law at both Rutgers Law School and Fordham Law School.