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Avoiding Web Site Liability: Online and on the Hook?

The Internet has evolved into a significant forum for advertising and the transaction of business. Nascent companies now compete with corporate giants, without expensive barriers to entry. National and worldwide advertising is now commonplace for small business with interactive communications with potential customers. The worldwide Web permits companies to link their Web sites with others in order to display information within their industry for the benefit of their potential customers. Unlike other media, a company's Web site can now directly link with the customer through e-mail, and permit payment and credit verification with the click of an electronic mouse. Many unforeseen legal issues have arisen as the Internet has grown. Courts are just beginning to formulate coherent policies for dealing with potential liability in connection with e-commerce and advertising.

The New Advertising Format Creates New Advertising Risks
The accessibility of the Internet and the low cost of Web sites allows the power of the Internet to be available to almost any business. The authors of the advertising materials ("content providers") range from the giants of publishing, such as Time-Warner, to school age children able to erect a Web site. Content providers, the businesses which hire them, as well as their advertising agencies and Web site developers, may be liable directly to victims for false or misleading advertising, copyright and trademark infringement, and possibly for vicarious infringements. The difference between other forms of media and the Internet is that the Internet contemplates the publishing and linking of one site to another, which geometrically multiples the possibility for exposure to claims. The electronic benefits of the Internet promotes the linking of information contained on one site to another and creates a higher likelihood of dissemination of offending material.

An example of how quickly Internet law has evolved can be seen in review of cases dealing with the liability of conduits, such as Internet service providers ("ISPs") and on-line services. Early cases held that similar to the publisher of written material, an on-line service that does not control or monitor content is not liable unless it knows that the content in question is illegal. In response to court decisions which may have required an ISP to monitor content, the Telecommunications Act of 1996 granted ISPs a broad exemption from liability as a publisher. Section 230 provides that "no provider or user of an interactive computer server shall be treated as the publisher or speaker of any information provided by another information content provider." In Zeran v. America Online, Inc., the court dismissed a claim against an ISP alleging that it negligently distributed defamatory statements as being barred by Section 230. Even in Blumenthal v. Drudge, where the primary publisher of an alleged libel was paid to post his report on America Online (AOL), AOL escaped liability. AOL was aware of the controversial report but nevertheless heavily advertised the author as a special feature of AOL. Blumenthal's claims against AOL were dismissed based on the statutory safe harbor provided by Section 230 even though AOL was not a mere passive conduit of the information:

In some sort of tacit quid pro quo arrangement with the service provider community, Congress has conferred immunity from tort liability as incentive to Internet service providers to self-police the Internet for obscenity and other offensive material, even when the self-policing is unsuccessful or not even attempted.

Even though AOL was more than a mere republisher of the alleged liable, the statutory exemption immunized AOL against direct liability.

Courts have interpreted the safe harbor of Section 230 to immunize an ISP from state law claims arising from an AOL subscriber's use of a chat room to market child pornography. The Act also gives an ISP a good faith defense for its voluntary actions taken to restrict access to obscene, excessively violent, or otherwise actionable material, even when that material is otherwise constitutionally protected.

Section 230 does not protect ISP from certain claims, such as the infringement of intellectual property rights in violation of criminal laws. Liability for copyright infringement has been limited by the enactment of the Digital Millennium Copyright Act, which provides ISP with a limited copyright exemption from contributory infringement liability. In order to obtain this exemption, the ISP make take prompt action once it becomes aware of the infringement to remove or disable access to the infringing material.

Notwithstanding the shield from contributory infringement liability, the operator of a Web site may not qualify, even if it primarily serves as a mere bulletin board for the retransmission of offensive material. For an example, in Playboy Enterprises Inc. v. Webbword, Inc., a Web site operator compiled sexually oriented images subject to another's copyright, and made them easily available to others for reviewing and downloading functions "primarily as a store" and thus was directly liable for copyright infringement. Note that the protections for an ISP created under these statutes provide protection only within the United States and may not protect an ISP in other countries where the information is republished.

Merely using online materials for personal purposes does not create liability, however, use of the materials for commercial purposes can render a party liable for copyright or trademark infringement, misappropriation of intellectual property, or false advertising. For example, where a party uses another's Website in connection with its own, the linkage of the two Websites may form a basis for liability. This raises the issue of whether retransmission of copyrighted works available on the Internet may be copyright infringement. If this were so, then the broad reading of such a right would render the common act of Web browsing a criminal act. Moreover, an ISP may be subjected to contributory and vicarious copyright infringement because of the acts of their customers which they could not control. Although no cases have decided the issue, current thinking is that the transmission does not constitute infringement because the Internet posting of material constitutes an implied license by the content provider that it authorizes Web browsing.

Jurisdictional Issues
One of the risks of e-commerce activity is that the content provider or ISP will be rendered subject to jurisdiction in fora in which it did not intend. The traditional analysis of jurisdictional contacts remains an analysis to determine the nature and quality of the commercial activity conducted within the forum. Most courts apply a sliding scale test.

At one end of the spectrum are situations where the defendant clearly does business over the Internet. If defendant enters into contracts with residents of foreign jurisdictions that involve the knowing and repeated transmission of computer files over the Internet, personal jurisdiction is proper. At the opposite end are situations where a defendant has simply posted information on an Internet Web site which is accessible to users in foreign jurisdictions. A passive Web site that does little more than make the information available to those interested in it is not grounds for the exercise of personal jurisdiction. The middle ground is occupied by interactive Web sites where a user can exchange information with the host computer. In these cases, the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information that occurs on the Web site.

One method in order to avoid being subject to suit in unintended jurisdictions is to insert a forum selection clause in the Web site and require the user to formally consent to the forum selection in the event of a dispute. This could be achieved either by informing the browser of the forum selection clause at the electronic front door of the Web site, or in the alternative, requiring affirmative selection of the intended forum as a pre-requisite of conducting the electronic transaction.

It should be noted, however, that the Lanham Act does suggest that venue is located where the trademark infringement occurs or where the defendant may be found and that a suit under state law generally has venue where the injury occurred. In contrast, venue in copyright actions is broader and can be brought where the defendants or its agents can be found.

Claims of Unfair Competition
Liability through Linking
- The Internet function most used by viewers is the linkage between one Web page and another. The linkage can be created by the owner of the Web site or by the reader of the Web page. Hypertext reference links permits a viewer to jump from one Web page to another. An operator of a Web site may create links between Web pages called "framing", to divide a browser window which houses other Web sites or pages of Web sites framed by the Web site operator. The operator's ability to link its Web site with another has been the basis for claims of unfair competition.

  • Claims for Linking - Internet technologies permit a Web publisher to present the Web pages of others, including images and content from that other site, as if the content were its own. Inline links allow a Web publisher to import graphics so seamlessly from another's Web site that the browser would not ordinarily know the original authorship or location of the content. When an inline link occurs, the issue becomes whether the inline link creates liability for use of another person's derivative work from a copyright, or whether the copyright owner's original work, displayed in a new and different context, becomes part of a new overall work which does not create liability. Claims have also been asserted for trademark dilution and other unfair competition.
  • Liability for Unauthorized Framing - The typical instance of framing occurs when one Web site operator uses its advertising as a banner around the Web page and imports another's Web site content or images into its site. To the viewer, the screen shows the name or identifier of the Web site operator or its advertisers around the borders but the content of another Web site in the center of the screen. Complaints often arise that importing other Web site content within the frame misappropriates and dilutes the trademarks and infringes on the copyrights of the author of the linked sites. The harm asserted is that by framing another person's site, the commercial advertising and content of the original author is replaced by the advertising banners and identifier of the frame. Other than subscriber fees, banner advertising is the source of revenue for most commercial Web pages. The cost of banner advertising is the source of revenue for most commercial Web pages. The cost of banner advertising is often related to the number of browser views or "hits" to a Web page; accordingly, where framing usurps viewers from the original banner advertising to the new frame site, the owner of original work has good reason to restrain the unauthorized framing.

The solution for these disputes is a "linking license". The license typically requires that linked materials be displayed only in certain ways or in certain manners without deleting text, graphics, advertising or the identify of the original site.

  • Liability for Invisible Content - The Web is written in software language called hypertext mark up language ("HTML"). Within the software, there are invisible computer codes that help serve as indexes for the Internet browsing. These "metatags" are read as regular text by software engines as browsers seek to locate certain topics. A content provider who desires to attract viewers imbeds certain content within the metatags to help browsers locate its Web page.

Content providers have learned that by electronically branding their Web pages they can attract more viewers. In these cases, the Web site operator imbeds another company's trademark in its metatag, causing a "metalink" to a Web browser. Where the imbedding of the trademark is not authorized, courts generally enjoin the hidden metalink occurrences as trademark infringement.

Cases Dealing with Invisible Content - Brookfield Communications, Inc. v. West Coast Entertainment Corporation, 174 F.3d 1036 (9th Cir. 1999)
The Brookfield case is important because it reviews the law regarding trademark infringement on Internet generally, and this case also discusses trademark infringement specifically in the context of metatags. Brookfield, an entertainment-industry information provider, brought an action against West Coast Entertainment Corporation ("West Coast"), a video rental store chain, asserting trademark infringement and unfair competition based on West Coast's use of Brookfield's "MovieBuff" trademark in the domain name of West Coast's Web site and the Web site's metatags. The Brookfield court granted the plaintiff's request for a preliminary injunction, holding that (1) the chain could not tack its use of the term "" onto its earlier use of the trademark "The Movie Buff's Movie Store"; (2) Brookfield was the senior user of the "MovieBuff" mark; (3) Brookfield had established the likelihood of success on its claim that West Coast's use of "MovieBuff" in its domain name would create the likelihood of confusion; and (4) the use of a confusingly similar mark in Web site metatags is actionable under the Lanham Act.

  • Trademark Infringement - The Brookfield court first determined whether Brookfield had a valid, protectable interest in the "MovieBuff" mark. The court found that Brookfield's registration of the mark on the Principal Register in the Patent and Trademark Office constituted prima facie evidence of the validity of the registered mark, but that West Coast could rebut that presumption by showing that it used the mark in commerce first, "since a fundamental tenet of trademark law is that ownership of an inherently distinctive mark, governed by priority of use." See id. at 1047. The first to use a mark is the "senior" user and has the right to enjoin "junior" users from using confusingly similar marks in the same industry and market. See id. Further, the tacking use of one trademark onto the use of an earlier trademark, for purpose of establishing priority based on the date of an earlier use, should be allowed if the two marks are so similar that consumers generally would regard them as essentially the same. See id. at1048. The court also stated that this standard is "considerably higher than the standard for likelihood of confusion." See id.

The Brookfield court also concluded that Brookfield's trademark "MovieBuff" for computer software was not confusingly similar to West Coast's earlier used mark "The Movie Buff's Movie Store," where the marks were used simultaneously for five years, and West Coast conceded that there was no actual confusion. See Brookfield, 174 F.3d at 1049-1050. The court also found that Brookfield was the senior user of "MovieBuff" mark because it marketed "MovieBuff" products well before West Coast began using "" in commerce. See id. at 1052-1053.

In order to make out a claim under the Lanham Act, Brookfield, along with showing that it was the senior user, was required to demonstrate that the public was likely to be somehow confused about the source or sponsorship of West Coast's "" Web site and somehow to associate that site with Brookfield. See id. at 1054. The court found that confusion was likely to occur because ""MovieBuff" and "" are, for all intents and purposes, identical in terms of sight, sound, and meaning," and concluded that the similarity factor weigh[ed] heavily in favor of Brookfield." See id. at 1055.

The Brookfield court concluded that Brookfield established a likelihood of success on the merits of its claim that video rental store chain's use of the term "" as its domain name would create likelihood of confusion, because both parties' products were related to entertainment industry, and both parties' use of the World Wide Web as a marketing and advertising facility. See id. at 1057-58.

  • Trademark Infringement and Metatags - The court also found that the use of a mark that is confusingly similar to a plaintiff's trademark in Web site metatags, invisible to Web users, is actionable as trademark infringement under the Lanham Act, since the use of metatags can create initial interest confusion. See Brookfield, 174 F.3d 1036 at 1062-63, citing 15 U.S.C.A. § § 1114(1), 1125(a).
  • Fair Use Defense - The Brookfield court stated that although West Coast was prohibited from using the term "MovieBuff in its Web site, due to the likelihood of confusion with the registered "MovieBuff" trademark held by Brookfield, the fair use doctrine permitted West Coast to use the term "movie buff" or to use term "Movie Buff" to describe products, i.e., those terms are permissible because they are descriptive in nature. The court went further, though, and stated that West Coast was not absolutely prohibited from using the term "MovieBuff," but the prohibition only applied when West coast used it to describe its own products; stated conversely, West Coast can use the term "MovieBuff" to describe Brookfield's products.

Playboy Enterprises, Inc. v. Terri Welles, Inc., 7 F. Supp.2d 1098 (S.D. Cal. 1998), aff'd, 162 F. 3d 1169 (9th Cir. 1998)
Playboy sued Terri Welles, a model it designated as "Playmate of the Year 1981," in order to enjoin her from using that phrase, among others, on her Internet Web site. The court held that (1) the fair use defense precluded liability for the trademark infringement and related unfair competition counts; (2) the fair use defense precluded liability for use of the trademarks on advertising banners; (3) fair use defense precluded liability for using the trademarks as metatags to guide search engines seeking Web sites for Internet users; (4) determination that there was no trademark violation precluded the claim for trademark dilution; (5) holder could not sue dissolved corporation for breach of contract; (6) the corporate veil would not be pierced to allow a suit against the model who controlled the corporation; and (7) lack of liability on the part of model precluded the finding of liability against Web masters

  • Trademark Infringement and Fair Use Defenses - Playboy asserted seven trademark related claims: (1) trademark infringement pursuant to 15 U.S.C. § 1114(1); (2) false designation of origin and unfair competition under 15 U.S.C. § 1125(a); (3) dilution of trademarks pursuant to 15 U.S.C. § 1125(c); (4) trademark infringement and unfair competition under California common law; (5) unfair competition in violation of Cal. Bus. & Prof.Code § 1700, et seq.; (6) trademark counterfeiting pursuant to 15 U.S.C. § 1114(1); and (7) dilution of trademark in violation of Cal. Bus. & Prof.Code § 14335. See id. at 1073. Welles argued that her use of the terms "Playboy" and "Playmate" constituted "fair use" as a matter of law, and therefore, she was entitled to summary judgment on all claims. See id.

The Playboy court determined that § 33(b)(4) of the Lanham Act requires a defendant to prove three elements in order to successfully assert the "fair use" defense. The elements are that defendant's use of the term is not as a trademark or service mark, defendant uses the term "fairly and in good faith", and defendant uses the term only to describe its goods or services. See id. at 1074. The court also stated that in the Ninth Circuit there is a fourth element which requires the defendant also to prove that the fair use was not likely to cause confusion. See id. (citing Transgo, Inc. v. Ajac Transmission Parts Corp., 911 F.2d 363, 366 (9th Cir.1990)). However, this standard is what the court termed as the "classic" fair use defense. Another "nominative" fair use defense is also possible in cases "where the only word reasonably available to describe a particular thing is pressed into service." See Playboy, 78 F.Supp.2d 1066 at 1075, (quoting New Kids on the Block v. News America Publishing, Inc.971 F.2d 302, 308 (9th Cir.1992)).

Playboy asserted that Welles used their trademarks in four specific instances in violation of the Lanham Act. The four instances were that Welles (1) used the Playmate term in the visual title or masthead for the Web site; (2) used the abbreviation, "PMOY '81" as repetitive, decorative watermark on pages throughout her site; (3) used the Playboy and Playmate terms in advertising banners on her site and in other Web sites to attract customers to click to her site; and (4) used the "Playboy" and "Playmate" terms in the HTML source code, including the HTML title, meta code description, and meta tag keywords. See id. at 1075.

The court found that Welles' use of the trademarks "Playmate of the Year 1981" and "PMOY '81" were descriptive of Ms. Welles" because it was "her services and goods being described, and the public identifies her by the titles bestowed upon her by [Playboy]." See id. at 1079. The court also concluded that Welles' use of the trademarks was fair and in good faith, and that the two marks were sufficiently dissimilar (in the marketplace) so as to dispel the claim that Welles' use caused a likelihood of confusion. See id. at 1081-1084. In short, the Playboy court found that there was no other way for Welles' to describe her goods and services to the public other than to say that she was "Playmate of the Year '81".

Additionally, the Playboy court took special note to the allegations concerning the advertising banners on both Welles' Web site and in other Web sites which attract customers to click on Welles' site. Concluding that Welles was entitled to the fair use defense in this context as well, the court explained that the "banners do not indicate a likelihood of confusion as to the source of the goods: Terri Welles. Thus, the court cannot say that Ms. Welles took more than what was necessary to merely identify or describe herself or her goods." See id. at 1089. Again, the court stated that use of the trademarks in the only way possible to describe the goods entitles the user to a fair use defense.

In discussing the "nominative" fair use defense, the Playboy court held that Welles' use of the trademarks falls within the non-classic line of cases because; one, Welles had no other alternative to the use of the term "Playmate of the Year 1981" or "PMOY '81"; two, she referred to the trademarks only to the extent necessary to identify herself; and three, she does nothing to suggest or imply that her Web site is endorsed or sponsored by Playboy. See Playboy, 78 F. Supp.2d 1066 at 1090. Therefore, because Welles' was entitled to both "classic" and "nominative" "fair use" defenses, the court granted her summary judgment on the trademark infringement claims.

  • Trademark infringement--Metatags - Playboy alleged that Welles' use of its trademarks on her metatags constituted trademark infringement. Metatags "allow Web page authors to state the exact description they would like to have for their Web pages as listed in the search results of a Web crawler search engine." See id. at 1092. Thus, Welles used the trademarks in her metatags so that people looking for a Playboy Playmate could find her Web site. Once again, the Playboy court reasoned that because the terms "Playmate of the Year 1981," "Playmate," and "Playboy" were the only words Welles could use to describe herself, and the fact that Playboy failed to provide any alternative descriptors, Welles was entitled to summary judgment because her use of the trademarks qualified her for the "fair use" defense. See id. at 1094-1096.
  • Trademark Dilution - The Playboy court defined dilution as "the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of...[the] likelihood of confusion, mistake, or deception." See id. at 1095 (quoting 15 U.S.C. § 1127). However, under the Lanham Act, "fair use" is a defense to a claim of trademark dilution. Thus, since the court found that Welles' use of the trademarks constituted "fair use," Welles was entitled to the "fair use" defense with regards to Playboy's trademark dilution claim. See Playboy, 78 F.Supp.2d at 1096. The court therefore found that Welles' use of the trademarks did not dilute those trademarks.
  • Liability against Webmasters - The court also concluded that because Welles was entitled to the "fair use" defense, defendants Mihalko and Huntington, current and former Web masters of the Welles' site, could not be held liable "where there is no trademark infringement, counterfeiting, dilution, or unfair competition arising from Ms. Welles and her Webmasters' Internet activities under the Lanham Act." See id. at 1099 (citing 15 U.S.C. § § 114(1) and (1125(a) and (c)).

Trademark Dilution and Protest Sites - In Bally Total Fitness Holding Corporation v. Faber, 29 F.Supp.2d 1161 (1998)
Bally, registrant of the trademark "BALLY," brought trademark infringement, trademark dilution, and unfair competition claims against Faber, a Web site designer, who used the "Bally" mark on his Internet site, "Bally Sucks." See id. at 1162. Faber's "Bally Sucks" site was used to criticize Bally's operations. The court held that although Bally had a valid protectable mark, Faber's use of the mark did not infringe or dilute that mark

In order to determine if there is a claim for trademark infringement, a court must look to whether defendant's use of the plaintiff's trademarks creates a likelihood of confusion. In making the determination, a court should consider: (1) strength of the mark; (2) proximity of the goods; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) type of goods and the degree of care likely to be exercised by the purchaser; (7) defendant's intent in selecting the mark; (7) defendant's intent in selecting the mark; and (8) likelihood of expansion of the product. See id. at 1163. After considering the eight factors, the Bally court concluded that Faber did not create a likelihood of confusion because "[n]o reasonable consumer comparing Bally's official Web site with Faber's site would assume Faber's site "to come from the same source, or thought to be affiliated with, connected with, or sponsored by, the trademark owner." See Bally, 29 F. Supp. at 1163-64. The Bally court then concluded that Bally's trademark infringement claim failed as a matter of law. See id. at 1164.

  • Trademark Dilution (Lanham Trade-Mark Act, § 45, 15 U.S.C.A. §1127) - The Bally court concluded that Faber's use of "Bally" did not constitute trademark dilution because it was protected speed under the First Amendment (using mark in consumer commentary by describing Bally's practices as unsatisfactory); two, Faber was not using the mark in a commercial way, that is, he was not using the mark to sell services or to identify goods in commerce; and three, no reasonably prudent Internet user would believe Faber's site were sponsored by Bally. See id. at 1167-1168. Thus, Bally did not make out a claim for trademark dilution.

Avoiding Claims of Unfair Competition
Obtaining Rights and Permission -
Multimedia Web sites containing pictures, graphics, audio, video and other creative works have multiple copyright issues as each constituent work, or even page of the site, is covered by a copyright. The publisher should obtain the copyright or license to each of the constituent works. Where clearances cannot be obtained, then the publisher should be prepared to justify "fair use". When music is synchronized with video or graphics, then the license for performance rights should be negotiated to obtain the less common "synchronization" right.

  • Notice and Disclaimers - The speed and the disembodied nature of Internet transactions call for the use of disclaimers. Typical disclaimers address trademark use as being intended only for descriptive purposes and disclaiming any endorsement implied by Wet site linking. Because of differing state laws governing promotion and advertising issues, all implied contractual warranties, representations and promises should be disclaimed in an abundance of caution.

Content providers should require parties to consent to contractual terms and conditions, including choice of venue, choice of law, limitations or damages, election of arbitration or litigation and waivers of jury trial as a condition of initial use of the provider's offering. The content provider may additionally disclaim that the product or services offered are intended to be offered in certain troublesome states, jurisdiction or to children. Technology measures should be implemented to avoid fulfillment or solutions of business from unwanted geographies.

  • Advertising Issues - Advertising is commercial speech that proposes a transaction in commerce. Advertising is regulated by the Federal Trade Commission, voluntary proceedings before the National Advertising Division of the US Council of Better Business Bureaus, state attorneys general under their "mini" FTC acts and competition enforcement under Section 43(a) of the Lanham Act.

Industry specific advertising has been regulated over the Internet by state bar associations, the Securities and Exchange Commission, the National Association of Securities Dealers and state regulators of environmental claims. Industry specific regulation should be considered in Wet site creation.

  • Insurance - "Advertising injury" endorsements to general liability policies provide basic coverage for trademark infringement, unfair competition and similar claims. It is suggest an additional endorsement for publisher's errors and omissions or media policies be purchased to avoid coverage denials based on publishing exclusions in certain general liability policies and to provide more uniform coverage.

Check List To Avoid Liability

  1. Insurance coverage - Is a media liability policy coverage appropriate?
  2. Have you obtained all licenses, permits and consents from copyright and trademark owners?
  3. Does the site have limitations of geography to avoid troublesome jurisdictions?
  4. Does the site have the appropriate disclaimers?
  5. Does the site have limitations of remedies, forum selection and choice of law?
  6. Does the site disclose how the browser's personal information will be protected or used?
  7. Is content in which others have a copyright subject to a fair use defense?
  8. In examining copyright issues, examine "work for hire" issues when an outside consultant is used to create a Website.
  9. Where the Web site involves product distribution:
  • verify consents to use marks;
  • verify that use of marks is consistent with trademark license;
  • use your marks to search other Web sites and issue cease and desist letters to the sites which employ unauthorized use of the marks or metatags.

The author is a shareholder with the Franchise and Distribution Group of the Philadelphia office of Buchanan Ingersoll.

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