A world of its own

The same features that make the net an attractive arena for business are what make it a minefield for lawyers. Sean Corbett reports on the cases that are shaping the web's laws

The e-commerce phenomenon is something of a hot topic in the legal world. The laws that regulate e-commerce will have an effect on the majority of businesses in the UK today. E-commerce, or e-business as it is often referred to, does not restrict itself to the 20-something entrepreneurs who embraced the concept of selling goods to consumers over the internet with open arms. In its simplest form, the term e-commerce refers to trading electronically, and increasingly, e-commerce is business-to-business. This puts paid to the myth that most e-commerce is domestic in nature. Selling goods and services via the internet offers businesses a whole new medium in which to operate, and inevitably this has led to a number of legal uncertainties associated with the concept of trading electronically.
The Government has been working on proposals to afford legal recognition to electronic signatures, on the provision of confidentiality services through encryption. The aim is to make rapid progress in achieving the underlying goal of equivalence between electronic means of concluding contracts and more traditional methods. Elsewhere, the rapid growth of the internet and e-commerce has led to concerns about privacy for online customers, the control of information posted on websites, the use of domain names and the use of hyperlinks to and from websites.
To do justice to the sheer scope of the debate on the guidelines that are required to finalise the Government's proposals is impossible. Instead, by concentrating on legal developments that will affect the way businesses operate on the internet, those involved in e-commerce will have a better understanding of the ambiguities involved in trading online and of the types of legal disputes that can arise.

Totalise plc v Motley Fool Ltd & anor, 16/3/2001
In this case the defendants operated websites containing discussion boards that enabled members of the public to post comments online. They were ordered to disclose details of a party responsible for a concerted campaign of defamation against the claimants on the site.
The defamatory material had been contributed anonymously under the name 'Z Dust', and the court found that in permitting Z Dust to hide behind the cloak of anonymity, the defendants were guilty of facilitating the tortious wrongdoing that Z Dust had been engaged in. Totalise had established a clear case to bring before the court and the only factor inhibiting it from doing so was its inability to identify the party responsible for the defamatory comments.
The case acts as a warning for those who defame with impunity on the internet, and to parties that may facilitate an act of defamation in some way. It demonstrates that extreme care needs to be taken when conducting business on the internet, especially where a website allows users to post comments for other visitors to read. If the operators of a website cannot control what is written, the possibility that they will be exposed to liability for defamation is greatly increased.
Patrick Moloney QC of 1 Brick Court instructed by DLA for Totalise. Christopher Style, solicitor-advocate and partner at Linklaters & Alliance, for Motley Fool. Richard Kiddell, solicitor-advocate at Stephenson Harwood, for Interactive Investor.
Sir Elton John & ors v Countess Joulebine & ors, 20/2/2001
The defendants in this case operated a website specialising in entertainment news and featured gossip from around the world which was posted on a notice board. The operator was held liable for breach of confidence when she placed information, which was quite clearly of a confidential nature, on her website, allowed it to continue in place and then created a link to it from her home page.
The test applied in considering breach of confidentiality was whether the defendant ought to have known that the information had been imparted in circumstances that constituted a breach of confidence. The source of the material was a stolen draft advice of counsel and it was held that the defendants should have been aware of the risks and should not have created the link to the confidential material.
The case primarily considered issues of confidentiality, but it also illustrates the dangers of linking to information on the internet, whether this is internally or through the use of hyperlinks. Those involved in e-commerce should be wary of displaying information in a frame within their own site or linking to other sites. Unless website owners clearly state to the contrary, they will be adjudged to have endorsed the opinions or thoughts written by others or displayed on sites that they link to.
Richard Lord of Brick Court Chambers instructed by Eversheds for the claimant. The first defendant in person.
(1) MBNA America Bank NA (2) MBNA International Bank Ltd v Stephen Freeman, 24/7/2000
This case demonstrates that the use of another's trademark as a domain name in connection with a business in an unrelated field will not necessarily be restrained by the courts by an interim injunction. The claimants conducted e-commerce from the www.mbna.com address and, although they were unable to prevent the defendant from operating a website incorporating the MBNA acronym, they were entitled to an injunction restraining the defendant from selling the domain name, which allegedly infringed the claimants' trademark.
The court was satisfied that MBNA was the nearest available acronym descriptive of the defendant's proposed business. The defendant was setting up a banner exchange business on the internet and claimed that MBNA stood for 'Marketing Banners for Net Advertising'. The key issue in this case was that it appeared to the court that the defendant was setting up a legitimate business and was not choosing a domain name with the intention of cashing in on MBNA's goodwill. The judge was willing, however, to grant an injunction preventing the defendant from disposing of the site if its value had been artificially enhanced.
The law at present confirms the view that the Trade Marks Act 1994 will ensure that a party with a registered trademark will win any battle against a cybersquatter that has registered the name as a domain name without the owner's consent. Any business involved in e-commerce will have to take precautions to ensure that its choice of domain name does not infringe an existing registered trademark that could lead to an unwanted and needless legal dispute.
Piers Acland of 11 South Square instructed by Bristows for MBNA. The defendant in person.
In the matter of application No 1526943 by 1-800 Flowers Inc to register the trademark '800-Flowers' in class 35 and in the matter of an opposition thereto No 42990 by Phonenames Ltd sub nom '800-Flowers' trademark, 17/5/2001
This landmark Court of Appeal case considered what 'use of a trademark' on the internet within the UK is. The applicant was a US company with a substantial business in the US in telephone orders of flowers, operating under the telephone number 1-800 Flowers. The Court of Appeal dismissed the applicant's appeal against an earlier judgment that it could not use its trademark 800 Flowers. The applicant could not register the variant of its free US alpha-numeric telephone number as a service mark because the number was not distinctive to its business and it did not own the equivalent free UK telephone number.
The ruling clarified the circumstances in which use of a trademark on the internet, in the jurisdiction of the website owner, is sufficient to constitute use in a different jurisdiction where the website in question can still be accessed. The 0800 Flowers UK number was already owned by Phonenames for use by a franchised business selling flowers. There was no evidence that the US company had actively recruited business from the UK, and although the 1-800 Flowers Inc website could be accessed from the UK, there was nothing to convince the court that the US firm was using the trademark in the UK. The lesson to be learnt is that website owners should take various steps to reduce the risk of inadvertently falling foul of laws in other jurisdictions. Brands and trademarks should be registered in the jurisdictions that are intended as targets.
Geoffrey Hobbs QC and Emma Himsworth, both of One Essex Court, instructed by Lupton Fawcett for the applicant. Mark Platts-Mills QC of 8 New Square instructed by Field Fisher Waterhouse for Phonenames.
It seems that the very characteristics that make online business so attractive as a commercial outlet are at the same time responsible for the legal ambiguities surrounding e-commerce. The parties to an online contract must still agree to the contract terms in order for them to be binding. In this respect, online businesses have to make sure that users read the appropriate online terms and indicate their agreement in some way so that the contract can be binding. The transaction also has to be permissible under existing law and in the borderless world of the internet – jurisdictional issues can always cause problems related to trading in such a wide market.
The most simple way to ensure that a business involved in e-commerce is operating in compliance with the law is to consider the design and construction of its website and the process users will have to undertake in order to contract online. The European Directive on E-Commerce has to be implemented by 17 January 2002, and requires that the contract and general conditions applicable to the user of a website must be made available, so that they can be stored and reproduced. The risks associated with internet-based business services, including establishing the laws applicable to e-business transactions, the infringement of intellectual property rights and their obligations as data controllers can be avoided, but only by careful planning and continued monitoring of websites.