Online information services have grown steadily with the Internet's increasing importance as a research medium. But easy access to the online universe of data is becoming one of the Net's greatest vulnerabilities, raising potential liabilities for doing business in cyberspace. Companies must structure relationships with clients and information providers by striking a balance between the freedom of cyberspace and potential liabilities in the material world.
By Juliette M. Passer|June 18, 1999 at 12:00 AM
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With the Internet’s increasing importance as a research medium comes the emergence of services that organize the wealth of information available online for specific client purposes. Ironically, easy access to the universe of data available in digital form is becoming one of the Net’s greatest vulnerabilities, raising potential liabilities for doing business in cyberspace. Virtually every aspect of commercial business activity on the Net raises novel legal issues. Thus, companies doing business online must structure relationships with clients and information providers by striking a balance between the freedom of cyberspace and potential liabilities in the material world. One context in which such issues arise is licensing agreements between service providers that specialize in aggregating and analyzing information from various sources, and in creating products based on the results of such analyses for commercial distribution to clients. COPYRIGHT ISSUES Unless permission or a license has been granted by the owner, any copying, reproduction, publication or distribution of copyrightable material, including those available on the Internet, generally is illegal. The information may be publicly available online, but any commercial use by a provider seeking to incorporate it, even in part, into a product for commercial distribution, must be authorized by the owner, usually in a license or service agreement. The Copyright Act is a strict liability law, and penalties for infringement can be severe. Moreover, identifying the rightful owner of copyrights, especially in multimedia fields, often is a difficult task involving significant due diligence effort. To the extent practicable, a provider should seek license agreements with every owner of information. Once this process is initiated, the provider should display general and/or individual copyright notices prominently. If a product will be distributed in hard-copy format, individual copyright notices should be prominent in the body of the product, clearly identifying the licensor with a statement that materials have been reproduced under a license. If products will be available online, or if clients will have access to a database containing aggregated copyrightable materials, a general copyright notice should be displayed prominently on the home or log-in page and, to the extent possible, in 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.” Another issue concerns use of copyrighted material by the provider’s clients. At the outset, the license or service agreement must clearly define the product and the data to be incorporated into it. It is advisable to identify each product, rather than a product category, and to list each source of information, rather than resorting to general terms such as “any available sources” or “media.” Careful attention must be paid also to defining the terms “permitted means of distributions” and “permitted uses.” The latter term generally is limited to internal use of the provider’s products by its clients. In addition, the licensor may require that the provider bind its clients in a separate agreement to specifically restrict use to noncommercial and internal purposes, such as analysis and internal review; to prohibit public exhibition and dissemination; and to restrict use in legal matters. The licensor also may request that the provider, upon becoming aware of unauthorized use by its clients, cease the sale of products to such clients until it obtains assurances that violations will not continue, and assist the licensor in exercising its rights. The provider, however, usually is not required to seek injunctive relief to comply with this requirement.”Permitted means of distribution” usually is limited to distribution or sale to the provider’s clients only. Yet another significant issue is the provider’s responsibility and liability for distribution of material, incorporated into the product, to which the licensor does not hold the copyright. Depending on choice of the provider to use the information, indemnification might become the responsibility of the provider. Licensors generally should not allow distribution of information to which they do not hold copyrights. Some materials, however, contain information from various sources, so that no single licensor holds a copyright to it all. In such a case, the provider may require the licensor to obtain rights authorizing distribution. If such rights are not easily obtainable, yet the provider still wishes to use the data, the licensor may require the provider to agree to indemnify the licensor for any third-party liability that results from the provider’s activities. STANDARD TERMS, NEW TWISTS Certain terms — scope of the license, territory, exclusivity, distribution, marketing and promotion, basis of royalties, etc. — are standard in license agreements. When describing relationships in cyberspace, however, these terms must be described with particular care, and often present novel issues. For example, while negotiating a license agreement for distribution of a service product via the Internet, the term “territory” presents a challenge. A standard license agreement would identify territory by physical attributes, such as identification of states or countries, but cyberspace territory inherently covers the entire world. Thus, the definition of “territory” must be tied to physical attributes of the location where product was created, location of clients’ places of business or some other element of the business relationship. Other items to be negotiated in structuring a licensing relationship for new-media clients include:
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