LIABILITY ISSUES FACING ONLINEBUSINESSES

LIABILITY ISSUES FACING ONLINE
BUSINESSES

• By David E. Shipley •

Online businesses are confronted by a wide variety of liability issues covering almost the full range of the standard law school curriculum. The liability problems which face a small business in Vidalia, Georgia which is selling Vidalia onions and related onion products such as relish and salad dressing at speciality stores, through newspaper and magazine advertising and by mail do not go away when it starts marketing through a Web site. In fact, there might be more exposure doing business online, and there are variations depending upon the nature of the business in question. For example, as discussed below, an Internet Service Provider (ISP) like America Online has some worries which are not shared by the online Vidalia onion business. Regardless of the nature of the business, many companies, in their enthusiasm to go online, run the risk of creating legal liabilities and losing valuable assets. Accordingly, the decision to take a business online should not be taken lightly. This

ABOUT THE AUTHOR

This article was first published in the
February 2000 edition of the Georgia
Bar Journal and revised and updated for
presentation to the Southern Conference
of Bar Presidents on October 20, 2000 at
Savannah, Georgia. It is reprinted with
permission of the author and the Georgia
Bar Journal. The author is Dean of the
University of Georgia School of Law. He
graduated with a BA in History from
Oberlin College in Oberlin, Ohio and
received his JD from the University of
Chicago Law School.

article addresses only a few of the high points of this ever changing and expanding subject.
Jurisdiction: Where can an online business be sued? How widely exposed is a local business like the Vidalia onion products distributor by putting up a Web site. Courts throughout the United States are deciding cases regarding jurisdiction over online defendants. State lines and national boundaries are meaning less and less, plus a Web site seller often has little ability to restrict access and screen out potential customers because of where they live. Some courts have concluded that merely posting a Web site that can be accessed in a state is not enough for personal jurisdiction, unless the company is using its site to solicit business in the forum state.¹ For instance, in one case a South Carolina defendant’s Web page, accessible by residents of all states, was not a sufficient contact to subject that defendant to personal jurisdiction in Oregon even though an Oregon resident could place orders with the defendant through the site.²Similarly, the sale by a Texas resident of allegedly infringing items on the e-Bay auction site to a Michigan resident did not create personal jurisdiction in Michigan over the Texan.³ Jurisdiction may depend upon showing that the Web site operator seeks contacts within the jurisdiction beyond just posting a site.⁴ On the other hand, some courts may be willing to find personal jurisdiction notwithstanding the passive nature of the defendant’s Web site.⁵Thus, if a company transmits information over the Internet while knowing that the information will be disseminated in a particular state, it may be subject to

personal jurisdiction in that state for violations of its laws.6 On the other hand, a recent decision held that personal jurisdiction could not be based solely on domain name registration in a state, but that an in rem domain name suit under the Anticybersquatting Consumer Protection Act could proceed.⁷Foreign countries might try to reach an online business with even fewer contacts to the forum. For example, German law arguably subjects any Web site accessible from Germany to its jurisdiction, and authorities there recently arrested a Compuserve executive when the company failed to take steps to stop the transmission of child pornography accessible in Germany.⁸ Similarly, European consumer laws may apply when companies make sales to European consumers over the net. A recent European Community directive mandates that choice of law in disputes over consumer contracts is always the law of the domicile of the consumer.⁹ It seems that the hypothetical Vidalia onion products company with its Web site marketing plan may be subject to jurisdiction far outside of the Georgia counties where true Vidalia onions are grown.
Invasions of Privacy: Concerns about invasions of privacy through new technology predate the Internet; however, its rapid expansion has increased threats against privacy. The Internet has reduced the cost of information, has made access easier than before, and has created new ways of gathering personal data. At the same time, information has become more valuable. Liability may arise by failing to implement appropriate security measures and policies for maintaining a secure