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Prepared By: Melissa C. Marsh, Los Angeles Business Attorney
Written: October 2000

Introduction.

An important first step for any web-based business is the creation of a website that looks good and is easy to use. Roadblocks to navigation and transaction must be avoided, but so must legal errors. This short article attempts to summarize several of the most important issues faced by a company seeking to establish a web presence, change its web site, and have its site hosted. Don't ignore these basic business and legal issues that must be dealt with when negotiating website development and hosting agreements.

Basic Items to Include in a Web Site Development Agreement

• Look and Feel Clause. The agreement should include a detailed, written description of both what the web site will look like and how the web site will function and perform. Although this sounds simplistic, many of these relationships turn sour when multiple change orders and the related increases in development costs start flying back and forth between customer and developer. The further you digress from this approach, the more risk you assume in higher development costs and not getting a web site that accomplishes your objectives. Any changes to the description that occur during the development process should be put in writing.
  
  
• Responsibilities Clause. The agreement should include a detailed description of each parties' responsibilities during the development process. The agreement should specify who will do what. What is left unsaid or unwritten can often cause disputes later on in the development process. The agreement should either state that the customer has no role in the development process or spell-out in detail what obligations the customer has in such regard.
  
  
• Development Schedule. The agreement should contain a detailed development schedule tied to periodic payments for interim deliverables. The agreement should have a start date and an end date for the developer's work. An initial payment to cover development costs is typical, but the customer should retain at least 30% of the total development cost until it is determined that the entire website is complete and conforms to the description included as part of the agreement. This acceptance test by the customer is a critical part of the development process. The further you stray from this disciplined approach, the greater risk you assume that the website will not be completed on time and within budget.
  
  
• Ownership Clause. The agreement must address the issue of who owns the finished website and its underlying work product. This issue raises a classic conflict between the customer's desire to preserve the uniqueness of its site and the developer's desire to recycle as much of the work product as possible for other customers. One approach is to protect the truly unique elements of the site by means such as (a) not allowing any reuse of such elements by the developer for any of its customers for a period of time or (b) prohibiting the developer from making these elements available to any competitor of the customer.
  
  
• Intellectual Property Clause. The agreement should protect the customer from unauthorized uses of intellectual property by the developer. The developer must warrant that it either owns or is authorized to use the tools and technology it utilizes to create the website. This is increasingly important if the developer is providing any kind of content for the website. Furthermore, the developer should be required to indemnify and hold the customer harmless from any liability arising out of a breach of this warranty. Exposure for this risk should be shifted entirely to the developer to the fullest extent possible.
  
  
• Developer's Post Completion Obligations. The agreement should describe any post-completion obligations of the developer. Provisions for on-going maintenance and support by the developer should be addressed. Similarly, the developer's obligation to provided enhancements to the site to address things like changes in browser technology should be addressed as well.

The above points is just a summary and does not begin to touch upon some other issues that frequently arise. However, including the above-mentioned 6 points in the web site development agreement is a good first step and should reduce a significant portion of the risk in these transactions.

Things to Consider Before Choosing Your Web Host.

• Select a reputable and dependable web host provider. The old cliché "you get what you pay for" generally holds true in this area as in most. Saving some money by dealing with an industry newcomer may seem prudent, but service and dependability problems can quickly turn those savings into lost customer relationships. Check around and research which provider suits your needs.
  
  
• The Agreement should define the services to be provided by the web host. A typical menu of services would include things like domain name registration, content management, backup and data recovery services, Internet connection management, server maintenance, and promotional obligations. The agreement should make clear who is responsible for registering domain names. If registered by the provider, there should be an obligation to transfer the domain name to the customer upon any termination of the agreement. Promotional obligations may include things like having the provider register your website with a variety of search engines. Customers typically demand complete control over the content that is posted on their web site, but should insist upon a commitment from the provider to post new content within a reasonable period of time to keep the web site looking fresh and up-to-date. The agreement should address who will answer customer support calls from people using your web site.
  
  
• The Agreement should provide for a meaningful service level commitment from the web host. For web-only businesses, your web site is the only exposure your customers have to your business. It is customary to cover service level issues such as how long it takes the server to respond when someone is trying to access the website; how long it takes for users to download content; how many users may access and use the website at the same time; and how much scheduled and unscheduled downtime the provider's servers will experience. Access to mirror servers and back-up connections to multiple Internet service providers can help prevent significant downtime incidents. The agreement should also address what obligations the provider has to make disaster recovery services available in the event of a prolonged period of downtime.
  
  
• Security should be a key concern and addressed in the agreement. The web host should have systems and procedures in place to prevent unauthorized access to the information posted on and collected through your website. The agreement should obligate the provider to maintain adequate security for the term of the agreement and thereafter impose financial implications for any breach of this obligation. It is also important to make sure that the level of security provided by your web host is consistent with the commitments you make to your customers regarding the security of your website.
  
  
• Privacy Protection and Your Privacy Policy. An understandable privacy policy should be posted on your web site. This policy should describe the types of information that will be collected through your web site and how that information will be used. It is important to make sure that your web host understands and agrees to respect these commitments.
  
  
• Maintain your ability to get out of a relationship that has gone bad. Resist the temptation to sign up for a long-term contract at a lower price. Preserve your ability to change providers by agreeing to a shorter contract term with well-defined termination rights. Backstop these rights with a commitment from the hosting provider to offer an adequate level of transition assistance if you decide to move to a new hosting provider, even if you have to pay a premium for such service. Any significant downtime experienced in the changeover could be catastrophic to your business, and the agreement should address that concern by exposing the web host to significant damages if it fails to perform its transition commitments.

Conclusion.

Keeping these issues in mind when deciding with whom to host your web site will help you avoid problems that can seriously damage your business.

If you have any questions or would like further information, please e-mail us at MMarsh or call: 818-849-5206.

© 2000 Melissa C. Marsh. All Rights Reserved.