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by John H. Rees
Doing business on the Internet has multiple traps and risks, but with careful evaluation and analysis of each of the elements of the Web site and a review of the relative rights of the elements, title companies may avoid the nightmare of litigation and the devastation of an adverse damages award. The world of electronic delivery systems has made copying and distribution of significant and protected works of others, and the infringement of important intellectual property rights, easy, quick, and inexpensive. It is critical that title companies understand some of the fundamentals of doing business on the Internet to avoid potential litigation and damages that could be devastating. The following are some of the potential traps that title companies need to avoid:
1. Do not adopt a name, logo, or domain name without clearing it for potential trademark infringement. A domain name adopted by a title company may, in addition to functioning as a domain name, also function as a trademark and infringe on the trademark rights of another title company or unrelated person. A trademark is any word, name, symbol, or device or any combination thereof used in commerce to identify the source or origin of goods and services. A domain name is an address used to identify and direct others to a specific location or Web page on the Internet. A domain name is obtained by registration through one of several registrars, including the registrars approved by the Internet Corporation for Assigned Names and Numbers (ICANN). As long as the domain name selected is not exactly identical to another registered domain name, the registrar will grant registration of that domain name to the applicant. However, a domain name may also function as a trademark. For example, amazon.com® is a domain name registered to Amazon.com, Inc., but it is also a federally registered trademark for a computerized online ordering service featuring the wholesale and retail distribution of books, electronics, apparel and accessories, and other products, as well as other goods and services. Another example is Zionsbank.com®. Zionsbank.com® is a domain name which directs the user to a home page which provides banking services. However, Zionsbank.com® is also a federally registered trademark and is used to identify the source of financial services, namely banking, on the Internet. Similar to registering a trade name with the secretary of state, registering a domain name with a registrar is not sufficient to protect the user of the domain name from liability for trademark infringement. Domain name registrars do not provide any information to an applicant about whether the use of a domain name will cause infringement of another’s trademark. Clearing a domain name for potential trademark infringement can be done only by conducting a trademark search. Trademark rights accrue at common law. One may acquire common law trademark rights by using a word, name, logo, symbol, or device to identify the source of goods and services. No state or federal registration is necessary. Registration can enhance rights, but it is not the basis for the fundamental rights of trademark protection. Inasmuch as trademark rights accrue at common law, the use of a domain name to identify the source of goods and services, such as amazon.com®, may infringe on the common law or registered trademark rights of another. The test for whether a domain name, which is also used as a trademark, infringes on the trademark of another is whether consumers are likely to be confused by the use of both trademarks in the marketplace. This is a fact-intensive test that cannot be adequately addressed in this article. Courts consider several factors when determining whether there is a likelihood of confusion, including a comparison of the two marks and their sight, sound, and meaning, the channels of distribution of the goods and services, the sophistication of consumers, and several other factors. Although it is not the purpose of this article to articulate the likelihood of confusion test, it is sufficient to state that anytime a domain name is registered, there is a risk that it will infringe on the trademark rights of another. As a result, the domain name should be cleared by doing a comprehensive search to minimize, and hopefully avoid, any potential trademark infringement claims.
2. Do not engage a developer for your Web site without having a written contract that addresses key issues. Too frequently, title companies and others using Web sites for advertising or conducting e-business engage the services of an independent third person to develop the Web site without having a written contract in place. A Web site is composed of several protectible elements, which include a computer software code that runs the Web site, the domain name, photographs and other graphics, text, and databases. All of these elements may be protected by intellectual property laws, including trademark, copyright, patent, and trade secrets. Unfortunately, the ownership and other protections of this valuable intellectual property are often overlooked, and the party engaging the developer fails to adequately address the intellectual property issues. Although some computer software may be subject to protection under applicable patent laws, generally computer software, graphics, and text will be the subject of protection under copyright law. A common misconception is that a title company may engage the services of an independent third person to develop a Web site, and by designating the work a “work made for hire,” the title company then owns all of the intellectual property. Under copyright law, however, a work made for hire applies in limited circumstances that are generally not going to be applicable to a title company. A work made for hire is either a work prepared by an employee within the scope of his or her employment, or it applies in other very limited situations. As a result, if the development is not made by an employee within the scope of his or her employment, particularly in the context of Web site development, it is not likely to be a work made for hire. If a Web site is developed by someone other than an employee of the title company, the developer will own the Web site and all the other creative work contributed by the developer. The title company will have a limited right to use the Web site, but the developer will own the intellectual property.
For example, if the developer is not an employee, he or she will have the exclusive right to modify the Web site. This means the title company that hired and paid the developer may not be able to update and make any changes to the Web site without obtaining the consent of, or a license from, the developer. Because the developer owns the copyright, it is not sufficient for the title company to obtain a verbal promise from the developer that the Web site and the other intellectual property will be owned by the title company upon completion of the development. The title company should obtain a written assignment of the developer’s rights to all intellectual property associated with the Web site. Without a full assignment of the developer’s rights —not merely a license— the title company will have limited control and rights regarding the Web site. Another frequent problem that arises with developers is the registration of a domain name. Developers, as part of the package of services, will offer to obtain a domain name for the title company. The agreement with the developer should include a clear understanding that the domain name will be registered in the name of the title company, not the developer. Further, the title company should confirm that the domain name is registered in its name and that the technical and administrative contacts are both under the direct control of the title company. Confirmation of proper registration can be done by visiting www.whois.com, or www.networksolutions.com/cgi-bin/whois/whois. There is currently no mechanism to force the transfer of a domain name to the intended registrant.
It is important for each title company engaging the services of an independent contractor for Internet development to have a written agreement which, at a minimum and in addition to addressing the timing, scope, and compensation of the project, should include an assignment of the intellectual property rights and a clear statement of the parties’ intent and the obligations of the developer with respect to any domain names.
3. Do not copy photographs, text, compiled data, and other information in an electronic format without a license or permission. Because of the ease of copying and distribution, there is a temptation to not take the appropriate steps to understand what action, if any, should be taken before using photographs, graphics, text, data, and other creative works. In general, if the owner of a copyrighted work is able to establish ownership of the work and copying has occurred, there is infringement.
Photographs, text, data compilations, and other electronic information can be protected under United States copyright law. Given that most people will probably not sit on a witness stand and testify that they have copied the works of another, courts may find copying, if the alleged infringer has access to the work and there is substantial similarity to the original work. There are other factors to be considered, such as the filtration of unprotected elements, but for purposes of this article, there may be infringement if there is access and substantial similarity. Before copying a photograph, text, compiled data, or other protected elements, the title company should obtain a written license or permission to use the work, and the license or permission should identify the scope of the permitted use, including the term of the use.
Similar to the use of any other intellectual property, the safe approach is to obtain written permission to do the framing or linking. Many Web sites include a link to a page that sets forth the terms for framing and linking and allows such activity and use so long as there is compliance with the terms. For example, on the site www.fanniemae.com, there is a link titled “legal.” By clicking on the “legal” link, the user is taken to a page that includes a link titled “Linking Agreement.” The page linked to the “Linking Agreement” link sets forth the specific terms of any linking to the www.fanniemae.com site. Interestingly, the page includes a statement that “Fannie Mae welcomes links to its Internet sites.”
5. Do not use metatags that are trademarks of others, especially your competitors. This is another trademark issue. Metatags are pieces of code embedded in a Web site that provide instructions for the operation or display of the Web site. A visit to my firm’s Web site, www.cnmlaw.com, will disclose a metatag. Metatags may be displayed in Internet Explorer by clicking on “view” on the toolbar, and then on “source” from the dropdown menu. A separate window will appear, which will display any metatags. In the case of www.cnmlaw.com, there is a metatag “.” In some cases, Internet search engines use metatags to help locate sites that the user of the search engine is seeking. In one case, Equitrak included a metatag of the word Copitrak® with the hope that users of Internet search engines would be directed to its site and not its competitor Promatek, which owned the trademark Copitrak®. Courts have found that when the metatag is the trademark of another, this constitutes initial interest confusion, a form of trademark infringement. Although the trademark is never displayed to the public, unless one follows the steps above, because the trademark is used, at least initially, divert the attention of the Internet user to the Web site of another, there is confusion as to the source of goods and services. Developers may or may not disclose to a title company that metatags have been used in the Web site. The title company should include in the development agreement a representation and warranty that no metatags are included that may be another’s trademark, and the title company should personally review the metatags to confirm the accuracy of such representation.
6. Do not send spam e-mail without complying with state statutes. Spam is unsolicited e-mail and has become an enormous problem in the business world in particular. The estimated loss of productivity is significant, and, at a minimum, for most people spam is very annoying. Before engaging in the practice of sending any unsolicited e-mail, each title company should review and understand the new federal CAN SPAM Act. The limited scope of this article does not permit a discussion of the specifics of the Act.
7. Avoid unintentional disclosure of customer information, including information communicated by fax and e-mail. Privacy is a hot topic. Although privacy always has or at least should have been an issue, the advent of electronic delivery systems has made the issue more relevant than ever before. The Gramm-Leach- Bliley Act addresses the privacy of certain nonpublic consumer information by financial institutions and their service providers and imposes privacy obligations on such institutions. Title companies that participate in certain real estate settlement practices are within the scope of the Gramm-Leach-Bliley Act. In addition, there are other potential concerns relating to the disclosure of information that is sensitive or confidential. With the heightened standards for financial institutions and health care providers, it is conceivable that there could be a claim for negligence against one who collects sensitive and confidential information and discloses that information without the consent of the affected person. A negligence claim could arise from the failure of a title company to adequately secure the server on which data is located, both from physical intrusion as well as electronic disclosure or access.
8. Read your contracts and comply with them. Title companies and users of Web sites should read and understand the contracts that govern their relationship to intellectual property and the rights of others doing business on the Internet. Title companies should begin with the development agreement. The development agreement should be drafted to address ownership, scope of the work, timing of delivery of the work to be tested and the final product, identification of the deliverables, representations and warranties as to the originality of the work and noninfringement, the use of third-party software, indemnification for infringement claims, and an assignment of all intellectual property. Again, there may be a reason to allow the developer to maintain the ownership or license to some of the files involved in the Web site, but the issue should be negotiated and appropriately addressed in the development agreement. Title companies should be aware of any other license agreements governing the use of intellectual property, such as software license agreements.
9. A local company doing business on the Internet may not be able to limit jurisdiction to local courts. Title companies need to be aware that by offering services on the Internet, they may be unintentionally subjecting themselves to jurisdiction in other states. For example, if Title Company A is located in the state of Maryland but offers title report services to a customer over the Internet in the state of Florida, Title Company A may be required to go to the state of Florida to defend itself against a claim filed by the customer in Florida.
10. Protect and enforce intellectual property and other rights. Finally, a good defense is a well-executed offense. Web sites naturally include multiple intellectual property and other rights. Not only should Web site owners seek to avoid infringing on the rights of others, they should protect their own intellectual property and other rights. Obviously there are limitations, but, in general, title companies should consider copyright registration. Copyright applications with detailed instructions are available at www.loc.gov/copyright. In addition to the substantial remedies available, a certificate of registration constitutes prima facie evidence of the validity of the copyright and of the facts stated in the certificate of registration. Obtaining federal trademark registration may cost several hundred to a few thousand dollars, but the benefits are significant. Like a copyright certificate of registration, a federal trademark certificate of registration is prima facie evidence of the validity and ownership of the registered mark. In addition to the recovery of damages and access to federal court, the owner of a federal trademark registration may enjoin the use of an infringing mark. Having a federally registered trademark can provide the leverage necessary to stop an infringer without having to file a lawsuit. Patent protection may be available for certain programs or business methods, and there may be trade secrets associated with the Web site and the business on the Web site that should be protected.
Just Like Title Work
Evaluating a Web site is similar to reviewing a title report on a parcel of real property. Each lien and other encumbrance must be reviewed and evaluated and an understanding of what action needs to be taken for each interest must be determined. Title companies can be much more confident doing business on the Internet if each will take appropriate steps to avoid infringement and the other problems addressed in this article and, to take the time to protect the title company’s interest in its own property.
John H. Rees is a shareholder with Callister, Nebeker & McCullough in Salt Lake City, UT. Rees gave a presentation on this topic at ALTA®’s 2004 Tech Forum. This article is adapted from “Ten Traps to Avoid on the Internet” originally published in the Utah Bar Journal, October, 2003. John can be reached at firstname.lastname@example.org