Malpractice and Ethical E-Commerce Difficulties for the Unwary

February 13, 2023  New Jersey Law Journal

By Jonathan Bick | Bick is counsel at Brach Eichler in Roseland, and chairman of the firm’s patent, intellectual property, and information technology group. He is also an adjunct professor at Pace and Rutgers Law Schools.

Increasing attorneys are assisting clients to prepare notices and terms of use agreements suitable to prepare an e-commerce Internet site and related transactions. Advising e-commerce clients is very different from traditional store front clients. Unwary practitioners face malpractice and code of professional responsibility difficulties shrouded by the multi-jurisdictional and multi-faceted characteristics of the Internet.

More precisely, e-commerce transactions, typically subject to at least two jurisdictions and possibly characterized as one of three types of transactions, namely as publication, telecommunication, or broadcast. Each jurisdiction and each transaction type possibly resulting in diametrically opposite outcomes.

Failure to properly discern the appropriate jurisdiction and transaction type is likely to result in a breach in the practitioner’s duty of care. Such a breach may result in an ethical violation and/or a legal malpractice action. New Jersey’s malpractice elements are “(1) the existence of an attorney-client relationship creating a duty of care by the defendant’s attorney; (2) the breach of that duty by the defendant, and (3) proximate cause of the damages alleged by the plaintiff,” (See Gilbert v. Stewart, 247 N.J. 421 (2021)). These elements are typical nation-wide.

Just as in New Jersey, courts around the county regularly find that while a violation of the Rules of Professional Conduct are not negligent per se, it may consider such as a violation. (See Baxt v. Liloia, 155 N.J. 190 (1998)). In all states, the Rules of Professional Conduct are standards of conduct for lawyers. Consequently, if a defendant has violated that standard of conduct, such violation may be considered a basis for malpractice due to negligence.

Among the most common traps for the unwary e-commerce practitioner involves e-contracts. Most attorneys know that the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. §7001, et seq., (E-Sign Act), allows the use of electronic records to satisfy any statute, regulation, or rule of law requiring that such information be provided in writing. What is generally not known is that to be effective, the consumer must affirmatively consent to such use.

It is also generally known that contracts are generally enforceable to the same extent as paper contracts. More specifically, the Uniform Electronic Transaction Act (UETA), provides that an e-signature satisfies any legal requirement for a signature on a contract, has been adopted by 47 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. However, what is less known is that e-contracts are only enforceable if both the e-commerce seller and e‑commerce buyer have verifiable knowledge of, and assent to, the contract by both parties.

E-commerce practitioners must be able to both prepare agreements and advise clients as to business and technological difficulties associated with e-commerce agreements. For example, it is less likely an inexperienced e-commerce practitioner would know that the client must be advised to maintain sufficient security and authentication practices so as to verify reasonably the identity of the parties entering the contract.

More specifically, Rule 1.1-Competence, requires that a lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation. Competent handling of a particular matter includes inquiry into and analysis of the factual and legal elements of the problem, and use of methods and procedures meeting the standards of competent practitioners. Failure to advise an e-commerce client of the need to maintain sufficient security and authentication practices so as to verify reasonably the identity of the parties entering the contract may be at least an ethical violation and perhaps a basis for malpractice.

Most attorneys who have experience with traditional transactions will imbue their e-commerce contracts with specific terms and conditions. These terms and conditions address common issues such as end-user conduct, permissible use of intellectual property, notice of proprietary rights, disclaimers, limits on liability, the association’s role or responsibilities, and other relevant legal issues related to the particular conduct. What traditional contract practitioners tend to overlook when preparing e-commerce agreements, is that reliance solely on mere notice is insufficient.

In addition, recent court decisions suggesting that mere notice without a manifestation of assent is not sufficient to make e-commerce terms and conditions enforceable, and failure to prevent e-commerce clients from communicating with children under the age of 13 a statutory offense. Courts may fine violators of Children’s Online Privacy Protection Act of 1998 (COPPA) up to $43,280 in civil penalties for each violation). More specifically, COPPA imposes certain requirements on operators of websites or online services directed to children under 13 years of age, and on operators of other websites or online services that have actual knowledge that they are collecting personal information online from a child under 13 years of age.

Legal malpractice most commonly results from negligence or a breach of fiduciary duty by an attorney that causes harm to his or her client. Actionable legal malpractice requires the injured party to show that the attorney’s acts were the result of errors that no reasonable attorney would make.

As the Internet continues to interpenetrate every aspect of the law, lawyers who would overlook the Internet do so at their peril. A court is likely to find that not making use of the Internet when confronted with particular legal matters amounts to malpractice. The required advice regarding the amelioration of COPPA difficulties is widely known. Thus, failure to properly advise a client concerning COPPA is likely to result in an ethics violation or a malpractice claim.

E-commerce sites often encompass elements which allow site users to post content. Such contents may infringe or violates the rights of others.

The most common copyright infringement arises when Internet text or photos of another are electronically copied without the owner’s consent. Copyright infringement does not require intent by the infringer. The two elements of copyright infringement are (1) ownership of a valid copyright work, and (2) copying of the original elements of that work. (See Feist Publications v. Rural Telephone Service Co., 499 U.S. 340 (1991)).

Such Internet infringement and other legal difficulties are avoidable. Practitioners should know to advise the client to avail themselves of the Digital Millennium Copyright Act (DMCA) to shield the e-commerce site clients from liability for third-party postings that contain infringing material. Additionally, the e-commerce clients should be advised that the federal Communications Decency Act (CDA) also provides some protection from defamation and other tort liability for postings by third parties, so long as the association does not become the “publisher” of the content. Furthermore, to ameliorate malpractice and ethical difficulties, e-commerce site operators should be advised that posting appropriate terms use agreements which acceptably govern the behavior of third-party posters and the e-commerce site’s employees.

Finally, a practitioner must guide e-commerce clients so as to avoid the misuse of third-party trademarks and other intellectual property as part of the e-commerce transactions. Failure to clearly inform a client that an e-commerce site should only use a third party’s trademark or other intellectual property with permission (preferable with written permission) may be both an ethical violation and a basis for a malpractice action.

Often such difficulties arise when a practitioner fails to advise a client that using someone else’s logos or trademark without their permission either directly on the client’s e-commerce site or indirectly as a meta-tags may result in infringement litigation. Less uncommonly, a practitioner will fail to advise a client that ‘linking in’ or ‘framing’ another person’s site is unlawful.

Domain names are normally essential to e-commerce sites. Failure to inform a client that domain names are now inherently connected with trademarks may also result in difficulties for an unwary practitioner. At a minimum, e-commerce clients should be advised that unless they register a trademark similar to their domain name, a third party with the appropriate trademark registration may be able force an involuntary transfer of the client’s domain names using a low cost administrative proceeding, namely the Uniform Domain Name Dispute Resolution Policy (UDRP) proceeding.