Internet Business Law Alert

Fall 1998

New Law Shields Year 2000 Statements
Must Declare Past Statements by December 3, 1998

By: Richard L. Ravin, Esq. and Michael J. Zinna* 

On October 19, 1998, The Year 2000 Information Readiness Disclosure Act ("Act") was signed into law by President Clinton.

Richard L. Ravin, Esq.

By: Richard L. Ravin, Esq.
It provides protection for certain statements concerning Year 2000 ("Y2K") compliance of products and businesses. The Act covers statements made on or after July 14, 1998. To claim protection for statements made as far back as January 1, 1996, the Act provides for a 45-day deadline from enactment of the law (until December 3, 1998) to notify recipients of the retroactive designation.

Cause of the Y2K Problem
The Y2K Problem is caused by computer programs using two digits instead of four to represent the year -- e.g. "98" for "1998". For more than a quarter century, programmers assumed that the first two digits would always be "19". Thus, on January 1, 2000, non-compliant computers will think it is January 1, 1900. Many experts predict that the programming glitch will cause a world-wide disruption in the delivery of goods and services, as well as significant business failures.

Surprisingly, most people are still only superficially aware of the Y2K Problem at this late date. In large part, this is due to businesses having a vested interest in keeping quiet about their non-compliant systems for fear of losing customers, declining stock prices, or precipitating lawsuits. As a result there is very little data on the extent of the Y2K Problem.

In This Issue

Published by Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen P.C., Counsellors At Law

New Law Shields Year 2000 Statements
Must Declare Past Statements by December 3, 1998

The Digital Millennium Copyright Act:
Protection for ISP's and Copyright Owners

On-Line Music and Videos
Protected by Digital Watermarking

Preventing the Loss of Your Domain Name
Through Trademark Registration

Next Issue

12 Steps to Address Your Year 2000 Problem

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Practical Effect of Act
The purpose of the Act is to encourage businesses to disclose their Y2K status to customers and governments. It is thought that by creating "safe harbors" regarding Y2K readiness communications, businesses will be more apt to provide crucial Y2K information to other businesses, consumers and governments. This in turn, will help get people ready for the new millennium and reduce the impact of the Y2K Problem.

The Act is so new and unique that the legal community is still debating its practical and legal effects. A crucial element of the Act is its protection against allegations of defamation. Another key section protects negligent misrepresentations. Also, businesses need to be aware of the requirements for gaining protection for statements made in connection with solicitation and advertising of Y2K remediation products or services.

A core element of the Act is its protection of statements that would otherwise be considered defamatory. This is aimed at encouraging experts to comment on and speak freely about the Y2K capabilities of computer products (especially products belonging to others) so businesses and the public will be better informed. Under the Act, the maker of a Y2K Statement (defined below) may only be held liable for defamation or trade libel upon a clear and convincing showing that the statement was made with knowledge or reckless disregard as to its falsity.

Negligent Misrepresentations
Pursuant to the Act, the maker of a Y2K Statement which is allegedly false, inaccurate, or misleading will not be held liable under federal or state law with respect to that Y2K Statement unless the claimant establishes, in addition to the other requisite elements of the cause of action, by clear and convincing evidence, that the Y2K Statement was material and made with actual knowledge, intent or reckless disregard that the Y2K Statement was false, misleading or inaccurate. Essentially, then, the Act protects a person or business that makes negligent misrepresentations about Y2K compliancy.

However, if the Y2K Statement is a republication (restatement) of information provided by a third person, then that statement is protected if (1) the maker states that he or she has not verified the contents of the statement, or (2) states that he or she is not the source of the statement, and that the information was supplied by another person, who is identified. Of course, no Y2K statement is protected if made in bad faith. As discussed below, the protection is accomplished by excluding certain evidence from a lawsuit.

This section protects statements made in response to a customer’s inquiry as to Y2K compliance. However, in most states, one cannot bring a claim for negligent misrepresentation if there is already a contract between the parties addressing the representations at issue. Where the parties have a contract, the plaintiff must show the existence of a special relationship, separate and apart from the contract. Otherwise, the terms of the contract will control the dispute.

For instance, most computer equipment sales contracts have provisions which limit damages, disclaim warranties, and integrate all prior statements into the contract. Since the contract is already a barrier for recovery on negligent misrepresentation, the added protection of the Act may not be of any value in such cases. Moreover, Congress expressly provided that the Act does not alter contractual or intellectual property rights.

On the other hand, where a computer consultant is engaged without a formal contract, and makes certain false representations as to the Y2K compliance of a particular product or system, and the buyer suffers economic injury, some states allow an action for purely economic loss against the computer consultant based on negligent misrepresentation. Under these circumstances, the Act may have some teeth. In addition to requiring that the plaintiff establish that he justifiably relied on the misstatements of the consultant to his detriment (e.g. purchasing an expensive computer system for which there is no Y2K compliance fix available), the Act requires that to prevail in court, the plaintiff must demonstrate that the misrepresentation was made in bad faith (i.e. that the false statement was made intentionally or with reckless disregard for the truth), not just negligently.

Solicitations and Advertisements
The Act does not apply to solicitations or advertisements (containing Y2K Statements) made to individual consumers by sellers, manufacturers or providers of consumer products. However, the Act does protect solicitations and advertisements made by a seller, manufacturer or provider of remediation products or services if accompanied with a legal disclaimer.

    The disclaimer must read:
    Statements made to you in the course of this sale are subject to the Year 2000 Information and Readiness Disclosure Act (____ U.S.C ____). In the case of a dispute, this Act may reduce your legal rights regarding the use of any such statements, unless otherwise specified by your contract or tariff.

Y2K Statements
The Act makes a distinction between a Year 2000 Statement ("Y2K Statement"), and a Year 2000 Readiness Disclosure ("Y2K Disclosure"). A Y2K Statement is an oral, written or electronic statement, concerning Y2K compliance assessments, projections, plans, timetables, test results or solutions of products or services (which utilize products). The Act gives protection to Y2K Statements made on or after July 14, 1998 through July 14, 2001 (unless it was made earlier and declared a Y2K Disclosure, as discussed below under "Declare Past Statements By December 3, 1998"). A Y2K Statement can include reviewing or commenting on Y2K compliance. However, a Y2K Statement receives no protection when it is the subject of an SEC action, SEC filing, or filing pursuant federal banking regulations.

Y2K Disclosures
A narrower subcategory of Y2K Statements is Y2K Disclosures. A Y2K Disclosure is a written or electronic Y2K Statement made on or after October 19, 1998 which is identified as a Y2K Disclosure, and made with approval of the entity providing the product or services which are the subject of the Y2K Disclosure. A Y2K Disclosure is given greater protection than a Y2K Statement.

Protection for Y2K Statements and Y2K Disclosures
A Y2K Disclosure receives additional protection over a Y2K Statement by not being admissible as evidence in court against the maker of that Y2K Disclosure to prove the truth or accuracy of the representation. In other words, if D states that his product is not Y2K compliant, then P cannot use D's statement against him to prove that the product is in fact not Y2K compliant. P will have to hire an expert, for example, to show that the program does not accurately process date data between the 20th and 21st centuries.

A Y2K Statement (including a Y2K Disclosure) receives protection as discussed above (in "Defamation" and "Negligent Misrepresentations" sections). A Y2K Statement is admissible in court for any purpose. There is no protection, however, for a Y2K Statement or Y2K Disclosure made in bad faith, or if the statement would prove an anticipatory breach or repudiation of contract or warranty.

Declare Past Statements By December 3, 1998
The Act became effective on October 19, 1998. However, a Y2K Statement issued or published prior to July 14, 1998, but after January 1, 1996, may be "grandfathered" (retroactively designated) as a Y2K Disclosure if the statement meets certain requirements. The threshold question is whether the statement met all the qualifications of a Y2K Disclosure when it was made. Obviously, this does not include the requirement of being clearly labeled as a Y2K Disclosure on its face.

If these conditions are met, then the statement may be designated a Y2K Disclosure if within 45 days of the Act's enactment (by December 3, 1998) the business seeking the designation does one of two things. It must provide either individual notice to all recipients of the statement, or prominently post a notice on its Web site.

In order to provide acceptable individual notice, the notice must state that the statement is being designated as a Y2K Disclosure, and must be accompanied by a copy of the statement with a legend labeling it a "Year 2000 Readiness Disclosure."

In addition to the above requirements, if notice is provided by Web site, the notice must appear on the Web site within 45 days of enactment of the Act (by December 3, 1998) and remain there for a minimum of 45 consecutive days. Notice must also be provided using the method originally used to provide the statement.

An exception to the "grandfather" clause is that a Y2K Disclosure may not apply to anyone who proves, by clear and convincing evidence, that they relied on the statement prior to their receipt of notice regarding the statement's designation as a Disclosure. The exception only applies, however, if written notice objecting to the designation is provided to the statement's maker within 45 days of receipt of actual notice, or within 180 days of the Act's enactment (by April 17, 1999) if otherwise the party was notified in some other way authorized by the Act.

Notice Via Web Site
Where notice is at issue in a case, notice posted on a party's Web site ordinarily may be deemed legally adequate, except in any action involving personal injury or serious physical damage to property. The notice must be posted in a commercially reasonable manner and for a commercially reasonable amount of time.

Additionally, notice by Web site is not acceptable if it would be contrary to the express prior representations of the party giving notice, reliance on Web site notice would be contrary to the regular course of dealing between the parties, or actual notice is clearly the most commercially reasonable means of providing notice. In any of these cases, notice must be provided by actual notice.

Limitation on Effect of Year 2000 Statements
In general, a Y2K Statement should not be construed as amending or altering a contract or warranty. However, a Y2K Statement may amend a contract or warranty if (1) the party who made the statement has agreed to the amendment or alteration in writing, (2) the statement was made in conjunction with the formation of the contract or warranty, or (3) the contract or warranty specifically provides for its alteration or amendment through the making of a Y2K Statement.

Temporary Antitrust Exception
The Act provides that the antitrust laws shall not apply to conduct (including the making and implementation of an agreement) engaged in between October 19, 1998 and July 14, 2001 if that conduct was solely for the purpose of and limited to (1) facilitating responses intended to correct or avoid a year 2000 processing problem or (2) communicating or disclosing information to help correct or avoid the effects of a year 2000 processing failure. This exemption, however, does not apply to conduct that involves or results in an agreement to boycott any person, allocate a market or fix prices or output.

*Michael J. Zinna is a 3rd-year law student at Fordham Law School.

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The Digital Millennium Copyright Act:
Protection for ISP’s and Copyright Owners

By: Richard L. Ravin, Esq. and Ann Mrkic*

On October 29, 1998, President Clinton signed the Digital Millennium Copyright Act ("Act"). The new law limits liability of Internet Service Provider ("ISP"), expands protections for copyright owners of electronic works, and implements the World Intellectual Property Organization ("WIPO") treaty. The Act prevents an ISP from incurring liability for "unknowingly" delivering copyrighted material which may be infringing. In addition, the Act establishes that ISP's are not responsible for monitoring their systems for copyright infringements. The Act recognizes that just as a telephone company is not responsible if a customer makes infringing use of the phone line, ISP's should not be liable for infringing copies made on its Web server.

Safe Harbors
Specifically, the Act excuses ISP's from monetary damages in four "safe harbors":
1.) when an ISP acts as a "mere conduit" for infringing material, 2.) for system "caching", 3.) when an ISP employs search engines which capture infringing materials, and 4.) for information storage. In the case of information storage, an ISP is not liable if it does not have actual knowledge of the offending material, or acts expeditiously to remove it once it has such knowledge. If the ISP is routing material then the ISP will not be liable so long as it does not exercise discretion as to who receives the content.

To qualify for safe harbor protection, an ISP must adopt a policy of terminating subscribers who are repeat offenders, as well as identify and protect copyrights with the appropriate technical measures. If a person knowingly misrepresents to an ISP that material is infringing, that person is liable for any damages to the copyright owner, his licensee, or the ISP.

Implementing WIPO Standards
The Act also marks the U.S. implementation of the WIPO phonograms and copyright treaties, which raise the minimum standard of copyright protection worldwide. The Act imposes WIPO standards as to the integrity of Copyright Management Information ("CMI"). CMI is a marker which identifies each respective copyrighted work, its author and/or owner, and the terms for its conditions and use. WIPO treaties further provide that one may not use false CMI, remove CMI, or alter CMI. (For more on CMI, see adjoining article on digital watermarking)

Like WIPO, the U.S. now protects against the circumvention of high-tech tools owners may implement to control access to their copyrighted works. Those activities and institutions which fall within the "fair use" ambit are exempt from the treaty (among them, libraries, archives, and educational institutions).

*Ann Mrkic is a 3rd-year law student at Fordham Law School.

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On-Line Music and Videos
Protected by Digital Watermarking

Distribution of digital sound recordings and videos on-line is much closer to reality, thanks to digital watermarking. Even distribution of ordinary text will benefit from the technology aimed at controlling and tracing copies made of a work.

Copyright Management Information
Similar to watermarks on paper, digital watermarks are digital signals or patterns imbedded in an electronic file (e.g., text, graphics, and multimedia presentations). A digital watermark scatters copy control data, or Copyright Management Information ("CMI") throughout a digital work. CMI takes the form of inconspicuous and random code which identifies the origin, author, owner, usage rights, distributor, and authorized user of the copyrighted material. Designed to be undetectable by the average user, CMI is always carried with the copyrighted material, regardless of the form in which the material is stored. The CMI also contains a unique serial number on each digital copy for tracking purposes.

Objective of Digital Watermarking
A digital watermark does not prevent a pirate from copying the work. Rather, this form of information security helps copyright owners trace prohibited copies back to the initial source. The objective of a digital watermark is to unalterably mark a copy so that the original authorized user is clear. Therefore, in the event of illicit usage, a digital watermark would help clarify ownership, the routing of copyright revenues, or the success of prosecution for infringement.

Characteristics of an Effective Watermark
An effective digital watermark should be perceptible enough to discourage theft, but not perceptible enough to decrease the utility or appreciation of the document. In addition, it should be
(i) difficult to remove,
(ii) able to survive document modifications and transformations, and
(iii) easily detectable by authorized users (such as law enforcement agencies).

Tracing Unauthorized Duplication
Without digital watermarking, a viewer who pays for the right to access a digitized movie and is given the key to decrypt and view the movie can easily post the decrypted copy on the Internet and destroy the market value of the works. With a digital watermark, the copyright owner can trace the illicit copy back to the original licensee because of the serial number impregnated in the watermarking.

Previously, copyright infringement was inherently limited by the impracticality of large-scale distribution. The quality of analog recordings diminishes with each copy. Moreover, once the tapes are copied, they have to be physically distributed. Digital distribution has neither of these impediments, making it very easy for infringers to make unauthorized copies. For this reason record companies and film distributors have not distributed their albums and movies on-line because of the virtual certainty that unauthorized digital copies would be made and disseminated.

By uniquely marking each copy for every buyer, copyright owners can trace back to the original licensee the first unauthorized duplication. This would act as a deterrent toward the unauthorized copying. It remains to be seen to what extent licensors seek to hold the original licensees contractually liable for the unauthorized dissemination. (See adjoining article on Digital Millennium Copyright Act, )

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Preventing the Loss of Your Domain Name
Through Trademark Registration

Federal trademark registration is essential to assure the preservation of your company's domain name. Whether you are in the process of choosing a domain name or have been doing business on the Web for years, you need to be aware of trademark law to prevent the loss of your company's most valuable assets -- its domain name and trademarks. If a successful challenge is made to your domain name, it is likely to occur suddenly, preventing you from any further use of your domain name. This will result in the inability of your customers and other trading partners from accessing your Web site or sending you e-mail (if your e-mail address includes your domain name).

Trademarks (including service marks) are words, names, symbols or devices which serve to identify the source of goods or services and distinguish them from those sold by others. Domain names qualify as trademarks. For trademark purposes, the extensions (e.g. ".com", ".org" etc., known as top level domain names or "TLD's") are usually not considered as part of the mark. At the heart of trademark law is the public policy goal of preventing consumer confusion as to the source of goods or services.

A trademark must be used on the goods. In the case of a service mark, the service mark must be used in connection with the offering of the service. A trademark cannot stand independent of those goods or services. Trademarks are registered by the U.S. Patent and Trademark Office ("PTO").

Your company's right to use its trademark in connection with the sale of goods and services is limited by the class of goods or services sold (e.g., computer products, nutritional products, financial services). By registering a trademark, the owner has exclusive right to use that mark nationwide within a particular class of goods or services. If your trademark is not registered, its use may be limited by the geographic market in which your company is actually using the mark. If your domain name includes someone else's trademark, and is confusingly similar thereto, you are exposed to an infringement lawsuit and a permanent injunction against using the domain name.

Identical trademarks can co-exist in different product markets (e.g., Apple Computers and Apple Records). Under the current domain name registration system, however, there can only be one "" Moreover, the mushrooming use of the Internet has intensified the need to register trademarks because marks which were once used only locally by relatively small companies, can now be used nationally (indeed, worldwide) at virtually no cost by merely posting a Web site. Since unregistered trademarks are entitled to exclusive use wherever the trademark is actually used, a trademark can be snatched up simply by someone using it in commerce over the Internet.

Adding TLD's Create Conflicts Of Trademark
At the time of this writing, there is a proposal from the National Telecommunications and Information Administration ("NTIA"), an agency of the U.S. Department of Commerce, supported by the Clinton Administration, for five new TDL's. There is also a proposal by Council of Registrars ("CORE"), a Swiss nonprofit corporation made up of prospective domain name registrars, recommend seven new TLD's). The method by which domain name and trademark conflicts shall be resolved is still a central point of contention as to both of these proposals. Many are looking to the World Intellectual Property Organization ("WIPO") to devise a dispute resolution system.

Some of the new TLD's, might include, for example, ".firm", ".store", ".web", ".arts". If more TLD's are put into use, it will do nothing to solve the trademark law issue. In fact, it will make matters worse. Trademark registration will become even more important, as additional TLD's will increase the number of trademark conflicts. For instance, if more TLD's are adopted, there could be not only "", but also "apple.firm", "", and "apple.web." Yet under trademark law, no matter how many TLD's exist, there can be only one domain name containing the word "apple", if multiple uses would pose a likelihood of confusion.

Registering Trademarks to Protect Domain Names
To register a trademark, such as a domain name, you should consult with a trademark attorney who will conduct a search for existing uses of the words, phrases, etc. of the proposed mark. This search checks the database of the PTO for registrations and pending applications, the Secretaries of State of the 50 states for state registrations, as well as for common law uses (magazines, newspapers, and other publications).

Once it is determined that your proposed trademark (i.e. domain name) is sufficiently dissimilar to any existing marks in that particular product classification, you can apply for registration of the mark. If you have not yet used the mark, you can file an intent-to-use application, which allows you to register the mark first (thereby reserving it), and then use the mark later . The trademark search itself is usually about $350, and the application fee for a trademark registration with the PTO is about the same.

Considering all that is invested in developing the good will of a domain name and the slight cost of searching and applying for a trademark, there is no reason not to register the trademark. The consequences of losing your domain name can be devastating. A court can order you to stop using the domain name, or an Internet domain name authority (e.g. InterNIC) can simply remove the domain name from service, cutting off your right to use the domain name. Keep in mind, that notwithstanding the dispute resolution policy of a domain name registry, such as InterNIC, a court will have the final say as to who is entitled to use the mark by applying trademark law. Moreover, InterNIC's policy heavily favor's the trademark registration owner. In addition to the risk of losing the right to use your domain name, one who infringes on another's trademark is liable for monetary damages.

Beware of a Change in the Use Classification of Your Trademark
You must also be aware that if you have a registered trademark for a product, and then go online via a Web site to market that product, you should consider amending the registration to include a service classification for the mark since by using the mark online, you will not be using your trademark on the product. Rather, you will be using the mark in connection with providing information about your product, which is considered a service mark. Your federal trademark registration only gives you protection for the class within which it is registered.

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The following is an excerpt of an upcoming article entitled:
12 Steps to Address the Year 2000 Problem. 

A company should consider taking the following steps to address the Y2K Problem:

    1. Make senior management aware of the seriousness of the Y2K Problem.
    2. Develop a Y2K Problem Team of senior management and a Compliance Plan, including a Contingency Plan in the event that Y2K compliance is not completed on schedule.
    . Evaluate the company's internal Y2K Problems: Take inventory of information technology ("IT") systems (hardware, software, and firmware) and legal documentation (e.g., licenses, contracts, and promotional literature of vendors).
    4. Evaluate the company's external Y2K Problems: Establish a dialogue with trading partners (i.e., suppliers), particularly those with whom you share electronic data. Consider requiring them to respond to Y2K questionnaires and/or sign warranties/ representations as to their Y2K compliance.
    5. Create a Y2K Problem Response Department: Funnel Y2K compliance inquiries from your trading partners through legal counsel or senior management, so that appropriate responses can be made in a consistent manner. Update your response as necessary.
    6. Do a risk management review, especially as to all types of insurance coverage. Be on the lookout for Y2K exclusions.
    7. Make the company's IT systems Y2K compliant by upgrading, replacing, or modifying (altering software source code.
    8. Negotiate Y2K compliance warranties/representations in contracts (when upgrading, replacing, or remediating systems).
    9. Document Y2K due diligence efforts to defend against future litigation.
    10. Make appropriate disclosures re Y2K compliance/non-compliance to insurance companies, banks, and regulatory agencies, particularly when selling a business or filing reports for public companies.
    11. Become aware of possible litigation options.
    12. If all else fails, implement the Contingency Plan.

    (These “12 steps” will be discussed in depth in the next issue.)

PLEASE NOTE: This list is only illustrative and is not exhaustive. It is not appropriate in every case. The purpose of this newsletter is to provide general information on the Y2K Problem and should not be considered legal advice. Every case has special circumstances requiring its own analysis by legal counsel.

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This publication provides information of general interest to our readers. It is not intended, and should not be used, as a substitute for consultation with legal counsel. The law changes constantly, particularly in this rapidly emerging area of Internet commerce and communications, and is subject to different interpretations. Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen, P.C. shall not be responsible for any damages resulting from any inaccuracy or omission contained in this publication.

No part of this publication may be reproduced or transmitted in any form by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without written permission from Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen, P.C. ©1998. All Rights Reserved.

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Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen, P.C.
Legal Services Available:

Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen P.C. is available to counsel its clients regarding Internet, Computer Law and Intellectual Property Law:

    • Registration of trademarks, domain names and
    corporate names
    • Drafting and negotiating software development licenses, software technical support agreements, hardware maintenance agreements, and Web site maintenance agreements
    • Drafting work-made-for-hire-hire agreements for Web sites and other copyrightable works
    • E-mail policies and employment law related issues
    • Trade Secrets (such as customer lists, secret formulas and designs)
    • Personal jurisdiction issues (avoiding being sued wherever your Web site is viewed)
    • Internet privacy issues
    • The “Year 2000 Problem”

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If you would like to receive future complimentary issues of the Internet Business Law Alert or if you have any questions or comments about the articles, please feel free to contact:
Richard L. Ravin, Esq., Managing Editor
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