Internet Business Law Alert

Summer 1999


Domain Name Infringes on Trademark


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

For the first time, a court recognized the unique nature of the Internet when considering whether a domain name can infringe a trademark. The court found that use of the Internet by both the domain name owner and the trademark holder heightened the probability of confusion between the trademark and the domain name.

Richard L. Ravin, Esq.

By: Richard L. Ravin, Esq.
The court also found that the domain name owner intentionally picked domain names which were similar to the trademark holder's trademark. These two factors, together with the traditional likelihood of confusion analysis, led the court to require that the domain name owner relinquish all rights in the infringing domain names.


The trademark owner, Washington Speakers Bureau (WSB), is a prominent lecture agency located in Northern Virginia. WSB represents several high profile speakers, including Margaret Thatcher, Norman Schwarzkopf and Colin Powell. The domain name holder, Leading Authorities, Inc., also sets up speaking engagements but does not exclusively represent speakers. Instead, the company works with other speaker organizations to arrange engagements.

In March 1998, Leading Authorities registered more than 60 domain names. These domain names resembled the names of other lecture agencies, areas of lecturing expertise and geographic locations. Among them were "washingtonspeakers. com."

The court found, however, that WSB had a trademark in "Washington Speakers Bureau," so Leading Authorities' registration of the domain name was problematic. Judge T.S. Ellis, III stated that "speakers bureau" is generic by itself because it indicates the general nature of the services a lecture agency provides. Generic terms are not entitled to trademark protection. However, adding the word "Washington" makes the term descriptive. Descriptive terms are entitled to trademark protection if secondary meaning can be demonstrated. The phrase "Washington Speakers Bureau" has secondary meaning due to the plaintiff's prominence in the speaking engagement industry. Consequently the judge found that the phrase did merit trademark protection.


In This Issue


Domain Name Infringes on Trademark


Four New Federal Year 2000 Problem Bills
Considered in Congress

Technology Companies Lose Right to
Keep Licenses After Bankruptcy

Registering Trademark Protects Domain Name
ICANN Takes Over Registration
of Domain Names

Is an Internet Chat Room
Considered a Workplace?

Tax-Free Internet?
Virginia Is First State to Criminalize Spamming


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In finding a likelihood of confusion between the domain name (washingtonspeakers.com) and the mark (Washington Speakers Bureau), Judge Ellis focused on (1) the fact that both companies used the Internet, (2) the Web's potential for confusion, and (3) Leading Authorities' bad faith in adopting domain names which it knew would be confused with WSB's name.

The court stressed the unique nature of the Internet and the unwieldy nature of search engines. Judge Ellis recognized that search engines are cumbersome tools. Thus, having a domain name that users can surmise without knowing the exact address is very important. Therefore, a company with an intuitive domain name has an extremely valuable asset - it increases the chances that Internet users will accurately guess the company's Web site address and visit that Web site instead of a competitor's. Considering these "facts of Internet life," the court found that consumers seeking WSB's Web site were more likely to find Leading Authorities' "washingtonspeakers.com" Web site and become confused as to who owned the site.

The court also considered Leading Authorities' bad faith as a crucial element of its ruling. Judge Ellis found that Leading Authorities had intentionally registered domain names that were similar to WSB and other competing lecture agencies in order to syphon business from its competitors. The court recognized that several of the domain names, such as "celebrity-speakers.com," look as though they were meant to describe services even though they also duplicate the name of a Leading Authorities' competitor, such as Celebrity Speakers, Inc.

If all of the domain names had these dual characteristics, the court may not have found bad faith. However, the court noted that some of the domain names registered by Leading Authorities (for example, empirespeakers.com) do not have any descriptive function; they merely approximate the name of another speaker organization. A substantial number of the 60-plus domain names registered by Leading Authorities were of this type. Therefore, the court found that all of the names, including washingtonspeakers.com, were probably registered with the intent of attracting Internet business that might otherwise go to a competitor.

The court did not award damages because no damages were caused to WSB in the brief period the domain names were used by Leading Authorities. c


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


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Four New Federal Year 2000 Problem Bills
Considered in Congress


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

Congress is currently considering four Y2K-related bills that have been introduced since the beginning of the year. In October 1998, Congress passed the first piece of federal Y2K legislation, the "Year 2000 Information and Readiness Disclosure Act." This Act shields companies from liability for making statements or "disclosures" regarding their Y2K compliance.

Senator John McCain's bill, titled the "Y2K Act" (S. 96), was introduced in the Senate on January 19, 1999. The act would apply to any civil action regarding a computer system or software's failure to accurately store, process or receive data containing a year 2000 date.

McCain's bill proposes limiting damages in Y2K lawsuits to economic loss plus a maximum of $250,000 in punitive and other damages. If the defendant is a company with less than 25 employees and a net worth of less than $500,000, the cap on punitive and other damages would be $50,000.

The Y2K Act also contains a "good faith limitation" barring any damages (except for economic loss) against defendants who can show they exercised due diligence and reasonable care to prevent or remedy the Y2K failure according to generally accepted standards of care and effort.

Sellers of noncompliant products would be protected unless plaintiffs could show that the seller made an express warranty of its own (beyond the warranty provided by the manufacturer) or engaged in intentional wrongdoing. The Y2K Act would not apply retroactively and would not limit contractual remedies.

McCain's bill also includes a notice requirement. A plaintiff may not commence a Y2K action until it has notified the defendant and given it an opportunity to remedy the problem. Within 30 days of receipt of notice, each prospective defendant must furnish the plaintiff with a written statement acknowledging receipt of notice and stating what the prospective defendant plans to do about the problem identified by the plaintiff.

If the prospective defendant does not respond to the notice or does not describe what it plans to do in order to address the plaintiff's problem, the 90-day period will be shortened to 30 days, at the end of which the plaintiff may begin the action.

In the event that a plaintiff commences an action without providing notice, the defendant may treat the plaintiff's complaint as notice and the court will stay all proceedings for 90 days.

A 90-day waiting period is also the centerpiece of another bill. The Year 2000 Fairness and Responsibility Act ("Y2K FR") (S. 461) was introduced by Senators Orrin Hatch and Dianne Feinstein on February 24, 1999. In line with the McCain bill, the Y2K FR would establish a 90-day period for notice. It would also require that, during the 90 days, plaintiffs inform the potential defendant of the injury they have suffered, and permit the defendant to respond and fix the problem.

Unlike McCain's bill, the Y2K FR would not place a cap on damages. However, the Act does offer some direction on damage awards. For example, the personal liability of corporate officers and directors is limited to the greater of $100,000 or the amount of cash compensation the officer or director received in the preceding year, unless they intended to harm the plaintiff. Senators Hatch and Feinstein believe that the Y2K FR could help prevent frivolous litigation, but that an individual's ability to sue to mitigate real damages would not be restricted.

A third Y2K bill, the Year 2000 Readiness and Responsibility Act ("Y2K RR") (H.R. 775), is primarily concerned with shielding small businesses from crippling damage awards. The bill was introduced on February 23, 1999. House members sponsoring the bill expressed concern that, without such a shield, small businesses will spend more time addressing their potential legal worries than finding out what Y2K problems they need to fix.

The Y2K RR requires a plaintiff to show, by clear and convincing evidence, that the defendant specifically intended to injure the plaintiff. Provided that showing is made, the Y2K RR would cap damages at the greater of $250,000 or three times actual damages. If the showing is not made, there will be no liability (unless, of course, it has been otherwise agreed to by the parties). For small businesses, the cap would be the lesser of $250,000 or three times actual damages.

The Act also enumerates caps for breach-of-warranty, contract, tort and class action cases. In a shift away from litigation, the fourth bill currently being considered by the Senate would require that all Y2K lawsuits be referred to a mandatory arbitration proceeding.

The bill, The Consumer Protection Plan Act of 1999 (H.R. 192), was introduced in the House on January 6, 1999. It does not state whether the arbitration would be binding. Among the bill's other provisions is a two-year limitations period for any Year 2000 computer lawsuit, beginning on January 1, 1999. c


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

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Technology Companies Lose Right to
Keep Licenses After Bankruptcy


As a result of a recent court decision, a technology company which files for Chapter 11 bankruptcy protection may lose the right to keep its non-exclusive licenses unless the licensor consents. In Perlman v. Catapult Entertainment, the Ninth Circuit Court of Appeals held that a Chapter 11 debtor could not assume its non-exclusive patent license because the contract was not assignable under state law without the consent of the licensor.

The defendant Catapult Entertainment is in the video game business. In order to boost sales, it licensed some patents from Mr. Perlman on a non-exclusive basis. A few years later, just before filing for Chapter 11 bankruptcy, Catapult was acquired by Impath Interactive in a reverse triangular merger. As debtor in possession of the patents, Catapult elected to assume the licenses from Perlman under Section 365 of the Bankruptcy Code. Perlman objected. He argued that the licenses should be terminated because Catapult was not as financially stable as when the licenses were granted.

The Bankruptcy Court rejected Perlman's objections and the District Court affirmed. The Ninth Circuit reversed, holding that once Catapult filed for bankruptcy, it could not assume the licenses if Perlman, the licensor, objected to the assumption.

The court relied on the language of Section 365 of the Bankruptcy Code to prevent assumption where non-bankruptcy law prevents assignment. It reasoned that if, under state law, the agreement in question could not have been assigned without the consent of the licensor, then the debtor cannot assume the license without the licensor's consent.

However, not all Circuits use that analysis. The First Circuit, for example, uses the "Actual Test." Under the Actual Test, the relevant question is whether the entity using the license after assumption or assignment is different in any significant way from the pre-bankrupt debtor. If there is a significant difference, no assumption is allowed.

Although the case dealt with patent licenses, the decision is applicable to all contracts which are not assignable, such as licenses pertaining to software, copyrights and trademarks and trade secrets, as well as joint venture agreements. The court, however, did not address the important issue of how exclusive licenses should be handled.

As a result of the Catapult decision, forum shopping will be a chief concern of technology companies that are contemplating bankruptcy. Companies located in the Ninth Circuit (especially those in Silicon Valley) may avoid filing for bankruptcy altogether as a result of the Catapult decision and instead opt for non-bankruptcy workouts or state liquidation proceedings. Needless to say, in light of this recent ruling, drafting "no-assignment" clauses takes on added meaning. c



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Registering Trademark Protects Domain Name


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
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 "TLDs") need not be considered as part of the mark but, under certain circumstances, it may be advisable. 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").

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 of trademarks, 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 such as Network Solutions, Inc. (“NSI”) 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 NSI, a court will have the final say as to who is entitled to use the mark by applying trademark law. Moreover, NSI's policy heavily favors 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. c



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ICANN Takes Over Registration of Domain Names


Changes in Internet Governance proposed by the U.S. National Telecommunications and Information Agency (NTIA) in its June 1998 "white paper" are beginning to take effect. One of the most drastic changes is the transfer of domain name registration duties to the Internet Corporation for Assigned Names and Numbers (ICANN) from Network Solutions, Inc. (NSI).

ICANN was conceived by NTIA in the white paper, which discussed the need for a private, non-profit organization to take control of domain name registration from NSI and the government-operated Internet Assigned Numbers Authority (IANA). IANA's job was to allocate numerical addresses to three nonprofit address-assigning authorities covering the Americas, Europe and Asia. Those three agencies then assigned the Internet addresses provided by IANA to Internet Service Providers (ISPs), who in turn assigned them to individuals and businesses.

Top-level domain names (including ".com", ".edu", ".net" and ".org") correspond to each of these numerical addresses, but are assigned separately by NSI. NSI allocates and registers the domain names and, prior to the creation of ICANN, had an exclusive right to do so.

ICANN - ITS POWERS AND ORGANIZATION
By September 2000, however, IANA and NSI will be divested of their responsibilities by ICANN. ICANN's purpose is to be responsible for the "IP address space allocation, protocol parameter assignment, domain name system management and root server system management functions now performed under U.S. Government contract by IANA and other entities."

On November 25, 1998, ICANN and the Department of Commerce signed a memorandum describing how ICANN and the government will work together to seamlessly transfer Internet operation and management responsibilities from NSI and IANA to ICANN.

ICANN is incorporated in California and an Interim Board of Directors has been appointed. However, unlike most corporations, ICANN's board members will not be elected by shareholders. Instead, the 18 voting directors will be chosen by four different groups of Internet "stakeholders," as provided in the corporation's bylaws.

ICANN SUPPORTING ORGANIZATIONS
Three of these Internet stakeholder groups are defined as specialized "supporting organizations" (SOs). The SOs will appoint three directors each (for a total of nine directors, or half the ICANN Board), and they will also have significant decision-making power. In a December 21, 1998 press release, the Interim Board stated that there will be "substantial delegation of policy responsibility to SOs because putting policy development and recommendations closer to the working professional will produce a better result for the entire community."

ICANN'S “AT-LARGE” DIRECTORS
The remaining nine directors will be chosen by what the bylaws call "at-large" Internet users. On December 17, 1998 ICANN announced the formation of its Membership Advisory Committee. The 13 volunteer members will decide exactly how the "at-large" directors will be elected. At a minimum, however, ICANN's bylaws require that the process consist of nominations from Internet users, because the "at-large" directors are meant to be the voice of the public. As of February 1999, the MAC committee was hammering out the details of the at-large membership structure.

NETWORK SOLUTIONS' DIMINISHING ROLE
NSI has played multiple roles in the Internet's development. Its current jobs are (1) operating the primary "root server" - the computer that transmits addresses of new and existing Internet users and web sites to other key computers around the world; (2) acting as the exclusive registrars of the top-level domains com., net., org. and edu.; and (3) administering a domain name dispute resolution policy for the domain names the company registers.

On October 7, 1998 the government and NSI agreed to a two-year extension of NSI's original agreement, which expired in September 1998. However, the extension calls for a significant reduction in NSI's duties over the next two years. NSI is to turn over many of its Net-related responsibilities to ICANN. This could eventually include control of the main root-server, but NSI might be able to retain authority over the root-server by contracting to do so with ICANN.

One thing is certain, however—NSI will no longer be the exclusive registrar of the coveted top-level domain names.

On March 4, 1999 the ICANN Board of Directors adopted a Registrar Accreditation Policy and directed its Interim President to implement a program for the accreditation of additional registrars. In mid-March, ICANN began accepting applications from registrars interested in accreditation. On April 21, 1999, five "testbed" registrars were named. They are America Online, CORE Council of Internet Registrars, France Telecom/Oleane, Melbourne IT and register.com. These five registrars will begin a test phase, called "Phase I," and will be provided with the technical specifications needed to tap into NSI's domain name registration database, which will allow them to make Net addresses officially live on the global network. Phase I is supposed to be complete by June 24, 1999.

At that time, any company that meets ICANN's standards for accreditation will be permitted to enter the market as a registrar. As of April 21, 1999, 29 post-testbed registrars have been chosen. Seventeen of these are U.S. companies, including AT&T. NSI will continue to maintain the root-server until the government instructs otherwise.

RELATED WEB SITES
ICANN: http://www.icann.org
IANA: http://www.iana.org
National Telecommunication and Information Agency:
http://www.ntia.doc.gov
For critiques of ICANN: http://cyber.law.harvard.edu/
filter/110298/index_biggs.dns.html
http://www.ntia.doc.gov/ntiahome/domainname/proposal/
comments/scanned/Lessig.htm
WIPO: http://www.wipo.org
Network Solutions, Inc.: http://www.netsol.com c



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Is an Internet Chat Room Considered a Workplace?


With the rise in computer usage for communication, many people are discovering and are obtaining access to the Internet.

Technology has changed the way we do business and has altered the relationship between employers and employees. However, this rise of the virtual community challenges well-established legal principles, and the law governing cyberspace evolves every day.

A rapidly growing topic of litigation is the creation of a sexually hostile work environment through the use of the Internet. A sexually hostile work environment refers to harassment by supervisors, managers and coworkers which makes the workplace intolerable, because of ongoing sexual comment or activity that interferes with an employee's ability to do his/her job. The term "workplace", however, has taken on many new meanings. Whether an Internet chat room site can be classified as a workplace for purposes of a hostile work environment was the issue in Captain Tammy S. Blakey v. Continental Airlines, Inc., a recent case decided by the Appellate Division of Superior Court of New Jersey.

In order to make information readily accessible, Continental established a computer system through which pilots and flight crew members could access flight schedules and other company information. Continental arranged for CompuServe, a commercial on-line service, to put the information on the Internet, and this information was accessible to pilots only from the terminals found in the pilots' lounges at each airport.

CompuServe provided its members with an unrelated "bulletin board" service, known as the Crew Member Forum/Chat Room. This chat room could not be accessed through Continental's airport computer system. Captain Blakey complained that some derogatory messages, directed towards her, were appearing in the chat room and, consequently, made her feel very uncomfortable.

Continental argued that the chat room was not a workplace because they did not require the employees to use CompuServe, much less participate in the chat room. They neither monitored nor had control over the chat room. In fact, employees were only able to access the chat room from their homes. Furthermore, the chat room was not used to conduct company business.

Captain Blakey argued that Continental took no action in regard to the derogatory messages that appeared in the chat room even after Continental was notified that such messages were being published. She therefore felt that her work environment was sexually hostile and that Continental was negligent in not taking any steps to rectify the situation.

The Court concluded that, in some instances, an Internet chat room could constitute a workplace. However, because Continental did not control the chat room, did not require their employees to use the chat room to conduct business and because the employees first had to pay a service fee to CompuServe and then could only access the chat room from their homes, the Court found that the chat room was not a workplace for purposes of a sexually hostile work environment under the New Jersey Law Against Discrimination. The Court also concluded that Continental had no duty to police the Internet to control their employees' activity in a nonworkplace and therefore could not be held negligent for the derogatory messages aimed at Captain Blakey.

The area of Internet Law is one of the fastest growing fields of law today. In today's litigious environment, employers are obligated to keep up with the advances of technology and to make sure their workplace, for which they are responsible, is running in accordance with current policies and procedures. c



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Tax-Free Internet?


Internet commerce has experienced tremendous growth over the past few years. Everyone from multi-national companies to suburban teenagers has embraced this new medium as one of the easiest and most accessible way to reach the global marketplace. According to Forrester Research, Inc., the value of goods and services sold over the Internet could grow to more than $300 billion by 2002, a staggering increase from the $8 billion generated in 1997.

The benefits to be gained by this surge in e-commerce could be stifled, however, by the imposition of state and local taxes that apply only to Internet-related transactions. In order to prevent such taxes from being implemented, at least for another two and a half years, President Clinton signed the Internet Tax Freedom Act on October 21, 1998.

The Act was passed in response to the U.S. Government's concern that taxing all e-commerce transactions would impede the Internet's development and expansion. The Act took effect on October 1, 1998 and created a three-year moratorium which expires on October 21, 2001. During that time, a temporary commission will study the possibility of Internet taxation and report back to Congress in April of 2000. Specifically, the commission will research whether the Internet should be taxed and, if so, how the taxes can be applied without subjecting the Web and e-commerce to discriminatory or multiple taxation. Other key provisions of the Act call for tax-free Internet access and require the Administration to demand that foreign governments keep the Web free of taxes and tariffs.

The Act prohibits states from attempting to tax out-of-state e-commerce transactions by applying a strained interpretation of the concept of "nexus." Long before the rise of the Internet, the U.S. Supreme Court held that a state may not charge out-of-state sales tax under the Commerce Clause in National Bellas Hess, Inc. v. Department of Revenue of the State of Illinois. Therefore, a business must have a substantial physical presence, or a "nexus," in a state before it can be made to pay a tax there. This nexus is established by the presence of a business' tangible property or employees inside the state. When it comes to e-commerce, however, it will be difficult to apply the nexus test.

In 1992, the Court held that mail-order businesses are exempt from taxes by states where they lack the requisite physical presence. The mere fact that a business markets its products inside a state is insufficient to establish a nexus. This mail-order reasoning could easily be applied to Net-based sales. If it is, people and businesses physically located outside the country would be allowed to market products online throughout the United States without facing the tax consequences of doing business in a particular U.S. jurisdiction.

For businesses seeking to enter the electronic marketplace and take real advantage of the Internet Tax Freedom Act, the time to act is now. The next two and a half years provide a window of opportunity to take advantage of the Internet's capabilities without the hinderence of new taxes. However, once the moratorium is lifted and the commission on e-taxation makes its report to Congress, doing business over the Internet could be a lot more "taxing". c



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Virginia Is First State to Criminalize Spamming


The Virginia Internet Policy Act was signed into law by Governor James Gilmore on March 29, 1999 and will be effective July 1, 1999. The law will make Virginia the first state in the country to criminally prosecute Internet spammers.

The Act will allow Internet service providers to obtain damages from the spam e-mail sender at the rate of $10 a message or $25,000 a day, whichever is greater. Internet subscribers who are spammed can seek similar penalties against the sender.

The legislation will have far reaching effects; half of the nation's Internet infrastructure passes through Virginia. The state is also home to America OnLine. c



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DISCLAIMER and NOTICE

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. Hartman & Winnicki, 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 Hartman & Winnicki, P.C.

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Hartman & Winnicki, P.C.
Legal Services Available:

Hartman & Winnicki, 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 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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