Managing E-commerce Partnerships

Strategic e-partnerships are a growing part of the e-business world. The term strategic e-partnership is a buzzword that can mean many things, but it generally refers to a marketing arrangement that allows one or more businesses to work together to achieve maximum Internet presence. Managing these relationships ' which, like any relationships between any group of people, are fraught with potential pitfalls of ego, misunderstanding and a delivery truck full of other possible trouble ' is central to the success of any e-business enterprise.

Striking the necessary balance presents a challenge to legal practitioners, and they must think in strategic terms when managing such issues.

Establishing The Relationship

All business relationships should be reduced to writing. In some business ventures, however, having a contract is more important than in other ventures. Buying goods without a contract the old “brick and mortar” way may not be all that risky. After all, a traditional set of laws exists to which one can look for guidance if the deal goes sour.

But e-commerce lacks a finite set of rules. In many e-commerce arrangements, statutes and case law do not exist that clearly apply to the contemplated transaction. For this reason, it is critical for parties to address the issues raised in any particular arrangement and to set in a formal written agreement the rules that will govern the arrangement. The relationship strategy contemplated by partners should be detailed and be reflected in the contractual terms to which they agree.

The preparation phase in any e-partnership venture involves the exchange of ideas and information. Both parties will have invested time and money developing their trade secrets, such as client lists, business methods, trademark and copyrights. Each party must begin protecting these assets even before the partnership is formed. Prior to exchanging any proprietary information, a mutual nondisclosure agreement should be signed by both parties. This agreement should state the following:

• What information will be deemed confidential;
• Who shall be granted access to the information;
• How long the information shall be deemed confidential;
• How such information may be used and for what purpose; and
• How the information will be disposed of once the dialogue between the parties is complete.

Laying A Partnership Foundation

In order to establish the venture on firm ground, partners in e-commerce ventures should heed the following points and develop plans, including outlines and definitions of who is involved in the enterprise, to what extent and who has what kinds of responsibilities. For instance, consider the following points.

Parties to the agreement. This might seem simplistic, but defining the parties to any contract is essential to determining exactly who is a party to the agreement. The contract should specify whether it includes more than one legal entity, such as a subsidiary of the primary contracting entity.

Roles and responsibilities. Defining what is expected from each party is critical to the success of any partnership. The contract should contain a clear description of the services, products, or information to be exchanged. The agreement should define what each party will be expected to do under the agreement, including how and when performance should be rendered.

Ownership of data and other intangibles. E-partnerships often involve the exchange, and sometimes creation, of intangibles. Most e-transactions involve collection and exchange of data, for instance. If any data is collected and exchanged during the partnership, then the agreement should define from the start who owns the rights to such data. Limitations should be created as to how each partner may use such data. Also, the agreement should specify which partner will be expected to retain the data and for how long.

The collection and exchange of data will invoke the need for security policies and procedures to be implemented in order to comply with regulatory requirements. How intellectual property created during the relationship will be divided should be addressed. For example, if a Web site is commissioned during the partnership, then the agreement should specify who will own the intellectual property created. This is important because the owner will also control the licensing and resale of such work.

Define the limits of the partnership. It is important to define restrictions on the relationship and to curtail any “agent” activities. If Web site linking will be involved in the arrangement, then it might be necessary to specify which Web site designs are approved. And each partner should be required to provide appropriate disclaimers warning customers that they are leaving the Web site of one entity and venturing into the e-space of another. Each partner may want to require the other to keep verifiable records of the content on each other's Web site. This could be valuable information and become critical in any effort to defend against a cause of action related to Web site content. Because e-partnerships involve the exchange of sensitive information, every agreement should include a clause that restricts each e-partner from making additional partnerships with any competitor during the relationship. The parties might also want to retain the right to review and approve any additional e-partnership agreements that could follow the beginning of the initial relationship.

Regulatory compliance. Ensuring that the e-business to be conducted meets regulatory compliance will be key to the venture's overall success. Defining who will be responsible for any regulatory compliance requirements and to what extent is, therefore, critical to e-partnership agreements. Be sure that compliance responsibilities apply to international standards. Identify privacy and data protection protocols that will satisfy such laws as: the Gramm Leach Bliley Act or the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

Language should be included to allow both parties to audit the other so they can confirm adherence to the terms of the agreement, and with any applicable regulatory requirements. It is a good idea also to decide who will be expected to absorb the expense of any future changes required by any regulatory body.

Monitoring The Relationship

Once the partnership has been established and set in motion, with the safeguards suggested above in place, the undertaking must be monitored to ensure proper compliance, smooth operation and easy, profitable growth. Defining the goals of the partnership is a significant aspect of that process. Look at some of the following considerations.

Performance levels. Document e-partners' objective performance benchmarks. For example, if Web access is critical to your business, then specify a percentage of time for which the Web site in question must be accessible. If the partner falls below this threshold, then the nondefaulting party should retain the right to terminate the relationship without any obligation or liability. Also, include the following components in any partnership agreement:

• Stated procedures that could be implemented should either party receive customer complaints regarding the partnership.
• A mechanism for customer complaints, particularly if your e-partner is processing payments for your products sold online.
• In the event of multiple complaints or other problems, especially in the case of multiple transactions, you might want to terminate the relationship to avoid huge losses in your customer base (see more on ending relationships below).

Settling disputes. If conflict makes the partnership rocky, provisions stating the following will prove very valuable:

• Defining how and when disputes will be resolved;
• A statement mandating strict rules of confidentiality for any dispute, including those that might result from any settlement offers;
• Determining and stating up front which party will be responsible for paying for dispute resolution;
• If alternative dispute resolution (ADR) is used, then define how the arbitrator, mediator or third party will be selected; and at the end
• Agree on which law will be applied in the dispute and the venue where the dispute resolution will take place.

How To End a Relationship

Not all e-business partnerships will last. When conflicts can't be reconciled, the partners must consider terminating their relationship.

In order to get past that scenario, the parties must clearly set out from the beginning how and when either party can end the relationship. As discussed previously, many types of termination provisions can be inserted into the agreement that will allow dissolution of the partnership if certain criteria are met. This is particularly important because many e-partnerships stem from joint marketing agreements that generate income for both parties. They often contain clauses that require damages for potential lost revenue by the party terminating the relationship prior to the originally set expiration date of the agreement. Seek to limit any damages owed as a result of terminating the agreement.

An e-partnership can mean increased business growth through the ability to target services, communications and product ranges. But it can also mean increased risk. Remember that e-partnership agreements should be drafted from an e-commerce perspective and not from the traditional brick and mortar vantage point. If an e-partner provides poor service, then the arrangement can become expensive and a publicity nightmare.

Q: What do you risk getting when you mix commerce with the Internet?

A: A host of possible legal issues.

Proper planning, however, will reduce the legal risk associated with e-commerce pacts and make for a less bumpy ride should the partners decide down the road that they want to go their separate ways.

Strategic e-partnerships are a growing part of the e-business world. The term strategic e-partnership is a buzzword that can mean many things, but it generally refers to a marketing arrangement that allows one or more businesses to work together to achieve maximum Internet presence. Managing these relationships ' which, like any relationships between any group of people, are fraught with potential pitfalls of ego, misunderstanding and a delivery truck full of other possible trouble ' is central to the success of any e-business enterprise.

Striking the necessary balance presents a challenge to legal practitioners, and they must think in strategic terms when managing such issues.

Establishing The Relationship

All business relationships should be reduced to writing. In some business ventures, however, having a contract is more important than in other ventures. Buying goods without a contract the old “brick and mortar” way may not be all that risky. After all, a traditional set of laws exists to which one can look for guidance if the deal goes sour.

But e-commerce lacks a finite set of rules. In many e-commerce arrangements, statutes and case law do not exist that clearly apply to the contemplated transaction. For this reason, it is critical for parties to address the issues raised in any particular arrangement and to set in a formal written agreement the rules that will govern the arrangement. The relationship strategy contemplated by partners should be detailed and be reflected in the contractual terms to which they agree.

The preparation phase in any e-partnership venture involves the exchange of ideas and information. Both parties will have invested time and money developing their trade secrets, such as client lists, business methods, trademark and copyrights. Each party must begin protecting these assets even before the partnership is formed. Prior to exchanging any proprietary information, a mutual nondisclosure agreement should be signed by both parties. This agreement should state the following:

• What information will be deemed confidential;
• Who shall be granted access to the information;
• How long the information shall be deemed confidential;
• How such information may be used and for what purpose; and
• How the information will be disposed of once the dialogue between the parties is complete.

Laying A Partnership Foundation

In order to establish the venture on firm ground, partners in e-commerce ventures should heed the following points and develop plans, including outlines and definitions of who is involved in the enterprise, to what extent and who has what kinds of responsibilities. For instance, consider the following points.

Parties to the agreement. This might seem simplistic, but defining the parties to any contract is essential to determining exactly who is a party to the agreement. The contract should specify whether it includes more than one legal entity, such as a subsidiary of the primary contracting entity.

Roles and responsibilities. Defining what is expected from each party is critical to the success of any partnership. The contract should contain a clear description of the services, products, or information to be exchanged. The agreement should define what each party will be expected to do under the agreement, including how and when performance should be rendered.

Ownership of data and other intangibles. E-partnerships often involve the exchange, and sometimes creation, of intangibles. Most e-transactions involve collection and exchange of data, for instance. If any data is collected and exchanged during the partnership, then the agreement should define from the start who owns the rights to such data. Limitations should be created as to how each partner may use such data. Also, the agreement should specify which partner will be expected to retain the data and for how long.

The collection and exchange of data will invoke the need for security policies and procedures to be implemented in order to comply with regulatory requirements. How intellectual property created during the relationship will be divided should be addressed. For example, if a Web site is commissioned during the partnership, then the agreement should specify who will own the intellectual property created. This is important because the owner will also control the licensing and resale of such work.

Define the limits of the partnership. It is important to define restrictions on the relationship and to curtail any “agent” activities. If Web site linking will be involved in the arrangement, then it might be necessary to specify which Web site designs are approved. And each partner should be required to provide appropriate disclaimers warning customers that they are leaving the Web site of one entity and venturing into the e-space of another. Each partner may want to require the other to keep verifiable records of the content on each other's Web site. This could be valuable information and become critical in any effort to defend against a cause of action related to Web site content. Because e-partnerships involve the exchange of sensitive information, every agreement should include a clause that restricts each e-partner from making additional partnerships with any competitor during the relationship. The parties might also want to retain the right to review and approve any additional e-partnership agreements that could follow the beginning of the initial relationship.

Regulatory compliance. Ensuring that the e-business to be conducted meets regulatory compliance will be key to the venture's overall success. Defining who will be responsible for any regulatory compliance requirements and to what extent is, therefore, critical to e-partnership agreements. Be sure that compliance responsibilities apply to international standards. Identify privacy and data protection protocols that will satisfy such laws as: the Gramm Leach Bliley Act or the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

Language should be included to allow both parties to audit the other so they can confirm adherence to the terms of the agreement, and with any applicable regulatory requirements. It is a good idea also to decide who will be expected to absorb the expense of any future changes required by any regulatory body.

Monitoring The Relationship

Once the partnership has been established and set in motion, with the safeguards suggested above in place, the undertaking must be monitored to ensure proper compliance, smooth operation and easy, profitable growth. Defining the goals of the partnership is a significant aspect of that process. Look at some of the following considerations.

Performance levels. Document e-partners' objective performance benchmarks. For example, if Web access is critical to your business, then specify a percentage of time for which the Web site in question must be accessible. If the partner falls below this threshold, then the nondefaulting party should retain the right to terminate the relationship without any obligation or liability. Also, include the following components in any partnership agreement:

• Stated procedures that could be implemented should either party receive customer complaints regarding the partnership.
• A mechanism for customer complaints, particularly if your e-partner is processing payments for your products sold online.
• In the event of multiple complaints or other problems, especially in the case of multiple transactions, you might want to terminate the relationship to avoid huge losses in your customer base (see more on ending relationships below).

Settling disputes. If conflict makes the partnership rocky, provisions stating the following will prove very valuable:

• Defining how and when disputes will be resolved;
• A statement mandating strict rules of confidentiality for any dispute, including those that might result from any settlement offers;
• Determining and stating up front which party will be responsible for paying for dispute resolution;
• If alternative dispute resolution (ADR) is used, then define how the arbitrator, mediator or third party will be selected; and at the end
• Agree on which law will be applied in the dispute and the venue where the dispute resolution will take place.

How To End a Relationship

Not all e-business partnerships will last. When conflicts can't be reconciled, the partners must consider terminating their relationship.

In order to get past that scenario, the parties must clearly set out from the beginning how and when either party can end the relationship. As discussed previously, many types of termination provisions can be inserted into the agreement that will allow dissolution of the partnership if certain criteria are met. This is particularly important because many e-partnerships stem from joint marketing agreements that generate income for both parties. They often contain clauses that require damages for potential lost revenue by the party terminating the relationship prior to the originally set expiration date of the agreement. Seek to limit any damages owed as a result of terminating the agreement.

An e-partnership can mean increased business growth through the ability to target services, communications and product ranges. But it can also mean increased risk. Remember that e-partnership agreements should be drafted from an e-commerce perspective and not from the traditional brick and mortar vantage point. If an e-partner provides poor service, then the arrangement can become expensive and a publicity nightmare.