Beware Hidden Dangers On Third-Party Services Sites

The problem is that this kind of joint marketing venture can expose the hosting company to potential liability. Hosting businesses need to evaluate the risks involved in providing third-party links and consider how to deal with possible liability exposures. Concerned parties can protect themselves by taking steps to ensure the links are presented in the proper manner and by having a detailed written agreement regarding the joint marketing venture.

Content of Hosting Company's Web Site

Whenever a company provides a link to information contained on a third-party's Web site, there is a risk that the company will be deemed as having adopted statements made on that site. This can result in hosting company liability for such statements. To reduce this risk, the hosting company should never make statements that appear to endorse or approve of a third-party's Web site, practices or services.

A link's appearance can increase or decrease liability risk. Risks increase if visitors mistake the information contained in the link for part of the hosting party's site. Also, avoid including links offering information on the link itself that is different from data represented when the third-party site is opened.

Maintain a distinctive look and feel. Adopt a different, distinguishable appearance for any corporate Web site that can be identified as unique to a particular company. This will help indicate which pages are part of the corporate Web site.

Avoid framing, which is the practice of presenting third-party content within a window that has the look and feel of the hosting Web site.

Most important is use of exit screens. These should include a prominent disclaimer that states visitors are exiting the hosting company's Web site. Disclaimer language should be clear, concise and conspicuous. A disclaimer should contain language similar to that listed below:

'You are now leaving our Web site. Co. X assumes no responsibility for the information, statements or services you may encounter on the site of Co. Y (the third-party link) or the Internet outside our Web site. Thank you for visiting www.CompanyX.com.'

Besides reducing risk by closely regulating presentation of any third-party link, it is important to consider laws and regulations that the presence of such links might trigger. The hosting company should also always consider intellectual property issues. A company, for instance, should not post materials on its Web site that it does not own or have a right to use. Be sure the third party has given permission for its site to be linked to the hosting company's site. It sounds elementary, but many Web designers ' and others with Internet access and a little software savvy ' overlook such rules, including trademark and copyright issues when posting, accessing or providing access on the Internet.

Companies should also be sure to comply with export-control laws. Before posting, review any technical information or computer software for export-control compliance. Technical information or software made available on a Web site could, and might, be considered an export and require an export license.

The Written Agreement

Companies should be careful not to be lulled into a sense of false security when allowing third-party links to a corporate Web site. The transaction can seem harmless and appear so informal that one might be tempted to enter such an arrangement without a written agreement. But failure to secure a written contract can result in significant liability and few remedies. It is important that terms of the agreement clearly define each party's roles and responsibilities.

Performance standards expected from third-party providers should be expressly stated in the agreement. For example, if a third party advertises on the hosting company's site that tax returns will be filed electronically within 10 to 14 days, then the percentage of all filed returns sent within that time frame should be specified under this policy. The hosting party should retain the right to terminate the relationship without further obligation or liability in the event that the third party's filing rate falls below the stated threshold. Such flexibility requires that conditions upon which the agreement can be terminated be clearly stated. This is particularly important because many of these joint marketing agreements generate income for both parties. They often contain clauses that require the hosting party to pay damages for lost revenue by the third party, should the hosting party choose to discontinue the link prior to the expiration of the agreement. So, the hosting company should seek to limit any damages owed as a result of terminating the agreement.

In an effort to limit liability, the hosting company should also require the third party to indemnify the hosting party for:

• Any trademark or copyright suits; and
• Any damages or losses suffered as a result of any claim filed based on services the third party provided.

The hosting company also should strive to limit exposure to federal or state laws as a result of the business engagement. To attain that end, the contract should require the third party to comply with all applicable laws and regulations, particularly related to privacy. It is good practice to require the third party to keep an insurance policy for general liability to which the host party is listed as an insured. This will provide extra protection should a lawsuit result from the relationship.

Last ' but don't think it's the least-important element ' the agreement should state procedures the hosting party may implement should complaints regarding the third party be received. The hosting party should be careful not to appear to assume responsibility for the third party; however, the host might want to document any complaints as a means of helping decide whether the relationship is beneficial. If the third party provides poor service, then its presence on the corporate Web site could be harmful. For example, if customers complain that their tax returns were not filed in the time and manner advertised on the third-party site, then the hosting company's existing customer base could start transferring feelings of distrust and frustration to the hosting company. Instead of adding to an existing customer base, the hosting company might actually lose customers as a result of the third-party link.

'Site credibility is very important to many web users ' [A] report [by WebWatch] found that 80% of those interviewed rate[d] being able to trust the information on [a] ' Web site as very important,' wrote James Lewin in 'Can You be Trusted Establishing Web Credibility,' on ITworld.com (http://itworld.com/nl/ebiz_ent/08262002).

When deciding whether to add a third-party link for tax-return preparation or other services, remember to consider the risk involved in placing third-party links on any company Web site. Income generation from such agreements can be heavenly, but if the third party provides poor service, the arrangement can become expensive and a publicity nightmare.

Marie Flores, J.D., is assistant vice president and contracts department manager at Southwest Bank of Texas, N.A., in Houston.

Adding third-party links for tax services to corporate Web sites can be a great way to attract new customers and generate extra income during the tax season.

These links often generate income for the company agreeing to host the link to its corporate Web site.

The third party whose link is being hosted benefits from the advertising and, consequently, usually agrees to share a portion of newfound revenue with the hosting company.

The problem is that this kind of joint marketing venture can expose the hosting company to potential liability. Hosting businesses need to evaluate the risks involved in providing third-party links and consider how to deal with possible liability exposures. Concerned parties can protect themselves by taking steps to ensure the links are presented in the proper manner and by having a detailed written agreement regarding the joint marketing venture.

Content of Hosting Company's Web Site

Whenever a company provides a link to information contained on a third-party's Web site, there is a risk that the company will be deemed as having adopted statements made on that site. This can result in hosting company liability for such statements. To reduce this risk, the hosting company should never make statements that appear to endorse or approve of a third-party's Web site, practices or services.

A link's appearance can increase or decrease liability risk. Risks increase if visitors mistake the information contained in the link for part of the hosting party's site. Also, avoid including links offering information on the link itself that is different from data represented when the third-party site is opened.

Maintain a distinctive look and feel. Adopt a different, distinguishable appearance for any corporate Web site that can be identified as unique to a particular company. This will help indicate which pages are part of the corporate Web site.

Avoid framing, which is the practice of presenting third-party content within a window that has the look and feel of the hosting Web site.

Most important is use of exit screens. These should include a prominent disclaimer that states visitors are exiting the hosting company's Web site. Disclaimer language should be clear, concise and conspicuous. A disclaimer should contain language similar to that listed below:

'You are now leaving our Web site. Co. X assumes no responsibility for the information, statements or services you may encounter on the site of Co. Y (the third-party link) or the Internet outside our Web site. Thank you for visiting www.CompanyX.com.'

Besides reducing risk by closely regulating presentation of any third-party link, it is important to consider laws and regulations that the presence of such links might trigger. The hosting company should also always consider intellectual property issues. A company, for instance, should not post materials on its Web site that it does not own or have a right to use. Be sure the third party has given permission for its site to be linked to the hosting company's site. It sounds elementary, but many Web designers ' and others with Internet access and a little software savvy ' overlook such rules, including trademark and copyright issues when posting, accessing or providing access on the Internet.

Companies should also be sure to comply with export-control laws. Before posting, review any technical information or computer software for export-control compliance. Technical information or software made available on a Web site could, and might, be considered an export and require an export license.

The Written Agreement

Companies should be careful not to be lulled into a sense of false security when allowing third-party links to a corporate Web site. The transaction can seem harmless and appear so informal that one might be tempted to enter such an arrangement without a written agreement. But failure to secure a written contract can result in significant liability and few remedies. It is important that terms of the agreement clearly define each party's roles and responsibilities.

Performance standards expected from third-party providers should be expressly stated in the agreement. For example, if a third party advertises on the hosting company's site that tax returns will be filed electronically within 10 to 14 days, then the percentage of all filed returns sent within that time frame should be specified under this policy. The hosting party should retain the right to terminate the relationship without further obligation or liability in the event that the third party's filing rate falls below the stated threshold. Such flexibility requires that conditions upon which the agreement can be terminated be clearly stated. This is particularly important because many of these joint marketing agreements generate income for both parties. They often contain clauses that require the hosting party to pay damages for lost revenue by the third party, should the hosting party choose to discontinue the link prior to the expiration of the agreement. So, the hosting company should seek to limit any damages owed as a result of terminating the agreement.

In an effort to limit liability, the hosting company should also require the third party to indemnify the hosting party for:

• Any trademark or copyright suits; and
• Any damages or losses suffered as a result of any claim filed based on services the third party provided.

The hosting company also should strive to limit exposure to federal or state laws as a result of the business engagement. To attain that end, the contract should require the third party to comply with all applicable laws and regulations, particularly related to privacy. It is good practice to require the third party to keep an insurance policy for general liability to which the host party is listed as an insured. This will provide extra protection should a lawsuit result from the relationship.

Last ' but don't think it's the least-important element ' the agreement should state procedures the hosting party may implement should complaints regarding the third party be received. The hosting party should be careful not to appear to assume responsibility for the third party; however, the host might want to document any complaints as a means of helping decide whether the relationship is beneficial. If the third party provides poor service, then its presence on the corporate Web site could be harmful. For example, if customers complain that their tax returns were not filed in the time and manner advertised on the third-party site, then the hosting company's existing customer base could start transferring feelings of distrust and frustration to the hosting company. Instead of adding to an existing customer base, the hosting company might actually lose customers as a result of the third-party link.

'Site credibility is very important to many web users ' [A] report [by WebWatch] found that 80% of those interviewed rate[d] being able to trust the information on [a] ' Web site as very important,' wrote James Lewin in 'Can You be Trusted Establishing Web Credibility,' on ITworld.com (http://itworld.com/nl/ebiz_ent/08262002).

When deciding whether to add a third-party link for tax-return preparation or other services, remember to consider the risk involved in placing third-party links on any company Web site. Income generation from such agreements can be heavenly, but if the third party provides poor service, the arrangement can become expensive and a publicity nightmare.

Marie Flores, J.D., is assistant vice president and contracts department manager at Southwest Bank of Texas, N.A., in Houston.