The Independent Counsel

Internet Commerce


The Web Linking Agreement


BY WILLIAM F. SWIGGART

What some Web "Interpreneurs" may not realize in their land rush to the electronic frontier is the simple truth that a sound, well-drafted Web linking agreement should constitute the foundation document for nearly all their electronic commerce activities.

Any site owner that fails to understand that a Web linking agreement is required for his commercial link will complicate and prolong the assembly of his site. In a recent contract negotiation, for example, a commercial "linked site" purchased a link from another commercial linking site in order to access its customers.

The starting draft provided by the linking site owner, styled an "Internet Content Partners Agreement," described at great length a customer "sharing" relationship. The draft also included numerous barely relevant warranties, representations and indemnities. However, the draft failed to include the core obligation that the linking site must display a hypertext link to the linked site's Web site.

Advertising Links vs. Outsourcing Links

There are two basic types of links, advertising links and outsourcing links. Most advertising links appear at Web "portals." Portals may consist of search engines such as Altavista, Yahoo! and Lycos, or news or reportage sources such as the WALL STREET JOURNAL (wsj), the NEW YORK TIMES (nytimes), or CBS (cbs). Portals usually do not charge users an access fee (wsj.com being an exception), and therefore earn all revenues through the sale of links to commercial sites seeking to sell products or services to their users. Commercial sites may also share customers amongst themselves, Amazon.com's "partner" program being a prominent example. All such links essentially are advertising links.

Commercial sites such as cdnow and ebay, on the other hand, may use outsourcing links to integrate certain services into their own sites from third parties. Sites selling products may link to software services like the ubiquitous Web "shopping carts" that record customer orders, and to providers of banking services that collect payments from customers. An entire suite of services may also be provided and hosted by one party for another without any clues that the customer has been forwarded to another site. A different type of Web agreement is required for outsourcing links than for advertising links.

What are Some Key Provisions?

A Web linking agreement is a software license agreement whereby one company agrees to display bits of software code known as hypertext links on its own Web site to another site. The license provisions in the agreement run from the linked site to the linking site and convey the right to utilize software and related trademarks owned by the linked site to the linking site and its end users.

For outsourcing links for software tools or services, the licensor site may wish to include covenants in the Web linking agreement that the linked tools not be utilized for illegal purposes, and also obtain an indemnity for any liability that it might incur from such activities.

On the other hand, the linked site will want assurances and indemnifications that the software tools being licensed are fully owned by the licensor. The site that purchases the outsourcing link, unlike the beneficiary of an advertising link, may wish the outsourcing provider not to signal customers that they are accessing a third party, whereas the linked site may wish the opposite for marketing reasons.

How Can Payment Affect the Agreement?

The nature of the consideration paid for a link will also govern certain aspects of the agreement. For example, if the purchaser of an advertising link is to pay the linking site a flat fee, the linked site may require commitments as to size, nature and positioning of the link in order to ensure that its link is eye-catching, and placed next to relevant or prominent content.

Such covenants may be unnecessary if the linking site gets a percentage of the revenues derived from its customers' use of the link, since both sites will share an incentive to make the link a success. However, the linking site will need an independently verifiable means of tracking the revenues garnered through its links, and perhaps a right to audit the linked site's user records from time to time. If access to the linked site is purchased on a subscription basis, such as a searchable database, the linked site may require the linking site to screen out users unwilling to pay for such access.

Guarding Against Down Time

The costs of downed links, whether for advertising or outsourcing, are now increasing greatly in proportion to the ever-increasing sales volumes being achieved through commercial sites. Commercial site owners therefore are now pressing for more stringent guarantees against down time of the links that they buy, including sometimes consequential damages.

Commercial sites may also demand liquidated damages provisions, depending on the difficulty of measuring consequential damages at a given site. Conversely, the economic value of resisting these demands has been increasing for link providers. The linking sites' risk aversion is in turn best satisfied by broad force majeure clauses absolving the site of liability for down time caused by "Acts of God," i.e. events beyond the reasonable control of the linking site.

Fear of more than temporary down time has also given rise to a new variation on the software escrow agreement, the Host-Access Agreement. With most Web sites now being hosted by third parties, purchasers of outsource links to those sites may now seek to secure a right of direct access to the third party host.

Such a right would be triggered in the event that the linking site becomes unable to fulfill its Web linking obligations due to bankruptcy, insolvency, etc. A host-access agreement may consist of a simple instruction letter to the host, or be quite formal, specifying triggering events and naming the linking site as a beneficiary.

General Provisions

Many of the well-accepted "General" provisions of the typical software license agreement are equally applicable to the Web linking agreement. These may include a merger clause providing that the four corners of the contract document shall control in determining the parties' obligations to each other, and the stipulation that neither party be deemed a partner or joint venturer of the other. Given the speed with which transactions can take place over the Internet, it is important that contract disputes be resolved as quickly as possible, and to that end, a good arbitration clause can be essential.

Comment: Using well-crafted linking provisions for your Web business arrangements should greatly increase your chances of success on the Web.

© ASSOCIATION OF INDEPENDENT GENERAL COUNSEL 1999; (all rights reserved). This article is not intended as legal advice. Consult a qualified attorney for assistance concerning a specific issue or problem.