Test Your Thinking

Chapter 6: Test Your Thinking

The projects in this section use the skills you've acquired in this chapter. The answers to these projects are available to instructors only through a Prentice Hall sales representative and are intended to be used in classroom discussion and assessment.

1)	Identify what audience you need to inform of your effort. How will you promote the effort using traditional media channels?
2)	Identify on-line promotional activities. Is it necessary to play the search engine games , or will submission efforts be enough to promote your site?
3)	Identify linking options. Are shared linking options available? How will you utilize paid banner advertisement?
4)	Consider measurement options for your effort. What information will you retrieve from server logs? What information will be captured to profile end users?

Chapter 7. Internet Marketing: Legal Issues

We have always known that heedless self-interest was bad morals; we know now that it is bad economics.

-Franklin Delano Roosevelt

The objective of this chapter is to provide you with enough information to know that laws do apply to activities on the Web and to know that even common situations may have significant legal implications. Most of the situations discussed in this chapter are based on U.S. law, although international laws apply. International law is a complex area outside the scope of this book.

This chapter is not intended as a substitute for legal advice, nor does it contain professional legal advice. An attorney is best suited to respond to the specific circumstances of your situation.

Legality and illegality are based on the specifics of each unique situation combined with federal, state, and local laws and regulations and current case law. Do not hesitate to go to an attorney, and the earlier in the situation, the better. A good attorney prefers to practice preventative law rather than trying to practice much more expensive damage control in a courtroom. If your target audience is outside of the United States, select a law firm with expertise and experience in the laws of that country.

Establishing and Documenting Agreements in a Contract

Before you dive eagerly into your next (or first) Web site development project, as either an employer or as an independent consultant, you need to develop a strong foundation for that project. This is done through a development contract. It should describe what will be accomplished, how it will be accomplished (in general, usually, not the "bits and bytes"), when payments are earned and due, and who owns what. (Who owns what at the end of the project is extremely important, as you will see in Lab 7.2.) As questions arise during the implementation process, the contract will be the baseline of what was intended. If you are the employer, don't pay for any coding without it. If you are the developer, don't do any coding without it.

Contracting for Success

A contract is the basic building block of business relationships. Fortunately or unfortunately , life cannot be conducted without contracts, both written and verbal. We enter into contracts all the time, whether we know it or not, and we will be more successful if

We are aware that we are making a contract.

We know the rules that apply.

We understand the negotiation process.

If everything goes well, then the contract is just a piece of paper (or several!) with signatures on it. If things do not go well, or if a question arises during the course of implementation or paying for the service, then the contract is extremely useful (or should be). A written contract is more effective for obvious reasons ("I never agreed to that! "), and is highly recommended. In general, very few businesspeople object to contracts because they know that contracts usually prevent more misunderstandings than they cause, and a good fair contract protects all the parties. Of course, signing a contract will not make an honest person out of a dishonest one, but it can describe the penalties, or "remedies," if the terms and conditions ("t's and c's") of the contract are not met.

Often, the process of documenting the "deal" in the contract is extremely useful by itself. This is where everyone's assumptions should be described and examined. This documentation process helps eliminate many points of confusion that could become nasty disagreements if delineated after the project is started. The contract should truly reflect an up-front agreement among the parties about what is going to happen.

At a minimum, a Web development contract should describe

Who has ownership, and when the ownership transfers

What is to be accomplished

Who is responsible for doing what

The time frame, or time frames

The price and terms of payment

With everything "out on the table," the parties should have a clearer understanding about what is going to happen and what is expected of everyone. There should be less confusion and more cooperation. The key is to agree on the terms and conditions. If there is something you do not like about an aspect of the deal, discuss it and negotiate something with which you can agree. Or walk away.

Contract Elements

Traditionally, a contract is defined as an agreement among two or more parties, who know each other, and who promise to perform a transaction with each other. This is fairly clear in the real world. You know when you are buying a house, leasing an apartment, renting a car, or purchasing something with your credit card. In the real world, you deal directly with the people involved-the realtor, the landlord, the rental car agent, or the store salesperson. It isn't as clear in the virtual world of cyberspace .

A contract is comprised of three basic elements. If one of the elements is missing, then there is no contract. If all of the elements are in place, we have a contract.

An offer made by an offeror- the person (or entity) extending the offer
An acceptance made by an offeree- the person (or entity) accepting the offer
Consideration - an exchange of something of value, like money

You participate in contracts all the time, as an offeree or an offeror. The process is so well established in our world that we participate without even being aware that we have made and executed a contract. For example, you go to a computer store to shop for a new printer for your office. The store is making thousands of offers, constantly, by putting merchandise on display with price tags attached. The store hopes that offerees will come along and will accept its offer and exchange money for the products for sale.

Suppose that you find the exact printer that you want at the store, but the price is too high and the only one left in stock is the one on display. So you take the "floor sample" printer to the salesperson and make an offer to purchase that specific printer at a price lower than the posted purchase price. When you do that, you have exchanged roles with the store. You have become the offeror (by offering to purchase the printer at a price lower than the posted price) and the store has become the offeree. If the store clerk accepts your offer by agreeing to accept the lower price, you give the clerk your credit card; you sign the sales slip at the agreed-upon price; and you leave with your new printer. The transaction is completed. The store offered you the item at a specific price. You rejected that price and made a lower counteroffer. The store accepted your counter offer, and the transaction was completed. You actually negotiated a lower price in exchange for what could possibly be a less valuable item-the display model.

Oral and Written Agreements

A contract does not have to be in writing to be a contract. There is such a thing as verbal contract, but it is usually much harder to enforce than a written contract.

Visible and Invisible Contracts

Frequently, you sign some kind of slip of paper as you complete a transaction (like the credit card charge slip). That's a contract, or part of it! Often, you don't even notice the contract and its terms and conditions because they are such a common part of your daily life.

Some contracts are more noticeable than others. The contract is painfully obvious when you buy a house (tons of paperwork and lots of lawyers ), less obvious with an apartment lease or car rental agreement, and nearly invisible with a charge slip. Hopefully, you read and understand all of them before you sign any of them. However, it is not easy to read all of the documents associated with the house purchase because much of the language is written by lawyers specifically for lawyers, with volumes of case law behind it all (that's why the lawyers are there).

The contract is also obvious, and usually much less intimidating, with the apartment lease-what size is the security deposit required, when do you get it back, what kind of apartment damage can result in losing that deposit, etc. The contract is at least partially obvious with the car rental agreement, where you initial your option choices (so that it can be proven that you did agree to those choices), offer your credit card, and sign at the bottom. The contract is much less obvious with your credit card slips, which usually do not appear to contain much text. In most cases, the real terms and conditions associated with your credit card purchases are written in very tiny print on small slips of paper included with your monthly statement or your actual credit card application.

Enforceable Contracts

There are some requirements associated with contracts, to make them enforceable by a court if the need arises.

An enforceable contract must be "legal." For example, movies have the bad guys "put out a contract" on one or more of the good guys, as though they were having attorneys draw up contracts for the bad guys to sign, documenting the terms and conditions for killing someone. While that situation is more of a Hollywood fantasy than anyone's reality, if such a contract was drawn up, it would not be enforceable by any recognized court of law. It is not legal, fortunately, to kill anyone , so such a contract would not be legal.
Another requirement of enforceability is that some contracts must be in writing, signed by both parties. This makes sense. How could a court, or anyone else, determine who is right or wrong in a situation when the contract was verbal? Possibly, it could be video taped in front of unimpeachable witnesses, like a room full of U.S. Supreme Court justices, but such circumstances would be extremely rare for most people. It would be time consuming and expensive to prove that contract's terms and conditions, if you could. It is much easier to put those terms and conditions in writing.
In addition, minors (usually defined as younger than 18 years of age) cannot participate in contracts, at least not enforceable ones. While children and teenagers do shop, frequently using their parents' credit cards for payment, they cannot legally do so.

Negotiation Preparation

When beginning any type of business relationship with a client or vendor, the project and financial arrangements are usually informally discussed first. But it's a good idea to begin formal negotiations over a contract as soon as possible. In the hype and vapor world of Internet communication, discussing what, when, and how much is a very good idea. And since anything is possible using this communications method, defining projects and responsibilities is very important.

Once you've begun developing a new situation with a client or vendor and need to move forward, help your attorney draw up the contract that you want, or review a contract submitted to you, by outlining the "deal" and the important issues. Describe your goals, what you need to have included, what should not be included, etc. In addition, if you already have a contract draft from the other party, read it and highlight clauses that bring up questions or concerns.

The following are important points for everyone in a contract negotiation:

Whenever possible, be the party that originates the first draft of the contract. Yes, it will be more work (and, probably, expense). However, as a consequence, you will know the contract extremely well, and you will have included all of your important requirements (as well as some of your "wants" and a couple of "give aways" for the negotiation).
Be sure to enlist the assistance of an attorney to draw up the contract. Do-it-yourself contracts (unless you are an attorney), or using a cookie- cutter contract out of a book or some software, can be dangerous because they are not developed with your situation and your point of view in mind.

Be prepared to have the other party dispute some contract clauses and come back to you with a revision to your draft contract. Ask them to highlight the changes that they made, and then read the contract, again, completely to see if any other changes were made. Again, the wisest way to proceed in such situations is to have your attorney review the revised contract, too. A change in words or even punctuation can appear meaningless to you but may, in fact, be significant.

If the other side prepares the first draft, you need to read it very carefully and thoroughly. Highlight anything that confuses you or that you do not like (because it is not fair to you, not doable, not realistic, etc.), and take it to an attorney for review. With your attorney, develop compromise positions to present to the contract's originators that address your issues or concerns.

Over time, you can develop your own standard contracts that contain the terms and conditions with which you are comfortable and under which you usually work.
Only sign contracts that you have read completely (and understood !) yourself, preferably after your attorney has read and discussed them with you.
When you make a concession in negotiation (like speeding up delivery, if you are the seller), ask for one from the other party in exchange (like a more complete specification or a single point of contact who will be responsible for answering all of your questions within 24 hours).
Be prepared to walk away from an unfair situation or an unprofitable deal. Know what your "deal killers" are-those terms and conditions that are completely unacceptable (non-negotiable) for you. If the other side insists on one of those, walk away from the deal. Usually, a compromise position acceptable to both parties can be reached. Sometimes the other party will insist on something that is totally unacceptable to you, as a negotiation ploy to see how badly you want the deal. If they see that you are seriously ready to terminate the negotiation and walk away from the deal, they may make a concession. But they may not! So you must truly be prepared to walk.
Also know what your price limit is, recognizing that things like payment terms, content source, or technology may affect the actual cost. It is most rational to think in terms of the overall total cost of the project, including not only the purchase price but also cost of maintenance, hosting, software, etc. Figure out your limit (as either the buyer or the seller), and know that going beyond that limit will turn the deal into something that you cannot afford.
Keep a "poker" face, in most negotiation situations (think how the car salesperson's eyes light up when you exclaim how much you love the new car!). Something that may be very important to you may not be important to the other parties. However, if they know how important it is to you, they may expect a large concession from you in exchange for it, regardless of its cost or actual importance to them.
Don't start a negotiation with your "final" position (or best offer). People usually expect to do some negotiation in a Web site development effort (and most other contracts as well), so build in some maneuver room for yourself.

The following are important points for the sellers in a negotiation:

Don't automatically drop your price as your first concession. Research has shown that price is not usually the buyer's biggest concern (or it shouldn't be). Buyers are usually more concerned with quality, reliability, and time to delivery, although every buyer and every situation is different. If the buyer indicates that the price is too high, ask what deliverable he or she would like to leave out to lower the price, assuming that your price is a fair one for the effort.
Want the business or the contract, but do not need the business! Know what your deal killers are and what your bottom line price is. If those are reached or crossed, walk away from the deal. You will be better off in the long run.

Contract Negotiation

Many businesspeople are not comfortable negotiating a contract, but unless you want to trust that everyone else will operate with your best interests at heart, you need to negotiate for yourself (or hire someone to do it for you, if you can, like an attorney). The best approach to negotiation is to look for a "win-win" solution, where all parties are satisfied with the outcome and the overall document is fair to all involved.

Unfortunately, some people and some companies, as part of their corporate culture, negotiate for a "win-lose" solution, where they "win" and you "lose." This negotiation strategy is not good for a long- term relationship among the parties. It can breed a basic dislike and distrust that can backfire.

Most businesses depend on repeat business from satisfied customers. Customers on the wrong end of a "win-lose" negotiation are usually desperately seeking an alternative and will take their business elsewhere as soon as they are able. Research has shown that they will also let at least ten other people know how unhappy they are!
Equally, suppliers or subcontractors on the wrong side of a "win-lose" negotiation will usually do their best to recover or get out of the situation/relationship. This "recovery" or "escape" can end up being much more expensive to the employer/contractor than a more equitable contract would have been.

Research and experience show that "win-lose" is usually transformed into "lose-lose" experience in the long run. "Win-win" is a better goal, both ethically and practically.

The best contract negotiation is actually just documentation, in proper format written (or at least reviewed) by an attorney representing each party, of the terms and conditions that have already been discussed and agreed to by all parties involved.

Cyberspace Contracts

When you think about traditional contracts (interactions involving an offeror, an offeree, and consideration resulting in an agreement among two or more parties, who know each other, and who promise to perform a transaction with each other), you have many examples in daily life to guide you. In cyberspace, it starts to get more complicated. How often do the parties "know" each other and come to a meeting of the minds?

Exercises

Describe the Three Basic Elements of a Contract

You are a Web developer and have a potential new client. After a couple of long discussions with you, the client has asked you for a proposal, delineating what the Web site will contain, how it will be organized, when it will be done, and how much it will cost. You also include some options for the client to consider-monthly maintenance, training, additional sections, and functionality (a shopping cart, an e-mailed newsletter). Each option is priced separately.

a)	You do not have a contract yet, but you have some of the elements. What elements of a contract do you have? __________________________________________________________ __________________________________________________________
b)	What element is missing? __________________________________________________________ __________________________________________________________
c)	If the client likes your proposal but suggests a lower price, what has happened ? What are your options? __________________________________________________________ __________________________________________________________
d)	You did not indicate an expiration date on your proposal. Do you have any long-term exposure as a result? __________________________________________________________ __________________________________________________________

Evaluate a Contract

After reading most of a contract, you, as the developer, sign the contract, collect the agreed 30% deposit, and begin work. You immediately hire two subcontractors: a graphics designer to prepare graphics for the site and a Java programmer to develop a couple of custom applets. Thirty days later (when you are about 60% done with the initial development effort and your subcontractors have completed their efforts), the client submits their notice to cancel the contract in a week. They do not tell you why they are canceling, and they tell you that they don't need a reason. They reference a clause in the contract that you had not noticed:

"This Agreement may be terminated /cancelled by Client for its convenience on seven days prior written notice to Developer."

Can they cancel this contract?

__________________________________________________________

Can they cancel the contract without telling you why?

__________________________________________________________

Assuming that you have already invested more than the 30% deposit, can you recover for the investment you made in the graphics and the Java development?

__________________________________________________________

There are two other clauses in the contract that you missed when you reviewed it:

"Work may not be subcontracted or otherwise performed by third parties on behalf of Developer without the prior written permission of Client."

"Client shall reimburse Developer for reasonable out-of-pocket expenses incurred at the specific request of Client."

If you do not have the client's written approval to use the subcontractors, what are your chances of being reimbursed for the costs of their efforts? Why?

__________________________________________________________

Will you read the next contract more carefully before you sign it? Are there some clauses that you would have negotiated "out" of the agreement? Are those clauses deal killers?

__________________________________________________________

Exercise Answers

Answers

a)	You do not have a contract yet, but you have some of the elements. What elements of a contract do you have? __________________________________________________________ __________________________________________________________
Answer:	You have two of the three elements of a contract. Contracts have three elements: an offer made by an offeror, an offeree who accepts the offer, and some consideration. You have made an offer (the proposal), and you have indicated the consideration (pricing) that you feel is appropriate.
b)	What element is missing? __________________________________________________________ __________________________________________________________
Answer:	The only missing element is the acceptance by the offeree. If you wanted to withdraw the proposal (say you made a mistake in the pricing), now would be the time-before the offeree has accepted it. If you discover the mistake after acceptance, you are dependent upon the cooperation of the offeree to allow you to correct your error. The offeree is not required to cooperate.
c)	If the client likes your proposal but suggests a lower price, what has happened? What are your options? __________________________________________________________ __________________________________________________________
Answer:	The offeree has, by proposing a new price, rejected your offer and made a counteroffer. So the roles are now reversed . You are now the offeree and your client is now the offeror. When they make a counteroffer, you have several options: Accept their counteroffer, accept their counteroffer and request a change to something else (a lowered price may indicate less functionality), or reject the counteroffer. It's usually smart (and fair) to request a concession from the other party when you make a concession.
d)	You did not indicate an expiration date on your proposal. Do you have any long-term exposure as a result? __________________________________________________________ __________________________________________________________
Answer:	If you have not limited the time frame that your offer is open , the client may accept it at any reasonable time. Reasonable is not defined and is usually dependent on the circumstances. So you could be in the position of maintaining a very different Web site from that in the proposal but at the price in the proposal. An argument could be made that by rejecting your initial offer, the client also rejected the options. But since they were priced separately, the client could easily make an argument that it was only your main proposal that was rejected. So, be sure to indicate an expiration date or "offer, including options, effective until . . ." date in your proposal.

Answers

a)	Can they cancel this contract? __________________________________________________________ __________________________________________________________
Answer:	Unless there is something else in the contract that describes specific situations where this clause does not apply, the answer is yes. They definitely can cancel this contract.
b)	Can they cancel the contract without telling you why? __________________________________________________________ __________________________________________________________
Answer:	Again, unless there is some other clause in the contract that is contrary to this one, they do not owe you any explanation. They are canceling for their convenience.
c)	Assuming that you have already invested more than the 30% deposit, can you recover for the investment you made in the graphics and the Java development? __________________________________________________________ __________________________________________________________
Answer:	Maybe and maybe not. It depends on the rest of the contract (e.g., any progress payments terms).

d)	If you do not have the client's written approval to use the subcontractors, what are your chances of being reimbursed for the costs of their efforts? Why? __________________________________________________________ __________________________________________________________
Answer:	If you are in violation of the first clause, requiring prior written permission by the client, the chances of recovery may be slim to none. Hopefully, you can pay for their efforts out of the 30% deposit. If not, you are probably out of luck. Obviously, you should have either objected to that clause before you signed the contract or complied with it and gotten the client's written permission first. It might be argued that the second clause, allowing reimbursement for reasonable expenses, should cover you. But the first clause is pretty clear.
e)	Will you read the next contract more carefully before you sign it? Are there some clauses that you would have negotiated "out" of the agreement? Are those clauses deal killers? __________________________________________________________
Answer:	You should answer yes, yes, and maybe. A wise person would also indicate the need for an attorney to do a review of the contract prior to signing it. Most developers would find the specified clauses unacceptable as they are written. You should be able to soften or eliminate them in a negotiation. In many cases these draconian clauses are included because they are "standard terms" included in every draft agreement. There may even be an expectation that they will be eliminated from the final agreement, as bargaining "chips" in the negotiation process. They could also be included because the client always operates this way. Many very large companies and the U.S. federal government have these clauses in their contracts because they use the same draft terms and conditions over and over. They are also used because these very large customers have so many competitors who want their business that they can do business on whatever terms they choose. They can force acceptance of what is on the surface a "win-lose" situation. This has obvious consequences in the long term. You may decide that you do not want their business that badly. Or you may conclude, after some research, that since these clauses are seldom actually implemented in real life, the risk is acceptable. Be sure to run these contracts past an attorney who specializes in contracts before you sign one. At a minimum, the attorney should be able to point out the risks you will be taking and potentially acceptable alternative clauses or clauses that mitigate the effect of the more objectionable ones.

Self-Review Questions

In order to test your progress, you should be able to answer the following questions:

1)	Which are two reasons to use a written and signed contract in a Web development project? _____ Attorneys need the business. _____ It should document the requirements, responsibilities, and price of the project. _____ If anything goes wrong, it can help clarify the situation. _____ It is required by the U.S. federal government and the IRS. _____ Written contracts are required by many state and local regulations.
2)	You may withdraw an offer _____ After it is made, but before it is accepted. _____ After the contract is signed, but before work has started. _____ After it is made and accepted. _____ If they have not accepted it within 30 days of their receipt of the proposal. _____ Whenever you want to withdraw it.
3)	A client may cancel a contract _____ Whenever they want to cancel. _____ After the proposal is made, but before it is accepted. _____ According to whatever is written in the contract about the client's ability to cancel. _____ After the contract is signed, but before work has started. _____ Whenever they want to cancel, as long as they pay all the expenses.