E-commerce terms of use: When problems arise

Before any hosting contract is signed, the agreement with the e-business service provider should be scrutinised to learn how the contract anticipates problems and deals with termination of service.

When you rely on other companies to provide your e-commerce storefront and store your data, you can't expect smooth sailing all the time. What will you do if your e-store isn't online continuously? If you change service providers, will your customer data stay intact and readily available?

Before you sign a hosting contract, you must scrutinize your agreement with your e-business service provider to learn how the contract anticipates problems and deals with termination of service.

Termination of service
Eventually every business relationship ends; either you, the hosting company, or both of you will want to terminate the contract. Read the terms to determine under what conditions either party may end the agreement.

For example, HyperMart's Terms of Service permit the company to "remove" HyperMart-hosted Web sites "if there is no activity (hits or edits) on the site for fifteen days." If your site's activity will be slow for a couple weeks while you spend money promoting your online presence, this provision could really affect your business. The results could be disastrous if your site goes offline when people are just learning about it.

A company may stop your e-store service for security purposes, convenience, non-payment, your site's violation of the law, or for non-compliance (breach) of the terms of the agreement. These reasons may be stated in a section called termination, or may appear throughout different sections of the agreement.

Penalties and housekeeping
When you're signing up for service for a specific length of time, you could be paying penalties to end the deal early. Search your agreements for penalty provisions. One agreement I've seen includes a penalty if the client terminates hosting service before the end of one year. The penalty requires payment of the company's out-of-pocket expenses, defined in an attachment as the total fees under the contract. This could add up to a big chunk of money.

Anticipate the end of your deal by reviewing your agreements to understand what happens upon termination. When will the company delete your files from its server? Will you have access to your data after termination but before the hosting company deletes the files? If not, make sure you update and backup your data often.

Giving "notice"
If you want a smooth transition of your e-store from one server to another without disrupting your business, watch for the words notice and without notice. The sentences that contain them describe how and when one party notifies the other that the agreement is about to end.

Member Agreementdepending upon the reason. Section 8(b) describes termination of service without notice for certain reasons, such as security. It promises 30 days' notice to the member before modifying, discontinuing, or restricting use of service. The section also provides 10 days' notice before termination of service if the member fails to pay.

Some agreements offer a "cure" period if there's a breach of the agreement. This allows the party that isn't complying with the terms to fix the problem within a certain number of days without affecting the ongoing agreement. Yahoo! Store's Merchant Service Agreement allows either party to terminate the agreement if the other party isn't in compliance, but only if the one complying with the agreement provides 30 days' notice to the other party "and such breach or noncompliance is not cured within such thirty (30) day period."

Warranties and arbitration
What if something goes wrong with the service and you just want it fixed? In many cases, as with buying a used car "as is," if something goes wrong, tough luck -- most e-solution agreements appear to offer no warranties. To keep customers happy, however, companies often do what they can to resolve problems. But what do you do if the company refuses to resolve a problem and it's damaging your business?

While you may not be able to recover your business losses, agreements often include an arbitration clause to keep costs down. Arbitration is a procedure to resolve problems before an impartial person (called an arbitrator) who is normally an attorney or a retired judge. If you agree to binding arbitration in the agreement, you agree to accept the decision of the arbitrator and not to sue in court.

Many agreements also include a statement that arbitration or a court action must be filed in a certain county and state, normally the location of the company's office. Sometimes the agreements include statements that the losing party must pay the winning party's attorney's fees, which can be very expensive for the loser. If the agreement doesn't include this statement, both parties normally pay their own attorney's fees.

One of the most flexible and fair arbitration clauses I've seen is in GoEmerchant's agreement for Internet payment card services. This agreement allows the merchant to resolve the dispute in either Reston, Virginia, or Oakland, California, and expressly states that each party will pay its own expenses and attorney's fees.

When problems arise, remember that court battles may cost thousands of dollars, last for months or years, disrupt your business, and lead to sleepless nights. Agreements that spell out what to do when problems arise help avoid these expensive consequences. Read the agreements thoroughly before you sign on any dotted line -- and always confer with a lawyer whenever possible.


Based in Northern California, Susan P. Butler has been practicing law for 18 years. Her practice involves intellectual property, Internet, and entertainment transactions throughout the U.S., Europe, and Japan.