LAW4IT.COM NEWSLETTER [2002] LAW4IT.COM 03

Law For Information Technology Newsletter

In this issue:
1. Claims Against IT Companies Are Way Upand Rising!

2. The Need for Internet Access Agreements

1. Claims Against IT Companies Are Way Upand Rising!

by Joe McCabe, FCIP

In 1995, the Fox Meyer Drug Corporation was the fourth largest drug distributor in the US. One year later it was forced to declare bankruptcy, blaming failure on their IT consultant and software developer. The inventory control system that they had developed led to Fox Meyer's demise.

40% of IT projects are cancelled before completion and an additional 33% are seriously challenged, so says The Standish Group International. The cost of these sub par projects to both companies and government is in excess of $150 billion.

Many companies are turning to the courts in their frustration with the over promised and under delivered services of IT firms. Since 1998, the increase in litigation has become fivefold in the US and statistics show that Canada is not far behind. Insurance companies now recognize the substantial risk undertaken by IT firms and insist on effective controls and risk management.

Controls, in this context, might also mean running your enterprise like a business rather than an entrepreneur. Businesses should avoid the widespread "bait and hide" technique. That is the selling of projects by IT experts and implementation by subcontractors who have significantly less skill. Insurers these days are looking for evidence of a well-managed business.

Risk management can mean the implementation of effective practices designed to eliminate or at the very least minimize risk where possible. Often the very best place to do this is right up front with the contract. There are a number of clauses that your counsel will recommend which insurance underwriters consider mandatory.

Premiums are stabilizing somewhat for the better run IT shops, while those with compromising standards often face staggering premium demands in the insurance marketplacethat is, if they can obtain coverage at all.

It is LMS PROLINK LTD.'s view, that this trend will only continue as contemporary IT insurance underwriters (most of whom are from IT) - are better able to discern which firms are more likely to perform better in today's marketplace.

for more information contact

Joe McCabe, FCIP

LMS PROLINK Ltd

www.lms.ca/it

416-595-7484

2. Internet Access Agreements

by George C. Eyre

Individuals and businesses (ie. users) gain access to the internet through an internet service provider ("ISP") which acts as a gateway to the internet. It is essential that both ISPs and the users have an agreement in place. Why? It is important for ISPs to have an agreement in place in order to control the actions of its users in order to reduce its potential liability. Businesses will want to define appropriate levels of service especially if its business is heavily reliant upon the internet access.

For ease of use and to allow for large volumes, the ISP will want an online agreement which the user can agree to online. Caselaw suggests that such agreements must be drawn to the users attention in order to be enforceable. These agreements are normally drafted by counsel for the ISP and hence favor the ISP.

The following are the major issues that arise in an internet access agreement:

1. Preamble Clauses: provides necessary background information.

2. Fees: Defines how the fees are calculated and when paid. End users will be interested in dealing with rebates for down times and volume discounts etc.. The ISP or host will want to be able to change the fees on reasonable notice to the user; however, the user should resist giving the ISP such power.

3. Services: Defines what services the ISP will provide such as speed and type of internet access, e-mail, news groups, access to the internet, amount of disk space, availability of search engines, availability of database recovery and backup, service parameters such as ratio of subscribers to modems. Also, the ISP may define what support it can offer and that it can change its services.

4. Security: Business users will want the ISP to warrant and to define its security measures such as firewall whereas ISP will want to resist any warranties. The ISP will request that the user keep its password confidential.

5. Equipment: The parties may want a clause to define equipment required to provide the services.

6. Compliance with Laws and ISP Rules: The User will be requested to obey all ISP rules which it can change at any time; however, the user may resist such an open ended request. The host will want a clause in the agreement providing that the end user complies with all laws and that the end user does not post any prohibited material that is obscene or infringers any copyright or trade mark, refrains from spamming, publishing libellous, obscene or unlawful content, hacking and causing disruption of the host's compute system. Also of concern is that, due to the difficultly of determining jurisdictional issues, material that offends foreign jurisdiction such as those of the United States should be considered. .

7. Confidentiality and Non-Disclosure: The end user will want to ensure that its confidential information is protected and not shared with its competitors while the host will want the user to acknowledge that it has no expectation of privacy and to waive any such action against the host.

8. Intellectual Property and Ownership It is important to define ownership of the web page and messages and whether any licenses are granted to the ISP.

9. Indemnities, Warranties, Representations & Limitation on Lisbilities: The end user will want warranties from the ISP. The ISP will want to an release from damages or a limitation on damages suffered or losses incurred due to ISP services. The ISP will seek an indemnities for all costs and claims including legal fees for the users activities on the internet.

10. Term and Termination: The parties will want to define the length of the contract and what events will result in termination for cause or otherwise. The ISP will want the right to monitor user use to ensure compliance with its rules and the law and to terminate upon breach. The parties will want to terminate the contract upon notice and the user will want the right to be able to transfer required data to its new ISP.

11. Evidence: The parties may want a clause to determine what computer records would be considered reliable evidence of payments and communications between the parties.

12. General Terms: The contract will contain general legal terms that provide for such items as jurisdiction and that the written contract is the complete contract.

In view of the foregoing, it is suggested that ISPs review its access contract with its counsel and businesses users review its ISP's agreement with its counsel to determine its terms and conditions and to make sure that it meets its businesses needs. Individual users usually do not have enough bargaining power to negotiate changes to access agreements to ISPs.

For more information contact

George C. Eyre

www.law4it.com

416-362-0495

Disclaimer:

This information is provided as general information only. It is not intended to be provided as legal or other advice. The reader is advised to seek independent legal advice or other advise. The opinions of Guest Authors are their opinions and not those of George C. Eyre.

LAW4IT.COM NEWSLETTER [2002] LAW4IT.COM 03

Law For Information Technology Newsletter

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