Firms warned to heed perils of internet operation
22 July 2008
Businesses with plans for accessing clients via the internet have been warned that they could be treading into a ‘legal minefield’ after two of the web’s biggest names have been hit by massive lawsuits.
Cyber risk specialists CFC Underwriting, which is supported by several of Lloyd’s largest underwriters, said the cases against eBay and YouTube provide ample evidence that those planning a web-based business strategy need to ensure they are aware of the risks and give thought to the insurance products that may be relevant to them.
eBay was recently ordered by a Paris court to pay US$63 million in damages to luxury goods company LVMH after the Paris court agreed that eBay had facilitated the sale of counterfeit versions of LVMH’s high-end products. This came hot on the heels of successful action by Hermès against eBay while in the US courts Tiffany’s and Co failed in a similar case against the company.
US media giant Viacom filed a $1 billion lawsuit against YouTube accusing the world’s top video-sharing site of ‘massive intentional intellectual property rights infringement’. With a US judge ordering YouTube to hand over server logs containing details of every video viewed on the site, it would appear that the net could be tightening against this Web 2.0 giant. The two however have come to an agreement that the logs will not contain personal details after YouTube said the distribution of those details would break current privacy laws.
Graeme Newman, Business Development Director at CFC, said: “To date companies such as eBay and YouTube have relied on old legal arguments such as the ‘safe harbour provisions’ of the US Digital Millennium Copyright Act and the ‘mere conduit’ ruling in the Demon Internet case.
“The recent rulings have turned these ideas on their heads and pose a serious threat to the viability of these major technology companies. The record ruling by the French against eBay raises the potential for the floodgates to open in that country for claims of IP infringement and negligence, not just against eBay but other operators of similar sites, unless they have suitable procedures in place.
“With many traditional companies exploring next generation web services and creating their own social networking sites and marketplaces, these recent rulings should serve as a warning to ensure they manage these new risks carefully or face the hazard of a major loss.”
Newman added: “New web-based developments take place literally every day and a whole new legal environment is emerging just as quickly. It is essential that insurers understand the unique nature of the very different sectors within the technology industry and their associated risks. Having underwritten technology risks profitably for over seven years now, CFC has always maintained a cautious approach with regard to e-marketplaces and social networking sites. These recent developments really demonstrate what a legal minefield this line of business can be and how important it is to work with specialists when looking to insure the class.”
CFC Underwriting is an accredited Lloyd’s specialty lines underwriting agency focused on insurance for technology companies, e-risks, professional indemnity and general liability. It is backed by capacity from several Lloyd’s syndicates, including Beazley, Hiscox, Brit, Catlin, and Heritage.
Last updated on 10 Sep 2008
