Web-Site Hosting Deals
By Catherine Sansum Kirkman
Many Web publishers are outsourcing various tasks in connection with the development and operation of their Web sites. This column will review the main points of an outsourcing arrangement in which a third-party service provider is engaged by a Web publisher to provide hosting, connectivity, and related services to enable access by end users to an existing Web service on the Internet.
Hosting and Related Services
The most important part of the contract is probably the description of the specific duties that the service provider will handle. Most Web publishers expect a hosting deal to be performed on a "turnkey" basis, which means that the service provider is responsible for all non-content aspects of maintaining operation of the service on the Web. To ensure this result, one must clearly delineate the nature of the expected services. It is equally important to specify the technical standards that the service provider will be required to meet. Failure to do so can result in a site that operates slowly or unreliably. If attached as an exhibit to the contract, these specifications can be readily evaluated by the Web publisher's technical staff and negotiated as a business issue. In one contract, the service provider's duties were described as follows (services for site development and domain-name registration are not included):
(a) Web-Server Hardware and Software Services. Service Provider will provide the Web-server computers and other computer hardware and operating-system software to operate and support the Web Service in accordance with the Functional and Performance Specifications set forth in Exhibit "A." Off-site tape storage of the Web server will be completed as part of Service Provider's customary back-up and security procedures, which also include operation of back-up servers pursuant to Exhibit "A."
(b)Web-Server Setup and Updating. Service Provider will load the Web Service and all supporting data files and data structures onto the server computers so as to create a fully functional and operational World Wide Web site containing the Web Service and using Web Publisher's specified domain name (the "Web Site"). Service Provider will verify HTML-specification compliance of all Web Service files to be uploaded to the Web Site. Once the Web Site is initially loaded and set up with the Web Service and is fully operational to the satisfaction of Web Publisher, Web Publisher will be responsible for all Web-server content management. Service Provider shall have no right to modify, alter, delete, or suspend operation of the Web Service without Web Publisher's prior written consent. Service Provider will provide two (2) days of training for up to two (2) Web Publisher employees on the operation of the Web server at no additional fee, and will provide a reasonable level of ongoing technical support at no additional fee on an as-needed basis.
(c) Web-Server Connectivity and Access. Service Provider shall provide for connectivity of the Web Service to the Internet, and in connection therewith shall provide without limitation all telecommunications equipment and connections for the Web Site to allow public Web-browser access to the Web server on a twenty-four-hour-a-day, seven-day-a-week basis (except during scheduled maintenance downtime) in accordance with the Functional and Performance Standards set forth in Exhibit "A." Service Provider shall use its best efforts to ensure that the Service Provider network ("Network") remains available in excess of 99 percent availability at all times except for scheduled maintenance downtime, as reflected in the Functional and Performance Standards set forth in Exhibit "A."
(d) Maintenance Services. Service Provider shall perform maintenance services as reasonably necessary to maintain the continuous operation of the Web Site on the Internet in accordance with the Functionality and Performance Standards set forth in Exhibit "A." The parties shall mutually agree upon a regularly scheduled maintenance downtime period, which shall not exceed fifteen (15) minutes in length per day and shall occur during off-peak hours. Service Provider will obtain the prior written consent of Web Publisher with at least 48 hours advance notice in each instance if any extra maintenance downtime is to be required.
(e) Web-Server Reports. Service Provider will generate and provide Web Publisher with weekly printouts of the Common Log File for the Web Service. As used herein, "Common Log File" means a standard Web-server log file generated by commercial Web servers, which constitutes data in ASCII text on the activity log of Web-browser interactions with a Web server. In the event that a Common Log File is unavailable for the Web Site, Service Provider shall provide Web Publisher with weekly reports with analogous information summarized in a mutually agreeable form. At Web Publisher's request, Service Provider shall prepare additional reports summarizing Web-server access and usage data in a mutually agreed format on a monthly basis at no additional charge.
Payment Terms
Although payment terms are largely a matter of business negotiation, the following contract language reflects a number of issues. First, will the Web publisher be liable for cancellation fees in the event that it opts for early termination? Does the contract call for prepayment of fees? Who will bear any taxes arising out of the relationship?
(a) The annual service fee for connection to and use of the Network and for all other services and obligations of Service Provider under this Agreement shall be $_______________. The payment of the fee shall be [prepaid/paid in equal monthly installments], and the first installment of such is due within thirty (30) days after satisfactory connection to the Network. In the event that Web Publisher elects to renew the term of this Agreement, renewal fees shall be invoiced on the first day of the calendar month immediately preceding the anniversary date of this Agreement and shall be paid within thirty (30) days of the invoice date.
(b) In the event of cancellation of this Agreement by Web Publisher for convenience, within ten (10) business days after receiving notice of cancellation, Service Provider will refund any unused portion of the annual fee, calculated by prorating the annual fee on a monthly basis, less _____% of the unused portion of the annual fee as an administrative charge.
(c) In the event this Agreement is terminated for breach by Service Provider or for any other reason, within ten (10) business days after receiving notice of cancellation, Service Provider will refund any unused portion of the annual fee, calculated by prorating the annual fee on a monthly basis, without any deductions of any kind. This refund shall be without limitation to any other legal remedies or damages to which the terminating party may be entitled.
(d) The foregoing fees are inclusive of any and all federal, state, and local sales, use, value added, excise, duty, and any other taxes of any nature assessed upon or with respect to the operating of the Network or the services provided hereunder, except that the income taxes of Web Publisher and any sales or similar taxes on the sale of Web Publisher products and services to its end users shall be the sole responsibility of Web Publisher.
Representations and Warranties
Each party generally makes certain representations and warranties about the nonexistence of infringements and other salient matters about which the other party seeks assurance. They are a way of allocating responsibility for certain events that might occur. For example, if a party represents that its software is noninfringing, it usually will be responsible for indemnifying the other party from harm if a claim is made that is inconsistent with this representation. The following are examples:
(a) Each party represents and warrants that it will comply with all applicable state and federal laws in its performance of services and obligations under this Agreement and in the use and operation of the Network, including laws governing technology and software.
(b) Each party represents and warrants to the other that it has full power and right to enter into this Agreement and that there are no conflicting claims relating to the rights granted herein.
(e) Each party represents and warrants that its performance of this Agreement and its software or data files used on the Network shall not infringe the intellectual property or other proprietary rights of any third party.
(f) Service Provider represents and warrants that Service Provider's services shall be performed in a professional and workmanlike manner, and the Network shall be operated in accordance with the Functional and Performance Standards of Exhibit "A" of this Agreement.
(g) Except for the express warranties contained above, neither party makes any warranty relating to the subject matter of this Agreement, and all services are provided on an "as-is" basis, without warranties of any kind, either express or implied, including but not limited to warranties of merchantability or fitness for a particular purpose.
Limitation of Liability
All software-related contracts contain limitations on liability, due to the fact that computer failures can be responsible for massive business losses, shut-downs and other damages that software vendors and service providers are unwilling to bear. The main issue in these clauses is whether the liability of either or both parties will be limited to the amounts payable as fees under the contract. This places a cap on the total monetary exposure under the contract. The service provider might desire such a cap, but the Web publisher might feel that limiting its remedies to a refund of monies paid is insufficient. In most cases, liability for indemnification obligations is excluded from any imposed cap. Following is a sample clause (these are invariably placed in capital letters so that the limitation is conspicuous):
In no event shall either party be liable for any indirect, incidental, special, consequential, exemplary or punitive damages arising out of or relating to this Agreement, even if such party has been advised of the possibility of such damages, and notwithstanding the failure of essential purpose of any limited remedy.
Term and Termination
Term and termination are important issues in a hosting-services agreement. If, for whatever reason, a Web publisher becomes unhappy with the hosting arrangement, it does not want to be bound by a long-term commitment to a particular service provider. For this reason, different termination rights can be specified to maintain flexibility for the Web publisher. Most service providers view this as a customer's prerogative, but may require some financial recompense if the plug is pulled prior to expiration of the initial term, in order to compensate them for their costs in undertaking the contract. Also, most contracts for the Web today are of limited duration because of the rapidly changing nature of the Internet. Some contracts are as short as six months in duration, with others as long as two years; a one-year term is commonplace:
(a) The term of this Agreement shall commence on the date of complete execution hereof and shall endure for a period of one (1) year thereafter. Web Publisher shall have the right to renew this Agreement for additional one-year periods upon written notice to Service Provider at any time on or before the expiration date of the then-current term.
(b) Web Publisher may terminate this Agreement at any time for convenience by giving [thirty (30) days' advance] written notice to Service Provider.
(c) Either party shall have the right to terminate this Agreement in the event of any uncured breach or default of any of the terms and conditions of this Agreement by the other party, which breach or default continues unremedied for a period in excess of thirty (30) days. In the event such breach or default is not capable of cure, termination shall be effective immediately upon written notice to the breaching or defaulting party.
(d) Either party shall have the right to terminate this Agreement immediately upon written notice to the other party in the event of the insolvency of the other party, or in the event the other party makes an assignment for the benefit of credits or files for bankruptcy or similar relief or has a petition for such relief filed against it.
Ownership Rights
All contracts involving the use of computer software should contain an ownership-rights clause. In a hosting agreement, it is usually just an acknowledgment that the Web publisher owns all rights to the Web site, and that the service provider provides a free license if it supplies any software. However, in a Web-site development agreement, which is not covered in this column, the ownership-rights clause will often be heavily negotiated. Web publishers generally desire to own all rights to a site developed for them, but site developers try to resist "work-for-hire" arrangements and retain rights to reuse generic software modules. The following is a statement covering a hosting arrangement:
Service Provider acknowledges that all right, title, and interest in the Web Service and Web Site, and all right title and interest in and to all usage report, data, statistics, and reports generated hereunder, any Web Publisherspecific (custom) software provided by Service Provider for use in connection with this Agreement, and the Internet server address used for the Web Service, shall be solely owned by Web Publisher. In the event that Service Provider provides any software that is not Web Publisher specific (custom), such software is hereby licensed to Web Publisher for use on the Web Service on a nonexclusive, royalty-free, fully-paid basis during the term of this Agreement.
Force Majeure Events
In preparing a contract, you have to assume that the worst can and will happen. Because of the rapidly evolving nature of the Internet and problems of unreliability and insecurity, a hosting agreement should provide a plan of action in the event that anything occurs that is beyond either party's control. For a Web publisher, the main point is to be able to suspend payment during an interruption of service and to be able to migrate quickly to an alternative service provider if necessary. The following clause addresses this issue:
In the event that either party is unable to perform any of its obligations under this Agreement or to enjoy any of its benefits because of natural disaster, acts of God, actions or decrees of governmental bodies, or any other cause that is beyond the control of the affected party and could not be reasonably anticipated and avoided (a "Force Majeure Event"), the party who has been so affected shall promptly give notice to the other party and shall use its reasonable commercial efforts to resume performance. Upon receipt of such notice, all obligations under this Agreement shall be immediately suspended for the duration of such Force Majeure Event. At any time during a Force Majeure Event, if Web Publisher in its sole discretion determines that it may be able to redeploy the Web Service itself or with a third party that is not subject to such Force Majeure Event, Web Publisher shall have the right to terminate this Agreement immediately upon written notice. In such event, Service Provider will provide all reasonable assistance to Web Publisher at no charge in connection with the transition to another service provider.
Conclusion
In addition to standard contract boilerplate, other provisions that appear in a hosting agreement include indemnification and confidentiality clauses. Also, a Web publisher often will attempt to restrict the service provider's ability to assign the agreement or delegate its duties, in order to benefit from the unique skills and reputation of the service provider. Choice of law and jurisdiction for disputes can be an issue as well, because the parties are likely to be based in different states (or even countries). All contracts should be reviewed by legal counsel licensed to practice in the state or foreign country whose laws will govern the contract.
Catherine is a cyberspace attorney with the law firm of Wilson Sonsini Goodrich & Rosati in Palo Alto, CA, and is solely responsible for the content of this column, which is not offered as legal advice. She can be reached at ckirkman@wsgr.com.
