Key Points to Consider When Creating Terms of Use for Web Services (Part 2)

In the realm of online services such as social networking sites (SNS) and online games, it is common practice to create and publish terms of use. When launching a new web service, some may modify the terms of use of other companies to create their own. However, each web service has its own unique features, and if you simply use another company’s terms of service to create your own, you may suffer unexpected damages due to complaints from users. In this article, we will provide an explanation on how to create terms of use and points to note during the creation process.

What is a Terms of Use?

The “Terms of Use” is a document in which a business operator providing web services publicly announces the rules for using the service. Terms of Use are created for many businesses, but in most cases, they are created for services provided on the internet, such as social networking services and other web services. When a service provider creates a Terms of Use and a user agrees to it to start using the service, a contract based on that Terms of Use is established between the web service provider and the user. This is how the system works.

Points to Consider When Creating Terms of Use

When it becomes necessary to create terms of use, you can refer to templates and samples. However, the terms of use are the contract between the service provider and the user regarding the web service, so the specific content of the terms of use varies depending on the web service.

In the following, we will explain the points that are particularly important when creating terms of use.

Provisions Regarding the Suspension of Services

In web services, it is anticipated that there may be instances where the service must be interrupted or suspended, such as when a server encounters an issue or when regular maintenance is required.

If a user is registered for a fee, the consideration for the fee paid by the user is the use of the website. Therefore, if the website becomes unavailable, there is a risk that the user may request a refund of the fee. Hence, it is crucial to stipulate in the terms of use that the website operating company can suspend or interrupt the service at its discretion.

However, it is important that any interruption or suspension of service does not last for an extended period. Also, for matters such as maintenance where the schedule can be adjusted in advance, consideration is necessary, such as performing it during late-night hours when there are fewer users.

Provisions Regarding the Attribution of Rights such as Copyright of Contents

In cases where users post content, it is not easy to prevent the inclusion of content that infringes on the rights of third parties. However, if content that infringes on rights remains, there is a risk that the web service operator may be asked for legal action by the original rights holder, or may be sued. To avoid such risks as much as possible, it is possible to pledge in the terms of use that the content posted by the user does not infringe on the rights of third parties.

Also, provisions regarding the copyright of the content posted by users are important. The copyright of the posted content belongs to the user who created the post, which is the principle of copyright law. Therefore, if nothing is stipulated in the terms of use, the copyright of the posted content will not be transferred to the web service operator, nor will free use be permitted.

Therefore, in order for the web service operator to freely use the content posted by the user, theoretically, it is necessary to ⓐ receive the transfer of copyright, etc. from the user, or ⓑ receive free permission for the free use of the content from the user.

Although choosing ⓐ is advantageous for the web service operator, it is often difficult to gain the understanding of the user because the user cannot use the content they posted themselves. For this reason, in the terms of use of many web service operators, most examples stipulate that the copyright itself is reserved by the user, but the web service operator can freely use the content for free, like ⓑ.

Provisions Regarding User Registration Cancellation

If the terms of use do not specifically stipulate how to deal with users who violate the prohibitions set forth in the terms, as a web service operator, you will only be able to respond in accordance with the Civil Code’s liability for non-performance of obligations, such as contract termination and claims for damages. Termination of the contract may not be realistic as it may not be permitted for minor violations, and if you claim for damages, issues such as the hassle of litigation and reputational risk to the service may arise, making it not the best method for dispute resolution.

Furthermore, users who violate the terms of use are often the ones who use the service frequently and whom you want to continue using the service. Therefore, preventing them from using the service due to minor violations is not beneficial for the business operator. For this reason, it is common to establish unique responses in the terms of use that differ from the rules under the Civil Code. Specifically, there are examples of provisions that allow for flexible responses, such as a phased approach of temporarily suspending the use of the service and then cancelling the registration depending on the circumstances.

Provisions on Business Operator’s Exemptions and Damage Compensation

In web services that provide content, it is common to prohibit users from distributing downloaded content to third parties or publishing it on the internet without permission. If a user violates this prohibition, the business operator may risk legal liability, including damage compensation liability, to those who claim their rights have been infringed. Even if there is no provision in the terms of use regarding damage compensation based on rights infringement, it can be claimed based on the Civil Code (Japanese Civil Code).

However, defining in the terms of use what circumstances can lead to a claim for damages can act as a deterrent to users. Also, if you set a penalty clause in case it is difficult to prove the amount of damage, it is necessary to clearly stipulate this in the terms of use.

Conversely, it is also common to stipulate the business operator’s exemptions in the terms of use. The Consumer Contract Act (Japanese Consumer Contract Act) states that clauses that exempt business operators from liability for damages based on contract violations, and special contracts that partially exempt business operators from liability for damages in cases of intentional or gross negligence, are invalid. Therefore, provisions that stipulate the business operator’s exemption, such as “Our company is not responsible at all,” may be invalid. If so, how to stipulate the responsibility of the web service operator in the terms of use is a very important issue.

Especially in providing web services, due to their nature, they may unintentionally cause significant damage to users. If the web service operator is to bear all the damages in this case, the operator may also incur a large amount of debt. Therefore, to eliminate such risks, it is effective to set a limit on the amount of damage compensation that the web service operator has to bear in the terms of use.

Provisions Regarding the Expiration Date of Terms of Use

It is common to stipulate the expiration date of the terms of use that apply between users and operators. Generally, the terms of use are effective from the time the user registers based on the terms of use until the day the user’s registration is cancelled due to withdrawal or other circumstances, or until the day the service itself ends. In addition, there may be a provision that the contract will be automatically renewed for a certain period, such as one year, unless there is a specific expression of intent from both parties.

How to determine the effective period depends on whether the web service operating company wants to review user registration at regular intervals. If the web service operator wants to review at regular intervals at its discretion, it is advisable to set a certain period and automatically renew unless there is an intention to cancel from both parties.

Provisions Regarding the Transfer of Status in Business Transfers and Mergers

If a user registered under the terms of use can freely transfer their contractual status, it can cause administrative inconvenience for the business operator. Under the Japanese Civil Code, it is generally believed that the transfer of contractual status requires the consent of the contract partner, but it is common to stipulate this in the terms of use for good measure. On the other hand, as a web service operator, there may be changes in the service operator due to business necessities such as mergers and business transfers. In this case, obtaining the consent of each individual user can be particularly troublesome, especially when there are many users.

Therefore, when a web service operator conducts a business transfer or merger, it is recommended to stipulate in the terms of use that the web service operator can freely transfer their contractual status to the transferee, and that the user comprehensively agrees to the transfer of their contractual status.

Provisions on Governing Law and Jurisdiction in the Event of a Dispute

In the operation of web services, there may be instances where disputes arise between the service provider and the users, potentially leading to litigation. Given the nature of web services, users could be located not only within Japan but also around the world. Therefore, when a dispute arises with a user residing overseas, questions may arise as to whether Japanese law applies, and whether the dispute will be settled in a Japanese court.

For this reason, it is necessary to stipulate in the terms of use the governing law and exclusive jurisdiction in the event of a dispute. Furthermore, the provision on jurisdiction is also important for lawsuits with users within Japan. This is because, in principle, if the jurisdiction is not specified, the court with jurisdiction will be the one in the area where the defendant (the party being sued) resides.

As for the content of the provisions on governing law and jurisdiction, it is common to base it on the location of the web service operator’s head office. For example, if the head office is located in Tokyo, the governing law would be Japanese law, and the exclusive jurisdiction would be stipulated as the Tokyo District Court or the Tokyo Summary Court.

Summary: Consult Lawyers in Creating Terms of Use for Web Services

The outcome of dispute resolution can greatly vary depending on the content of the terms of use, even in similar cases. Therefore, it is crucial to create appropriate terms of use that align with the content of the web services your company provides. To determine what should be stipulated, it is necessary to analyze situations that could potentially arise as user disputes. Consulting with a lawyer who has extensive experience dealing with IT companies can be a wise strategy for making such judgments.