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The Ten Most Common Online Legal Pitfalls for Nonprofits ... and How to
Avoid Them
November 18, 2008
Lisa M. HixJeffrey S. Tenenbaum
Venable, LLPWashington, DC
Association of Corporate Counselwww.acc.com
The Ten Most Common Online Legal Pitfalls for Nonprofits ... and How to
Avoid Them
November 18, 2008
Lisa M. HixJeffrey S. Tenenbaum
Venable, LLPWashington, DC
Association of Corporate Counselwww.acc.com
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Online TrendsOnline TrendsFor organizations with fewer than 250,000 email addresses on file, the number of unique web visitors over the past year grew 10.8 percentTraffic soared 34 percent for groups with more than 250,000 addresses on fileOverall, 3 percent of those unique visitors became subscribers, up slightly from 2.8 percent the year beforeAcross all clients, email files grew 32 percent, a rate that provides nonprofits an opportunity to engage with more of their constituents
Philanthropy Journal - April 23, 2008
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Online TrendsOnline TrendsRevenue from online sources, including e-commerce activities, is up 25 percentThe average gift size among nonprofits in the study grew from $56 to $60Online gifts higher than the average gift from traditional channels
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Today’s FocusToday’s FocusBuilding Online Presence
Legal Rights to Internet Materials
Building Online Communities Listservs, Chat Rooms
OutreachE-mail Marketing
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Internet ContentInternet Content
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What’s InvolvedWhat’s InvolvedAll Online Content:
PublicationsPromotional PiecesPhotosGraphicsVideo
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Who owns your “intellectual capital?”
Who owns your “intellectual capital?”
Employee WorksSite DesignersAuthors and Speakers
Articles Speeches, handouts and PowerPoint presentations
Volunteers & CommitteesPosition papersArticles
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Securing RightsSecuring RightsApplies to All Intellectual Property
Text, Graphics, Photos, Video
AssignmentTransfer of all copyright ownershipTax-exempt may use in any form, at any time
LicenseLimited by scope, but can be very broad
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Securing Rights - LicenseSecuring Rights - License
Define Future UsesParticularly important for previously
published materials
Define Geographic AreaExclusive or non-exclusivePerpetual or limited in duration
Define Payment (or Non-Payment) TermsObtain Licenses from All Authors and Speakers
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What If We Don’t Have An Agreement?What If We Don’t Have An Agreement?
Implied LicenseNarrowly Construed and Subject to Interpretation
If Material Exists Elsewhere, Link to Source
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Practical TipsPractical TipsStrategy
License, Assignment, or Shared Ownership?
Adopt a standard policy and practice for all volunteer and committee work.
Volunteers sign from outset of work
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Practical TipsPractical Tips
All authors sign standard agreementsObtain right to publish AND post online
Speakers grant rights to post online
Paid Contractors agree to standard assignment
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Protecting Your Intellectual PropertyProtecting Your Intellectual Property
Allowing others to use articlesClearly define use and durationEnsure you have what you give away
Hyperlinks by third parties
Monitoring others’ use
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Listservs and Chat RoomsListservs and Chat Rooms
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Limiting LiabilityLimiting LiabilityAssess Your Vulnerabilities
Antitrust? Defamation?Contributory Copyright Infringement?Political Activity?Giving “Professional” Advice?Anything Else?
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Use TermsUse TermsRequire all participants to follow established rules:
Affirmative act, such as “click and accept” to enter
Disclaim all warranties, guarantees, liabilityProhibit defamatory, infringing, potential antitrust, and political discussions (among others, such as no sales, no negative discussion of specific companies or professsionals, etc.)
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Use TermsUse Terms
Monitor postingsAct when inappropriate material is posted
Monitoring Does Not Create Liability but Be Careful Where Moderator/Editor*See Sec. 230 of the federal Communications Decency
Act, although does not antitrust or copyright or trademark infringement liability
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Disclaimers Disclaimers
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Liability for Models & AdviceLiability for Models & AdviceModel Forms & Policies
Disclaimer and exclusion of liability statementSet out in each model document
Website LinksNo product endorsement of 3rd partyNo guarantees re: accuracy of 3rd party content
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Internet Tax Exemption Issues
Internet Tax Exemption Issues
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Multiple Tax-Exempt EntitiesMultiple Tax-Exempt EntitiesAffiliated Organizations:
With multiple sites, consider different entry points
“Tab” for 501(c)(3) entity and any PACsGives an indicia of operational separation
Possible to “attribute” activity – important both for political and for non-charitable operations
Reasonable Apportionment of Site Costs
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IRS Announcement 2000-84IRS Announcement 2000-84Several Questions Regarding Online Activity Asked
Most Remain Unanswered
Focus:Political and Lobbying Activities for 501(c)(3)sAdvertising and Business ActivitiesSolicitation of Contributions
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Political Activity & LobbyingPolitical Activity & Lobbying501(c)(3) tax-exempts are limited to “insubstantial” activities attempting to influence legislationIf making a 501(h) election, subject to certain financial limits
With internet communications being so important, 501(h) is more attractive – measures in terms of dollars, not “substantiality,” which is difficult to measure.If no 501(h) election, ensure that “appearance” of lobbying on site if “insubstantial” in proportion to non-lobbying
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Political Activity & LobbyingPolitical Activity & LobbyingIn all cases, must track lobbying expenses
Apportionment of costs particularly importantConsider limiting access to members
Allows apportionment to “direct lobbying” (for 501(h) electors, spending ceiling is 4 times higher)
Carefully monitor content – and linksA website that contains a view of legislation, as well as a link to a voting legislator’s e-mail, will be considered a “call to action”
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Lobbying and Political Activity Policies
Lobbying and Political Activity Policies
Check sites for links added inadvertently or without authorization
Freedom Alliance – Lost 501(c)(3) status due to excessive lobbying, including link to partisan site501(c)(3) Organizations – ABSOLUTELY prohibited from campaign intervention501(c)(4) Organizations – Primary activity cannot be campaign intervention
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Political Action Committees (PACs)Political Action Committees (PACs)Affiliated Organizations
Because PACs are often established in tandem with 501(c)(4) organizations, must avoid attribution of PAC site with 501(c)(3)Two-Click Policy: Material separated from 501(c)(3) page must be at least 2 clicks awayAssists in correcting perception that PAC message originates with 501(c)(3)
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Chat RoomsChat RoomsAs yet, no IRS guidance:
To be safe, assume that chat room discussions involving lobbying or electioneering could be attributedProhibit any biased or partisan communications related to candidate elections
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Internet Tax IssuesInternet Tax Issues
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Unrelated Business Income Tax — The Basics
Unrelated Business Income Tax — The Basics
Tax-exempts are not exempt from all taxes, only from those taxes that would otherwise apply to income received from activities that are substantially related to their exempt purposes.Income from the sale of advertising is almost always taxable.Income may be offset by directly-connected expenses.
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Corporate Presence on Website
Corporate Presence on WebsiteBanner Advertisements
Corporate SponsorshipsLinksOnline PeriodicalsMerchant AffiliationOnline Charity MallsVirtual StorefrontsOnline Auctions
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Qualified Sponsorship Payments
Qualified Sponsorship Payments“Qualified sponsorship payment” is a
payment in exchange for which the corporate sponsor neither gets nor expects any return benefit other than:
Goods or services, or other benefits, the total value of which does not exceed two percent of the sponsorship payment; or Recognition, i.e., use or acknowledgment of the sponsor’s name, logo, or product lines in connection with the nonprofit’s activities
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AdvertisementAdvertisementComparative or qualitative language
Price, savings or value information
Endorsements
Inducement to buy
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Exclusions to Safe HarborInternet Periodicals
Exclusions to Safe HarborInternet Periodicals
Unavailable for acknowledgments of corporate support appearing in a nonprofit’s “regularly scheduled and printed material,” such as newsletters and magazines.
For these purposes, “printed material” presumably includes materials that are published electronically.
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HyperlinksHyperlinksCan convert acknowledgment to advertising
Should go to sponsor’s homepageCannot lead to a website that features the nonprofit’s endorsement of the sponsor’s products
Be certain that when hyperlinks are provided in exchange for payment to have written agreement (for tax and general liability reasons).Exercise oversight over the location of the hyperlink (both on the relevant tax-exempt web page and on the “linked-to” page).
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ApplicationApplicationBanner Advertisements – monitor both content and links
Periodical Advertising – IRS provides a favorable method for allocating expenses against advertising incomeOnline version sufficiently like hard copy periodical?Sufficient segregation of online periodical income and costs?
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ApplicationApplicationOn-line Charity Malls:
% of purchase price goes to charityStructure as payment of royalty fees, rather than referral
Virtual StorefrontsSection 513(c) Fragmentation Rule
IRS will review each piece of merchandise
On-line AuctionsRegularly carried on?Conducted by outside vendor?
Must be “continually controlled” by charity
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Email MarketingEmail Marketing
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ApplicationApplicationEmails that are primarily intended to advertise or promote a commercial product or service, such as membership in the organization or the sale of organization publications
Members generally excluded
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General RulesGeneral RulesGive clear and conspicuous notice of the opportunity to opt-out.
The notice must be in every email message containing a commercial offer. No fee or other obligations on the message recipient before processing the recipient's opt-out request
Provide a functioning opt-out in every commercial email message. This can be a return email address or other Internet-based mechanism that is capable of receiving opt-out requests for at least 30 days after the transmission of the original message.
Further, if the recipient has opted-out, the sender may not rent, exchange or otherwise transfer or release the email address of the recipient.
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General RulesGeneral RulesProvide a valid physical postal address of the sender.
Clear and conspicuous notice that email is an advertisement or solicitation
Make sure the "from" line accurately and clearly reflects the sender. Something like "[email protected]," "[email protected]" or "[email protected]" could be used to identify your organization
Use a valid subject line. There currently are no labeling requirements for the subject line ("ADV" for advertisement, for example).
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Privacy & ConfidentialityPrivacy & Confidentiality
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Fair Information PracticesFair Information PracticesNotify as to information gathered, how used, and what 3rd parties it will be shared withProvide option for information not to be shared with 3rd partiesProvide information about security safeguardingProvide access for individuals to review and correct information
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