Starting up a business, or entering a new market channel, is never easy. Starting a business on the World Wide Web (the web), or moving an existing “offline” business there, requires not only effort and risk, but also demands new knowledge and skills. These tips should help reduce your risk in bringing a business to the web.
1. Your domain name is your address – choose it wisely.
Your domain name (such as www.BoadweeLaw.com) is your address on the web. Choose it with care, because you’ll be promoting it to potential customers in marketing materials, emails, search results, and the like.
Your domain name, your company name and your trademarks are all separate for legal purposes. In other words, obtaining a company name (such as a corporate or limited liability company (LLC) name from the Secretary of State of your state), or an assumed name or DBA name, does not provide you with a domain name, or vice versa. You even can have many domain names that point to the same web site (ask your domain name provider how to “redirect” the traffic to the site.)
A domain name itself is not a trademark. If you want to protect your business from others using company names or domain names similar to yours for similar or competing goods or services, you should obtain a trademark registration. Many businesses use the web to establish a national presence. A federal trademark registration will best preserve your ability to use your brand throughout the United States. Also, even if you don’t register your mark, it is usually a good idea to search for conflicting trademarks owned by others, because they may be able to seize your domain name (or even sue for damages) if it conflicts with their pre-existing trademark rights.
2. Your web site is your storefront – watch out for “hidden” landlords.
It seems that every service provider today seeks what MBA’s call a “recurring revenue stream” – i.e., a service plan in which you keep paying and paying… month after month… like a utility bill. The terms and conditions are most likely non-negotiable. Unless you have a large company or purchase a great deal of bandwidth, you’ll likely have to take the terms offered by your telephone or cable company for internet access, whether by DSL, cable modem or wireless. Similarly, web site hosting, email, ecommerce and shopping cart providers offer monthly services. Ask yourself whether you truly need these services as a utility, or could make an upfront purchase and maintain the resources yourself. Compare features, reliability and support.
With some care, you can reduce your expenses and your risk. First, try to purchase ownership of any web sites, designs, etc. that you commission, if the price is right for you. The providers probably won’t grant this if you are subscribing to off-the-shelf functionality (such as a hosted online shopping cart) or if you are paying a lower rate for a template that the provider uses for other customers. Second, make sure that independent contractors, such as web designers or web masters, have written agreements with you. Take ownership of their work product whenever you can. Third, be sure to obtain photo permissions and other content licenses in your name (not your contractor’s name), so that you are clearly the owner. If you fail to do this, you may find yourself with “hidden” landlords demanding payment.
3. Every site needs Terms of Service.
As a business owner in the bricks and mortar world, you might post a sign with your check acceptance and product returns policies so that customers would understand what you expect in dealing with them. The web is similar. To place these policies in your online store or site, post “Terms of Service” (TOS) or an “End User Agreement” on your web site.
The Disclaimer of Warranty is a critical piece of your TOS. The Disclaimer of Warranty might state, for example, “THIS SITE AND ITS CONTENTS ARE PROVIDED AS-IS, AND ALL WARRANTIES OF MERCHANTIBILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE DISCLAIMED.” This is derived from the Uniform Commercial Code (UCC) as enacted by all states, and is intended to protect you from unjustified claims that your site or statements on your site created an official “warranty” to your potential customers. (You should also disclaim liability for third-party sites to which you link.) Another essential TOS provision is the Limitation of Liability, which limits the amount of damages that can be recovered in a lawsuit. TOS can also include your other sales and returns policies, licenses to use intellectual property, support terms and other legal terms unique to your business (for example, if your business is regulated by the government). TOS also may include notices of any copyrights, trademarks or patents that you own. TOS may seem to be fairly generic, but should be drafted or reviewed by a lawyer to tailor them specifically to your business.
Terms of Service commonly are provided through a text link at the bottom of all the pages of the web site, but that approach currently is not legally enforceable in all situations or all states. If you are selling high-value goods or otherwise need a clearly enforceable contract, then the customer should click an “I agree” button after looking at the Terms of Service and before proceeding with entering an order, etc. Have a lawyer review the order flow.
5. Don’t leave your online doors unlocked.
You wouldn’t leave the front door to your business unlocked when you go home at night. You shouldn’t leave your online store unlocked either. Insecure systems and business practices leave you vulnerable to hackers and your customers vulnerable to identity theft or worse. Also, California and many other states now require disclosure to customers of security breaches that compromise their personal information, and federal bills to regulate this area are pending as of November 2005.
Evaluate your vendors and service providers with an eye to security. Are they using industry-standard practices, such as encrypting credit-card data? For example, many sites do this by using “SSL” encryption for communication between electronic shopping carts and web browsers. Use care when disposing of documents that contain sensitive customer information; if on paper, shred them, and if electronic, make sure they are erased thoroughly. The Federal Trade Commission (FTC) enacted a “Disposal Rule” that requires businesses to use reasonable efforts (such as shredding) to destroy consumer credit reports and credit scores and other specified similar information.
6. If your customers can post, you need this little-known legal shield.
It’s essential today for sites to enable two-way dialogues with their visitors, for example, by enabling visitors to post online feedback about their products or customer service. Unfortunately, customers don’t always realize that posting other people’s text, songs or images could violate copyrights – and result in liability to you, the web site operator, as a “contributory infringer” (essentially, an accomplice to violation of the owner’s rights). A federal law, the Digital Millennium Copyright Act (DMCA), can protect you from this liability. You need to implement a specific procedure to review and respond to written complaints from copyright owners (also known as “takedown notices”), and must investigate and remove any genuinely infringing material when requested. This procedure should be described on your web site.
7. On the web, the Credit Card is King.
Cash may be King in the real world, but not on the web. That means you most likely will need to accept credit cards, and thus will need a merchant credit card account. Available offerings include an account with Paypal for small or eBay-focused businesses, a merchant account integrated with an online storefront, or even a traditional merchant account for customers who see your telephone number on your site and call you. Some providers permit acceptance of debit/ATM cards now as well. And some larger businesses now enable customers to sign up directly for electronic withdrawal of funds directly from their bank accounts, much like an electronic check (also called ACH debit). Shop carefully and watch out for up-front fees, and compare commission percentages. Remember too that credit card charges are subject to chargeback by the credit card company if the customer objects to the charges.
8. Be prepared to haggle, electronically.
In many ways, the web is like a giant bazaar, with a constant ebb and flow of price negotiations. eBay is famous for its online auctions, with automated bidding procedures. Likewise, Google and Yahoo Search Marketing (and its predecessor, Overture) have extended the auction model to advertising – short text ads can be purchased through a competitive bidding process that is continually updated. This is a much different model from buying an ad of a certain size and placement in the Yellow Pages or classified ad section of the local newspaper! It creates a new complexity to buying ads – make sure you understand the system and read the fine print carefully. Many firms hire consultants to help them get the best results from online marketing. Expect to see these dynamic mechanisms applied to other areas of commercial life, as well.
9. Guard your reputation.
Just as in the real world, your reputation is important. Many systems and marketplaces include online evaluations available to all users. For example, eBay and Amazon sellers strive for high evaluations by offering great service and dealing effectively with customer complaints. It may be extremely difficult or even impossible to delete any negative comments. For example, a web service called the “Wayback Machine” enables users to see older, archived versions of web pages. In addition, sending email too liberally may result in your company being branded a spammer, and being added to the “blackhole” lists that result in all your emails being undeliverable. The federal CAN-SPAM Act regulates commercial email. You simply can’t be too careful with your reputation – either offline or on the web.
10. What’s your plan B?
The web and many of the leading sites (such as eBay, Yahoo and Google) are generally reliable. But don’t forget they can change their terms and fees at almost any time. Any internet resource could suffer a devastating, unpredicted interruption – or just a frustrating slowdown. Internet users are notoriously fickle and fad-driven, and can move to a different provider at the click of a mouse. What’s your Plan B? Do you have a backup provider? Consider having a small account or presence with a second (or third …) provider for each critical service.
11. Bonus tip – Many people still live in the bricks and mortar world.
Although more business is being conducted online each day, there still are substantial business opportunities in the bricks and mortar world. Most businesses should not completely abandon their offline business strategies, but rather integrate the online and offline components to reinforce each other, even as online usage and commerce continues to grow. The business and legal issues of the online world layer on top of, and interact with, those issues of the offline world.
This is just a sample of the major legal issues to consider when bringing your business to the web. As technology improves, new issues are certain to emerge. Offline and online businesses face the same, key question: as technology advances, how will you continue to delight your customers and create enduring value in your business?
California Online Privacy Protection Act of 2003, Cal. Bus. & Prof. Code Sections 22575 to 22579. Online marketing to children under the age of 13 is strictly regulated under the Children’s Online Privacy Protection Act of 1998. Privacy of information in the financial services field is also regulated by the Gramm-Leach-Bliley. See “In Brief: The Financial Privacy Requirements of the Gramm-Leach-Bliley Act,” http://www.ftc.gov/bcp/conline/pubs/buspubs/glbshort.htm. Healthcare information is regulated by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). See also more information at the Department of Health and Human Services web site.
California security breach information act, also known as SB 1386, codified at California Civil Code Sections 1798.29, 1798.82 and 1798.84. On the FTC Disposal Rule, see FTC Business Alert, “Disposing of Consumer Report Information? New Rule Tells How,” http://www.ftc.gov/bcp/conline/pubs/alerts/disposalalrt.htm. The Disposal Rule applies to credit reports, credit scores and other reports that businesses receive with information relating to employment background, check writing history, insurance claims, residential or tenant history or medical history. The Disposal Rule was enacted under the Fair and Accurate Credit Transactions Act (FACTA) of 2003, and is available at ftc.gov/os/2004/11/041118disposalfrn.pdf. Digital Millennium Copyright Act (DMCA), U.S. Copyright Act Section 512(d) and regulations issued under it.
Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) and Regulations.
This article was originally written in October 2005 and transferred to www.BoadweeLaw.com/blog on January 3, 2012.