Legal Risks of Doing Business Online

By on September 8, 2018
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If you have a product or service idea, you can start an online business. With today’s technology, you can have a web storefont, Twitter account, Facebook page, etc., up and running in a day or less. You really don’t need any specialized knowledge or business experience. While you, like most entrepreneurs, probably have some idea of what you are doing, there is a tendency to ignore the legal risks of doing business online. New business owners may not even be aware of the legal risks, but “I didn’t know” will not hold up in court. It’s your responsibility as a business owner to understand and reduce the legal risks of doing business online.

Online Business Risks

Some of the risks of doing business offline also apply to online business, particularly trade practices, copyright and trademark infringement, and data privacy issues. And, now with more and more businesses using social media for marketing and advertising, there is even more at risk. Here are the top legal risks you need to be aware of as an online business owner.

Fair Trade Practices

Fair trade laws address market pricing, price discrimination, boycotting competitors or suppliers, and monopolization. These laws exist to protect consumers while promoting fair trade and competition in the marketplace. Most often violations occur when companies engage in behavior that is misleading or deceiving.

Sellers are liable for claims they make about their products and/or services. If the products and services are made available online, agencies and website designers may also be liable for product and service claims. To protect themselves, anyone responsible for publishing such information online should ask for proof that the claims are credible and consider rejecting work from companies making false claims.

Copyright Infringement

Copyright infringement occurs when you reproduce someone else’s work that is secured by a copyright. While it’s easy to copy and download just about anything from the internet, you cannot legally use or reproduce code, text, images, video, music, etc., without permission. Copyright violations may be more likely to occur online because of the large amount of content available that is also easily accessible. Advise your employees not to use content found online without obtaining the appropriate permissions.

Electronic content is protected by the Digital Millennium Copyright Act (DCMA). The DCMA protects electronic content and extends limited liability to organizations in the following ways:

  • Internet service providers benefit from limited liability for transferring content, but are expected to remove anything that may violate copyrighted or trademarked information.
  • Non-profit education institutions benefit from limited liability for copyright and trademark violations by faculty members or students.
  • Organizations cannot circumvent anti-piracy measures built into commercial software, but they can “reverse engineer” to conduct research about encryption, product interoperability, and to test their systems.
  • Organizations cannot manufacture, sell, or distribute copies of software.
  • Anyone broadcasting music or video over the web must pay licensing fees to recording companies.

Trademark Infringement

Trademark infringement is similar to copyright infringement. You cannot legally use someone else’s logo, brand name, or domain name. Using a logo or name that is trademarked can confuse consumers and get you into a lot of trouble. When you file for your business name, first ensure that the name is not being used. Most states have a business name directory you can search before filling out the appropriate forms. While you cannot technically duplicate a domain name, be careful not to choose a name that is too similar to another.

Data Privacy & Security

Consumers share personal information (names, addresses, social security numbers, and account numbers) online every day. As consumers, we trust the companies we do business with have secure systems in place to protect our information. We have a right to know how our information will be used, whom it will be shared with and why, and how we can access, change, and verify its accuracy. We also have a right to know if our information has been compromised.

As a business owner, it’s your responsibility to ensure consumer data is protected. It’s just good practice and it can help you avoid legal problems. Business owners should know the privacy policies around collecting data and credit information and take precautions to secure their systems from potential security breaches and identity theft.

Online Advertising & Marketing

The rules for online advertising and marketing are pretty much the same as other mediums. In short, do not mislead the consumer or engage in deceptive practices that may influence consumers’ decisions about products or services. Additionally, as an online businesses owners, you are responsible for the accuracy and integrity of the information you publish. You must ensure it does not violate any copyrights or trademarks. You must post online privacy policies mandated by state law. You must also ensure disclaimers are clearly written and that the company makes good on any claims made about products and/or services.

Social Media Risks

Social media sites such as Facebook, Twitter, and LinkedIn have become popular ways for businesses to connect with potential customers. With increased opportunity, however, comes increased risks. If your business engages in social media marketing or advertising, do not take the following risks lightly. Understand your liability and take precautions to protect your information.

You may be liable for your employees’ actions. If one of your employee posts information about the company, that is a potential liability that can bring potential claims of infringement, defamation, privacy violation, regulatory investigation, or other legal actions. Educate your employees on what information is and is not OK to post online.

Take proper steps to protect your trade secrets. Trade secrets are a company’s confidential and proprietary information about its products and/or services. Protecting this information is good practice for online and offline business and should be addressed in employee contracts, vendor agreements, corporate policies, technology, security policies and procedures, etc.

Be concerned with copyright and trademark infringement. A good practice is to monitor social media sites and know what information is being shared on your behalf. Monitoring also helps to ensure you are not in violation and to pursue companies that may be misusing your information.

Include social media accounts in your record retention policies. Tweets, blog posts, social media profiles, YouTube videos, text and email messages are all considered electronic records and can be used in lawsuits. Be sure you include electronic records in your formal policies.

If you engage in social media marketing you should develop a social media policy. The policy should dictate how and for what purposes the business and its employees should use social media. Employees should be trained and the policy should be enforced to ensure compliance.

Reducing Risks

You can reduce the risks of doing business online if you are familiar and in compliance with the various federal and state laws around fair trade, copyright and trademark infringement, data privacy and security, and online advertising and marketing. Keeping up with changing technology and social media may be difficult to do on your own. Consult with a qualified business attorney to ensure you are taking the appropriate measures to protect yourself, your employees, and your business.

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