The brave new world of electronic business has launched dozens of legal dilemmas in its relatively short existence.
The courts will take years to hash the out the specifics, and you don’t have the luxury of waiting to see how it ends. Instead, you seek advice, take some chances and hope for the best.
“The interesting thing about legal issues is it’s a kind of catch-up game,” says Russ Austin, an attorney for Arter & Hadden who gets a lot of calls from business owners and Internet start-ups trying to find their way in this new economy. “Businesses aren’t going to stand still and wait for legislators to make laws. They are going to move forward.”
Waiting until the smoke clears before you launch that e-commerce initiative you’ve been mulling over in your mind isn’t such a great idea. Chances are, there is going to be plenty more smoke before the courts are able to put out all the fires. But you don’t have to step into the world of e-commerce blindfolded, either.
Austin says there are steps you can take to avoid trouble when it comes to selling on the Web. Here are five legal pitfalls he’s seen all too often and ways you can avoid them:
Intellectual property
It sounds simple and it’s been said before, but legally protecting your online business venture is the most important step in any e-commerce strategy. Check to make sure you are able to trademark your online name and logo, then register them before going public with them. If you are bringing a unique or unusual business process to the Web, you may also be able to claim a patent from the government for your creation.
If you question the importance of such a move, look no further than Amazon’s enforcement on a patent for its “one-click” shopping system, which essentially capsized online competitor Barnes & Noble during last year’s holiday shopping season.
“For Internet businesses, there is this whole area of business process patents,” says Austin. “It’s more likely now, more than ever, that a way of doing business or a method of doing business may be patentable.”
Austin points out that even though it’s gotten a fair amount of press, many people new to the Web still do not fully understand the importance of protecting their e-commerce initiatives.
“If you miss the opportunity to protect your intellectual property,” he says, “you may be gone forever.”
Privacy policies
Worries about privacy and confidentiality keep many people from buying into the idea of shopping online. Every site should draft a detailed privacy policy that visitors can read to decide whether it fits their comfort level. Austin says establishing an identity as an online business that protects its customers’ private information is a solid way to build brand recognition on the Web.
However, many companies have stumbled when it comes to living up to their privacy policies. Several years ago, Geocities was hit with fines and adverse publicity when the Federal Trade Commission investigated the way the popular personal Web page business handled customer information.
“I think the real simple rule is be very careful with information you are gathering through your Web site about visitors, and only do with that what you tell them through a privacy policy you’re going to do,” Austin says. “It’s probably better to give them an opportunity to opt out of those uses.”
Terms of service
For some types of e-commerce ventures, your customers are bound by terms of service when they use your Web site. Terms of service basically outlines what is expected of them as a visitor and what your responsibility is as a site operator.
Traditionally, this has been done with a lengthy legal document that requires users to sign off by clicking a button before entering sensitive portions of the site.
That’s started to change. Some Web companies have switched to a one-line disclaimer that use of the site indicates that you are in agreement with the terms of service, which is usually provided via a link.
Austin says both have become accepted forms, but if you want airtight legal protection, stick with the legal form that users are forced to at least scroll through.
“That what we’re telling people to do,” he says. “And that’s what most people, who view the terms of service as a critical part of the relationship, are doing.”
Confidentiality and letters of intent
Once you have your e-commerce initiative hammered out, you may need money to make it fly. Join the club. However, the competition for investors has given way to many businesses and Internet start-ups opening themselves up to unnecessary risks.
When talking to potential investors, make sure they sign a basic nondisclosure agreement before you spill the beans. Also, make sure that if you sign a letter of intent, it doesn’t include conditions that could hinder the success of your Web venture.
Sometimes investors will demand the start-up talk to no other potential investors until their negotiations are complete.
“That’s an extremely unreasonable provision and one that basically ties the hands of the new company,” says Austin. “They’re stuck. They can’t talk to anybody else.” How to reach: Arter & Hadden, LLP, www.arterhadden.com
Jim Vickers ([email protected]) is an associate editor at SBN.