If you desire to be successful in business these days, you must have an online presence because your target audience will expect it. While going online can be lucrative, it is important to learn from the legal mistakes online business have historically made.
The beauty of doing business online is you have so much more reach than you would with a brick and mortar store. Let’s assume you want to sell parts for customizing old cars. If you do it offline, you are pretty much restricted to your local area or must pay huge amounts of money to market nationally in magazines and what have you. Launch the same business online, however, and you can reach both a national and international audience through SEO, social media and pay-per-click advertising with a relatively small budget.
With such a huge market, it is vital you take steps to protect yourself legally before even jumping into the web pool. You should first form a business entity such as a limited liability company or corporation to create a shield between your personal assets and business debts. The second step is to buy liability insurance. If you get sued, you need money to pay an attorney to defend you as well as pay any settlement or verdict against your business. A liability policy does both.
Most online businesses fail to take these two steps, which is rather baffling. Don’t join them.
The next mistake online businesses make is to fail to recognize they must comply with certain laws and then take the necessary steps to do so. Examples of laws that often apply to sites include the:
- Digital Millennium Copyright Act of 1998
- Communications Decency Act
- Children’s Online Privacy Protect Act of 1998
- California Privacy Laws applicable to websites and mobile apps
- FTC Regulations
- State Income Tax Laws
- Copyright Law
- Trademark Law
Instead of complying with such laws, the vast majority of online business owners simply blunder forward blindly and hope nothing bad happens.
Consider sites launching mobile apps, which are all the rage these days. There are very specific privacy requirements associated with launching such apps. If you fail to comply, the fine is $2,500 per user of the app. A measly 100 users equates to a fine of $250,000. Despite this, over 50 percent of all apps fail to comply with the law according to a recent study.
That is just scary.
Site Legal Documents
The legal documents on your site act as contracts with your visitors. Given this, using free boilerplate documents or “borrowing” them from another site is a common legal mistake you see online. There are many problems with this approach, but one of the biggest is you have no idea what you are agreeing to with the visitor!
Marketing Legal Issues
There are numerous areas where online businesses make mistakes when it comes to marketing online. Covering all of them would require writing a small book. Okay, a large book. Given this, let’s focus on two paramount in the news these days.
The first has to do with the statements being made in marketing pieces. You must have proof to back up your statements. If you say 5 out 6 doctors recommend a health supplement to make your toes grow, you better have written proof you can show the FTC. If you don’t, the fines start at $16,000 per marketing piece and go up dramatically from there.
The second marketing issue has to do with review sites. You have undoubtedly seen these sites when doing a search seeking to figure out if a product is worth buying. The site posts a detailed review of the product in question. Shockingly, if you read through all the reviews on the site, they tend to all be positive and provide a link to a location where you can buy the product.
You can see where this is going. The site receives a commission on each sale. Given this, the reviewer is not exactly motivated to give a fair review. The FTC has picked up on this and issued numerous regulations regarding this practice. The general idea is the monetary relationship between the reviewer and the product company must be disclosed. If you are either of these parties, make sure you comply. Failure to do can produce fines of $16,000 per review, which can add up quickly.
Doing business online is a must in our modern technological world. Your goal should be to maximize your revenue potential while minimizing your risk. Avoid the mistakes indicated above and you will be well down the road to meeting both goals. Feel free to contact me for a consultation.
Richard A. Chapo, Esq.
The content on this website is intended to be educational and is not specific legal advice for your situation. The information is not updated. This site and blog constitutes a communication, solicitation and advertisement pursuant to relevant rules of professional conduct and professional codes in California.