It wasn’t all that long ago that the web was very much a forum without laws. This is no longer the case, but many website operators haven’t picked up on this fact. With this in mind, let’s take a look at the five legal mistakes made by online businesses.
1. Not Taking Advantage of DMCA Protections
User-generated content is at the heart of the web these days. “UGC” comes in many forms, but it essentially boils down to anything a website allows a user to upload to the site. In the case of a site such as YouTube, this means videos and comments on videos. For a blog or e-commerce site, uploads can include comments, product reviews, and forum discussions. More progressive sites such as Amazon.com may even allow users to upload video reviews of products.
Given all this interaction, I’m shocked how few websites take advantage of the safe harbor liability protection provided in the Digital Millennium Copyright Act of 1998. This law is considered controversial by users who republish content and copyright owners who see their works used without authorization. This controversy does not extend to website operators. The DMCA is perhaps the single most important law protecting online businesses that allow user-generated content.
Why is the DMCA so helpful to websites? When complied with properly, the DMCA provides websites with immunity from being sued for copyright infringement for content uploaded by users. YouTube provides us a perfect example. If I copy part of a film in a movie theater with my phone and then post it to YouTube, I’ve infringed on the copyrights of the producers of the movie. Those producers can sue me for copyright infringement. However, they are precluded from suing YouTube because of the protections provided by the DMCA.
Online operators that allow users to upload, well, anything should be DMCA compliant and may want to consider our DMCA agent service. The process is relatively simple and inexpensive.
2. Privacy Law Face Plants
This belief is inaccurate and dangerous.
Let’s be clear about a few things:
- You must disclose particular types of information in the policy, and
- Privacy law is inevitably going to become tougher.
If I had to guess, perhaps 90 percent of all websites have inadequate privacy policies. It is one of the biggest legal mistakes made by online businesses. This shortcoming acts as a target for predator attorneys and the FTC. You most likely fall within this 90 percent grouping.
- Do you disclose whether you comply with “do not track” signals from browsers and privacy software?
- Does your policy contain language disclosing if third parties can track your visitors through the website?
- Do you reveal the exact types of personal information you collect from visitors and how you use that information?
If the answer to any of these questions is anything other than an unequivocal yes, you are violating various privacy laws and inviting unwanted legal attention. FTC fines start at $16,000 per violation, so you might want to get that taken care of pretty quickly.
3. Copying Terms and Privacy Policies
“Please sue me!”
Another classic problem is the terms contain a copyright policy listing a DMCA agent that you haven’t retained. When that agent receives notice of a copyright complaint, they are not going to forward it to you. The agent has no idea of who you are!
Finally, a company that cares about your privacy!
Ummm…also a company that is eventually going to have a very unhappy owner. The problem should be obvious.
What if you want to sell the website one day?
5. Shooting Yourself In The Corporate Foot
You should form a business entity for any online business. Why? The purpose of a corporation or LLC is to create a shield between the debts and liabilities of the online business and your personal assets. This approach provides time-tested legal protection, but many website owners open themselves up to personal liability by failing to operate the entity adequately.
A business entity only protects you if it is run as an independent entity pursuant to the legal requirements of the state it is formed in. If this does not occur, a creative attorney can argue the entity should be set aside and the owners held personally liable for the debts and liabilities of the business. Unfortunately, many online businesses open themselves up to this risk when operating online, particularly small companies with shoddy multi-member LLC operating agreements.
One of the factors a court will look at when considering whether a business entity should be set aside is the ownership status of the assets in the business. For an online business, typical areas of investigation include whether you or the business entity are listed as:
- The owner of the domain name,
- The contracting party for web design work,
- The contracting part on the hosting account,
- The owner on any copyright filings,
- The owner on any trademark filings,
- The contracting party on freelancer contracts, and
- The contracting party on other legal agreements specific to your business.
If you are listed as the party on most of these documents, you can have a significant legal problem on your hands. Let’s be clear. The business entity should own all the assets of the company. If someone uses the “who is” function to investigate your domain, they should see the company listed as the owner. If a majority of the ownership documents are signed by you personally instead of as an officer of the entity, a judge is going to be more receptive to a claim the entity should be set aside. That is the last thing you want to see happen, so check your business documentation to make sure you are not sitting on a time bomb.
There you are. The five most significant legal mistakes made by online businesses. Do these five areas cover everything you need to be concerned about as a website operator? No. The days of the web being a lawless platform where anyone can run amuck are over. For better or probably worse, we are now venturing into the days where laws applicable to the web not only exist, but there are far too many of them!
The key to minimizing your risk is to get ahead of the game before a lawyer shows up at the door with a lawsuit in hand. Make sure to consult with an attorney familiar with internet law concepts before that happens.
Richard A. Chapo, Esq.
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