Posted on January 25, 2011
Filed Under (Advice, Ecommerce, Legal) by jennifer

This post was written by Nina Kaufman, Esq., an attorney specializing in small business and an online columnist/blogger for Entrepreneur


Like lightning, an ingenious e-commerce business idea flashes before your eyes.  Totally jazzed, you boot up your laptop, get online, sign up for a PayPal account, create a template website, slap up some copy, and voila! You’re in the e-commerce business.  No permissions needed.  No annoying regulations or bureaucrats breathing down your neck. The sense of freedom is dizzying: The whole world is open and no rules apply. Right?


“Forget that Wild West metaphor. It’s a myth,” writes Mark Grossman of The Grossman Law Group. “Cyberspace doesn’t exist outside of the legal system,” he cautions in his article, “Employees and Technology.” “The very same laws apply to your Internet connection as to you sitting at your office in front of your keyboard.”

So before you hang out your cyber shingle, get your small business attorney on the phone, and find out how you can avoid these three classic e-commerce business legal pitfalls:

1. Make sure you have a good web development agreement, so your site won’t get hijacked. Plenty of entrepreneurs hire a web developer to (literally) build their brilliant idea. But opening an e-commerce business without having an attorney review the web development agreement is like opening a bakery without reviewing the lease.

“People don’t understand that if the developer buys the domain name or opens the hosting account, he owns it. And you’ve just let your business become his hostage if there’s a dispute,” says Natalie Sulimani, an intellectual property specialist, and principal of The Sulimani Law Firm.  “You need to control those issues, otherwise [the web developer] could shutter your business in a nanosecond.”

2. Identify your intellectual property. Just as you thought (before reading this article) that cyberspace was the wild, new, unregulated frontier, there are plenty of others operating under that same misunderstanding. So again, before you officially open for business, identify what’s your intellectual property, specifically your copyrights and trademarks, and find out how you can protect them.

First, are you using other companies’ trademarks? Imagine going on a major promo blitz and getting a nasty lawyer’s letter from some company in Portland, Oregon, saying “Cease and desist. We were here first.” You could end up having to redo all your marketing efforts, doubling your marketing costs. Ouch!

Second, have you protected what you have? For a mere $45, you can properly copyright your website by submitting it to the U.S. Copyright Office. That’s a necessary prerequisite to filing a copyright lawsuit. But when you do that, you could be entitled to statutory damages of anywhere from $1,000 to $10,000 from anyone who ignores your cease-and-desist letter.

3. Have a solid privacy policy. Entrepreneurs have been known to cut and paste their website terms together.  However, as Sulimani cautions, “website terms should be tailored to your business.” And, she adds, “copying them from another site can be as dangerous as blindly using another company’s contracts.”

When it comes to creating the terms and conditions for your website, keep these e-commerce business issues in mind:

  • Consider the highest possible standard when drafting privacy policies to properly safeguard customer information. Privacy policy standards differ from state to state. Sometimes the state with the most restrictive policies wins in a court dispute (and it may not be your state).
  • Look at the long term — and create a privacy policy that you believe will work not only today but years from now. After all, as a business owner, you’re busy, and probably won’t want to revisit your terms and conditions and privacy policies each time you expand your online business. If you do, you’ll be paying the legal fees time and time again.
  • Disclose the terms of any third-party vendors. Whether it’s newsletters, surveys, or shopping carts, your vendors’ policies may differ from yours. By disclosing them, you give your customers the information they need to give their informed consent when purchasing from you.

Finally, make sure you have an attorney who understands e-commerce and your industry. If your business is real estate, are you hearing “FHA guidelines”? If it’s a social networking site, do your terms mention “Safe Harbor Act”? Cyberspace laws are in rapid flux. Make sure you don’t get trapped.

For more valuable small business legal and business advice, check out Nina Kaufman, Esq.’s site,  http://www.AskTheBusinessLawyer.com. You can also get your free copy of her Intellectual Property Info Kit at http://bit.ly/freeintellectualpropkit.

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