Top 6 Legal Issues Every Web-Based Business Should Know About

Updated October 26, 2022
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Starting a business online can be surprisingly easy. Don’t let that ease lull you into ignoring some basic legal issues that should be on your radar.

1. Get Your Terms of Service and Privacy Policy Done — and Done Right

To operate online, you need a privacy policy for your website. Conventional wisdom says that if you satisfy California law regarding privacy policies, you will be in compliance with the other 50 states, which are generally considered less stringent. Therefore, make sure your privacy policy complies with California law.

In general terms, you need to identify the information you collect, how you collect it, and what you do with it. You also need to state how you respond to “Do Not Track” requests. Unless you sell or send the information to others, your privacy policy should be relatively simple. Yet, don’t simply cut and paste your competitor’s policy. Companies get in more trouble for having incorrect privacy policies as opposed to not having a policy in the first place.  If you cut and paste, make sure it is accurate; and please, do a “find a replace” to change the company’s name.

Terms of Service are not required, but they can save you if something bad happens. The terms often include forum selection clauses that make sure any lawsuits against you are in your city; limitations of liability that limit any damages to amounts that are paid to you.  Because websites are accessible from all over the world, you don’t want to be dragged into a courthouse thousands of miles away for millions over a $5 online transaction. 

Assuming you have terms of service, make sure they are enforceable. To do that, make your terms a click-wrap agreement and not a browse-wrap agreement.  A click-wrap agreement is one that requires the customer to check a box or otherwise indicate the customer had the opportunity to read the terms and agreed to them at checkout or account creation.  If you simply place the terms of service in a link at the bottom of the page and never require anyone to “check the box,” then courts consider it a browse wrap agreement and won’t enforce it. 

2. Understand trademarks and how it applies to your website

A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of another. By registering your trademark, you will be entitled to a presumption of ownership of the brand on a national level and a presumed right to use the brand nationwide. It prevents someone from registering a confusingly similar mark after you and allows you to sue in federal court if someone infringes on the brand you have worked hard to build. Once registered, you can also present yourself as an established and serious business because you can start using the ® symbol after your name, logo, or slogan.

It helps to have a trademark when it comes to protecting your domain name as well. If someone tries to use a domain name similar to yours, you have a couple of options: file a UDRP complaint or file an Anti-Cybersquatting Consumer Protection Act lawsuit.

The UDRP (Uniform Domain Name Dispute Resolution Process) is an online process that is decided on the papers without discovery or live testimony. When you bought your domain name, you agreed to submit to a “mandatory administrative proceeding” to determine rights to the domain if there was ever an issue. The arbitration fees usually cost between $1,250 and $3,000 depending on the number of arbitrators. The only issue decided is the right to the domain name; no monetary or attorneys’ fees are awarded.

To prevail in a UDRP claim, you must prove: (1) you have a trademark right that is identical or confusingly similar to the domain of the infringer; (2) that the infringer has no legitimate interest in the domain name; and (3) and that the person is using the name in bad faith.

If litigation through the courts makes more sense, then you should pursue your claim under the Anti-Cybersquatting Consumer Protection Act (“ACPA”). To prevail under the ACPA, you must show the infringer (1) has a bad faith intent to profit from a domain name; and (2) registers, uses or traffics in a domain name that is identical, confusingly similar or dilutes your mark. Under the ACPA, the trademark does not have to be registered, but must: (1) be distinctive at the time of the registration of the domain name; or (2) is famous at the time of registration. Violators can be fined between $1,000 and $100,000 per wrongly-used domain name. A successful plaintiff can also recover lost profits, the profits of the violator, and court costs.

3. You will receive a negative online review — what you can and can’t do about it.

While negative reviews can be annoying, it rarely makes sense to sue over them.  First, it is virtually impossible to go after the review sites—where the money is.  Section 230 of the federal Communications Decency Act shields website operators from being sued for defamation for comments posted by others. Plaintiffs have tried for more than two decades to get around the immunity shield to no avail.  You should, therefore, generally look elsewhere.

That leaves the poster of the review as a target for a lawsuit. The immediate concern is that individual internet posters rarely have enough money to make such an endeavor economically viable. A lawsuit will likely cost you more than $100,000 and it can be difficult to collect that amount from an individual, especially when they don’t have it.  Second, you may not know who the anonymous poster is. You can go through lengthy court proceedings to force media and review sites to give you information about the posters, but even then, someone who knows what they are doing can often duck detection.

Third, you must think about the bad PR that comes with a lawsuit against a reviewer. The internet has called this the Streisand Effect which stands for the proposition that by suing you draw way more attention to an issue than it ever would have garnered had you not sued in the first place.  Many of these suits have backfired against companies when the internet users have rallied behind the reviewers.

If you still need to sue, you also need to be careful of Anti-SLAPP (Strategic Lawsuits Against Public Participation) rules that may apply in your state.  Courts take a close look at suits meant to keep people from expressing their opinions and will shut down lawsuits if there is not a good faith basis for the claim.

So, what is there to do? The best offense is to be prepared with a strong marketing plan. If you are doing business online and you have a lot of customers, you will receive negative reviews. Your marketing team (or you, in a small business context) need to have a prepared plan as to how you will respond to these.  Often a polite message in response with an apology and a reminder that you strive to provide good service will mollify the public. If necessary, there are specialists in reputation management that can work to help you restore your reputation online and emphasize the positive to drown out the negative. Your resources are usually better spent doing these things rather than paying a lawyer to go to court.

4. Everything is NOT cut and paste on the Internet

Let’s dispel that myth first. Just because there is an image or story on the internet, it does not mean you can use it. Someone owns the right to it and you can get in trouble for using it. 

The ubiquitous nature of online copying is one reason many are scared to engage online or allow interaction with customers online. You should not let concern about copyright liability keep you off the web or from allowing your customers to engage with you. Because of a federal law named the Digital Millennium Copyright Act (the DMCA), you can avoid liability if you allow people to post to your site. If you register with the U.S. Copyright Office and follow some basic notice and take down procedures, you should avoid copyright liability related to users posting protected material on your site.

You can also use the DMCA if someone lifts content from your site. You can go online to Google or to the website hosting service to have the material removed.  You must make some representations regarding your rights under oath and can be held liable for attorneys’ fees if you abuse the process, but it is an effective tool to combat piracy of your online material.

5. Do you disclose your sponsored online promotions and endorsements?

The Federal Trade Commission requires the disclosure of any “material connection” offered in exchange for an online endorsement or post regarding your goods or services. These rules also apply to online promotions that require contestants to post, tweet, or pin certain message to participate.

Therefore, if you pay someone to talk about your products online or in social media, that person needs to disclose that the endorsement is paid.  If you give free product to someone so they can write a review online, then you need to make sure the person providing the review discloses they got a free sample.

There is no magic language for the disclosure.  There simply needs to be a statement to the effect that I was given “Product X” by “Company Y” to try out and here is what I think.  Or, use hashtags like #paid, #sponsored, or other notations so people know it is a paid for mention on social media.  With regard to contests, you should make all contestants post, pin, hashtag or use some method that notifies everyone that whatever content the contestants are submitting is part of a contest or sweepstakes. It could require the use of the word “contest” or “sweepstakes” in all hashtags or posts.

6. Is your website ADA compliant?

Plaintiffs’ lawyers are making a big push to enforce the American with Disabilities Act (the “ADA”) on websites and are filing thousands of lawsuits nationwide. How the ADA applies to websites is an evolving area of the law and, subject to political change, the Department of Justice is supposed to provide definitive guidelines in 2018.

The issue is whether a court would consider your site “a place of public accommodation.”  Some courts take the position the ADA applies to all commercial sites because the law was meant to protect disabled individuals from having a more difficult time than able-bodied individuals from doing business. The second approach holds that if a website has a “nexus”, or connection to a physical location (such as a brick and mortar store), then the ADA applies. The third approach simply holds that the ADA only applies to physical places and not online. The only remedies available in private ADA suits are injunctions that force you to come into compliance and attorney fees. If the Department of Justice gets involved, they can seek civil fines and penalties. There is no sure-fire checklist to ensure 100% compliance. The Department of Justice has hinted that websites should aim to conform to the Website Content Accessibility Guidelines (WCAG) 2.0, Levels A and AA. These standards include the use of “alt-text” features, which allows screen reader technology to convert text to audio for the visually impaired.

If you keep these six issues on your radar, your online presence should be free of easily-avoidable headaches. You can then focus on what you do best.

Travis Crabtree is the President and General Counsel of online business filing company Swyft Filings and Counsel with the law firm of Gray Reed & McGraw, LLP in Houston, Texas.

Originally published on October 26, 2022, and last edited on October 26, 2022.

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