E-Legal Tangles

Starting a new business always involves a bit of legal risk. But that risk is multiplied when starting an e-business, according to Allan Weeks, a partner with the ventures and intellectual practice group of Shipman & Goodwin.

Take trademarks or service marks. A new brick-and-mortar business faces a smaller risk of infringing on someone else's mark than an Internet business does, Weeks says, because a brick-and-mortar business typically doesn't "start out day one as a global business." But when a Web site launches, it is open to the world, which increases the chances of trademark or servicemark infringement--and increases the potential damages if the infringement takes customers away from the mark holder. "The more successful you become, the higher the risk you incur of infringing on somebody and the greater the potential damage," Weeks says. And beyond damages, a mark infringer will find that all the time, money, and effort sunk into establishing an online brand will have been for naught.

The best way to avoid this problem is to do at least a minimal search to make sure that your snappy new web logo or name does not infringe on anyone else's trademarks or service marks, Weeks says. Companies should also do periodic searches to make sure their marks are not being used improperly by other web businesses.

A Web site's instant global presence has other legal ramifications. Sites that plan to sell items overseas need to comply with existing import and customs regulations, says Weeks. They may also find themselves subject to other laws concerning online content; countries in the European Union, for example, have adopted strict online privacy laws. The chances of another country seeking to enforce its online content laws are slim if the offending web business only has operations in the US; large corporations with physical activities or a large web presence in other countries are more likely to be targets of enforcement.

Closer to home, legal landmines also abound in dealings with freelance web developers. Unless a contract articulates that a developer's work will be owned by the person who pays for it, the developer will own the work, Weeks says. What parts of the site should a company seek to own, and what parts can it afford to license? It should seek to own the site's look and feel, plus specific text, music, videos, or graphics on the site. But often, developers write back-end code -- such as the workings behind an online shopping cart system -- that they plan to use with several clients, and they will not relinquish ownership of it. If that's the case, the contract should spell out licensing terms, including what kinds of future modifications can be made to the code and what happens if the licensee decides to perform those modifications in house or hire another web design firm to do them.

Contracts with ISPs should spell out the site's availability and the number of simultaneous users it can accommodate--and spell out specific penalties and payback if it does not meet these goals. No one expects a Web site to be up 100 per cent of the time, Weeks says. But for a site that will truly be getting customers 24 hours a day, seven days a week, it is not unreasonable to demand 99 per cent-plus uptime from your ISP.

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