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Starting an Online Business: Definition of Online Business

    By now this question is almost never asked because all of us are familiar with online businesses such as Amazon.com, eBay, Google, Facebook and countless others. For our purposes an online business is any business on the Internet that sells products, services, or advertising, online. The difference between a website and an online business is that the latter sells something using the global communications infrastructure of the Internet. For many online businesses advertising is a principal source of revenue (e.g. huffingtonpost.com).

    The entrepreneur’s business model will determine the kinds of agreements and arrangements that must be entered into in order to conduct business. For example, any business that accepts credit cards online must either use a third party payment processor (e.g. PayPal) or build the systems sophisticated enough to manage this business process internally (e.g. Amazon). Fortunately, there are now enough pre-built services available for an online business to “plug into” that it is not a question of reinventing the wheel. Rather, the question is how to put all these movable parts into a coherent whole and make it sustainable (i.e. profitable) over time. That said, if a business did choose to process and store credits cards online then it would almost certainly have to comply with the FTC's Red Flag Rules.

    Again, depending on the business model, different online businesses will face different legal risks. For example, if you decide to launch a specialized social networking site wherein users can register and upload content, then you must be aware of the protections afforded by the Digital Millennium Copyright Act (“DMCA”). The DMCA affords an online business a considerable amount of protection if certain processes and procedures are implemented and followed. What kind of protections does the DMCA provide? It provides protection (i.e. a “safe harbor”) against third party copyright liability for content that your users upload that may infringe on some other person or entity’s intellectual property (i.e. copyright). The safe harbor is provided only if the online business implements, and follows, the statutory requirements of the DMCA.

    The critical question here is not simply having the "right" legal language in the various agreements (e.g. your terms of use) but rather whether the business has implemented and followed the business processes that underpin the language. Courts are not fooled by "flowery" contractual language but rather want to know what the business did in fact (e.g. did it do what it said it would do in its terms of use). It is imperative that an Internet Lawyer advising an online entrepreneur understand the underlying processes that must be implemented and followed, in addition to the required contractual language.



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Starting an Online Business. People. Process.  Platform.

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