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Starting an Online Business: Online Liability & Risks

    Online liability and the risks related to it can take many forms including risks and potential liability related to: 1) commercial email (i.e. SPAM); 2) online speach (e.g. defamation; 3) intellectual property (e.g. copyright and trademark); 4) marketing and advertising (e.g. affiliate relationships); 5) contracts (e.g. website development, terms of use, employment, etc.); 6) privacy and protection of consumer data (e.g. website privacy policies and sales transactions); 7) jurisdictional (i.e. where will a suit be litigated); and 8) others depending on the specific vertical that the online business targets (e.g. healthcare and adult entertainment).

    The next section of this tutorial will summarize the prominent laws and regulations that control doing business online. This section attempts to paint a big picture view in order to get you grounded. Although doing business online has matured significantly since the early days of the Internet, and there are some online legal doctrines that are more or less settled, there are still numerous legal issues that play out in the online context in novel ways. That said, there is simply no way possible to eliminate all risk or legal liability regarding doing business online. Even if it were possible, it would be cost prohibitive for all organizations, especially for startups. Our recommended approach for minimizing online liability and maximizing the protection of your legal rights is quite simple to state but like many things in life, not quite so simple to execute, and that is: “an ounce of prevention is worth a pound of cure.”

    The challenge for any online startup is to balance the legal risks, and the costs necessary to protect its rights, with all the other risks and expenses that the venture faces. A good way to think about this issue is by using an insurance policy as a metaphor. There are some relatively inexpensive (although clearly not free) balanced strategies that minimize an online business' legal exposure, while at the same time ensuring that its rights are protected within existing budgetary constraints. Like any insurance policy, the ROI only kicks in when the unexpected happens. In the online busines context, depending on the nature of the website that underpins the business, there are many opportunities for the unexpected to happen, especially due to the fact that many of the most popular (and economically viable) sites thrive on user generated content (e.g. social networking website) and thereby open the door to third party liability (e.g. copyright), from sources that are, more or less, outside the business' direct control.

    It is anticipated that many online startups will incorporate a social component into their business models and thereby be exposed to the risks described above. However, even those online startups with no social component will be exposed to one or more of the categories of risk described in the introductory paragraph of this section. Further, all online startups should take some basic steps to protect their intellectual property rights. The next section of this tutorial will discuss laws tha apply to the online business context and ways to mitigate the legal risks pertaining to same. It will also discuss, where appropriate, common sense steps that online entrepreneurs can take to protect their rights.

    There is general maxim that applies to the online world equally, if not more so, then it does to the bricks and mortar business world, and that is this: the more successful your online business becomes the more of a legal target it will have on its back. It is prudent to give serious consideration to online liability issues before launching.


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