From the February 1997 issue of Entrepreneur

Yours is a fast-moving company, savvy and up-to-date. So of course you want to establish a World Wide Web site or other presence on the Internet. But while Internet advertising and commerce opens a whole new world of possibilities, it also opens a whole new world of legal problems.

The rights to that popular song you incorporate into your Web site may belong to someone else. The freelance programmer who designs your Web site may later claim ownership of it. The theme-oriented bulletin board you establish for customers may host discussions and graphics that are inflammatory or even illegal in some countries.

"Companies introduce Internet sites with much fanfare," says Mark Kaminky, vice president and general counsel for MVP Media Group, an entertainment-oriented publishing firm in Lombard, Illinois. "Yet many times they fail to consider the complicated legal issues that are part and parcel of the communications revolution."

One of the chief dangers, says Kaminky, is rushing to get online without a real purpose. "Everybody wants to get online because everyone else is," he says. "You need to decide what you want to do and develop a plan. Then consider what legal concerns might be involved."

Many of the legal concerns associated with doing business on the Internet fall into the area of law called "intellectual property." Unlike more conventional forms of property, such as land or equipment, intellectual property includes ownership of patents, copyrights, trademarks and trade secrets. Laws protect intellectual property to encourage creativity and prevent people from stealing ideas.

As inventions such as the printing press and the copier have made reproducing and distributing ideas easier, the law has been adapted. But now that the Internet can make ideas instantly available worldwide, companies doing business on the Internet open themselves to a wide range of legal questions for which American law may not yet have answers. Indeed, given the international arena of the Internet, it's not always clear which country's laws apply.

The international arena brings increased potential liability because different countries have different moral expectations and legal standards. That's what CompuServe learned last January, when a prosecutor in Munich asked the online service to stop letting German subscribers see discussion groups and pictures Bavarian state police said violate German pornography laws. Fearing legal action, CompuServe promptly shut down 200 of its newsgroups--eliminating access to subscribers in 140 countries.

There are also questions concerning transactions conducted online. Advertising specialized products and services on the Internet can help you reach narrowly targeted groups of potential customers and simplifies the selling process by letting people place and pay for orders electronically. Don't assume, though, that your standard sales terms and conditions can be transferred wholesale into this new medium. "You've got to customize your legal needs to this new frontier," Kaminky says. "A lot of people just go out [on the Net] with [the legal protection] they have and get burned."

Be especially wary if another business asks to advertise its products on your Web site. "If people see a magazine ad, they don't buy the product through the magazine," says Kaminky. "A Web site is different." If the other business didn't have a right to sell that product, doesn't deliver the merchandise, or the product injures someone, the customer won't necessarily distinguish your business from the seller's. At best, you could lose goodwill; at worst, you could be named in a lawsuit.

Plan Ahead

Before designing an Internet presence, be sure you know what you're trying to accomplish so you can include the elements you need. Computer professionals can make your site appealing, but it's not their job to make business decisions. Consult a lawyer about legal issues that might arise in your particular application.

As with any other advertising materials, avoid false and misleading statements about your products or services because courts may interpret those statements as warranties. Kaminky's tips:


  • Internet site name: This is the address users need to get to your site. Chances are you'll want to include your company name, but there could be hundreds of other businesses worldwide with the same name. Contact InterNIC Registration Services in Herndon, Virginia, which will check for conflicts and register your name for a fee. Even then, it's best to conduct a full trademark search to make sure your site name doesn't infringe on another company's rights.


  • Copyright infringement: If you use text, music, graphics or other material in your site, find out who owns the rights to it and get permission to use it. Owners of those properties haven't been policing the Net as aggressively as other media, but that's changing, Kaminky says.


  • Ownership of creative design: Considerable effort goes into the creation of a Web site, which may include graphics, hypertext and interactive buttons. Before hiring someone to design one for you, draw up documents establishing your ownership of the finished property so you don't get into a lawsuit over who owns the site.


  • Bulletin boards: If you provide a bulletin board or newsgroup where people can post messages, upload images or chat, be aware that site owners have been sued for defamation and for copyright infringement because of messages and images appearing in their sites. Court decisions on the liability of the site owner have been inconsistent. Oddly, site owners who do not monitor and edit such uploads have been less likely to be held liable for the content of their bulletin boards.


  • Downloads: If you permit software to be downloaded through your site, remember that it could be downloaded to nearly any country in the world. Check into U.S. export controls, and be sure your contracts with any advertisers using your site address those controls.


  • Product sales: Make sure your product liability insurance covers online sales. If another business sells products through your site, draw up an agreement stating responsibility for product liability, warranties and taxes. Make sure all agreements between your business and its advertisers and users specify which state's or country's laws will apply in any dispute.


  • Confidential information: An increasing number of laws and regulations govern consumer privacy. If you compile a list of e-mail addresses for targeted advertising, review your intended use against these laws.

First and foremost, however, don't try this alone. Get experienced legal counsel to guide you through the Web.

Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.

Contact Sources

MVP Media Group, nuke_legal@msn.com