April 1, 2011

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Is Your Website at Risk?

Peri Kinder

April 1, 2011

When you think of e-commerce liability issues, most likely you imagine a site that has been hacked and robbed of personal information, leaving customers vulnerable to identity theft or fraud. But Preston Regehr, an attorney and founding partner of TechLaw Ventures, says these instances are pretty rare—and should be the least of an e-commerce site’s worries. Because most e-commerce businesses use an off-site credit card processor, no financial information is stored at the home site. But situations like trademark infringement, illegal domain name usage and website ownership confusion come up all the time. For instance, you’ve paid a website developer thousands of dollars to create a fantastic site with all the bells and whistles. You think you own it, right? Wrong, says Regehr. “A website developer owns the copyright, even if they are paid,” he says. “There are a lot of shady website developers who will hold you for ransom by charging you for changes and updates.” The solution is to have a written agreement with the developer to define who is going to own the resulting website. The best thing, of course, is to own the copyright completely. If that’s not possible, negotiate the rights to make updates and changes to the site yourself, or know upfront what it will cost to have the developer make changes. In one instance, a company paid more than $10,000 for a website only to discover it would cost $2,000 every time they wanted to make a change. Additionally, websites that infringe on intellectual property already on the internet can bring a lawsuit to your company’s doorstep. If the site you use for your business has the look or feel of another popular, branded site, chances are you can be sued for website copyright infringement. “Unfortunately, some website developers tend to be a little cavalier by duplicating cool websites,” Regehr says. “Get an agreement with the website designer that the website is an original work of authorship.” The use of domain names is another issue that must be carefully researched before launching a website. If a domain name is a federally registered trademark, it obviously can’t be used by someone else. But domain names that are similar could also be susceptible to a lawsuit. It might not be a problem when you first start out, but if your e-commerce site gains popularity and starts attracting national attention, the owners of the trademarked domain name might come after you to change your site’s name. “An injunction might be placed against the usage of the name,” Regehr says. “The remedy is you have to stop using it very quickly.” This can pose a problem when customers suddenly can’t find you on the internet. It could take quite a while before customers can locate your site under a new, infringement-free domain name. Trademarks used on your site must also be cleared for use by searching the national database of registered and pending trademarks. A good source for this is the United States Patent and Trademark Office, where you can search trademarks at www.uspto.gov. But even then, unregistered trademarks won’t be in the system and could be hard to find. “Unregistered marks still have rights even if they’re not registered,” Regehr says. “It’s difficult to do a search and it’s difficult to do one well. It can be technical.” In 1996, years after the state of Utah had introduced its “Greatest Snow on Earth” campaign, officials at Ringling Bros. and Barnum & Bailey circus cried foul, saying the slogan was too similar to its “Greatest Show on Earth” slogan and filed a lawsuit against the state. Three years later, a federal judge said Utah’s campaign didn’t mislead or confuse customers, making them think the slogan was part of the circus’s platform. But even though the state got the favorable ruling, it still cost a lot of money and time to defend the slogan. Be aware, any major brand that feels your trademark could dilute their market value will be contacting you ASAP. For e-commerce sites that sell and ship products, liability issues can crop up when there’s a problem with the product. Make sure you have adequate product liability insurance coverage before shipping out your first sale to a customer. Regehr says as long as e-commerce companies perform due diligence when it comes to trademarks, website development, intellectual property rights, product liability coverage and hiring an off-site credit card processing firm, time- and money-stealing legal issues should be rare. “E-commerce companies just need to do their homework,” he says.
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