Internet Business

In today’s technology-driven world, more and more online businesses are established every day. It is predicted that in the very near future, even fewer people will be attached to the physical locations of their offices or stores. The Internet allows great flexibility; less start-up and operational costs; much wider outreach to markets, consumers and professionals for assistance; and availability of many other useful business resources (e.g. the use of forum sites, professional sites, and targeted advertising). Establishing an online business presence can be a lucrative way to sell, buy, market, advertise, and otherwise promote goods or services.


From a legal perspective, the same laws and regulations apply to online and offline businesses. When starting an online business, entrepreneurs should be aware of the laws, rules, and regulations that apply to their industry in general and what specific legal considerations must be given to their type of venture (contractual relationships, employment matters, form of business organization, intellectual property issues, and so on).  


In addition to the legal matters that all businesses face, online businesses must comply with special laws and regulations that govern commercial activities in cyberspace. Also, the owners of online businesses should review how such general laws as, for example, intellectual property, contracts law, taxation, and customer protection law are interpreted, applied, and operate in cyberspace, since the specifics of online presence impose certain questions and practical rules.


Online commercial activities are regulated simultaneously by federal, state, and local (municipal) laws. The major federal laws that guide online business are: The Anti-Cybersquatting Consumer Protection Act of 1999; Selling on the Internet: Prompt Delivery Rules; and the Children’s Online Privacy Protection Act.


The Federal Trade Commission (FTC) is the primary federal agency that regulates ecommerce activities, digital rights, commercial use of email, online advertising, and consumer privacy. There is an extensive list of FTC ecommerce rules and regulations, and all entrepreneurs with an online presence should be familiar with those that apply to their type of business.




Online businesses are required to pay the same federal taxes as regular businesses. There is a question, however, about state and local taxes; whether online business is responsible for payment of state and local taxes is very fact specific. The general rule about state and local sales taxes (whether an online company has to collect those taxes from its customers and pay them to state and local revenue agencies) is that if an online business has some physical location with a state (such as a storefront, office, or warehouse), it should charge its customers the sales tax rate required by the jurisdiction where that business is located. If the company does not have a presence in a particular state, it is not required to collect sales taxes from the customers. Simply put, online retailers who do not have a physical presence in any state and supply goods or services by mail or email to customers/clients in various locations cannot possibly comply with all the tax jurisdictions within the United States, over 7,500 of them at the time this book was written. Forcing businesses to collect such diverse and sizeable sales taxes would put a strain on interstate commerce.


International Business


If the company does business internationally, its owners should be familiar and comply with international trade and contract law, shipping, tax, customs regulations, and other considerations, depending on particular countries where they intend to conduct commercial activities.


Intellectual Property


We have already spent a great deal of time discussing intellectual property (IP), but it has become a growing concern with the development of online businesses. Because the Internet allows easier access to company information, it is possible to inadvertently infringe upon someone’s intellectual property (IP) rights or become a victim of bad business practices yourself. It may be difficult to maintain the thin line between healthy competition and adoption of the successful business practices and copying protected information. Online business owners are mainly concerned about protecting their domain names, trademarks, copyrighted items, patents, and licenses, all of which fall under U.S. Intellectual Property Law and are to benefit from the same protection as offline matters. With the rapid development of the Internet and the unique possibilities it offers to users on a global scale, there are certain specifics regarding the exploitation and infringement of IP rights online.


The 1998 U.S. Digital Millennium Copyright Act (DMCA) was adopted to reflect those differences and clarify IP law in relation to online practices. It protects digital works, including text, movies, music, art, other forms of electronic information, and data published online. The Act contains many provisions explaining how an IP proprietor can protect his or her rights and avoid the infringement of the IP rights of others. 


A common problem is when someone obtains copyrighted material via the Internet and uses it without permission, hoping such acts will go undetected in such a wide online Net. Pursuant to the DMCA, the IP owner is entitled to the same various damages as would be claimed in the real world and has a right to prevent others from using materials without obtaining necessary licenses from the owner. Copyright infringement can have severe consequences, including criminal penalties and potentially substantial civil damages for each infringement, in addition to bearing the legal fees of the copyright owner, if that owner prevails in court.


DMCA also explains what measures a website owner can take to prevent infringement of others’ IP rights. If he or she uses another’s materials to promote the public interest, such as education, scholarship, criticism, parody, uses a relatively small amount of the total copyrighted work and not for profit, these actions may fall under the fair use doctrine, and infringement charges may be avoided. If someone intends to use IP work under the  fair use doctrine, the best practice is to give credit to the original author or the source from which the material was obtained. This will avoid confusion regarding the legal ownership of the intellectual property. 


Terms of Use of the Website


The information posted on a website may result in a binding contract. Puffery or advertisement may become an enforceable contract, as was earlier noted. Thus, it is critically important to post your Terms of Use on your company website. These should be fully compatible with the business of the company, reflect owner’s intentions and goals, limit the liability, express other information, which may be necessary for the site visitors to know, and otherwise comply with the applicable U.S. law and regulations. Terms of Use posted on the website is considered to be a contract between the site owner and its visitors, even if it is not named this way. It prevents site visitors from claiming misunderstanding, inducement, or any other form of misleading. The Terms of Use will generally include many disclaimers.


All activities that are illegal in real life are also illegal online. In addition, Cyber Law defines what actions are illegal online, pertaining to those that are nonexistent in the offline world. Examples include child pornography, cyber stalking, online fraud, cyber scams, hacking, cyber harassment, and virus attacks. The objective of Cyber Law is to protect Internet users and make the Internet a safe place for business and personal interactions. Cyber Law is enforced by courts and police officers across the country. If a person violates Cyber Law he or she can be subject to civil and criminal liabilities, ranging from fines and penalties to jail time. Cyber Law is also monitored and enforced by the United States Federal Bureau of Investigation (FBI).

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