Legal issues for online companies
Legal issues for online companies
This article was written by Michael Buckworth, a partner in Buckworth Solicitors. Buckworth Solicitors is a London based law firm specializing in assisting start-ups on a range of matters. The firm works solely on the basis of affordable fixed fees and was set up at the beginning of 2011.
Online companies face many of the same legal issues as offline companies. However, many online companies seek to streamline the contractual process and provide a seamless online experience for their customers and users. This results in a slightly different approach to the legal documentation. Further the most valuable asset of many online businesses is their intellectual property rights and so the ownership and protection of such rights is a key consideration.
Regulating the relationship with customers
Some online businesses will also require a contract or terms to govern the relationship with merchants such as advertisers and supplier.
Protection of intellectual property rights
The value of many online businesses is affected by two main factors: turnover/profit and the value of the intellectual property rights it owns or controls.
Most if not all online businesses will have licensed intellectual property rights from a third party. These licenses may relate to commonly used software, or content such as pictures licensed from a provider. In addition, where online businesses are doing something innovative, they may have created (or contracted with a third party developer to create) new functionality. Generally, the intellectual property rights in new software will be owned by the business itself.
Online businesses should ensure that any agreement with a developer (whether in-house or a third party) contains suitable provisions to ensure that all intellectual property rights vest automatically in the business and, to the extent that they don’t, the business can require the intellectual property rights to be transferred to it. Failure to include well drafted and enforceable provisions to this effect can result in valuable intellectual property rights remaining the property of the developer.
Online businesses should also consider the terms of key licenses. Where a piece of software is crucial for the operation of the business, it should not, for example, contain a provision that allows termination of the license on a change of control of the business. Such a provision could prevent the sale or listing of the business or an investment where the investor takes legal control of the business.
Finally, online businesses should consider whether it is worth seeking protection for intellectual property rights via trademark and patent registrations. The cost of securing, maintaining and enforcing these registrations often far outweighs the benefit to the online business. In addition while patent protection may be granted for software-based innovations, under English law it may be that the patent isn’t actually enforceable in a court of law when the business seeks to enforce its rights against a third party. However, online businesses with innovative functionality should at least consider the possible benefits of securing these registrations.
The Data Protection Act 1998 requires businesses who process personal information in an automated form to notify the Information Commissioner’s Office (unless they are exempt from registration). The ICO will publish certain details of the business on its publicly available register. Failure to notify when required to do so is a criminal offence. Register entries have to be renewed annually. Failure to renew a registration if required to do so is a criminal offence.
In addition to the obligation to notify, the Data Protection Act 1998 requires businesses to provide certain information to their users and customers. This information includes details of how the information will be used, whether it will be transferred outside of the EEA and/or sold to third parties.