The paradigms of e-business are changing so quickly that business law isn't keeping up – most lawyers are at a loss when asked to give advice and many court cases set precedents. "We're making up the rules as we go," said attorney Richard Herrmann of Blank, Rome, Cornisky & McCauley LLP, Philadelphia, PA, at a recent seminar on legal issues and e-commerce in Wilmington, DE.

Small Web companies should make every effort to protect themselves, panelists said. Establishing agreements, filing copyright applications and asking lawyers to review content are among the preventive measures the participating attorneys suggested. Here are the major areas of concern they discussed.

Intellectual Property
"Content is the crown jewel for many e-commerce companies," said attorney Frederic Wilf of Morgan, Lewis & Bockius LLP, Philadelphia. "You're often selling somebody else's goods and renting your computers and server space, but you own your Web site."

Unfortunately, it's easy for other people to copy your logo, content, graphics, even your HTML code. Intellectual property laws apply to different areas of site development:

• Patents: They cover "inventions" or new technologies. For instance, the Federal Circuit U.S. Court of Appeals recently upheld a patent on a computerized business system that calculated mutual fund information. The plaintiff was reprimanded for using this information on its own Web site. While the plaintiff argued mathematical calculations processing ordinarily available data shouldn't be patented, the court upheld the patent, saying such a mathematical algorithm or formula produces a "useful, concrete and tangible" result. This may also be true of a script you or your Webmaster invent. To protect it, however, you must patent it. Wilf suggested filing your patent application before releasing your invention to the public.
• Trademarks: After much dispute, domain names are now protected by U.S. trademarks. This is the result of several court battles, including one involving AltaVista, the search portal, which fought to reclaim the domain name altavista.com from a small digital camera company. If domain names are confusingly similar to a company's trademark, that company can sue the owner of the domain name. Similarly, to use the dispute resolution service at Network Solutions (a clearinghouse for registering domain names), you must have a registered trademark. Visit www.uspto.gov for information on filing patents and trademarks.
• Copyrights: Any information you post automatically has copyright protection, but it doesn't hurt to say so in a copyright statement at the bottom of the page. The HTML code, software, scripts, graphics and other site content is also protected. Wilf suggested applying for a U.S. copyright regardless; it's easier to fight infringement. (Copyrights are $20; for more information visit lcweb.loc.gov/copyright.) Be especially diligent about spelling out who owns what when hiring consultants or freelancers, Wilf said. "The single biggest area where many technology companies lose money is not getting consultants to enter into a work-made-for-hire agreement," he said.

Sales Agreements
It's important to post agreements of sales that include return, warranty and legal information on your Web site. Many companies place these on a screen as customers are proceeding to the "check out" area; customers must hit "I agree" before they proceed. These so-called "shrink wrap" agreements are an e-commerce company's best protection against lawsuits. "Shrink-wrap agreements so far are strong, and courts are upholding them," said Herrmann. "They will progress as long as there is no personal injury involved."

Most companies put the entire text of the agreement on a page to give customers every chance to read it; some put a link to "Terms and Conditions," which may not be as safe, because customers can claim to have missed them.

In this agreement, cover whether the product is sold "as is" or the terms of your return policy, the length of your warranty and the state laws under which the product is being sold. If lawsuits do arise, you may not be sued in another state unless you seek out business there. "Having a Web site isn't enough; you must actively have a relationship with Minnesota residents to be sued in Minnesota," Herrmann said.

Stock Options
Because so many Web companies hope someday to go public, many offer stock options to their employees, sell stock privately or use free stock offerings to attract traffic to their sites. Be very careful when doing any of the above, warned Bari Krein of Reed, Smith, Shaw & McClay LLP, Philadelphia. The Security & Exchange Commission questions many companies that offer stock options before going public. "Every time you offer stock options to employees, document why you valued the stock as you did," she said. "Did you just get a big client? Launch a new product? Hire a new executive? Attribute each increase in value factor by factor."

Krein said the SEC is also going after almost every site offering free stock. "It violates registration rules. They're totally against it and they are prosecuting," she said. She suggested asking a lawyer to review your Web site just before or shortly after you make it live, especially if you're selling stock privately or publicly.

- by Stacey King