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13 Internet Law Gotcha Moments [Part 1]

Almost every company has an internet presence. Some do all of their business on the internet. Even though we’ve had more than two decades to get used to internet memes and animated gifs (here’s a fun timeline), we still sometimes feel like the internet is the Wild West. It’s not. There are many, many laws and regulations governing how you can and can’t behave on the internet. This series of posts will present 13 “gotcha moments” where a good company can get tripped up by internet regulations. These are just a few issues to be aware of, as there are many others.

1. Foreign Regulations. The internet isn’t restricted by the borders of the United States. Some (not all) businesses are subject to laws outside of the United States by virtue of their activities online. For example, depending on a company’s activities, it may be subject to privacy regulations including the EU Data Protection and e-Privacy Directives. The company may need to honor the “right to be forgotten,” and remove data on request. The company may need to designate a person responsible for processing personal data (a “data controller”) and disclose that person. A data controller is responsible for ensuring the collection and use of data complies with the law. If there is a data breach, the company will need to comply not only with U.S. regulations, but regulations governing disclosures to users in other nations.
    
2. CAN-SPAM. This has been around a while and should not be news – but it is! The CAN-SPAM act sets the rules for commercial email, gives recipients the right to stop email, and penalizes non-compliance. It covers all email that is a commercial advertisement or promotion of a commercial product or service. Even if a company insists that the 400,000 recipients of its widget newsletter actually want the information, it still has to follow the rules. It can’t be deceptive, must be clearly an advertisement, must include a postal address and an opt out. Opt outs must be handled promptly. Noncompliance can result in a per-violation fine from the FTC.
    
3. Money Laundering. Criminals use the internet to turn dirty money into clean, spendable money. If you’ve seen Breaking Bad, you may be familiar with one such scheme already. In that show, a person crowd sources donations for the treatment of an illness, but the “donations” are actually just drug money being funneled through the site. There is nothing wrong with soliciting donations through sites like GoFundMe, but if the donors are all criminal affiliates of the recipient, it’s probably money laundering. The advent of cryptocurrencies like Bitcoin make the internet even more attractive for money launderers. If a company operates a site that allows funds to be transferred from one user to another, it’s important that the company implement safeguards to prevent money laundering through their platform. Otherwise, the company could be on the hook.
    
4. Hosting Contracts. Does your company operate a volume-based business with razor thin margins that depends on constant up-time on the web? Do you know what damages there would be from downtime? Hosting contracts often limit liability for downtime, and typically try to exclude “consequential damages.” Consequential damages is lawyerspeak for damages you can prove were the other guys’ fault, but go beyond the contract itself. For example, in the hosting context, if the host breaches the hosting agreement, direct damages are the fees paid to the host for the hosting service. Consequential damages are the losses that grow out of the downtime. Warranties may exist for a certain level of performance or availability, but it is important to ensure these warranties align with the company’s expectations. A hosting contract might provide for redundancies, but it may not. Companies should read these agreements carefully to avoid potential losses and mitigate risk with back up plans.

Stay tuned for Part 2 of this series, where I’ll talk about issues of copyright and trademark infringement.

Author: Brandon J. Huffman