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Top 5 legal online business mistakes

Conducting business online comes with responsibility, risk, and in many cases, very gratifying rewards. But what are the legal risks and responsibilities that come with those rewards? What are the penalties when you fall short? There are a number of legal online business mistakes small business owners need to be aware of.

Many of the laws that apply in the offline world also apply online.

So, if you engage in any of the following, read on:

  • Make statements and representations about products or services,
  • Display third party content or trademarks without permission,
  • Send electronic marketing messages without recipient consent, or
  • Post comments about others online.

Here are some of the most common legal online business mistakes that business owners make, and what you need to do to avoid joining them in hot water:

Deceptive Trade Practices

The Australian Consumer Law (ACL) promotes competition and fair trading to provide for consumer protection. Common breaches of the ACL relate to businesses engaging in conduct that is capable of misleading or deceiving consumers. For example:

  • Displaying false testimonials in an attempt to secure new business,
  • Advertising that a service is free of charge and not revealing any conditions that must be complied with,
  • Misrepresenting that a product or service has an affiliation with another person or business, or
  • Failing to disclose information that may influence a consumer’s purchasing decision.

If in the hope of winning more business, you engage in any conduct that smells a little off or is sneaky in any way, beware the wrath of the ACL.

Copyright Infringement

Copyright protects an expression of an idea and not an idea itself. Ideas may be expressed in literary, artistic, dramatic or musical form. Examples include a transcript for a book, photographs, website content.

Copyright infringement takes place where a person (without permission) reproduces a substantial part of another persons’ work, which is subject to copyright. In the online environment, this is often the unauthorised use of text, images, video and sound recordings.

The concept of substantiality is not easy to define but it relates to quality, rather than quantity. If the part that has been reproduced is key, central or important to a work, then it is likely that will be a substantial part.

Importantly, attribution of a person or business as author of a work will not serve as a defence to copyright infringement. Permission from a copyright owner must be granted.

If in doubt, leave it (third party copyright work) out.

Trade Mark Infringement

A trade mark may be a letter, number, word, phrase, sound, smell, shape, logo, picture, aspect of packaging or a combination of any of these. Put simply, a trade mark distinguishes the goods and services of one trader from those of another.

Trade mark infringement occurs where one trader uses the trade mark of another trader, creating the likelihood of confusion in the market place. In the online environment, this often relates to the use of logos, brand names and in some circumstances, domain names.

Using a third party trade mark without permission to increase credibility or online visibility? Then, tread very carefully.

Spamming

The Australian Spam Act prohibits a person from sending (or causing to be sent) a commercial electronic message without the prior consent of a recipient.

But what is a commercial message and when will it be deemed to be electronic? Well, a commercial message will include almost any message that is considered to have a commercial purpose (a link to a commercial website will be enough). An electronic message includes email, text messages (SMS), multimedia messages (MMS) and instant messages (IM). It does not include, fax, phone or post.

Then there is the ever critical question, which is so often accompanied by a very blurred answer…what constitutes consent? There are two types of consent … express and inferred. Express consent is where a person expressly states that they wish to receive commercial electronic messages from you. Inferred consent may be established where a business relationship exists that suggests that the person receiving the message is interested in receiving commercial electronic messages relating to products or services, similar to those previously purchased.

The issue of consent is often central to disputes involving spamming allegations. If challenged, will you be able to clearly establish ‘consent’? The onus will be on you to do so.

Defamation

Defamation occurs when a person communicates material that damages another person’s reputation. Communication can occur via words, photographs, video, Internet, illustrations and other means.

Material will be defamatory if it has the potential to injure the reputation of another person, contains a statement that would make a person be shunned or avoided, or lower the reputation of a person in the estimation of others.

If you post comments or any other material online, including on social media, that is likely to be defamatory, then you had better be sure to have a solid defence. Common defences to defamation are justification and contextual truth.

In short, think first, post later.

Penalties

Penalties can include formal warnings, enforceable undertakings, award of damages (money), financial penalties (fines), disqualification orders (from managing a corporation) and injunctions (to prevent certain conduct).

But perhaps, the punishment that many small businesses may not be able to readily overcome is brand damage. And with thanks to the popularity of social media, word spreads very fast.

There’s no doubt that doing business online can bring big rewards. But ignorance of legal rules can result in quite the opposite. With a little awareness and a positive approach toward legal compliance, you’re on your way to managing legal risk.

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