Help Your Internet Startup Dodge Litigation Landmines

Hoping for the best and planning for the worst in Florida


Thinking of starting an online business? Although you may avoid some of the challenges of a traditional brick-and-mortar business, setting up an internet entity carries many of the same considerations—along with its own special set of litigation concerns. 
“They’re very easy to set up, because sometimes it’s just a matter of buying a URL, creating a website, and you’re up and running,” says Weston technology transactions lawyer Bradley Gross. “People forget that they need to be run like real companies. They need to have bank accounts, infrastructure, marketing, branding.” 
Online businesses, he says, also need to pay particular attention to intellectual property issues to avoid litigation.
“You don’t want to have a startup business where you put a lot of time and effort into coming up with a perfect name and a great logo, only to find out,” says Gross, with the Law Office of Bradley Gross, “you need to change it because you didn’t do due diligence to see if anyone has a name that is the same or confusingly similar.” 
The nature of startups often involves outside investors, but entrepreneurs don’t always consider the implications. 
“They’re quickly willing to accept the money and give up control with thoughts of future grandeur,” he says. “They really need to sit back and think about what they’re giving away and how they’re giving it away, and what life will be like.”
Also, think about nondisclosure agreements. “If you’re going to sit down and talk with somebody who’s going to put $100,000 into your business to really get it going, you want to be sure that he’s not just going to be able to steal your idea,” says Miami business litigation attorney Brian S. Dervishi with Weissman & Dervishi.
And remember, he says: Signer beware.
“Even if you have a really wonderful contract written up by the finest, most expensive lawyers in town, ultimately the best guarantee of performance and reliability is the integrity of the person on the other side of the deal,” he says. “Enforcing a contract and dealing with litigation is such an expensive nightmare.” 
Owners should define their roles, stakes, the amount of intellectual property each will contribute and whether it’s owned by them or the business. Also consider something that’s likely far from your thoughts.
“Plan on how to get out of the relationship down the road,” says Fort Lauderdale business litigation lawyer John P. Kelly, with The Kelly Law Firm. You need, in effect, a business prenup.
“I’ve seen the situation arise where … someone offered to buy the company and one person wants to sell and the other doesn’t,” he says. “The only way to resolve the deadlock is to go to court.” 
Then there are copyright considerations. “It’s wise,” says Gross, “to have an audit of [your] site performed by an IP attorney.” 
A site developer for one of his clients, a physician, used pictures of models from the internet to show “pretty people going to the doctor’s office,” he says. “Those pretty people are represented by counsel. … Now that person may have to deal with settlements of tens of thousands of dollars.” 


Things to Consider

  • LLC? S-Corp? C-Corp? Each has legal and tax implications.
  • Bank Accounts. Never comingle company and personal funds. Even the URL should be bought by the company, not the owner. Paying from a personal account could impute personal liability for the company’s officers and directors.
  • Intellectual Property. Register trademarks and patents to protect your unique name, logo and ideas. Consider an IP audit to make sure no one else is using them. Remember, there’s a time limit for registering patents before you lose them.

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