How Your Lean Startup in Social Media/Web 2.0 Can Avoid Costly Legal Mistakes


Posted about 5 years ago. 10 helpful votes



Start with carefully crafted Terms of Use

Terms of Use (also known as Terms & Conditions of Service), together with a Privacy Policy, form a binding legal contract between your service and its users. This is a critical legal document that can be crafted to reduce or eliminate a vast range of legal and financial risks. It's tempting for entrepreneurs who are bootstrapping (self-financing) their lean startup to play lawyer by cobbling together from existing Web businesses -- or even to use a software program that generates the TOU -- but that approach is "penny wise and pound foolish." An experienced Internet lawyer who understands your business can prepare TOU in just a few hours; the legal expense of defending even one minor lawsuit related to the TOU can add up to 10x or even 100x this amount. The ROI for making this investment is compelling; consider it a kind of insurance policy. The bigger your business grows, the more tempting a target it becomes for consumer lawsuits brought by "ambulance chaser" plaintiffs' lawyers.


Adopt a flexible, well-thought-out Privacy Policy... and live by it

The single most contentious area of consumer Internet law in the Web 2.0 era is privacy. Although U.S. companies are fortunate to be lightly regulated in online privacy as compared to countries like Canada or the EU member states, there are still traps for the unwary. The overriding principle is that a company must do as it promises in the Privacy Policy; in some cases, having a well-written policy which is not honored by the company in its day-to-day operations is worse than not having any policy at all. As with the TOU, a few hours spent with an experienced Internet lawyer can save the company legal, financial and PR headaches down the line.


Adopt a notice-and-takedown procedure for copyright infringement claims

User-generated content (UGC) poses a range of legal challenges that never existed before the social Web. Fortunately, Congress came to the rescue in 1998 with the Digital Millennium Copyright Act. Site operators with a DMCA-compliant "notice and takedown" procedure in place enjoy immunity from lawsuits by content owners (such as record labels and movie studios) for infringing content uploaded by users. Without this "safe harbor" from liability, most UGC sites would be sued out of existence within months because of the enormous volume of materials uploaded by users and the difficulty in identifying which of them may be subject to copyright. To take advantage of the safe harbor, t's important to register a representative of your site as agent to receive DMCA takedown notices with the U.S. Copyright Office, to post the policy on your site, and to honor it in practice. See links below for further information.


Take care to keep children under 13 off the site

The Children's Online Privacy Protection Act (COPPA) sets strict limits on the use of private information gathered from children under 13 in the United States. Unless your service is designed specifically for children, the simplest approach for U.S.-based social media sites is to exclude children under 13 from the site. This can be done by asking for date of birth in the registration process; when a user is rejected for being under 13, the site should set a cookie so that the child can't simply back up and enter a different age to register. The alternatives are to either refrain from gathering any personal information (impractical for most sites) or require parental consent (impeding registration flow). For further information on COPPA compliance, see


Maintain a clear distinction between UGC and your own original content

The DMCA and a similar law (Section 230 of the Communications Decency Act of 1999) provide powerful protection against liability arising out of UGC. In general, UGC can be edited or selected by the company without losing the safe harbor protection, but material which is not user-generated doesn't qualify for the safe harbor. Accordingly, your original material should go through a careful review, fact-checking and rights clearance process before it goes on the site, in much the same way that a newspaper publisher or TV station would take those precautions. For small startups which lack the resources to go through these steps, the safest approach is to steer clear of any content which presents high risk for liability, such as content which accuses individuals or companies of serious wrongdoing or which borrows extensively from copyrighted works. When in doubt, consult your lawyer.

Additional Resources

See links below for further resources. Smart entrepreneurs who do their homework can master the basics. Nevertheless, for a leanly staffed social media/Web 2.0 startup experiencing rapid growth, there is no substitute for individualized counsel from an Internet lawyer who understands the inherent challenges and resource constraints of your business. A startup lawyer who shares your vision and values can help you balance the risks, benefits and priorities to maximize ROI and achieve your objectives.

Links and Resources

Children's Online Privacy Protection

U.S. Copyright Office - DMCA Registration

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