The Internet and e-commerce world is fraught with legal pitfalls. From domain name issues to bankruptcy litigation after the dot-com crash of 2001, the industry has seen its fair share of the inside of the courtroom.

While some companies that open for business on the information superhighway are e-versions of traditional brick and mortar companies, the majority are backed by small businesses and entrepreneurs who see e-commerce as their path to the American Dream. While larger companies are equipped with a battalion of attorneys to protect their interests, few of the small guys have that luxury. Yet it is equally important that they seek the advice of legal counsel.

Local attorney Michael Hoisington of Higgs, Fletcher & Mack LLP, helps e-companies recognize the warning signs of legal pitfalls ranging from trademarking company and domain names to choosing the proper business entity and protecting intellectual property.

Intellectual property is quickly safeguarded when it comes to computer chips, gene replacement, and cloning, but how often does the e-commerce start-up company stop to think about protecting - and budgeting for - its intellectual property? From the company logo, to the storefront, to product description copy - everything should be protected to save future loss of income.

Getting started
While the logical first step of creating an e-commerce company seems to be purchasing a domain name, Hoisington suggests that there are steps to take even prior to that.

"Developing a name and logo that are unique to the start-up is very important for the success of the company," said Hoisington. "While I would suggest potential e-business owners reserve domain names they may be interested in, I strongly advise them to trademark domain and company names before investing additional funds into the company.

"Trademarking is an extensive and time consuming process, but one well worth doing to protect a business from loss of income."

Hoisington conducts extensive searches to determine if a company or domain name is already trademarked or being used by another company. This search process can usually be completed within a week or two, and, compared to the costs of possible future litigation, is relatively inexpensive.

He was recently approached by a start-up to see if its name could be trademarked. After completing a quick "knock-out" search, Hoisington was not confident the company could legally use the terms they had chosen, and suggested further comprehensive searches. The company balked, claiming the cost wasn't worth the return. It insisted on using the previously selected terminology.

"Not long after that, the company was sued for trademark infringement and was driven out of business," he said. "If they had budgeted to complete the entire search process in the beginning, we would have found the possible infringement, advised them to choose a new mark, and they might still be in business today."

Domain name - registering and defining ownership
Hoisington also specializes in both prosecuting and defending Uniform Domain-Name Dispute-Resolution Policy cases. The Internet Corporation for Assigned Names and Numbers (ICANN) is the nonprofit organization responsible for monitoring the use of IP addresses and domain name assignment.

"A trademark owner is empowered to protect the brand when others are infringing upon it by registering abusive domain names," said Hoisington. "This is especially important when a start-up is attempting to establish a new brand."

He recently assisted a local start-up when its company name was hijacked. The client had an existing trademark registration for a term that was being used in a domain name that was not owned by the client. Complicating the matter was the fact that the registrant had provided false contact information when registering the domain name. Hoisington was able to make contact via an e-mail address. Once approached, the registrant offered to sell the domain. Even though the offer was significantly more than the registrant's out-of-pocket expenses, the offer was snubbed and furthermore, the registrant never made any use of the domain.

After a thorough investigation to discover the identity of the registrant, Hoisington drafted and filed a complaint with the World Intellectual Property Organization.

The complaint asserted that that the registrant had registered a domain identical to the client's trademark, that the registrant had no legitimate interests in the domain, and that the registrant had registered and used the domain in bad faith.

Hoisington made it a point to stress the use of false contact information as evidence of bad faith and also a violation of the original registration agreement. The arguments were successful, and the domain name was subsequently transferred to Hoisington's client. The case set a precedent that providing false contact information was a clear indication of bad faith registration and use.

Open for business
Once the company name and critical trademarks are protected, the website creation process can begin. At this point, Hoisington remains involved, as his expertise is important to protecting the e-commerce company against future loss.

"Often times, business owners fail to identify and protect their other intellectual property," he said. "At Higgs, Fletcher & Mack, we always stress how important it is for an Internet company to protect all of its intellectual property, not just its trademarks."

Every piece of original content on the site should be registered with the U.S. Copyright Office to ensure maximum protection. Hoisington explains that although legal counsel should be involved, savvy business owners can, if their budget dictates, register the copyrights themselves.

"Registering original content as it is created is vital to safeguard the company from unnecessary profit losses in the future," said Hoisington. "Not only is it a prerequisite to bringing an infringement suit, but allows for statutory damages up to $150,000, and recovery of litigation costs and attorney fees."

Failure to register may eliminate the possibility of statutory damages and attorney fees should a business risk posting its original content on its e-commerce site without registering with the Copyright Office. "I've seen companies incur significant costs once they realize someone else is making money off of their unregistered copyrighted material," he said. "While the registration process is relatively painless as a preventive measure, filing after you find that your valuable copyrighted material is being used without permission requires rushed registration - which can be expensive, and limits damages to actual damages and profits, which may be difficult to prove."

Careful review and timely registration of website content can also protect a company from being sued for using someone else's protected material. Even if there are no actual damages related to an infringing use, statutory damages may balloon into hundreds of thousands of dollars and a plaintiff can even shut down the website. To an e-commerce business, this is analogous to chaining the front doors shut on a brick-and-mortar business.

"Trademark and copyright issues are especially important on the Internet where any John Doe can download, link to, or frame protected material, and claim it as his own," Hoisington said.

Marketing, branding and expanding
Registering a trademark is also a large part of the marketing mix for a start-up company. This is especially true for a new company which only has contact with its customer through the World Wide Web.

Branding through use of the trademark and copyrighting system is important for all businesses, but even more so for an e-commerce company competing with thousands of other companies merely a mouse-click away.

The Internet has opened the door for small companies to expand globally. Strategically planning ahead to prevent businesses and individuals in other countries from stealing valuable intellectual property is something an e-commerce start-up must carefully consider.

"Right now we are providing guidance to a local business owner to help her register her (proposed) trademarks, including her company name and domain name, in Korea. After a thorough analysis of her business model, she understood the value of protecting her options globally."

Hoisington also assists e-commerce companies with incidental, but important, aspects of business online, including reviewing business practices and drafting legal disclaimers and notices to be posted on the storefront.

"Attorneys play a big role in the world of e-commerce," said Hoisington. "This business - which seems like a relatively simple and inexpensive way to start one's own company - can, without proper planning, lead to financial disaster. Contacting an attorney for guidance along the way can mean the difference between a successful dot-com and a soon-forgotten dot-bomb."