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13 Internet Law Gotcha Moments [Part 3]

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In part one of this series, I talked about foreign regulations, CAN-SPAM and hosting contracts. In part two, I talked about some intellectual property issues. In this part three, I’ll cover minors, gambling, privacy, “disruption” and local taxes. It’s a bit of potpourri.


Minors. Minors are subject to different rules than adults, and they can’t agree to waive their rights away. The Children’s Online Privacy Protection Act (“COPPA”) and the related regulation govern sites that target children under 13. Even if a site doesn’t target kids, COPPA applies if the operator has actual knowledge of use by children under 13. The law requires direct notice to parents and verifiable parental consent before collection of personal information from the child. California’s Privacy Rights for Minors in the Digital World Act goes beyond COPPA on the state level. It applies to minors under 18, limits the types of advertising that can be directed to minors and requires service providers to allow minors to remove content they post and the data collected about them (with a few, limited exceptions). Service providers also must notify minors of this ability. Running afoul of these rules can land a site operator in the crosshairs of regulators or plaintiffs’ attorneys.


Sweepstakes, Contests and Gaming. Gaming is subject to many, many rules and regulations. Sweepstakes and contests are as well. Most of these laws and regulations focus on consumer protection or outright prohibition. Some, though, like certain states’ lottery laws, seem intended more as protectionist measures to ensure the state’s monopoly on the game. The test for whether a contest or promotion is an illegal “lottery,” illegal “gambling” or a legitimate legal promotion varies widely by state. A legal contest in North Carolina could be an illegal lottery in Florida. Violating these rules can result in steep penalties or criminal prosecution. Still, contests are everywhere on the internet. You should think carefully and talk to counsel about compliance before you post “like this page and be entered to win…” You should also be very wary of any online gambling. Why roll the dice?


Your Own Privacy Policy. Your privacy policy, despite what you might think, is not really there to protect you. It does protect you in the sense that certain disclosures may be required and failure to make those disclosures can lead to liability. But, in reality, your privacy policy is really meant to protect consumers. If your policy says you use firewalls to protect data, you had better use firewalls to protect data. If you do not handle personally identifiable information the way that you say you do in your privacy policy, the FTC may decide to enforce the terms of that policy against you, or you may find yourself on the unhappy side of a class action lawsuit.


 “Disruption” and Offline Problems Created By Online Activities. For a while, “disruptive” was the buzz word every new site and app maker used to describe their product. While most of them were not really that disruptive, some were. But, disruption comes at a cost. Think UBER. UBER revolutionized the way people look at transit. UBER’s disruption came with backlash from the traditional taxi industry, regulatory reform and lawsuits for drivers’ actions. Likewise, with the launch of Pokémon Go (go team Valor!), lawyers came out of the woodwork to talk about potential issues of liability for trespass, distraction and injury. Even though Ingress, the spiritual predecessor to the game, has been out for years, the disruptive effect of Pokémon brought increased attention from the lawyers.


Sales and Use Taxes. Like gambling regulation, sales and use taxes vary across state lines. When you run an internet business, you need to ask yourself: Do sales and use taxes need to be paid on your activities or sales? In which states am I subject to taxation authority? If you are marketing nationwide, look into this issue, keep good records and work with a tax advisor. If you are looking to sell your company later, diligence on this can be a nightmare that can really trip up a deal.

Author: Brandon J. Huffman

The blog content should not be construed as legal advice.

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