Before You Launch that Internet Business – Avoiding the Pitfalls of Regulatory Violations and Intellectual Property Infringement in E-Commerce

Many entrepreneurs are seeking opportunities in the online marketplace.  The convenience of drop shipping directly to customers or using warehousing and fulfillment services – the most popular being Amazon fulfillment – has made it historically easy to open an e-commerce business and thrive.  Many entrepreneurs, however, miss the critical step of vetting the products they are selling for regulatory compliance and intellectual property infringement.  This can lead to big problems down the road in the form of regulatory enforcement proceedings, fines, and infringement lawsuits.

Businesses sourcing products for online sales have access to an abundance of popular products available from overseas suppliers.  Chinese manufacturers, in particular, have become the predominant source of U.S. consumer goods.  It is common practice for Chinese and other foreign manufacturers to copy popular U.S. products and sell their own versions to U.S. resellers without regard to whether the products infringe any U.S. patents.  Because these manufacturers are most often located in China, where enforcement of U.S. intellectual property rights is exceptionally difficult, the patent holders typically target the U.S. sellers for enforcement, demanding that they stop selling the infringing products, and often insisting on payment of damages from infringing sales.

In addition to not being sensitive to U.S. patent rights, overseas suppliers often fail to ensure their products comply with U.S. regulations, such as energy conservation regulations and sometimes even safety standards.  Selling non-compliant products exposes entrepreneurs to the enforcement efforts of regulatory agencies and associated fines, which can be substantial. 

To avoid these pitfalls, it is important to consult with a qualified attorney to vet the products you intend to sell.  Doing so helps ensure you are aware of any regulations applicable to the products, and helps minimize the chance that importation or sale of the products will infringe someone’s patent rights.           

 Another issue that often catches entrepreneurs by surprise is trademark infringement.  If a business adopts a trademark for its products or services without ensuring that it does not conflict with a similar pre-existing trademark, they may be in store for an unpleasant surprise in the form of a cease-and-desist letter or lawsuit.  As with patent infringement, frequently the trademark owner will require a monetary payment, in addition to an agreement not to use the trademark at issue, in order to resolve the matter.  To minimize the chance you will inadvertently infringe a competitor’s trademark, you should hire a qualified attorney to conduct a clearance search on the trademarks you intend to use and to advise you of potential conflicts.

Issues concerning copyright infringement also can arise when launching an online business.  Copyright protection typically applies to items that are produced through creative activity, such as written text (including promotional materials and written advertisements), visual art (e.g., pictures, paintings and videos), and musical recordings.  Problems arise most often when a business uses artwork, images, videos, or text copied from other websites or other sources without the permission of the owner.  If you are considering using, on your website or in your products, any images or other materials that you did not create or which have been derived from other sources, you should consult with a qualified attorney before proceeding.  Opportunities to license the materials may exist, and understanding what is and is not permissible can help you avoid the cost and disruption of disputes over copyright infringement.  Even if you have hired others to create online content for you, it is important to make sure your right to use and alter the material is properly reflected in your contract for the work.   

As the cliché goes, an ounce of prevention is worth a pound of cure.  If any of the issues discussed here are pertinent to your business, I would be happy to speak with you to determine whether I can help you navigate them.   

Further information available at the following link: Amazon and E-Commerce

DISCLAIMER: The contents of this article are for informational purposes only.  It does not and is not intended to constitute legal advice, and it should not be relied upon as a substitute for the advice of an attorney with respect to any matter.  This website constitutes a form of attorney advertising. No aspect of this advertisement has been approved by the Supreme Court of New Jersey. Any references on this website to prior results obtained by this firm’s attorneys do not guarantee a similar outcome and are not intended to guarantee a similar outcome.

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