Webmasters - Why You Should Worry About Being Sued

By: Simon Maher
Submitted: 2007-01-17 16:23:32
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Most of us never expect to get sued. While the justice system isn't perfect--far from it--we still believe that generally good people don't get sued. Or that if we sued, the judge or jury will understand our side of the story.

Particularly when it comes to running a website, most webmasters are unphased at the thought of a lawsuit. Afterall, we aren't selling dangerous products like tobacco or guns or pharmaceuticals. Customers aren't in our physical storefronts, slipping and falling on wet floors. We don't have employees to sue us for wrongful termination or sexual harassment.

So, how can a webmaster face lawsuits?

Dangerous Products

First, if you sell any product that is remotely dangerous you can be sued. Sure, there are obvious ones like guns, alcohol, weapons, and tobacco. With some of those products, you could run afoul of government regulations (e.g. selling cigarettes or handguns to minors).

Many other products can be dangerous as well, such as nutritional supplements and "natural" cures. Some high-level distributors at well-known MLMs that sold Ephedra containing products were personally sued over problems with the supplement. Now, it's true that most resellers of products will not ultimately be liable for defective products if they simply offer the product for sale without making any changes to it.

However, a merchant/reseller can still be responsible under theories of implied or express warranty or warranties of fitness for a specific purpose. Besides, any good plaintiff's attorney will name you in the lawsuit anyway--even if he only intends to use that as leverage to get you to make incriminating statements against the deep-pocketed manufacturer. Dealing with the lawsuit will cost you time, money, and aggravation--plus the risk of having a judgment rendered against you.

Contract Disputes, Copyright Infringement, Defamation

One might say,

"That's all fine about products. I already knew that selling products could be legally dangerous. But I just sell advertising space. What could go wrong there?"

Many webmasters today are "infoprenuers". They don't sell products, or even dropship other companies' products. These sites deliver information and sell advertising space or affiliate programs to make money.

The biggest legal problem in advertising is having a contract dispute with your advertiser. Google just paid tens of millions of dollars in settling a massive class-action lawsuit by their advertisers because Google had allegedly charged them for invalid clicks. Yahoo is currently--as of September, 2006--a defendant in a class action suit for click fraud as well.

If you sell impression or click-based advertising on your site, your advertisers could sue you for fraud if it turns out that you are charging them for invalid clicks/impressions. I expect to see other large advertising aggregators down the line from Google and Yahoo getting hit with these click/impression fraud suits soon. The advertisers are big companies, with big in-house legal departments that know how to fight contract claims.

Bankruptcy Won't Save You Now

It used to be that few individuals would ever pay substantial judgments. Plaintiffs attorneys really only went after an individual's insurance coverage or after big companies with deep pockets. Trying to collect a judgment from an individual used to be too difficult--the debtor would file a Chapter 7 bankruptcy and wipe out all his debts....including most legal judgments. Usually the debtor would have so many other debts that the plaintiff would be lucky to collect pennies on the dollar.

It wasn't worth it to sue individuals.

These, days, with the new bankruptcy law, it's much harder to wipe out debts in Chapter 7. Instead, most people will have to repay their debts out of their future earnings. It's not so easy any more to "wipe out" legal judgments against yourself. Bottom line? Individuals, particularly those with good, steady incomes (easy to garnish wages from your employer) are ripe targets for lawsuits.

How to Protect Yourself

There are several ways to protect yourself from these business debts.

First, you should incorporate your business as either a corporation or an LLC. This way, your personal assets (including your paycheck, if you run your web business on the side in addition to a day job) are not at risk. Forming a Limited Liability Company--or LLC--will shield your personal assets from business creditors and lawsuits.

Secondly, always be careful. Don't commit fraud, avoid shady business partners and "deals", and stay honest. The justice system isn't perfect, but it always helps to be in the right.

Thirdly, look into purchasing insurance for your business. If your business is small, it might be too much of a hassle and too expensive. However, talk to your agent who handles your homeowner's insurance and see what he/she can do.

But most importantly, get incorporated as an LLC. It costs only a few hundred dollars, including filing fees, and is some of the cheapest insurance you can buy. Even better, you only have to pay once. You don't even have to meet with a lawyer--you can incorporate online without ever leaving your home. Even the mighty AOL has restructured into an LLC (maybe that's a reason not to form one for yourself!)

Article source: Expert Articles