We are in a digital age. Business models are changing fast. Trade and commerce are increasingly becoming border less, giving way to a global village where goods and services are exchanged and provided at the speed of light. A significant size of the exchange of these goods and services take place on the Internet.

 

We are in a digital age. Business models are changing fast. Trade and commerce are increasingly becoming border less, giving way to a global village where goods and services are exchanged and provided at the speed of light. A significant size of the exchange of these goods and services take place on the Internet.

So it’s no surprise that with Internet technology, today’s entrepreneurs are increasingly taking their businesses online—either by having a website or deploying an app where customers buy their goods and services.

In online transactions, liabilities apply and risks arise.

Liabilities and risks can destroy your client’s online business, if not properly controlled, managed, or minimized. And this is why as a lawyer in a digital age, learning how best to protect your client’s app- or web-based business is critical.

I share below 10 practical steps a lawyer needs to take to protect his or her client’s app- or web-based business in a digital age:

  1. Don’t just take your client’s instructions. Always understand what your client really needs: Most clients with online businesses can be very edgy, in a positive way! From a legal-services point of view, clients in today’s equally edgy digital age often know what they want to achieve or think they do but mostly have no idea about how to achieve it or what they exactly need to achieve it. A client wants to protect his brand name and logo. She calls you, saying “Barrister, I need copyright registration to protect my brand name and logo. How much and when will it be ready?” On the face of the question, she seems to know what she wants, but as an IP lawyer, you know what she needs is not copyright protection, but trademark. Always understand what your client really needs to protect his or her online business. In most cases, it is beyond the instructions.

 

  1. Understand Your Client’s Online Business: First things first, have a thorough interview. Allocate adequate time for this exercise. This will enable you really understand your client’s business. In this digital age, there are new business models out there. Understanding the model your client has adopted will greatly help you consider what the business really needs to succeed and be protected, and advise accordingly. You may even interview your client’s relevant staff or independent contractors to get a full understanding of the what, where, who, when, and how of the business. For me, I find that understanding my client’s business helps me learn and speak their language. I also get to have a good idea of the client’s revenue model. You may find time to familiarize yourself with major online business models here: ‘‘The 9 types of online business models; which one do you use?’ https://thenextweb.com/entrepreneur/2011/05/25/the-9-types-of-online-business-models-which-one-do-you-use/#.tnw_oPqYerba

 

  1. Determine the Legal Services Your Client Really Needs: App- or web-based businesses are everywhere these days. Everyone has an idea about building the next big app. So sometimes your client may not have given all of the legal services he needs a through thought. They almost always need to either register a business name or a company – in Nigeria there’s a difference. Don’t always jump on it. Think value. Ask your client what he or she wants to achieve with the business or company. This question may open for you a floodgate of legal work. I will illustrate. A client contacted me months ago, and said “I need Terms of Service and Privacy Policy for my app? When can you deliver?” I told her within 2 weeks after concluding my interview with her and her app developer. “When can we have this interview?”, I asked. To cut the story short; by the time we concluded the interview, I discovered that the company she had been running and had hoped would attract venture capital and then launch the app was toxic—Yes, toxic in every sense of the word. So the purpose of a client interview is to obtain as much information in respect to the situation presented by the client and determine the best legal solution. Please find time to study ‘Initial Interview with a Potential Client’ by LexisNexis. It provides a range of questions you should ask your potential client in various areas of law: https://www.lexisnexis.com/legalnewsroom/lexis-hub/b/how-to-build-your-professional-skills/archive/2008/01/31/initial-interview-with-a-potential-client.aspx?Redirected=true

 

  1. Prepare the Legal Documents Needed to Protect Your Client’s App- or Web-based Business: Depending on the type and structure of your client’s business and what the client really wants for the business, below are the main legal documents you should consider: (a) Bylaws (to regulate the business internally); (b) Founders’ Agreement or Operating Agreement (to protect the founders, [if more than one] against themselves); (c) Founders’ Vesting Agreement (to keep founders at their toes, ensuring that they work before they ‘chop’); (d) Intellectual Property Agreements (to protect your client’s IP against infringements, whether by its own employees, customers, or third parties); (e) Memorandum of the Company (and Articles of Incorporation, if CAC allows your special redraft these days); (f) Privacy Policy (to provide data protection and privacy guidelines, ensuring that both your client’s online business and its users are protected against breaches); (g) Shareholders’ Agreement (to regulate shareholders who have stake in the online business); (h) Terms of Service (to protect your client’s business against any liabilities that may arise from the use of your client’s app- or web-based business).

The legal documents above require a lot of work – a lot of drafting and research by the lawyer. Please never copy and paste any of these legal documents. Google may be your friend, but there are professionally liabilities for misapplying terms, which is often the risks with ‘copy-and-paste lawyering’. Avoid it. If you follow steps 1, 2, and 3, preparing these legal documents would be less difficult. Just ask the right questions.

I produce below some of the questions you should ask under each head:

Terms of Service

  1. What is your company called and what is it all about?
  2. What services do you render through your website?
  3. Who are your target audience?
  4. Do you also have an app for your services?
  5. Are your services free to users or users pay for your services? If users pay, is it by online subscription or payment other means? If payment is by other means, please list them?
  6. If your service shares or posts contents, what type of contents do you share?
  7. Are users allowed to post contents? How about 3rd parties? If so, what kind of contents?
  8. Do you have any procedure for protecting against infringement of intellectual property rights by both users or third parties?
  9. Do you provide any warranties/guarantees to users regarding your services?
  10. If you have any comments or you think there is anything we should know, please let’s hear it. Some years ago, I wrote an article, ‘How to Protect Your e-Commerce Site with Terms of Service’ on Nigerian Law Today. You may find it useful: http://nigerianlawtoday.com/how-to-protect-your-e-commerce-site-with-terms-and-conditions/

Privacy Policy

  1. What personal information does your company require from its users? Please list them.
  2. For what purpose will the information collected be used?
  3. In the course of business, the information collected from schools and private individuals may be exchanged. Will users reserve the right to define the information that may be shared?
  4. In the course of using the company’s services, the user may generate more data, such as time spent on a service, pages visited, or transactions with a particular school. To what end, if any, will such information be used?
  5. What age grade of persons will be eligible to use the company’s services?
  6. In the event that the company uses third-party services like Google Analytics, for instance, to collect user data, to what end will such information be deployed? Also, will the company share user data with the third-party service? If so, to what extent and for what purpose?
  7. Does your site use cookies to collect information?
  8. Does your site or service maintain a database of users?
  9. Does your site or service collect users’ or visitors’ device information?
  10. Does your site or service collect log information such as details about how users have used your services; access time; IP address, etc?
  11. Does your site or service collect usage information for logging and tracking purposes?
  12. If you have any comments or you think there is anything we should know, please let’s hear it.

You may find SBA’s article on ‘7 Considerations for Crafting an Online Privacy Policy useful: https://www.sba.gov/blogs/7-considerations-crafting-online-privacy-policy

Founders Agreement

  1. How many Founders does your business have?
  2. What are the details (names and addresses) of these founders? Who is the Principal Founder? and who are the Cofounders?
  3. Is the company a private company limited by shares? If so, what’s the share capital of the company as registered at the Corporate Affairs Commission (CAC)? What’s the company’s registered office?
  4. How much is the initial contribution of each founder towards the project? Is there any Founder giving his or her contribution other than in cash? If yes, please state the founder’s name, nature of contribution, and value of the contribution.
  5. How do the founders intend to cater for additional contributions and capital investments that may be needed?
  6. What is the total amount of financial commitments required?
  7. Will the Founders be entitled to any form of equity? If yes, how much equity will each founder/cofounder be entitled to?
  8. What is the profit/dividend sharing formula/criteria?
  9. Are there roles to be assigned to each founder? If yes, what are these roles?
  10. Do all the founders need to vote when approval is needed? If no, who are the founders vested with the power to vote. And who are the founders with roles of management, administration, and approval?
  11. Is third-party investment allowed? And if there is already a third-party investment in the company, please disclose the repayment or dividends plan.
  12. Before now, is there any agreement that founders have had regarding any aspect of your business, whether before or after incorporation? If yes, please email the agreement to us.
  13. Does the Founders wish to reserve any portion of the company shares for future employees or for an option share pool? If so, will all Founders’ shares be equally affected?
  14. What period do you wish the vesting schedule should be? Please indicate the start date.
  15. What do you wish the cliff period should be?
  16. If you have any comments or you think there is anything we should know, please let’s hear it.

‘Why you need to have a founders’ agreement in place’ published on Lighter Capital finely breaks down the areas you should cover: https://www.lightercapital.com/blog/why-you-need-to-have-a-founders-agreement-in-place/

  1. If not too late, advise on domain-name registration: Depending on the stage of your client’s online business, you may advise your client on how best to go about registering a domain name. This is because domain names are now one major source of intellectual-property infringements in an increasingly digital world. As a lawyer, always look at the big picture and then ask yourself, “How best can the client safely navigate these troubled cyberwaters?” Advise your client to check the major Internet registries such as NetRegistry to ensure that your client’s chosen domain name is not already in use or is not yet taken. If available, your client should grab it fast. The client may consider registering the domain name under various TLDs such as .ng, .com.ng, .com, etc. This is meant to keep competitors and domain merchants away from your business.

 

  1. Ensure that Your Client’s Company Name is not Already Registered or Too Identical to an Existing Registered Name: This is similar to Step 5 on domain names. Your client’s online business may be the next big thing on the internet. You never know. So, check if the company or business name has already been registered by another business. This will prevent your client from any infringement notices from a party who already registered the business name, forcing your client to change both the company name, domain name, or app name.

Recently, a colleague contacted me on an issue concerning alleged infringement of her client’s registered company name. She needed me to advise her on what to do about her client’s discovery of an ongoing incorporation process at CAC whereby CAC already reserved a name so identical to his already-registered client’s company to another applicant who plans to offer the same services in the same industry. So be alert. As you know, section 30 of the Companies and Allied Matters Act (CAMA) effectively gives the first in law, priority.

  1. Protect Your Client’s Intellectual Property (IP): Most clients contract app developers and web designers to build their apps or websites. But a majority of these clients do not have any idea about the law of copyright regarding source codes. Source codes, which are the codes used to develop your client’s app or website, are by copyright law owned by the contracted app developer or web designer. These source codes do not belong to your client, except there is an IP clause in the agreement between your client and the app developer or web designer which assigns the IP rights in the source codes to your client. Of course, the app developer’s or web designer’s lawful right to the source code does not extend to ownership of the resultant app or website, product of the source code. They are 2 different things. The role of a lawyer is to save the client’s business by ensuring that all IP issues have been sorted out.

Though from a software developer’s angle, you may find one of my articles on software protection useful, ‘Why App Developers Need to Protect their Software Programs—Odion got it wrong and paid for it’, http://www.infusionlawyers.com.ng/intellectual-property/why-app-developers-need-to-protect-their-software-programs-odion-got-it-wrong-and-paid-for-it/

Beyond copyright protection for software, ensure you also protect other types of IP that may apply—trademark, patents, and designs.

  1. Protect Your Client’s Business from Lawsuits with Vital Clauses in the Terms of Service: Drafting a Terms of Service is no small work. Don’t put your client at risk by simply copying terms of service from other sites. This is dangerous. If others do it, don’t. It’s professional malpractice and dishonorable. Your Terms of Service should specifically be prepared for your client’s business to protect the business from avoidable liabilities and unnecessary exposures that may lead to lawsuits.

In your Terms of Service, consider including provisions on the following areas: Definition of Terms, User’s Acceptance of Terms, Account Usage, Rights the User Enjoys, Rights You Grant the User, Advertisement, Contents (liability for contents shared, posted, etc.), Privacy, Community Rules and Guidelines (if the service is a community of users), Intellectual Property, Security & Safety, Third Party Services and Extent of Liabilities, Charges on Mobile or Other Devices, Modifying Terms, Indemnity, Disclaimer, Limitation of Liability, Dispute Resolution, Special Clauses to Certain Users (e.g. geographical location, age), Exclusive Venue, Choice of Law, Severability, Notice, Additional Terms, Termination, General (e.g. restriction on assignment of rights; no agency, joint venture or partnership; etc.), and Contacts

  1. Keep Your Client’s Online Business’s Sensitive Information Safe: If your client’s business is an existing business, make your client understand the need to consider inserting adequate IP protection clauses in each employment contract. This will help the company protect its IP, such as trade secrets (business processes, models, supplies, customer-recruitment strategies, etc.) And if your client’s online business is a new one, even better. Advise your client to consider getting employment contract prepared for each member of staff. In the digital age, employed and co-founders are two sets of friends that can easily turn foes. You should be the fox, not the rabbit – think smartly.

 

  1. Ensure your Client’s App or Web-based Business is Secured: Though you are no web-security expert, be interested in whether your client’s site is secured. If an ecommerce site or any site where payment is made, a Secure Socket Layer (SSL) protocol would be needed to ensure secure transactions between web servers and browsers. The protocol uses a third party, a Certificate Authority (CA), to identify one end or both end of the transactions.

Rounding off

If you follow the 10 practical steps I have enumerated above, you will achieve 2 major results: (1) You will be giving your client real value for money; and (2) You will be helping to build businesses that last and create opportunities for everyone in this digital revolution.

 

This article is the product of a lecture I presented to members of the legal networking group Law Ethics and Practice on 1 October 2017.

 

 

About the author

Senator Iyere Ihenyen

Senator Iyere Ihenyen writes on Information Technology and Intellectual Property. He contributes to Legal Technology and Today’s Lawyer. Senator is the Lead Partner of Infusion Lawyers, an IP & IT law firm.

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