3 Laws Every Internet Investor Should Know
The internet is no longer the wild wild west. It’s been around for over 25 years, and during that time the government has stepped up regulations. Here are some of the most common terms and laws that you should be familiar with as an internet investor.
- Crowdfunding And P2P Lending Laws
In Title III of the JOBS Act has passed new regulations that changes how equity crowdfunding works. While the law spans hundreds of pages, it does aim to make it easier for investors and companies to exchange money online. The law covers both “crowdfunding” websites like Kickstarter as well as peer-to-peer lending websites like The Lending Club.
Previously, to invest in a startup you needed to be an accredited investor, with at least $200,000 per year income and a million dollars in assets. The SEC assumed that these type of investors were more experienced and able to understand the risk of complicated financial packages. Thus, they could invest in things not available to the
Under the new law one may invest $2,000 or 5% of annual income up to $100,000, whichever is greater. Individual with over $100,000 of income or net worth can invest 10%.
Companies using crowdfunding for the first time are not required to have a full financial audits if they are fundraising less than $100,000. This is a big win for crowdfunded startups, because the costs and legal fees associated with an audit are expensive.
A person to person loan is considered a type of security. P2P lending operators are required to register with the security and exchange commission (aka the SEC), however investors are not required to register. The operator is required to keep the lender’s funds in a separate bank account for distribution to the borrower.
There are several differences between equity crowdfunding companies and a publicly held company. For one, you cannot sell shares in the investment at anytime as you could with a publicly held company. You are not allowed to sell for the first year, unless it is:
- to the company that issued the securities;
- to an accredited investor;
- to a family member;
- in connection with your death or divorce or other similar circumstance;
- to a trust controlled by you or a trust created for the benefit of a family member;
- as part of an offering registered with the SEC.
In addition, you will not receive as much financial information about a crowdfunding investment as a publicly traded company. They are still required to disclose earnings, but not everything.
- Copyright Law & The Digital Millennium Copyright Act
It’s important for online investors to verify that the website actually owns the copyrights to their content. Failure to do so can result in reduced revenue if the website faces a DMCA takedown request or even a lawsuit in extreme cases. A copyright is created automatically when a work of the mind is made, which includes but is not limited to articles, images, graphics, songs, and any other creative materials. It is not necessary for a the copyright holder to file for a trademark to legally own this work. The ownership is automatically assumed. Without the copyright holder’s express written consent you cannot make a “copy” of the image by placing it on your blog or social media.
There are many types of image licenses. If no license is specified, the rule of thumb is assume you can’t unless the copyright holder gives you permission. One of the most common licenses is the creative commons license. This is a standardized license that allows for simple use of images. However, even under the creative commons license the copyright holder may require attribution to the image. Just because you found something one Google images doesn’t mean it’s yours to use! Make sure to read the license and include proper attribution. If the copyright holder says “all rights reserved” then you cannot use it at all. Stock image companies are notorious about enforcing image copyrights, charging extraordinary settlement fees for stolen images.
Music & Movies
If you are hosting or streaming music and movies on your website without permission, you are violating copyright law. Even if you are not selling them or monetizing on your website, simply the act of streaming is a violation without permission.
The Digital Millennium Copyright Act (Commonly Referred to as the DMCA) is a law that was passed in 1996 to protect online copyrights. If someone is in violation of plagiarism or unauthorized usage of material, the copyright holder can file a DMCA takedown notice. If the blogger does not remove the content after receiving notice, the Blogger’s hosting company may take the website down or they could face a lawsuit. Section 512c of the DMCA removes the liability of websites that allow users to post content, however this liability is only removed for non-commercial websites. It provides an interesting challenge for investors in social networking websites and applications, because they technically could be making money from copywritten content shared by their users and it is difficult to police.
- Privacy laws
- How you are collecting information
- What it is being used for
- How users can opt-out
Privacy policies for social networks are a hot
While there is no single privacy law, there are some important ones to keep in mind. The Children’s Online Privacy Protection Act (COPPA) has specific restrictions on collecting information from children under the age of 13. These restrictions are complicated to enforce, so website often require users to be above the age of 13 if they are engaging in financial transactions or collecting data. This does not mean that data collection is illegal, just highly regulated for that age group.
Some states have passed specific laws regulated privacy. For example California requires a privacy statement to be prominently displayed on the website and Delaware has a similar version of this law. Because many companies are incorporated in Delaware for tax and legal purposes as well as in Silicon Valley, it is important to check for compliance of these laws during the due diligence process.