7 Biggest Legal Mistakes Physical Product Companies Make

Hi, I'm attorney for creators Brittany Ratelle, and I'm here to talk about the 7 biggest legal mistakes that I see physical product companies or e-commerce companies make and how you can avoid these 7 mistakes and keep yourself out of legal hot water. Just as a little disclaimer before we get started, because what kind of attorney would I be if I didn't have a disclaimer? While I am a licensed attorney and I'm barred to practice in Utah and Idaho and I do IP work for clients all over the US, I'm not your attorney and this is not an attorney-client relationship. If you have any questions about things that we talk about today, please consult with an attorney licensed to practice where you live and take your questions and concerns to them. This is for informational purposes only. All right, so let's get into it. What are the 7 biggest mistakes that I see e-commerce or physical product companies making again and again, and how can we make sure they're not going to trip you up? So my number 1 is to get an operating agreement, and this is especially critical if you have partners in your business. So if you decide to incorporate your business, which I recommend, most people decide to have an LLC, an operating agreement, which is also sometimes known as a founder's agreement or a partnership agreement, are kind of the clubhouse rules of how your business is going to be run. It's a private document. It's a contract that's binding, but it's not filed anywhere. Your bank might want to see a copy of it. Sometimes banks do when you open up an account, and sometimes people, other entities that are doing business might want notice of it or a copy of it.. But most of the time, it's just kept in your records. This agreement is also known as a business prenup because it's the really critical document that sets out things like equity ownership, who owns what chunk of the company, how are you gonna pay out dividends, how are you gonna handle decision-making, decisions big and small, who's gonna have signing authority for the business and be able to act as a manager, and what are the responsibilities and roles that people will have in the company. And more, most importantly, what is the exit plan? What, what we wanna talk through is if if someone wants to leave the company, what does that look like? How are we going to value the company? Does one person have to buy out the other, or is there anything we want to set up upfront in terms of that relationship and that negotiation to smooth things over so people have really clear expectations? An operating agreement. Also, it's not a bad idea to have some IP language assignment, meaning intellectual property, covering if anyone's making any cool stuff that we want to make sure is properly assigned to the business. You can also have additional agreements like an IP or invention assignment. These are common in startup, but there's no reason why it also can't be built in into an operating agreement. Another great idea is to have, uh, information about non-competes. If there's an expectation that if someone leaves and exits this business, what they can and can't take with them, and if they can directly compete with the business by kind of setting up and redoing the business all over again. So business prenups, super critical. Even if you're a one-person bandstand, not a bad idea to have an operating agreement. They're doubly important if you have business partners. In fact, they're probably the most important thing that you can do right off the to protect yourself, especially if you are in a business with friends or family. If you wanna avoid an ugly business divorce, which can get really ugly, set yourself up right and get that business prenup. Okay? So that's our number 1 is our operating agreement. Number 2, you need to protect your intellectual property or IP. So your IP is a collection of the unique stuff that you might have in your business or as part of your product or solution to people. And there are 4 major types of IP protection tools, and we're gonna cover each of 'em and how they might relate to your physical product business. Number 1 is trademark, and a trademark protects brand elements or assets. You're probably most familiar with trademarks that protect logos. So this is in the case of Nike. This would be the swoosh. This would be the right that Nike has to use that swoosh and to protect other people from not putting the swoosh on things so that when, you know, when you buy a Nike product, it's a legit Nike product. You're not buying a dupe or a fake., and no one can make anything that looks confusingly similar to the Swoosh. So what you want to be considerate about as you are a physical product owner is making sure that you are picking a name of your business that's going to be available. And you want to make sure that you've done your research in a trademark clearance search of both the trademark database and the common law, meaning are there people out there who are using your brand name in commerce? Have they registered for domains or social media handles? Do they have a state LLC set up or state trademark? Are they out there in business doing their thing and they just haven't bothered with the trademark yet? If they've been operating before you, they could still be a problem. In fact, they could be a huge problem depending on how long you take for you to register your trademark. So this is a mistake that I, I see a lot of business owners make is a lot of people have maybe heard that they need to check the trademark database or the TESS system. And so they go on and do a search, but their search usually isn't thorough enough. They're not checking for cognates and plurality and hyphenation and different spellings, alternate spellings and phonetic equivalents of their name. It's not as expansive as it needs to be in their search. And they're also not checking to see who else is out there in the common law, who in the world who's just using something similar. And guess what? They have use and could cancel or oppose your trademark and make it a big hassle and legal nightmare for you. So make sure that you have the rights to your name so that you can have peace of mind that you're not stepping on someone else's toes, which is a huge deal, especially with trademark registrations taking upwards of a year now for the average length of when— if you filed tomorrow, you probably wouldn't get your pretty certificate back for a year that you can put the R with the circle on it. You want to make sure you can have confidence that you can buy a domain, you can invest in branding and marketing and pretty colors and flyers, and especially with product. That you can develop and get stuff branded and out the door as part of the manufacturing and labeling process, including all the other collateral that might be, you know, coming up, especially packaging design and everything else that probably needs to go into and is relative to the development of your product. The other thing you want to make sure is that you can keep other people from creeping up on you and your consumers being confused that they're purchasing something that they think is your product, and that's not. I've had lots of clients and customers had issues with especially safety concerns or people asking for refunds on their product and their ratings getting lower because someone bought a dupe that they thought was your product. And of course, the dupe doesn't live up. It breaks. It doesn't have the same quality standards because it's a cheap ripoff. So make sure that you're doing your part to protect trademark. So that's the first tool. Okay, second tool that we want to talk about is copyright. Copyright protects the creative guts of something. And so how does this relate to a physical product? You may want to register the copyright for your product photos or product video or audio, if that's relative to your product. You also maybe want to protect the surface pattern design. If you have unique surface pattern design that you created, that's also something that you could protect through copyright. The other side of this coin is that you want to make sure you're being a good intellectual property citizen, which means you do not take media and use media that you didn't create and you don't know where it's from. Okay? Remember that the internet is not the public domain. It's not the same thing. And just because you found something online doesn't mean you have the rights to use it, especially commercially. So make sure that you have a good system and sourcing process for where you get your photos and your video. If you're not taking them themselves, then make sure the person that you're paying to do it, that you have a written agreement that governs that transaction and you know where that media is coming from. And that you can say with a clean bill of health that you own all the rights to that media and can use it commercially for all the ways that you want to. Okay, the third tool I want to talk about in our IP discussion is patents. And you've probably heard about patents. There's two types that you kind of need to concern yourself with, design patents and utility patents. Design patents cover kind of the new and unique ways that a product looks. Think of if you had a new kind of spatula design and it had a star in the handle. That would be a design patent that would protect that star, especially because it's not related to the function or utility of the product. But it is a new and novel product. Product. A utility patent would protect the shape of a spatula. Now, keep in mind, this has to be a new design for a spatula. It can't be something else that's already there or a component that's similar. And so the way to do patents is to really hire an attorney that does patents. I actually don't do patents. That's out of my wheelhouse. And so I have some names if you're interested in some of those, and they can be expensive. Design patents can usually start around a grand and go upwards. Utility patents can be much more expensive, $5,000, $6,000, $7,000 to start. And there is a timeliness to patents that you need to be aware of. So some inventors will file, will file a provisional patent on their own before they launch a product just to kind of protect it. And then if things take off and the product is a success, if it does actually go to market, make sure that you are following that up with a real patent and hiring a patent attorney to help you within 12 months of something being launched and available to the public for purchase. So So keep that in mind. There is a timeliness to patents that you need to be aware of. After 12 months, you can lose some of your— lose some or all of your rights to it. Okay. And the 4th tool we want to talk about is our trade secrets law. And the way that you protect this is through contracts. And so you're probably familiar with signing an NDA or a non-disclosure agreement. An NDA is simply a tool to protect confidential information that you might have, especially in a business relationship where people are kind of opening up and letting people look behind the curtain and letting them see how the sausage is made and lots of other metaphors. Of course, of here, I'm gonna show you some kind of behind the scenes stuff of my business. I wanna make sure this doesn't leave here and you're not gonna use this and distribute this publicly. So trade secrets, especially with physical manufacturing, might cover things like formulas, recipes, processes, systems that you have of either making your goods or delivering your goods or the operations around that. It could also involve things like your vendors, your the actual identification of people who make your stuff or the processes of different people in your supply chain can and probably should be protected by NDAs as well as customer information. So things like an email list or customer data that you have or you're collecting, those things should also be protected by confidentiality. So if you are interested in protecting and using contracts correctly to protect confidentiality, then you'll want to have written agreements like NDAs. And this should be for people who work for you, like employees and contractors, with vendors or people that are laterals that have, you know, access to this, and certainly with your suppliers. As a note, if you want to have an agreement that kind of protects not only your confidential information but also make sure that your manufacturer won't circumvent you and basically sell your stuff to someone else and sell directly to consumers and cut you out of the deal, you probably want a triple N agreement. And these are known as non-disclosure, non-circumvention, and non-use agreements. And they're fairly common with suppliers and manufacturers. If you want If you have one of these that's enforceable in China, you just have as a word of caution, there are some online sites that purport to sell some of these, or a Chinese lawyer that can draft some of this. And sometimes the terms might be super unfavorable to you. In Chinese law, there's a different— there was a different standard of confidentiality and loyalty of a lawyer to you. And so a Chinese lawyer could purport to represent you and then take your information and sell it to someone else and not be in any danger of their law. So just something to watch out for. Make sure you're working with reputable partners and that you always know what you're signing. If you have any questions about what you're signing or if this is even enforceable or a good idea, make sure you reach out and have a business lawyer helping you with this. The other point I will say on this is that anytime that you're looking at protecting relationship with suppliers, the best advice that I get again and again from clients is to do your research beforehand, making sure you're asking for who else a client, you know, a supplier, especially in the manufacturing stage or fulfillment has worked with, and they should be able to give you some names, and you should be able to get an honest opinion of their work and how people like working with them. Have they been around for a while? Are they reputable? Are there complaints against this? Is there active litigation going on? Or can you actually talk to someone at the company? Or is there some, you know, weird email address you can't actually get someone to respond to you? You want to make sure that you have a really— you feel really comfortable with the relationship because this is probably the, the biggest risk and exposure you have is this person who's going to be making your physical product. And so you want to make sure that that's really clear and that your incentives are aligned in the right way. Okay, so that was a big one. Number 2 was intellectual property. And no, it's probably no surprise because I practice a lot of intellectual property, but that's a really important thing to make sure that you have covered. So, and just as an aside, I do sell a non-disclosure agreement, an NDA template. And so if this is something that you want in your business or you'd like to just have a template ready to go any before you start having kind of open door business discussions with people, make sure you snag that in Creative Contracts, which is my contract template shop that I have drafted by me, industry reviewed and tested and proven to make it easy for you to download, edit what you need to in the document, and then get it signed and signed off by email or in a CRM and make it really easy to be on your way. And I also have an operating agreement. So if that business prenup is something that's ringing a bell of, oh shoot, I need to do that. Make sure you check on the links in the notes, but I do have an operating agreement that makes it really easy for you to set that up with any of your business partners and founders. Okay, number 3, let's talk about the third mistake I see people make is not having a compliant website. And by this I mean they have a naked footer. If you scroll down to the bottom of their website, there's literally like nothing there, or like they have like a contact us or a cute logo. Or maybe they have like a small little returns policy or shipping, but there's nothing else there in terms of beef. So what are you actually supposed to have as someone with a website, which I'm sure you have a website and I'm sure you have e-commerce. Let me tell you, you need my website bundle. And what's in the website bundle? Inside of that, you'll find a privacy policy because I can virtually guarantee that you are collecting information from the people who come on your website. Even if you don't sell from your website, do you collect email addresses? Do you run analytics? I'll hold. Just kidding. I won't hold because we got too much to cover. But I guarantee you that you are— you're probably collecting that information. And so you want to make sure that you are being forthright and compliant with both state— and now we have some federal laws on the books that talk about what you need to disclose in terms of the information you're collecting and what you're doing with it. So privacy policy, terms and conditions, or website terms or website terms of use. There's no standardization. They're known by all those things. But these are the rules of when someone comes onto your website and they should include— you're right— things like a shipping policy and a refund exchange policy. They should also talk about copyright and intellectual property and that, by the way, I own all the stuff on my website. And also, by the way, if you find something on my website that belongs to you, so sorry, I'm going to comply with the DMCA or the Digital Millennium Copyright Act. And you let me know and I'll take it down. You should have that information on your website. You should also have information that says, hey, I don't want you guys to aggregate together and be a class action lawsuit. And then we have any issues, let's resolve it through arbitration, which is going to be cheaper than litigation. All of these things should be part of your terms and conditions on your website. And that's included in the website bundle. You also want a copyright statement clarifying that, again, you own the copyright to everything on your website. It's yours. It's original. And that you can make sure that people can't say they didn't know. That's what we want to avoid here is that I didn't, I didn't know. And that's hard for someone to say when you have a clear copyright statement on your website. Some other things to think about depending on the content of your website, if you are in health and wellness, you may want to have a disclaimer about that you don't diagnose or treat any, cure any illness or disease, especially depending on what kind of content you have on your website.. If you're kind of bumping up into that area, something you need to be aware of. If you have an affiliate program or if you're running affiliate links, you probably want to have information on that on your website. If you have testimonials or if you talk about making money on your website through your product, especially relevant if you're in any way involved in direct sales, you want to make sure you have an appropriate disclosure or disclaimers for that. And then the last thing is you want to have ADA compliance with the American Disability Act. So ask your web designer about this to see. It really depends on how— what kind of elements and features you have on your website. If there's a plugin that, that matches your platform that you can use to make sure you have things like alternate text and if you're able to comply with the Web Content Accessibility Guidelines or WCAG, which are kind of most up-to-date compliance recommendations for if you want to have a website that's accessible. Do these steps. So ask your website designer or whoever else worked on your website. Maybe that's you. If that's you, make sure you look into these guidelines and that you're trying to use all the tools available from your platform to try to make your content and your website accessible. Not only is it a good thing to do as a human being, the steward to those who have accessibility issues, it also can be great for SEO. So that's, that's two birds with one stone. And remember, if you want help with getting all of these statements and things ready for your footer, grab my website legal bundle. It's my best-selling product because it's super easy. Okay, I make it idiot-proof, not because you're an idiot, because you're an idiot to waste too much time on this stuff when there's an easy solution. Okay, and you can find that at creativecontracts.com. Okay, tip number 4, to avoid mistake number 4, is not caring about product safety and product liability. By this I mean physical product are different. They just are. And with that, because we have a physical product that's gonna be in someone's hands, we just gotta make sure that it's safe. And this is especially important if you are involved in children's products, in any toys, if you're involved with anything with food or like food, or again, if you're in health and wellness. Okay? Because health and wellness is just special because we're bumping against things that might be medical advice or things that people might be ingesting into their body. And there's just going to be more liability there. Okay, you need to be more careful. It's just a bigger target, part of doing business. So by this, I need you to be familiar with and to be reviewing the Consumer Product Safety Commission and their website. They've got some great tools on there to see if you, depending on what you create, especially if you're in the children's arena, if what steps you need to do to be compliant, what labeling you might need to have, if you are parts of your product or your product itself counts as a choking hazard. There's an actual test. You can actually buy a little cylinder and see, and if your product can fit through that, guess what? That's a choking hazard because it's supposed to simulate the size of a child's throat. And so those things you just need to take serious and not just brush off. There are some exclusions for small batch manufacturers in terms of testing that you might not have to go through all the steps depending on how many units you're selling. But again, it's something where you want to have knowledge so that you're empowered. And not something that you think it doesn't apply to you yet. How much better to be in a position where you've looked into it, you can see, okay, I'm good right now, but when I get to this point and this is something I need to be aware of, I need to invest in this. And so I'm saving some money in reserve so I can make sure that I'm going to be compliant and taking the steps I need to, and it doesn't blindside you. So other issue with this is labeling, having inserts, whether it's on the product or attached to it, or labeling that goes in with the product as it's being delivered. And fulfill to a customer. So there are attorneys that specialize in this area. And so again, especially if you're in one of those kind of high-risk areas that I talked about in terms of children's, you know, food and drug, definitely, or, you know, food items or health and wellness, I highly recommend finding someone that you can partner with in this area to feel really comfortable and make sure that you've done everything you need to. It's also not a bad idea to get product liability insurance. This can help cover you if, you know, the worst of worst should happen and someone should get injured using your product, or you to get sued or named in a lawsuit, and that can kind of come to your back. Something else to consider is that Amazon requires liability coverage of commercial general liability coverage of up to $1 million if you're going to be an Amazon seller. Are there a lot of people who sell on Amazon who probably haven't done that? Absolutely. But it's good to be aware that you are saying that you have that coverage, and it's something that you should probably look into because Because like I said, physical product just has more risks. And so it's something that you want to build into your budget and build into your compliance portfolio so that you're not surprised by it. One of the most famous and recent cases of this gone sideways recently was those magnetic balls. Remember those high-power magnet balls that kind of like made little, you know, toy desk toys? Anyway, the local, you know, American entrepreneur Craig Zucker, just bought $2,000 worth of inventory, started selling them. It went gangbusters. You know, the toy went viral. He sold more than $57 million worth of product. It was just a crazy amount. And then he got sued by the Consumer Product Safety Commission because they said, look, those balls are super dangerous when they're ingested by kids. They can actually mess up and cause permanent damage or even death, disability to their intestines. And so anyway, the case went on for 2 years. Ultimately, it settled. Craig didn't have to pay $57 million, but he did have to pay $375,000 to basically have a recall trust fund set up. And I can guarantee that his legal funds were probably double, if not triple that to protect himself, especially because he was named personally in the lawsuit. So it's kind of one of those horror stories because if you're in an LLC, one of the basics is that you're supposed to be protected and that you can bankrupt the LLC, but you're off the hook. This is one of the first times where an individual owner was named because he had shut down the LLC. But the Consumer Product Safety Commission said he should be personally responsible for doing the recall. The law on that is not settled because they did settle and that was not, you know, in terms of that element, he wasn't sued as much and didn't have to pay out as much as he wanted to. But it's a cautionary tale that we just want to make sure that it's not okay to turn a blind eye if you have a product that's just inherently dangerous. There are some things you've got to watch out for. Otherwise, you can end up paying a lot of money in legal fees. And the only people who win are the lawyers, right? I mean, Craig is probably doing fine. He probably made enough money, but certainly not a story that you want to repeat if you can avoid it. Okay, number 5 in terms of mistake that people want to have and avoid is to not use contracts. Okay. The mistake is not using contracts at all and thinking, I don't need to get it in writing. We trust each other. Or believing when someone else tries to pawn you off on that, that you don't need to get stuff in writing in your business. This is ridiculous. A good contract is fair to both sides, just sets up expectations. It's nothing to fear. And in fact, the process of developing that contract will probably pull up things that neither side have thought of or thought through and an element And then you guys can put it on paper. Hey, I know this is kind of a crazy thing. We don't expect it to happen, but if it did, what's our plan? Okay? And that's what a contract does. What are some contracts that might come up specifically to physical product owners? Wholesale contracts. If you are looking to expand your business and get into wholesale, what can be a, a great additional revenue stream, it's a great idea. You probably wanna have an agreement that covers things like insurance. Whose insurance covers the product if they get lost or damaged? Okay, is it yours? Is it mine? We need to cover that. How delivery and shipping is going to work. So especially if there's any volume discounts, or how— who's going to be covering for freight charges. If there's— depends on, you know, if they order all at once, or it's ongoing, you know, when, when is your dead drop date for when you're going to ship and when you need to have money coming in terms of deposit, you don't want to be out on the hook for shipping a bunch of product and then have someone claim that they changed their mind, and now you're trying to get the product back to you, and who's covering that shipping cost? Minimum order quantity. Obviously, this is a big deal in wholesaler because you want to wholesale because you want to make sure it's really clear how much does someone need to order of a product and to make it worthwhile for you and for them. And then any additional rules I've seen in some wholesale agreements, specifications like I really want to make sure I'm only going to be supplying wholesale to people who have a brick-and-mortar location and maybe restrictions on selling to e-commerce or selling to third-party sellers, like putting stuff on Etsy or eBay or Amazon versus someone who's just going to sell it in a retail location that actually has a physical footprint. So if that's important to you, that stuff should probably be in a contract and set out to make sure that those things are restricted and that are clear. And that way, if someone violates that, you can do something about it because it was in the contract. Okay, next thing you might probably want to have a contract for is you're running pop-up shops. So whether you're the one hosting other people and you have a location and you're having pop-up shops, or you are the one bouncing around, and this definitely applies to warehouse sales, okay, and pop-up warehouse sales. I've seen a lot of clients have these and, you know, they've been able to move a lot of product. And I am always holding my freaking breath, especially for people who don't maybe have a check to see if their liability coverage covers anyone who's not an employee. And outside, like the public being in on warehouse grounds, especially if they're bringing their kids with them. And if you're hosting other events, because now we're, we're enlarging this target that we have, this bullseye of not only our people getting hurt or something happening with our product, but other people who you don't even have control over and you're not even sure what the product is or who's staffing or who's going to be in your space or who's supposed to be shutting things down and locking the door at night or opening things up in the morning. Or who's supposed to be running the cash wrap and registering things or collecting sales tax. All that stuff needs to be discussed in a good pop-up shop agreement, especially if you're doing lots of these. Even one of them, I'd say it's worth it, but especially if it's something you maybe are gonna do and try out. This is another agreement I have in my shop along with the wholesale agreement. So all 3 of these, and I'm mentioning wholesale, pop-up shop, and now affiliates are available at Creative Contracts. Last one is affiliates. If you have an affiliate program, and which is a great way to have kind of an outside sales force and maybe to leverage influencer marketing, then you want to make sure that people are agreeing to an affiliate agreement. So whether you're just using a plain old spreadsheet and your Shopify codes to keep track of this, or whether you're using something like Refersion or TapFiliate or LeadDyno or some other system that tracks affiliate links, you know, like LikeItToKnowIt, I mean, if you're a big deal or something else, or RewardStyle, You want to make sure that people are agreeing to what when they sign up to be an affiliate? What's their commission rate going to be? How often are you paying out? Are there any rules about if they can collect affiliate income and commission on their own sales? Are there any rules about how they can market? I would recommend you tell people that they can't be sketchy, that they can't spam people, that they have to follow, you know, email laws. They can't be spamming people in Facebook groups online representing you. What they can do with your media. How can they be using your intellectual property like your trademark or your photos or your video, especially if you're making that available for people as part of promotion and promoting your goods and services. So I highly recommend having an affiliate agreement. I think it's a really good idea and can help so that if someone steps out of line, you again have something to cover you and to be able to kick them out without recourse and being able to in fact even keep some of that money if there's commissions that are like sketchy or might have been fraudulent. Okay, so that was number 5 in terms of contracts. Okay, let's talk about number 6 mistake is advertising issues. And so for this, the main issues I see are the kind of general advertising issues that affect and can afflict a lot of businesses. So this isn't specific to physical product companies per se, but there are some issues that can affect them more generally, more specifically than others. So So the basic rule in terms of advertising law is don't lie. Just be honest, have honest advertising. And that probably sounds rather trite and simple, but it is the overarching principle. So what does this look like? And what are the kind of claims that usually come up if you're trying to avoid advertising issues and drama and lawsuits, especially having the Federal Trade Commission get after you? The biggest ones are Made in USA claims. You want to make sure that if you are making this claim that you can substantiate it. That's kind of the number one rule besides be honest in your advertising. And if you say something, make sure you can back it up. Okay? If you say that something's made in the USA, you better be able to prove that a majority, if not all the components, are manufactured, sourced, or assembled here. Okay? Try not to be too cute and coy that, oh, well, we put them, you know, we put— it was assembled and manufactured and designed somewhere else, but we put a label on it here. I don't know. I don't really know if that sounds like made in USA. That is, would a consumer be confused by that or duped by that? Possibly. The next thing we want to know, like I already kind of mentioned, health and wellness businesses have an additional layer of compliance they need to worry about. And so for this, make sure you're not making any claims about diagnosing, treating, or curing any illness or disease. If you are making those claims in your advertising, be careful. Be really, really careful and make sure that you can substantiate them. You should have like laboratory studies or peer-reviewed, something else that shows that you— there is a reason for the basis that you're making, and whether those statements have been evaluated by the Food and Drug Administration if you're bordering on kind of medical-grade or food issues in terms of the product that you actually have. The other issue that I've seen come up and seen some other prominent case law, and especially some state case law that's developing in this area, is on subscriptions and opt-out agreements.. And so what you need to be careful is if you offer a subscription as part of a physical product, you need to make sure that you're being very clear to your consumers what they are purchasing, when they're gonna be auto-renewed, that this is an ongoing agreement that they are signing up for. They're gonna be billed every month. Okay? Don't be cute or coy about this. We don't need to have like a, the Columbia CDs. Remember, remember this when we were a kid, you'd sign up for like the club and you, you know, you had to like write a thesis statement to get out of it. We don't want that kind of system. Those are called negative option agreements. Basically, when they make it hard for you to cancel, like we need you to send a letter, but to an address that doesn't exist by like Pony Express. You cannot make it difficult for people to cancel, whether it was a trial that then turns into a real subscription. You know, it's more of that freemium model or something that's ongoing that's gonna be billing them every month, especially if that time period is over a year. California has some new case law coming out here that's very specific in saying that all of these things need to be discussed upfront and the consumer needs to know and opt into this clearly. So if you're at all worried that maybe people aren't aware of this, or if maybe it's hard for them to cancel, if there's not a one-click link for them to cancel and get out of it, then let's change that as part of your operations to make sure that you're compliant and that you won't be in the FTC hot seat, that you won't be The next, you know, bad horror story that I'm sharing on Instagram. Okay. And that brings us to number 7 of our biggest legal mistakes for physical product companies, and that is staffing and growing our team. So as you're growing your team and as you're trying to hit and be more of that CEO hat and offload things off your plate, which is awesome, we want to see that. We want to be making sure that we're being really clear in hiring team members, whether they are contractors or employees. And most importantly, it's not the end of the discussion if you think they're a contractor, if they want to be a contractor. It's what the state— if the state would agree, whatever state you're located in, that they're a contractor, and the federal government, okay? They have an interest in that. If someone looks like an employee and smells like an employee, they should be a W-2 employee. They should be paying payroll taxes. You should be paying payroll taxes. And offering other HR compliance things like unemployment insurance, workers' comp. You should have your posters, your HR posters in your break room. There's lots of other things that you need to do once you have employees. Okay. There are some additional thresholds of compliance, and it's not that it's the end of the world. Okay. Things have never been easier. I highly recommend using a tool like Gusto to add in an employee, and I mean running a payroll when you have W-2 employees. But you just need to take it seriously and not be flippant in your decision of, oh, I have all these people and they're all contractors because I called them contractors. So maybe and maybe not. And there are several— there's a very extensive IRS test, a 16-part test that you can use that's on their website. I'll link it in the show notes to see if someone's an independent contractor or an employee. But there's also state tests that you have to be aware of. So if you're in some states, states like California, you need to be more careful about this than others and more on it in terms of your analysis. And so if you're worried about this, if you have a lot of people who are in this pool who are working for you, it's not a bad idea to get some local help and counsel to review what's going on. And maybe your accountant is looking at this and is on it, and maybe they're not. You know, remember, at the end of the day, you're the business owner, the buck stops with you. So remember that if you do have people who are independent contractors, and these are people who are true freelancers, this is especially someone who might be fulfilling a role like a photographer, a website designer, someone who's helping you with your social media manager, a virtual assistant or someone else like that, and who's an independent contractor or a 1099. Make sure that independent contractor has an independent contract agreement. I sell one of these in my shop that covers things like confidentiality, which we've already talked about is so important. It also has a work for hire clause and IP assignment, which makes sure that all that cool stuff that they're making for you gets put into your business pot and that all that cool work that they've done doesn't, isn't actually still owned by the freelancer themselves, which is what happens if you don't have something in writing. So if you're an employee, you're protected under the work-for-hire doctrine. That's not the case with freelancers and contractors. It needs to be in writing. That's how we transfer IP. And so make sure you snag that independent contractor agreement. If you don't have one of those, it's one that you can have in your tool belt, rinse and repeat as you are adding on freelancers, um, to your business and your business team.. So, okay, team, there we go. Those were our 7 quick— not quick, but 7 useful mistakes that we wanna avoid. Okay? The 7 biggest legal errors that I see physical product and e-commerce companies make. And now that you're armed with this, we can, we know, and we're in a better spot where we have an appropriate level of risk because our goal here is to find the right risk and be at the right risk level. It's not to have zero risk because the only zero risk in a business is no business. And that's probably the biggest risk to it all. And what a shame, because it means you're not getting started. You're not trusting, testing, and trying. You're not getting your product out there. And we know that there's some risks that we have to be involved with. We know that there's always a risk of copycats, and there's gonna be people who are gonna try to, you know, trade in on your success and try to rip you off. We talked about some of the tools that can protect us. There are things you can do, boundaries that you can put up, and there's also a healthy amount of stuff you're gonna have to let go.. And any reasonable intellectual property attorney will tell you that, you know, one that's not just trying to suck you dry of money and tell you what you want to hear instead of how the real world works, right? Especially in a digital economy. But we want to make sure that you're empowered, that you're not overwhelmed by this information, but that you're in a place where you can make reasonable and good decisions, wear that CEO hat, look at your blind spots, and then decide what's an appropriate level of risk that I'm willing to take, you know, depending on the investment, and how much time and money and assets you have on the line here. Remember that if you are curious and interested in getting some of these agreements and getting them quick and ready and loaded in your business, head over to Creative Contracts where you can take a free quiz to find out what you need. You'll probably find there'll be similar questions to kind of what we went over today, especially if you have physical products and then do things. There's additional information like if you run giveaways, you probably should get my giveaway promotion kit. If you have events, then you should probably have my event release. You know, if you are taking product photo and you're not sure if you've been using model release, you should definitely have one of those. So there'll be some additional things that we didn't cover in too detail today that might help you, especially if you are a growing business with kind of diverse legal needs. And the other resource I want to make sure that you're aware of is my Legally Legit Workbook. This is my number one freebie that everyone absolutely loves. Because it is a step-by-step workbook, okay, that you can just sit down and check off boxes and fill in the blanks of a roadmap of what you are supposed to be doing in your business to get it legally legit. If you found yourself confused or overwhelmed or getting like conflicting information in Facebook groups or from like a business coach who thinks that they're a lawyer, you know, from Google Law School, you will have those resources to be able to say and start asking the right questions and getting the right answers. And tackle one thing at a time. Okay? It's not something that you can use, you should use to berate yourself or to make you feel bad about what you've done in the past. Look forward, move forward, and use that to make the best decisions that you can for your business. And you can find that at the link in the notes or at getlegitwithbritt.com. Who doesn't love a good alliteration? Thank you so much for joining me today. I hope you've learned something. And if you want to connect with me, you can usually find me over at Instagram. I'm @BrittneyRettell. Um, or you can find my main website of brittanybrettel.com. Thanks so much.