Is Your Website a Lawsuit Waiting to Happen? 4 Surprising Legal Risks You Can't Ignore
Introduction: Your Website Is More Than a Storefront—It's a Legal Landmine
For most businesses, a website is the public face of the company—the primary channel for branding, engaging with customers, and driving sales. But behind the sleek design and helpful features, a modern website can be a "landmine of potential regulatory, litigation and reputational risk."
Technologies designed to improve the user experience, such as AI-powered chatbots and sophisticated user-tracking tools, can carry unforeseen and serious legal consequences. What seems like a smart business enhancement can quickly become a significant liability.
This post will reveal four of the most surprising and impactful legal challenges that every business with a website should be aware of.
Your AI Chatbot Can Make Legally Binding Promises
AI-powered chatbots offer tremendous business benefits, providing 24/7 customer service, transaction support, and product recommendations at a fraction of the cost of human staff. However, their ability to generate dynamic responses creates a new category of legal risk, especially when they "hallucinate."
This was demonstrated in a recent case involving Air Canada. A customer, seeking information about bereavement fares, was given incorrect policy details by the airline's support chatbot—a classic example of an AI hallucination, where the model produces inaccurate outputs. When the customer tried to claim reimbursement based on the chatbot's advice, the airline refused, arguing the chatbot was a separate entity.
The court's decision was clear: Air Canada was held financially responsible for its chatbot's misrepresentation and was forced to honor the incorrect policy. This ruling signals a major shift, treating AI outputs not as technological quirks but as official corporate communications.
A Canadian court strongly rejected Air Canada’s argument that a chatbot on its website could be considered a separate legal agent from the company itself, noting the company is ultimately responsible for all information on its website.
This precedent establishes a critical lesson for all businesses: you cannot blame your own technology for errors. Companies are legally and financially liable for the information their AI provides to customers.
A 1967 Wiretapping Law Is Being Used to Sue Websites Today
Many companies use "session replay tools," a type of technology that creates a screen recording of a user's activity—every click, scroll, and keystroke—to better understand their behavior and improve website performance.
The surprising legal twist is that plaintiffs are using the California Invasion of Privacy Act (CIPA), a law passed in 1967 to prevent illegal surveillance and wiretapping, to sue companies that use these modern tracking tools without clear user consent. The argument at the center of these lawsuits is that session replay technologies are equivalent to an unlawful "pen register" that records user interactions in violation of their privacy rights.
While the threat is real, the legal landscape is still evolving, with case outcomes and judicial interpretation being varied as courts remain divided on the issue. Still, the stakes are incredibly high. The CIPA statute carries potential penalties of $5,000 per violation, which can translate into millions of dollars in a class-action lawsuit involving thousands of website visitors. This is not an isolated West Coast problem; these legal challenges are beginning to crop up in other states with similar wiretapping statutes. This forces businesses to re-evaluate their analytics stack not just for its marketing ROI, but for its litigation risk profile.
Your Third-Party Tools Can Become Your Biggest Liability
From chat functions to user analytics, many businesses rely on third-party solutions because they are affordable, scalable, and easy to implement. However, integrating these external tools means entrusting them with your customer data, and their failures can become your liability.
In one real-world example of a data security failure, a startup chatbot solution improperly stored roughly 350,000 sensitive consumer files—including passports and medical records gathered from its customers' websites—on an open storage network accessible to the public. The clients of this insecure third party included large publicly traded companies and universities, illustrating that this risk affects organizations of all sizes.
But the risk isn't limited to catastrophic data breaches. Regulators are now scrutinizing how these third-party tools use data, even when it's secure. The FTC brought complaints against companies like GoodRx and BetterHelp, alleging they used third-party pixels to share sensitive user health data for advertising purposes. This violation of their stated privacy practices resulted in large civil penalties, demonstrating that how your vendors use data is just as critical as how they secure it.
The "Do Not Track" Signal Is Now Legally Binding
The Global Privacy Control (GPC) signal is a user-enabled browser setting that automatically communicates a user's preference to opt out of certain data processing and the sharing of their personal information.
Unlike older "do not track" settings that were widely ignored by websites, the GPC signal has legal force.
Privacy laws in nearly a dozen states, including California, Colorado, and Texas, now have provisions that make it mandatory for companies to recognize and respond to the GPC signal when a user with the setting enabled visits their website. This transforms a user's browser preference into a legally enforceable right, meaning that ignoring the GPC signal is no longer a matter of policy, but a direct violation of the law.
Innovation and Responsibility Must Go Hand-in-Hand
The central theme connecting these risks is clear: "Responsibility for website compliance will always remain with the company or website operator."
From the promises made by an AI chatbot to the security practices of a third-party vendor, the legal and reputational burden ultimately falls on the business that operates the website. This new reality demands that businesses build a robust digital governance framework where legal, marketing, and IT teams collaborate to vet every new website technology before it's deployed.
As these powerful technologies become more deeply integrated into our digital storefronts, how can businesses innovate responsibly without turning their greatest asset into their biggest liability?
Source: Attorneys at Arnall Golden Gregory LLP, Jacqueline Cooney, Kevin Coy, Erin Doyle, and Kelley Chandler, "Legal Compliance Considerations for Websites and Website-Enhancing Technologies," Intellectual Property & Technology Law Journal, Vol. 37, No. 9, October 2025.