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Legal Aspects of E-Commerce

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There are four common ways to deliver products based on interactions that take place on the Web. This article discusses common legal needs related to each one. Because every business situation is unique and every legal situation dependent on the particular facts of the case or transaction, you should seek the assistance of a qualified attorney.

Online Delivery

The Internet is an efficient mechanism for delivering electronic media. As an example, one may download an update to a software package that was purchased at a local retailer. This raises the issue of whether the electronic fulfillment satisfies the vendor's contractual obligations to the customer. For instance, what if the service becomes unavailable? What are the procedures for ensuring that compatibility requirements are met? Are there users in multiple geographic areas who require instructions tailored to their local language?

Since you have a captive audience, this would be a good time to remind the customer of the terms of sale. In addition, the customer should be able to gain access to the terms of use for the Web site. Are the terms of use and terms of sale consistent with each other? Consider additional terms that may apply only to electronic transactions. Depending on how the transaction is structured, you may have to give the customer an opportunity to reject the terms and receive a refund.

Issues of return and refund must be addressed. What are the delivery and return mechanisms (e.g., download, FTP, e-mail)? Are they secure? Draft your contracts to address faulty delivery or unavailability. In addition, make provisions for support, be it online, telephone, or in person.

Sales, Payment Processing, and Traditional Delivery

The sale of tangible products through the Internet is composed of product selection, product ordering, and product payment. Tangible products are then shipped using the traditional ground freight method. The issues here are geographic availability of the product, channel conflicts, and issues relating to the existence, enforceability, and fulfillment of contracts entered into online.

To avoid "jurisdictional entanglements," clearly indicate on your Web site the geographic areas in which customers are eligible to purchase your product. Eligibility means that a governmental body has granted permission for consumers or businesses to purchase a specific product or type of product. Be sure to localize content to ensure comprehension and enforceability. Finally, do not process transactions from ineligible locations. To avoid channel conflicts, compare pricing structures of online and offline distributors/vendors of your product.

The following basic contract issues arise:

  • Contract terms
  • Contract acceptance
  • Enforceability
  • Payment method and security

The terms of an online sale should mirror those of a traditional sale. Ensure that online terms are consistent with on-the-package product warranty and limitation-of-liability information. Again, issues of return and refund must be addressed (see above).

Although there is case law holding that payment, acceptance, and use of a product purchased online are a form of assent to the contract terms contained on a Web page, a far better approach is to have an online customer actively accept or reject the terms of sale. Additional links to the Web site terms of use and privacy policy should be available.

Enforceability issues usually involve warranty claims and unsatisfactory product performance. Examine your warranty and limitation-of-liability provisions carefully. Check local and statutory laws on consumer protection.

Payment processing and security are two of the issues most often asked about in e-commerce. Consult an information technology expert about your transaction methods and software. Consider alternatives, such as telephone orders. Ensure that the encryption tools you are using comply with government regulations. Have policies in place for addressing fraud and nonpayment issues.

Lastly, ensure that personal data collection policies are clearly worded and conspicuously posted on your site.

Sales, Payment Processing, and Online Delivery

In situations where the entire transaction takes place on the Web, almost everything that was said above applies, and additional concerns arise as well. Digital content, whether it is text, music, or even video, is duplicated, altered, and distributed with ease and in vast quantities on the Internet today. This makes content vulnerable to piracy and unauthorized use.

Audit your intellectual property -- copyrights, trademarks, and patents -- to determine whether you have done all you can to protect your it. Make sure you have the right to duplicate or distribute third-party products.

Verify that the license you are granting indicates the country or countries to which it applies. Check for channel conflicts (see above).

Recent efforts at protecting against piracy or unauthorized use have met with limited success. One should ask whether the material should be delivered online at all, and what is the value of the potential risk vs. its potential reward. Ask whether there is a suitable forum to enforce one's rights and remedies.

Dialogue or Interactive Services

Once the only function of the Internet, communication services have evolved from machine-to-machine to person-to-person and person-to-community. Global communities exist and interact online.

Immediately apparent are the issues of geographic availability of interactive services and communities. Clearly indicate on your Web site which geographic areas are eligible, and localize content to ensure comprehension and enforceability as well as compliance with local laws. Finally, do not process transactions from ineligible locations. To avoid channel conflicts, examine pricing structures between online and offline distributors and/or vendors of your product.

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