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(an E-Commerce Web site)

by Jeffrey L. Michelman

You may have started in (or considered opening) a brick-and-mortar building selling products but soon realized that you could capture more sales with a web-based business. How does a web business change the general legal risks of the local storefront business.

Lawsuits in other Jurisdictions

E-commerce and Internet advertising for sales through a website help establish “minimum contacts” with another state to allow lawsuits within that jurisdiction. However, you may be able to control that risk through terms of use and sale for the website that would set the choice of law and venue in your state.

Enforcement of Criminal Consumer Protection Laws

Even if web sales terms control where a business can be sued on civil claims, they cannot control criminal liability. Review laws related to false advertising, product return rules, late delivery and opt out of sale rights, and labeling and packaging requirements. Pay strict attention to the laws related to contests and sweepstakes, coupons, installment sales, and product specific laws, such as those for automobile sales.

Consumer Data Protection

Traditional small business liability insurance usually does not protect you from a website designer’s copyright infringement in creating your site or from some hacker’s unauthorized access of customer information online, two major causes of Internet-related lawsuits.

For example, if your site collects customer names and credit card numbers through online sales, and then the website and server get hacked, federal and state penalties could apply. The list of those who might sue you is a long one: the banks that issued the credit cards; the customers; your supplier and its bank; and the insurers for each institution involved. Consider security measures and purchase liability insurance policies that cover potential loss of data.

Consumer Privacy Laws

If you collect information from minors, you must follow the federal guidelines for doing so. The FTC and state attorneys general have jurisdiction to protect any age consumer privacy rights. Consumer protection laws regarding privacy vary, and enforcers can sue and fine sites whose privacy policies are deceptive or misleading. Draft a flexible privacy policy. For example, do not use statements like “We will not share your information with any third party.” There are numerous legitimate third parties with whom the site owner must share user information just to operate the site: the site’s hosting company; the user’s own ISP (to whom the Web pages are transmitted on their way to the user); the courier delivering any purchases; and the banks clearing credit card payments, etc. Once a policy is public, the company is bound to its terms, and any violations could be actionable.

Enforcement of the Can-Spam Act

The CAN-SPAM Act establishes the standards for the sending of commercial solicitations e-mails. One standard is to give the recipient the option to opt out of receiving future e-mails. To submit a valid opt-out request, a recipient cannot be required to pay a fee, provide information other than the email address and opt-out preferences, or take steps other than sending a reply email message or visiting a single page on a website. Include simple opt-out provisions with the advertising message.

Tax Liability

In most cases, tax liability through e-commerce is limited to collecting and remitting sales tax in the state where your business is located. However, state courts have expanded instances where the online seller could be subject to state taxes. As this trend develops, you must stay current on possible tax collecting requirements for customers in another state.

Trademark Liability for Resellers

So long as the trademarked goods it sells are genuine, a web-based seller who resells trademarked goods and uses the brand name in its advertising is not liable for trademark infringement. However, a nominative fair use cannot suggest “affiliation, sponsorship, or endorsement by the trademark owner,” i.e., you cannot call yourself an “authorized dealer” if you are not.

Age of Consent

You cannot enforce a contract, or even sell certain products to buyers under a state’s age of consent. You must include a warning and have the user verify their age before purchase of an age-restricted item. There are online services, for example, Idive, to check age for sale of alcohol or other age restricted items. Services such as require the user to create an electronic affidavit verifying their age. While such technologies cannot provide complete protection from liability under all state laws, failure to use these safeguards increases exposure to civil and criminal liability.

This brief examination of some of the risks of web-based business is the tip of the iceberg. But, even the tip sank the Titanic.



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