E-commerce is a relatively new business field, so laws and regulations are constantly changing. It is important to be aware of the potential legal issues your business may face and the government regulations you must follow. While it's always important to cover potential legal ramifications with your attorney, there are a few things you should always keep in mind when pursuing legal compliance as an e-commerce business.
Legal issues facing e-commerce companies
Responsibility and contract information
Amazon, one of the most well-known companies in the e-commerce industry, is facing legal scrutiny over its practices. In 2019, a three-judge panel ruled that Amazon could be sued for product liability after a dog collar sold by a third-party vendor caused permanent vision loss to a Pennsylvania woman. It was decided that there was. Amazon later settled with the plaintiffs, and the U.S. Court of Appeals for the Third Circuit was prevented from finding Amazon liable for the consumer's injuries. However, this incident remains a lesson for many e-commerce companies.
This ruling demonstrates the importance for the average e-commerce startup to clearly define product liability and warranties, especially when dealing with third-party vendors. Customers may sue you for product defects in products your company doesn't manufacture, and you could spend thousands of dollars in legal fees defending your business in a lawsuit.
As a first step, make sure your terms and conditions section is as detailed as possible. If you sell products from third-party vendors, please disclose it. Also, clearly explain how customers can cancel or return items they purchase from your site. It is also essential to have a mechanism in place to notify customers of their purchases within 24 hours of purchase.
Data protection and privacy
Most e-commerce platforms are a treasure trove of sensitive customer information, often collected during contact forms, customer registration, and checkout processes. In many countries, e-commerce sites are required to protect customer data.
For example, in the European Union, e-commerce websites are required by the General Data Protection Regulation to notify visitors when they collect user information and to ask for explicit consent before collecting or reusing personal data. Masu. In the United States, California requires certain commercial businesses to implement and maintain policies and procedures to protect consumers' personal information.
To ensure that your e-commerce website complies with data protection rules, in addition to your cookie policy, create a comprehensive data protection policy that outlines what data is collected from visitors and how it is stored. Masu. Links to both of these policies must be clearly displayed on your website, and you must provide a way for visitors to request that their information not be sold to third parties.
Because e-commerce platforms have access to sensitive information, e-commerce businesses need clear policies and procedures to protect users' information from potential fraud and theft.
Managing fraud and securing electronic transactions
Coinciding with the growth of the e-commerce industry, cases related to payment fraud and other online security-related issues have surged in recent years. According to Insider Intelligence, card-not-present fraud is predicted to reach $13.73 billion by 2024 and will account for 74% of all fraud over the same period.
In addition to protecting customer information on your site, it's important to take a closer look at the inner workings of your e-commerce site to prevent fraud. One of the precautions you can take to keep your system running smoothly is application performance management.
If you are hacked, you have a legal obligation to inform your customers and the public. Many countries require companies, especially those that handle personal or sensitive user data, to publicly report any breaches. For example, in the United States, most states require companies to notify customers of a data breach within 45 days, although this varies by state. If you suspect a violation of the law, always be on the safe side, even if you want to cover it up.
Just because customers don't go through brick-and-mortar stores doesn't mean e-commerce platforms are above the law. Take the time to ensure that your online store meets the regulations set forth in all jurisdictions in which your products and services will be sold to potential customers.
Infringement of intellectual property rights
If someone uses another company's intellectual property without their consent, whether accidentally or not, that company can be sued for millions of dollars in damages. Now more than ever, it's easier to accidentally infringe on someone else's intellectual property, so take every precaution you can. If you cite the source of copyrighted material, the owner of that intellectual property may still have claims against you.
According to Ecomcrew, there are several effective strategies to prevent intellectual property infringement. First, create your own graphics for ads and product listings. Second, consider that all works are copyrighted unless you use a platform that requires a subscription fee. Third, consult a lawyer to make sure you are not infringing on someone else's intellectual property.
Although citing the source of intellectual property does not absolve you from liability, there are strategies you can use to avoid being held personally liable for infringement. Set standards for your employees. As a business owner, you should not be involved in the day-to-day operations of potentially compromising processes.
To avoid personal liability for intellectual property infringement, keep your personal and professional assets completely separate.
Products sold by unauthorized resellers
It's great when a product is sold on other platforms, but if the reseller is unauthorized, selling the product at a lower price will reduce sales, cause the authorized reseller to stop selling the product, and damage the brand as a whole. may have a negative impact on its reputation. .
Legally, unauthorized resellers are prohibited from reselling products that differ from the original product, as this is tantamount to copyright infringement. Still, it's always best to make sure your trademark is registered. If you become aware that an unauthorized reseller is selling your product, test purchase the product from that reseller, and if the reseller infringes your trademark, the reseller will respond. Only if they don't, or if the reseller doesn't respond, should you send a cease-and-desist letter and file a complaint. resist.
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What are the E-Commerce Directive regulations?
Companies operating in EU member states must ensure that they comply with the E-Commerce Directive. The aim is to streamline rules across EU member states, while also defining how businesses can conduct online transactions. This regulation sets out the information that businesses must provide to customers when conducting online transactions with retailers. The Directive sets out rules regarding transparency and information requirements, commercial communications, electronic contracts, and limitations of liability. The Directive's rules also cover online marketing and unsolicited commercial communications.
For example, retailers should outline clear terms and conditions, disclose prices and taxes/shipping costs, and include details of the industry or professional group of which the seller is a member.
One of the key principles behind this Directive is the internal market clause, whereby e-commerce operators are subject only to the laws of the EU Member State in which they are established, and not to the laws of the country in which their services are available. It is guaranteed that you will have to. The Directive also seeks to prevent unfair discrimination against people conducting online e-commerce businesses within the EU and covers online information services, online sales of products/services, online advertising and entertainment services.
The main framework behind this directive is to build trust and transparency for customers purchasing online. It also aims to remove obstacles to online businesses operating outside the borders of EU member states. Companies operating in EU Member States should be aware of the latest interpretation of this Directive and the additional implications of operating in a particular EU Member State. The European Commission continues to revise regulations to adapt them to changing commercial needs. More recently, the European Commission proposed the Digital Services Act to address new online challenges, particularly those related to intermediaries.
Although this regulation was written to provide strict guidelines, another goal is to expand e-commerce across the common market. Consistent adherence to the Commission's guidance is essential to best practice on the continent.
Understand your legal obligations
To run a successful e-commerce business, you need to understand your legal obligations in every jurisdiction in which you operate. E-commerce owners may be subject to multiple regulations, all of which must be followed. According to BigCommerce, these regulations include taxes, payment security, intellectual property, shipping restrictions, inventory, age restrictions, business insurance, licenses and permits, Payment Card Industry (PCI) compliance, and customer privacy regulations. It is included.
Tax laws vary by state, so check your state's tax laws beforehand. Consulting with a tax law expert can also help you understand specific cases that may affect your products and how sales tax will be charged. Failure to properly collect and calculate sales tax can reduce profits and create additional stress at tax time.
Please consult an attorney and do your best to comply with all applicable laws and regulations. Ultimately, it will be critical to safeguarding the success of your business. [Read more about what to do if ICE serves you an I-9 audit.]
Derek Walter and Howard Goldstein contributed to this article.
