Laws regulating E-Commerce: What You Need to Know

The Internet is a noisy place. I’m sure you’ve heard that before. The laws regulating e-commerce exist to keep the cyberspace as peaceful as possible.

E-commerce simply involves the provision of goods and services usually for funds or other forms of payment over the Internet, computer networks and other electronic systems.

Truly, it is a blessing to both businesses and consumers. Because it has boosted sales and made for more convenient purchases. However, there are always issues, disagreements, and disappointments that come with commerce.

With that being said, this post points out the laws regulating the world of e-commerce.

There are certain considerations that online business owners should be aware of. However, other figures besides business owners matter in e-commerce.

The legal tips discussed in this post stretch to include requirements that inform consumers. In fact, some of them seek to help budding businesses survive the stampede that comes with competition, while some others are concerned with the regulation of marketing tactics in e-commerce.

Before we take off, here’s my disclaimer:

I am a lawyer by profession, but I am not your lawyer. This blog post serves strictly educational and informational purposes only, and its applicability may vary from one country to another. It does not form any sort of legal advice, neither does it create any attorney-client relationship between you and me. I am not liable for any damages resulting from or related to your use of the information contained in this post.

Without further ado, let’s get to it.

1. Policies:

Most online businesses have websites that serve as their shop on the Internet. Websites are legally mandated to have certain policies, and the various policies each serve distinct purposes.

Some of these policies are:

• Privacy Policies
• Shipping and Delivery Policies
• Returns and Refund Policies

A privacy policy is a legal document that outlines how a business manages, uses and reveals the personal data of its customers. Various laws demand that the customers be notified of the fate of their personal details.

Therefore, it states the data being collected, the reason for such collection, third parties that will have access to the data, the rights of the owners of the data concerning their data, and much more.

A shipping and delivery policy is necessary if you sell commodities online. It is a robust document that explains when and how customers’ goods will be delivered to them, delivery costs and timeframes.

In business, returns and refunds are as natural as sudden rain. 

We might not like them, but they happen. Therefore, it is advisable to include a robust returns and refund policy. 

Should a customer cancel a purchase, he’ll be aware of how quickly he’ll get his money back. Also, he’ll know that he is obligated to return your product in a merchantable condition (without any defects).

Importance of policies:

The importance of having these policies on your website as an online merchant include:

• They demonstrate legal compliance as in the case of privacy policies.
• Usually, they help gain your customers’ trust.
• They shield the business from legal actions.
• They notify the customers of who handles their personal data.

2. Terms and Conditions

For an online business, the terms and conditions on its website serve as a shield. This is because they protect the owner from all sorts of legal troubles.

They point out, amongst other things, what is allowed on the website. Also, they indicate the rules that govern the transaction between the business owner and the customers.  

Since they are delicate in nature, it is necessary to contract a lawyer. He can draft comprehensive and bespoke terms and conditions for your online business. It will serve as a binding contract between you and your customers.

Content of terms and conditions:

The terms and conditions house relevant clauses that generally protect the interest of the business. Some of them are added for the sake of the business, while some others are born out of legal necessity. 

A non-exhaustive list of the contents of terms and conditions lies below.

• The owner’s business identity, contact information, and products sold
• Liability limitations which reduce obligations that could possibly arise from transactions
• Rules regulating shipping and delivery when purchases are made. This can be stated there or a reference can be made to the shipping and delivery policy if it is housed separately.
• Specifications in the case of a demand for refund and return of the goods. Again, this can be stated there, or a reference can be made to the returns and refunds policy if it is housed separately.
• Governing law in the event of disputes.

Restrictive Terms vs Candid Reviews

It is worth mentioning that certain businesses have abused the power that terms and conditions afford. Since the terms and conditions constitute an agreement between businesses and customers, some businesses utilize it unethically.

Somewhere amidst the army of letters, words and punctuation marks that form the terms and conditions, the businesses usually hide a gag clause. 

Also termed the non-disparagement clause, the function of the gag clause is to stop the customers from giving a negative review regardless of how shoddy the business’s product or service is.

It usually states that the customer risks legal action if he violates it. As odd as it sounds, some businesses are eager to go guns-blazing against disgruntled customers who won’t keep it on the hush.

Thankfully, legislators understood the importance of candid reviews in the world of commerce, as well as the impending dangers which the gag clauses posed.

As 2016 rolled to an end, the Consumer Review Fairness Act was signed into law. The law strikes a fine balance by:

• Making void any gag clauses in consumer contracts
• Ensuring that businesses can remove false and defamatory reviews.

All fair.

3. Protection of Customers’ Financial Data

E-commerce, in an ideal world, would be the answer to all of our problems. The benefits that come with it are off the charts.

However, that isn’t the situation. The prime obstacle getting in the way of e-commerce’s sweeping campaign is “fraud”. 

On countless occasions, online merchants suffer chargebacks after they have supplied the goods ordered. This usually happens due to an unauthorized payment made using another customer’s account and credit card details in the business’s online store. 

This means a huge loss for the online merchant.

However, bringing this misfortune to a halt is the PCI DSS – Payment Card Industry Data Security Standard. 

It is a regulation that lays down the standard that must be followed by online retailers when storing, processing and transmitting credit card data. These standards were created by the PCI Security Standards Council in a bid to improve payment account data security.

Therefore, to achieve PCI Compliance, amongst other things, the online retailer needs to:

• Use a firewall between a wireless network and the cardholder data environment;
• Apply the latest security and authentication;
• Adopt a network intrusion detection system.

Actually, it is a mighty hurdle for small businesses to attain PCI Compliance. Also, certification as compliant takes a great deal of time.

A viable option in the instance is to outsource PCI to a third party that has the payment system to make sure your business meets the standard.

4. Marketing and Advertising

If you are engaged in business, it is only natural for you to want to create sufficient awareness to increase conversion.

The story is the same if you are an online merchant.

However, the law is eager to protect consumers from desperate and unscrupulous business owners. In the US, the Federal Trade Commission holds online marketing and advertising to the same standard as other forms of advertising.

Firstly, the advertisements must always be truthful, and not deceptive. Additionally, whatever claims that are made must be established.

Another area of online marketing is email marketing which has proven to be quite popular in recent times. The US law governing it stepped in to clamp down on spammers and businesses that resort to unfair practices in their marketing.

The CAN-SPAM Act (Controlling the Assault of Non-Solicited Pornography And Marketing Act 2003) governs email marketing in the US. Some of the rules it laid down are that the sender must:

• Obtain the consent of the recipients
• Make it clear that the emails are advertisements
• State his current address, residential or postbox
• Offer an option and means for recipients to opt-out 
• Opt recipients out promptly

Under this law, a violation of these provisions could result in outrageous fines (about $16,000 for each non-compliant email).

5. Taxes

For online merchants, the nuances of sales tax laws regulating the e-commerce ecosystem could appear tricky. It is advisable to contact the relevant local authority to ensure you are appropriately informed.

Other than that, are you aware that when you make a purchase at a brick-and-mortar store you are paying tax on the commodity bought?

This same principle extends to electronic commerce. However, the US tax laws apply certain principles in determining this.

If you pay attention, you’ll notice that certain e-commerce websites charge you tax when you make a purchase, while some others don’t. This is a result of the element of “nexus” and its implications.

Nexus:

An e-commerce business is bound to charge tax if it has nexus in any state in the US.

Nexus means any business link in that state which indicates that the venture is doing business in that state.

However, we must keep in mind the fact that different states have different definitions of “nexus”. Some forms of nexus that make e-commerce ventures taxable include:

• Physical presence nexus which is triggered if you use an office, place of distribution, warehouse or storage place; or if you employ a representative, agent, salesman, canvasser or solicitor in that state.
• Economic nexus which is triggered if you reach a certain amount in sales or complete a certain number of transactions.
• Affiliate nexus which is triggered if you are affiliated with a business individual in the state and this connection yields sales.
• Click-through nexus which is triggered if you run advertisements or links on an in-state website, and they generate leads and channel potential customers and opportunities to you.
• Web cookies nexus which come into play if you utilize web cookies on in-state devices.

Armed with these details, as an online merchant, you must ask yourself a number of questions to determine whether “nexus” exists or not. The questions include but are not limited to:

• Do I have any sort of physical presence in the form of a studio, production site, warehouse, or store in any state?
• Do I have employees, agents or contractors in any state?
• Where are my affiliates located?
• How many sales have I made; or how much have I made, and has my business reached the state’s threshold?

At this point, I should stress that it is necessary to have a look at each state’s tax nexus policy to find out the fate of your business in that state.

If there is a nexus between your business and a state, it would be appropriate to register for the state’s sales tax permit, then begin to collect and remit sales tax.

With these tips, you are sure to have your tax game on lock! 

6. E-contracts

In the regular world, contracts lie at the heart of commerce. The same is the case with commerce on the Internet. However, the fact that the parties involved are not face-to-face usually raises some questions.

These contracts usually take different forms. They are:

• Clickwrap contracts which feature a body of text, usually popping up on the website’s first page, laying out the terms of the contract, and buttons that the user or customer must click to indicate his acceptance or refusal. This actually determines whether he can proceed to use the website.
• Browsewrap contracts which contain the terms of use of the website. A separate page of the website accessible via a link placed in the footer usually houses them. This kind of contract does not demand the user to click in order to show acceptance or rejection of the terms. Continued use of the website serves as implied acceptance of the contract.
• Electronic documents which outline the terms agreed upon by parties to govern a certain business relationship that they have. In this case, the contracts normally have the signature of the parties appended to signify their acceptance.

Enforceability of E-Contracts

As a general rule of thumb, the law honors these online contracts, with few exceptions. Such exceptions are:

• Where they are for illegal purposes (because duh!)
• If they contain gag clauses as pointed out above
• Where any element of a valid contract is missing.

For contracts contained in electronic documents, the Electronic Signatures in Global and National Commerce Act endorses contracts executed by electronic signature.

The law recognizes that signatures and contracts should not be denied legal effect and validity merely because they are in electronic form.

Therefore, consumers of products and services are adequately protected since they have the opportunity to read through and actually consent to the terms.

7. Intellectual Property and E-Commerce

While you are busy trying to increase your conversions as an online merchant, you should note that certain actions can land you in legal hot water!

This is because the law is serious about intellectual property rights. These rights include copyright, trademark, patents, and trade secrets. The goal is to protect the effort of original creators and prevent unfair competition in business.

It’s easy to wonder how you might be violating these laws but the instances are not far-fetched. Even without infringing on the rights of others, you could be sabotaging your entrepreneurial efforts.

Those pictures you posted showing off the items you have for sale are quite attractive. But do they belong to you? Did you obtain the owner’s permission before using them? 

How about the blog posts you copied and pasted? You need to know when you’re crossing the line.

Mainly, the Digital Millenium Copyright Act governs copyright on the Internet.  

Oh! You sell designer products too? Amazing! But that logo isn’t yours now, is it? It’s the trademark of a million-dollar fashion company.

Ahem. 

By the way, those secret tips that have kept your online store booming, you shared them with that ambitious investor on Facebook. Umm, did you get him to sign a non-disclosure agreement? Sheesh! 

I could go on and on. Legal actions for infringing one’s intellectual property right could well result in fines running into tens of thousands of dollars.

That would snap your fragile venture’s wings before it can take flight. It would seem that most online merchants get away with such violations, but that is only because they aren’t big players.

What to do:

In order to steer clear of these legal mud-pits, it is necessary to engage the services of a lawyer. He would guide you every step of the way. For starters, avoid using images, videos, and literary works that are not yours or do not exist in the public domain either.

If you have yours, then use it. 

Also, if you create a logo for your business, register the trademark speedily before someone else does. That way, you can prevent others from taking advantage of your branding efforts.

Non-disclosure agreements are relevant to protect your trade secrets and are binding. Even if the recipient of the information is miles away from you, signed electronic contracts are available to protect you.

This is business!

8. Antitrust Laws

Also recognized as competition law, antitrust law exists to prevent conspiracies and monopolies in trade. As one of the various business laws, it helps in regulating e-commerce as well.

There is the chance that big players in every industry could get even bigger. As a matter of fact, they could get too powerful to a fault. In the world of e-commerce, the reality of this can’t be denied.

Consequently, the Sherman Act seeks to clamp down on contracts and commercial collaborations aimed at unreasonably restricting trade. Agreements between competitors to fix prices, rig bids or divide markets and other such practices are illegal.

Since all business ventures are trying to make a way, it is unfair for the powerful few to seize the market simply because they can. The opportunity to advance and compete favorably should be afforded to all and sundry.

In the event of a violation of the law in this regard, there are intimidating penalties lying in wait. If the perpetrator is an individual, he could face 10 years in prison.

For companies, the penalty is a heavy fine of up to $100 million or double the gain made (or loss suffered) due to the violation; whichever is greater. In the case of individuals, the fine is up to $1 million or double the gain or loss (whichever is greater).

Also, if an aggrieved victim of such a collaboration succeeds in a civil case, the defendants will pay damages, the plaintiff’s attorneys’ fees and costs (including the defendants’ attorneys’ fees).

9. Restricted Products, Territorial Issues, and Permits 

In the business of buying and selling there are usually restrictions. The products, where the products can be sold, or who can sell such products are usually the subject of such restrictions. With possible modifications, this is the case with electronic commerce.

Online merchants, for the most part, are hardly ever aware of which restriction applies to them, and this is where the problem begins.

It is regular for laws to mandate that every business owner obtain some sort of license before commencing business. This can be the situation in the case of e-commerce wherever you are based. In that case without that certification, you can’t operate (at least not legally).

Additionally, there is the ever-present possibility that you are authorized to sell, yet the authority doesn’t cover certain products. To sell such products, you normally need an extra license and/or qualification. Alcoholic beverages, weapons, medicine, and certain food items are examples.

Sometimes, other locations may prohibit the sale of such goods. This is normally due to legality, or industry practices as is the case with organic products.

Finally, some goods are just plain illegal to sell. With all the certifications in the world, they would still be out of bounds. A textbook example is … you guessed it… narcotic drugs. The laws of each country determine what’s illegal.

What to do:

The answer is for online merchants to keep their eyes open, and their ears to the ground. It’s easy to know the drill in one’s locality, but what then happens in the case of cross-border trade?

Just in case doing all the research would prove overwhelming, there is always the option to engage a lawyer. Knowing where not to step, and avoiding potential losses and lawsuits is a significant benefit.

Final words:

Legal regulation is necessary to ensure that the ecosystem of e-commerce runs smoothly for popular good. In the bid to protect one party, the law might heap some obligations on the other party. This is in the spirit of justice and fairness.

Without these legal regulations, e-commerce would imply chaos.

Therefore, at each point, everyone should endeavor to know what the law demands and then act accordingly. This will enable us to gleefully transact online and dodge much-dreaded court cases, fines, losses, and even imprisonment.

Do you own an online store? What legal regulations have you encountered in the course of your business? What are your thoughts?  Feel free to share in the comments.

Also, kindly share this post.