Legal Considerations of E-Commerce

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LEGAL CONSIDERATIONS OF E-COMMERCE

In e-commerce, as in traditional business, laws establish norms of conduct which promote honesty and fair play and provide methods for addressing disputes. E-commerce's technological, organizational, and commercial innovations have also introduced new legal problems that existing business laws don't cover. For example, the contracts, facilities, and even products of e-commerce frequently exist only in the virtual realm. Electronic business crosses state and national borders effortlessly and invisibly, introducing jurisdictional, tax, and international trade problems. Further complicating matters, e-commerce technology can change so quickly that new laws are left quickly obsolete.

E-commerce's new business structures raise a number of unique legal questions. Traditional businesses perform most functions in-house, including production, marketing, sales, order fulfillment, warehousing. E-commerce, on the other hand, relies more on outsourcing—contracting out many essential business activities to third parties. Outsourced activities might include any or all of those listed above as well as others unique to e-commerce, such as Web site development and Web hosting. Outsourcing eliminates many traditional employment agreements and relationships, substituting short-term contractual agreements. Besides breeding a different kind of commercial-personal relationship, outsourcing created a business culture in which more than ever outsiders are intimately involved a business's affairs and may even have competing stakes in it. The issues include:

Controlling contractors' use of customer data
Determining property rights to the company's Web site when outside developers and contract operators are involved
Negotiating and enforcing confidentiality agreements with outside contractors

The online relationship between retailer and customer poses other questions:

Does electronic delivery of a product (software, for example) satisfy the seller's obligation the same way a material product sold in a store or by mail does?
How should international e-tailers deal with local or national laws that affect, possibly even prohibit, their products?
How can buyer complaints be redressed when purchases are made online?

IMPORTANCE OF CONTRACTS

In the absence of established law, e-commerce must depend heavily on contracts to clarify such questions and bring a degree of certainty to business. The best contracts will be exhaustive ones that cover as many contingencies as possible, spelling out responsibilities, rights, and a method of dispute resolution. The best e-commerce contracts, some experts anticipate, will eventually provide the basis for new e-commerce law. Because e-commerce is still evolving, in practice there is no such thing as a boilerplate e-commerce contract. Nearly all are drawn up with a view to the unique features of a particular deal or relationship.

TERMS-OF-USE AGREEMENTS

A notable exception is the contract governing the use of an e-commerce Web site. These contracts—usually included as a separate page of a Web site—serve a variety of purposes, including defining and limiting the liability of the Web site owner and setting terms of sale. Frequently they are drawn up so use of the site implies acceptance of the terms, but as with much in e-commerce law, courts do not necessarily enforce these clauses. To increase their enforceability, some Web site operators require users to click an "I accept" button under the contract's terms or to indicate acceptance even more clearly by typing the words "I accept." Without such an explicit agreement, a key to making Web site contracts binding is stating prominently—preferably on the opening page—that use of the Web site is governed by certain terms and restrictions. Those terms can then be listed on a legal page.

LEGAL PAGES

An effective e-commerce legal page includes certain key elements:

Terms of sale, including return and refund policy, delivery and return information, technical or customer support information, and possibly an option for customers to reject the terms
Copyright and trademark notices informing visitors that their right to use material on the site is limited by law
Disclaimers of responsibility for errors and omissions on the site, such as typographical errors, outof date information, pricing errors
Disclaimers of implied warranties which reduce a merchant's liability for product performance
Limit of liability for the damages visitors can claim, for example, for profits lost as a result of use of information posted on Web site
Disclaimer of responsibility for material posted at linked Web sites
Guidelines for online behavior, for example the posting of material that is obscene, libelous, or in violation of copyright, trademark, or other proprietary rights
Privacy policy indicating how customer information is used and shared

Since e-commerce is to a large extent based on such "paperless contracts," it is expected that these virtual contracts will eventually be upheld as binding.

DOMAIN NAMES

Domain names, one of the most valuable assets of an e-company, are one area where e-commerce-specific laws have been put on the books. Early in the rise of the Internet, so-called "cybersquatters" registered potentially valuable domain names, often the names of established large companies, and sat on them until the company paid for them. Cybersquatting was made illegal. A company with a trademarked name now has a stronger legal claim to a related domain name than do others. There are still questions: If companies in two industries have the same name, which is more entitled to the domain name? Should domain names be covered under property law as "virtual property"?

OTHER CONCERNS

Other legal problems in e-commerce persist. Online exchanges—Web sites used by groups of companies in an industry to secure volume prices on supplies and services, sell equipment, post prices, and exchange information—raise serious as yet unaddressed antitrust questions. For example, is information-sharing on exchanges anti-competitive behavior?

Another troublesome issue is the elastic use of the term "partner" by e-businesses. "Strategic partner" is a buzzword that can mean anything from a partner in a formal joint venture to a company who has allowed its name to be used in advertising. Nearly all of these uses, however, are very different from the established legal term "partner" which under partnership law carries with it a set of specific responsibilities and liabilities which most "strategic partners" would be unwilling to shoulder.

A separate problem is when cash-poor dot-coms use stock or stock options to pay for goods and services. In the wake of the partial collapse of the dotcom economy such practices are not as common as they once were. However, it is likely they are in violation of securities law.

E-commerce is such a fundamentally new and different way of doing business that many of the legal forms needed to regulate it have not yet been invented. The questions for both lawmakers and business people are: To what degree can laws devised for traditional, bricks-and-mortar business be adapted for the new economy? Where established law is inappropriate, how can new legislation be devised that is comprehensive and fair for both businesses and consumers? As e-commerce evolves, so must answers to these questions.