Search
  • Rolanzo White, Esq.

E-Commerce Series, Vol. 1: Legal Concerns in E-Commerce (Summary)

Written by: Rolanzo R. White, Esq., Abigal Peckham & Arjit Roshan 

Electronic commerce, commonly known as "eCommerce," is an expanding business model that enables businesses and consumers to engage in commercial transactions over the internet.[1]


In the U.S. eCommerce sales grew from 5.1% of total retail sales in 2007 to 16% in 2019. [2] An estimated 2 billion people will make online purchases this year.[3] That means roughly 26.28% of the 7.8 billion people in the world fall into the category of e-consumers.[4] In 2020, mobile sales accounted for 42.9% of U.S. eCommerce sales, and by 2021 it is expected that 53.9% of eCommerce will be generated via mobile devices.[5] The rapid growth of eCommerce is undoubtedly attributable to convenience and an almost infinite selection of products and services. Nevertheless, this market’s growth should continue because comparative to older generations, Millennials and Gen Xers spend 50% more time shopping online.[6] While the eCommerce industry is dominated by a handful of massive companies, like Amazon and Walmart, this trend gives businesses and entrepreneurs a strong incentive to begin building their own online marketplace.[7]


Despite the immense growth in eCommerce, there are still important considerations to be made when starting your business. Whether you are starting an online business or already have an online business, there are foreseeable legal concerns to be aware of that way your business can navigate these potential issues with ease in the future. 


Contract Disputes

To conduct business as smoothly as possible online sellers will enter into several agreements. These agreements involve various parties such as Internet Service Providers (“ISP”), vendors, and customers. A pure eCommerce company’s entire marketplace is online, so its ISP is essential to ensuring their business can operate. Interruptions in service, or a data breach, can cost the business owner big time. Not only in lost profits, but also a damaged reputation in the market. Undoubtedly, both parties will be looking through the ISP agreement to determine the best course for resolving the issue. The ISP will likely try to lower their exposure with a clause that indemnifies them from liability and/or claiming they were not the reason for the breach/interruption and should not have to pay the online seller any damages. On the other hand, the online seller will demand that the ISP is responsible, to some extent, for the product failure and the resulting damages to the seller's customers.


A related situation arises when eCommerce companies experience disputes with suppliers. For example, if the supplier fails to deliver hats as required by the contract the online seller is forced to breach the agreement with the online consumer, thereby causing the underlying deal to fail. In this situation it is likely that the online seller would demand reimbursement for lost profits from the supplier whose delivery was late. Issues stemming from supplier conduct can disrupt online operations of the business and tarnish that business' reputation.


It should come as no surprise that the range of contract disputes in eCommerce transactions is greatest when customers are involved. These disputes involve things like non-payment, non-performance by the seller, poor performance, and unauthorized disclosure of confidential information. A business owner must take care in their response to issues with customers which can be a precarious situation. Just as the internet facilitates business transactions, it also operates as a podium from which customers may readily shout their dissatisfaction.


Intellectual Property Disputes

Both Copyright and Trademark infringement are commonplace for online businesses. If you sell a product that customers love, chances are other online sellers may use the name or brand to draw traffic to their own sites. As such, it is important to protect all the company’s proprietary assets before, or shortly after, the goods/services are put out for sale. For example, you sell a popular new drink and fail to register the trademark for the product. Someone else could see the business succeeding and decide to register your unregistered mark and begin selling a similar product before you register the mark. Although the common law may acknowledge your trademark, the possibility of the infringing party legally using your mark, and even stopping you from using it, remains. The result? All the good will your mark has earned would be destroyed.

These disputes can also include domain names. This is because a registered domain name which corresponds to a registered, or common law, trademark may be subject to a complaint under ICANN's Uniform Domain Name Dispute Resolution Policy (UDRP), or the U.S. federal Anti-cybersquatting Consumer Protection Act.[8]


Jurisdiction

Unlike physical retail stores, eCommerce sales are frequently done across state and country borders. Accordingly, the question of what law controls these transactions is important. Jurisdiction related questions will normally arise when something has gone wrong in the transaction. The customer is preparing to sue -- yet they must file suit in the correct court if their case is to be heard. For example, if Seller sells glass French-presses from a warehouse in Maryland, and a New Jersey customer is cut by a broken French-press, the NJ customer will have to decide where to bring the lawsuit. As a resident of NJ, they will likely want to walk down the street to the closet courthouse and file the complaint there. However, the seller may prefer not to litigate the matter in a NJ forum. There are many reasons for this preference, ranging anywhere from an inconvenient distance, to the possibility of the NJ court being friendly to the consumer-plaintiff which decreases the Seller’s chance of succeeding in the litigation. 


Each state has a law called a "long-arm statute" which defines the persons and the entities that are subject to the local courts’  jurisdiction. Importantly, a state court can only exercise personal jurisdiction over a non-resident defendant if that defendant has had sufficient "minimum contacts" with the state to justify jurisdiction.[9] When evaluating interstate sales, the court looks to see if an internet business is directly marketing within the state. The general rule here comes from the case Zippo Manufacturing Co. v. Zippo Dot Com, Inc. where the court said that jurisdiction should be determined based on “the level of interactivity and commercial nature of the exchange of information that occurs on the website.”[10]

The court divided websites into three classes:

  • Fully interactive sites. Users purchase goods/services, exchange information, or enter into agreements,

  • Fully passive websites where information is available for people to view,

  • Sites somewhere in the middle, with only limited interaction.

Under this test, courts are likely to have jurisdiction over out-of-state sellers that operate fully interactive sites unless they specifically avoid selling and marketing in a region. While it is likely not good for business, operating a fully passive site is less likely to expose a business to litigating in an out-of-state court. Given the nature of modern websites that qualify as eCommerce sellers, those sites will nearly always be considered “fully interactive.” Therefore, those businesses are at a higher risk of being hailed into a foreign state court.

A common way that eCommerce sellers retain some peace of mind is to include a venue clause in their contracts. A standard venue clause will require parties to agree to litigate any conflict in the jurisdiction that is specified in the agreement. That way when it comes time to sue, the litigation will occur in a venue convenient to both the business and the other party.


Conclusion

Disputes and conflict are byproducts of doing business. Nevertheless, the risk of exposure to litigation can be lowered by having an experienced attorney provide legal advice catered to the specifics of your business, services, and products. An attorney can also prepare, review, and negotiate contracts to ensure they are tailored specifically to your business and risk tolerance. 

Do not hesitate to reach out if you have any concerns about this topic or any other legal question you may have.

Footnotes

[1] https://www.investopedia.com/terms/e/ecommerce.asp


[2] A decade in review: Ecommerce sales vs. retail sales 2007‑2019, Fareeeha Ali, Digital Commerce 360, Mar. 3, 2020, https://www.digitalcommerce360.com/article/e-commerce-sales-retail-sales-ten-year-review/


[3] How Many People Shop Online In 2020?, Oberlo, https://ie.oberlo.com/statistics/how-many-people-shop-online


[4] How Many People Shop Online In 2020?, Oberlo, https://ie.oberlo.com/statistics/how-many-people-shop-online


[5]U.S. mobile retail commerce sales share 2017-2021, Published by J. Clement, Jul 23, 2019, https://www.statista.com/statistics/249863/us-mobile-retail-commerce-sales-as-percentage-of-e-commerce-sales/ (This statistic gives information on the U.S. mobile retail commerce sales as percentage of total retail e-commerce sales from 2017 to 2021. In 2021, 53.9 percent of all retail e-commerce is expected to be generated via m-commerce. As of February 2017, Amazon was the most popular shopping app in the United States with a mobile reach of 40 percent, ranking ahead of local competitors Walmart and eBay. The average value of smartphone shopping orders in the United States as of fourth quarter 2016 amounted to 79 U.S. dollars, compared to 98 U.S. dollars per online order via tablet.)


[6] Andy Foot, 58 Mind Blowing eCommerce Statistics for 2020, eDesk: eCommerce Tips, https://blog.edesk.com/resources/ecommerce-statistics/.


[7] Omni-Channel Retail Report: Generational Consumer Shopping Behavior Comes Into Focus + Its Importance in Ecommerce, Tracey Wallace, Big Commerce, https://www.bigcommerce.com/blog/omni-channel-retail


[8] ICANN, UNIFORM DOMAIN NAME DISPUTE RESOLUTION POLICY (1999), https://www.icann.org/resources/pages/policy-2012-02-25-en#4; 15 U.S.C. § 1125 (d) (2002) (prohibiting the fraudulent registration of domain names with the intent to profit from a trademark’s goodwill). The Internet Corporation for Assigned Names and Numbers (ICANN) is an internationally organized, non-profit corporation that has responsibility for many functions implicated by the internet in business. See Welcome to the Global Community!, ICANN, https://www.icann.org/get-started.


[9] World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291 (1980) (citing International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).


[10] Zippo Manufacturing Co.v. Zippo Dot Com, Inc., 952 F.Supp. 1119, 1124 (W.D. Pa. 1997). The Zippo court mentions various factors when determining a court’s valid exercise of personal jurisdiction over an online business. For example, were there deliberate and repeated transmissions of information to the consumer? See CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir.1996). Did the business engage in active solicitations or promotional activities and respond to all inquiries regarding same? See Maritz, Inc. v. Cybergold, Inc., 947 F.Supp. 1328 (E.D. Mo. 1996); Inset Systems, Inc. v. Instruction Set, 937 F.Supp. 161 (D. Conn. 1996).

12 views

©2020 by WRO Law & Strategy LLC