Basics of eCommerce and Internet Business Law

These days, almost every company has some form of web presence, whether simple informational websites, blogs, and Facebook pages, or more involved sites with social media platforms, music and video streaming, or file sharing.

As such, companies face a multitude of legal issues related to their online presence. The universality and anonymity of the Internet requires online companies deal with a number of special issues beyond those faced in the offline world.

Because websites can be accessed from virtually anywhere in the world, compliance with a complex web of state, federal and foreign legal requirements and systems can present significant challenges. Also, websites may be accessed by children, which are protected by a number of state and federal rules.

In addition, one can purchase almost any type of product online, and an increasing number of services are available for purchase over the Internet, including, for example, access to online software or mobile applications (or “apps”). As such, companies engaging in such electronic commerce (or “eCommerce”) must address additional legal challenges relating to the terms of sale, sales tax, payment systems, and similar commercial issues.

eCommerce and Internet business law issues often fit within traditional legal areas of intellectual property law (patent, trade secret, trademark, and copyright), business and commercial transactions law, and regulatory law. In addition, however, the unique and mercurial nature of business conducted on and over the web presents unique challenges not addressed by traditional law practice areas. Thus, while the core of eCommerce and Internet business law involves a blending of traditional legal practices, the combination of various legal issues, as well as the unique challenges presented by the global reach of the Internet, make eCommerce and Internet business law its own legal sub-specialty.

Some common eCommerce matters include:

• Domain-name registration and hosting – The registration of domains and hosting of web sites involves relationships between companies and service providers which are governed by contracts.

• Cybersquatting and domain name disputes – “Cybersquatting” occurs when a registered domain includes a registered or famous trademark, but the person or company registering the doain is not the owner of the trademark. In such situations, the trademark owner can initiate legal proceedings to force the registrant to turn over the domain to the trademark owner.

• Privacy and publicity issues – Data privacy protection is an ever-evolving area of law. Companies must navigate a myriad of state, federal, and sometimes foreign privacy laws with respect to their use of personal and financial information of their users, as well as automated data collection devices such as cookies or web beacons. Sites should post an up-to-date privacy policy that reflects the actual practices of the company with respect to collection and use of user data. In addition, sites obtaining private data and financial information can be the target of hackers, cyber-terrorists, identity thieves and other criminals, so they must ensure their sites and the data are secure. In the event of a data breach. The company must initiate protocols to inform users so they can protect themselves.

• Terms of Use – Web “Terms of Use” (Also called “Terms of Service” or “Terms and Condition”, “Terms” or similar titles) are essentially a contract between the company that operates the site and their site users. As such, it is important for companies to post comprehensive web terms of use to clearly define the rights and obligations of the company and the users.

• Copyright issues relating to web content – For sites that allow users to post content, companies must avoid allowing users to post content that infringes on the copyrights of others. Due to the sheer volume of content posted on web sites, it is often practically impossible for sites to police all such content to prevent possible infringement. The Digital Millennium Copyright Act (DMCA) provides a safe harbor to protect site owners from lawsuits related to copyright-infringing posts by their users, but the company must post their DMCA policy and follow the protocols of the DMCA.

In addition to these issues, which are common to most every website, companies operating eCommerce sites must address a number of additional issues. Some common eCommerce legal issues include:

• Terms of sale – The sale of goods or services online, like the sale of goods and services in the real world, involves a contractual relationship. As such, eCommerce sites need a comprehensive agreement regarding the terms of the sale to include payment terms, refunds, warranties and returns, and other aspects of the transaction. Finally, in the event of a dispute, there may be questions regarding where it would be proper to sue, whether the courts have authority over all the parties, and whether any judgment can be enforced.

• Payment mechanics – eCommerce sites need to collect payment for the goods and services they sell. Most such payments are made via credit card, either directly through the site’s shopping cart, or via third party sites such as PayPal. In either situation, the site owner will enter into agreements with credit card merchant processors or the third party processors. Moreover, if the site handles payment directly, the owner must ensure that all customer financial data is protected.

• Sales tax – The lack of a national sales tax has often made eCommerce purchases attractive to consumers because most eCommerce transactions involving delivery of goods or services across state lines were exempt from state and local sales taxes. In recent years, however, states have gotten more aggressive in grasping for tax dollars from these transactions, so more and more eCommerce transactions must include sales tax.

• Export controls and other trade regulations – Companies selling goods and services online must ensure they do not run afoul of U.S. trade laws. These laws prohibit transactions with certain persons or countries, and exports can include physical shipments, as well as digital deliveries of goods (e.g., software) via email or download.

In conclusion, the global accessibility and ever-present nature of the Internet requires companies understand the novel and unique legal issues presented by a company’s online presence.

About the Firm:

Klemchuk LLP is a litigation, intellectual property, transactional, and international business law firm dedicated to protecting innovation. The firm provides tailored legal solutions to industries including software, technology, retail, real estate, consumer goods, ecommerce, telecommunications, restaurant, energy, media, and professional services. The firm focuses on serving mid-market companies seeking long-term, value-added relationships with a law firm. Learn more about experiencing law practiced differently and our local counsel practice.

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