E-commerce remains a strong segment of the U.S. economy. Online enterprises are attractive to entrepreneurs for several reasons. Without the need for a brick-and-mortar store, they’re a more accessible form of startup. You don’t even have to build a website, product or distribution system from scratch; with third-party vendor arrangements through Amazon, for example, the infrastructure is already in place.
Despite their relative ease of entry and low cost to get off the ground, however, online businesses still face numerous legal considerations. Entrepreneurs should be well aware of these issues before launching an e-commerce enterprise.
Warranties and liability
Whenever products are bought and sold, liability issues are lingering in the background. Product liability is a complex area of law. Defective product claims can impact not only sellers, but manufacturers and distributors, too. For this reason, it’s important to establish a clear understanding for who is accountable – particularly if you rely on third parties to supply or fill orders. Whether you are providing goods or services, warranties and return policies should also be spelled out in detail including any limitations or exclusions.
Privacy and data protection
Consumer privacy concerns have come to the forefront in recent years – and rightly so. Conducting business transactions online requires processing and storing a wealth of personal data: names, addresses, social security numbers, phone numbers, birth dates, credit card numbers and even online activity. Keeping that data safe and secure must be a top priority for any online business. That means, among other things:
- Utilizing only the most trusted and secure platforms to process payments
- Obtaining users’ consent to collect and store information (i.e., via “cookies”)
E-commerce businesses that market goods or services to European residents must comply with the EU General Data Protection Regulation (or GDPR). These requirements apply even if your business is physically located in the United States.
The GDPR also gives EU residents numerous rights, including the right to have their data “erased’ or ported over to another e-commerce business. The GDPR imposes substantial fines upon business which violate its provisions.
The California Consumers Privacy Act (CCPA) will go into effect on January 1, 2020. It gives California residents rights to know what personal information is being collected about them, whether that information is being sold to others, and the right to say “NO” to such sales. The CCPA does not apply to all businesses, and you should consult competent counsel to determine if it applies to your business , Like the GDPR, the CCPA will regulated your business if it is providing goods or services to California residents even if you have no office in California.
Many of the same contractual considerations that affect brick-and-mortar businesses also come into play for e-commerce enterprises. Sure, you might not have to navigate the complexities of commercial leases. Yet the ongoing operations of your online business might rely on contractual arrangements with multiple parties, including:
- Website hosting services
- Payment platforms
- Third-party vendors (suppliers, distributors, etc.)
- Employees or independent contractors
- Software licensors
On the front end, getting an e-commerce business off the ground may also involve contracting with web designers, app developers, SEO consultants and other professionals.
As with any business, establishing solid contracts is essential for protecting your interests and avoiding costly legal disputes.
IP plays a vital role in nearly every business – particularly those that operate online. Your website, app, branding, content, images and the like are crucial for your success in a competitive marketplace. Protecting those assets requires a proactive strategy upfront, which might involve:
- Registering trademarks with the US Patent and Trademark Office
- Pursuing design or utility patents for eligible products or processes
- Registering copyrights with the US Copyright Office
- Establishing copyright ownership or usage rights, especially when it comes to content produced jointly or by third parties
- Enforcing patents, copyrights and trademarks against infringement (including product “knockoffs”)
- Maintaining the confidentiality of trade secrets
- Establishing strong nondisclosure and confidentiality agreements
Given the immense value of intellectual property, it’s well worth taking thorough steps to protect your investments.
Even though Oregon doesn’t have sales tax, e-commerce enterprises may nonetheless be subject to sales taxes in other states. In a landmark case decided last year, the Supreme Court held that states can require internet retailers to pay sales tax even if they don’t have a physical presence in-state, so long as there’s a sufficient economic nexus.
Each state has its own rules and thresholds for collecting sales tax from online businesses. If you ship goods to out-of-state consumers, you might be on the hook. Numerous software options are available to navigate the complexities of state and local tax obligations.
This is by no means an exhaustive discussion of the legal considerations impacting e-commerce businesses. Countless issues can arise at any point during the life cycle of an online business. Securing knowledgeable, proactive legal counsel is essential for the success of any business, including those that operate amid the still-developing legal landscape of e-commerce.