Protecting an e-commerce business

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How to legally protect e-commerce and online businesses?

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Operating an e-commerce or online business can allow for massive scalability and growth, but it can also bring with it a raft of complex and risky legal issues. Managing a business online allows the world to access your products and services. To reap the rewards that the digital world can bring, it is crucial to consider the implications of different laws not only for the success and protection of your business but the protection of your customers. For this reason, it is essential to consider which laws will apply to your customers and how to navigate around them to eliminate any surprises effectively. So which laws mean what? Which are critical and which can be avoided? Which will override others? Below we will share some issues and potential obstacles that every savvy entrepreneur must consider to save time, energy and money.

Issue When supplying your products to a customer who is based somewhere across the oceans through a cloud payment platform, your transaction must comply with the relevant laws of every country involved. The legalities are affected by many factors such as where the products are produced, where the customer is located, the delivery system used and the range of potential issues that can arise within the supply chain. Taking preventative measures such as having a carefully drafted Terms of Use and Privacy Policy on your website and a series of Terms and Conditions at the checkout can substantially limit your legal exposure. An important legal term to consider is ‘governing laws’ and the ‘jurisdiction’ that will be used for each transaction.

The term ‘governing laws’ is an elaborate way of identifying which laws the transaction will be interpreted in accordance with (for example, New South Wales laws or Californian laws). While the jurisdiction refers to the relevant court that will have the official power to make legal decisions and judgments concerning any dispute that may arise. If the Terms of Use fail to contain these small but crucial phrases, any business operating online could be spending countless resources arguing about the governing law and applicable jurisdiction rather than the actual dispute. To make things even more interesting, sometimes even when you have solid ‘governing laws’ and ‘jurisdiction’ clauses in your Terms of Use, it is still possible that the laws of the country where your customer resides will override the Terms of Use and apply to the online transaction. To alleviate this risk, you should include specific provisions in your Terms of Use that place the onus on your customer to comply with the local rules and make clear that it is legal to access your online business in their country.

If a dispute was to occur overseas under differing governing laws and jurisdiction, foreigners have an ability to enforce the judgments in Australia. This is due to Australia being a signatory to international treaties and agreements with other countries including the UK, New Zealand, Japan, Korea, Singapore, France, Italy and Germany. Once a judgment is registered, applicants can enforce the judgment domestically.

Solution The most effective way to protect an e-commerce or online business is to have carefully drafted Terms of Use which will bind all customers. The secondary defence is to investigate the relevant local laws that apply to customers in any major markets and curate a particular set of provisions to cover any risks which arise from a customer doing the wrong thing. There is no doubt that in a globalised marketplace, local laws will always seek to protect a consumer’s right. If the Terms of Use are weak (or simply copied from a competitor), you may leave yourself exposed to unwanted liability. Online businesses operate in an area that increasingly exposes them to disputes arising out of international transactions. Well-drafted legal agreements and robust Terms of Use offers a pre-emptive approach that will help ensure that in the case of a conflict, matters can be governed by Australian law and heard in Australian courts.

By:

ehsan_fallahi

Ehsan Fallahi

Ehsan acts as legal counsel to entrepreneurs and is dedicated to maximising value, reducing risk and devising exit strategies. He has advised local and international entrepreneurs in industries such as information technology, property, telecommunication and e-commerce.

His main areas of practice are commercial law, asset protection, property law and technology.

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