Start-ups - e-commerce

INTRODUCTION

In the current economic climate, any new business should actively explore all potential routes to market. There are many potential advantages to having an online presence, including 24 hour marketing, increased geographical reach and the comparatively low running costs of an online sales operation. There are, however, just as many potential pitfalls, given the ever changing regulation of internet commerce.

CREATING A WEBSITE

Many early stage businesses will set up a website using a so called “turnkey package” offered by a web hosting company, which will normally include all elements such as:

• web space;

• a domain name;

• website structure; and

• if relevant, a payment processing service,

required for a fully functional business website. The providers of such packages will rarely offer scope for negotiation of their terms. At the least, however, a business should review the constituent elements of the package prior to purchase in order to ascertain that they will enable the business to comply with the various obligations imposed on distance sellers, as summarised later in this note.

If a business has chosen to commission a bespoke website, it should carefully review and if necessary negotiate amendments to the terms of the website design and hosting agreement. Particular concerns will include:

• Ensuring that the site will be constructed within the envisaged timescale for commencement of business, and the availability of remedies if this is not achieved;

• A stipulation that the designer will not have fulfilled its contractual obligations unless and until the site has been fully tested by the business;

• Service levels for on-going maintenance;

• If the web designer will be hosting the site going forward, minimum requirements for “up-time” (so that any necessary maintenance does not significantly disrupt the business), and the capacity (or “bandwidth”) of the internet link – if a site is slow to access, customers will be discouraged from returning to it.

OWNERSHIP OF WEBSITE CONTENT

Businesses should ensure that they either own or have a right to use the content and constituent elements of their website. Generally, these will fall into two categories;

i) Material developed for the business by its website designer

Unless the website development agreement provides otherwise, copyright in the website will generally remain with the designer. Any development agreement should therefore specifically provide for assignment of rights to the website owner. Whether the business can obtain outright ownership of the website material may depend to an extent on whether the business has purchased an “off the shelf” turnkey package or commissioned a bespoke site. Even in the case of a bespoke website, however, a designer may well use standard “building blocks” which cannot be assigned to the business. At the very least, the business should ensure that it has a licence to use such elements, and contractual confirmation from the designer that he has the right to license them.

ii) Material provided by third parties

A website may use text and photographs, the copyright in which is held by a third party. The terms of any licence of such material to the site will need to be carefully considered, for example:

• The duration of such licence;

• Whether it is exclusive or non-exclusive (in other words whether or not the provider has the right to license the content to anyone else);

• Whether the licensor warrants that he owns the material, and that it does not infringe any laws or third party rights;

• Whether the licensor has any specific requirements regarding use of the material (for example that it must be used on a specific part of the site and/or that any photograph must be displayed in a certain resolution).

DISTANCE SELLING AND E-COMMERCE REGULATIONS

Numerous, overlapping regulations impose requirements on website owners who operate from the UK, in particular with regard to the information to be displayed on their site. Key details include:

• The name, geographical address and email address of the website operator;

• The VAT registration number if VAT-able activities are carried out via the site;

• Certain corporate information if the website operator is a company (including the company name, registration number, registered office address, and the part of the United Kingdom in which it was incorporated);

• If requested by the consumer, non-electronic means of communicating with the website operator;

• Where contracts are concluded via the website, details of how the contract is formed, any means by which the visitor can correct errors and any code of conduct to which the website operator subscribes;

• Prior to the completion of any contract: the price of the goods or services, cost of delivery, arrangements for payment and delivery, and a compulsory “cooling off period” (a right to cancel within 7 days).

These requirements are enforceable by the OFT, which has draconian powers to make enforcement orders and issue fines for non-compliance.

TERMS AND CONDITIONS

A business should not merely reproduce its standards terms of supply in the context of internet sales. The terms on which goods or services are supplied via a website should be reviewed carefully to ensure that:

• They address the specific practical implications of distance selling, for example a disclaimer for any slight discrepancies in colour between an article and any photograph of it displayed on the website;

• They comply with the specific legal requirements of e-commerce and distance selling regulations, for example the provision of a “cooling off period”.

The business should ensure that its customers are obliged to accept the terms of sale prior to completion of the order (for example through a pop up box). Website operators should, however, be aware of the risk that, if they sell products online to overseas customers, local laws may apply even if the contract is expressed to be governed by English Law.

In addition to the terms and conditions for the supply of goods and services by a website, the site should also contain the terms and conditions pursuant to which the website visitor uses the site itself. Such terms should include:

• A disclaimer regarding the accuracy of site content;

• An express statement regarding ownership of the intellectual property in the site content; and

• A privacy policy governing the use of personal data collated by the website operator (as to which, please see below).

Ideally, the website user should be required to accept the terms of use before accessing the site, or at the very least the home page should contain a link to the terms of use and a prominent statement that by moving to other pages, the user will be deemed to have accepted them.

DATA PROTECTION

Website operators must comply with data protection legislation in collating personal information from website users. This is usually addressed by ensuring that the website visitor agrees to the terms of a website privacy policy, which should inform the user how personal data is to be used.

Unsolicited electronic marketing (promotional emails) cannot be sent to an individual unless they have given their express consent. Website operators normally achieve this through including a box (which the customers must tick in order to give consent) in the order form for the product or service. It is also possible (if information has been obtained during the sale of a specific product or service on the site) to use these details in order to market a similar product or service without obtaining positive consent, provided the customer is given a way of opting out (through a tick box) at the time the information is originally collected and as part of any further promotional correspondence.

COOKIES

An important change has recently been made to the law on the use of cookies, in other words a text file implanted on the hard drive of a website visitor to collect information on the site user. A number of different cookies are used for different functions, including those necessary for website performance, and the more analytical cookies which monitor and profile online behaviour. Regulation on cookie use has recently changed so that website users must now give positive informed consent to cookie use before any cookie is placed on their hard drive, rather than having a subsequent right to opt out.

The regulations are not prescriptive about what information needs to be given and how consent must be obtained. The regime is policed by the Information Commissioner’s Office (“ICO”) which has provided some examples of how consent could be sought, for example through the use of pop ups or banners which contain a tick box but also indicate that moving to another page will be interpreted as consent, as long as the user is given an opportunity to opt out subsequently.

Website operators had a lead-in period to comply with the regulations. This expired in May 2012. The ICO can therefore now enforce compliance by defaulting website providers and has the power to impose penalties of up to £500K. It has, however, indicated that it will not do so if it has evidence that a business is taking steps to comply. Businesses that operate websites should therefore at the very least carry out a cookie audit in order to ascertain what cookies they are in fact using – certain cookies essential to the functioning of a site are excluded from the consent requirements.

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