Legal Checklist for E-commerce Entrepreneurs

Legal experts from NovoJuris show you the way

In the previous post we provided a glimpse, that based on the specific nature of business, there are various legislations that an e-commerce business has to comply with.

This post examines some of the ‘core’ legal issues relevant to nature of business being conducted electronically, i.e. the “e” part of the business.

Jurisdiction: A traditional rule of private international law is that, the jurisdiction of a nation extends to individuals who are within the borders of the nation (location or activities of the parties). But if parties are interacting in an online environment, then identifying physical location (should it be where the employees reside and operate from, or where the company is incorporated, or where the website is hosted or where the customer received the product / service) and the place where the transaction took place is very hard. The complexity is that the ecommerce company has to comply with legal requirements of all those jurisdictions and there is a fair chance that it can be sued in any of those jurisdictions.

US Courts have used the concept of “minimum contacts” while determining jurisdiction. This could be physical presence, financial gains, interactivity of the website, stream of commerce, electing an appropriate forum / court and jurisdiction in the contracts.

Indian Courts under the civil court procedures traditionally use the test of ‘where the subject matter is situated’ or ‘where defendants reside’ or ‘cause of action arose’ (to put in very very simple words. It is a lot more complicated that this)

Without getting into a legal treatise, a simple way is for the contract between the parties to elect the choice of law, court and jurisdiction. Courts in theUShave upheld the validity of contracts where the parties have agreed to the choice of law and choice of courts. (CompuServe, Inc vs. Patterson). While this is one of the ways to mitigate the question on jurisdiction, it is not conclusive.

Determining jurisdiction is the most important aspect, in any internet related business, such as ecommerce, cloud computing. Arising from this are tax related questions, applicability of various legislations and compliances required under them.

This then takes us to the next most important aspect of contracts.

Contracts: For a contract to be valid there has to be an offer, acceptance and valid consideration. In an ecommerce business most of the contracts are online, where the user of the website ‘clicks to accept’ the terms and conditions/ subscription / pricing and the like.

One of the premise of the Information Technology Act (IT Act) was to provide legal recognition to electronic records and digital signatures, which in turn facilitates conclusion of contracts and creation of legal rights and obligations through electronic communication.

An electronic record means not only data but also includes record, image, sound stored, received or sent in an electronic form.

While the ‘offer’ and ‘consideration’ part of the valid contract requirements can be identified, the ‘acceptance’ of the proposal by the customer in an online contract has to be established. The IT Act provisions on legal recognition of electronic records which states (i) any information rendered or made available in an electronic form ‘and’ accessible so as to be usable for a subsequent reference (ii) should the information require signatures for verification, then the digital signatures (detailed in IT Act) has to be affixed.

The electronic record created upon acceptance by customer has to be retained as per various legislations. For example, Income Tax Act requires about 8 years, Companies Act mandates that some records be kept for life and the like.

This still leaves one verification aspect, i.e. ensuring the other party is above 18 years old (requirement under Indian Contract Act). Digital signature is one of the ways that offers verification.

Over the next post, we’ll be examining issues around privacy, caching and deep linking.

Disclaimer:   This article is for informational purposes only and is not a legal advice or opinion.

About NovoJuris

Sharda Balaji founded NovoJuris with the realization that technology innovations are fast outpacing the legal framework. NovoJuris counts over 200 small and medium business and over 10 investment houses as their customers over the last 3 years. NovoJuris values a culture of providing professional legal help and obsesses about the success of their customers. The management team at NovoJuris brings over 30 years of experience in technology and law into practice. Do check out their website for further details.

Also, if you are an e-commerce enthusiast, then do check out India’s hottest e-commerce startups.