Legal precautions to create a digital business and not perish in the attempt.

Electronic commerce or e-commerce has been on the rise for years, but sanitary measures generated by COVID-10 has accelerated its growth. Because of mandatory social distancing, more and more businesses face the need, some urgently, to reach out to their consumers through online merchandising platforms.

The step towards electronic commerce requires, of course, a solid business model and meeting proper technological standards. However, also entailed are important legal elements that may generate unnecessary risks if not considered in advance.  Our mission here is to outline legal aspects whose compliance makes life easier for those that undertake a virtual business.

Business Structure. Just as business models in the “tangible world” may not be replicated exactly in electronic commerce, the applicable laws and their application are not identical for both spheres.

For example, many of the legal requirements and opportunities to take into account depends on whether the company (1) will sell to consumers, referred to as B2C, or to other businesses, (B2B); (2) envisions the development of an app or proprietary technology, or will use third-party technologies; (3) offers products or services; and (4) requires licenses and authorizations according to the type of products, etc.

Legal design and structuring must be done early on in the process, using the forms that adapt most efficiently to each business. Such decisions made at the opening stage will define many of the future needs of the project.

Trade partner relationships. A key element in every online business is its relationship with trading partners. Whether a company wishes to use an existing marketplace or develop its own platform, various contractual schemes must be generated to deal with providers and employees (just as in any other business), technological partners, payment and delivery systems, etc. Trading partners may be based in any part of the world, which may bring additional needs and risks into consideration.

Occasionally, alliances with trading partners are essential for product placement. For example, consider a chef that, due to the situation, decides to reinvent her business and sell kits online to prepare homemade meals. This venture will require business partnerships with food and utensil providers, delivery services, etc.

In such a case, it is extremely important to have a clear overview of the responsibilities of the different parties according to various legal concerns, such as intellectual property rights, obtained data ownership, information confidentiality, warranties, customer service, and similar considerations.

Obligations to consumers. Relationships with customers are perhaps the most visible part of this topic. In Costa Rica, the law gives consumers special protection due to the asymmetry in the information that makes them the vulnerable party in a buy-sell relationship. This standard is even more severe in electronic commerce because consumers cannot inspect beforehand the products, they are interested in acquiring and are also exposed by their use of sign-on technology, such as divulging personal information. Because of this one-sidedness, all the ordinary consumer protections are applied to e-commerce with additional requirements that must be applied to validate transactions and not expose the vendor to sanctions.

Those who market their products through electronic commerce must supply adequate vendor identification details and validate the functionality and security of the platform selected. There are also special rules for consent, which is the basis for agreements between individuals: in the world of e-commerce, to prevent voidability a transaction summary must be presented to the consumer before finalizing the sale. Moreover, clear terms and conditions must be implemented, as well as regulation on the safety of payment methods and protection against fraud. The platform must be capable of consumer evaluation. There are also restrictions to automatic subscriptions such as the ability to manifest consent withdrawn through opt-out mechanisms.

Another important aspect of e-commerce is the use of databases. With the fourth industrial revolution, data will be key to business success. Customers will benefit from an improved purchasing experience, but the improper use of any personal data may constitute a costly violation of their privacy rights.

Information requested of an individual is granted under the doctrine of informed consent and must respect a series of rules related to the use of the data, access to it, the possibility of rectifying it, and the option to unsubscribe without hindrance.

It is important to mention that digital merchants must have adequate policies concerning warranties and returns. Since consumers are unable to inspect the goods before purchase, they have the right to return the product within 8 days, even if it is not faulty. Also, a 30-day warranty for product failure applies. The policies and procedures that deal with these matters must be set forth clearly to mitigate possible consumer claims.

Finally, electronic media have special rules for publicity and promotion, including the use of bulk mail, cookies, publicity on social media, and the use of influencers. To avoid serious damage to the business from any breach of law or contract, an e-commerce venture must be accompanied by those knowledgeable on the regulations and restrictions that apply to it.