Author Archives: Andrew Jaffe

Are You Planning on Opening a New E-Commerce Website?

There is much you need to know as you begin your new business.  I suggest you do not attempt to write your own legal policies.  This is not where your training and background lie, and though you are probably as smart as an attorney, you do not have their experience.

Below is a checklist for legal issues I use for new e-commerce clients.

1. 1. Business Model – Is your idea viable as a web based business?
2. 2. Business entity – Are you going to be a C corp, a sub-S, an LLC or a sole proprietorship?
3. 3. Terms of Service – This is your contract with your visitors and is the most important item for any e-commerce site. A little work here brings big dividends in the future.
4. 4. Privacy Policy – Every e-commerce site needs a privacy policy!
5. 5. FTC guidelines – The FTC has been regulating business advertising for almost a century. All of their advertising guidelines apply to e-commerce sites.
6. 6. Domain Name issues?  Is your name available?  Can you create a Trademark?
7. 7. Trademark – Do you have a brand name free from conflict? Should you start with just common law rights? Should you register the mark, and when?
8. 8. Copyright – If it is on the web, it already belongs to somebody. Did you buy a license for the images you are using?
9. 9. Do you need a DMCA policy?
10. 10. Web Site security issues?
11. 11. Do you need and have an EIN? You can get that for free.
12. 12. Do you need an arbitration clause?
13. 13. Do you have employees? – If so you need written policies regarding their authority and use of the internet.
14. 14. Do you know the difference between a “browser wrap” and a “click wrap” and which do you need?

When I discuss this list with clients other issues arise. Finally, I always discuss with my clients their need for good accounting services. An accountant’s advice as you start up can save you many dollars in tax that you might not save if you wait to speak to an accountant until your first tax return is due.

I hope this list will give you pause to think about those issues for which you might need to seek professional advice.  Feel free to call me with any questions you may have (no charge) and if you like this blog – please share this article with your friends.

Recently the U.S. Supreme Court ruled in the case of American Express v Italian Colors Restaurant that when there is an arbitration clause in a contract, plaintiffs cannot file a class action law suit.  Plaintiffs must go through arbitration individually as they agreed in their contract.

Further, there have been multiple decisions by lower courts to the same effect – Arbitration clauses trump class action suits.  Many of these types of cases have been attempts to file a class action law suit against a Company’s Internet web site.

As a result of these court decisions, I have recently noticed many of the web sites I am registered at are sending me an email asking me to agree to their new Terms of Service (TOS).  Now, I, myself, am no different than the rest of the world, I tend to click the “I Agree” button without reading the lengthy TOS.  However, with this rash of emails, I understood immediately what was happening – the web sites had changed their TOS to require arbitration in what will be a successful attempt to preclude any class action law suits against the web site owner.  As an example, both Amazon and eBay have put arbitration clauses into their TOS.

I suspect that over the coming year we will see many more web sites (and other written non-internet contracts for that matter) that contain an arbitration clause in their TOS.  This is just good business practice for the big retailers – Class action law suits are incredibly expensive and arbitration is rarely chosen by the Plaintiff.  Plaintiffs do not like arbitration because they need to begin the process by paying a big filing fee.  The last time I did an arbitration the filing fee was $8,000.00.  When you have a small problem you don’t want to spend $8,000.00 to file arbitration, even when the arbitrator will probably make the defendant split the filing fee with the plaintiff.

Please note: many courts have said that for the arbitration clause to be effective in a web site TOS the web site visitor must have clicked his agreement to the TOS and not just have been subject to the TOS under the standard “by using this site you agree to our terms” language.  The courts’ reasoning is that giving up their right to use the court system is a right so fundamental that it should not be revoked without the web site user having actually agreed to it.  (Of course, that means you read the TOS and understood what you read, and thought that right was so big you did not want to use the site – All of which rarely happens in the real world.)

If you have an e-commerce site, don’t just run out and add an arbitration clause.  You should consider whether you will be a plaintiff or a defendant in potential law suits.  If you think you will a defendant, then yes, add an arbitration clause.  The filing fee alone will head off most litigation.  However, if you are going to be the plaintiff (e.g. you often need to hire a collection lawyer to pursue your money) you don’t want to be going to arbitration because you don’t want that huge filing fee.  You should discuss these issues with your attorney to come to the right decision for your e-commerce site.