Technology &
Internet Law

Pitfalls of E-Trading

This article appeared in the October 99 edition of Components in Electronics .

You will no doubt have heard much about the huge benefits of e-trading and indeed I would very much endorse most of it. However, this month we have decided to focus on some of the main pitfalls of e-trading for both buyer and seller (in a business-to-business context) and what can be done to overcome them.

Fraud

For buyers

The buyer risks the seller being an untraceable crook to whom money is paid but not refunded when money is taken without authority or goods are never delivered. To avoid cowboys on the Net, refuse to deal unless the site complies with some basic rules:

• it should have "real world" contact details such as telephone, fax and address details;
• it should have some kind of assurance endorsement such as "Verisign" or "Secure Trading" and should include a secure service (where your information is encrypted to protect it);
• ideally it should be a name already known to you - i.e. be reputable.

For sellers

The seller risks delivering on-line where the payment is fraudulent or delivering goods which have been paid for fraudulently, in circumstances where the buyer will not hang around to be caught. Another fear (though probably less significant in the electronics industry) is where a minor orders goods on a parents card (such as the E-bay case where a 13 year-old spent over $13,000,000! Cost-effective software solutions for verifying the age and identity of the buyer are available and insurance may also be available in some cases - indeed this is likely to be an important growth area in the next stage of development of ecommerce.

Contractual invalidity

For buyers

You may think you are contracting with someone only to find that it is not that person at all in which case there will be no binding contract. To be sure of the legitimacy of the person you are contracting with on-line, you need to deal with known customers with an account (i.e. they must first apply for an account with you on-line and possibly get allocated a password - although even that is not watertight) or you must insist on a digital signature. If the Government's new draft Electronic Communications Bill is made law, it will recognise the validity of digital signatures but it will still be open to challenge if the signature was used by someone else illegally - but it does reduce the risk considerably.

For sellers

The considerations same may apply as for buyers but insurance may be available to cover the risk.

Data Protection

For sellers

The new Data Protection lawsare very complex (though not yet in force, they will be backdated when they come in next Spring). If you are taking information on people on-line (e.g. names and addresses or credit card details), you have to be registered under the Act (even if the information is kept in paper form now). Failure to comply with the Act can render you liable to heavy fines, litigation from customers and, in extreme cases, closure of your business. You cannot use the data you obtain except in line with strict rules which include the fact that you cannot pass the data between companies, even if in the same group, without the consent of the person whose data you are holding. You also have to keep the data secure, even when it is stored by your ISP - so get a written warranty from your ISP on this point.

For buyers

The risk of abuse of your data is clearly a major one, particularly where it may be taken outside the EU and therefore not be protected by data protection laws. However, within the EU, the buyer will soon be able to take direct action against a company or else encourage the Data Protection Registrar (or "Commissioner" as she will soon be known) to take action to fine and possible even close down an offending company. The only trouble is that such action is after the event. Also, many companies are totally ill-advised as to their responsibilities and are unlikely to be aware of the need to comply which makes the risk even higher (for both parties really).

There are, of course, numerous areas of risk in business generally and the Internet is no different - the examples in this article are just some of the major ones. Some of the issues in ecommerce law are undoubtedly complex and daunting but I hope this article does at least illustrate that with a little professional planning it is possible to take advantage of the new medium without undue risk.

NEED TO KNOW MORE?

For further information on etrading, contact Maitland Kalton.  Should you prefer to telephone, call us on +44 (0)207 278 1817.

Kaltons Solicitors, Suite 302, Spitfire Studios, 63-71 Collier Street, London, N1 9BE. Telephone +44 (0)20 7278 1817; Fax: +44 (0)207 278 1835.

© Kaltons Solicitors October 1999.  All rights reserved.