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How to trade on the internet:

Trading on the internet offers many benefits, but first it is necessary to be aware of the legal and other implications, says Chris Scroggs.

The growing number of individuals and companies connected to the worldwide web makes the use of ecommerce essential to remain competitive. But before offering your products or services for sale in the worldwide market, you need to be aware of the legal and other consequences.

There are obvious benefits involved for any business trading on the internet, but there are potential costs too including: drafting terms of business, contracts, website ownership, confidentiality, security, registration of the domain name, data protection, taxation and compliance with existing laws.

A fully-developed understanding of the legal implications is necessary if trading on the internet is to have a competitive advantage. The idea is to do all that is required to set up in business and so as to ensure that you do not face claims being made against you. A clear understanding of your own requirements and some tailored legal advice are very often all that is needed.

Advertising and contracting on-line

The prime need is to ensure that you do not enter contracts unwittingly or unwillingly. In order to ensure that you reduce any risks and increase the rewards, you should initially apply the basic principles of contract law. However, the basic position is complicated by the fact that the issues set out below will need to be considered:
(a) Advertising
It is important to remember that existing regulations apply just as stringently to the web as they do to other promotional materials.
(b) Customers
You may not want to sell goods and services to everyone who has access to the internet, for example children under 18 years of age.
(c) Contract
You might not want to accept all the orders you get from particular customers, therefore the impact of the English Law of offer and acceptance needs to be considered.
(d) Terms and conditions
To rely on these, you will need to draw them to the attention of customers.
(e) Implied terms
A proper understanding of such terms is essential if you want to enforce on-line contracts to your advantage.
Terms and conditions af business
It is essential here to ensure that they apply. In essence, if you want to rely on your standard terms and conditions when doing business on the internet, they must be drawn to customers' attention: it is important that they are allowed an opportunity to see and accept them at as early a stage as possible.
One way, indeed arguably the best way of doing this, is to create your web site in such a way that, before a customer enters into a contract on-line it is obliged to scroll through your terms and conditions. It is also wise to require the customer to do something positive before being able to proceed further. For instance by clicking on an "I accept" button. You might also need to set up your site in such a way that this act is recorded somewhere, so providing hard evidence of the customer's acceptance. Alternatively, a hypertext link to your terms and conditions could be used.
Whichever method is chosen, it is never a bad thing to e-mail separately your terms and conditions to customers, to ensure that you can prove - if necessary by another method - that they have actually seen them prior to signing a contract.
Different jurisdictions have different laws relating to consumer protection. Some may be, and indeed many are, more stringent than those that apply in the UK. Consumers may be entitled to rely upon the laws of the country in which they are resident even if their contract with you contains an express choice of law clause, namely one which specifies that the applicable law to any dispute will be that of the country where you are based - rather than where they are resident.
How secure is e-business?
The key question concerns electronic signatures and how to ensure their validity and recognition which is a complex problem. In essence, a signature is an individual and unique subscription to a document. It cannot be replicated by electronic means. There is however no certainty that any form of individual identification or encryption cannot be 'cracked'. Electronic signatures, however, cause a greater problem. A signature, being a unique subscription to a document, cannot be as easily replicated as, for instance, a code (which is only a series of characters) and which passes for an electronic signature. There are two problems: first, the preservation of the authenticity of the text of an electronic document and, second, ensuring that the document contractually binds the author through a unique electronic signature. A possible answer to both problems lies in the use of encryption and Trusted Third Parties.
Encryption involves the use of every party having a public key and a private key. Whereas the public key is more widely known, the private key is known, only to a small number of authorised persons within a particular organisation. By the application of the public key to the encrypted signature, the transmitter's identity can be revealed. The intention behind this is that only the recipient who used their public key to encrypt can read the transmitted document.
Trusted Third Parties have been proposed as a means to regulate the number of providers of encryption services. The encryption system is vulnerable in that encryption service providers, and those who possess public key numbers, can decrypt transmissions. The proposal is that a limited number of bodies are investigated and, if found trustworthy, are licensed by the DTI as Trusted Third Parties. They will provide encryption services and act in effect as enabling third parties for the purpose of any ebusiness transaction.
The Electronic Commerce Act, which reached the statute book in June 2000, has set up a statutory scheme for the registration of providers of cryptography support services. This is certainly a further step towards the paperless environment. Electronic signatures are clearly here to stay. In addition to its statutory scheme however, the Government has said that it would prefer to see an industry-led scheme in place. That could take time and in the short term we are unlikely to see a significant explosion in on-line credit facilities. The future, however, is promising.

Providing a secure payment environment
This is probably one of the most vexed questions that arises at the point of processing any on-line transaction. There is a variety of solutions, some of which are not particularly welcome. One is the use of Trusted Third Parties.
Going off-line is a more immediate, albeit radical, solution. This admittedly eliminates the risk of transmitting credit card data over the internet, but it is by no means the most efficient or costeffective way to conduct business from a retailer who wants to use the internet as more than just a marketing tool. The prospect of an attractive website which ultimately asks the customer to send payment by a cheque or postal order is not only inconvenient for the customer, and one that potentially increases the retailer's administration costs, but it is also somewhat archaic.

Payment by credit card is an obvious solution. Contrary to popular myth, shopping via the internet is safer than ordering goods by phone. The encryption that takes place when card details are entered into a website occurs via the transmission of information in short piecemeal bursts. There is no obvious and cheap way for a hacker to access and reassemble this data to his/her advantage. The added benefit of trading by credit card on the internet is that a customer acquires the same rights and protections as if he used his card in a shop.
Secure electronic transactions are possibly a way ahead. Visa International and MasterCard have developed a system based on public key cryptography similar to technology employed by some Trusted Third Parties. In essence, prior to the processing of any transaction both parties are required to produce digital certificates. Thy vouch for the authenticity of the retailer in its relationship with its bank and also reassure the retailer that the customer is not using credit card details fraudulently. There is also a guarantee to the cardholder that details will not be disclosed to the retailer, and to the retailer that it will be paid by the cardholder.
Digital cash also relies on an encryption method. The actual supply of cash takes place via an electronic replenishment from an account at a participating bank. A customer creates a digital message authenticated by the issuing institution, eg a bank, in such a way that a third party (the retailer) can recognise. The authenticated message is returned to the customer who uses it as a substitute for cash. A retailer receiving digital cash can send it to its bank for the credit of its account or it can spend it in much the same way as the customer can.

How to minimise liability
Arguably, the hard work is over once you have set up your business on the web. However, this should be the start of a continuing programme of review of your liability. A web site owner must constantly monitor the content of its web site to ensure that it is not contravening any laws in respect of its content.

The main areas of concern are:
Data Protection Act compliance
Trade mark infringement
Copyright infringement.
Defamation - as there are no specific defamation laws relating to the internet, the general law of defamation applies. In order to safeguard against potential defamation claims, it is necessary to ensure that all statements can be proved to be true; misleading statements must be amended.
Data Protection - The use of personal information is highly regulated by the Data Protection Act 1998. It is vital that when personal data is processed you have obtained the data subject's consent.
Where there has been unauthorised or unlawful processing of personal data measures have been taken against web site owners, including the site being removed from the net. While this is the last and most serious sanction that could be applied, it is important to bear in mind that an internet service provider, if threatened with legal action arising out of the contents of your web site, may prefer to remove your site and argue about it later.
Trade mark infringement - The law in relation to trade mark infringement applies to the web as much as it does to any other medium. If any registered trade trade mark is used in the course of business without the owner's consent you may be liable to pay damages for trade mark infringement. There have been many claims for infringement of trade marks where a business has registered a domain name which is identical or similar to a registered trade mark. It would be sensible to carry out a registered trade mark search before using a particular domain name. The safest course to take is to treat the information included on the web site in the same way as information included in other marketing documents which a business may produce.

Copyright infringement - Again, law relating to copyright infringement applies to the web in the same way as it does to other media. Accordingly, a website owner must ensure that the website does not contain material which has been copied from another source in which copyright may subsist. The contents of the website should be original and any plagiarism by the website owner may result in a claim for copyright infringement.