Articles Posted in E-commerce

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Online banking is an electronic payment system that enables customers of a financial institution to conduct financial transactions on the web.   In today’s high-tech world, online banking fraud is committed on a daily basis.  As such, sometimes customers may not be liable for certain unauthorized online transactions, subject to the terms and conditions of the bank’s service agreement.  Online banking fraud is to defraud a financial institution or obtain money or other property under the custody of a financial institution by false pretenses.  A related issue includes financial identity theft.   So, financial institutions use encryption technology (e.g., secure socket layer – a/k/a “SSL”) to prevent unauthorized access to data.

In general, the customer must notify bank within 60 days after receiving a periodic statement pursuant to 15 U.SC. § 1693f.  Under 15 U.S.C. § 1693g(b), the burden of proof of consumer liability is on the bank.  So, in order to establish a customer’s liability, the bank must prove the transfer was authorized.  In case of a violation, the bank may be subject to civil liability under 15 U.S.C. § 1693m.

What Are the Common Methods Used to Defraud Customers?

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Pay-per-click (“PPC”) advertising is a profitable online service that search engines, such as Google, Yahoo, or Microsoft, provide their customers. Now recently, PPC fraud has developed and caused loss of revenues for businesses and advertisers.   PPC fraud occurs when someone or a program clicks on a company’s advertisement without intending to view the website or buy anything.

Many companies have filed lawsuits against search engines, claiming that they have breached the terms and conditions of their contracts. These companies have alleged that the search engines, acting as the intermediaries, that published their online advertisements improperly charged them for fraudulent clicks. Two questions can be raised by these implications. First, how should a chargeable click be defined within the advertising contract? Second, does a search engine have any duty to protect advertisers from fraudulent clicks?

What is PPC Advertising?

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In recent years, much of consumer retail consumption has transitioned to the online marketplace. So, many of us engage in e-commerce, especially when shopping for the upcoming holiday season. While e-commerce is convenient and easy, consumers are becoming more aware of the risks posed by hackers that commit online fraud. Merchants who administer websites for online shopping must take measures to assure that their sites are protected from online hackers and fraud. Online merchants may be held liable for online fraud if the proper steps are not taken to prevent it. Are you an online merchant? Are you worried about protecting the sensitive information of your customers? If so, then you must take certain steps to prevent fraud and unauthorized access (i.e., hacking).

How Does Online Fraud Occur?

Online fraud is fraud that is committed using the Internet. This type of fraud typically comes in two forms: (i) financial fraud; and (ii) identity theft. Financial fraud often occurs when a hacker collects a consumer’s financial information to steal money.  Identity theft usually occurs when a hacker collects a consumer’s information, and then uses it to open bank, mortgage, or credit card accounts. Many times the two types of fraud happen concurrently. Hackers often target e-commerce websites because consumers are constantly offering their credit card and personal information through these websites. Online merchants must take precautions to prevent hacking that leads to this kind of fraud.

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The best advertising directs a company’s message directly to the customer.  Direct telephone marketing is an effective way to accomplish this kind of advertising.  However, the Telephone Consumer Protect Act (“TCPA”) now restricts how businesses can engage in direct telephone marketing.  But, there are many other ways companies can directly reach consumers—i.e., text messages, emails, and instant messages. These kinds of communications may not violate the law against direct telephone marketing.  Is your company looking for more effective marketing? Are you unsure how you can advertise directly to customers’ devices?  If so, then recent interpretations of the TCPA may allow your business to advertise directly to customer devices.

What Is the TCPA?

The TCPA was enacted in 1991 to restrict telemarketing and the use of automated telephone calls for the purpose of marketing. The law makes it unlawful “to make any call using any automatic telephone dialing system (“ATDS”) . . . to any service for which the party is charged for the call.” An ATDS means equipment, which has the capacity to store or produce telephone numbers to be called, using a random or sequential number generator, and to dial such numbers.  A recent case has helped limit the definition of an ATDS.  In Marks v. Crunch San Diego, LLC, a district court in California held that text message marketing may not be an ATDS, and therefore is in compliance with the TCPA.

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In recent times, a significant amount of business is conducted online.  The Internet connects a business to customers anywhere in the world. What happens when a dispute arises between a business in one state and a customer in another? If the customer wants to bring legal action against the business because of a transaction that occurred online, where does the customer file the action? The answer may depend on the type of website. The courts have created the distinction between active and passive websites. When a transaction occurs through an interactive website, the business may be subject to the jurisdiction of the state where the customer accessed it. Is your business developing a website? Did you know that an interactive website may subject you to the jurisdiction of any state? If so, then you must understand the difference between active and passive websites, and how they may affect your legal rights.

What Is the Active and Passive Distinction?

An interactive or active website is one where business transactions can occur through the website or information can be exchanged to solicit business. On the other hand, a passive website is one that is used to post information for potential customers, but it does not allow for interaction. A passive website is similar to an advertisement. The distinction is crucial because courts will confer personal jurisdiction over companies that maintain active websites in the state where the consumer is located. Active websites include sites that foster online sales, sites that take measures to solicit business in a particular forum, and the use of a third-party site to sell an item. Not every website fits neatly into these two categories, and issues arise when the website falls between the two.

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In recent years, social media has allowed users to instantly communicate with each other. Social media also provides a low cost and high-yield forum for communications. Because of these effects, social media is becoming the preferred way for advertisers to reach customers. A marketing campaign that includes social media can greatly enhance a company’s brand exposure.  However, there are several legal and regulatory issues that arise when using social media for advertising. When using social media tools like hashtags and facebook pages, advertisers should monitor their copyrights and trademarks and comply with state and federal regulations.  Is your company beginning a new social media advertising campaign? Are you trying to brand your company with hashtags and handles?  If so, then you should contact us to discuss the legal issues.

What is a Hashtag and How Is It Used in Advertising?

A hashtag is a form of metadata made up of a word or phrase that is prefixed with the symbol “#” used by a social media site to create a searchable keyword. Hashtags are commonly used to direct potential customers to others discussing the same hashtag. Any user could create a hashtag with your company’s name or one that infringes on your intellectual property. Most social networks have policies that prohibit trademark and copyright infringement. Be sure to check these policies and the procedures for reporting abuses. Yet, not every third-party use of a trademark is necessarily an infringement if done under the fair-use standard. If a third-party is using a hashtag or handle that refers to your trademark, it may not be an infringement if used only to join a conversation, and that user is not claiming to be the owner of the trademark. Further, you can actually trademark a hashtag with the United States Patent and Trademark Office for additional protection. A mark including the “#” symbol can be registered as a trademark if it functions as an identifier of a good or service.

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It seems that entrepreneurs do not simply want to capitalize on local markets anymore.  An international impact is achievable with the connections available through internet and technology (e.g., e-commerce).  A startup company can now achieve that international presence by utilizing cryptocurrencies and crypto-crowdfunding.  Using cryptocurrencies allows a company to do business in any country without worrying about foreign exchange fees or limitations.  Crypto-crowdfunding can help a new company raise capital by creating its own currency in exchange for real money or other cryptocurrency. Are you starting an online business and want an international presence? Do you want to raise money fast for your new company? If so, then cryptocurrencies and crypto-crowdfunding may be helpful.

What is Cryptocurrency?

Cryptocurrency is digital or virtual currency that uses cryptography as its security. These currencies are not issued by central banks, and therefore, immune from government intervention and manipulation. Because there is no government intervention into these crypto-markets, many national cyrptocurrencies are beginning to emerge. European countries with struggling central banks and economies are experiencing the emergence of national cryptcurrencies, such as Spaincoin in Spain and Aphroditecoin in Cyprus. These currencies are easily traded and provide entrepreneurs with the ability to circumvent foreign exchange controls. Whether these currencies are privately started or nationally motivated, they can connect people anywhere in the world while keeping governments out of the picture.

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In the past, to start a business you had to find a location, rent space, and open your doors to the public. Today, many entrepreneurs can do it all online by advertising, communicating with customers, and managing transactions using the web. Many entrepreneurs are interested in starting a new business with a strong online presence. There are several steps that one must take to start a business, plus additional considerations to comply with online business laws. Are you ready to create an online business? Are you unsure which laws you need to be aware of for your e-commerce website?  If so, then you need to know the process to start a business and the additional issues that apply to e-commerce.

How Do I Start An Online Business?

The Small Business Administration recommends a ten-step process to start a new business.  First, write a business plan.  This is your general outline as to the identity of your new company and the structure you are going to build to execute your plan.  Second, get the proper assistance and training. No one knows everything and connecting with mentors and experts can help you get off on the right foot.  Third, choose your location. If your company is 100% online, you still need to determine the types of customers you plan on attracting and to what areas you plan on making deliveries.  Fourth, finance your business. Whether you choose traditional financing from a commercial bank or more creative methods (e.g., crowdfunding), make sure to do your research and figure out what works for your company.  Fifth, determine the legal structure of your business. There are many types of entities you can create (e.g., LLC or Corporation). Each entity creates different levels of liability and tax obligations.  Sixth, register your business name with the proper state agency (e.g., Secretary of State).  Seventh, get a tax identification number (a/k/a EIN) by registering with the Internal Revenue Service.  Eighth, register with state and local tax agencies (e.g., Franchise Tax Board, a/k/a FTB). In general, each state has its own tax laws, so make sure you know the obligations within your state.  Ninth, obtain business licenses and permits.  You should keep in mind that state and federal agencies may require different licenses and permits. Finally, you may need to hire employees or independent contractors.

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In recent years, consumers have received numerous emails from merchants, all trying to sell a service or a product. While marketing and commercial activity is central to the American economy, the recipients of these emails must also enjoy their privacy. In an effort to protect against these disruptive emails, the California Legislature passed anti-spam laws in order to regulate commercial email activity. In addition, a recent district court opinion further clarified the types of emails that are implicated by these statutory standards.

What Are California’s Anti-Spam Laws?

In general, California’s anti-spam laws are codified under Business & Professions Code sections 17529 et seq. First, commercial email advertisements must come from a domain name registered to the sender. Commercial email advertisements include any email sent for the specific purpose of selling or advertising a product or service. The purpose of these laws is to limit promotional emails with false or misleading subject information. These laws apply to any U.S.-based company that sends emails to California consumers. It does not matter whether the sender is located in California. In fact, it may not even matter whether the sender knew the recipient was in California. Furthermore, California’s anti-spam laws provide a greater degree of protection than their federal equivalent—i.e., Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CAN-SPAM”). For example, CAN-SPAM requires that each email contain an “opt-out” option that allows consumers to quickly unsubscribe from future emails. The sender must comply with such a request within ten business days. In California, there are no such requirements. Indeed, the recipient can collect these emails and sue the sender for up to $1,000 per email.  So, the charges can quickly add up. If the sender of commercial emails is faced with a lawsuit, it bears the burden of proving that it was in compliance with both the state and federal standards.

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In the aftermath of high profile cybersecurity breaches, businesses and consumers are alert to the real dangers of cyber vulnerability. In response, various government agencies have taken up efforts to protect against future breaches. Thus, consumers and businesses must continue to take steps to protect themselves and their private information. Accordingly, the office of California’s Attorney General has issued Cybersecurity Guidelines aimed at reducing the threat of electronic security leaks. Furthermore, these guidelines set the standard that businesses must meet to protect customer privacy.

What Are Attorney General’s Cybersecurity Guidelines?

The Attorney General outlined the basics steps to “minimize cyber vulnerability.”  First, anyone could be a target. Therefore, assume cybersecurity could affect you and take preemptive steps to protect your network.  Also, it is important to know where you store your data. The guidelines are directed towards small to medium-sized firms.  So, they focus on the importance for businesses to know which third parties hold company information. It is important to be familiar with these third-party security measures. If a data storage company is not taking proper steps to protect cybersecurity, it may be time to seek different storage options or take steps to counter the vulnerabilities. Alternatively, if your business stores information on the cloud, make sure to back up information, and store data only with secure entities. The overall point is that in the event of a breach, the level of preparedness will limit the consequences.  Next, encrypt your data as an added measure of security. It is also helpful to include firewall and antivirus protection on all devices.  Additionally, make sure to conduct banking and other financial transactions with reliable vendors.  Especially when dealing with third party financial information, the safety and security of those transactions are vital to ongoing business.  Finally, it is important to note that these guidelines are the minimum requirements. It is not a comprehensive list and companies must take care to implement personalized measures based on their cybersecurity needs.

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