Legal aspects of international e-commerce. How do legal requirements affect international e-commerce platform design?
When designing an e-commerce platform that will be used in various nations, each country’s unique legal aspects need to inform your build.
What legal regulations should you think about when designing a multi-national e-commerce platform?
What will you learn in this article?
When designing an international e-commerce platform, you should take into consideration the legal context of its use, including:
- Applicable local laws,
- User identification,
- Contract terms,
- Consumer rights,
- Payment methods.
Many of these elements are essential to an e-commerce system, so development teams should take these and other legal issues into account from the very beginning of the design and development process.
5 legal areas that impact e-commerce platform design
A key concern is to identify all laws governing transactions made on an e-commerce platform. This will impact everything done on the platform, including:
- Whether contracts are legally effective.
- The rights held by both parties.
- The terms of liability.
- How disputes are resolved.
As an example, take a contract made via an e-commerce platform between an entrepreneur and a consumer in an EU member state. Usually, the law of the country where the consumer resides will be binding, provided that the entrepreneur pursues their commercial or professional activities in the consumer’s country or directs such activities to the consumer’s country and the contract is part of those operations. Directing activities to another country means using the language and/or currency of that country, using that country's domain suffix (e.g. “.de” for Germany, “.fr” for France) on their site, etc. The rule is pursuant to the provisions of the Rome I Regulation (No. 593/2008) of 17 June 2008 on the law applicable to contractual obligations.
If e-commerce operations are run within the European Union, it should be noted that although the seller has the right to stipulate which law shall apply to contracts made via the platform, such a choice should not be in breach of consumer rights arising from mandatory provisions of the law of the consumer's country.
Contracts may be executed in various ways and, depending on the country, may require different actions on behalf of the seller and the buyer. That’s why determining how a contract will be executed – e.g. what requirements the seller's offer should meet and when it is deemed binding – is so vital. It is crucial to establish a legally effective form and a way of accepting the offer and passing it to the customer.
For example, pursuant to the provisions of Directive 2011/83/EU of 25 October 2011 on the rights of consumers, the consumer shall not be bound by the order if the order placement process does not meet stated conditions - e.g. if the user has not, before placing an order, received the required information on product features and the total cost or if the customer has not submitted an explicit statement confirming that they are aware that placing an order creates an obligation to pay.
Proper user identification is important, both for ensuring transaction security and complying with legal requirements. It allows online retailers to:
- Identify the person (i.e. the party to the contract).
- Secure payment.
- Verify statements concerning supplies or returns.
Platform functions should enable sellers to identify both individual users and also various entities (i.e.. organizations). These functions should also be able to identify and authorize them pursuant to the applicable provisions of law. There should, for example, be ways to verify a) different forms of business entities and b) legal information about individual users (e.g. making sure users are of legal age to make an online purchase; there are various degrees of child independence in different countries.)
Personal data protection
Using an e-commerce platform requires processing the personal data of users and clients; this must be performed in compliance with applicable law. The GDPR has implemented significant changes for entities registered within the European Union and to entities that conduct business operations in other countries but also offer goods and services in the EU.
The GDPR provides for an option for regulation at the country level (e.g. for the legal age for consent to share information), so all exceptions adopted for national laws should be analyzed carefully.
Data protection issues apply also to some marketing activities undertaken by the seller, such as using "cookies" or monitoring web activity and publishing commercials.
The various rules governing the sending of marketing information – and, in a related area, granting consent for certain marketing actions – must also be considered when setting up an e-commerce platform. In some countries (like Poland) opt-in consent is used, which requires prior consent by the user before commercial information can be sent. Other countries (like Great Britain and the Netherlands) use an opt-out system, which in some situations does not require prior consent to sending marketing communications.
E-commerce platforms also require the operator to meet legal regulations relating to consumer rights. This can include, among other things, informing clients of how individual transactions are made and how the platform is run. It also means making certain data regarding the platform owner/operator clearly visible.
Different legal systems grant a wide range of rights for the withdrawal of distance contracts, including things related to complaints, refunds, and warranty rights. These user rights impact the design of the e-commerce platform, as it is necessary to design functions which will allow the exercise of such rights.
If particular provisions of law provide for, say, advising the user of the right to withdraw from a contract, platform functions should make it possible to obtain user confirmation stating that the person has familiarized themself with their rights. Within the EU, these rules are mostly uniform, due to the provisions of Directive 2011/83/UE of 25 October 2011 on consumer rights.
According to data provided by the European Commission in February 2019, 60% of the studied websites were not fully compliant with EU consumer protection rules, particularly those relating to the presentation of prices and special offers.
Another important area is the sale of digital content. In various countries, the sale of digital content may be regulated by provisions for selling goods and services or by separate provisions. Consequently, the scope of consumer rights protection will differ according to which provision is used.
The diversity of payment methods stems from different consumer habits, different solutions, and different laws. An e-commerce platform most likely will need to handle several types of payments, such as:
- Credit card,
- Bank transfer,
- Mobile payment,
- E-payments (i.e. PayPal, e-wallet services).
In some countries, cash on delivery (COD) payments are still practical. In Russia, for example, cash payments are the most popular form of settlement.
An e-commerce platform should be built to accommodate legal regulations concerning payment, including various methods of payment and requirements for authorization, identification verification, and fraud prevention.
The platform functionality should also take into account the relevant tax regulations. In the EU, for example, the tax on goods and services has different rules for B2B and B2C transactions. Different VAT rates may also apply, depending on the sale value in different countries. Most large online retailers who ship goods to the EU must use the rule of the "target-country-VAT rate" and charge VAT according to the rates used in the target country.
It should be borne in mind that, beginning January 2021, the EU will implement further changes to the rules governing electronic trade VAT, with the goal of reducing the amount of red tape businesses must get through.
EU to lower some e-commerce barriers
Running operations in international markets and on international e-commerce platforms means you’ll likely encounter numerous barriers. The European Union is taking measures to remove some of these hurdles.
Recently, new regulations have been put in place to facilitate trans-border parcel delivery and ban geo-blocking; geo-blocking limits user access to websites based on the user’s location. This is related to the ban on redirecting customers to a different website version than that which the user tried to access originally (Regulation No. 2018/302 of 28 February 2018 on addressing unjustified geo-blocking and other forms of discrimination based on customers' nationality, place of residence, or place of establishment within the internal market).
In principle, the regulation also imposes a ban on applying different terms in relation to payment transactions made by users. Simultaneously, the EU is working on further changes to the scope of consumer rights and tax regulations. Work on directives referring to digital content and sales of goods was completed in April 2019. This was aimed at ensuring uniform contractual rules pertaining to the purchase of goods and digital content online, so keep an eye on further developments – they may be important.
Legal context affects e-commerce platform design
Building e-commerce platforms to be compliant with various local legal regulations allows the project to be implemented seamlessly. This is reflected not only in the rules and regulations for providing electronic services, but also in the technology and functionality underpinning the system itself.
Country-specific legal requirements should be met with the implementation of relevant solutions. So, the best way is to take these into account at the system design stage.