Electronic Commerce Update, August 1997
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Electronic Commerce Update, August 1997 Before Setting Up Shop - Know the Law |
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Rosenoer is a lawyer, speaker and author of a book entitled, "CyberLAW: The Law of the Internet." A member of the California State Bar, Rosenoer is an authority on the latest legislation concerning the Internet and regularly provides updates on Internet legislation to the CyberLAW website (http://www.cyberlaw.com). According to Rosenoer, there are two different kinds of electronic commerce. The first is electronic commerce in the popular sense where an individual purchases merchandise from a vendor he or she has never physically met before. The second is electronic commerce in the sense of two companies conducting business on a regular basis. Because this is yet another way of doing business, companies have found themselves faced with unanswered questions concerning contractual law. "In the United States, there are certain contracts that are required to be in writing and signed," said Rosenoer. "So, the question is, if you send someone an e-mail message which you say is your agreement to do something and you type your name in it at the end, is that a signature on a contract? "A lot of the laws haven't been updated to expressly state online, but the general intent throughout the United States is that if you sign your mark somewhere intending for that to be your mark, then it's good enough." But the validity of signatures does not end there. The problem is complicated by the burden of proof — in essence, it becomes an issue of one party's word against another. "Let's say I get into a dispute with you," Rosenoer said. "I have a contract that you 'signed' by typing in your name and sending it to me electronically, and you say, 'Well, you typed that; I didn't type that.' So, it really becomes a problem of proof." However, the burden of proof is not the only issue electronic entrepreneurs need to be concerned with. It is also critical that companies doing business on the web know the law — in all 50 states. "You have different states with different laws," Rosenoer said, giving Texas and California as two examples with completely different laws regarding taxable web sites. In Texas, developing a website is taxable; in California, it isn't. These state-by-state differences have been the subject of debate for some time with many people pushing for uniform legislation instead of hiring lawyers to do state-by-state surveys. However, Rosenoer does not think uniformity is what most states want. "I don't think the states want the federal government to start walking into that area and telling them what they can and cannot do," he said, adding that there might be areas in which a uniform law would be beneficial. "For example, when goods and services are coming from one state, and they are being ordered from another, and there's a server in a third area; that might be an appropriate area for the federal government to take a look at or at least get the states together to decide what they're going to do." Perhaps a more serious question of uniformity is that of taxation. Currently, legislation does exist regarding taxation on the Internet. However, there is not uniform 50-state law. Similar to mail-order catalogs, businesses are having to answer the question, what happens if your business is in California and someone from Maine buys a product? What sales tax is applicable? Because there is not an across-the-board 50-state law, many companies are "guessing" and crossing their fingers that the taxable amount is correct in the eyes of the IRS. Companies that guess wrong, however, may be in serious financial trouble. "The enormous problem for people on the Internet now is what if they guess wrong," he said. "A lot of the smaller companies operate with very small margins, and for example, two years from now, the IRS comes back and tells them that they guessed wrong, they should have been collecting tax from all the buyers. "Basically, that could throw you out of business or significantly impact your ability to gain funding to keep on going. I'm not sure people are even thinking about reserving against that possibility." Rosenoer also believes people are not thinking about the fact that what may be legal in one state is, for example, Internet gaming and gambling. Rosenoer recalled a case where an individual, from the southeastern United Sates, had put his home on the Internet and claimed that if enough $5 tickets were purchased, he would raffle off the home. "Of course people in California had access to this, and California has very strict guidelines on sweepstakes and how they are conducted," Rosenoer said. "This site didn't appear to be aware of any of the compliance requirements." As the public struggles to keeps up with the ever-changing technology of the Internet, so do lawyers and law enforcement agents attempt to keep this new medium under control. Contrary to what many people may hope, courts are still enforcing the law no matter how new it may be or how unknowing a violator may seem. "In general, courts are not being lenient with the excuse, 'I did not know,'" Rosenoer said, adding that along those same lines, courts are being "very good" about protecting individual rights, particularly first amendment rights. "There have been a number of cases where law enforcement officials and others have tried to stretch the law outside of what it was specifically designed to be in order to reach the people who are doing bad things," Rosenoer said. "And the courts have hauled them back within the framework of the Constitution." In other words, there is a fine judicial line between breaking the law and violating one's civil rights. Rosenoer recalled a specific case in which a college student had set up a bulletin board to which people uploaded unauthorized copies of commercial software. On a separate bulletin board, this same student was allowing his friends to download the software. The courts would not allow the student to be prosecuted under criminal copyright laws because there has to be a commercial purpose. "He wasn't a criminal," Rosenoer said. "He was doing this out of the goodness of his misguided heart." Similar to the Internet, legislation about this new medium seems to go into effect on a daily basis. New rules about what a person or company can or cannot do seem to surface constantly. Rosenoer's advice is to learn the law of the Internet before you set up shop. |
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