Practical Ecommerce

Selling Products Online: What Legal Jurisdiction Applies?

Most ecommerce merchants want consumers from all over, whether that means all 50 U.S. states, Canada, Mexico, Europe, or the world. But e-retailers need to consider local laws when they ask for business in another state or another country. And it is important to understand which jurisdictions might apply to a given online transaction.Court Room Image: Take Steps to Ensure Disputes are Settled Locally

In many cases, laws from the customer’s state are the ones that will apply in the event a problem arises. This is equally true regarding the laws of other countries. For example, in some European countries it is illegal to sell anything related to the Nazis. This may seem reasonable but the law also applies to World War II memorabilia dealers. So a business owner in the United States who sells World War II memorabilia could face legal problems from European countries if someone in one of those countries were to purchase a Nazi item from him. The most common way for that transaction to occur would be via the Internet and from an e-business owner. For this reason, U.S.-based ecommerce merchants should be particularly careful when selling overseas, being sure to understand each country’s laws.

Knowing which state law should apply to a transaction in the United States can also be a challenge. As an example, if you are located in Ohio and sell a product to someone in California and there is a problem with the transaction, will the laws of Ohio or California apply? To further complicate things, what if you have a warehouse in Colorado and you ship from that location, now which law should apply? What if your server is located in Utah, does that state now have jurisdiction over the transaction?

What Jurisdiction Applies?

Jurisdiction is the right and power to interpret and apply the law by a Court in a particular geographic location. Jurisdiction can be obtained by transacting business in a state. What is transacting business? The act of buying, selling, or offering to sell something is enough to be considered transacting business and to convey jurisdiction. Why should you care about jurisdiction? If you end up in litigation over your product the last thing you want to do is travel across country and hire an attorney in another state. It would be much easier on you both from a financial and time perspective to have an issue litigated in your home state. Also, if the other party is required to travel to your state to commence litigation, they are less likely to sue.

You Want Your State’s Law to Apply

How do you make sure that your home state is where the litigation takes place? You can’t guarantee your home state will be the place of litigation if it should come to that, but you can take steps to increase the chance of your home state being the site of settling a dispute.

  1. If you are using a contract with another party make sure in the contract it says that any dispute must be filed in your home state and that both parties to the contract agree to jurisdiction in that state.

  2. On your website, when a customer is purchasing an item as one of the terms and conditions of the transaction make them agree to jurisdiction in your home state should a dispute arise. You can do this with check box next to the statement and make them check it off prior to completing the purchase.

  3. A less effective way is to put a disclaimer on your website that any transaction will convey jurisdiction to your state and any dispute must be heard by a court of competent jurisdiction in your home state. The downside to this technique is the other party can say they did not read it and therefore it should not apply. They can’t make that claim if they check a box on your website before completing their purchase.

Remember, the home field advantage is real in business and anything you do to help ensure a dispute is settled in your state is worth the time and effort up front.

Peter LaSorsa

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Comments ( 2 )

  1. Olaf November 9, 2008 Reply

    Thank you, practical commerce. This article made made me a fan. Very good advise, especially in the complicated legal issues of ecommerce business.

  2. standingontv November 24, 2008 Reply

    Please, even if you’re not a fan, you really need to look into how they actually charged Tommy Chong and sentenced him to 9 months in prison. It’s all e-commerce related. They basically were refused by Tommy Chong’s company over and over and over until finally the guy came to California to buy merchandise straight from the shop, then when it was ready the guy stated he couldn’t come back to get it would you please ship it to me. That’s where all the trouble began.

    If they want you, you are out of luck if you fall for the government’s tricks.