In this article, Prashant Gupta discusses Important clauses in a ‘Terms of Service’ Agreement For E-Commerce Websites.
A Prologue to E-Commerce Industry in India
E-commerce includes all transactions of business made through an electronic medium. It also includes all the transactions made via mobile devices. Some of the popular models of e-commerce are appended herein below –
- ‘B2B Model’ or Business to Business Model
In a ‘B2B’ e-commerce model, a business sells products/services to another business via an online sales portal.
- ‘B2C Model’ or Business to Customer Model
A ‘B2C Model’ focuses on selling products/services directly between a business and customer via an online sales portal. A lower volume of purchase characterizes Business-to-Customer companies.
- ‘B2B2C Model’ or Business to Business to Customer Model
Business to Business to Customer is an e-commerce model that combines ‘B2B’ and ‘B2C’ models together for a complete product or a service transaction. Such a model creates, albeit, in theory, mutually beneficial service and product delivery channels.
- ‘C2C Model’ or Customer to Customer Model
‘C2C’, an abbreviated form of Customer-to-Customer or Consumer-to-Consumer, is an e-commerce model which facilitates the transaction of products between customers only. Such a business model facilitates an environment where the customers can trade with each other.
- ‘C2B Model’ or Customer to Business Model
A C2B model, also known as Customer-to-Business model, is the most recent form of e-commerce model where the individual customers offer to sell their products/services to companies who want to purchase them. This model is the exact opposite of the ‘B2C’ model.
The E-commerce industry in India dates back to the year 1999 when IndiaPlaza.com was established. It marked an epoch to the establishment of the e-commerce industry in the country. Since then, the e-commerce industry has flourished with new age e-commerce companies like Flipkart, Amazon, and Snapdeal introducing strategies like Cash-on-Delivery and establishment of their own logistic chain to supplement their customer base.
The growth of e-commerce industry can be attributed to urbanization, increase in the number of mobile and internet users. As the e-commerce market is developing at a rapid rate, it becomes imperative for an e-commerce company to formulate a legal strategy to deal with regulatory matters and possible litigation from customers, suppliers and other partners.
Online Contracts & Terms of Service
The contracts in India, both online and offline are governed by the Indian Contract Act read with section 10A of the Information Technology Act, 2000. The relationship between the e-commerce companies and the customers are governed by the End-User License Agreement and Terms of Service.
The nature of the contract in the e-commerce websites are on a ‘take-it-or-leave-it-basis’ as they are in the form of ‘browsewrap contracts’ or ‘clickwrap contracts’ – Such form of contracts has no scope of negotiation for the customers concerned. Certain terms and conditions in such standardized contracts may be unenforceable especially if they are unreasonable. Although there are no substantial number of cases pertaining to disputes pertaining to online contracts, in other developed nations, the disputes have been primarily for reasons mentioned herein below –
Limitation of Liability
This clause limits the liability of the seller concerned to an arbitrarily low extent. On this context, the Madras High Court had struck down a clause in the laundry services contract way back in 1966 which restricted the liability of the laundry services company to fifty percent of the total cost of the damaged good.
Choice of Law
Such type of clause indicates the law of the country that would apply in case there is a dispute. For instance, a clause states the laws of the United States will be applicable whereas the buyer is located in India. In case of any dispute, the Indian laws cannot be excluded.
An arbitration clause determines the forum for arbitration. The place of arbitration is decided by the seller of their choice which is already mentioned in the contract. In case of a dispute, this can put undue costs on the other party or the buyer. Hence, the court may allow the buyer to sue in other location of their convenience.
Protection of intellectual property is one of the most important aspects that an e-commerce entity should keep in mind before starting their business. Also, they should make sure that they are not violating others’ intellectual property, at the same time. Some of the important forms of IP that an e-commerce entity should protect are appended herein below.
- Websites – Registering a domain name should be the first step by the proposed e-commerce entity. Domain names are considered to be a ‘trademark’, and a trademark infringement suit can be filed against anyone who is found to be using the domain name for a fraudulent purpose. Hence, it is admonished that the domain name should be booked before it is started formally.
- Trademarks – Protection of e-commerce’s trademark is important and of primary concern. The entity should protect the logo, slogan and its trade name as a trademark. Most of the times, the symbol, and name of the company is decided by the founders of the company or the marketing agency after taking into consideration the considerations and perceptions of a customer. However, the founders of the company should consult a lawyer who would be in a better position to advise on the availability and sustainability of the mark which is the proposed trademark.
- Copyright – The designs, images, illustrations used on every website including e-commerce websites come under the copyright laws. Although there is no need as such to apply for copyright of the website concerned, however, registration of the same is an evidence of copyright. If the website is being designed by a freelancer/professional, it is important that there is an agreement mentioning the rights of copyright for the content created. In the end, every e-commerce website must have a copyright notice so as to prevent someone else/other entity from using it for commercial purpose. A copyright would look something like – “Copyright ©2017 My Business Name”.
Terms and Conditions
It is important that every e-commerce website has a set of Terms and Conditions that could be easily found on the website concerned. It is also advised that the terms and conditions are not exhaustive and is not legally verbose. The terms and conditions should be exclusive and distinct from other e-commerce websites. Copying terms and conditions from other e-commerce websites may cause a breach of copyright protection of the website from where it is copied.
‘Best Practices’ for Terms of Service
While it is uncertain whether a particular ‘Term of Service’ would be enforceable in a court of law, the e-commerce sites are admonished to follow certain best practices mentioned herein below –
- The entire ‘Terms of Service’ should be presented in a clear format and must ensure that the customer has read it. That can be done by disabling the ‘I Agree’ button until the customer scrolls down till the last page of the agreement or by enabling a timer after which the same button would be enabled.
- The customer should be given an opportunity to save or print the terms and conditions of the service so that it could not be manipulated/changed by the service provider concerned after the customer agrees to it.
- The terms of service should be identifiable and must be placed at a conspicuous place on the website so that the buyer/customer could read it with ease.
- It is advised that the important terms and conditions are explained in a lucid manner understandable by a layman. Also, one-sided terms like the limitation of liability clause and arbitration are placed near the ‘I Accept’/’I Agree’ button, i.e., in the end, so that the customer could have a look at it even if they scroll down the page without reading the whole of the terms.
- In case there is a change in the terms of service, the customers should be intimated by all means possible so that the customers are given an opportunity to accept them. Websites like LinkedIn, Google, Twitter notify their users regularly well before the ‘effective date’ by showing pop-ups or displaying the notification at a conspicuous part of the website, usually at the top. The user is required to read the terms and take action by either clicking on the ‘I Agree’ button or the ‘Dismiss’ Even though there should be an ‘I Do Not Agree’ option, but very few websites implement it.
- The e-commerce websites should in the process of every transaction direct users to the terms and conditions applicable to that purchase.
Many websites including the e-commerce sites face issues related to the usage of the website by minors. Under the Indian Contract Act, 1872, minors cannot enter into contracts independently as mentioned under section 11. Hence, it becomes imperative that such websites include in their terms of service that the service would be available to individuals above 18 years of age. However, it is also pertinent to note that it is practically difficult to restrict underage individuals from providing false age credentials.
Shipping and Returns Policy
The Shipping and Returns Policy is a part of the terms and conditions, and if the e-commerce entity concerned is selling a commodity, it becomes important that this policy is easy to find and understand as well. The product being sold must match the description and purpose as mentioned on the website. The product description must not be vague in nature and does not open a potential problem.
Returns create the need for a refund to the customer/buyer concerned in case the product bought is defective or does not match the description. That can be done in a number of ways – it can be done by issuing a cheque in the buyer’s name, transferring the amount electronically, processing the refund to the card from which it was bought, etc – but the process for refund must be stipulated clearly so that it cannot be disputed later on. Alternatively, instead of a refund, the e-commerce entity can offer a credit certificate, which could be used at a later date or simply replace the product with another one.