Protection of Consumers in Online Sales

This research paper will focus on the protection of consumers in online sales, because since the opening to a commercialization use of the first World Wide Web in 1991 other developments during that decade made it possible for everyone to buy through the internet. This situation leaded to the creation of the electronic commerce marketplace, known as E-Commerce Marketplace.

Since the creation of the E-Commerce Marketplace there has been a proliferation of consumers legislation at European and at National level but it seems that it is not enough because consumers still can face lots of difficulties shopping on the internet.

The international nature of digital networks and computer technologies that comprise the electronic marketplace require global attention to consumer protection, which allows the creation of a transparent, predictable legal and self-regulation for E-commerce. The overall network environment is a challenge to each country or jurisdiction to adequately address issues related to consumer protection in the context of electronic commerce. The diversity of national policies on consumer protection may prevent the growth of electronic commerce that can be addressed more effectively through consultation and cooperation. The Governments of OECD member countries have recognized that internationally coordinated approaches are needed to exchange information and establish a general understanding about how to analyze these issues.

We can mention three fundamental rationales for consumer protection in the E-Marketplace. Some have an absolute opposition to the fact that governments need to have regulations over the internet. Others think that with the internet there is a legal ”disorder” which rest on the creation on ‘an unbounded and perhaps permanently lawless…” state [1] . There are also others that believe that internet by itself can provide technical solutions to consumers.

The laws, policies and practices limit consumer fraudulent, deceptive and unfair. Such protective measures are essential to strengthen consumer confidence and the establishment of a more equitable relationship between businesses and consumers in commercial transactions.

So the aim of this paper is to structure the actual situation of the E-Market, rights and the protection of the consumers in online sales and demonstrate with this that the failures that the E-Market has, in any situation should be covered by legislation, national or European legislation.

E-COMMERCE IMPORTANT NOTIONS

To better understand the complex structure of the Electronic Marketplace it is necessary to define four key notions which are: E-shopping, Consumer, and Seller within the internet context and B2C commercial relationship.

E-shopping:

It is a new type of shopping form and it is also known as online shopping, network shopping, Internet shopping, or Web-based shopping but to define it first we have to give a definition of electronic commerce. The electronic commerce has lot of possible definitions, it can be defined in general terms as any form of transaction or exchange of business information based on data transmission and internet communications network. That is, it includes both the purchasing business and all activities prior to it. In fact, Internet is more used to advertising, the companies use internet mainly to make publicity of themselves and of their products and services. Also we can use the definition that says that E-Commerce refers to [112] G.W. Treese and L.C. Stewart, Designing Systems for Internet previous termCommerce,next term Addison-Wesley, Reading, MA (1998).“the use of the global Internet for purchase and sale of goods and services, including services and support after the sale’’ [2] . We seek to identify an appropriate definition for e-commerce that emphasizes the B2C side of e-commerce.

There has to be an intermediary service present in the process if there is no intermediary and the consumers can buy goods or services in real time directly from the seller through the internet then it is E-shopping. So we can say that E-shopping is a form of E-commerce.

So since the past decade, the way people shop has dramatically changed. Besides shopping at physical stores, with the ICT (Information and communication technologies), consumers are able to buy through the Internet. So there is no more only the choice of in-store shopping, now consumers can also buy goods/services via internet in real time.

B2C Commercial relationship:

Even if E-commerce includes different forms of commercial relationship such as B2B (Business to Business) or B2G (Business to Government) to understand how the E-market works, we have to take into consideration the economic and the legal facts involving the B2C (Business to Consumer) commercial relationship. This relationship permits the online business to consumer communication and transactions. There are some differences between B2B and B2C. The most important one is the bargaining power the parties have in these relationships. In the B2B the parties are supposed to have more or less the same bargaining power which can be translated in a equal power in accepting or rejecting enforceable contractual clauses, but in the B2C relationship the consumer is in another level of bargaining power so it will have the necessity of an special protection.

Consumer in the E-Commerce:

There is no globally accepted definition for the consumer with regard to the e-commerce. We can underline the differences of this concept between the US system and the European system.

On the one hand, in the United States it is defined as it is stated in the last revision or amendment completed in 2002 of the UCITA (Uniform computer information transactions act) [3] :

‘(15) “Consumer” means an individual who is a licensee of information or informational rights that the individual at the time of contracting intended to be used primarily for personal, family, or household purposes. The term does not include an individual who is a licensee primarily for professional or commercial purposes, including agriculture, business management, and investment management other than management of the individual’s personal or family investments.’

On the other hand in Europe there is a big diversity of national definitions for the notion of consumer and also in the Brussels and Rome Convention the definition of consumer has different connotations. The definition of ‘consumer’ is subject to many European legal provisions as for example we can mention the definition in the Brussels Convention that is specified in article 13 and that says:

‘In proceedings concerning a contract concluded by a person for a purpose which can be regarded as being outside his trade or profession, hereinafter called `the consumer’…’ [4] .

So the main characteristic we have to look at is that the conclusion of the contract is ‘outside his trade or profession’. But also consumer may also be ‘any natural person who … is acting for purposes which are not directly related to his trade, business or profession’. [5]

In any case it is necessary to have a clear uniform definition of consumer, because a narrow interpretation can exclude small business and it might create a situation of unfairness between small businesses. Also because with a wide interpretation of the rights protected, the small businesses will form part of the B2B commerce relationship. In this way the most part of the legal systems accept that small businesses are in the same position as that of consumers because of their inexperience in negotiation contract with big businesses. But this is not the case with regard to the scope of unfair commercial practices, here small businesses are not consider as consumers and it is not applicable to the B2B commercial practices.

Seller in the E-commerce:

It is very important to define who, is the ‘seller’ in the electronic commerce because with it we can determine the level of online contractual liability between traders and consumers.

First of all, in order to give a definition of ‘seller’ we have to state that the activities that may be subject are those such as the supply of goods, the supply of services, and information. These activities can be the object of different types of distance contracts. A distance contract is ‘any contract concerning goods or services concluded between a supplier and a consumer under an organized distance sales or service-provision scheme run by the supplier, who, for the purpose of the contract, makes exclusive use of one or more means of distance communication up to and including the moment at which the contract is concluded’ [6] . Under this Directive (97/7/EC) the seller is called the supplier, and it is ‘any natural or legal person who, in contracts, is acting in his commercial or professional capacity’ [7] . In this case a ‘seller’ which is acting ‘in his commercial or professional capacity’ has the same liability and information duties than in a normal contract.

Moreover the UCC (Uniform Commercial Code) in the United States, establishes that a seller is a person who by his occupation holds himself out as having knowledge or skill peculiar to the practices or gods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill. These sellers would be governed by common law, under which it has the duty to carry out services with reasonable care and skill. But this definition doesn’t refer to the provision on services.

So the determination of the seller in a transaction is very important because with it we can establish which type of contract do we have and knowing the type of contract we can identify the level of liability applicable to the case.

LEGAL FRAMEWORK OF THE PROTECTION OF E-CONSUMERS IN THE EUROPEAN UNION

Why is it so necessary to have an special protection to the consumers framed into the legal system of the EU? In this section of the research we are going to see why it is so important and which, are the main regulations with regard to the scope of the e-commerce.

First of all we have to assert that the electronic commerce is very important nowadays because it is very present in our day to day and on top of that it has lots of benefices, like for example, it facilitates to people from isolated areas in which there are not too many shops to have access to products as the rest of the world, and also it has made possible to low the costs of cross-border transactions. Moreover we can state that it is not substantially different from the other species of commerce.

Furthermore, the consumers in the E-market have the same requirements and needs as traditional consumers. But on the other side they have more vulnerabilities, because for example they cannot examine the product prior to purchasing it and they may not know who they are buying from. Taking this into account, it is clear enough that the necessity for ‘trust’ is even greater in e-commerce than in traditional trade. The trust created by businesses is still quiet poor in e-commerce, and in many jurisdictions consumer protection laws continue to be weak.

Knowing that e-retailers fail in providing the necessary trust, regulation of e-commercer plays a crucial role in creating consumer trust in it. This trust will be beneficial for businesses, consumers and society in general.

Then by improving e-consumer protection, consumers confidence is going to rise and consequently also the e-consumerism, which will benefit businesses with an increase on sales, consumers with a greater choice and society, to allow people from isolated areas to be able to purchase even if it is difficult to move.

So in this section we are going to review the the existing legal framework in the EU for the protection of e-consumers putting special emphasis in the fact that the model presents the needs of the consumers.

EU legal framework of the e-consumer protection

Failure of existing frameworks

Since the creation of the E-Market governments and also some intergovernmental organizations such as the OECD (Organization for Economic Co-operation and Development) have realized that it was necessary to framework the protection of the e-consumer. With regard to the instruments created by those, we can divide them into two groups, those which in particular deal with e-consumers issues and those which in general deal with the protection of consumers. Even though in practice they have failed consumer needs.

With regard to those instruments that deal in particular with e-consumers we can find the Council Directive 2000/31/EC of 8 June 2000 on certain legal aspects of information society services and the OECD’s Guidelines for Consumer Protection in the Context of Electronic Commerce for example.

On the other hand with regard to those more general ones we can find: the United Nations, Guidelines for Consumer Protection and the Directive 95/46/EC on the protection of individuals with regard to the processing of personal data and on the free movement of such data.

In fact the situation in the EU is not other way, it is failing to cover consumer needs. It recognized the need that exists for consumers from the perspective of the EU as shown in the EU Consumer Policy Strategy 2007-2013 [8] and also with regard to unfair commercial practices there is also a list of 31 ‘banned commercial practices that are still an objective of this directive. [9]

So in order to reach a legal framework sufficient enough for the well functioning of the market and consequently of the society it is necessary to define which are the needs of consumers.

European and Spanish regulation of the e-commerce.

The European Commission is developing an active policy for the protection of European consumer rights in any of the member states of the European Union as well as establishing Directives, Regulations and Recommendations (legal framework), and also to supporting the creation of an instrument that is, the network of European Consumer Centers.

In addition to rules on distance contracts in general, it is necessary to know the rules applicable to new media like the Internet.

With regard to the European Union we can mention apart from the Directive on Distance selling, the European Directive on electronic commerce [10] , also the VAT (Value Added Tax): special arrangements applicable to services supplied electronically [11] and in Spain, moreover, we have the Law on Electronic Commerce and services of the information society [12] as well as the General telecommunications law on electronic communications Act amending the Electronic Commerce and Services of the Information Society [13] .

The European directive on the protection of consumers in respect of distance contracts has as main objective ‘to approximate the provisions of the Member States concerning distance contracts between suppliers and consumers’ and it will apply to ‘distance contracts, i.e. those concluded by any means (e.g. telephone or e-mail) which do not require the simultaneous physical presence of the parties to the contract.’ [14]

To complete the protection of e-consumers the European Commission gave the guidelines to the creation of the Directive on electronic commerce which has the purpose of improving the legal protection of e-commerce in order to increase the trust of Internet users. It sets up a stable legal framework by making information society services subject to the principles of the internal market (free circulation and freedom of establishment) and by introducing a limited number of harmonized measures. And this is so as we can see in the Study on the Economic Impact of the Electronic Commerce Directive in the final report as it says in the main findings that ‘We find that the Directive has led to more homogeneous legal framework conditions between the Member States for information society services’ [15] .

On the other hand the Directive on VAT of special arrangements applicable to services supplied electronically has the main objective of creating ‘level playing field’ for EU businesses in relation with the indirect payment of taxes of the e-commerce and moreover it also encourage the harmonization for non-EU businesses.

There is also a Commission Communication of 7 February 2001 to the Council and the European Parliament on e-commerce and financial services [16] that deals which aim is to facilitate the freedom to provide services increasing consumers trust by clarifying the interaction between the e-commerce directive and existing financial services legislation.

With regard to Spanish specific legislation as we have mentioned before we have first, the law on Electronic Commerce and services of the information society which regulates the legal status of the services of the Information Society and electronic contracting. And also an act amending this law.

However, a recent news published recently on the official website of the European Commission shows that there are still shortcomings in the effective e-consumer protection in this particular case with regard to the fact that even though most websites that sells electronic goods comply with the protection of the consumer given by EU rules, 60% of the websites of selling tickets breaches these rules [17] .

The article discusses about an ongoing sweep over online ticket sellers for cultural and sporting events. The EU sweeps are investigation and enforcement actions made in order to check the accomplishment of consumer laws on a particular market in order to see where consumer rights are being covered or denied. It shows that ‘Consumers should watch out for missing, incomplete or misleading information about ticket prices (74% of problem sites), unfair terms and conditions (73%), as well as missing, incomplete or misleading information about the trader (48%).’

For the proper implementation of European regulations and effective consumer protection it is necessary to propose a model capable of first, defining electronic consumer needs and then focus on four important points that are, the provision of appropriate information to consumers for them to be better prepared to take care for their interests, the promotion of fair contracts, the promotion of a sufficient privacy protection and finally the possibility of a conflict resolution system for companies.

A model for the effective e-consumer protection

Now that we have identified the four main points for the effective protection of e-consumers on which we need to look at we can do a summary for better understand them.

First of all, consumers must have access to appropriate information so as to make it possible for them to become familiar with the advantages as well as disadvantages of entering into a particular transaction. Such information must be relevant, accurate, comprehensive and accessible. A jurisdiction with useful consumer protection will ensure that consumers have access to such information.

Second, consumers must be able to contract on fair terms. As a consumer typically never enters into any negotiation of the terms of the contract, and instead, it is the business that dictates the terms of the contract, it is crucial that the law ensures reasonable balance in the terms in consumer contracts. Jurisdictions with satisfactory consumer protection ensure that their consumers can contract on fair terms.

Third, it is essential that consumers’ personal data is protected as they enter into transactions. While data protection is important, offline as well as online, e-consumers have reason to be particularly concerned about their privacy. The protection of consumers’ personal data is an integral part of consumer protection and nowadays it’s a very important issue that is highly in debate because public and private sector organizations are now able to capture and use data on a great scale, thus enhancing the importance of adequate measures for protecting non authorized disclosure of personal information. In this respect, data breach notification has emerged as an issue of increasing importance throughout the world. It has been the subject of law reform in the United States and in other jurisdictions. In Europe but more specifically in the UK there is a catalogue of large-scale data breaches that have been reported these last years. The EU has developed a comprehensive data protection directive [18] that give uniform obligations on member states through national legislation. The EU’s approach to data breach notification has been open to a number of public disagreements between the European Council, the European Parliament. The e-Privacy Directive concerns issues relating to the processing of personal data and the protection of privacy for publicly available services provided by the electronic communications sector.

Fourth, Alternative Dispute Resolution (ADR) procedures, also known as ‘out-of-court mechanisms’, have been helping European citizens engaged in a consumer dispute who have been unable to reach an agreement directly with the trader. With regard to the electronic commerce we can also find another form of dispute resolution which is the Online Dispute Resolution (ODP) procedures. Because nowadays, there is a large and increasing number of e-consumer disputes, it is very important that consumers have access to adequate dispute resolution mechanisms. Initially the responsibility lies with the merchant, but where necessary, quasi-judicial and ultimately judicial processes are needed. Ensuring consumer access to adequate dispute resolution mechanisms is difficult in the context of low-value cross-border transactions. However, a jurisdiction with adequate consumer protection must have such dispute resolution mechanisms in place.