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E-tail hazards include getting sued from afar
By Suzan Flamm
February 22, 2009
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| Suzan R. Flamm, Esq., is assistant general counsel of the Jewelers Vigilance Committee (JVCLegal.org), which provides general educational resources and jeweler-specific advice. |
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The benefits of advertising and selling jewelry online--gaining access to a global audience--are clear, but the complications of doing business from afar might be less obvious, as one jeweler found out after dealing with a dissatisfied customer who lived in a state 2,000 miles away.
Facts of the case: A jewelry company was able to successfully expand its business by advertising and selling its unique pieces online. But then, a customer who lived in a state thousands of miles away, where the jeweler had previously not done any business, asked for a refund some two months after her purchase. The retailer, citing its 30-day return policy, offered an exchange but refused a refund. The consumer, who stated that the no-refund policy was neither on the retailer's Web site nor inside the delivered packaging, threatened to sue the company in her home state. The jeweler contacted the Jewelers Vigilance Committee (JVC) for help.
Background-An issue of jurisdiction: While the Web's ability to reach consumers nearly anywhere might seem like marketing nirvana, it has created a legal headache for regulators and courts, as well as woes for online advertisers. The problem is the issue of jurisdiction, which deals with where an entity can sue and be sued, and determines whether federal law, or a particular state's law, applies to a contested transaction.
Traditionally, state courts have made jurisdictional rulings based on whether an entity is physically "present" in the state. But the Internet, which makes marketing material arguably "present" nationwide and virtually worldwide, has complicated the issue of jurisdiction for online retailers.
Unfortunately, there are no universally accepted guidelines, so decisions are based on several factors, and generally hinge on the degree of Web site interactivity.
At one end of the continuum are "passive," information-only Web sites that display jewelry but do not offer e-commerce, instead allowing out-of-state consumers to call a non-toll-free number to place orders. If an out-of-state consumer filed suit against a jeweler, it is unlikely that an out-of-state court would require the jeweler's presence in court.
At the other end of the continuum are highly interactive Web sites that exchange information with consumers, invite e-mail contact and sell online to out-of-state consumers. In these cases, courts would be more likely to allow litigation in the consumer's home state.
Between these two points on the continuum is a vast, gray area. Below are several Web site features, ranging from most passive (1) to most interactive (5), that the courts would likely consider in their jurisdictional analysis of a Web site:
1. Information-only Web site (Most passive).
2. Toll-free phone number listed on the Web site.
3. Ability to e-mail the company from the Web site.
4. Material on the Web site that is harmful, such as false advertising.
5. Web sites that provide the ability to purchase online, with delivery (Most interactive).
Jewelers selling online, particularly those targeting international audiences, should be aware that any online activities could be subject to legal claims by foreign governments, who may allege the Web site's practices violate its nation's laws.
Consumer protection laws apply online: Jewelers must always conform their advertisements to consumer protection laws, regardless of the medium.
Federal Trade Commission (FTC) guidelines, such as the requirement that policies restricting returns be clearly and conspicuously disclosed, apply nationwide. Additionally, many states have their own consumer protection laws--often more stringent than FTC guidelines--and state attorneys general are aggressive about shielding residents from false Internet advertising claims.
Conclusion: The JVC advised the jeweler that if the consumer actually filed suit, the company would be at the mercy of an out-of-state court, and in litigation far from home. Moreover, that court could conclude that the return policy was inadequately disclosed and rule against the company.
After the JVC provided mediation with the out-of-state consumer, at the jeweler's request, the latter agreed to accept the return and provide a refund, thus avoiding potential litigation.
The JVC suggested that one way the jeweler could minimize future risk would be to disable Internet sales in that, or in any other, distant state. Another tactic would be to ask the consumer to agree, before purchase, that any lawsuit related to the transaction would be filed in the company's home state. Under current law, however, out-of-state liability risk is triggered as soon as marketing material goes online. The jeweler thus began a risk-benefit analysis to determine whether or not to continue its online marketing, and, if so, in what format.
Lastly, the JVC advised the company that it was vulnerable to enforcement action by both the FTC and individual state attorneys general nationwide, on the grounds that its online ad was deceptive. Any company policy restricting merchandise return must be prominently posted on a retailer's Web site, possibly in multiple locations. Including the return policy in the packing materials with the purchase will not make up for Web site deficiencies, particularly if refunds are unavailable.
Editor's note: This story first appeared in the February 2009 print edition of National Jeweler.
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