by Nelson Mann
A small Kansas City manufacturer can now offer items for sale in an international marketplace through its own home page or through an Internet auction site. But immediately upon entering the Web world of marketing, some of the old issues arise in a different context. Now we must reconcile product warranties and terms and conditions of sale offered on the Web site with those on existing purchase orders and invoices. We must take care to reserve the right to change prices and products at the company's discretion. We must make sure we do not assume further liabilities by virtue of the product information imparted through our Website. Reservation of our domain name is not the equivalent of trademark registration, so we must ensure the proper protection for our brand and company names. And, finally, we need to agree who owns the intellectual property contained on the site and its design elements.
All of these questions can be readily resolved, but it requires our small manufacturer to pause and go through the checklist. Additional and more troublesome questions may arise by virtue of the collection of detailed customer information that was previously unavailable. With this information readily available we look for ways to manipulate it and use it in a manner to increase our sales opportunities. We also may be tempted to actually commercialize the information by selling it to third parties. But remember privacy is becoming a big issue. If our manufacturer has a privacy policy it has extended to its customers, breach of the policy may create a cause of action that did not previously exist. And don't forget about the Children's Online Privacy Protection Act (³COPPA²); information about our children is regulated and may not be resold. We can expect the federal government to become even more active in the area of privacy as it focuses on the vast quantities of data preserved through its own systems.
And then there is taxation. Sales over the Internet have not been taxed by local authorities because of a moratorium that is proposed for extension by Sen. Byron Dorgan (D-ND) through the proposed Internet Tax Moratorium and Equity Act. This bill would authorize states to enter into an Interstate Sales and Use Tax Compact that would provide for uniform definitions of goods and services, uniform procedures for treatment of exempt transactions, uniform rules for attributing transactions to particular states, and uniform audit procedures. With governmental budget shortfalls occurring throughout the country, taxation of internet sales looms on the horizon and our small manufacturer needs to include this in future planning.
We are not even quite sure what set of legal rules govern a transaction over the Internet. Is a sale that our Kansas City manufacturer makes through a California auction site to an Oregon resident governed legally by Missouri, California, Oregon or federal law? Internet sites typically address this problem with contractual choice of law provisions on their site that all users of the site are to accept before selling or buying items on the site. But what if the item sold is information or software that is downloaded from the vendor's site after sale? This type of product does not fit neatly into the older legal schemes. The need to develop appropriate legal rules for such computer information transactions caused the drafting of a new law, UCITA, which some states have already adopted.
Business and technology will not slow down to let the law catch-up. In the meantime, our manufacturer should be alert and our legislators will be very busy.