ECommerce Law and Regulation 46-840
Homework 1
General homework policies are the same as those of Electronic Payment Systems, 20-763.
All homework must be submitted in machine-readable form
with extension .doc by email to shamos@cs.cmu.edu.
This homework is worth a total of 300 points.
You work as a staff attorney in the legal department of stuff.com, a large Internet merchant selling general catalog goods similar to Wal-Mart. Your boss, the General Counsel of stuff.com, has just learned that the European Union Distance Selling Directive has been implement by legislation in several European countries and she has a number of research questions she wants you to answer in a written memorandum of law.
A memorandum of law is a document used by a legal client (corporation or individual) to plan their legal affairs. It consists of an analysis of the current law on a particular topic as applied to the client’s specific facts and circumstances. A well-researched legal opinion helps a corporation decide whether to enter a new line of business, what steps it must take to be sure it complies with all applicable laws, and enables to perform a risk analysis. In creating a memorandum of law, it is not enough to answer the questions; your answers must be accompanied by legal reasoning either from cases, legal articles, statutes or some other explanation for your conclusions.
To: Staff Attorney
From: General Counsel
Date: March 13, 2002
Re: Memorandum of Law on Distance Selling in Europe
It has come to my attention that the European Union Distance Selling Directive has now become the law in certain EU nations, including specifically the United Kingdom. As you are aware, more than 20% of our sales are now made to European customers, about half of which (measured by dollar value) are shipped to consumers in the U.K. These orders are received almost exclusively via the Internet and are paid for at the time the order is placed by credit cards, credit transfers and PayPal. Our New York bank accepts payment in British pounds, so we do not insist on payment in U.S. dollars.
We have no offices, employees or agents in the U.K., although we advertise our website in the International Herald Tribune, which has a circulation of almost 120,000 copies in the U.K. Stuff.com is a publicly-traded company on the NASDAQ, incorporated in Delaware with principal place of business in St. Louis, Missouri and overseas shipping facilities in Newark, New Jersey and Seattle, Washington. Our server farm of 1000 servers is in Chicago, but we have contracted with Akamai, which hosts our web content in numerous locations around the world to speed up web interactivity in places with poor or congested Internet infrastructure.
I have numerous concerns over the effect of the U.K. statute on our operations and prospects for the future, particularly over the right of a U.K. consumer to cancel an order for no reason and without penalty within seven working days of placing it. Please draft a confidential memorandum of law to my attention that deals with the following questions:
1. [75 points] Please find and quote the exact provision of current British law that allows cancellation within seven working days.
1(a). Are there any exceptions? Specifically, are there any goods for which there is no right of cancellation?
1(b) Do the distance selling regulations apply to us?
1(c) Exactly who is entitled to the benefit of the U.K. distance selling law (DSL)? Someone who is in the U.K. at the time of placing his order, including Americans? Any U.K. citizen, regardless of where he may be at the time of placing an order?
2. [50 points] Given a visitor to our website, how can we tell if he is (i) a consumer); and (ii) subject to the benefit of the U.K. DSL? Does it matter where the goods are shipped?
2(a). If an American orders a gift to be shipped to the U.K., does he benefit from the right of cancellation?
2(b). If a British citizen is visiting the U.S. and while here he orders something to be shipped to his house in the U.K., does he have the right to cancel?
3. [25 points] Please consider the effect on our U.S. customers if we were to offer a seven-day cancellation to British customers but not Americans. Would this violate any U.S. laws against discrimination?
4. [50 points] Suppose we take no steps to comply with the U.K. DSL and offer no right of cancellation. What liability or sanctions might be imposed on our company in the U.K.? If a judgment is issued against us in the U.K for violating the DSL, will the U.S. courts enforce the judgment?
4(a). Suppose a person entitled to the benefits of the U.K. law decides to “cancel” an order by refusing to pay for it by some means, for example, by denying the credit card charge. If we have already shipped the goods, must the consumer return them?
4(b). Suppose a person entitled to the benefits of the U.K. law attempts to cancel an order and refuses to pay. Is there any place we can obtain a judgment against him, for example, in the U.S.?
5. [25 points] I have heard that a U.K. entrepreneur may set up a business to extend the benefit of the DSL to Americans as follows. An American visits ucancel.co.uk. He is redirected to our site by clicking a link. He fills his shopping cart but instead of checking out, ucancel submits the order on behalf of a cooperative U.K. consumer, but gives a shipping address in the United States. If the U.S. customer wants to cancel with seven working days, a cancellation message is sent by the U.K. consumer (actually, ucancel sends it on his behalf). If this scheme works it will be a disaster for us. Is it legal? Would we have to honor the cancellation?
6. [75 points] What is your best advice to the company on compliance with the U.K. DSL? Our marketing department has estimated that we will lose $15 million in profits on U.K. orders that would not have been cancelled except for the U.K. law; it will cost $2 million in systems and programming costs to comply, we will spend $1 million per year to operate a 24/7 cancellation/return center to deal with customer questions arising from cancellations. They also believe we will be forced by public opinion to offer cancellation to U.S. customers even though no U.S. law requires it and our annual revenue will decline by at least another $100 mllion.