Legal Considerations for Running an Online Marketplace
Thinking of running an online marketplace? If you are, make sure you take these legal considerations into account to minimise your legal risks.
Online marketplaces have become a common way for people to buy goods and services. Whether it’s on Amazon, Ebay or ASOS, people are hopping onto the computer instead of going to the shops to buy and sell goods. And it’s big business – in Australia, searches for online marketplaces have increased by 46 percent year over year, with a growth of 84% from January to July 2020 (no doubt accelerated by COVID). For hosts however, online marketplaces can also be abundant with problems. When a lot of people with different interests interact on an online marketplace, issues are bound to arise. If you’re thinking of running your own online marketplace, you should know how to protect yourself from these issues. So, here some legal considerations you should take into account when running an online marketplace.
Limiting liability and including disclaimers
What’s the extent of your responsibility as the host for problems that sellers and buyers encounter on your online marketplace? If there’s a dispute between a buyer and a seller, could you be dragged in?
The extent of your liability will depend on the role you play in your marketplace and its business model. If you are simply acting as an intermediary that introduces the goods or services of a seller to potential buyers, then you should make this clear in your Terms of Service. By extension, you may make it clear that you are not a party to any agreements entered into between sellers and buyers. Additionally, you may include disclaimers stating that you are not liable for issues with sellers’ products, such as malfunctions.
The case of Amazon
If your role is more than that of an intermediary, then your liability for issues on your online marketplace will be higher. A recent US case involving Amazon highlights this. A woman became partially blind when a retractable dog leash she bought from Amazon malfunctioned. She claimed that Amazon was liable for her injury by allowing this faulty product on its website. Amazon argued that it was not the “seller” of the product so it was not liable for the product defect. However, the Court found that Amazon was responsible for a number of reasons.
First, it played a large role in the actual sales process, so its role was beyond “a mere editorial function”. Second, the Court found that it was “fully capable…of removing unsafe products from its website”. Third, Amazon “enables third-party vendors to conceal themselves from the customer”, meaning that vendors on Amazon were difficult to reach or seek remedy from if there were issues with a product.
So make sure you clearly define and understand the limits of your role and responsibilities on your online marketplace.
The rules of your marketplace
To further minimise your legal liability, you should also set down and enforce some ground rules.
If any legal disputes arise, the Court is likely to take disclaimers into account. However, the Court could also find that you have some responsibility for facilitating or failing to prevent illegal conduct on your online marketplace.
- Not engaging in misleading and deceptive conduct – descriptions and pictures of products should be accurate
- Not infringing copyright – sellers should not sell items with copyrighted materials. For example, vendors selling t-shirts with a Star Wars themed design would be infringing Disney’s copyright.
- Ensuring product safety and fitness for purpose
- Prohibiting vendors from selling certain categories of items, such as weapons, drugs and alcohol, tobacco etc.
While sellers should advertise their products accurately, so should the host. On many online marketplaces, the host has a large role in advertising and displaying products. Accordingly, you should make sure that the algorithms, features and presentation of products on your online marketplace do not mislead or deceive buyers.
Some aspects you should consider include the following:
- Product review systems – if you are going to allow ratings or reviews on your online platform, you should ensure that these are fairly presented. Star ratings should include the number of people who’ve given the product a rating and reviews that seem fake or malicious should be removed.
- How are you promoting products on your marketplace? For example, you may promote popular items, items low on stock or highly discounted items on the frontpage of your online marketplace. You should ensure that the way you promote items doesn’t mislead customers into rushing into a decision or overstate the value of the items.
- What features can you include to make sure products are advertised as transparently and reliably as possible? Perhaps you can make it mandatory for sellers to include pictures of the product in their advertisement, or provide a way for buyers to contact the seller.
Privacy is becoming an ever sensitive issue, with massive data breaches on online platforms often making the headline. As the host of an online marketplace, you will likely have access to personal details of buyers and sellers, such as their name, address, phone number and credit card details. In handling this data, you must comply with the Australian Privacy Principles. These principles include:
- Obtaining consent from users for you to receive and use personal information
- Clearly disclosing what personal data you will receive and how you will use them
- Taking reasonable steps to prevent the misuse of and unauthorised access to personal information of customers
Running an online marketplace can be profitable business, as it has become a common way for people to buy and sell goods. If you’re thinking of running an online marketplace, you should make sure that you and the users of your online marketplace are abiding by the law. Minimise your legal risks by taking these considerations into account.
Diana is a Legal Tech Intern at Lawpath, working as part of the Content Team. She is currently in her final year of a combined Bachelor of Arts and Bachelor of Laws degree at the University of New South Wales. She is interested in media law, intellectual property law and the intersection between technology and law.