Essential legal considerations for online marketplaces

Are you an “online marketplace”? Online marketplaces are all the rage lately, with every startup aiming to be the next unicorn.

Online marketplaces serve as a platform for the buying and selling of a third-party vendor’s goods. In other words, online marketplaces merely facilitate transactions and, most of the time, do not own any goods or services themselves. This means that legal considerations for online marketplaces can differ from that of a regular business.

There are a few fundamental issues you must consider for your online marketplace:

1. Your role in the marketplace

How involved are you in the transactions that occur in your marketplace?

AirBnB’s Terms of Service, for example, states clearly that they are no party to agreements that are entered into between hosts and guests. This helps limit the scope of acts or omissions that you may be liable for.

It is important to make clear that you are merely providing an introductory service to the parties that transact via your marketplace. As such, you have to make clear what role(s) you play and how that helps make transactions possible. You should think about:

  • How can users begin to transact on your platform? Will they need to create an account?
  • If so, do they access the service for free? If not, will you charge a listing fee, a subscription fee, or take a commission for every transaction?

Zalora’s Terms of Sale clearly indicates that users must create an account, and further states that no contract exists between Zalora and a user until a product is shipped to the buyer’s shipping address.

2. Limitation of Liability and Disclaimers

Because you merely play an introductory role in the marketplace, you’d want to make it clear that you take no responsibility or liability for the actions of third-parties.

RedMart’s terms and conditions for example points a user back to the third-party’s privacy statements and conditions of use.

Depending on the nature of your business, you will want to keep in mind laws that are specific to the country or industry in which you operate. For example, RedMart clearly states here their policy against selling alcoholic drinks to minors and in so limits their liability:

3. Protection of Customer Data

Users of your marketplace trust you with their personal data — their name, address, email address, phone number, and in most cases even their credit card details. You must provide assurance that you will only use data for the purposes that they have provided them for, and that you have taken the necessary steps to protect their personal data.

Uber, for example, clearly states in its privacy policy that they may collect data about your location, transaction, device, and log information, in order to facilitate your use of the ride-sharing app.

In addition, Uber provides an avenue for you to reach out should you wish to correct your account information:

In a nutshell, a Website Privacy Policy and Website Terms of Use are minimum legal requirements for your online business. Mobile app providers can use a Mobile App Privacy Policy and Mobile App Terms of Use for the same purpose.

If you are not selling goods or services online but act as a portal, you will still need to set out Terms and Conditions for your Online Marketplace.

Website Payment Terms will help set out the conditions of payment and if you advertise online or rent online advertising space use a Website Advertising Agreement to establish price, conditions of advertising, and length of agreement.

It is not uncommon for an online company to pre-release a product for beta-testing. In this case, you will need to warn users about the possible risks with a Pre-release Software Terms of Use.

No two online marketplaces are the same. Have you put in place the right clauses that will protect YOUR business in the correct manner?

Most legal documentation for online marketplaces are established for the similar purposes of providing terms and conditions of usage, protecting your users, and managing expectations around liability and warranties. It is important however that each of these clauses are customised according to what your marketplace has to offer specifically.

Further reading: Download our FREE ebook on legal considerations for Online Businesses


Originally published at dragonlaw.io.

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