Tips for the developer and user of the e-marketplace

Legal requirements for payments, personal data and consumer protection are important for the e-marketplace – what to know when developing or choosing one?

The restrictions on physical trade in Lithuania caused by the pandemic led to more and more trade moving to the electronic space. Entrepreneurs have not only started to open their own e-shops, but also to cooperate with each other, giving the opportunity to sell in their e-shops the products of other entrepreneurs, farmers, craftsmen, or active women inspired for a new business by motherhood. In this way, some e-shops have transformed into e-marketplaces and new ones are being created.

Other benefits are also driving the popularity of e-marketplaces. For example, for a buyer it is convenient to compare prices and features of goods in the same place instead of searching for information in different e-shops. An e-marketplace can also give the consumer more confidence, as the sellers who trade there are usually selected and verified by the owner of e-marketplace. Meanwhile for the seller an e-marketplace is an additional sales channel that can also offer lower marketing costs.

How to choose an e-marketplace – tips for the sellers

There are several issues to consider when deciding whether a particular e-marketplace is suitable for a seller.

• First, it is necessary to consider whether the e-marketplace corresponds to the specifics and plans of the seller’s activities, i. e. whether the seller’s business meets the profile of entrepreneurs trading and consumers buying in that particular e-marketplace. For example, a farmer producing organic products may have a better chance of reaching her customer by trading in a specialized e-marketplace for the sale of organic products. On the other hand, the fact that the e-marketplace itself has a strong brand that helps to attract customers may be relevant to the seller.
• Secondly, it is important to evaluate how long the e-marketplace has been running and who is its owner, i. e. whether the e-marketplace is operated by a trusted person with sufficient financial resources to ensure its success and stability. The reliability of the e-marketplace can also be evidenced by the quality of the documents used in its activity and their compliance with applicable legal regulations. It should be checked whether the e-marketplace has clear terms of use (including, for example, provisions for payment, delivery of goods, return of goods, etc.), privacy policy, whether it has installed an appropriate cookie management tool, etc.
• The functionality and design of the e-marketplace should be assessed too. The seller should check not only whether the e-marketplace is user-friendly from the perspective of the trader, but also whether the buyer can easily find and buy the desired goods on it. It is also important to pay attention to how the e-marketplace provides information about the sellers, their trademarks, logos, etc., as well as whether the sellers will be able to properly present information about the goods or services they offer.
• Equally important is the technical reliability of the e-marketplace and compatibility with the seller’s systems, such as whether the e-marketplace owner can ensure that it operates properly and smoothly 24/7 and whether the seller needs to make additional investments to align its IT systems with the systems of e-marketplace.
• Finally, one of the most decisive issues for the seller concerns the fees for using the e-marketplace, i. e. how and at what rate commissions or other fees must be paid by the seller to trade on the e-marketplace.

What needs to be evaluated before creating an e-marketplace?

To avoid additional costs and time spent for the adjustments of the design and functionality of the e-marketplace in future, already at the development stage its owner should consider a number of legal requirements related to the functioning of the e-marketplace.

• Legal requirements applicable to the e-marketplace

First, it should be decided on the nature of the e-marketplace. For example, will it be limited to goods or services in a particular sector, will it be available to sell and buy to commercial entities only or whether the right to use the e-marketplace will be granted to consumers as well. If consumers also have access to e-marketplace services, the e-marketplace owner will have to comply with a number of consumer protection requirements. This includes not only the legal provisions already in force concerning the conclusion of distance consumer contracts, but also changes to the legislation specifically intended for e-marketplaces, which will take effect on May 28, 2022. It is also important to assess what personal data will be processed when operating the e-marketplace and the role of its owner in such processing, it is important to distinguish which personal data will be processed by him as the data controller and which by the e-marketplace seller.

Thus, the owner of an e-marketplace should consider how to technically create an e-marketplace and what design to choose so that it is not only user-friendly for both the consumer and the seller, but also compliant with the legal framework. For example, it should be decided on how the consumer will be informed that a particular seller is not a trader and the contract concluded will not be subject to consumer protection requirements, or how the key parameters for ranking the products offered to consumers within the search results will be provided, what measures will be taken to ensure that only genuine buyers can leave feedback, how the information on e-marketplace terms of use and the processing of personal data will be communicated, etc.

• Collection and distribution of payments in the e-marketplace

As the activities of an e-marketplace involve the collection of payments for goods or services sold, and sellers usually must pay the owner for the use of e-marketplace services, it is important to decide from the outset how payments for goods or services offered on the e-marketplace will be collected and distributed. The collection and distribution of payments is a payment transaction that can only be provided by licensed payment service providers. So, the e-marketplace owner has several options in this case.

• He can become a licensed payment service provider himself. However, this alternative may be unacceptable due to the additional financial, labour and time costs both in obtaining and maintaining the license.
• On the other hand, the e-marketplace owner may choose to use services of payment service providers operating in the market. This option may be attractive due to the transfer of the administrative burden related to payments and their distribution to a payment service provider who is a professional in his field. However, the services of such a professional are subject to a corresponding fee and not all payment service providers agree to provide such a service.
• Thus, the owner of the e-marketplace has another option – to rely on the so-called commercial agent exemption provided for in the Law on Payments. This exception means that a payment that is made from the payer (e. g. the buyer) to the payee (e. g. the seller) through a commercial agent (e-marketplace owner) will not be considered a payment for which a payment service provider’s license is required.

It should be noted, however, that the possibility of benefiting from that commercial agent exemption is subject to the fulfilment of certain conditions laid down by law. One of them is that the owner of the e-marketplace, as a commercial agent, can represent only the buyer or only the seller and must have an appropriate agreement concluded with such a represented person. Thus, in this case, it is very important for the owner of the e-marketplace not only to choose who he will represent as a commercial agent, but also to properly formalize this relationship in the contract. When formulating the rights, obligations, and powers of the e-marketplace owner in the contract, it is necessary to assess not only the requirements established in the Law on Payments, but also in other legal acts (for example, the Civil Code) or developed in case law. These include the peculiarities of termination of the contract or the obligation to insure against civil liability.

• Duties and responsibilities of the e-marketplace owner

Finally, the e-marketplace owner should decide whether (and if so, how) the contractual obligations towards the consumer will be shared between him and the seller. For example, who is responsible for the delivery of the goods, who is responsible for the refund of the amounts paid in case of return of the defective goods or withdrawal of the contract, etc.

• Documents used in e-marketplace’s activity

Once the most appropriate business model has been chosen, the e-marketplace owner should prepare the relevant business documents. These include not only the terms of use of the e-marketplace or the agreement with the seller (where it is important to discuss both the rights and obligations of the parties and the status of the seller, i. e. trader or consumer), but also the privacy policy or cookie policy (or alternatively cookie management tool).

• Intellectual property rights

In the development of an e-marketplace, as of any other technological solution, it is important to secure intellectual property rights. An e-marketplace usually involves a designer, programmer, marketer, other consultant, or service provider who is familiar with the user experience and interface (UX / UI). Therefore, if these services are provided to the developer of the e-marketplace not by its own staff but by hired service providers, it is necessary to conclude appropriate contracts, including ensuring that the intellectual property rights belong to the client. The person developing the e-marketplace should also take care of the legal protection of confidential information and trade secrets, trademarks and other intellectual property.

• Liability of the e-marketplace owner

Proper and thoughtful choice of e-marketplace design and functionality and preparation of documents is important not only for the convenience of the e-marketplace owner, sellers, or consumers. All of this can help reduce or avoid the risk of fines for violating consumer rights. For example, not disclosing information to the consumer on whether the person offering the goods in the e-marketplace is a trader would be considered a misleading commercial activity. For this violation, a person may be fined up to 3% of his annual income in the previous financial year, but not more than 100,000 euros. For a repeated violation within one year – up to 6%, but not more than 200,000 euros.

The author of the publication is Dr Rūta Lazauskaitė, attorney-at-law at “Glimstedt”, expert in technology and intellectual property law, consumer rights and personal data protection