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Legal Developments for Online Retailers

Dear Clients and Friends,

As more and more companies sell things online, especially to far-flung customers, it can be difficult to keep track of the ever-changing legal rules that apply. Here’s a look at just some of the issues on the horizon that online retailers should be aware of:

Is your website accessible to the disabled? You might be surprised at the idea that the federal Americans With Disabilities Act applies to online stores, but the U.S. Department of Justice has taken the position that it does, and is planning to issue rules soon for how retailers should comply.

It’s likely the government will soon require retail websites to do some or all of the following:

▶ Make sure web pages are compatible with current user tools for the disabled, such as machines that convert text to speech;

▶ Provide text equivalents for all visual and audio data, so blind and deaf users can understand the information;

▶ Make all functionality available from a keyboard; and

▶ Avoid flashing images or anything else that can trigger seizures. There have already been some notable lawsuits for non-compliant websites. For instance, the National Federation of the Blind settled a claim against the Target retail chain for $9.7 million. And the Justice Department brought claims against tax preparer H&R Block and Internet grocer Peapod that resulted in major changes to the company’s web operations.

Many such suits are being filed by advocates for the disabled.

A single blind man in Pennsylvania has sued some 35 banks, as well as dozens of retailers including Foot Locker, Brooks Brothers, Office Depot, and the Hard Rock Café.

Are your sale prices really sale prices? It’s not uncommon for online sellers to offer sale prices and show a discount from a regular, “valued at,” or manufacturer’s list price. But you can be in big trouble if you can’t show that the item actually sells at a different price. Joseph D’Aversa bought two sweaters online from J.Crew that were promoted as 30% off the “valued at” price. He later brought a class action under a state consumer protection law, claiming that the sweaters were never actually sold at the higher price because there was always some sort of a deal being offered. After the 30% off sale ended, there was an “up to 50% off ” sale, an “extra 30% off sale,” and then a promotion where customers could enter a discount code. In each case, D’Aversa claimed, the sweaters ended up being sold at the exact same price. The Justice girls’ fashion chain recently agreed to pay more than $50 million to settle a similar class action, in which shoppers claimed that goods were advertised at 40% off but were never sold at a higher price.

The Federal Trade Commission has warned online retailers that they can claim a product is “on sale” only if it was offered to the public at a higher price

in the regular course of business for a reasonable period of time in the recent past. The FTC also noted that “list prices” and “manufacturer’s suggested retail prices” are often abused, and it’s no defense to compare your price to a “list” price unless the product was actually regularly offered at the higher price.

California has particularly strict laws against “phantom markdowns,” which is important because even an online business that isn’t located in California could potentially be sued under California law if it sells to consumers there.

Do you charge sales tax correctly? Back in 1992, the U.S. Supreme Court decided that a company doesn’t have to charge sales tax to a buyer in a state unless the company has a physical presence in that state. So online retailers can generally avoid charging sales tax to out-of-state buyers.

Do call us for a free phone evaluation on any of your business’s legal matters.

Best,

Ron

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