E-commerce in Europe: are the terms and conditions of American online stores too narrow for European standards?

Wednesday, December 14, 2011

By Julio Cortes del Olmo

When Ikea opened its first store in the United States (US) they realized that something was not working: Americans were buying flower vases to drink from because Ikea’s glasses were too small. And they wanted more comfortable sofas, bigger beds and more spacious entertainment units! Swedish standards seemed just too small for Americansi.  Even big multinational companies cannot disregard consumer’s taste and expectations if they want to be successful when entering in new markets. 

Differences between markets go far beyond matters of taste and culture. Laws substantially differ and this reflects what consumers expect from companies. Many American companies selling electronic goods have flourished in the European Union (EU). The Common Market allows them to operate from countries where language and tax pressures are not burdensome, while virtually targeting the entire EU market through a web page. Since no significant changes to the products are needed, in a single currency environment it could seem that it is sufficient to merely change the language of one’s web site according to the targeted country.

In fact, many European versions of American company’s websites are just literal translations of their US websites, including the terms and conditions of sale. A German consumer buying through such a web site will be surprised to learn that the warranty period of the just ordered smart phone is one year – not the two years mandated by EU law - and that the courts of Texas in the US have exclusive jurisdiction. If the EU consumer has a problem it may be the US seller who is surprised: European conflict of law rules are designed to protect consumers in these situations. Article 16.1 of Brussels I Regulationii establishes that our German consumer can choose between a court in Texas and the courts of his domicile. The applicable law, according to Article 6.1 of the Rome I Regulationiii, will be the law of the consumer’s habitual residence. The current language of this article is broad and applies to software and music downloads contractsiv.

Moreover, since 2009 European consumers have a very powerful tool to litigate against companies based in other European countries. The European Small Claims Procedure applies in cross-border litigation to civil and commercial matters where the claim does not exceed two thousand Eurosv. Even if this consumer sues in Germany and the American company has operations in Ireland, he or she will be able to obtain redress, as judgments are directly enforceable across borders. 

Apart from avoiding a breach of EU consumer protection laws, there are other reasons why an American company should pay attention to the language and content of its European web pages.  European consumer protection authorities, both at member states and EU level, are constantly supervising the e-commerce environment. With coordinated activities like the “Internet Sweep Day,”vi they check e-businesses’ compliance with the law. Infringement can lead to sanctions, being black listed and even “name and shame” public campaigns in certain Nordic countries.

Besides, clear and compliant terms and conditions and transparency on a company’s web page are excellent tools to enhance consumer confidence.  A European consumer expects to see his or her rights respected on the internet. Rights like the two years guarantee period or the possibility to withdraw from the contract within seven days after the purchasevii should be present in every online contract. The terms and conditions of certain web pages look so confusing that this discourages consumers from reading them. This strategy, apart from potentially infringing the European Unfair Commercial Practices Directive that calls for understandable terms and conditions, undermines consumer’s expectations and damages the trustworthiness of a web page.

Any online seller nowadays knows that consumer confidence is the Achilles heel of e-commerce. A lot of resources are dedicated to creating secure payment systems, navigable web pages and identifiable trademarks. However, adding transparency and compliant terms and conditions of sale in a web page is a cost effective strategy that many times is underestimated. Ikea understood very quickly that they should adjust some products to the tastes and expectations of American consumers. Will American online stores in Europe also understand that their terms and conditions are just “too small” for European standards?

http://www.businessweek.com/magazine/content/05_46/b3959001.htm

ii Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

iii Regulation (EC) No 593/2008 of the European Parliament and the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I).

iv Stefan Leible/Matthias Lehmann, “Die Rom I-Verordnung”RIW 2008, 528, 540

v Regulation (EC) No 861/2007 of the European Parliament and of the Council of 11 July 2007 establishing a European small claims procedure.

vi http://ec.europa.eu/consumers/enforcement/sweep/index_en.htm

vii A new Directive on Consumer rights was adopted on October 10th 2011. Once published, approximately by the end of 2011, this minimum cooling off period will increase to fourteen days.