One Year Ago: E-tail Failures Could Trigger Federal Legal Action


Originally published on December 29, 1999 and brought to you today as a time capsule.


Many e-tailers that failed to deliver on time during the holiday season may have opened themselves up to sanctions from the U.S. Federal Trade Commission (FTC) as well as class-action lawsuits, according to an Internet legal expert.

Michael D. Scott, a partner with the law firm of Perkins Coie LLP, told the E-Commerce Times that a number of e-tail sites appear to be operating in violation of the FTC’s Mail Order Rule, a 1975 measure that governs the performance of mail order sales. Companies that are subject to the Rule include those that engage in traditional sales by mail as well as companies that receive sales orders where “a computer, fax machine or some other similar means is used to transmit an order over telephone lines,” according to an FTC press release.

The FTC release said that the Rule requires companies to notify the consumer if an order cannot be shipped on time. The customer must then be given an opportunity to cancel the sale, although the company can presume that the customer wants the order completed if the customer says nothing after being notified.

If the company cannot meet the revised shipping date, the release said that the Rule requires the consumer to be notified a second time, and unless the consumer expressly consents to the new delay, the company must cancel the order.

Many Don’t Know

According to Scott, many e-tailers were not aware that they were subject to the Mail Order Rule. Scott operates out of his firm’s Santa Monica, California office and is the author of the “Internet and Technology Law Desk Reference.”

“I speak at numerous conferences on Internet legal issues,” he said, “and many of the companies I speak with do not even know these provisions exist. They have no triggers in their systems to notify buyers of late deliveries as required by the Mail Order Rule.”

Scott said that the FTC has imposed numerous fines and sanctions on traditional mail order companies for such violations in the past. While he said that there appeared to be numerous violations of the Rule during the holiday season by e-tailers, he added that he has no knowledge of whether the FTC plans to take any action.

“The FTC has already taken action against Geocities for supposedly violating privacy laws,” he said. “It wouldn’t be surprising to see them take action against one or more e-tailers to make it very clear that they were subject to the Mail Order Rule.”

Lawsuits Possible

In addition to potential sanctions from the FTC, Scott told the E-Commerce Times that e-tailers may have also opened themselves up to class-action lawsuits by law firms that were mainly interested in generating fees by settling such suits before they reached court.

“The class-action attorneys may claim something like breach of contract by failing to deliver goods as promised and then try to recover damages for all of the consumers supposedly injured by the actions,” he said. Shareholders, he added, may also sue if the e-tailer’s stock plummets after the company fails to meets its performance claims.

The companies being sued, he said, often decide to settle regardless of the suit’s merits because of the negative publicity generated by the suits.

Improving Service

Scott said that it is important for e-tailers not to repeat their weak performances next year if they escape without sanctions this year.

“For some e-commerce companies witnessing only their first year of operation, many legal safeguards such as disclaimers on their Web sites may have been overlooked,” he said. “They will need to carefully review their sites and ensure that their customer delivery and return policies are in line with the expectations of their customers and with FTC rules in order to head off potential litigation or sanctions.”

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