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Contracts on the Move

The explosion in the smartphone market has made it easier than ever to buy any thing, any where at any time. However this new e-commerce platform raises a number of legal issues that impact upon the overall contracting process.

April 2011

It may be only a few years since they were introduced, but smartphones have already added a whole new dimension to the digital marketplace. Ebay, Amazon, Interflora, Tesco's and many other popular retailers (both internet and "bricks and mortar") have created Apps geared to shopping on the move. Thousands more are doubtless benefitting from those shopping online via mobile.

We know that the way people interact with a smartphone is different from both using a computer and communicating via an 'old' style mobile. Smartphones offer a commercial forum that is faster, more consumer-led and flexible, but with the potential to make more information available to users compared to traditional mobiles using SMS- or WAP-based services. However, the smaller screen, sometimes 'fiddly' input mechanisms, less consistent connectivity and the fact that use often takes place "on the move" in locations and circumstances making it difficult or impractical to concentrate fully on the information potentially available, make using a smartphone very different from sitting at a computer. While it might, therefore, be natural to assume that smartphones would fall more at the desktop internet end of the legal/regulatory spectrum, it is by no means certain that this will be the case.

Distance Selling

Whether using text, phone, fax, email or websites, transactions performed in situations where the consumer is 'distant' from both the seller and the goods or services being purchased will fall under the remit of the Consumer Protection (Distance Selling) Regulations 2000 ("the Distance Selling Regulations"). The Distance Selling Regulations provide that a customer who is a consumer must know, before entering into a contract, the following information:

  • The name and address of the supplier;
  • The main characteristics of the goods or services;
  • Delivery costs and estimated delivery time;
  • Their right to cancel;
  • Additional mobile costs of completing the transactions (e.g. premium text rates);
  • Any limitations on the offer (e.g. location or time limit); and
  • The minimum term of an ongoing contract (e.g. subscription).

In addition, the customer must be given a seven day 'cooling off' period in which they may cancel the contract and get a full refund. They must also receive a 'permanent written record' of all the information provided before the contract, their right to cancel and how to exercise it.

At first glance, smartphones seem a much easier forum than traditional mobiles, where transactions are completed by a series of 160 character SMS messages or by means of a slower, primarily simple text based interface. In this environment, it is now common practice for a link to a website containing this information to be provided and active real time opt-ins used to give notice that this information has been received.

However, retailers and advertisers need to be aware of the practicalities of using smartphones. The guidance on mobile marketing published by the Direct Marketing Association ("DMA") suggests that where communicating by text, referring a customer to a website with this information may be sufficient. Smartphone users will expect to be able to carry out this step via their phone. Where the relevant site is difficult to access via smartphone (due to slow downloading, multiple links, etc) vendors may be deemed to have failed this test.

Although the transaction might take place in real time, the obligation to provide a 'permanent written record' remains. Therefore, appropriate contact details (such as an email address) must be taken to send a communication confirming the contract. This personal data must be collected, stored and used in a way that safeguards the customer's privacy.

E-commerce regulations

Purchases made via smartphones must also comply with the "Electronic Commerce (EC Directive) Regulations 2002" ("E-commerce Regulations"). Transactions carried out by SMS may be exempt from these, as they may be treated as being 'formed exclusively by individual communications'. This is not usually so with a website (mobile or otherwise) or in an application. Under the E-commerce Regulations, when a customer places an order they must be provided with:

  • Details of the different technical steps which must be fulfilled to complete the transaction;
  • At what point they are committing to buy; and
  • Technical means of identifying and correcting input errors prior to finalising the order.

From a practical if not a legal standpoint, vendors must consider device functionality when adhering to these requirements. For example, the requirement to type in a correct 16 digit credit card number and billing address which defaults back to a blank screen whenever an error is made is likely to be frustrating for a smartphone user.

Near Field Communications ("NFC")

mobile communicationTo further complicate matters, mobile phones are likely to break fully into the world of "near field communications" later this year. Smartphone owners will have the option of paying for goods in store by sending a payment signal from their phone. This will be partially facilitated by the EC directive on "e-money", which will be incorporated into UK law by the E-money Regulations which are scheduled to be brought into force on 30 April 2011. Mobile phone companies will now be able to offer an e-money service (i.e. an account by which you can buy things electronically, similar to an oyster card) as well as a limited amount of credit.

Whilst this offers great retail advantages, as well as promotional opportunities for mobile networks, it will add another level of complexity to the mobile commerce market. A consumer might be simultaneously ordering a DVD online and buying a coffee using his smartphone: one transaction (the DVD) would be subject to the distance selling regulations; the other may not.

And don't forget…

Amidst these specific regulations it is as easy as it is dangerous to forget that basic rules of contract law apply. As there is no signed agreement, incorporation of terms is open to debate.

It may seem that smartphones offer full access to all your terms and conditions and it is possible to block a user from continuing with a transaction until they've ticked and acceptance box. But is this sufficient? Can a customer have truly agreed to a lengthy set of terms which are difficult to scroll through and read on a phone? There is a risk in the not too distant future that courts will need to take into account the widespread 'click-happy' consumer norm of accepting terms without properly reviewing them. Vendors wishing to rely on onerous or unusual terms would be wisest to do more to draw them to the customer's attention before the contract is formed.

In Conclusion

Smartphones are a hybrid between two recognised media for marketing and selling items, leaving them adrift amid a myriad of different regulation and best practice. Although to many a Blackberry, iPhone or Android user mobile internet may seem as vital a facilitator of daily life as a credit card or a 'portable telephone', it is a relative newcomer. Until the government and/or regulatory bodies provide more definitive guidance, retailers and advertisers are probably best advised to take a belt-and-braces approach to legal compliance.

If you have any questions on this article please contact us.

Contracts on the move
Patrick Clark

Patrick Clark

"While the mobile internet may appear an opportunity to apply the same rules that apply to desktop internet use, practical limitations may well mean that protections intended for older technologies (e.g. SMS) will still be relevant."

"Retailers and advertisers need to be aware of the practicalities of using smartphones"