Late this Fall, and without much fanfare, the California Legislature substantially revised Business and Professions Code Section 17538, a consumer protection statute, to cover certain business transactions conducted over the Internet or by means of "any other electronic means of communication."^[1]

The need for such expanded coverage is obviously directly related to the explosion of Internet-related business. Yet, there has been surprisingly little discussion concerning the additional requirements imposed by the amended statute. This is unfortunate because the penalty for failure to comply with the new requirements is relatively severe, while the cost and difficulty of compliance is not. An offender subjects himself or herself to up to six months in a county jail and a possible fine of up to $1,000.

General provisions of Section 17538 now applicable to "electronic sales"
Section 17538 previously regulated only the sale or lease or offering for sale or lease of goods or services by telephone, mail order, catalog, television or radio. Basically, it provided that, regardless of the method of payment, a vendor had thirty days after payment by the purchaser to do any of the following:^[2]

1. ship, mail or provide the goods or services;
2. mail a refund or cause the purchaser's credit card to be credited;
3. provide the purchaser with written notice (A) regarding the specific duration of a expected delay or proposing the substitution of superior goods or services (with a detailed description of the "superior" good or service and how it differs from the original good or service), and (B) offering to make a full refund within one week if the purchaser so requests. The vendor is required to provide the purchaser with a toll-free telephone number or other cost-free method to communicate the refund request;
4. shipping, mailing or providing substitute goods or services of equivalent or superior quality, if the purchaser has the opportunity to return same free of charge and to receive a full refund for the purchase price previously paid. The vendor also must supply the purchaser with a notice advising the purchaser of the substitution and describing the differences between the ordered good or service and the substitute.^[3]
   

The amendment of Section 17538 removes any question about whether Electronic Sales are covered by these consumer protections.

 New Rules for Electronic Sales to Purchasers in California
Section 17538 also imposes new requirements on Electronic Sales to California purchasers. First, before accepting any form of payment, an Electronic Sales vendor must disclose to the purchaser in writing or by electronic means of communication, such as e-mail or an on-screen notice, (a) the vendor's refund and return policy, (b) the legal notice under which the vendor conducts business, and (c) the complete street address where the business is actually conducted.^[4]

Second, if the required disclosures are made by on-screen notice, the disclosure of the vendor's legal name and address must appear on one of several specified screens on the vendor's electronic site and must be at least as legible and set in a font as least as large as the text of the offer itself. In addition, the on-screen disclosure must be accompanied by an adjacent statement describing how the buyer may receive this information at the buyer's e-mail address.

While the amendment of Section 17538 may represent one of the first state legislatures' responses to the growth of Internet-related commerce, it certainly will not be the last. Because states are increasingly likely to attempt to regulate foreign companies conducting business within their states by electronic means in the future, as California did, businesses must strive to keep ahead of these developments, even in jurisdictions other than their home jurisdictions.

Jeffrey M. Reisner
All rights reserved.

1. For the purposes hereof, sales through the Internet and "other electronic means of communication" are referred to collectively as "electronic sales." Although the Legislature defined "Internet" in the new legislation, revision of this definition, and exploration of the contours of "electronic meas of communication" is inevitable as the underlying technology and its application evolve.(back)

2. This requirement may be avoided by a conspicuous statement in the offering or advertisement. The time period also may be shortened in the event that vendor communicates a shorter period of time. Section 17538.3 of the Business and Professions Code contains other exceptions for goods or services which by their nature are not ready for use or consumption until a future date, goods ordered for serial delivery, business telecommunications goods and services and financial services offered in the ordinary course by specific types of financial institutions.(back)

3. Vendors with more than 100 retail outlets in at least 20 California counties are excused from the notice requirement if they meet other criteria.(back)

4. A complete street address need not be provided if the vendor utilizes a private mailbox service, discloses the actual street address of that service and complies with the on-screen notice disclosure requirements, described below. In addition, the vendor must comply with Section 17538.5 governing businesses utilizing post office boxes, private mailbox receiving services, or street addresses "representing a site used for the receipt or delivery of mail or as a telephone answering service."(back)

Jeffrey M. Reisner
Lobel & Opera
19800 MacArthur Blvd., Ste. 1100
Irvine, CA 92623
Phone: 949-476-7436
Fax: 949-476-7444
jreisner@lobelopera.com