Legal Issues Involved in the Online Purchase and Sale of Packaged Foods

Part I of this blog posted on May 12, 2015, discussed the business and economic opportunities presented by online purchases and sales of packaged foods as well as some of the business challenges to be overcome to make the opportunities profitable. Part II discusses the legal challenges that should be addressed to make online purchases and sales of packaged foods a practical and profitable reality.

Those companies that choose to enter the online packaged goods marketplace will face legal challenges similar to those faced by other entities operating in the e-commerce space. In order to reach their intended markets and to receive the full benefit of operating in the online market place, companies will need to utilize websites containing e-commerce features and functionalities. In connection with the operation of these websites, retailers should draft and post on the site certain legal terms and conditions addressing:

  • The customer’s use of the site (i.e. website terms and conditions);
  • The retailer’s data collection and data sharing practices (i.e. the privacy policy); and
  • The terms and conditions under which customers purchase products offered through the website (i.e. the terms and conditions of sale).

While the content of these legal terms will need to be tailored to fit the particular retailer’s risk profile and operational particularities, there are several concepts that each retailer should consider addressing through these legal terms.

Sellers of packaged foods over the internet face many potential liabilities associated with such sales activities. These potential liabilities include not only those faced by any business involved in a commercial transaction (such as breach of contract/breach of warranty) but also may include food related liabilities such as spoiled food, adulterated food, and foodborne illnesses. In order to help protect against some of these potential liabilities, retailers should consider including within their legal terms a limitation of liability provision limiting the retailer’s liability in connection with the sale and use of the applicable products. Generally, limitation of liability provisions attempt to accomplish two goals:

  • Limit the seller’s liability to direct damages only (while excluding consequential, indirect, special, incidental and similar damages); and
  • Limit the total amount of damages the seller will be liable for in connection with the transaction.

The specific amount for which a seller is willing to be liable in connection with a particular transaction (i.e., the dollar amount of liability risk the packaged good seller is willing to remain responsible) will vary depending upon that seller’s risk profile. In general, however, common limits seen from e-commerce retailers include limiting liability to the purchase price of the particular product involved or the amount paid by the purchaser for the entire order. No matter what limits a retailer may choose to include within its terms, incorporating any type of limitation of liability provision will help to reduce the potential liability of the entity selling through the site. We note that the enforceability of a limitation of liability clause may be challenged in certain instances especially when dealing with consumers.

Retailers who offer food products for sale over the internet may also face potential liabilities associated with certain warranties that are implied at common law or through the Uniform Commercial Code (the “UCC”).  At common law, it is well-established that there is an implied warranty that food is fit for human consumption that accompanies all sales between a consumer and a retail dealer of articles of food for immediate use. Under Article 2 of the UCC, certain warranties are implied in connection with the sale of goods by a merchant. The two implied warranties most focused on are the warranty of “merchantability” of the goods being sold, and the warranty that the goods are “fit for a particular purpose.”

Under the UCC’s definition of “merchantability”, the goods must at least:

  • Pass without objection in the trade under the contract description;
  • Be of fair average quality within the description;
  • Be fit for the ordinary purposes for which such goods are used;
  • Be adequately contained, packaged, and labeled;
  • Run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and
  • Conform to the promise or affirmations of fact made on the container or label, if any.

The implied warranty of “fitness for a particular purpose” applies if the seller, at the time of contracting, has reason to know the particular purpose for which the goods are being purchased and that the purchaser is relying upon the seller’s skill and judgment to select the suitable goods. Both of these implied warranties are broad and buyer friendly and can result in unknown and unintended liability to sellers. Even though these warranties may be implied by applicable law, they generally can be disclaimed through proper drafting of legal terms (subject to certain consumer protection laws which may impact a retailer’s ability to fully (or even partially disclaim such warranties). While disclaimers of implied warranties may not be effective in all cases, they can provide a certain level of protection in various situations especially when purchases are made by other business entities.

Finally, in order to fully operate an e-commerce website and to take advantage of the data collection opportunities afforded by such business model, retailers will need to obtain and use certain information from its customers. The information retailers may look to collect includes names, addresses, telephone numbers, credit card information, purchasing trends, website usage information, survey results, and other personal information of its customers. If a retailer collects personally identifiable information, it must include on its website a privacy policy that describes, at a minimum, what information it collects, how that information is collected and protected, and how such information will be shared and/or disclosed with others. The website privacy policy should be periodically reviewed and updated to ensure that it accurately reflects the company’s privacy and data sharing practices. In today’s environment, consumers are becoming more aware of the collection practices of e-commerce websites. Additionally, the Federal Trade Commission and state attorneys general are examining data collection and data sharing practices more closely and taking enforcement action against companies with lax privacy policies. Retailers face additional potential liabilities in the event its data collection and data sharing practices are not in line with applicable state and federal laws in this area.