Dropshipping: some legal guidelines before getting started

Are you planning to create an online or e-commerce business? Do you prefer simplicity and have heard of the dropshipping activity that is very popular lately? Are you wondering about the legality of this activity, and whether it is not a scam?

Here are some guidelines to help you understand this activity and get started.

Definition of dropshipping

Different online business models exist. The dropshipping business is just one of them. It is in fact an online commerce activity which involves different actors, beyond the seller and the purchasing customer, according to the following diagram:

• 1 person A (dropshipper seller) who manages a site through which she promotes and markets products. It only manages the promotion of these products;
• 1 person B (customer) who purchases the product promoted via the site (or platform) and therefore concludes the sale with person A;
• 1 person C (supplier or wholesaler) who is responsible by person A for all the logistics (packaging, shipping and delivery of products) enabling delivery to person B (customer).

The operation is transparent for the customer (person B) since she only knows the seller (person A). The interest for the seller is to launch a commercial activity with a low investment since the entire logistics structure (premises management, inventory management, shipping, returns, etc.) is managed by the supplier (person C).

As an online sale (or distance sale), also aimed at consumers, several provisions of the Consumer Code apply, in particular those relating to the seller’s obligations.

The Consumer Code defines the distance contract as:

“any contract concluded between a professional and a consumer, as part of an organized system of distance sales or provision of services, without the simultaneous physical presence of the professional and the consumer, by the exclusive use of one or more distance communication techniques until the conclusion of the contract”.

Obligation of the seller-dropshipper

These obligations apply more generally to all distance selling (especially online):

• Obligation for the seller to communicate to the consumer information in French, in a readable and understandable manner (221-5 of the Consumer Code) among which;
• Sound identity (surname and first names if it is a natural person, company name if it is a legal entity), its postal details (its geographic address), an email address and a telephone number allowing you to actually get in touch with it, when it communicates with consumers via such means of communication, and its SIRET number for companies registered in France;
• the identity of thehost from his site the latter may be held responsible in the event of criminal content having been reported to it and in the absence of blocking or deletion measures;
• information on the delivery date of the product ;
• information on the use and protection of the customer’s personal data in accordance with the obligations imposed by the General Data Protection Regulation (GDPR);
• characteristics essential of the products offered through a detailed presentation by any graphic or textual or graphic means (article L.221-5 of the Consumer Code);
• information on the price in euros all taxes included (article L.221-5 of the Consumer Code). If purchased abroad, outside the European Union, the price must include taxes paid by the consumer including customs duties (order of December 3, 1987) ;
• Warranty Information legal and contractual including the terms of implementation and how the customer can exercise them with the seller-dropshipper;
• the conditions, deadlines and methods of exercising the right of withdrawal as well as the standard withdrawal form.

Furthermore, the seller is required to:

• Deliver goods conforming to the presentation indicated in their promotion;
• Deliver within the deadlines indicated to the consumer customer (article L.216-1of the Consumer Code.) or within reasonable timeframes in the event of failure in delivery;
• Not engage in deceptive or unfair commercial practices;
• Only sell products that it is authorized to sell in the territory in which it sells them. Certain products (particularly high-end or luxury brands) may be affected by selective distribution agreements under which only certain retailers are authorized to market them by their manufacturers.

The risks weighing on the liability of the seller-dropshipper

As a result of the above, dropshipping sellers may be held liable even though delivery is entirely ensured by a supplier/wholesaler.

Indeed, contrary to popular belief (and often spread by many dropshipper sellers), dropshipper sellers are responsible for the execution of the sale, from the order until the delivery of the products by their supplier. For example, in the event of delivery within a time frame that does not comply with the announced deadlines, or within an unreasonable time frame, the customer would be entitled to request cancellation of the sale, and consequently, reimbursement of the price paid.

It is therefore appropriate, in advance, for the seller:

• To ensure the reliability of its supplier,
• Consider contractually framing the relationship with the supplier to incur liability in the event of failure in delivery times, the quality of the products delivered, or any other irregularity in the service.

Unfair commercial practices

A commercial practice is unfair when it is contrary to the requirements of professional diligence and is likely to lead the consumer to make a purchasing decision that he would not have made otherwise. Deceptive commercial practices (articles L.121-2 to L.121-4 of the Consumer Code) constitute unfair commercial practices, in particular, those aimed at disseminating inaccurate or incomplete information with the aim of encouraging the consumer to purchase quickly.

We speak of unfair commercial practices when:

• Sales processes are misleading (articles 121-2 to L.121-4 of the Consumer Code): that is to say, they are likely to disseminate inaccurate or incomplete information on the product or the transaction, with the aim of pushing the consumer to purchase quickly.

Ex: very low quality products set at high prices, announcements of false discounts granted on products purchased at low prices; false origin of the product;

• The sales processes are aggressive (Articles L.121-6 and L.121-7 of the Consumer Code).

Ex: repeated and unwanted requests by telephone/fax/e-mail or any other communication tool; make people believe that the purchase gives access to an advantage that does not exist.

Overall, any practice that would be likely to deceive the consumer and mislead them about the product or the transaction they have concluded with the dropshipper seller should be avoided.

Sanctions

If unfair commercial practices are found, the dropshipper seller is exposed to several sanctions. In the case of offences, these practices are punishable by a fine of:

• 300,000 euros and two years in prison for a natural person;
• up to 1.5 million euros or an amount proportionate to the benefit derived from the offense for a legal entity.

If you wish to open your online store LEGALPROTECH AVOCAT will be able to support you in order to secure your transactions.

By Samuel DENIN