Three questions to ask before you launch an online marketplace or community

Do you buy on eBay? Have you stayed at a place on AirBnB? Have you sold clothes on ASOS? These are all high profile online marketplaces.

Marketplaces are bringing unique ideas to market. Do you have an innovative idea for a marketplace? Before you launch an own online marketplace or community, ask yourself these three key questions:

1. What are the legal relationships?

To set up a marketplace, you need to be clear on what the marketplace will offer, who will participate and why.

Who is the buyer? Who is the seller? What are the legal relationships between you, the buyer and the seller?

You will form a relationship with the buyer, and another relationship with the seller. You need to be clear on the rights and obligations of each party in each relationship.  Your sellers must have the right to sell their product or service, must provide accurate descriptions, and must fulfill the obligation to sell the product or service. Your buyers must uphold their end of the bargain, for example to purchase the product or service at the agreed price.

Are you a go-between between the buyer and seller, or do the buyer and seller have a separate relationship?

The prudent approach is that the business has a legally enforceable relationship with the buyer, and a legally enforceable relationship with the seller, but is not involved in the direct relationship between the buyer and the seller.

You do not want to be liable for an agreement between the buyer and seller, including any failure of the buyer or seller to meet the agreement that they have struck.

You need well-drafted business terms and conditions to clarify the relationships, to minimise and deal with disputes, and to limit your liability.

2. How does the money flow?

You need to decide how money will move between the parties. How will you get paid? How will buyers pay? How will sellers receive funds? These are important issues to get right because this forms the basis of how your marketplace operates.

Questions to ask are:

  • Will users pay a fee to use your marketplace?
  • Will you receive commission from buyers when they purchase a product or service through your website?
  • Will you receive the total payment, then pay a portion to the seller?
  • Alternatively, will you receive a fee, then the buyer and seller interact and pay directly?
  • How will payments be made?

These issues need to be addressed in the marketplace terms and conditions.

3. What are the intellectual property rights and issues?

There are intellectual property issues to address. First, you need to ensure that your business intellectual property is protected. You need to own or have the right to use your business name, logo, and any other branding. You should consider if you want to register your trademarks, to strengthen your rights to prevent others from using your trademarks in your registered area.

Your marketplace terms and conditions need to state that the material on your marketplace is owned or licensed by you.  The market standard approach is that users have a right to use the marketplace, but no rights to reproduce, use or modify your material, unless expressly agreed.

The terms should address user content. Your sellers must warrant that the descriptions they provide of goods or services for sale, are accurate and complete. Your buyers must warrant that they will uphold their end of the bargain, e.g. pay the price bid.

You need to have rights to use, edit or remove all content that users post on your marketplace. This needs to be set out in your marketplace terms and conditions, to notify all users.

Key takeaway

Online marketplaces can be innovative and sophisticated. Once you know what you want to offer through your marketplace, speak to a lawyer who has IT and online law experience, to understand your marketplace and help you to protect your interests.

About the Author

Ursula Hogben is a lawyer and the Co-Founder of LegalVision, Australia’s online business legal services provider.  Follow her @UrsulaHogben

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