Legal Considerations for Entering the U.S. Market

EC Column

litigation risk

Hello. My name is Sakamoto, and I am a consultant.
The U.S. is also known as a "litigation powerhouse" market, and when entering the U.S. market, you must consider minimizing risk no matter what form of business you choose. The reason why the U.S. is a litigious country is that it is "easy to file lawsuits" and "the cost of litigation, including damages, is enormous. Among these, class actions by consumers are the most significant risk for companies selling products in the U.S.

PROS/CONS to establish a U.S. Corporation

PROS: Limit of indemnification for Japan headquarters

In order to avoid the risk of litigation, many companies establish a U.S. Subsidiary and then seek to establish a local site in the U.S. This is, in a sense, the right choice in the U.S., Which is a litigation powerhouse. Establishing a subsidiary in the U.S. Means acquiring a legal personality in the U.S. That is independent of the parent company. This means that the U.S. Subsidiary becomes a separate legal entity from the parent company, and the liability arising from the U.S. Business is assumed by the U.S. Subsidiary in principle, while the japanese parent company is liable only to the extent of its investment (this is called the "limited liability" system). Thus, the purpose of establishing a subsidiary in the U.S. Is to prevent risks arising from the U.S. EC from spreading to the Japanese parent company.

CONS: Stricter rules

Establishing a local presence in the U.S. means that you will be subject to more regulations and rules that you will be required to comply with. For example, payments at e-commerceare generally made by credit card, and there is an industry standard in the U.S. called the PCI Standard (also known as "PCI DSS8") that protects card information.
PCI DSS is a set of self-regulatory rules created by the PCI Security Standards Board, which was formed by leading companies in the card industry. PCI DSS requires that minimum security standards be met when storing, processing, and transmitting credit card data. PCI is Although not a law, local site-based companies with U.S. locations and e-commercedeployments are not allowed to accept credit card transactions unless they comply with the card data protection rules set by the PCI DSS. On the other hand, cross-border sites that do not have a U.S. presence and that make payments in Japan are not likely to be subject to the PCI regulations.

Considering the risk of Japanese companies being sued in the U.S.

For a U.S. court to be a forum, both requirements, called personal jurisdiction and subject matter jurisdiction, must be established. Personal jurisdiction refers to the disputes and legal relationships that a court can handle and the court's authority. The issue of subject matter jurisdiction is rarely a question of whether a Japanese company is a party to a U.S. lawsuit; rather, the focus is on the existence of personal jurisdiction. The issue of personal jurisdiction focuses on whether the U.S. court is fit and fair to try the Japanese company and whether the necessary requirements exist for the Japanese company to be a defendant in the U.S. If a Japanese company's U.S. activities are limited, it is not fair to give the U.S. court effect to that Japanese company. So, how much business frequency, ties to the U.S. market, and U.S. business activities are enough to fairly determine that a Japanese company is a party to a U.S. court case? This is often decided on a case-by-case basis and varies from state to state.

Even if a Japanese company develops ec with a U.S. Subsidiary or other base of operations, the parent company, the Japanese company, basically cannot be sued in the united states. However, if the parent company exercises excessive control over the subsidiary, there is a risk that the legal personality of the subsidiary will be denied and the parent company will be held liable for the subsidiary's liabilities. It should be noted that if the legal personality of the subsidiary is a mere dummy and a skeleton, all U.S. EC activities by the subsidiary may be deemed to be those of the parent company.

Even if a Japanese company conducts sales activities in the U.S. Through a pr firm or agent, or sells a Japanese company's products in the U.S., This fact alone does not automatically establish personal jurisdiction. In the case of e-commerce, the company's english website can be accessed by U.S. Consumers, and even if there are sales activities or transactions from Japan, the initial stage of the sales is not so large that jurisdiction can be found. In the case of e-commerce, the company's English website is accessible to U.S. Consumers, and even if there are sales activities and transactions from Japan, personal jurisdiction may not be an issue in the initial stage when the scale of sales is small. However, this situation changes when the scale of sales increases, and the japanese company may be considered to be actively and voluntarily participating in the U.S. Market.

Jurisdiction / Governing Law

One way to avoid jurisdiction in the U.S. is to establish Japanese law as the governing law in your dealings with consumers and Japanese courts as the court of jurisdiction. e-commerceIf the parties have agreed on jurisdiction in the "Terms of Use" of the contract with the consumer in the U.S., this agreement will be respected under U.S. law.

When a problem arises between a Japanese company and a U.S. consumer, if there is an agreement to settle the dispute under Japanese law and in Japanese courts, a lack of jurisdiction can be asserted on this basis. However, such an agreement between the parties does not necessarily mean that jurisdiction can be avoided. The U.S., or each state, has a duty and interest to protect its citizens living in its country. If a U.S. consumer is harmed by the business activities of a Japanese company, even if there is an exclusive agreement as described above, the court may deny it and give effect to protect the consumer.

A clear example is the dispute over product liability (PL). In the development of e-commercein the U.S., there is a clear intention by the company to develop and promote sales in the U.S. market. In this case, if a defective product is distributed and as a result, U.S. consumers are harmed, it is highly likely that jurisdiction over the Japanese company will be affirmed, regardless of any exclusive agreement. Thus, it must be noted that business activities on the Internet, such as e-commerce, make it more likely that personal jurisdiction over a Japanese company will be affirmed. Even though it is not a perfect defense, it is important for Japanese companies to take measures to avoid being involved in U.S. lawsuits through Terms of Use and other measures.

Fair Trade Commission

[OECD Guidelines]

The first important thing to understand is who sets the ground rules for the business. In the United States, e-commercebusiness is governed by an agency called the Federal Trade Commission ("FTC"), which has the authority to regulate unfair or deceptive business practices of companies and to protect consumers from such businesses.

To get an idea of the ftc's definition of "fair EC," the guidelines of the organization for economic cooperation and development (OECD), approved by the FTC in april of 2016, are helpful. Although these are only guidelines, not laws, it is important to note that any business practice that deviates from them may be considered unfair by the FTC. From the OECD guidelines, the FTC places particular emphasis on the points listed below.

  • Legal points to keep in mind in e-commerce
    1. Disclosure obligations: Disclose information that consumers need to know in order to purchase goods.
    2. Marketing regulations: prohibit companies from unfair or deceptive marketing, promotion, advertising or sales.
    3. Data protection obligations: requires companies to protect consumers' personal information and to set up systems to prevent the disclosure of personal information.
  • Disclosure obligations
    To comply with disclosure obligations and data protection, companies are required to have in place a site policy called a Terms & Use and Privacy Policy. Although the Terms of Use are, in a sense, a contract with the consumer, the FTC considers contracts between consumers and businesses to have unequal bargaining power. Therefore, companies must disclose important information in transactions to prevent consumers from being disadvantaged and create an environment in which consumers can purchase products with confidence.
  • Marketing regulations
    The FTC prohibits omitting material facts and false or exaggerated advertising. Even if there is no actual deception or harm to consumers, misleading consumers can result in a company's marketing being considered a deceptive trade practice. The FTC has published a number of documents regarding advertising on the Internet, including "Dot Com Disclosures: Information about Online Advertising" and "Advertisements. Advertising and Marketing on the Internet: Rules of the Road. It is important to review these guidelines in advance when developing U.S. EC.
  • Introduction of marketing regulations to be checked in e-commerce development
    1. Pricing: Do not display prices that deceive or mislead consumers. 2.
    Comparative advertising: deceptive or inaccurate representations of the qualities, characteristics or quality of your products or those of your competitors are prohibited. 3.
    Advertisements aimed at children: Do not communicate inaccurate or misleading information to children about products or their properties. 4.
    Promotions: Lotteries and closed sweepstakes are prohibited. Sweepstakes are subject to the labeling and procedural requirements of federal and state law. 5.
    Advertising Using Testimonials: If there is a "material relationship" between the advertiser and the testimonial, the relationship should be clearly disclosed. 6.
    6. user content: the obligation to monitor user content to ensure that it does not infringe on the intellectual property rights, reputation, or other rights of third parties. 7. email marketing: CAN-SIGNatories must be aware of and comply with the following obligations
    7. e-mail marketing: The CAN-SPAM Act prohibits the use of indiscriminate spam or commercial e-mail.
  • Data Protection Obligations
    The Privacy Policy clearly explains to consumers how personal information will be handled on the site. The privacy statement on the site is a promise to consumers that the company must keep. For example, if the policy states that "personal information will not be shared with third parties," if personal information is shared in violation of this policy, it may be deemed to have been leaked.

[Comply with consumer protection laws set forth by the state].

Each state has enacted consumer protection laws that are based on the FTC rules. State consumer protection laws often reinforce the FTC rules, so depending on the products you sell and the nature of your marketing, you may need to focus more on state law provisions than on FTC rules.

Checking the laws of all 50 states can seem like a daunting process, but here are some ways to make it easier, Here are a few ways to make this task easier.

  1. Refer to the websites of companies with similar businesses.
  2. Refer to the provisions of states with the strictest consumer protection laws, such as California.
  3. Select a couple of states where you expect to do a lot of business and where your sales activities will be centered, and refer to the regulations of those states.

Other important laws

  1. Should state sales tax (Sales Tax) be included in the price of goods on the site?
    We recommend consulting with an expert in accounting and taxation. Companies with a presence in the state in which they do business may be obligated to collect Sales Tax. However, please note that the determination of "with or without a base of operations" (known as "Nexus") varies from state to state.
  2. Are there different tax rules for different products sold?
    We recommend that you consult with an accounting or tax professional. For example, in New York City, sales tax is not imposed on clothing valued at US$110 or less.
  3. Are there certain products that must be licensed before they can be sold?
    Before doing business in the U.S., it is necessary to obtain a license (permit) issued by the country or state where the alcohol is sold.
  4. Are there certain commodities that are not permitted for shipping?
    Aerosol products, alcohol, tobacco, animals, dry ice, fruits, vegetables, perfumes, etc. may have special regulations (additional costs and document review) set by the shipping company.

Intellectual property and trademarks

When doing business in the U.S., Japanese companies must be careful not to infringe on the intellectual property rights of third parties. Intellectual property rights are intangible property created by individuals or companies through their creative activities, and are rights defined by the laws and regulations of patents, trademarks, and copyrights. Among intellectual property rights, trademark rights are particularly important as the brand power of a company or product.
Unlike the Japanese "registration system," trademark rights in the U.S. are acquired by the first person to use the trademark in commerce. Therefore, if a trademark is actually used in the U.S., it is protected even if it is not registered.

Terms of Use / Privacy Policy

  • Binding nature of Terms of Use
    In order for Terms of Use to be a tool for a company, it must be binding as a contract. For a contract to be legally binding, there must be unanimity of intent between the parties to contract. In the U.S., simply posting the Terms of Use as a link on the site may not indicate that the consumer has agreed to the Terms of Use and is willing to enter into a contract. In order to confirm agreement, provide a check box on the site that indicates agreement and have the consumer check it, or otherwise make the agreement visible.
  • Privacy Policy
    When acquiring personal information, the privacy policy should clearly and accurately inform consumers what personal information is being acquired, how the personal information will be used, and whether the personal information will be shared with third parties. If information is to be shared with partners, such as payment systems, it is important to notify consumers of this.
    In the U.S., there are also guidelines for tracking consumer behavior patterns. These guidelines are not laws, but rather guidelines developed by the Digital Advertising Alliance, a self-regulatory organization. The guidelines recommend that you disclose to consumers how you track them on your site and give them the ability to opt out.

Other laws you should know about

  • Data protection
    The Federal Trade Comission is the agency that oversees and monitors fair trade, but it is important to keep in mind that regulations may differ among the states as well. In particular, California has its own regulations regarding privacy and data protection compared to other states.
  • Related Regulations in California
    Shine the Light Law" CA Civil Code Section 1798.83
    California Civil Code Section 1798.82
    The California Online Privacy Protection Act (CalOPPA)
  • Consumer Protection Act (CPSA)
    Consumer Product Safety Act (CPSA)
    Consumer Product Safety Improvement Act of 2008
    Consumer Credit Protection Act 1968 (CCPA)
  • Privacy act of 1974
    Privacy Act of 1974
    Fair Credit Reporting Act (FCRA)
    Children's Online Privacy Protection Act (COPPA, COPA)
  • Prohibited and restricted items
    US Customs and Border Protection "Prohibited and restricted items
  • Uniform Electronic Transaction Act
    If the server and shipping office are located in Japan, exporters from Japan are not required to register as a corporation in the U.S. or obtain a license or permit to do so.
    From an international trade perspective, there is a need to follow the guidelines of the Organization for Economic Cooperation and Development (O e-commerceD) regarding electronic transactions. For example, Internet sellers are required to advertise fairly, and to clearly state on their websites their business type and location, products and prices, guarantees, return and claim procedures, and trade protection measures.
    Shipping is also subject to regulations regarding the number of days required for delivery, notification of late delivery, and refunds. If the number of days required for delivery is stated, the basis for the statement must be provided. If the number of days for delivery is not stated, the 30 day rule requires that there must be a reasonable basis for delivery within 30 days.
    In the case of sales where the server and the delivery location are located in the U.S., it is necessary to pay attention to the guidance "Online Advertising and Marketing" provided by the Federal Trade Commission from the viewpoints of consumer protection and fair trade. The guidance includes points to keep in mind regarding Internet advertising, matters to be notified prior to shipment, information to be disclosed, server security, etc.

Small-lot delivery

  • In the U.S., small-lot shipments valued at less than $2,500 are treated as informal entries and are subject to simpler customs clearance procedures than regular shipments. However, textiles and other restricted items are exempt from informal entry.
  • For importation into the U.S. of small-lot shipments valued at less than $2,500, a Form 3461 (Entry/Immediate Delivery for ACE) must be submitted by the importer or customs broker to U.S. Customs and Border Protection (CBP).
    More information on the procedures for Abbreviated Importation: 19CFR, Part 128.24 (Informal Entry Procedures)

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