While the Internet revolution has brought benefits to both business and consumers, it also poses new challenges to policymakers. This paper examines the questions the Internet and e-commerce pose to traditional concepts of jurisdiction. These questions arise when the buyer and seller in an online transaction are located in different countries, an increasingly common event. It then provides recommendations on how policymakers, business, end-users and other Internet stakeholders could usefully address jurisdiction in the digital environment.
Introduction
A recent study of the Internet and electronic commerce found that by the end of 1998, the number of online users worldwide reached 160 million and that the number of users who made purchases over the World Wide Web reached 31 million that year. The same study predicts that the number of users who make transactions over the World Wide Web will jump to over 183 million in 2003 and the amount of commerce conducted over the World Wide Web will top a staggering $1 trillion(i).
The Internet is revolutionizing communications, business, education, healthcare, entertainment and virtually all aspects of our lives. For small and medium enterprises, the Internet has lowered barriers to market entry. In the past, the reach of a local corner store was limited to the population physically located near it; today a corner store can go online and reach a truly global market. Similarly, consumers have been empowered. The Internet provides consumers with more product information, more choices and more convenience. Consumers are no longer restricted by geography. They can also easily find and share information about goods and services for sale online. Increasingly, online transactions involve parties located in different countries. These include retail transactions where the buyer is an individual consumer. This situation, more than any other, requires a new examination of jurisdiction.
The Internet and Traditional Concepts of Jurisdiction
With the benefits of the Internet revolution come challenges - particularly challenges to traditional notions of jurisdiction. To understand the genesis of these challenges, it is important to understand a little of how the Internet works.
The Internet extends beyond the geographic borders of any nation. It is truly a "network of networks" - a collection of computers, software and stored data all woven together into a global information infrastructure. The Internet has no specific physical location. No particular entity or government owns or oversees it. Its content is not stored in a central location. In fact, the Internet fosters the use of remote resources. It allows a user to retrieve information from remote servers that could be located anywhere. It is estimated that currently 25% of all online transactions involve parties who are in different countries. Undoubtedly, this percentage will continue to increase. The Internet is indifferent to geographic location and it is often impossible to determine the physical location of a user or resource. Screening or blocking Internet traffic by country is virtually impossible.
Determining jurisdiction in a medium that has no borders is difficult and at times technically impossible. For example, jurisdictional approaches to consumer protection that work in the physical world may not translate when applied to the digital world. A recent draft Regulation by the European Commission to amend the Brussels Convention(ii) states that in cases of international contract disputes online, customers can seek justice in their country of residence, as long as the vendor actively solicited the consumers business in the consumer's home country. If this proposal is adopted, World Wide Web sites could be considered cross-border advertising and a form of active solicitation. The Commission has responded to the concerns that have been voiced by agreeing to organize a hearing in early November 1999 to debate the draft regulation.
The implications of the Commission's draft regulation could be substantial. The European Commission's draft regulation tends to treat Web-based sellers as if they were traveling peddlers and thus extends the current practice of the physical world to the digital world. However, Web-based sellers do not travel to the country of the buyer in order to sell to them and consequently, cannot be presumed to have invited the jurisdiction of the buyer's home country. Businesses, particularly small businesses, cannot be expected to be knowledgeable about the plethora of consumer protection regulations and laws in over 180 countries, much less the hundreds of state and local regulations that also govern consumer transactions. Likewise, it is difficult for a business to prevent users in a specific location, where they might not want to do business, from accessing their site. Furthermore, by mandating that national consumer protection laws supersede all other arrangements between buyer and seller, the draft regulation could stifle emerging efforts to create innovative, practical, non-regulatory, global mechanisms that empower consumers and afford them unprecedented protection.
Such a jurisdiction scheme could also prove confusing for individual users who may not be aware that they are subject to jurisdictions beyond that of their physical location. For example, a recent U.S. Federal District Court decision ruled that Virginia had jurisdiction over a case involving a Texas-based Internet user who allegedly used his ISP account to post a libelous message. The court found that defendant's use of AOL's Usenet server located in Virginia was sufficient enough to merit jurisdiction under that state's long-arm statute. (iii)
Emerging Solutions
Just because existing concepts of jurisdiction may not always be a perfect fit for the online environment, does that mean there should be a separate jurisdiction for the Internet? (iv)
It is too early to answer this question and the most likely answer is that the appropriate jurisdictional principles for the Internet will require a mix of existing concepts coupled with innovative, new technology solutions and industry self-regulatory initiatives. Any solution will have to meet the legitimate concerns of consumers and governments while being flexible enough so as not to hinder the continuing evolution of the Internet and electronic commerce.
There are a number of recent private sector initiatives to explore solutions related to jurisdiction on the Internet:
The GIP supports these private sector initiatives and encourages cooperation among these private sector players to further develop the emerging international business consensus on jurisdiction and provide unified business input for national governments and intergovernmental fora.
There is an emerging consensus among industry about several important principles, in particular, the application of the "country of origin" principle as the default rule in transborder e-commerce. Many of these principles are drawn from existing concepts of jurisdiction, specifically:
1. Freedom of Contract
One guiding principle is freedom of contract in general, and the freedom of parties to a contract to specify the law under which the contract should operate in particular. In the online world, just as in the paper-based world, business parties to a transaction may stipulate in the contract the commercial law that would govern the contract and they may also choose the forum in which disputes should be adjudicated should any disputes emerge. Contractual solutions to the choice of law issues in electronic commerce have many benefits, including, flexibility, certainty and affordability.
In the past, many governments have not recognized the ability of parties to a contract to specify the applicable commercial law in the contract when one of the parties is an individual consumer. The Internet empowers consumers by providing them with better information on products and by enabling them to go to another seller in another country in seconds, or use an electronic agent to shop among thousands of online sellers. Given this new environment, it makes sense to reconsider the extent to which consumers should be able to contractually agree to the commercial laws that govern their electronic commerce contracts/purchases.
2. Applicable Law
In the absence of a contract that clearly designates the applicable law and forum, disputes that arise in an online environment should draw on the practice commonly found in traditional disputes - that the applicable law is that of the country in which the contract is most closely connected. Most often, this is the law of the country of the party fulfilling the contract, in other words, the country of origin.
While these jurisdictional principles could be carried over to online transactions, many businesses are working to supplement them. For example, industry sectors are developing and implementing voluntary codes of conduct that are identified by third-party seals. Two such examples are the WebTrust Program offered by the American Institute of Certified Public Accountants (AICPA) and the Better Business Bureau Online (BBBOL) seal program.
The AICPA has published and is promoting a set of principles for business-to-consumer electronic commerce known as the WebTrust Principles and Criteria and the associated WebTrust Seal of assurance. Public accounting firms and practitioners who have a WebTrust business license from the AICPA or other authorized national institute can provide assurance services to evaluate and test whether a Web site meets these principles and criteria. The WebTrust seal indicates that a practitioner has evaluated and tested a site. The WebTrust seal indicates to customers that they can click to see the report on the evaluation of the website. Information on the WebTrust program can be found online at http://www.aicpa.org.
The BBBOL currently offers a seal for online merchants who agree to adhere to the organization's general business practices and to participate in the Better Business Bureau's consumer dispute resolution program. BBBOL has announced their intention to strengthen their program by adding a variety of features that are designed to give consumers more information and assurance regarding their online purchases. More information is available online at http://www.bbb.org.
3. Alternative Methods of Dispute Resolution
Governments should also encourage the use of alternative dispute resolution (ADR) mechanisms when disputes involving individual consumers arise. Arbitration, mediation and conciliation, dispute resolution mechanisms currently used in the paper-based world, could be extended to online consumer transactions. In many instances, consumer disputes can be settled online, thereby reducing the time and costs of ADR.
Apart from traditional ADR/mediation solutions, new approaches are being developed to provide consumers with more flexible, timely and efficient mechanisms of redress which may also be more cost-effective overall. These include regional clearing house solutions for complaints which allow the consumer to readily identify an entity that will process consumer complaints as well as more elaborate in-house customer satisfaction systems which operate globally on a 7 days a week/twenty-four hours a day/365 days a year basis. All of these dispute resolution solutions are also bolstered by emerging technologies that empower the consumer to exercise greater control over transaction and will hopefully result in diminished fraud. Since no technology or mechanism, alone or in combination, will eliminate illegitimate actors bent on defrauding consumers, streamlined recourse to appropriate agencies will still be required. Industry representatives are working with consumer and government representatives to craft approaches to these issues that create effective fraud protection and enforcement mechanisms while not restricting the requirements of existing or developing business models and not placing unnecessary and costly burdens on legitimate business.
Conclusions
Recognizing the challenges to jurisdiction posed by the Internet revolution, GIP members caution policymakers against any premature, one-size-fits-all solutions to jurisdictional problems in cyberspace. There are many new jurisdictional issues posed by the Internet and electronic commerce, particularly when an individual consumer makes a purchase online. Jurisdictional solutions that are viable in the paper-based world may not always make sense in the online world. In many cases, they will be technologically impossible and economically unreasonable. Approaches grounded in traditional concepts of jurisdiction, may not always suit the needs of consumers, merchants or governments and may impede the use of e-commerce.
In particular, we are concerned that proposals such as the European Commission's draft Regulation could subject commercial Web site operators to hundreds of different-often-conflicting--rules and regulations. As noted above, this would not only slow the development of e-commerce in Europe, it could serve as a precedent, which could have a detrimental impact for all of e-commerce. Indeed, the European Commission's draft Regulation is also contrary to the European Commission's own legislative initiative to create a Single Market for e-commerce outlined in its recent proposal for a Directive on Certain Legal Aspects of Electronic Commerce.
With this in mind, we urge policymakers and regulators to work with business, consumers, and technology experts to identify the jurisdictional challenges posed by the Internet and to explore solutions including, technological solutions and self-regulatory initiatives.
The Global Internet Project
The Global Internet Project (GIP) is an international group of 13 senior executives committed to spurring the growth of the Internet worldwide. The thirteen member companies are primarily from the software and telecommunications segments of the Internet industry. The founder of the GIP is Dr. James Clark, Chairman of Netscape Communications Corporation, and its current chairman is John Patrick, Vice President, Internet Technology, IBM. The Global Internet Project is helping decision-makers around the world to better understand the nature of the Internet and to craft policies that maximize the benefits of this powerful, global medium. For more details, visit the GIP Web site at http://www.gip.org/.
(i) The Global Market Forecast for Internet Usage and Commerce,
International Data Corporation, June 1999.
(ii) Draft Regulation on Jurisdiction, Recognition and Enforcement of
Judgements in Civil and Commercial Matters" ref IP/99/510. In the European
Union, jurisdiction and execution of judgements in civil and commercial matters
is regulated by the Brussels Conventions of 1968 with several amendments. It
also contains consumer protection rules in Articles 13 to 15.
(iii) AOL Subscribers Can be Sued In Virginia, Judge Rules Carl S.
Kaplan, Cyber Law Journal, June 11, 1999.
(iv) See A Separate Jurisdiction for Cyberspace? Juliet M. Oberding and
Terje Norederhaug.
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