Logging on the Law
According to the French, the Austrians are “the politically correct cat’s paw of Germany.” Although peace may have broken out and the 15 member states of the European Union are working toward creating a single market, such a comment shouldn’t come as too much of a shock, because it contains a germ of truth.
The German members of the European Commission have suffered quite a mauling in the past over the harsh legislative measures they have proposed, such as the early data protection directive. The EC has even taken the step recently of asking Germany to justify its restrictive sales promotion legislation. None of this has dimmed the German enthusiasm for protecting consumers as if they were children, however. Only now, they’ve become more clever at pursuing their goals.
So the suspicion arises that Germany is really behind a recent proposal by the Austrian president of the European Union concerning electronic commerce legislation. He has suggested the country of destination’s law should apply to any transaction carried out over the Internet. For example, a consumer in England buying a pair of lederhosen from a trader in Austria would be protected by U.K. laws.
What has alarmed many about this proposal is that it goes against the idea of the single market. Given the objective of the EC to use the information superhighway as a driver for European Union, companies need to be encouraged to make use of electronic commerce. Making the country of origin’s laws apply to deals done by the Net would help.
Where Does It Go? Chris Godwin, corporate affairs officer at IBM UK, says the country of destination approach represents a real burden: “It would mean a company in Austria taking an order from England would have to know about English laws, which is unlikely. We think it imperative to encourage small and medium-sized enterprises particularly to use e-commerce.”
The Austrian proposal also goes against a soon-to-be-published directive on company liability within the online world. It is understood this will favor country of origin legislation-Austrian laws will apply if the Net trader is based in Austria. “That draft directive will be very important within the electronic community. If it said it is country of destination, that would mean there is no internal market in Europe because the same hurdles to export would still be in place for electronic commerce. Unfortunately, some people still see Europe as an export market,” says Godwin.
Trying to regulate something as unruly as the Internet is difficult -what power does the European Commission have to enforce its views on a global system, after all? This is perhaps one reason why the Organization for Economic Cooperation and Development (OECD) shyed away from making any concrete proposals. It recently held a conference of member countries’ ministers in Ottawa, Canada, which considered the whole issue of electronic commerce.
The resulting declaration makes all the right noises, without committing OECD members to anything in particular. It notes that, “confidence in commercial activities conducted over global networks will be fostered by transparent and effective consumer protection mechanisms and is essential to encourage consumer participation in the electronic marketplace.”
Sticking Together The declaration speaks of the importance for countries to work together to build a global framework.
At the heart of this, the OECD favors “market-driven self regulation that includes input from consumer representatives.” Little of what it proposes would trouble DMers currently using the Internet for e-commerce. There is a call for full and fair disclosure of essential information, an advertising complaint, dispute resolution and redress systems. “Business and consumers alike must be aware of the legal and self-regulatory mechanisms and practices that apply to them online,” it says.
That could be taken to be support for country of origin, since Internet traders can employ a “clickwrap” to notify customers of the applicable law at the moment when they place an order. If that is going to happen, then some bodies concerned with e-commerce believe it will require some important changes to the way sites are operated.
“We go along with the European Commission’s view about regulation on the Internet. It must be an international matter, not just one enforced by the U.S.. We would like URLs to contain the country of location of the operator of the site. At the moment, that is anomalous,” says Clive Bradley, director of the Confederation of Information and Communication Industries.
CICI represents content providers, such as the film, video and music industries, broadcasters, publishers and software developers. It notes that while a company in the U.K. will have a domain name ending “.co.uk”, American domains are simply “.com” and could in fact be based anywhere.
This becomes critical when the issue of copyright has to be addressed.
Bradley notes the draft directive currently excludes copyright from country of origin. CICI wants to see a continuation of the existing country of destination laws, because copyright is often granted for particular territories and has to be enforceable by the licensee. Global agreement on this issue is important to avoid the possibility of “copyright havens” springing up-countries with weak copyright protection from which content can be digitally transmitted to the rest of the world.
Having the Rights E-commerce is already making this a fraught issue, and one in which direct marketing is a principal driver. Bradley points to Amazon.com: “It is supplying U.S. editions to anybody in the world. They are competing with U.K., Indian, Australian editions. Does Amazon have the rights to supply into those territories? The rights owners in those countries would say not.”
For the moment, such orders are treated as being for private consumption, rather than representing individual purchases of a copyright license. But they highlight the importance of establishing which country’s laws apply to any contract made over the Internet.
The U.K.’s Mail Marketing Group has experience with these issues as the operator of the successful Wallace and Gromit Web site (www.aardman.com) and the Enid Blyton merchandise site (www.blyton.com). Sales and marketing director Ian Hughes says: “A lot of large brand owners are becoming a lot more conscious of the globalization which the World Wide Web brings. As a result, they are writing into contracts the countries into which you can sell by the Net.”
A typical restriction will be on selling to Taiwan, because the owners of rights over cartoon characters will have already sold licenses to Taiwanese companies. “Branded merchandise is very popular on the Net. Companies need to address that as they globalize,” says Hughes.
Net Advantage Already, consumers are using the Net to their advantage in subverting domestic pricing. Levi jeans are sold at a premium in the U.K., but are a commodity in the U.S. Via the Net, British consumers now know this and can order electronically. As volumes of sales for export increase, however, the authorities are becoming more involved for two key reasons.
Firstly, many countries operate strict quotas for the import of certain goods. Within Europe, for example, there are limits on the number of toys than can be brought in from China or Taiwan. (This often leads to shortages of best-selling items at Christmas as a result.) If those same products are being sold over the Net from another country out of its own quota, they could break the limit if consumers order in sufficient quantities.
“Value added tax is also a huge issue,” notes Hughes. “There is a lot of pressure to make the Net a tax free zone. That would help enormously.” At the moment, Mail Marketing charges VAT on all Net sales at the U.K. rate of 17.5%. That means the company does not risk prosecution by British Customs and Excise, which collects the tax. It also means its customers can say they have already paid sales tax in the U.K., if their order is intercepted.
Look Away Anecdotally, officials appear to turn a blind eye to personal imports, provided they are small scale. This seems to mean that if a U.K. consumer buys two or three CDs from an American Web site where they are cheaper than in a British music store, that order will be delivered with no questions asked. Order five or more, however, and a demand will be issued for import duties.
It is in the interests of all parties to ensure consumers don’t have to play guessing games about whether an order will be fulfilled, nor about what it will ultimately cost. Traders also need to know how to price their products. This is at the heart of the view taken by the OECD, and why the new European directive will be critical to the growth of e-commerce.
What is important to note is not everybody takes the same view of the issue. Within CICI, Bradley notes it is hard to achieve a consensus, because broadcasters are also users of film and video content, so their view of copyright is different. He also believes liability has to be settled, especially around the issue of being “put on knowledge” about the content of what is going out over the Net.
“If you are providing common carriage, such as a telephone line, and have no involvement with the content, then there is no liability. If a telephone company becomes an Internet service provider and is involved in what it distributes, then it is liable,” he says.
The digital age is encouraging the erosion of many of these boundaries. But since everything that goes out over the Net ultimately has to be paid for by somebody, the issue of regulating the process is becoming ever more pressing.
Surf’s up, but pay up.
