Journal of Information, Law and Technology

A Law of the Internet? 
Attempts to Regulate Electronic Commerce

Frank Diedrich, MLE 
Professor of Business and International Commercial Law 
Riga Graduate School of Law, Latvia

fd2@gmx.net

This is a refereed article published on: 31 October 2000 

Citation: Diedrich F, ‘A Law of the Internet? Attempts to Regulate Electronic Commerce’, 2000 (3) The Journal of Information, Law and Technology (JILT). <http://elj.warwick.ac.uk/jilt/00-3/diedrich.html/>

Abstract

Keywords: 

1. Introduction
The legal problems created by the internet are mainly due to its speed, dynamic changes, non-physical existence (no ‘domicile’) and the possibility of making any digitalized content almost instantaneously available to users around the globe. The vast growth of data exchange via the internet is also due to the trifling costs in comparison to telephone calls, sending the information/data via ordinary mail, going to a library, looking endlessly through yellow pages, commuting to a workplace or going shopping in overcrowded department stores with mysterious opening hours.

The uniqueness of the internet lies in the combination of instantaneous access to digitalized data and the ability of anyone having access to the data to copy and to print it out almost endlessly without loss of quality. So the legal problems are in part off-springs of digitalized data, including photos and music, and in part result from the non-physical existence of the data. 

No other technical development in the past has brought such a change to our daily life: With a fax-machine one can generally send paper-based information to people with a fixed telephone or fax-number. However the information cannot be copied except with a Xerox-machine resulting in the loss of quality. It used to be even more difficult to copy music, photographs or films, but due to the enhanced speed of computers one can send huge quantities of computer-programs, digitalized books, music or photos in a split-second from one continent to another. A website can be accessed by anyone, anywhere in the world.

The complexity of the internet becomes clearer when one considers the key legal in various fields of private law:

•	Electronic commerce, electronic cash and electronic signatures (authentication);

•	Encryption and export control;

•	Trademark, patent and copyright protection (intellectual property);

•	Database protection;

•	Antitrust;

•	Privacy (data protection) and spamming;

•	Unfair contract terms and consumer protection; and

•	Enforcement of legal rights including access to justice.

These issues affect every country in the world alike because of the unrestricted flow of electronic information through ‘cyberspace’. So the internationalisation of law has all of a sudden become a necessity simply because of the internationalisation of daily life.

The above mentioned legal problems are as such much more complex than other technical advances in the past with which private law had to deal with, e.g. classifying intangible electricity and computer-software as ‘goods’ in sales contracts.

Legal uncertainty in internet transactions regarding the applicable law, evidence and legal redress exists in various fields of law, i.e. private, public, criminal and tax law, and on different levels, i.e. for consumers and multinational companies alike. Nevertheless, there is the undeniable enormous sales potential in electronic commerce and the direct (one-to-one) marketing at almost no cost. This leads to a new form of global competition in markets for goods and services that were nationally isolated in the past because of high transaction costs. The consumer is benefiting from E-Commerce through lower prices because of the global competition and the greater transparency of markets. Both consumers and companies are sharing the advantages of E-Commerce, i.e. saving money, therefore allocating their resources in an economically more efficient way, but they also share the disadvantages of additional costs and mistrust caused by legal uncertainty.

So there is a need amongst consumers and companies alike for legal certainty on a global level regarding substantive and procedural rules for internet transactions. This does not necessarily call for a separate and comprehensive ‘law of the internet’, but it is of vital importance to address the various legal problems created by transactions over the internet on a global level. The internet does not know any borders. Generally, the problem of finding the applicable law to a contract concluded over the internet can be solved within the existing rules of private international law that were unified for the EU-member states by the Rome Convention of 1980. However, the traditional methods for tracking down the place of business or the place where the contract was concluded might create difficulties. This is particularly true where companies have their physical place of business outside the EU because of tax reasons, e.g. in the Bahamas.

Similar problems occur with finding a competent forum under the Brussels Convention on the Recognition and Enforcement of Judgment in Civil and Commercial Matters. Agreements can be concluded anywhere where there is access to the internet. In respect to the fulfilment of an agreement to sell or license software it is absolutely irrelevant where the customer has their actual presence anywhere in the world. Therefore the place of performance does not necessarily present the proper forum under the Brussels Convention, although it has to be stressed that the aforementioned conventions are only in force among EU-member states and the gates of legal uncertainty are wide open beyond these boundaries.

If international uniform law is regarded as a suitable solution for the various legal problems created by the internet, scholarly thoughts are vital about the means to achieve uniform rules to tame the „internet ‘beast’ that charges at the national legal orders at the international level. A solution on a merely European level in a ‘Fortress Europe’style would be short-sighted and just a first step from a methological point of view. Admittedly political reality often requires compromises that are far from the best scholarly or practical solutions.

The following analysis focuses on private law issues with consumer protection as the most striking example. Public, tax and criminal law involve more intrinsic political questions that vary from country to country. Moreover, companies tend to have sufficient resources to hire lawyers to overcome legal uncertainties.

After giving an example on how the internet has already affected the everyday life of the consumer, methods will be presented that could serve as a means to achieve international uniform law. Uniform law will not only protect consumers but also create legal certainty for the global village at large. German and European approaches will shed light on the status quo whereas the comparative look into US law will show the marshy ground on which even the most computerized society stands when it comes to proposals for internet regulation. The prestigious project of promulgating a new Article 2B of the Uniform Commercial Code (UCC) for ‘transactions in information’ was surprisingly stopped and replaced by a proposal for a Uniform Computer Transactions Act (UCITA), drafted by the National Conference of Commissioners on Uniform State Law, which is also not yet in force. This is just one symptom for the fact that the substantive and procedural rules including private international law relating to internet regulation are still very much in flux. Therefore this article will serve only as a flashlight to catch a moment in the on-going process of internet regulation worldwide. The goal of such an international legal regime for internet transactions is clear: legal certainty and adequate incentives for future developments of this uniquely comfortable and fast tool for communication, information and entertainment.

2. A Typical Case
A consumer with his domicile in Germany ordered a speedometer for his sports car via the internet from a company with its place of business in California. Payment of 200 US-Dollars is taken in advance via credit card. The delivered speedometer proves to be the wrong one. The US-company refuses not only to exchange the wrong speedometer for the ordered one but also to reimburse the buyer. The standard contract clauses on the company´s website provided for a seven day period for inspecting the goods upon delivery and for reporting any sort of short-coming immediately. The buyer, however, was on holiday for two weeks and had not read the ‘click-on-provision’.

Certainly such a case could be solved by using the buyer’s contractual right to be reimbursed by his credit card-company thereby shifting the risk of performance to the seller. This is currently possible in cases where the credit card-holder pretends that nothing has been ordered by him, provided he has not physically signed anything. Pursuant to the business practice of many credit-card companies, the credit-card number, together with the expiry date is not sufficient to guarantee payment by the credit-card company, where the credit-card holder objects and notifies the credit-card company within a certain time-limit.

This solution depends on an ‘informed consumer’ who pushes the limits of his contractual relationship with his credit-card company. Moreover, it presupposes the good-will of the credit-card company to furnish such favourable conditions in the future. Finally, pretending not to have ordered goods or services which were in fact ordered could amount to fraud. Therefore such a solution might fit a single incident but is rarely tailor-made to handle consumer-related legal problems in millions of internet transactions that occur every day around the globe.

A central problem for a well-founded approach to produce legal certainty for the global village is that a lot of internet transactions are international with the parties having their respective domicile or place of business in different countries. The internationality of the transaction is, however, often not even noticed by consumers since companies use English in their websites even if they are for example German or Dutch companies.

Given the uncertainties of conflicts of laws and the enormous expenses of starting legal proceedings outside the EU, the consumer stumbles unknowingly into legal risks that he will only painfully become aware of when problems with the contract are encountered. If the party with a place of business outside the EU refuses to honour the contract, it is often for the consumer, an economic nonsense to attempt to enforce any legal right. The court and attorney’s fees for instituting legal proceedings, in particular in the US, and the effort to find a suitable attorney are much too high in proportion to any amount in controversy below US-Dollars 10,000.Even within the EU, under the Brussels Convention, the consumer can sue at his domicile (Art. 14 1), yet the enforcement abroad is more cumbersome and costly (e.g. translations, Art. 48 2) than national proceedings.

This politically undesirable situation can only be solved by a more subtle, supranational solution to provide for the essential legal certainty in internet transactions. The ultimate goal for the internet’s international environment should be a procedural and substantive framework that makes international civil proceedings as accessible as domestic proceedings and in particular includes predictable court decisions. Such a legal framework for international uniform rules certainly presupposes not only state conferences but also a sound methological basis on how to achieve the desired legal certainty.

3. Methods for the unification or harmonization of rules for E-Commerce
The problem of dealing with foreign law became massively evident during the time of the Roman Empire. Conquering foreign countries or rather defeating other tribes meant dealing with private law that was different from Roman law. The Romans were in a strong enough position to invent an artificial 'ius gentium' (law of the tribes) that a special judge (praetor peregrinus) applied to private law disputes amongst Romans and non-Romans (peregrini) as amongst peregrini with different ‘nationality’.

The legal imperialism of the Romans and the conflict of the principle laws of nationality determining the applicable private law was generally overcome by the end of the 19th century.The age of modern states and vastly increasing international trade, however, made clear that legal certainty was not to be achieved by different domestic laws including conflict of laws rules. This was the advent of international treaties creating bi- and multilateral conventions among the industrialized countries. Other attempts to unify private law in international transactions were already done much earlier and not by any government but by merchants through the law merchant (lex mercatoria). Clearly, the internet has created different market conditions as both large companies and private consumers seek their individual advantage by buying goods or obtaining information from anywhere in the world. So there is no longer a homogenous group of market participants such as ‘merchants’.

Therefore it is necessary to consider sensible methods for bringing legal certainty to the global village.

3.1 International Uniform Law via Treaties
International treaties creating international uniform law via conventions are the ‘classical solution’ to achieve legal certainty in international transactions. By now the Vienna Sales Convention of 1980 (Convention on the International Sale of Goods/CISG) is the most successful convention having regard to the number of contracting states and its acceptance in practice. The success of the CISG is also due to the fact that sales contracts are the most used kind of contract in international transactions and UNCITRAL has set up an official data bank with court decisions on the CISG.

An advantage of international uniform law is supranational rules in different equally authentic languages. Also a treaty only allows for minor modifications so that identical rules exist in all contracting states, and because of the preparation of the rules as supranational compromises by international working groups, the final convention can easily, dogmatically and politically be accepted by the contracting states.

Disadvantages are that it usually takes a couple of years to draft an internationally acceptable convention and requires diplomatic conferences with all the contracting states participating to introduce necessary changes because of its status as a treaty. Moreover, the necessity of compromises between different legal regimes does not necessarily favour the most suitable legal rules but rather those that are politically acceptable among the contracting states.

3.2 Model Laws
Another suitable option for unifying internet-related rules are model laws drafted by internationally recognized bodies, such as UNCITRAL, OECD, UNIDROIT. Model laws are by no means binding for states or individuals. However, the states have the option to adopt the model law because of its convincingly superior legal standard or because of having at least some kind of supra-nationally drafted uniform rules. Successful examples are the Uniform Commercial Code of 1952 in the US and the UNCITRAL Model Law on International Commercial Arbitration.

Advantages of a model law on a global level are mainly its speed and its flexibility in the drafting process. No long-term drafting procedures, no state conferences with 150 or so participating state representatives and no lengthy debates are required as with treaties. Although to achieve world-wide acceptance the draftsmen have to consider carefully the political, economic and legal consequences that might differ from one legal system to another. Otherwise only a few countries will finally transform the model law into their national law.

The greatest disadvantage of model laws is that they do not render conflict of laws rules superfluous - to the contrary. As the example of the UCC shows, one has always to use conflict of laws rules to find out the correct national or state version of the model law. The differences might not be so severe where there is a common legal tradition as in the US. However, on a global level, each country adopting the model law will, depending on the legal tradition, end up with its own version that will be considerably differently applied than in another country.

Nevertheless, a model law is certainly better than no uniform rules. In addition a new, supranational legal tradition that replaces nationalistic views might develop over the years .

3.3 Lex mercatoria (Law Merchant) and Customary Law
Lex mercatoria means customary law that is binding upon merchants dealing in a specific trade. It has been developed over the years by the customs and usages that have been used in the same way by all or the majority of professionals dealing in that trade.. Merchants dealing in that trade are bound by the lex mercatoria even if they have no actual knowledge of it.. Well known examples of the law merchant are the INCOTERMS -being regularly updated by the International Chamber of Commerce, and the ECE-Terms for the Export of Machinery..

Leaving internet regulation to the affected persons would most likely create sensible practical rules that are tailor-made for the busy internet community, but the disadvantages clearly outweigh the advantages:

•	Firstly, the making of customary law takes up very much time until precise rules are commonly accepted;

•	Secondly, the parties to internet transactions are not dealing in an equal bargaining position like merchants but there are global players and consumers involved. So it is very likely that one-sided rules in favour of the more powerful global players would emerge.

•	Thirdly, customary law is at least pursuant to German civil procedural law (§ 293 ZPO) treated as a fact which renders the maxim ‘iura novit curia’ (‘the court has to know the law.’) inapplicable. Therefore the party relying on customary law before a German court has to prove it, e.g. through an expert witness, which is costlier and riskier than relying on statute law.

Another possibility would be to leave development of uniform private law rules to the internet community itself, thereby creating general customary law. However, this solution is as undesirable as the above mentioned law merchant. It would most likely appropriate rules via much ‘small print’ (click-on provisions) just for the global companies with the biggest bargaining power. Such a method would maintain the currently existing legal uncertainty and disadvantageous position of the weaker parties, e.g. consumers, smaller companies and newcomers.

3.4 Mixed forms
Certainly mixtures of the above mentioned means for unifying law are possible. A good example for such a mixed form are the UNIDROIT Principles for International Commercial Contracts. The UNIDROIT Principles were drafted by legal scholars using existing rules of the lex mercatoria in international commercial transactions as a basis. The scholars then used this basis to extract general principles and to draft rules mainly to fill in gaps in international commercial contracts, e.g. the interest rate for a sum in arrears. Therefore the UNIDROIT Principles are to a small extent true lex mercatoria developed within the legal community of merchants and businessmen, but to a much larger extent they consist of ‘artificial lex mercatoria’ drafted by legal scholars.

As the UNIDROIT Principles shall serve as a model law for future legislative acts and for filling in gaps in international commercial contracts a new lex mercatoria might develop over the years, but the target for this artificial lex mercatoria are arbitration tribunals that can be empowered by the parties to decide ex aequo et bono which includes the application of such artificial principles and other ‘soft law’ if it seems to be just in solving the individual dispute. A similar approach to unification has been taken by the so-called ‘Lando-Commission’ that consisted of a group of European legal scholars that drafted the ‘Principles of European Contract Law’. This is a compilation comprising of the rules that the member states of the EU have in common regarding contract law. So the Principles of European Contract Law are similar to ‘restatements’ of US law and shall either serve as a basis for future codification by the EU or give the parties the choice to choose them as applicable law in an international contract.

All the mixed forms that are neither statutory nor customary have in common an increase of legal uncertainty and will create the desired uniforms rules in the long run. Therefore mixed forms are in general not ideal for harmonizing or unifying essential legal rules for the internet but only for underlying principles.

Nevertheless, there is the methodical option to codify existing lex mercatoria via an international convention thereby killing two birds with one stone: Having rules as they are needed in practice and having them methodically sorted and fixed in writing. A model for this approach is the UN Convention on Independent Guarantees.

So, for example, it is sensible to introduce voluntary dispute resolution via ‘internet arbitration’. After a while it will become clear whether this new form of dispute resolution is being accepted by the internet-community. If so, one could codify the already approved rules to give the internet arbitration awards the binding force for being recognized by state courts. On the other hand such a ‘soft law’-approach is based upon the free will of the parties involved. Thus it does not sufficiently protect the copyright of authors and consumer interests because the wrongdoer or the stronger party usually does not voluntarily give up a favourable position. Therefore copyright and consumer protection issues call for strict and binding state law.

3.5 Maintaining uniform rules in practice
As a general problem there is no international tribunal (comparable to the European Court of Justice) having jurisdiction for international uniform law which could prevent different interpretations of the uniform. Nevertheless, this problem could be overcome by online information on court decisions. The question of authority of foreign decisions is both dogmatically and politically very difficult. There is, up to date now, not even a common opinion on how much authority should be attributed to the decision of the European Court of Justice. How much more difficult will it be to reach a uniform approach on the global level?

Even if uniform rules could be found for protecting consumers and authors (copyright, patents, know-how etc.) one central problem will remain: There is no ‘cyberspace’ court having jurisdiction to hear cases involving internet transactions. Moreover, there is also no other international court on the global level to watch the uniform interpretation and application of the uniform rules, and even worse there is no doctrine of binding precedent (stare decisis) amongst the different legal systems in the world as in common law countries. According to the common law tradition judgments of courts in other countries relating to the uniform rules could at least serve as ‘persuasive authority’.

So it would be necessary in the long run to set up a special international court of justice, perhaps modelled after the European Court of Justice, having jurisdiction over international uniform law related to internet transactions. The enforcement of first judgments could then be left to the national courts. Nevertheless, an international court for private international uniform law is not necessarily the ultimate and only solution. Despite the fear of getting divergent judge-made law because of different interpretations in different legal systems, the CISG is the best example for the development of a supranational methodology without a central court. Each member state of the CISG had to name official reporters who report important cases from their respective jurisdiction to UNCITRAL, which collects them in a special database with online access. By this means all courts have access to judgments in member states on the CISG which can serve as a kind of persuasive authority.

The same method with a data bank and online access could be applied to any kind of uniform rules relating to internet-transactions. As UNCITRAL has already the experience of CLOUT it would be most sensible to let it set up a similar system, starting perhaps with the 1996 UNCITRAL Model Law on Electronic Commerce.

Apart from civil proceedings in state courts there is also the option for arbitration. This has been widely discussed in Germany, firstly as an alternative to lengthy court proceedings and secondly as a means to solve internet disputes. Certainly arbitration tribunals could find quicker and more experienced solutions for the parties than state courts as they are generally not strictly bound by any substantive or procedural state law. One has to take account of the disadvantages of arbitration proceedings that render them unsuitable for the general public, in particular consumers:

•	Firstly, arbitration proceedings are private and therefore very costly as the arbitrators have to be fully paid. In contrast to state courts there is also no legal aid available. As a rule of thumb international arbitration proceedings do only pay off where the amount involved is at least 50.000 Euro.

•	Secondly, for enforcing an arbitral award abroad one has to seek the assistance of a court which is again costly and time-consuming.

Despite the current and expected fabulous turn-over numbers in electronic commerce the vast majority of transactions involves presumably not more than a few hundred Euro. So traditional arbitration proceedings are not ideal for disputes in electronic commerce. However, approaches have already been made for reducing the costs by setting up special internet arbitration tribunals.

The central problem for arbitration proceedings is that one has to agree to them because an essential feature of democratic, civilized states is access to justice that is impartially administered by state courts. What is sufficient for agreeing on an arbitration clause? It is for example, very unlikely that a German court would recognize or even enforce an arbitration award against a consumer from the EU delivered by an online-arbitration tribunal consisting of three US-lawyers from Texas if the prevailing party is a US-company and the arbitration clause was part of click-on provisions.

4. German and EU approaches to the regulation of internet related issues

4.1 German approaches 

Under German private law no special rules for internet transactions have so far been promulgated - with one exception: 

The Federal Information and Communication Service Act came into force entirely on January 1, 1998. The Federal Act comprises of several rules applicable to individual communications, including electronic commerce and financial services, individual data transfer, information services providing non-editorial information, and other non-specific internet services (‘tele-services’). Also the Act sets out specific rules for the protection of personal data and of the youth.

The real important features of the Federal Act from a private law point of view are its rules for digital signatures, i.e. electronic signatures necessary to provide security for electronic transactions. Germany favoured a complicated procedure with a public and a private key for encryption with a ‘trusted third party’ (private agency) as the keeper of the secret codes that issues certificates allowing for the use of a specific digital signature.

Unfortunately the reach of the Signature Act is limited because it is just an option without any real legal sanction attached. The digital signature, even if used pursuant to the Act, does not constitute an equivalent to a handwritten signature when it comes to legal proceedings. Moreover, only digital signatures are permitted thereby ruling out optical or biometrical methods (e.g. digital fingerprints), at least for the time being. Therefore it is no wonder that the practical impact of the Signature Act has remained limited.

4.2 EU approaches 
It is an open secret that a law-making competition has been going on for quite a while between the US and the EU. The EU has been, so far, quicker than the US:

In 1996 the European Parliament and the Council promulgated the ‘EU Database Protection Directive’. The Database Directive introduced a new copyright for database authors (Art. 3, 4) thereby acknowledging for the first time the collection of data according to specific criteria as an act of authorship to be protected. The norms of the database protection directive were already transformed into German domestic law by introducing §§ 87a-87e into the Copyright Act (Urheberrechtsgesetz).

In the field of electronic commerce there is the Council’s proposal of 1998 for a ‘Directive on Electronic Signatures’ that has become the 1999/93/EC European Parliament and Council Directive on a Community Framework for Electronic Signatures. The Electronic Signature Directive aims at facilitating electronic commerce and ensuring the functioning of the Internal Market by fostering the use of electronic signatures and at contributing to their legal recognition. It would establish a legal framework for electronic signatures and certain certification services.

Another goal of the Directive is the interoperability of electronic signatures. Therefore the Directive introduces the concept of an ‘advanced electronic signature’ that is equivalent to a handwritten signature and not limited to digital signatures. As the Directive was formally adopted on December 13, 1999, the member states have, pursuant to its Art. 13, 18 months to implement it into their national laws and to recognize electronic signatures in the same way as handwritten ones, i.e. before 19th July 2001. Therefore the German Signature Act – which focussed just on digital signatures - will just have a preliminary domestic effect.

The latest initiative regarding the ‘information society’ is the 2000/31/EC European Parliament and Council Directive on Certain Legal Aspects of Information Society Services, in particular Electronic Commerce, in the Internal Market’ of 8th June 2000. This Directive directly addresses central legal problems created by the internet, e.g. consumer protection. There are two unique features about the Directive on electronic commerce:

•	The first is in Art. 17 and Art. 18 which calls for efficient and fast legal redress. This is the first international proposal for internet regulation to address the procedural side. The given case at the beginning clearly shows that a party in an international legal dispute involving an amount in controversy of up to 500 Euro, even perhaps higher, may be left high and dry. Even within the EU, the enforcement of a judgment abroad is costly if translations are required. Art. 17 (1) shall now impose on the member states the obligation to allow in their legislation for the effective use of out of court dispute settlement mechanisms including by appropriate electronic means. Moreover, Art. 17 (2) imposes essential procedural principles on tribunals for out of court settlements of consumer disputes, i.e. the principle of independence and transparency, the adversarial principle, the principle of effective proceedings, legality of the decision and the liberty of parties and representation. Additionally the bodies responsible for out of court settlements shall be encouraged to inform the Commission of their decisions and of any practices, usages or customs relating to electronic commerce (see Art. 17 3). The principle of efficient legal proceedings is enforced by Art. 18 (1) pursuant to which the Member States shall ensure that effective court actions can be brought against information society services’ activities by allowing measures to be taken as rapidly as possible by way of interim injunctions. The injunctions shall remedy alleged infringements and protect the interested parties from being subject to further damages.

•	The second is in Art. 23 which provides for an advisory committee made up of representatives of the Member States. The task of this advisory committee is to deliver its opinion on drafts submitted by the Commission regarding measures to be taken according to Art. 20 to ensure the proper functioning of electronic means between Member States as referred to in Artt. 17 (1), 19 (3) and 19 (4). The Commission shall then take the utmost account of the opinion delivered by the committee. Art. 23 may amount to a disguised competence of the Commission to order Member States to provide assistance and information requested by authorities of other Member States or the Commission by appropriate electronic means. Also the Commission could press for electronically accessible ‘contact points’ (Art. 19 (4)) from which recipients and service providers may obtain information on their contractual rights and obligations and receive assistance in case of dispute. Moreover, the Commission watches over the effective use of out of court dispute settlement mechanisms by appropriate electronic means (Art. 17 1).

From a consumer’s point of view the many options to get access to information on contractual rights, to receive assistance in disputes and to have access to out of court dispute settlement mechanisms by electronic means are most desirable. One may hope that there will be sufficient means to put the consumers’ rights to receive ‘information society services’ into practice as it is a very costly endeavour. 

Problematic is Art. 3 (3) which puts the obligation on service providers being established on the territory of a Member State to comply with the national rules applicable by virtue of the conflict of laws rules (‘country of origin-principle’). Art. 2 (c) defines the established service provider as someone who effectively pursues an economic activity using a fixed establishment for an indeterminate duration. The presence and use of technical means and technologies required to provide the service are not sufficient. Therefore a real place of business in the case of companies or physical presence in the form of at least a habitual residence in the case of natural persons is required. So also the place of incorporation is irrelevant. On the one hand an established service provider cannot escape the applicability of the Member State’s law by placing the server in the Bahamas, but on the other he has to face the application of the consumer’s domestic law despite a choice of law clause because of Art. 5 of the Rome Convention. Nevertheless the exception in Art. 5 Rome Convention favouring the consumer’s law at his or her habitual residence is not so clear-cut: it presupposes that the other party had entered the consumer’s market via advertisements or contractual offers and that the acceptance was communicated from the consumer’s habitual residence.

The Member States have to implement the Directive on Electronic Commerce pursuant to its Art. 22 into their respective national laws before 17th January 2002. This time-frame will hopefully not outdate the Directive given the speedy and many fold changes with which the information society moves on.

In summary, the EU focuses rightfully on harmonizing those legal rules regarding the internet which are necessary to ensure the free flow of goods and services in the Internal Market. It remains to be seen how the above mentioned Directives will fit into the global legal environment with the US traditionally favouring their legal concepts. For this reason one has to take note of global attempts to regulate internet related issues as a feasible compromise.

5. Global approaches to the regulation of internet transactions

Apart from the EU there are also a few proposals for harmonizing internet related problems with a true world-wide prospectus. The most comprehensive proposal is the ‘1996 UNCITRAL Model Law on Electronic Commerce’ that applies to ‘any kind of information in the form of a data message used in the context of commercial activities’ (Art. 1). ‘Data message’ is here defined as:

‘information generated, sent, received or stored by electronic, optical or similar means including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy’ (Art. 2 a). 

The model law deals generally with the formation and validity of (electronic) contracts (Art. 11), the legal recognition of data messages (writing, Art. 6; signature, Art. 7; original document, Art. 8), and specifically with the carriage of goods (transport documents, Art. 17). All in all, the Model Law puts (electronic) data messages in the same category as paper-based messages. Unfortunately, only a handful of states have yet adopted it.

The Council of the OECD adopted in 1997 ‘Guidelines for Cryptography Policy’. The aim of these Guidelines was mainly to facilitate electronic commerce by fostering trust in electronic signatures. The OECD was also in favour of a flexible legal framework allowing the user to choose between different methods of cryptography in an ongoing process of development of (international) standards according to the changes in technology (‘state of art’). OECD recognized that cryptography for the protection of privacy and data security is an essential key to the confidence of users in information and communications infrastructures. Without this ‘electronic confidence’ economic development and world trade would be negatively affected. The Guidelines are no legal rules but policy recommendations primarily aimed at governments’ future enactments in cryptography issues relating to electronic commerce.

In almost the same manner, i.e. mainly as a political statement, OECD published in 1997 a ‘Policy Brief on Electronic Commerce’ that stressed OECD´s commitment to consumer protection while fostering electronic commerce because of its benefits for consumers from improved information, lower transaction costs and prices, larger choices and instant delivery for intangible services and products in digital form.

Another remarkable project is the 1997 OECD Guidelines on Consumer Redress: ‘Chargebacks’ developed by the OECD Committee on Consumer Policy. The objectives of these guidelines are to encourage credit card associations to provide redress mechanisms for consumers by reversing problem transactions (‘chargeback operations’ in both national and international transactions) and to remove repeat offenders from card networks. This tackles one of the most striking problems in electronic commerce as shown in our example. If the consumer could recover his money paid in advance via credit-card he would be in a much stronger position. This would encourage companies to deliver sound products that meet the promised or advertised specifications. It is, however, questionable whether to fully indemnify a consumer, or to limit the amount in controversy. The latter solution, for example a maximum of 1000 Euro, would certainly be the easier option.

Moreover, OECD plans to issue Consumer Protection Guidelines to control fraudulent and misleading commercial conduct, to resolve disputes and establish redress mechanisms and to ensure on-line consumer privacy.

Unfortunately neither the Guidelines on Consumer Redress nor the Consumer Protection Guidelines have up until now received the Council’s assent and are therefore still awaiting their publication.

Finally, UNCITRAL issued in 1998 ‘Draft Uniform Rules on Electronic Signatures’. These rules favour the concept of a secure electronic signature that is defined by Art. 1 (c) as an electronic signature which is a digital signature, or can otherwise be verified to be the signature of a specific person through the application of a security procedure that is:

•	uniquely linked to the person using it; 

•	capable of promptly, objectively and automatically identifying that person; 

•	created in a manner or using a means under the sole control of the person using it; and

•	is linked to the data message to which it relates in a manner such that if the message is altered the electronic signature is invalidated 

•	or is commercially reasonable under the circumstances, previously agreed to and properly applied, by the parties. 

Given that a data message was authenticated by means of a secure electronic signature, it is presumed by Art. 2 that:

•	the data message has not been altered since the time the secure electronic signature was affixed to the data message; 

•	the secure electronic signature is the signature of the person to whom it relates; 

•	the secure electronic signature was affixed by that person with the intention of signing the message.

The UNCITRAL rules on electronic signatures are similar to the proposed EU Directive on Electronic Signatures insofar as they also recognize different forms of electronic signatures, not only digital ones. But the value of rebuttable presumptions in favour of electronic signatures in the UNCITRAL draft rules remains doubtful because electronic signatures do not constitute full evidence as handwritten signatures do. So the straightforward EU approach with electronic signatures being equivalent to handwritten ones seems to be methodically more sound. Nevertheless, UNCITRAL is still in draft form and it is still unclear what the final version of the Uniform Rules will contain.

6.US Law as a model for internet regulation?
The latest developments under US law show clearly how much attempts to regulate internet transactions are still in flux. In 1998 it seemed to be very likely that an extremely ambitious project, a new Art. 2B UCC as a single code for all ‘transactions in information’, would be promulgated in Spring 1999, but the project was suddenly  abolished in April 1999. The reasons given for this sudden change were rather vague. The draft Art. 2B UCC was mainly regarded as comprising of too many and too different legal aspects which do not adhere to the same legal regimes under the present US law (contract, copyright and patent law). At the same time the American Law Institute announced that instead of an Art. 2B UCC a new model law, the UCITA (Uniform Computer Transactions Act), a streamlined version of the proposed Art. 2B UCC was on the agenda. No one knows yet whether the UCITA will finally receive the approval of the American Law Institute and/or the National Commissioners on Uniform Law or whether a resurrection of Art. 2B UCC is sooner or later envisaged.

6.1 Proposal for an Article 2B UCC (Licenses)
Art. 2B-103 (a) UCC provided that Art. 2 B UCC should have been applicable to all kinds of ‘transactions in information’, i.e. software contracts, access contracts (electronic access to electronically stored information) and licenses (use of or access to information). Mixed transactions should have been governed by Art. 2B insofar as information, intellectual property, packaging and any documentation were concerned (Art. 2B-103 (c) UCC). Only service-contracts were expressly excluded (Art. 2B-103A). But the parties had even in excluded transactions the option to choose Art. 2B UCC or another law to be applicable to the entire contract (‘opting-in’), provided that it was not a consumer transaction, i.e. where the licensee is a consumer (Art. 2B-103 (c)(3) UCC). As a general rule Art. 2B UCC was intended to be applicable to businessmen (merchants) and consumers alike with a few statutory exceptions. For the first time ‘information’ was defined in a statute: ‘data, text, images, sounds, maskworks or works of authorship’ (Art. 2B-102 (a) UCC).

In respect to the substantive rules the Art. 2B UCC-draft contained some remarkable new legal concepts: 

•	First of all the notion of ‘mass-market-licenses’ which were defined as standard forms that are prepared for and used in mass-market-transactions (Art. 2B-102 (30) UCC). In the case of those mass-market licenses ‘shrink’- or ‘click-wrap’ terms limiting the use of the information transferred under the license agreement (e.g. software) were regarded as being part of the contract even if the licensee did not have the chance to review them (Art. 2B-406 (b)(3),(4),(5) UCC). If a consumer was unable to read the conditions and did not agree with them his remedies would be limited to reimbursement of any legal costs and the foreseeable damage because of having installed the information (Art. 2B-208 (b) UCC).

•	Secondly Art 2B UCC stated clearly that an electronic record or authentication should be sufficient for giving full evidence (Art. 2B-113). Also contracts concluded through electronic agents were regarded as valid (Art. 2B-204).

•	Thirdly ‘electronic self-help’ should have enabled the licensor to enforce his contractual rights (Art. 2B-715 and 2B-716) provided that the licensee was warned (usually ten days) in advance and there was no breach of the peace involved. The details of how and by which electronic means the licensor was entitled to use his right to self-help were left to the parties. An agreement regarding the means and manner of electronic self-help would have been regarded as being valid as long as the electronic self-help did not cause any foreseeable personal injury or significant damage to the licensee’s information or his goods/property other than the licensed information. The concept of self-help should have underlined the character of a license as a strictly limited transfer of rights.

For the first time in US contract law there would be a codified duty of the party being loyal to the contract to mitigate damages (Art. 2B-707 (c) UCC). Despite the advanced concepts and reasonable definitions the draft Art. 2B UCC ultimately favoured the licensors. This was due to the history of the drafting process with the software industry being a strong supporter of a codification. The draft also received criticism because the ‘battle of the forms’-provision in Art. 2B-209 (b) and (d) which was also in favour of the licensor.

6.2 Proposal for a Uniform Computer Transactions Act (UCITA)
The Uniform Computer Transactions Act (UCITA) has become the ‘little brother’ of the abandoned Art. 2B-project and would apply only to ‘computer information transactions’ (sec. 103 (a) UCITA). Computer information transactions are defined as agreements with a primary purpose to require a party to create, modify, transfer, or license computer information or informational rights in computer information (sec. 102 (a) 12). The purpose of this limited sphere of application is to give this model law a better chance to be adopted by the States with the result of a substantive framework for internet contracting which facilitates commerce in computer information. Apart from that limitation the UCITA follows closely the pattern of Art. 2B:

•	Electronic documents would be admitted as evidence in the same way as paper-based ones (sec. 107);

•	Choice of law and choice of forum would be permitted with exceptions regarding consumers (sec. 109, 110);

•	Electronic authentication of a document would be equivalent to handwritten signature (sec. 108);

•	Conclusion of contracts through electronic agents would be legally recognised (sec. 206);

•	There would be a limited and excludable condition of merchantability of computer-programs (sec. 403);

•	There would be separation between the ownership of a copy and the ownership of the informational rights remaining in the original (sec. 501);

•	There would be electronic regulation of the performance (sec. 605), e.g. limited access, in built expiration dates;

•	There would be opportunity of the party in breach to cure a breach of contract (sec. 703) which is modelled after Art. 48 CISG and Art. 7.1.4. UNIDROIT Principles of Commercial Contracts;

•	The Licensor’s would have a right to possession and to prevent use of the information given to the licensor (sec. 815);

•	The Licensor’s would have an option for electronic self-help to enforce sec. 815, provided that the licensee did originally assent to it, was informed at least 15 days before the electronic self-help is executed and neither foreseeable damage to other property of the licensee or a third party nor breach of the peace occurs (sec. 816).

UCITA is an interesting study object because of the different national and international sources having served as a model for the new rules, but it remains doubtful in the same way as the original Art. 2B-draft whether the new concept of electronic self-help has to favour the licensor so strongly. One may however argue that electronic self-help via in built expiration dates etc. has already become a standard practice amongst software-licensors. So UCITA gives the licensee the benefit of clear legal rules pursuant to which the licensor can exercise this right and not at will, as is the current legal situation. Nevertheless, it is certainly too early to give a final assessment on the practicability of UCITA´s new and challenging legal concepts.

6.3 Proposal for a Uniform Electronic Transactions Act (UETA)
Apart from the Art. 2B-project and the latest proposal for UCITA, the National Conference of Commissioners on Uniform State Laws has already been working since 1996 on the draft ‘Uniform Electronic Transactions Act (UETA). The UETA is mainly concerned with general contract law that needs to be changed in the light of electronic or computerized technologies, e.g. concluding contracts via electronic agents or recognizing electronic documents. As a matter of fact the UETA is closely modelled after the UNCITRAL Model Law on Electronic Commerce. Therefore it begins with the same fundamental principle that there should be no discrimination against data messages or electronic records, and that there should be parity of treatment between electronic and paper documents.

Both the UETA and the UCITA, have adopted a reasonable approach by laying down firm rules as a basis for legal certainty for all kind of online computerized transactions. Moreover, the UETA shows clearly the importance and impact of international model laws drafted by UNCITRAL. Other countries will have to find good reasons not to follow this example and not to draw upon the UNCITRAL Model Law on Electronic Commerce for new national legislation in the area.

7. Summary and outlook
Law makers of all categories have realized that the unique features of the internet together with the great opportunities of electronic commerce for businessmen and consumers alike are calling for a framework to promote legal certainty. Therefore projects for harmonizing or unifying law being affected by the internet are mushrooming all around the world. Despite the desires of some dreamers, ‘cyberspace’ is far from being a virtual world with no enforceable rules. Electronic commerce has already become so important that chat-rooms and similar playgrounds for adults are of minor importance. Therefore OECD addressed with good reason the problem of the widespread lack of confidence in the reliability of electronic signature, the enforceability of contractual rights, the validity of click-on standard forms and copyright issues.

However only a few of the attempts to regulate commercial transactions over the internet are dealing with the most vital legal problem being present in millions of day to day internet transactions: the enforcement of legal rights in an international environment where traditional forms of international legal redress (recognition and enforcement of judgments) are too costly and cumbersome. Injunctive relief, electronic access to out of court settlements (arbitration) and the duty of service providers to identify themselves and their place of business are the truly relevant legal issues. Also outside ‘cyberspace’ the choice of a competent forum has always been more important for the outcome of a legal dispute than the applicable substantive law.

OECD did in addition address another widespread problem, i.e. the payment in advance via credit card. If consumers could charge back their credit-card company, the balance of bargaining power between the parties to a commercial transaction via the internet would be restored. Also Art. 17 of the EU  Directive on Electronic Commerce calls for more efficient legal redress for consumers, e.g. through out of court settlements that are electronically accessible. 

How can we achieve vital legal certainty in order to foster electronic commerce that reduces transaction costs for consumers and companies alike?

As demonstrated, there are many approaches to the harmonization or unification of rules relating to internet transactions - national and international model laws, national statutes, EU directives and OECD guidelines. All these approaches have in common certain aspects of private law that need to be regulated: data protection, electronic signatures, electronic documents, electronic conclusion of contracts (including standard forms in electronic contracts), consumer protection, copyright protection and the speedy and efficient enforcement of legal rights. There is, rightfully, the common belief that the aforementioned issues need to be addressed on a global level because of the internet’s unique feature of being everywhere at the same time.

Nevertheless, it has become clear that it would be nonsense to call for a global ‘law of the internet’ in the same manner as it would have been equally short-sighted for a ‘law of electricity’ at the beginning of the 20th century. Moreover, the vibrant electronic commerce and world-wide data transfer via the internet has become much too important for the industrialized world to procrastinate legislation. The famous debate between the German scholars Thibaut and Savigny in the 19th century regarding the codification of German private law has already been decided by the global market and international legal competition in favour of statutes. Flexibility by unwritten rules or case law can certainly produce justice in the individual case, but statutes or codes could produce at least some legal certainty for the entire global ‘internet community’.

Although the UNCITRAL Model Law on Electronic Commerce is not designed to bring upon equally binding uniform rules throughout the world, it helps to harmonize legal standards with sensible supranational concepts. At the same time it leaves enough leeway for states to add rules that are specific or desired for their legal system Additionally, it facilitates further law reform on a global level. This law making method, from international model laws to national legislation, may also pave the way for supranational methods to apply these new legal rules for electronic commerce in a uniform or harmonized manner – despite the different legal traditions.

If a truly supranational model law, like the UNCITRAL Model Law on Electronic Commerce, is the most desired method to regulate electronic commerce, one has to focus on the most important issue regarding internet transactions, i.e. trust through legal certainty. Legal certainty in internet transactions does not primarily mean well-balanced substantive rules but rather access to fast and efficient court proceedings with fast and efficient (electronic) means for enforcing judgments, arbitration awards and other forms of out of court settlements. As long as there are no attempts for a global framework to enforce efficiently the (substantive) rights of consumers, in particular with small amounts in controversy, any transaction over the internet will remain riskier than using traditional means. Multinational enterprises and other ‘repeat players’ will always have enough expertise and/or resources to take advantage of the global market presented by the internet, but it is consumer, however well informed, who will be left high and dry if he wishes to use the global shopping arena and finds himself in a scenario as per our typical case study. The applicable law could certainly be determined by the traditional national rules of private international law, even if this might be difficult, and call for new approaches or analogies. Therefore procedural rules on a global level have to be established to enable consumers to enforce small claims efficiently. A model law could e.g. introduce a class action that could be brought not only by individuals but also by consumer associations or other non-governmental organisation monitoring the ‘cyber-market’. The OECD Guidelines on Consumer Redress (‘charge-backs’) and the UCITA (‘electronic self help’) have at least touched upon enforcing legal rights in internet transactions. As the internet has new and unique features one has to look perhaps also for new and unique means to establish legal certainty. A model law establishing certain forms of electronic self-help, more flexible rules to charge back credit cards or even class-actions to enforce legal rights efficiently would certainly point in the right direction.