Legal Aspects of Electronic Commerce_Rules of Evidence, Contract Formation and Online Performance

legal aspeCTs of eleCTroniC CommerCe: rules of evidenCe, ConTraCT formaTion and

online performanCe

by

Jose angelo esTrella faria

The Xiamen Academy of International Law, Collected Courses 2009, Volume 2, 1313392009 Koninklijke Brill NV. ISBN 978 90 04 18093 2. Printed in the Netherlands.

ConTenTs

Biographical Note 135

List of Principal Publications 136

Introduction 139International Trade and Electronic Commerce 142Liability and Standards of Conduct for Information Service Providers 145Unfair Competition, Deceptive Trade Practices and Consumer Protection 146Privacy and Data Protection in Electronic Commerce 147Protection of Intellectual Property Rights 148Cybercrime 149Jurisdiction and Applicable Law 150Scope of this Study 155

Part One Legal Value of Electronic Communications 157

Chapter I. Rules of Evidence, Form Requirements and Electronic Communications 157

A. Traditional Recording and Authentication Methods and Their Electronic Equivalents 1571. Function and Nature of Rules of Evidence and Form Requirements 157

(a) Authentication and Attribution 158(b) Practical Consequences of Form Requirements 163

2. Problems Posed by Electronic Communications 166(a) Intangibility and Alterability 166(b) Limitations in Retention and Retrievability 166

B. Conditions for Legal Equivalence between Electronic Communications and Paper Records 1691. Work of UNCITRAL in the Area of Electronic Commerce 170

(a) Recommended Legislative Principles for Electronic Commerce 172(i) Functional Equivalence 173(ii) Media and Technology Neutrality 173

Collected Courses 2009, Volume 2

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(iii) Party Autonomy 174(b) Legal Value of Electronic Communications 175

(i) Conditions for Meeting Form and Evidentiary Requirements 175(ii) Conditions for the Use of Electronic Communications 177

2. Implementation and Application of Electronic Commerce Laws 177(a) Authentication and Attribution of Electronic Records 179(b) Ability to Meet Legal Signature Requirements 184

Chapter II. Electronic Signature and Authentication Methods 188

A. Notion of Electronic Authentication and Signature 1891. Functions of Electronic Authentication and Electronic Signature 1902. Main Methods of Electronic Signature and Authentication 193

(a) Digital Signatures Relying on Public Key Cryptography 193(i) Digital Signature Creation and Verification 194(ii) Public Key Infrastructure and Certification Services Providers 195

(b) Practical Problems in Public Key Infrastructure Implementation 1973. Biometrics 1984. Passwords and Hybrid Methods 2005. Scanned Signatures and Typed Names 200

B. Legal Treatment of Electronic Authentication and Signatures 2011. Minimalist Approach 2032. Technology-Specific Approach 2053. Two-Tiered or Two-Pronged Approach 206

Part Two Electronic Communications in Contract Formation and Performance 208

Chapter I. Contract Formation through Electronic Communications 208

A. Applicable Law in International Electronic Contracting 2111. Elements to Determine the Applicable Law 212

(a) Location of Information Systems 213(b) Domain Names and Electronic Addresses 217(c) The Continued Usefulness of the Traditional Notion of Place of

Business 218(d) A Duty to Disclose the Place of Business? 219

2. Substantive Applicable Law: Sales Law and Virtual Goods 220(a) Computer Software under the UN Sales Convention 220(b) A Special Legal Category for Virtual Goods? 225

Legal Aspects of Electronic Commerce: Rules of Evidence, Contract Formation and Online Performance

133

B. Contract Formation through Electronic Communications: Substantive Issues 2281. Qualification of Parties Intent: Offers and Invitations to Make Offers 229

(a) Offers and Advertisements in Electronic Commerce 229(b) Special Cases: Click-Wrap Agreements and Internet Auctions 232

2. Time of Receipt and Dispatch of Electronic Communications and Contract Formation 235(a) Rules on Contract Formation 235(b) Timing of Dispatch and Receipt of Electronic Communications 238

(i) The Rule in Article 15 of the MLEC 238(ii) Electronic Communications in Domestic Enactments of the

MLEC 240(iii) Electronic Communications in Other Domestic Laws 244(iv) The Debate during the Negotiation of the EEC 248

3. Automated Information Systems 255(a) Responsibility for Automated Information Systems 256(b) Errors in Messages and Communications 257

(i) Human Errors 257(ii) Errors Generated by Information Systems 259

4. Incorporation and Availability of Contract Terms 261(a) Incorporation of Terms and Conflicting Contract Terms 261(b) Availability of Contract Terms 263

Chapter II. Particular Issues in Government Contracting 265

A. General Issues in Connection with the Use of Electronic Communications in the Procurement Process 2691. Publication of Procurement-Related Information 2692. Use of Electronic Communications in the Procurement Process 271

(a) Electronic Qualification and Suppliers Lists 272(b) Electronic Supply of Solicitations and Other Documents 275(c) Form of Other Communications during the Procurement Process 275(d) Electronic Submission of Tenders, Proposals and Quotations 276(e) Procurement Contracts and Electronic Signatures 280

B. Legal Issues arising out of Specific Electronic Procurement Techniques 2811. Electronic Reverse Auctions 281

(a) The Extent of Use of ERAs 282(b) Procedural Aspects of ERAs 285

(i) Auction Stage 285(ii) Bidding Requirements 286(iii) Disclosure of Information during the Auction 287(iv) Contract Award 288

(c) Benefits and Concerns 290


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2. Dynamic Purchasing Systems 292(a) Scope and Duration of Dynamic Purchasing Systems 293(b) The Operation of Dynamic Purchasing Systems 294(c) Benefits and Concerns 295

Chapter III. Contract Performance through Electronic Means 298

A. Traditional Methods for Transfer and Perfection of Rights 2981. Transfer of Rights in Tangible Goods and Other Rights 299

(a) Transfer by Consent 299(b) Transfer by Registration 300(c) Transfer by Delivery 301(d) Transfer by Symbolic Delivery 301

2. Security Interests in Tangible Goods and in Intangible Property 302(a) Perfection by Possession 303(b) Perfection by Registration 303(c) Other Methods 304

B. Transfer or Creation of Rights by Electronic Means of Communication 3041. General Legal Obstacles 3042. Electronic Equivalents of Negotiable Instruments and Documents of

Title 305(a) Basic Conditions for Electronic Negotiability 305(b) Practical Experience: Electronic Registry Systems 310

(i) Dematerialized Securities 310(ii) Electronic Registries as a Replacement of Paper Bills of Lading 313(iii) The International Registry of Security Interests on Mobile

Equipment 316(c) Limitations and Problems of Registry Systems 317

(i) Liability for System Failure 318(ii) Effectiveness of Electronic Communications for Transfer of

Rights 320

Conclusion 327

Bibliography 328


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biographiCal noTe

Jos Angelo Estrella Faria is the Secretary-General of the International Institute for the Unification of Private Law (Unidroit).

He worked at the secretariat of the United Nations Commission on Interna-tional Trade Law (UNCITRAL), in Vienna, between February 1996 and October 2008. He was the Secretary of UNCITRAL Working Group I (Privately Financed Infrastructure projects) during the preparation of the UNCITRAL Legislative Guide and the UNCITRAL Model Legislative Provisions on Privately Financed Infrastructure Projects, adopted in 2001 and 2003, respectively; he was also the Secretary of and UNCITRAL Working Group IV (Electronic Commerce) during the negotiation of the UN Convention on the Use of Electronic Com-munications in International Contracts, adopted in 2005. As a Senior Legal Officer, between October 2005 and October 2008, he supervised the secretariat support to UNCITRAL Working Group III (Transport Law) during the final years of negotiation of the UN Convention on Contracts for the International carriage of Goods Wholly or Partly by Sea (Rotterdam Rules).

Prior to his work with UNCITRAL, Mr. Faria had served at the General Legal Division of the UN Office of Legal Affairs, in New York, from 1992 to 1996. Before joining the UN, Mr. Faria had worked as an attorney in Brazil, specialising in commercial and trade law matters.

Mr. Faria graduated from the Federal University of Rio Grande do Sul (Porto Alegre, Brazil) and holds a Master on European Law from the Europa Institut der Universitt des Saarlandes (Saarbrcken, Germany). He has published various articles and books on legal harmonisation, commercial law and international law.


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lisT of prinCipal publiCaTions

Estrella Faria, Jos Angelo. Selbstbeschrnkungsabkommen im GATT und im EWG Wet-tbewerbsrecht, Universitt des Saarlandes, Saarbrcken, 1988 (206 pages);

Estrella Faria, Jos Angelo. Integrao econmica na Amrica Latina: sairemos do discurso?, Revista de Direito Mercantil, ano XXIX (1990), No. 79 (July/September) p. 64-83;

Estrella Faria, Jos Angelo. Aplicao extraterritorial do direito da concorrrncia, Revista de Informao Legislativa, Vol. 27, No. 105 (January/March 1990), pp. 19-46;

Estrella Faria, Jos Angelo. Princpios, Finalidade e Alcance do Tratado de Assuno, Ministrio das Relaes Exteriores, Braslia, 1993 (193 pages);

Estrella Faria, Jos Angelo. The work of the United Nations Commission on International Trade Law in 1996, Uniform Law Review, vol. 1 (New Series), 1996-3, pp. 476-493;

Estrella Faria, Jos Angelo. UNCITRAL Legislative Guide on Privately Financed Infrastructure Projects, EBRD, Law in Transition, Spring 2001, pp. 29-31;

Estrella Faria, Jos Angelo. Establishing a Legal Framework for Electronic Com-merce: The work of the United Nations Commission on International Trade Law (UNCITRAL) (jointly with Renaud Sorieul and Jennifer R. Clift), The International Lawyer, Vol. 35, No. 1 (Spring 2001), pp. 107-122;

Estrella Faria, Jos Angelo. The UNCITRAL Legislative Guide on Privately Financed Infrastructure Projects, The Journal of World Investment, Vol. 3 No. 2 (April 2002), pp. 212-229;

Estrella Faria, Jos Angelo. International Harmonization of e-Commerce Law: The Way Ahead, Treasury Management International, October 2002, p. 1;

Estrella Faria, Jos Angelo. Perspectivas da Arbitragem Comercial no Mundo Con-temporneo, I Seminrio Internacional sobre Direito Arbitral, 2002 [proceedings], Belo Horizonte, Cmara de Arbitragem de Minas Gerais, 2003, pp. 180-199;

Estrella Faria, Jos Angelo. La CNUDCI et les autres organisations internationales, Petites affiches- Le quotidian juridique, No. 252, 18 December 2003, pp. 21-27;

Estrella Faria, Jos Angelo. Electronic Commerce and International Legal Harmo-nization: Time to Go beyond Functional Equivalence?, South African Mercantile Law Journal, v. 16(4), 2004, pp. 529-555;

Estrella Faria, Jos Angelo. O Controle de concentraes de empresas estrangeiras e a Lei no. 8.884: a extraterritorialidade revisitada, Revista de Direito da Concorrncia, Brasilia, 2004 No. 2, pp. 11-65;


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Estrella Faria, Jos Angelo. Legal Certainty for Electronic Transactions: The Role of the Uncitral Model Law on Electronic Commerce (1996), in Andrea Schulz (ed.), Legal Aspects of an E-Commerce Transaction. International Conference in The Hague, 26 and 27 October 2004, Sellier European Law Publishers GmbH, 2006, pp. 159-169;

Estrella Faria, Jos Angelo. Harmonizing the Law of International Electronic Con-tracting: Adjust the Rules but Dont Rewrite Them Andrea Schulz (ed.), Legal Aspects of an E-Commerce Transaction. International Conference in The Hague, 26 and 27 October 2004, Sellier European Law Publishers GmbH, 2006, pp. 74-98;

Estrella Faria, Jos Angelo. Relationship between Formulating Agencies in Interna-tional Legal Harmonization: Competition, Cooperation or Peaceful Coexistence? A Few Remarks on the Experience of UNCITRAL, Loyola Law Review, vol. 51 (Summer 2005), pp. 253-285;

Estrella Faria, Jos Angelo. The United Nations Convention on the Use of Electronic Communications in International Contracts. An Introductory Note, International and Comparative Law Quarterly, vol. 55 (July 2006), Part 3, p. 689-694;

Estrella Faria, Jos Angelo. Convention des Nations Unies sur lutilisation de com-munications lectroniques dans les contrats internationaux, Journal du Droit International, vol 133, issue 1 (2006), pp. 393 -403;

Estrella Faria, Jos Angelo. Posibilidades y lmites de la armonizacin del derecho en materia de contratacin electrnica, DeCITA; Derecho del comercio internacional, temas y actualidades (Buenos Aires) 5-6 (2006), pp. 225-260;

Estrella Faria, Jos Angelo. Online Contracting: Legal Certainty for Global Busi-ness - The New U.N. Convention on the Use of Electronic Communications in International Contracts, Uniform Commercial Code Law Journal, vol. 39 (2006), No. 1 pp. 25-73;

Estrella Faria, Jos Angelo. Problemas Jurdicos dos Mtodos Eletrnicos de Criao e Transferncia de Direitos sobre Bens Corpreos e Imateriais, in Ricardo A. L. Camargo (ed.) Ttulos de Crdito Concorrncia e Mercosul Estudos em Memria do Professor Werter R. Faria, Porto Alegre, Srgio Antnio Fabris, 2008, pp. 23-48;

Estrella Faria, Jos Angelo. O Contrato de Compra e Venda Internacional no Mercosul: Da Disparidade de Leis a um Regime Uniforme? in Elisabeth Accioly (org.), Panorama do Direito no Sculo XXI: Estudos em Homenagem a Werter R. Faria. Curitiba, Juru, 2007 (to be issued);

Estrella Faria, Jos Angelo. Drafting and Negotiating History of the Electronic Communications, in Amelia Boss and Wolfgang Kilian (eds.), The United Nations Convention on the Use of Electronic Communications in International Contracts: An In-Depth Guide and Sourcebook, Austin Boston Chicago New York The Netherlands, Wolters Kluwer: 2008, pp. 17-42.

Estrella Faria, Jos Angelo. La responsabilidad del porteador en el proyecto de convenio de la CNUDMI sobre el transporte de mercancas: breve comparacin


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con el Convenio de Bruselas y las Reglas de Hamburgo, paper presented at 12th Congress and XX th Anniversary of the Iberoamerican Maritime Law Institute, Seville (Spain), 14 November 2007 (available as of 29 January 2008 at );

Estrella Faria, Jos Angelo. Uniform Law for International Transport at UNCITRAL: New Times, New Players, and New Rules, paper presented at the symposium Transport Law For The 21st Century: The New UNCITRAL Convention (Austin, 28 mars 2008) (to appear in Texas Journal of International Law; vol. 44 (2009);

Estrella Faria, Jos Angelo. Legal Aspects of Electronic Commerce, Collected Courses of The Xiamen Academy of International Law, The Brill and Martinus Nijhoff, The Hague/London/New York, 2009 (to be issued).


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legal aspeCTs of eleCTroniC CommerCe: rules of evidenCe, ConTraCT formaTion and

online performanCe*

Jose Angelo Estrella Faria**

Introduction

A few decades ago, it was said that the world had entered a so-called post-modern age. This was the dawn of a post-industrial era where intensive application and

* This article draws on years of research done at the secretariat of the United Nations Com-mission on International Trade Law (UNCITRAL) in the area of electronic commerce part of which has been separately published and reproduces materials from various notes by the U.N. Secretariat, in particular from the following: Possible future work on electronic commerce Comprehensive reference document on elements required to establish a favorable legal framework for electronic commerce: sample chapter on international use of electronic authentica-tion and signature methods (U.N. document A/CN.9/630, of 25 April 2007 and addenda 1-5); Possible revisions to the UNCITRAL Model Law on Procurement of Goods, Construction and Services the use of dynamic purchasing systems in public procurement (U.N. document A/CN.9/WG.I/WP.44, of 21 February 2006, and addendum 1); Possible revisions to the UNCITRAL Model Law on Procurement of Goods, Construction and Services issues arising from the use of suppliers lists (U.N. document A/CN.9/WG.I/WP.45, of 21 February 2006 and addendum 1); Possible revisions to the UNCITRAL Model Law on Procurement of Goods, Construction and Services issues arising from the use of electronic communications in public procurement (U.N. document A/CN.9/WG.I/WP.34, of 13 December 2004, and addenda 1-2); Possible revisions to the UNCITRAL Model Law on Procurement of Goods, Construction and Services issues arising from the use of electronic communications in public procurement Comparative study of practical experience with the use of electronic (reverse) auctions in public procurement (U.N. document A/CN.9/WG.I/WP.35, of 16 February 2005, and addendum 1); Legal aspects of electronic commerce Electronic contracting: background information (U.N. document A/CN.9/WG.IV/WP.104, of 8 September 2003, and addenda 1-5); Possible future work on electronic commerce Transfer of rights in tangible goods and other rights (U.N. document A/CN.9/WG.IV/WP.90, of 20 December 2000). Nonetheless, the views expressed in this article are those of the author and do not necessarily reflect the views of the United Nations. The texts of domestic laws and regulations citied in this article and for which no source is specifically indicated are on file with the UNCITRAL secretariat. This article was submitted by the author on 13 December 2007.


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wide use of information and communication technology (ICT) made of know-how the principal force of production. In the information society1 in which we now living, the majority of employees work in information jobs, which means that they have to deal more with information, signals, symbols, and images than with energy and matter. Knowledge itself becomes a commodity.

The dual function of information as means of production and commodity has created a special information economy, that is, a wide range of economic activi-ties involving trade in ICT goods and services and ICT application for economic purposes, including the supporting infrastructure and hardware elements.2 Electronic commerce is both a narrower and broader concept, depending on how it is defined. As used in this article, electronic commerce means transac-tions for the sale of goods and provision of services where an order is placed by the buyer or price and terms of sale are negotiated over electronic means,3 whether or not pay is made online.4 Where their objects relate to ICT, electronic transactions are measurable as part of the information economy. In other cases, however, electronic commerce is nothing more than old economy using electronic means, as a manifestation of the broader information society.

Measuring electronic commerce is not always easy, and different results may be arrived at depending on the way electronic is defined. As understood in this article, electronic commerce is estimated by the U.S. Department of Commerce to account for a total value of US$ 2.400 billion in shipments and sales in 2005 or 12.25 % of total shipments, sales, and revenues.5 On a global scale, electronic commerce has been estimated at some US$ 12.8 trillion of total

** LL.B. UFRGS (Brazil); LLM. Saarbrcken (Germany); Senior Legal Officer, International Trade Law Division, U.N. Office of Legal Affairs; Secretary, UNCITRAL Working Group IV (Electronic Commerce) and supervisor of the secretary, UNCITRAL Working Group III (Transport Law).

1 Jean-Franois Lyotard, La Condition Post-Moderne (Paris, ditions de Minuit, 1979).2 See United Nations Conference on Trade and Development (UNCTAD), Information Economy

Report, 2006, New York Geneva, United Nations, 2006; OECD Working Party on Indica-tors for the Information Society, Sector Definitions Based on the International Standard Industry Classification (Isic 4) (OECD document DSTI/ICCP/IIS(2006)2/FINAL, 5 March 2007) (29 November 2007).

3 For example, the Internet, an extranet, Electronic Data Interchange (EDI) network, or other online system.

4 Definition adopted by OECD Working Party on Indicators for the Information Society (Guide to Measuring the Information Society OECD document DSTI/ICCP/IIS(99)4/FINAL, 7 October1999) and the US Department of Commerce E-Stats 19 November 2007)

5 US Department of Commerce, E-Stats, 25 May 2007 (19 November 2007).


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shipments in 2006.6 Admittedly, this is only a small part of the worlds output,7 but the bottom line is that electronic commerce keeps growing and is far from reaching its potential.8

The advantages of enabling the use of ICT applications for business transac-tions should be obvious. Besides the evident efficiency and productivity gains offered by the speed and worldwide reach of electronic communications, the potential savings of replacing paper-based trade documentation by electronic means can be illustrated by data provided by the International Air Transport Association (IATA), according to which the average cost of processing paper airway bills is US$ 30 per bill, which, by an average of 35million airway bills being issued every year, amounts to a total cost of some US$1billion every year in this industry alone.9

As would be expected, a closer look at existing statistics shows that most e-commerce happens in specific industries in a few economies of the world, mainly in North America, Europe, and Japan.10 The concentration of electronic commerce users and revenues is one of the aspects of the so-called digital divide between industrialized countries and less developed ones.

This digital divide results from a combination of various factors that influ-ence the development of information and communication technologies (ICT). They include infrastructure factors, such as connectivity, access to information technology, policy aspects, and telecommunications traffic levels.11 The digital divide also means that countries have different priorities and policy concerns,

6 These are the figures arrived at by the well-known global research firm Forrester Research (12 November 2007).

7 Estimated by the World Bank to have been some US$ 48, 244 billion in 2006 (see World Development Indicators Database, World Bank, 1 July 2007, (under Data and research, World development indicators) (20 November 2007)).

8 There are, however, several conceptual and practical difficulties in measuring electronic commerce, which may lead to widely diverging estimates depending on the methodology used (see Measuring Electronic Commerce in UNCTAD, E-Commerce and Development Report 2001, United Nations Publication Sales No. E.01.II.D.30, (New York and Geneva, 2001) (29 November 2007), p. 3).

9 Cited by United Nations Economic Commission for Europe, Roadmap Towards Paperless Trade (U.N. document ECE/TRADE/371) (29 November 2007).

10 Although no reliable statistics exist for electronic commerce worldwide, studies done by UNCTAD suggest that the participation of developing countries in electronic commerce revenues is marginal (UNCTAD, E-Commerce and Development Report 2004 (United Nations, New York and Geneva, 2004), chapter I. (29 November 2007).

11 UNCTAD has developed a basket of indices to assess the level of each countrys development in the field of information and telecommunications technology (see UNCTAD, Informa-tion and Communications Technology Development Indices (2003) (29 November 2007).


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depending on their level of ICT development. The less developed countries are typically concerned with establishing the basic infrastructure for ICT use, whereas developed countries,12 such as Australia, Canada, most of the members of the European Union, Japan, New Zealand, and the United States, have long passed that level of concern and focus on issues related to more sophisticated business applications of ICT, such as electronic payments, privacy protection, intellectual property rights.13

Laws dealing with electronic transactions, electronic signatures, cybercrime and data protection are a constant component of most domestic strategies to develop electronic commerce. This means that most countries that have passed the initial stages of developing the basic infrastructure for electronic commerce will sooner or later pay some attention to the interplay between ICT use and the existing legal framework. The use of electronic communications for the negotia-tion and performance of contracts has however highlighted the inadequacy of existing laws to accommodate new technology or to address some of the issues it raised. This applies both to public and private law, domestic and international. The legal implications of electronic commerce extend to various areas of law and may demand an extensive law reform effort.14 The main areas concerned are briefly summarized below.

International Trade and Electronic Commerce

The international trade liberalization regime that developed in the course of the 20th century, initially under the auspices of the General Agreement on Tariffs and Trade (GATT) and later under the umbrella of the World Trade Organization (WTO), for exempla, was based on a strict distinction between trade in goods and trade in services. Technological evolution made it possible, however, not only to reach out for external markets with nearly unlimited accessibility, but also to deliver some goods entirely online, without any supporting tangible medium, which had thus far constituted an essential element of the legal notion

12 Of course, the labels of developed and developing countries are an oversimplification of the worlds picture, as several developing countries rank higher than some developed countries in several indicators of ICT development, and the level of internet penetration and readiness for electronic commerce varies widely among developing countries (see UNCTAD, Information and Communications Technology Development Indices (2003)).

13 Most of these topics have been the subject of extensive work at various international forums, including global and regional, intergovernmental, and non-governmental organizations. For a general overview, see Current work by other international organizations in the area of electronic commerce Note by the Secretariat (U.N. document A/CN.9/57 ).

14 For an overview of the wide range of issues affected by electronic commerce, see Ugo Draetta, Internet et commerce lectronique en droit international des affaires, 314 Recueil des Cours de lAcadmie de Droit International de La Haye (2005) 99.


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of goods. Recognizing that global electronic commerce is growing and creating new opportunities for trade, trade ministers at the Second Ministerial Conference of World Trade Organization (WTO), which took place in Geneva from 17 to 20 May 1998, adopted a declaration,15 to commence a work programme on the subject in the General Council of the WTO, for making recommendations to the following Ministerial Conference.

One of the first issues raised by WTO member States was the classification of virtual goods for the purposes of the existing multilateral trade regime, namely how electronic transmissions should be characterized, that is, as goods, services or something else. This is a question of significant practical and economic importance, as the types of commitments and extent of liberalization vary greatly between trade in goods under the General Agreement on Tariffs and Trade (GATT) and the regime established by General Agreement on Trade in Services (GATS).

Although it appears that most countries within the WTO recognize that a large majority of e-commerce activities correspond to services (such as financial or professional services), there has been extensive argument about how to classify certain specific electronic transmissions or deliveries, in particular the electronic equivalents of goods such as CDs, photos, postcards, video tapes, software, video games, and books.16

Most developing countries seem to be concerned that ensuring the openness of electronic commerce will exacerbate the technological gap between them and developed countries. There are also fears that they might become mere consum-ers of e-commerce goods and services, rather than providers. Some countries also oppose the idea of open e-commerce in order to preserve the prerogative to regulate the flow of foreign goods, services, and culture within their boundaries. Thus, developing countries are generally inclined to regard transactions involv-ing virtual goods as trade in services. Some of them would even prefer to see virtual goods treated as trade in intellectual property rights,17 a category that would offer the least in terms of market access and trade liberalization.

While most developed countries want to ensure that there will be no future bar-riers to electronic commerce, because they are often the providers of services that are delivered electronically, their positions are not exactly uniform. The European Union maintains the position that the fact that information and instructions can

15 WTO Document WT/MIN(98)/DEC/02 (29 November 2007).

16 For an overview of the debate within the WTO, see Stewart A. Baker, Peter Lichtenbaum, Maury D. Shenk and Matthew S. Yeo, E-Products and the WTO, 35 Intl Law. (2001) 5.

17 See Communication of Indonesia and Singapore (WTO document WT/GC/W/247, 9 July 1999) (29 November 2007)


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be put and transmitted on a physical support does not transform them into goods for the purpose of the WTO regimes. While the physical support itself (e.g. the disk) is seen as a good, and is, therefore, subject to GATT rules, the provision of the corresponding service should remain subject to the GATS.18 Other developed countries such as Japan19 and the United States,20 seem to focus on the result of maximum possible liberalization rather than on the classification of various types of transactions. But at least at earlier stages of the WTO discussions, the United States openly advocated the classification of e-commerce as trade in goods.21

The divergences among countries are significant, as are the economic interests involved in the WTO discussions,22 which is why the participating countries do not seem to be anywhere near reaching a workable consensus on the matter.

18 Thus, there is no reason to artificially turn the electronic delivery of a service into a good so as to bring it under the scope of the GATT 1994 (see Submission from the European Communities (WTO document WT/GC/W/497, 9 May 2003) (29 November 2007)).

19 Japan agrees that the GATS disciplines should be applied to the acts of supplying digital contents by electronic means. However, as it is not entirely clear what disciplines should be applied to the digital contents themselves, for example, software, further considera-tion is needed. Such consideration should be directed so that the GATT principles of the most-favoured-nation treatment, national treatment and the general elimination of quantitative restrictions will apply to such digital contents (Communication from Japan, WTO document WT/GC/W/253, 14 July 1999 (29 November 2007)).

20 the means of delivery of such products may change but the downloadable products functional characteristics do not change merely by a difference in delivery. Trade rules or commitments should not prejudice which business model is optimal for developing or delivering these products. Thus, the focus should not be on how to classify these products, but rather how to treat them for trade purposes with the goal being the most liberal treat-ment irrespective of how such products are classified. (Submission from the United States, WTO document WT/GC/W/493/Rev.1, 8 July 2003 (29 November 2007).

21 See Contribution by the United Sates, WTO Document WT/GC/16, 12 February 1999 (29 November 2007).

22 However divergent the views of States may be, at least the position of the worlds largest software producer is clear: States should keep treating software embedded on a tangible medium as goods; they should neither create a category of virtual goods for on-line software transmissions, nor reclassify them as trade in services, but rather build upon the TRIPs regime (see WTO and Electronic Commerce: Issues for World Trade, A Microsoft White Paper, 8 September 1999 (29 November 2007)). The United States Council for International Business (USCIB) is somewhat less emphatic, but points out that its members do not support, at least at this juncture, a determination that differentiates a physical delivery of a product as a good and an electronic delivery of a product as a service (USCIB Response to the European Commission Questionnaire on the Services Aspects of the WTO Work Programme on Electronic


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Liability and Standards of Conduct for Information Service Providers

Information service providers play an essential role in the functioning of the Internet. Typically, they act as intermediaries who transmit or host third party content but do not take part in the decision to disseminate particular material. Liability may arise from theories of direct and indirect or contributory infringe-ment in national tort law, criminal law, and intellectual property law. Most cases arise from the fact that service providers take part in the technical process of transmitting or storing information for third party content of any kind.

Responsibility for unlawful content or unlawful acts of their users is related to the opportunity and extent of control that information service providers are able to exert. The possibilities of storage and transmission of data files in data networks have multiplied the opportunities of unlawful behaviour and reduced chances of detection and control. Hence, imposing general liability for service providers would amount to establishing duties to monitor and filter all transmitted or stored content a burdensome task for information service providers for technical and economic reasons as well as unacceptable for other reasons. As a result, many countries have perceived a need for limiting liability of information services.

However, the interest in limiting liability of service providers has to be weighed against the interests of injured parties in enforcing their rights and holding all contributing parties responsible. It does not seem to be necessary that the ap-proaches be identical: they may differ depending on the particular circumstances and legal traditions in any given country. But they should be interoperable if global networks and electronic commerce are to develop smoothly.

An additional set of legal issues relates to the possible liability of informa-tion service providers for failures that occur during transmission of messages (delivery delay or loss of information), or for malfunctioning of data storage systems (loss of stored data or unauthorized access by third parties). Typically, these matters would be dealt with at a contractual level, through general condi-tions of contract of information service providers. However, the extent to which information service providers may disclaim liability for loss or damage caused by service failure, or may limit their liability in those cases, is likely to vary from country to country.

Lack of appropriate rules, guidelines or voluntary codes of conduct, or even the perception of insufficient legal protection, undermine confidence in electronic commerce and constitute an obstacle to its development. Conflicting standards across borders may also affect the offer of goods and services, as business entities operating under a less developed or excessively tolerant framework may enjoy

Commerce, 30 June 1999 (29 November 2007).


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an unfair competitive advantage, as compared to companies required to comply with more stringent requirements. In some cases, operations under a more leni-ent legal framework may be favoured by business entities interested in shielding themselves from liability that may arise under more stringent regimes.

Unfair Competition, Deceptive Trade Practices and Consumer Protection

Electronic communication permits new forms of advertising and marketing that may affect the interests of consumers as well as the functioning of the competition process. Unfair competition law will protect these interests but legal evaluation of practices in conventional commerce cannot always be transferred to the electronic environment.

Online advertising includes forms of banner advertising with remunera-tion calculated on the basis of page impressions or ad clicks. Other forms of advertisements include information that loads between two content pages, either as small format pop-ups or full-page advertisements. Depending on the manner they are used, such techniques may raise issues of the separation of advertising from editorial parts of media, or may mislead customers and users to purchase services not originally intended. Unfair practices may also involve search engines, which have become the main service for users to cope with the enormous amount of information present on the Internet, or use of hyperlinks for misappropriation or deceptive comparative advertising.

Again, lack of appropriate rules, guidelines or voluntary codes of conduct, or even the perception of insufficient legal protection, undermine confidence in electronic commerce and constitute an obstacle to its development. Conflict-ing standards may also distort international competition, as business entities operating under a less developed or excessively tolerant framework may enjoy an unfair competitive advantage, as compared to companies required to comply with more stringent requirements.

Closely related to the issue of unfair competition and trade practices are rules intended for consumer protection. Domestic rules on consumer protection are typically based on concerns about information asymmetries as well as a lack of negotiating power on the side of the consumer. While media such as the Internet offer convenient alternatives to traditional purchase methods, one of the main barriers to electronic commerce taking off has been the lack of consumer confidence due to uncertainties in the use of electronic media for contracting.

Information asymmetries are exacerbated in electronic commerce, as consum-ers lack vital information concerning the product, which the consumer cannot inspect physically. Consumers also have virtually no information concerning vendors and have little means to verify their identities and the standing of their business. Moreover, the features of the technical means used for the transaction may not be familiar to the consumer, resulting in unintended communications. Also, there are fears that a vendor providing the technical system may be able to


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construe key features in its favour leaving the consumer in a weaker position in the transaction process. Legal uncertainties in cross-border transactions arise with respect to the applicable law and efficient ways to assert consumer claims.

Various international and regional organizations have recognized the impor-tance of improving the legal framework for consumer protection in electronic commerce, including OECD,23 the European Union24 and APEC.25

Privacy and Data Protection in Electronic Commerce

Data protection and privacy are concepts that have been acknowledged in most parts of the world, sometimes even on a constitutional law level. With the advent of the computer there was a first wave of data protection initiatives in the seventies. With the spreading use of the Internet and the increased techni-cal potential for collecting and transmitting data in electronic commerce, the protection of personal data has gained renewed attention. Practices like data mining or data warehousing as well as the placement of cookies are widely used in electronic commerce.

Data protection and privacy rules may serve the interests of user as well as of business but also have to be weighed against conflicting interests. The lack of consumer trust and confidence in the privacy and security of online transactions and information networks is seen as an element possibly preventing economies from gaining all of the benefits of electronic commerce. On the other hand, regulatory systems restricting the flow of information can have adverse implications for global business and economies.

The key elements in the international discussion on principles of data protection are concerned with consent to data collection, adequate relation to the purpose, time limitation of storage, adequate level of protection in third countries to which transmission takes place, information and correction claims for users, and enhanced protection for sensitive data. New issues and restrictions on data protection arise from international security concerns, which have led to legislative actions directed at data retention. With a growing stock of inter-national rules these do not only become more heterogeneous but also make it more difficult for companies to comply. As these standards consider conflicting interests, the delineation of the field of application of these instruments as well

23 See the OECD Guidelines on Consumer Protection in the Context of Electronic Commerce of 9 December 1999 (27 November 2007).

24 Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts (Official Journal No. 144, of 4 June 1997).

25 Voluntary Consumer Protection Guidelines for the On-line Environment (, under Documents and reports (27 November 2007)).


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as which of the interests protected will prevail in a specific case are of gaining growing importance.

Important work in setting standards for privacy protection has been done by international and regional organizations, including OECD,26 the European Union,27 the Council of Europe,28 APEC29 and the Commonwealth.30

Protection of Intellectual Property Rights

Modern means of communication have had a significant impact in the way some intellectual property rights are defined and have challenged traditional enforcement mechanisms.

Copyright has been closely intertwined with the features of the production, reproduction, and distribution of works from the outset. Hence, the advent of a uniform digital format as well as digital networks poses a challenge for the specific characteristics of copyright as to subject matter, scope of rights, and enforcement as new technological possibilities and related innovative business models develop. All kinds of protected materials are now distributed and traded over digital networks. The first challenge for the legal framework is to adapt to new technological and economic developments. This concerns the scope of

26 See OECD Guidelines on the Protection of Privacy and Transborder Flows of Personal Data, adopted on 23 September 1980 (26 November 2007). See further the OECD Privacy Policy Statement Generator (26 November 2007).

27 Beginning with Directive 95/46/EC of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (Official Journal 1995 L 281/31, 23 November 1995). This work was supplemented by Commission Decision 2001/497/EC of 15 June 2001 on standard contractual clauses for the transfer of personal data to third countries under Directive 95/46/EC (Official Journal J L 181/19 of 4 July 2001) and the Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector (Official Journal L 2001 201/37 of 31 July 2002).

28 See Council of Europe, Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data, done at Strasbourg on 28 January 1981, E.T.S. 108, (29 November 2007).

29 The APEC Privacy Framework promotes a consistent approach to information privacy protection across APEC member economies and also avoids the creation of unnecessary barriers to information flows (see ).

30 The Commonwealth Model Privacy Law deals with the collection, use, disclosure and retention of personal information as well as establishing a Privacy Commissioner and a system of investigation of complaints of breaches of privacy (27 November 2007).


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rights with respect to digital distribution as well as the extent of limitations to copyright. Also, certain kinds of information goods may obtain increased importance in an electronic environment calling for increased protection. The protection of databases can be seen as an example. Digital networks pose a threat to traditional distribution channels and economic models as well as to existing systems of collective management. Finally, moral rights that were not in the focus of the earlier phases of computerization, which emphasized software protection, are now increasingly gaining importance with respect to the creation and distribution of works over the Internet.

Trademarks have an important function in commerce that is equally present in electronic commerce. While there is consensus that trademark law should apply to electronic commerce the same way as to traditional means of commu-nication, problems arise from the fact that the provisions of trademark law and protection of related signs are not tailored to the features of the new medium. Further issues deriving more from conventional use of trademarks and related to the issue of cross-border communication as opposed to the territorial nature of trademark systems include the acquisition as well as infringement of trademark rights through use of signs on the Internet.

Another illustration of the impact of electronic commerce on the traditional system for protecting intellectual property rights concerns domain names. Do-main names are a necessity of todays user-friendly information retrieval in the Internet. The economic value of a concise and characteristic domain cannot be underestimated. Due to this, many conflicts over certain Internet-domains have arisen. Patent law is another area affected by modern means of communication, with software patents playing an increasing role in electronic commerce.

Countries interested in developing an appropriate legal framework for electronic commerce would be well advised to consider carefully the intellectual property implications of the use of modern information and communication technologies. WIPO is the driving force in the international field for developing a framework for the protection of intellectual property. Due to technical developments much of the activity is now related to the electronic environment. WIPO has a com-prehensive working agenda on all aspects of intellectual property in electronic commerce. The organizations expertise and universal membership ensures the broad acceptability of the international standards set by WIPO.

Cybercrime

Use of modern information and communication technologies has provided new means for criminal, fraudulent or indecent activities, such as embezzlement of funds, slander, industrial espionage, violation of trade secrets or dissemination of child pornography. At the same time, new types of criminal conduct have emerged, such as identity theft, dissemination of computer viruses, or intentional breakdown of computer and information services. Besides their criminal character,


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all these activities may significantly affect international trade by causing physical loss or moral damage to individuals and business entities and by undermining business and consumer confidence in electronic commerce.

The establishment of an effective legal framework for preventing and pros-ecuting computer crime and cybercrime, for example, as provided for in the Convention on Cybercrime31 adopted by the Council of Europe for the purpose of developing a common criminal policy aimed at the protection of society against cybercrime, inter alia, by adopting appropriate criminal legislation and fostering international cooperation is therefore an essential component of domestic and international strategies to promote electronic commerce. The Commonwealth has also formulated a model law on computer and computer-related crimes.32

Jurisdiction and Applicable Law

Cyberspace it has been said, is not some mystical incantation capable of warding off the jurisdiction of courts built from bricks and mortar. Thus, just as traditional notions of jurisdiction have proven adaptable to other [economic changes], so too are they adaptable to the transformations wrought by the Internet.33 While this conclusion is certainly true, as a general proposition, the Internet has given rise to very intricate arguments over proper jurisdiction, which are far from being entirely solved. A few examples should suffice to make this point.

In a famous case, two French associations fighting anti-Semitism and racism sued an American citizen who had created an Internet auction platform to offer Nazi memorabilia and Nazi products. The relevant web site could be accessed from anywhere in the world, including France, where, however, the sale of Nazi memorabilia is forbidden as war crimes apology. The French court affirmed its competence over the publishers of offensive material pursuant to French criminal

31 Council of Europe, Convention on Cybercrime (Budapest, 23 November 2001), E.T.S. 185, (29 November 2007).

32 The Commonwealth Model Law on Computer and Computer Related Crime establishes offences in relation to certain computer crimes including illegal access, interfering with data or with a computer system, the illegal interception of data, illegal devices and child pornography (29 November 2007).

33 Gorman v. Ameritrade Holding Corp., 293 F.3d 506, 510 (C.A.D.C. 2002). See also Metcalf v. Lawson, 148 N. H. 35, 38 (2002): It can be difficult to apply long-standing jurisdictional principles in cases involving Internet contacts. Nevertheless, while the Internet undoubtedly challenges the territorial-based concepts that courts have traditionally applied to problems of personal jurisdiction, it is equally true that traditional constitutional requirements of foreseeability, minimum contacts, purposeful availment, and fundamental fairness must continue to be satisfied before any activity including Internet activity can support an exercise of personal jurisdiction.


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law, regardless of their nationality or domicile, to the extent that the offensive materials are accessible from French territory, and despite the defendants allega-tions that the publication or offer of such content was not illegal in the country of origin, the United States.34 The court ordered the internet services provider that hosted the web site in question (Yahoo!) to render impossible access by persons in France to certain content on servers based in the United States.35

Anticipating a request by the French plaintiffs to enforce the French decision in the United States, Yahoo! sought from a U.S. court a declaration that the order of the French court was unenforceable in the United States because it contravened the First Amendment to the constitution and other laws of the United States. The French defendants subsequently moved to dismiss for lack of personal jurisdiction. The district court denied the defendants motions to dismiss. The district court proceeded to hear the case and entered summary judgment for Yahoo!, declaring the order to be unenforceable in the United States as contrary to the guarantee of free speech under the First Amendment to the U.S. constitution. The district court noted that the French orders content and viewpoint-based regulation of the web pages and auction site on Yahoo.com was entitled to great deference as an articulation of French law, but held that it would be inconsistent with the First Amendment if mandated by a court in the United States.36 The court added that, [a]lthough France has the sovereign right to regulate what speech is permissible in France, this Court may not enforce a foreign order that violates

34 Tribunal de Grande Instance de Paris, Ordonnence de rfer, 22 May 2000, Union des Etudiants Juifs de France (UEJF) et La Ligue Contre le Racisme et lAntisemitisme (LICRA) c/. Yahoo! Inc. et Yahoo France (3 December 2007). The website was published at Yahoo.com, an American corporation, who argued that the French tribunal had no jurisdiction to hear the case. The tribunal decided however, that the crime was committed both in France and abroad because the website could be accessed in any jurisdiction. French court issued an order requiring Yahoo! to (1) disallow French citizens access to the offending offerings on Yahoo! Auctions; (2) eliminate French citizens access to web pages on yahoo.com that contain offending material; (3) post a warning on yahoo.fr stating that searches through yahoo.com may lead to sites and material prohibited by R645-1 of the French Criminal Code and that viewing such material may cause prosecution under the statute; and (4) eliminate from search directories accessible in the French Republic links to negationist materials which violate the criminal statute

35 Believing that the order imposed technologically impossible requirements, Yahoo! requested, without success, the French court to modify the order. The French court gave Yahoo! three months to come into compliance as originally set forth. Yahoo! took steps to prevent Nazi propaganda from being accessible on www.yahoo.fr, but made no such effort on the U.S. site.

36 Yahoo! Inc. v. La Ligue Contre le Racisme et lAntisemitisme, 169 F. Supp. 2d 1181, 1192 (N.D. Calif. 2001).


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the protections of the United States Constitution by chilling protected speech that occurs simultaneouslywithin [the United States].37

The two French associations appealed to the U.S. Court of Appeals for the Ninth Circuit, reasserting their claim that the U.S. court lacked personal jurisdiction over them. The initial decision was eventually reversed, main on procedural grounds. The Court of Appeals conceded that, had the French associations at-tempted to enforce the order of the French court in the United States, jurisdiction would be proper. As no such enforcement had yet been sought, and the French associations contacts with California were not continuous and systematic, U.S. courts lacked personal jurisdiction over them.38 This decision was later confirmed, although not entirely on the same grounds, by a judgment en banc of the Court of Appeals.39

This case generated much controversy and extensive debate both in favour and against the decisions taken by the various courts involved from the point of view of ensuring international harmonization and legal predictability for what is essentially a borderless activity.40 Perhaps the most significant lesson to be learned from it may sound like a truism: not all that is illegal at home is forbidden abroad; neither is everything allowed abroad not forbidden at home. In the absence of universal standards, the Internet emphasizes more than ever then the need for mutual understanding of legal traditions and values.

The interest to protect nationals against criminal activity conducted by electronic means seems to lead courts in various countries to assert jurisdiction on the basis of the accessibility of the offensive content. Australian courts have held that a defamation action could be brought wherever the information is

37 Id.38 Yahoo! Inc. v. La Ligue Contre le Racisme et lAntisemitisme, 379 F.3d 1120 (9th Cir.

2004).39 Yahoo! Inc. v. La Ligue Contre le Racisme et lAntisemitisme, 399 F.3d 1010 (9th Cir.

2005).40 See Marc H. Greenberg, A Return to Lilliput: The LICRA v. Yahoo! Case and the Regulation

of Online Content in the World Market, 18 Berkeley Tech. L.J. (2003) 1191. For a view of the later developments, see Robert T. Razzano, Error 404 Jurisdiction Not Found: The Ninth Circuit Frustrates The Efforts Of Yahoo! Inc. To Declare A Speech-Restrictive Foreign Judgment Unenforceable, 73 Cincinatti L. Rev. (2005) 1743. See also the views of Michael Geist (We are beginning to see courts moving toward an effects based analysis for Internet jurisdiction); Joel R. Reidenberg (Companies will have to comply with the laws where they target business); Pierre Trudel (Les mesures de censure sont une mauvaise faon de rguler les conflits engendrs par la circulation de linformation) and Yves Poulet (Cest laune de ses propres principes constitutionnels et du respect d la libert dexpression dans un pays dmocratique que ltat ou le juge interviendra de manire exceptionnelle) at < www.juriscom.net/uni/doc/20010131.htm> (3 December 2007)


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viewed.41 A similar conclusion was reached by the Italian Court of Cassation in a slender case, which the court saw as falling within the jurisdiction of the plaintiff s place of residence.42 Courts that opt for this broad understanding of domestic jurisdiction seem to take the view that the person who sets up the website can be regarded as potentially committing a delict in any country where the website can be seen, in other words in any country in the world.43

The opposite view, however, advocates restraint the exercise of jurisdiction. Thus, for example, noting that internet publications are accessible from virtually anywhere, a French court expressed the view that it would be unreasonable to expose the author to all laws of the world, which would lead to total legal uncertainty in the exercise of the freedom of thought, which is also protected by law. The court therefore advocated the use of objective criteria to exercise jurisdiction, in particular to confer jurisdiction on the place where the web site is located.44

Similarly, in the United States, courts have distinguished between various types of Internet sites, according to their level of interactivity in order to assess the reasonableness of exercising personal jurisdiction.45 When a defendant

41 Gutnick v. Dow Jones & Co Inc. [2001], Supreme Court of Victoria, VSC 305, 28 August 2001 (30 November 2007).

42 Corte di Cassazione, Civil Third Section, Ordinance No. 659, 18 May 2002, V. Giustiniani, President, A. Segreto, and Relator (30 November 2007).

43 This case involved allegations of copyright infringement commited through a web site maintained outside Scotland. Speaking for the Scottish Court of Session, Lord Drummond Young took the view that the critical question for present purposes is the location of a wrong that is said to have been committed by way of the Internet. I do not think that it is helpful to adopt the defenders analysis that a website is nothing more than material stored on a particular computer, with the result that any delict could only be committed where the computer containing the material was located. [The Internet] is, in essence, a system of communication that allows a verbal or graphic message to be set up on a computer, which may be situated anywhere in the world, and conveyed to another computer, which may likewise be situated anywhere in the world. [W]hen a website is set up, it is self-evident that the intention is that other persons should be able to obtain access to it via the Internet. The person who creates the website is linking himself into a process of communication, with the obvious intention that communication should take place by way of that process (Bonnier Media Ltd v. Greg Lloyd Smith and Kestrel Trading Corporation, Scotland, Court of Session, Outer House, 2002 SCLR 977, 1 July 2002).

44 Presdok et Siline Gmbh D.J. v. F.C.O. fiduciaire SA, Court dappel de Paris, 11th Chamber, Section A, 10 November 1999, (3 December 2007). In the particular case, however, the court asserted jurisdiction on the basis of a provision in the French Penal Code (article 113-6) that grants French court universal jurisdictions for offences committed by French citizens.

45 Machulsky v. Hall, 210 F. Supp. 2d 531(D.N.J. 2002).


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merely posts information or advertisements on a website, personal jurisdiction over such defendant is not found to be proper. Jurisdiction could only be exercised if the acts were aimed at producing effects in the forum.46

Even regarding purely commercial transactions, which do not normally rise to the same level of sensitivity as criminal cases, there is argument as to what conditions justify the exercise of jurisdiction in Internet-related cases. Courts in the United States have transposed the analysis of the level of interactivity of web sites to the commercial environment. However, the dividing line between one and the other category seems at times rather fluid.

Courts that have considered the issue of whether web presence creates personal jurisdiction in a particular forum have categorized Internet use into three areas for the purpose of determining whether the exercise of personal jurisdiction is permitted. At one end of the spectrum are cases where individuals can directly interact with a company over their Internet site, download, transmit or exchange information, and enter into contracts with the company via computer. In such cases, the exercise of jurisdiction is appropriate, particularly when combined with evidence of sales from the forum state.47 Exercise of personal jurisdiction is justified, for example, where the Internet presence of a company is clearly more than passive, extending, for example to maintaining a website through which its customers can engage in electronic transactions, open accounts online, transmit funds to their accounts electronically and use those accounts to buy and sell products.48

At the other end of the spectrum are cases where the defendant has only advertised on the Internet, and where another medium such as the telephone or mail is necessary to contact the seller; in the case of such passive sites, personal jurisdiction usually does not lie.49 However, if a passive web site by itself is not sufficient to confer personal jurisdiction, a passive website in conjunction with

46 Mere allegations that a plaintiff feels the effects of a defendants tortious conduct in the forum, simply because plaintiff resides there, do not satisfy the effects test for purposes of determining when a nonresident defendants publication of allegedly libelous material can subject such defendant to personal jurisdiction (Machulsky v. Hall, supra note 45, 540-541). See also Shamsuddin v. Vitamin Research Prods., 346 F. Supp. 2d 804 (D. Md. 2004).

47 Compuserve, Inc. v. Patterson, 89 F.3d 1257, 1261 (6th Cir. 1996).48 Gorman v. Ameritrade Holding Corp., 293 F.3d 506, 5112-513,. (C.A.D.C. 2002).49 Bensusan Restaurant Corp. v. King, 937 F. Supp. 295, (S.D.N.Y 1996) (holding that mere

uploading a web site onto a server located outside the forum that was accessible to forum residents was insufficient, without more, to subject web masters to personal jurisdiction where site not intended to sell product to forum residents.). See also Cybersell, Inc. v. Cybersell Inc., 130 F. 3d 414, (9th Cir. 1997) (declining jurisdiction where a web site is passive and the non-resident does not do something more to target the residents of the forum).


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something more, such as conduct directly targeting the forum, may well do so.50 It is not clear what additional off-line activity would render the operation of a passive web site capable of justifying the exercise of personal jurisdiction. For instance, some courts have held that a companys maintenance of a passive web site accessible to forum residents and a toll-free telephone number justified jurisdiction,51 while other countries have expressly denied it.52

The middle ground between the two extremes involves sites where parties can interact with the defendant company, but may not be able to contract with the company or make purchases over the Internet site; in such situations, most courts determine whether jurisdiction is proper by examining the level of interactivity and commercial nature of the exchange of information that occurs on the Web site.53 In these cases, it is normally held that there must be more than a fortuitous contact with the forum to justify personal jurisdiction. For example, the mere offer of goods through a platform such as e-bay, is not sufficient to subject a non-resident to the forums jurisdiction.54 Even for such middle ground web sites, exercise of jurisdiction may be based on findings that the contacts with the forum are continuous and intense.55 Interactivity alone is not sufficient.56

Scope of this Study

Information technologies have introduced profound and lasting changes in the way people, enterprises and governments communicate with each other and conduct their business. The task of legislators and policy makers around the world is therefore to ensure that existing laws, conceived against the background of other means of communication and premised upon strictly territorial application, can properly operate in the new environment created by the information society. In doing so, legislators must ensure that the legal framework for domestic and

50 Rio Properties, Inc. v. Rio International Interlink, 284 F.3d 1007 (9th Cir. 2002).51 Inset Systems Inc. v. Instruction Set, Inc., 937 F. Supp. 161 (D. Conn. 1996).52 See Fix My PC, LLC d/b/a Fixx My PC v. N.F.N. Associates, Inc., (48 F. Supp. 2d 640 (N.D.

Tex. 1999); American Homecare Federation, Inc. v. Paragon Scientific Corp. et al., 27 F. Supp. 2d 109, (D. Conn. 1998); Edberg v. Neogen Corporation, 17 F. Supp. 2d 104 (D. Conn. 1998).

53 Zippo Manufacturing Company v. Zippo Dot Com, Inc., 952 F. Supp. 1119, (W.D. Pa. 1997). See also Search Force v. Dataforce International, 112 F. Supp. 2d 771, (S.D. Ind. 2000).

54 Winfield Collection Ltd. v. Mccauley, 105 F. Supp. 2d 746, 751(E.D. Mich. 2000); see also Metcalf v. Lawson, 148 N. H. 35, 39-40 (2002).

55 Mieczkowski v. Masco Corp., 997 F. Supp. 782, (E.D. Tex. 1998).56 Millennium Enterprises, Inc. v. Millennium Music, LP, 33 F. Supp. 2d 907, (D. Ore. 1999).

See also On-Line Techs. v. Perkin Elmer Corp., 141 F. Supp. 2d 246, (D. Conn. 2001).


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international trade does not hinder or diminish the gains promised by the use of new technologies.

This brief introduction has shown the variety of legal issues raised by elec-tronic commerce. Attempting to deal with all of them would by far exceed the limits of this paper, which will, therefore, be limited to issues affecting electronic contracting. For that purpose, Part One discusses the interplay between form requirements and electronic communications. Part Two considers matters related to contract formation and performance in an electronic environment.


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parT one legal value of eleCTroniC CommuniCaTions

Chapter I. Rules of Evidence, Form Requirements and Electronic Communications

A. Traditional Recording and Authentication Methods and Their Electronic Equivalents

The Internet presents many of the same issues as other transnational technologies, but by facilitating the ability to communicate anywhere, any time, and reduc-ing the importance of geographical and economic boundaries and locations, it facilitates changes to the way companies do business.

One of the initial difficulties, however, results from the fact that paper docu-ments have been the basis for rules on form and evidence of legal acts in most countries. Indeed, most legal systems use concepts that to a lesser or greater extent presuppose or even require that information of legal significance be recorded in a tangible medium capable of being displayed and stored for subsequent use. Notions such as writing, document, instrument, and other related concepts such as original or signature have been traditionally associated with hand-written or typed signs impressed by ink on a piece of paper. The medium of electronic communications is by nature intangible, and this characteristic gave rise to concerns that existing law may not support electronic communications or may even be an obstacle to its use.

1. Function and Nature of Rules of Evidence and Form Requirements

At least in theory, the law is generally medium neutral. Contracts being the result of human agreement, the law in principle does not require any formalities for their validity. This is true both in civil and in common law countries.

In practice, however, there are numerous exceptions to the general principle of freedom of form. The first type of exception is made of requirements of a particular form (usually the written form) as a condition for the validity of a contract. The second type of exception comprises rules of the admissibility and hierarchy of evidence in judicial proceedings. Even if this rule may not per


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se deprive a contract of its validity, it may seriously restrict its enforceability whenever the required type of evidence (typically documentary evidence), for whatever reason, is not available.

(a) Authentication and Attribution

Legal writing and signature requirements as a condition for the validity of certain acts in common law jurisdictions are typically found in the British Statute of Frauds57 and its versions in other countries.58 In its origins, the Statute of Frauds had an essentially evidentiary function,59 and it is generally understood as merely rendering a contract not complying therewith unenforceable, but not invalid.

The notions of writing or document have broader application than within the narrow confines of form requirements, such as those set forth in the Statute of Frauds. Indeed, those concepts are an essential element of rules on evidence, both in civil and criminal proceedings. A writing or document generally encompasses anything in which information of any description is recorded.60 This would include, for example, such things as photographs of tombstones and houses,61 account books62 and drawings and plans.63 The relevancy of a document as a piece of evidence is established by connecting it with a person,

57 The Statute of Frauds was originally passed in Great Britain in 1677. When it was originally enacted, it covered five types of contract: (i) a contract by an executor or administrator to accept personal liability; (ii) a contract in consideration of marriage; (iii) a contract for the disposition of land; (iv) a contract where one promises to be a surety; and (v) a contract to be performed more than one year after its formation. Most of its provisions were repealed in the United Kingdom during the twentieth century. J.H. Baker, An Introduction to English Legal History (London: Butterworths-LexisNexis, 2002) 350.

58 For example, section 2-201, subsection 1, of the Uniform Commercial Code of the United States, which has expressed the Statute of Frauds as follows: Except as otherwise provided in this section, a contract for the sale of goods for a price of $500 or more is not enforce-able by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by a party against whom enforcement is sought or by his authorized agent or broker.

59 The purpose of the Statute of Frauds is said to have been [f]or the prevention of many fraudulent practices which are commonly endeavoured to be upheld by perjury and subordination of perjury. Henry Reed, A Treatise on the Law of the Statute of Frauds and of Other Like Enactments in Force in the United States of America and in the British Empire (Philadelphia: Kay & Brother, 1884) 1-3.

60 United Kingdom, Civil Evidence Act 1995, chapter 38, section 13.61 Lyell v. Kennedy (No. 3), UK, Court of Appeal [1881-1885] All ER Rep 814, 8 April

1884.62 Hill v. Regem, UK, Kings Bench Division [1945] KB 329, 1 March 1945. 63 J. H. Tucker & Co., Ltd. v. Board of Trade, UK, Chancery Division [1955] 2 All ER 522, 19

May 1955.


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place or thing, a process which in some common law jurisdictions is referred to as authentication.64

Under the common law on civil evidence, a record or document is regarded as authentic if there is evidence that the document or record is what its proponent claims.65 Signing a document is a common albeit not exclusive means of authentication, and, depending on the context, the terms to sign and to authenticate may be used as synonyms.66 Thus, the purpose of statutes that require a particular document to be signed by a particular person is to confirm the genuineness of the document.67 The legal notion of signature, in turn, is understood as any name or symbol used by a party with the intention of constituting it his signature.68 The paradigm case of signature is the signatorys name, written in the signatorys own hand, on a paper document (ahandwrit-ten or manuscript signature).69

However, the handwritten signature is not the only conceivable type of signature in the common law tradition. Since courts regard signatures as only a mark, where a statute merely requires that a document shall be signed, the statute is satisfied by proof of the making of a mark upon the document by or by the authority of the signatory.70 Thus, for example, the printed name of the party who is required to sign the document may be enough, or the signature may be impressed upon the document by a stamp engraved with a facsimile of the ordinary signature of the person signing, and the courts do not require evidence of the giving of the authority pursuant to which the stamp was so impressed, any more than it would do so if the signature were apparently handwritten.71

64 Farm Credit Bank of St. Paul v. William G. Huether, 454 N.W.2d 710, 713 (N. Dak. 1990).

65 United States of America, Federal Rules of Evidence, rule 901, subdivision (a): The requirement of authentication or identification as a condition precedent to admissibility is satisfied by evidence sufficient to support a finding that the matter in question is what its proponent claims.

66 In the context of the revised article 9 of the United States Uniform Commercial Code, for example, authenticate is defined as (A) to sign; or (B) to execute or otherwise adopt a symbol, or encrypt or similarly process a record in whole or in part, with the present intent of the authenticating person to identify the person and adopt or accept a record.

67 Lobb v. Stanley, UK, Queens Bench, (1844) 5 Q.B. 574, 114 E.R. 1366.68 Alfred E. Weber v. Dante De Cecco, 1 N.J. Super. 353, 358 (1948).69 Lord Denning in Goodman v. Eban, Queens Bench Division, [1954] Q.B.D. 550 at 56: In

modern English usage when a document is required to be signed by someone that means that he must write his name with his own hand upon it.

70 R. v. Moore: ex parte Myers (1884) 10 V.L.R. 322, 324 (cited in The Queen v. Joseph Mari-jancevic, Supreme Court Of Victoria, Court Of Criminal Appeal, 1991 VIC LEXIS 452, 21 June 1991).

71 The Queen v. Joseph Marijancevic, 1991 VIC LEXIS 452.


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With time, courts have tended to interpret form requirements, in particular those set forth in the Statute of Frauds liberally, out of recognition that its strict rules were conceived against a particular background72 and that their unconditional enforcement unnecessarily deprives contracts of legal effect.73 Thus, since the 19th century, common law jurisdictions have seen an evolution of the concept of signature from an original emphasis on form to a focus on function.74 The admissibility of identification methods that could be assimilated to the hand written-signatures, such as crosses75 initials,76 pseudonyms77 and identifying phrases,78 printed names,79 signatures by third parties,80 and rub-ber stamps,81 were admitted by English courts by drawing an analogy with a manuscript signature. Thus, it could be said that against a background of some

72 The Statute of Frauds was passed at a period when the legislature was somewhat inclined to provide that cases should be decided according to fixed rules rather than to leave it to the jury to consider the effect of the evidence in each case. This, no doubt, arose to a certain extent from the fact that in those days the plaintiff and the defendant were not competent witnesses. (J. Roxborough in Leeman v. Stocks, UK, Chancery Division, [1951] 1 Ch 941, 17 April 1951,pp. 947-948) citing approval for the views of J. Cave in Evans v. Hoare, UK Divisional Court [1892] 1 QB 593, 15 March 1892, p. 597).

73 As explained by Lord Bingham of Cornhill It quickly became evident that if the seven-teenth century solution addressed one mischief it was capable of giving rise to another: that a party, making and acting on what was thought to be a binding oral agreement, would find his commercial expectations defeated when the time for enforcement came and the other party successfully relied on the lack of a written memorandum or note of the agreement. (Actionstrength Limited v. International Glass Engineering, UK, House of Lords, 3 April 2003, [2003] UKHL 17).

74 Chris Reed, What is a signature?, 3 J. Infor. L. & Tech. (2000) 223, and reference to case law therein (3 December 2007).

75 Baker v. Dening (1838) 8 A. & E. 94 (cited by Lord McDermott L.C.J. in Fulton v. Kee, Court of Appeal (Civil Division), [1961] NI 1, 30 June 1960) United Kingdom, Adolphus and Ellis Queens Bench Reports).

76 Hill v. Hill, Court of Appeal, [1947] Ch 231, 5 December 1946.77 Redding, in re (1850) 14 Jur. 1052, 2 Rob. Ecc. 339 (cited in Chris Reed, supra note 74).78 Cook, In the Estate of (Deceased) Murison v. Cook and Another [1960] 1 All ER 689 (id.,).79 Brydges v. Dicks (1891) 7 T.L.R. 215 (cited in Brennan v. Kinjella Pty Ltd., Supreme Court of

New South Wales, 24 June 1993, 1993 NSW LEXIS 7543, 10). Typewriting has also been considered in Newborne v. Sensolid (Great Britain), Ltd. [1954] 1 QB 45 (United Kingdom, Law Reports, Queens Bench).

80 France v. Dutton, 24 April 1891 [1891] 2 QB 208 (cited by Parker L.J. in London County Council v. Vitamins Ltd., Court of Appeal [1955] 2 QB 218, [1955] 2 All ER 229, 31March 1955).

81 Goodman v. J. Eban Ltd., [1954] 1 QB 550 (cited by Denning L.J. in Lazarus Estates, Ltd. v. Beasley, Court of Appeal [1956] 1 QB 702, 24 January 1956).


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rigid general form requirements, courts in common law jurisdictions have tended to develop a broad understanding of what the notions of authentication and signature mean, focusing on the intention of the parties, rather than on the form of their acts.

The approach to form requirements and the understanding of terms such as authentication and signature in civil law jurisdictions is not in all respects identical to the common law approach.

Most civil law jurisdictions follow the rule of freedom of form for contractual engagements in private law matters, either expressly82 or impliedly,83 subject, however, to a more or less extensive catalogue of exceptions depending on the jurisdiction concerned. This means that, as a general rule, contracts need not be in writing or signed in order to be valid and enforceable. Nonetheless and here lies a significant difference as compared to the common law approach statutory form requirements in civil law countries are usually understood as a necessary condition for the validity of a contract, and not only for its enforceability.

As regards the evidentiary aspects, there are civil law jurisdictions that gener-ally require a writing to prove the contents of contracts, except in commercial matters.84 In contrast to common law jurisdictions, civil law countries tend to interpret evidentiary rules rather strictly. Typically, rules on civil evidence establish a hierarchy of evidence for proving the content of civil and commercial contracts. Highest in such ranking are documents issued by public authorities, followed by authentic private documents. Often, such hierarchy is conceived in such a way that the notions of document and signature, although formally distinct,

82 This is recognized, for instance, in article 11, paragraph 1, of the Code of Obligations of Switzerland. Similarly, section 215 of the Civil Code of Germany provides that agreements are only invalid where they failed to observe a form prescribed by law or agreed upon by the parties. Except for such specific instances, it is generally understood that private law contracts are not subject to specific form requirements. Where the law expressly prescribes a particular form, that requirement is to be interpreted strictly.

83 In France, for instance, freedom of form is an implication within the basic rules on contract formation under the Civil Code. According to article 1108 of the Civil Code of France, the validity of a contract requires the consent of the promisor, his or her legal capacity, a certain object and a licit cause; once these have been met, the contract is law between the parties according to article 1134. This is also the rule in Spain under articles 1258 and 1278 of the Civil Code. Italy also follows the same rule, although less explicitly (see Civil Code of Italy, articles 1326 and 1350).

84 Article 1341 of the Civil Code of France requires a writing for the proof of contracts exceeding a certain value, but article 109 of the Commercial Code admits various types of evidence, without a particular hierarchy. This led the Court of Cassation of France in 1892 to recognize the general principle of freedom of evidence in commercial matters (Cass. civ. 17 mai 1892, DP1892.1.604; cited in Luc Grynbaum, Preuve, Rpertoire de Droit Commercial Dalloz (June 2002), sections 6 and 11).


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may become nearly inseparable.85 Some civil law jurisdictions positively link the notion of document to the existence of a signature.86 This does not mean that a document that has not been signed is necessarily deprived of any value as evidence, but such a document would not enjoy any particular presumption and is generally regarded as a beginning of evidence.87

Authentication in most civil law jurisdictions is a concept that is rather narrowly understood to mean that the authenticity of a document has been verified and certified by a competent public authority or a notary public. In civil procedure it is common to refer instead to the notion of originality of documents.

As is the case under the common law, the paradigm of a signature in civil law countries is the handwritten one. As regards the signature itself, some jurisdic-tions tend to admit various equivalents, including mechanical reproductions of signatures, despite an otherwise formalist approach to evidence.88 Other jurisdic-tions, however, admit mechanical signatures for commercial transactions,89 but until the advent of computer technologies, continued to require a handwritten signature for the proof of other types of contract.90

By way of conclusion, it could be said that against a general background of freedom of form for the conclusion of business contracts, civil law countries tend to apply strict standards to assess the evidentiary value of private documents

85 Thus, for instance, under German law a signature is not an essential element of the notion of document (Urkunde) (Gerhard Lke and Alfred Walchshfer, Mnchener Kommentar zur Zivilprozessordnung (Munich, Beck, 1992), section 415, No. 6). Nevertheless, the hierarchy of documentary evidence established by sections 415, 416 and 419 of the Code of Civil Procedure of Germany clearly links the signature to the document. Indeed, section 416, on the evidentiary value of private documents (Privaturkunden), provides that private documents constitute full proof for the information they contain as long as they are signed by the author or by a notarized signature). As nothing is provided for documents without a signature, it seems that they share the sort of defective documents (i.e. garbled, damaged), whose evidentiary value is freely established by the courts (Code of Civil Procedure of Germany, section 419).

86 Thus, in France, a signature is an essential element of private documents (actes sous sein priv ) (see Recueil Dalloz, Preuve, no. 638).

87 This is the situation in France, for example (see Recueil Dalloz, Preuve, nos. 657-658).88 Commentators of the Code of Civil Procedure of Germany point out that requiring a

handwritten signature would mean excluding all forms of mechanically made signs, a result that would run counter to ordinary practice and technological progress. See Lke and Walchshfer, Mnchener Kommentar zur Zivilprozeordnung 1. Auflage (1992 Verlag: C.H. Beck), section 416, No. 5.

89 For example, France (see Recueil Dalloz, Preuve, no. 662).90 In France, for instance, the signature could not be replaced with a cross or other signs,

by a seal or by fingerprints (see Recueil Dalloz, Preuve, no. 665).


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and may be dismissive of documents whose authenticity is not immediately recognizable on the basis of a signature.

(b) Practical Consequences of Form Requirements

The above discussion shows not only that the notions of signature and authen-tication are not uniformly understood, but also that the functions they fulfil vary across legal systems and even under the same legal system, depending on the context of the particular form requirement. Despite these divergences, a few general common elements can be found.

The notions of authentication and authenticit

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