The luck of the Irish

When the UK and Irish governments introduced their respective bills governing e-commerce, they got very different receptions. Bal Khela finds that unless the UK bill is amended, the industry could lose a raft of business to Ireland

Buying and selling over the internet has led to a dotcom revolution that has made e-commerce one of the fastest growing industries in the New World economy. And the UK and Ireland are just two of the players battling for a share of the market.

But while Ireland's Electronic Commerce Bill is receiving widespread support from industry, the UK Government seems to have scored an own goal with its Regulation of Investigatory Powers (RIP) Bill.

The UK and Ireland are in the process of implementing their respective bills to govern contractual relationships formed over the internet. The UK bill was supposed to create a regulatory framework to allow e-commerce to thrive, but it is doing the opposite. It has been condemned as unworkable by industry, the Alliance for Electronic Business (whose membership consists of 250 top high-tech companies including Motorola, IBM, British Telecom, Ericsson and Orange), the Confederation of British Industry, legal practitioners and human rights organisations.

Founding member of the Alliance for Electronic Business in the UK, Tom Wills-Sandford says: “The bill threatens the Government's objective to make the UK the best place to conduct e-commerce business.”

But the UK's loss is most definitely Ireland's gain. There are many industry leaders threatening to leave the UK if the bill is implemented in its current form and Ireland could be one of the main beneficiaries, if the Government fails to remedy its flawed bill.

William Fry is one of the main players in the Irish e-commerce market, with clients such as Esat Telecom – Esat is now part of BT after it acquired the company for £1.9m – Baltimore, Horizon and Iona. Associate John Gaffney says: “All the indications are that the RIP bill will attract UK companies to Ireland's e-commerce hub.”

The main reason is Ireland's Electronic Commerce Bill, which has received an all-embracing welcome because, according to a number of legal practitioners, it strikes the right balance between law enforcement and commercial interest.

Looking at the problems with the UK's RIP bill it is easy to see that it could cause a great deal of damage should it be implemented in its current form.

A study by the London School of Economics on behalf of The British Chambers of Commerce claims that around 20 to 30 per cent of the UK's e-commerce will move abroad because of business fears over the effect of the Government's bill.

E-consultant The Smith Group predicts that compliance with the bill could cost medium to large internet service providers (ISPs) anywhere from £23,200-£236,000 each, every year. The annual figure for small ISPs is somewhere between £9,400 and £11,800.

If businesses do opt to move out of the UK it could cost the country £46bn over five years. The loss is significant when one considers that e-commerce in Europe will be worth £340bn by 2003. ISP ClaraNET has already been forced to take action over fears about client confidentiality. Claranet systems manager Steve Rawlinson says: “Several large international clients are nervous about the bill, so we have offered them the opportunity to relocate their internet infrastructure to France where we already have offices. It will be bad for the UK if this bill is not modified.”

Microsoft is just one company seeking to influence the Government by participating in the European Encryption Working Group. Jason Albert, who leads the group, says: “The UK bill raises more security questions than it answers. The key objections relate to: the imposition of mandatory technical requirements so data can easily be decrypted; and the defendant bearing the burden of proof, because this will inevitably lead to cost and security questions.”

Claire Coleman, a dual UK/Ireland qualified lawyer at Denton Wilde Sapte, has studied and compared the UK and Irish bills and is concerned that the UK legislation will create uncertainty. She predicts that 40,000 amendments may have to be made before the UK is able to arrive at any workable legislation.

“The current format of the bill just sets the scene but it does not do anything else. We hope that the Government will take note of the huge amount of opposition to RIP. Everyone is watching and waiting to see what happens,” she says.

William Fry partner John Handoll has assessed the legal impact of e-commerce in a paper called The Legal Framework for E-commerce. He believes the UK bill has failed to “strike a balance in terms of protecting privacy and effective law enforcement”.

The UK bill is clearly failing, but the Government is not listening to industry concerns. Specialist adviser to the Trade and Industry Select Committee, Peter Summers, says: “This UK Government has generally been interested in business rather than civil rights, but with e-commerce it has been endless sound bites. The result is business is extremely dissatisfied.”

The Government predicts that the cost of implementing the bill will lead to an increase in the public sector borrowing rate of around £750,000. But the crucial annual cost to business is expected to be £20m, according to the Home Office. However, Summers says this figure is grossly underestimated.

The desperate situation in the UK is clearly contrasted with that enjoyed in Ireland. Rawlinson says: “Start-up firms are deliberately situating themselves in Dublin,” and Ireland's law firms, both in the north and south, have not been slow to seize opportunities. Matheson Ormsby Prentice, for example, tapped into the vast US technology sector by opening in Palo Alto as long ago as 1996.

The existing presence of technology companies in Ireland is already impressive – nine out of 25 of the world's top computing firms have manufacturing interests there, electronics form a third of the country's exports, it produces a third of the world's PCs, and it is the world's largest software exporter.

Ireland is an attractive proposition because it has actively sought to win business, with the e-commerce bill being just one example. It has business-friendly policies, a highly-skilled English-speaking workforce and the Irish government has invested heavily in the infrastructure. For example, it paid a subsidy of £120m to Global Crossing, a leading provider of fibre optic cables and a client of local firm McCann Fitzgerald, to set up there.

Ireland only imposes a 10 per cent corporation tax rate on the technology sector – although this will rise to comply with European regulations when it introduces a uniform tax rate of 12.5 per cent for all industry by 2003.

In addition, Ireland is part of the European Union and has embraced the euro. Companies such as Intel, Dell, Hewlett-Packard and Cisco Systems are taking advantage of this plethora of incentives and all have manufacturing or software interests in Ireland.

A&L Goodbody technology head David Sanfry says: “Me and my team of high-tech lawyers have worked with Dell, Intel and Microsoft and now we are advising e-commerce IPOs.” A&L Goodbody technology lawyer Robert O'Shea says that the Irish Electronic Commerce Bill seems applicable across the board, while the UK bill will cause uncertainty as it gives ministers the power to amend legislation on a case-by-case basis. For instance, the UK Financial Services Authority (FSA)will have to rule on e-commerce credit agreements separately.

Meanwhile law firms in Northern Ireland, such as Carson &McDowell, are being forced to seek alliances with their southern neighbours to sustain growth. Associate Alan Taylor says that the firm's commercial sector has expanded by 50 per cent despite “the incoming UK legislation” but that the need for “complementary practice” is evident.

“So far, we have acted with firms in Ireland on a one-off basis, as with cross-border client ISP buyandsell.net, to ensure that it complied with both jurisdictions,” he says, blaming the UK's approach to the bill.

“The UK legislation is trying to find a local solution to a global problem.”

There are other firms that have also formed associations to take advantage of a growing amount of cross-border business. For example Belfast firm L'Estrange & Brett and Dublin's McCann Fitzgerald formed the North South Legal Alliance. McCann Fitzgerald head of e-commerce and information technology group William Earley says: “Ninety five per cent of my time is spent on e-commerce, our expertise combined with government finance and infrastructure incentives adds up to a heady cocktail. Firms want to relocate or set up in Ireland.”

The strategy has worked as McCann Fitzgerald has introduced L'Estrange & Brett to numerous e-commerce projects, and vice versa. Both firms, for example, count global email company, gem, as a client which they have worked with from its start-up through to its pending flotation.

With criticism of the UK's RIP bill still mounting, Ireland, particularly its legal community, is ideally placed to reap the rewards of a liberal e-commerce policy. O'Shea admits that the final verdict depends on Ireland's interpretation and evaluation of the Electronic Commerce Bill. But it is safe to assume that other European countries will be following Ireland's lead and not that of the UK.

Ireland

Ireland's Electronic Commerce Bill has been welcomed throughout the country.

Its summarised highlights are:

• All contracts required to be in writing can be in electronic form.

• All electronic signatures are acceptable, provided both parties consent.

• Electronic communications will be admissible as evidence in court.

• The bill provides for certification and accreditation of certification service providers.

• Section 27 ensures that only the incriminating data is required, not the private keys.

• Burden of proof is not placed on the holder of the keys (the ISP).

• -The bill makes it clear that the communication service provider (CSP) is liable for issuing signature certificates.

• It provides for the regulation and registration of domain names in Ireland.

• The Irish bill is not expected to incur unacceptable cost and technical implications.

• The bill requires no further amendments, just interpretation.

• It has struck the 'right balance' and does not infringe civil liberties.

• There is minimum threat to client confidentiality.

UK

The UK's Regulation of Investigatory Powers (RIP) Bill has received almost unanimous criticism.

The main complaints are:

• -The UK bill will create uncertainty as it operates on a case-by-case basis with provisions for further amendments. Some commentators predict as many as 40,000 amendments will have to be made before the legislation is workable.

• -The bill needs separate arrangements to coordinate with the UK's Financial Services Authority (FSA) on certain issues.

• There are conflicting figures about the actual cost of its implementation.

• -Internet service providers (ISPs) must comply with mandatory technical requirements to allow interception.

• Larger ISPs face more technical requirements than smaller ISPs (this is anti-competitive).

• There is confusion relating to the issues of certificates and electronic signatures.

• The scope of powers to issue warrants is too wide and open to abuse.

• -UK law enforcement agencies can force ISPs to hand over keys for a broad range of reasons such as the prevention of crime, but would this include even petty crime?

• -The UK bill does not seem to have any accompanying codes of practice. As Peter Summer states: 'The quality of the controls will be questionable.'

• There is no distinction between traffic and content, and this affects privacy.

• The act infringes civil liberties and there are suggestions of a snoop loop direct line to MI5.

Concessions:

• The Government has agreed to a positive debate on the manner of intercepting communications.

• The Home Office says it is negotiating with ISPs.