How can e-trading be regulated?

Harry Small, head of IT, Baker and McKenzie

Conor Ward, partner, Lovell White Durrant

Kim Nicholson, head of e-commerce, Olswang

The speed with which the internet is beginning to impact on business has left legislators standing. Issues of cross-border unregulated trade and security have led to both the European Commission and UK Government considering exactly what controls on the internet should be imposed.

The Government will attempt to address these concerns next month when it publishes its e-commerce Bill. But lawyers remain sceptical over exactly how laws can monitor and control e-commerce.

Harry Small, head of IT at Baker & McKenzie, sees no need for regulation at all: "If the law allows me to sell my very expensive Rolls Royce down the pub for £50,000, then why if I choose a slightly more orthodox way of selling it, should the law intervene?

"The majority of commerce is not regulated and the law does not require a special way of doing business for most contracts, so why should the internet be any different?"

Small believes the difference in attitude is down to the novelty factor, claiming there was the same scare into regulation and nationalisation when the telephone was invented.

He argues that e-commerce encourages true free trade: "History shows that if countries start to regulate trade, then it just moves to another market. For example, prescription drugs can't be advertised in Germany, so all the advertising flees outside the country and, in the end, Germany will probably give in."

The other major area of concern is security. "People get very uptight about sending credit card numbers across the internet," says Small, "but if you want a theatre ticket you ring up and give your credit card number and that is viewed as acceptable."

At the moment the acceptability of contracts drawn up over the internet is undecided, especially in continental countries, says Conor Ward, partner in the computer, communications and media department at Lovell White Durrant.

"One area of uncertainty is the admissibility of electronic signatures. In the UK we are fairly open to the idea, but in Europe there are certain legal requirements that must be followed before contract can be formed.

"In the UK we can make a contract over the telephone with a few exceptions, while in Europe contracts have to be in writing. So will they be able to accept contracts made on the internet and if a contract needs to be signed, is an electronic signature acceptable?"

Another area that needs to be decided on is which jurisdiction applies to consumer goods, says Ward. "If I buy in Italy from England, then am I protected under English or Italian law? One criticism of the proposed directive from the European Commission is that it is not strong on this point. It seems that English law would apply, which would make it considerably more difficult for consumers."

Another crucial point which the UK Government seems to have dropped for the time being is the issue of encryption keys, and whether they should be stored with a third party.

Encryption keys or "key escrow" are used by corresponding parties to scramble a message and then decode it at the receiving end. The issue is whether the keys should be stored with a third party to prevent fraud and criminal dealings over the internet.

Head of the e-commerce group for Olswang, Kim Nicholson, believes that key escrow should be stored with a government organisation rather than commercial bodies.

"If a commercial body was brought in to store the keys, then there would be the question of its integrity. But a third body is needed to store them to try and reduce fraud. At the moment it's a free-for-all, with very little tracing available," she argues.

But Nicholson shares Small's concerns that over-regulation in the UK will lead to companies moving elsewhere. "For example, there has been a lot of debate about betting over the internet recently. But, in Britain the gaming act allows betting in licensed premises. So that means you cannot carry on gaming on the internet from Britain. This is driving areas of business out of the country."