The cyberspace trading blues

The fundamental problem with the Internet is the way it functions. Digital data can flow in seconds to anywhere in the world unaffected by laws framed by reference to territories and matter. Unfortunately, when it was established by academic and defence institutions in the 1960s, the protection of intellectual property rights and the regulation of contracts were not addressed.

But everything was fine until big business discovered the potential for making a lot of money through the Internet. Companies worldwide jumped on the bandwagon, but in the rush it looks as if they left behind the secure framework of legal certainties which has developed around commerce over the past few centuries.

Business is conducted on the Internet in a variety of ways, ranging from simple email messages about the number of products in stock, through advertising businesses, right up to the actual purchasing of goods from a bulletin board or an electronic shopping mall using a credit card or other digital cash method. In addition, there are new industries created by the Net such as service providers, system operators and domain name keepers.

Each activity has thrown up its own specific legal problems, particularly when trading on the Net. The following points look at some of the most common difficulties.

Where is the business conducted?

The Internet does not recognise national frontiers. But international commerce is not novel; it has been established for centuries, and there are various rules relating to which court has jurisdiction and what law it should apply.

UK law has recently been changed in this respect by the passing of the Private International Law (Miscellaneous Provisions) Act 1995 which abolished the so-called "double actionability" rule. But this rule usually addressed a contractual or tortious dispute relating to activities in the real, non-Internet world involving conflict between the laws of two or three different countries.

Trading in cyberspace blows these notions to smithereens. My Web site will be accessible by millions of different Internet users worldwide. Even if I specify that the laws of my country apply, many countries will claim to impose their own domestic laws, particularly on issues of public policy or consumer protection. For example, I could be liable under obscenity laws in Iran if my advertisement contained a picture of a girl in a bikini.

There is also the problem of whom to sue. The Net is not a separate legal person. It is a network of end users, on-line service providers, telecommunications and cable companies, and bulletin board system operators. All these can carry digital information and be located in different countries. Should they all be joined as parties?

In attempting to apply existing legal concepts, the realities of Internet activity should also be distinguished. For example, the Net permits the creation of 'virtual' documents. It is possible to publish a document consisting of material, such as digital photographs, culled from other users' genuine documents, without anyone (except the reader) creating copies of them. The reader is looking 'through' the document into parts of other documents residing on servers in London, Moscow and Taipei.

Does this mean that the person who sets up the document is guilty of copyright infringement? And what 'copies' has he or she made?

There have been attempts to solve some of these questions by adapting established laws relating to satellite transmissions. But satellite law generally focuses on the countries of uplink and downlink – it is relatively easy by looking at the 'footprint' of a satellite transmission to ascertain which countries are relevant.

With the Internet you are simultaneously broadcasting to 200 different countries, so 200 different laws may be applicable. And the broadcast or parts of it are then being retransmitted across the globe, making the original source of the broadcast difficult to trace.

How is a contract made over the Net?

There are specific problems with the formation of contracts digitally. Some jurisdictions require certain transactions be evidenced in writing while others require written signatures as evidence of acceptance. many countries imply terms and conditions in favour of the buyer in transactions of a particular type. Some require contracts to be in their own language.

The traders could argue that whether or not the contract is enforceable may not matter to the business. If the contract ensures traders get paid before they part with goods or provide access to services, they may not care that the contract or licence is technically void.

But if a customer decides to cease making regular payments to a subscription service despite agreeing to do so, apparently by contract, then the trader may have problems if it discovers it can take no action against the customer because the contract is void.

Incorporation of terms is another problem. The standard practice should be to force customers to read your terms and conditions on the screen first and then click their consent before they can access the service.


If a company lets its employees have access to the Internet and these employees publish defamatory or offensive material, then there is a significant risk that the employer will be liable, on the basis that the employees were acting with ostensible authority. If the defamatory message went to thousands of bulletin boards around the world, the employer could face substantial claims for damages.

Some companies, therefore, now issue their employees with a company and a personal email address so there can be no doubt whether a communication by an employee is personal or on behalf of a company.

A more acute problem exists for those companies whose business is the Internet – the service providers themselves. They provide a means by which Internet traffic can be carried. But what if they are responsible for circulating offensive or defamatory material originating with a third party?

There has been recent US litigation on this point. A service provider called Prodigy made great play of its 'family-oriented' business and the fact that it exercised editorial control over the contents. When it was sued for publishing defamatory material it was held liable.

However, an action involving CompuServe did not find the company liable, because it did not purport to exercise editorial control but claimed to be a mere 'carrier' like the Post Office.

Interestingly the new UK Defamation Bill makes express provision for operators of electronic communication services and provides a defence if it is not practicable for the operator to exercise effective control over the contents.


There are many ways in which copyright and trading on the Internet can conflict. Most countries recognise computer software as being covered by copyright (as a 'literary' work).

The EU, in adopting the directive on the Protection of Databases, has recognised that as long as sufficient skill and creativity has gone into its creation, a database can acquire copyright protection. (Database' in this context includes a digital multimedia work, including several elements such as sound, graphics, text and moving images.)

These are fairly clear ground rules. But the creation of a multimedia work involves many different copyright elements, usually owned by different people. Clearances and royalties for all such rights need to be negotiated which can be laborious and expensive.

More fundamentally, if any product which has taken significant time and investment to create is let loose on the Internet, it can be intercepted and copied thousands of times in a second, each copy as perfect as the original, and dispersed to computers all over the world. This will almost certainly be infringement of copyright.

One solution to this problem may be to have a fairly liberal approach to 'fair use' of excerpts – depending on what they are used for and how much of a whole product is taken: this concept is recognised under US law. Under UK law there are only very limited 'fair dealing' defences which would be of little assistance in this situation.

Another approach is to agree internationally a new right under the umbrella of copyright: a 'digital transmission right'.

But the problem is not one of legal nomenclature – we are faced with one of those situations where the law is simply way behind the technology it is trying to regulate.

A good example of this is the question of moral rights. Since 1988 the UK has recognised this continental concept, which includes the right to object to the derogatory treatment to your work.

However, one of the most exciting and valuable aspects of interactive digital technology is precisely that at the press of a button you can take a photograph of the Queen and give her black skin, or you can change the shape of the Mona Lisa's nose. This has huge advantages for the world of graphic design and advertising.

So should the rather purist notion moral rights (which under French law cannot be waived and are of indefinite duration) impede the full use of this technology?

The answer to the question of controlling copying really lies in using technology to beat technology. There are already fairly sophisticated electronic methods of encrypting or 'tattooing' works – rather like giving a work a special DNA identity – so that if a copy is discovered it can be identified as an infringement immediately.

The Internet is not, as is often suggested, an anarchic, law-free zone. In fact, there are too many conflicting laws.

One day soon a large multinational is going to be sued and found liable for a huge sum of money because of all the laws it has breached trading on the Net. There may then be an implosion, whereby businesses withdraw from the Net as a vehicle of serious commercial activity, leaving it to the Star Trek discussion groups and the academics.

When businesses eventually return there will be demands for an international treaty to imposing some order in the present legal chaos.