The e-revolution has created a minefield for lawyers and law makers. Simon Chalton reports on the inconsistencies of the new economy and how they can be resolved
Legislators, both national and regional, are rushing to update existing laws and fashion new ones to suit the dotcom economy. Out of this flurry of activity major areas of uncertainty are emerging.
Unfairness and marketing on the internet
The benefits of the internet as a method of accessing global markets is tempered by the accompanying risks of confusion, unfair competition, cyber-squatting and intentional or inadvertent infringement of intellectual property rights. Domain names are almost more important than trademarks, but have less to protect them. New ways of tackling unfair competition are needed to protect the markets of established marques and traders from depredation by newcomers riding on the backs of their predecessor competitors.
The indiscriminate distribution of marketing material, or spamming, is being attacked by law makers and service providers, and is likely to be outlawed. The difficulty is distinguishing between unsolicited mass distribution of self-seeking marketing material and the gratuitous bona fide distribution of non-marketing information – freedom of expression is a justification for the use of the internet as a means of distributing information. We must strive for international harmonisation of rules on spamming without restricting other freedoms.
E-contract performance and fulfilment
The EU’s Distance Selling Directive 97/7 (Article 7), which covers e-contracts, requires a supplier to give a consumer a seven-day right of cancellation and, unless otherwise agreed, to execute an order under a consumer contract within 30 days of formation of the contract. This could expose the consumer to a credit risk, and could deprive them of the value of their bargain. Arbitrary rules applying only to consumer contracts introduce a dual track approach to the obligation of order fulfilment, and lead to uncertainty when a contract is not clearly classified either as a consumer or as a non-consumer transaction.
Missed or defective delivery or defective performance can lead to disputes in e-commerce, with the added complexity of the need to apply different rules depending on whether or not the transaction is consumer related. If it is consumer related, the application of national consumer protection under the law of the consumer’s country of residence is likely to result in further inconsistency and disparity. The EU aim of requiring the law of the supplier’s country to apply will have no consistency in consumer contracts.
Security in e-commerce
E-commerce presents three kinds of security risks. Firstly, that received or transmitted information may be or have been corrupted, delayed, lost or misdelivered. Secondly, that the information may not have originated from the person who is purported to have authorised it. And finally, that the information itself may be, or may be evidence of, unlawful activity to which law enforcement agencies should have access.
Electronic communications which do not deliver the original information carrier but transmit only fungible and transient copies of the original are particularly prone to accidental or intentional interference. Encryption and electronic signatures provide powerful protection against the first two risks. But encryption may be used to disguise criminal activity – hence the need for governments to preserve their rights of access to encrypted materials in ways which are more threatening to civil liberties and confidentiality than traditional powers. Lawyers must expect uncertainty and potential injustice from new laws that address these concerns, particularly in an international context where national provisions are not harmonised.
Intellectual property rights over methods of doing e-business
E-commerce presents new opportunities for the development of new business methods which can become the subject of intellectual property rights, and which can substantially enhance the ability of e-traders, as intellectual property right-holders, to gain advantages over competitors.
These technologically-enabled methods have little, if anything, to do with the quality or usefulness of the products or services in which an e-trader deals, or the pricing or other terms on which they trade. The methods merely give them an advantage which secures customer loyalty and enables them to entice the competitors’ customers.
When encapsulated in a patent, such methods constitute a monopoly in the country or territory in which the patent is granted, excluding others from using the same or similar methods.
The European Patent Convention and the national patent laws of countries that are signatories to the convention exclude methods of doing business, as such, from patent protection. But this principle is falling away. The European Patent Office now grants patents for inventions which implement methods of doing business using technical effects achieved by computer systems. Further liberalisation of European patent law in this regard is on the way in order to give effect to Trips (the World Trade Organisation’s agreement on Trade-Related Aspects of Intellectual Property Rights), Article 27 of which requires that patents shall be available for any invention, whether products or processes, in all fields of technology, provided they are new, involve an inventive step and are capable of industrial application. We must accordingly expect a growth in monopolisation by patents of methods of doing e-business through computer and telecommunications systems.
Copyright, which protects databases and computer programmes, and the new EU sui generis right to protect databases will be used to protect methods of doing business on the internet which are dependent on software and databases. This, with growing trends in patent protection, will consolidate e-commerce in the hands of those who hold these intellectual property rights. In other words, intellectual property rights may enable those with dominant business methods, software and databases to exclude their competitors from the market, even if those competitors offer better products and better terms.
The arrival of the new e-commerce economy challenges existing legal concepts developed for more traditional business methods. This challenge, coupled with the ease with which trans-border business can now be conducted electronically, brings new dimensions to commercial transactions for which traditional legal concepts are not well adapted. There is the added complexity of inconsistent laws and problems of applicable law and of forum and enforcement. Where parties are in dispute, uncertain and unclear laws add to the difficulties of dispute resolution.
It is unrealistic to expect law makers to instantly produce harmonised rules which will resolve the difficulties resulting from international e-commerce. It remains for lawyers to do the best they can to influence the development of new laws and the application of existing legal rules to encourage the emergence of sound and consistent principles broadly recognised on a global basis.
Simon Chalton is a consultant at Bird & Bird.