Will EC laws make net gains for firms?

E-commerce is big news. Start-up companies are popping up in Europe almost as frequently as they are in the US. The first e-businesses are hitting the Stock Exchange and the Government is trumpeting the internet as the next big industrial frontier.

However, lawyers and industry experts are expressing concern over proposed rules governing business over the internet. Last week, The Lawyer reported Dibb Lupton Alsop's campaign against what it calls “disaster” plans to change the law on e-commerce.

Mike Pullen, an associate at Dibbs' corporate department in Brussels, claims the European Commission is proposing rules which will discourage e-commerce by trapping entrepreneurs in a web of legal complexity which runs contrary to the spirit of the common market.

The Commission is seeking to introduce an amended version of the Brussels Convention, which will make it easier for foreign courts to get jurisdiction in an electronic consumer's jurisdiction, and is also hoping to introduce the Rome Regulations – which cover product liability and defamation (see box) – on non-contractual liability.

The proposed regulations say that the consumer's, as well as the supplier's, country of residence has jurisdiction over contractual disputes arising out of e-commerce.

This would mean the supplier is susceptible to claims from anybody in any of the 15 member states who can access the website.

Currently, suppliers can only be sued in the consumer's home country if they are targeting that country with promotional material.

Pullen claims the proposed changes will create an anomaly in the laws regulating e-commerce and traditional trade and unfairly disadvantage business conducted via the internet.

Pullen says: “If you get on the ferry from Dover to Calais, you buy a bottle of wine, you take the business card of the wineseller, and when you get home you write to him asking for two cases of wine and enclose your credit card details. If something goes wrong then you cannot sue him in the UK.

“But if you email him then you can. This creates a climate of legal uncertainty.

“This is holding people back. It is the e-commerce equivalent of the old British law that you could only drive a car if you had someone walking in front of it.

“If you are potentially exposed to litigation costing 10 per cent of your turnover because you haven't complied with some rule of German law which you were unaware of, then you are going to think twice about making your product available across the internet.”

Dibbs' campaign is attracting the interest of industry experts and the firm seems to have struck a chord.

Several in-house lawyers at multinationals are expressing concern about the issue, and European Commissioners are reported to be “divided” over it.

UNICE, the European employers' federation, is even threatening to petition for judicial review of the European Commission's proposals on the grounds they are contrary to the principles of the internal market and that the Commission did not properly consult industry experts before proceeding.

The World Trade Organisation, WIPO, the Organisation for Economic and Commercial Development and The Hague Conference, are all also examining e-commerce regulation.

However, Pullen does concede that the proposals are “wonderful” for lawyers, who will gain a lot of work advising companies on the laws potentially affecting them in EU countries.

He predicts: “We are likely to see more protectionist member states using this to try to limit the scope of market principles, by using this to pursue protectionist measures. This may give rise to a lot of cases as companies are sued under countries' unfair competition laws.”

Why then, is Pullen complaining? One reason may be his fear that European regulatory confusion may put off foreign firms from setting up in Europe – a potential source of new business for international firms such as his.

US businesses in particular are concerned about the proposed regulations. Pullen says: “We are currently the jurisdiction of choice for US companies setting up in the EU, but we are throwing it away.”

Lionel Stanbrook, director of legislative and political issues at consumer organisation The Advertising Association, agrees. He says: “The depressing thing about this is that it puts people off creating jobs and investing because the tragic fact is that a lot of small businesses won't bother with e-commerce because of this.”

Some in the sector are sceptical about Dibbs' motives and do not accept that the problem is as big as Pullen is making out. One partner, for example, says: “This looks to me like a way of drumming up interest in something and the best way of marketing anything is to take an opposite view.”

Pullen denies this. Speaking about a conference Dibbs is running on the subject, he claims: “This is not a marketing event for Dibbs, otherwise we wouldn't have invited other lawyers. Our reason is we want to consolidate our position in the market.”

The proposed regulations represent an attempt to regulate or at least clarify e-commerce, following the Government's much-maligned draft e-commerce legislation, the Electronic Communications Bill. This was put on hold after a critical report was issued from the Department of Trade and Industry (DTI).

That the Government's initiatives come from the DTI is a sign of its belief that new electronic media is an industry and a sector that will foster trade.

The department's re-sponse to the Commons' Trade and Industry Committee's report on the bill states: “The draft bill is an important part of the Government's policy to create in the UK the best environment worldwide in which to trade electronically by 2002.”

The latest predictions from internet experts are that the bill will be split in two: one short bill dealing with digital signatures; the other dealing with security and encryption measures. However, the Government has not confirmed this.

A source says the passage of its proposals through the European legislative process is causing “a lot of dissent” within the ranks of the Commission.

Earlier in the summer, the deputy director-generals of four Commission departments got together and issued a joint internal memo saying they thought the proposals would be damaging both to the internal market and e-commerce.

The European Council is due to meet in December to pass or reject the Brussels regulations. If passed, they come into force immediately. However, the Commission is holding a hearing on the re- gulations in the autumn – an unusual move since it has already adopted the regulation.

The Lawyer understands the Commission is responding to concern from major players in the computing and IT industry.

Dibbs is holding a conference in September at the European Parliament on the subject and has attracted more than 50 delegates from multinationals, including 20 in-house lawyers.

However, many lawyers do not share Dibbs' concern. Bird & Bird intellectual property partner Graham Smith says: “My view is that the Commission has seen that e-commerce is a chance to leapfrog the existing situation and introduce something which is like a true single market. There is a clear opportunity here to try to leap ahead in the emerging online market.”

While Smith believes there will be some effect, he does not believe the proposed regulations will necessarily stifle e-commerce.

He says: “If people who use the internet had asked their lawyers before they started then we probably wouldn't have the internet now.

“Commercial people are people who take sensible risks. There is a balance to be drawn between what is a real risk and what are commercial risks. The prudent thing to do is to research the laws of all those countries and that is a high overhead to have.

“It is illegal in Germany to do two for the price of one offers, or use free offers to promote goods, but there is a difference between theory and practice.

“If you are selling physical goods into Germany then the German authorities can try to seize those goods as they come over the border, but what are the practicalities of enforcing laws like that?

“If the consumer is downloading goods then the problem of enforcing them becomes even bigger because consumers are empowered and can consume those services at their leisure and search for what they want. The power of the internet makes some of these laws look like dead letters.

“And if you say you only supply X, Y, Z countries in your promotional material then you don't have the benefit of the Common Market.”

Denton Hall intellectual property partner Simon Levine does not think the proposals will hold back e-commerce.

He says: “Businesses make money, they don't think about jurisdiction. If we are in the European Union for good then I think businesses want greater harmonisation, that means greater certainty. Business is different to law.”

“If you put out adverts in newspapers throughout Europe you have to check those adverts out because what may be defamatory here may not apply over there. It is the same with e-commerce.”

Whatever the reality of the new regulations and the future of e-commerce in Europe, it is clear that many companies are worried. Dibbs has recognised that trend and is now leading the campaign to co-ordinate an industry response to the proposals.

The proposed amendments

The Commission proposes to introduce the Brussels Regulation which brings the amended Brussels Convention into EU law. It also proposes introducing the Rome Regulation on non-contractual liability.

This means:

Under the Brussels Regulation a contractual dispute can be heard in the courts of either the consumer's or the supplier's country if the supplier promotes goods on the internet. Therefore, where a UK citizen based in Italy purchases goods advertised on a UK company's website, the Italian courts will have jurisdiction.

Under the Rome Regulation every company in an EU country is subject to the unfair competition laws of all other EU member states from where its website can be accessed. Therefore a UK company offering a 'two for the price of one discount' falls foul of German unfair competition law if German consumers and businesses can access its website, since German law prohibits such promotions.