The extraterritorial enforcement of consumer legislation and the challenge of the internet
Noel Cox, Auckland University of Technology
paper given at the 18th biennial LAWASIA Conference, Tokyo, Japan, 1st-4th September 2003
Abstract
For consumers, whether the trader they are purchasing from is based locally or overseas through the internet should not influence the availability of remedies for defects or breach of contract. Whilst business-to-business transactions may continue to be regulated by the rules of private international law, this has proven inadequate for consumers.
Perhaps more than any other business activity, electronic commerce requires a balanced approach of co-regulation. Governmental regulation and enforcement has a role to play in this regard. Whatever regime emerges must, however, have a large measure of consistency, predictability and transparency. A key component in this regard is arriving at common understanding of the jurisdictional rules that will apply to the regulation and enforcement of consumer protection standards by the various governmental authorities.
Introduction
Cross-border commerce is becoming easier for individual consumers through improvements in telecommunications, including the ability to carry out on-line real-time transactions through the internet.(1) For consumers, whether the trader they are purchasing from is based locally or overseas should not influence the availability of remedies for defects or breach of contract. Such consumer protection laws are increasingly common at the national level, but their enforcement extraterritorially present major challenges to the global legal system.
Consumer protection laws, and laws in general,(2) are presented with practical enforcement difficulties by the internet. It potentially increases these challenges to a degree that threatens to undermine the effectiveness of the national consumer protection laws which have been developed hitherto. Whilst business-to-business transactions may continue to be regulated by the rules of private international law, this has proven inadequate for consumer laws.
A fundamental issue with internet commerce is the question of which country’s laws apply to the transaction – the jurisdiction or territoriality question. For laws can generally only be enforced through national courts. This becomes especially important in the context of consumer protection laws, for conflict of laws rules were developed in the business-to-business sector, and are unsuited to dealing with the low-cost transactions which constitute the great majority of business-to-consumer transactions.
This paper will examine challenges to the enforcement of national consumer protection laws presented by the internet, and in particular their application and enforcement.
Enforcement of laws internationally
Commerce has rarely if ever been exclusively national. Throughout the course of human history the practical realities of international trade meant that much business was conducted at a distance, often overseas, with only limited opportunities for face-to-face contact between merchants.
Although there was an important international law element, all law was – and is – prima facie territorial in nature.(3) But many international laws were recognised by national legal systems, just as the laws of war involved both domestic and international elements.(4)
The advent of modern electronic trade conducted through cyberspace, and the consequent challenges to territorial borders, combined with the growth in regional free-trade alliances, has meant that there is an increased emphasis upon the international aspects of law.(5) But though the number of international treaties and conventions has increased,(6) this is only partly a consequence of technological change. Globalisation, for political and economic reasons, continues to have widespread effects on law. Nor is the internet, as a challenge to the legal system, a novel phenomenon.(7) Domestic legal systems have faced before the challenge of accommodating other legal traditions and technological changes.(8) What may be different now is the extent to which the changes which this new technology brings are being decided at international and supranational level, and this has important implications for national sovereignty and independence.(9)
The literature on the jurisdictional challenges of e-commerce is voluminous, and is largely focussed on private law aspects of this issue, namely whose courts and whose laws will apply in relation to private disputes arising out of e-commerce.(10) These rules are those of private international law, or the rules of conflict of laws. The fundamental question, in any legal disputes, is in which country’s legal system will the dispute be resolved? This is the forum question, and concerns the jurisdiction. Secondly, whose law will apply to the transaction? This is the choice of law question – the proper or applicable law.(11) Thirdly, there is the question of the recognition and enforcement of judgements.(12) In the absence of evidence that foreign law applies, courts have traditionally applied the substantive and procedural rules of the forum.
These rules have developed over time, and have been influenced by international conventions, such as the Brussels, Lugano (for the European Union), and Rome Conventions. But each country has its own conflict of laws rules,(13) and there is no effective or established customary international law that regulates personal jurisdiction.(14) Since 1995 there has been a great increase in the amount of cyberspace litigation, especially in the US. Some courts have simply applied traditional rules,(15) while others have tried to devise new tests to accommodate the peculiarity of the medium.(16) But the precise nature of cyber-law remains uncertain. Is it primarily national law, or a mixture of national and international? Or is it (as some have suggested) altogether different?
These are important questions, for the effective enforcement of consumer laws will only be possible if these can be answered, as there are limitations to what can be achieved through international co-operation alone. If enforcement remains purely (or perhaps, more accurately, principally) national, this itself presents difficulties, though not fundamentally different to those presented by traditional international trade. But how may a consumer obtain legal redress against an internet-based trader except by complex litigation through national courts?
Historically, there has been a legislative presumption against the extra-territorial application of public law statutes, as a matter of statutory interpretation.(17) Customary international law however permits a nation to apply its law to extraterritorial behaviour with substantial local effect,(18) as well as the extraterritorial conduct of its citizens or domiciliary.(19)
The US Federal Trade Commission (FTC) acts against fraudulent and deceptive foreign e-businesses that harm US consumers. The FTC Act gives the FTC authority over acts "in or affecting commerce" and defines "commerce" to include "commerce with foreign nations." The act also gives the FTC specific authority to investigate practices that "may affect the foreign trade of the United States".(20)
Other countries have also applied their laws extraterritorially. But the larger the economy the greater the influence, and perhaps, the greater the resentment of smaller economies. This suggests the need for clearer prescriptive jurisdictional rules,(21) especially for consumer laws.
The legal challenge of the internet
Why does the internet present particular difficulties? Because of its global reach into homes, and its universality and immediacy. It is possible, for the first time, for traders to reach consumers directly, without any middleman.(22) It however remains true that our existing international laws are predicated on the existence of the sovereign State. With the growth in both the (horizontal) extent and (vertical) reach of international agreements, treaties, conventions and codes, national independence is becoming less dominant. This tendency is becoming more noticeable in the modern commercial environment, and especially the internet. If electronic communication is (almost) instantaneous and global, who should regulate it and define its rules? Should it be subject to national regulation within some normative system – as the Law Merchant – or should it be recognised as a uniquely international system which requires international control?(23)
For the most part the internet is international, and its users are not adequately served by existing laws with respect to conflict of laws.(24) The efficacy of the concept of "closest and most real connection"(25) is also reduced, in that no part of the world is any more directly affected than any other by events on the web, as information is available simultaneously to anyone with a connection to the internet.(26) In the field of protection of intellectual property rights the same is true.(27)
The limits of national control of the internet are perhaps exaggerated.(28) Principally that is because nations are increasingly acting in concert to deal with the borderless nature of cyberspace by creating both relatively uniform laws across jurisdictions, and agreements for international co-operation in surveillance and investigation.(29) A country has no choice but to promote vigorously the introduction of new technology in order to maintain and increase its international competitiveness(30) – and this may mean the adoption of international norms – such as UNCITRAL, in the drafting of which it has had comparatively little influence.
Enforcement of laws on the internet – general approach
In its broad approach to the internet, the United States of America has chosen to rely on self-regulation,(31) rather than direct regulation. This is subject to exceptions, however, such with respect to internet pornography.(32) An alternative approach to that of self-regulation is a balance of self-regulation and direct regulation, as advocated by the European Union.(33) A third option would be direct regulation, which also has support, as in China.(34) Thus far there has however been little sign of a global consensus developing as to the appropriate form of internet regulation, domestic, trans-national, or international. This presents major problems for the internet consumer.
To date, most efforts to address this deficiency have concentrated on increased international co-operation. Some of this is web-based, such as the econsumer.gov website, which tracks consumer complaints from a number of countries.(35) This co-operation often results in de fact self-regulation of the internet. The internet may not be outside the law, but the application and enforcement of laws remain difficult. Ultimately, a new legal regime may emerge, one which responds to the difficultly of regulating a technology which has either insufficient, or too many, laws.(36)
Particular problems for consumer legislation
The particular problems with respect to consumer protection on the internet may include – but are not limited to – the following:
The internet presents particular problems for consumer protection legislation. This legislation may be defined as that enacted to protect consumers from defective goods and services.(38) Problems derive from the fact that the internet is not geographically-based, and also from its ephemeral nature. Questions of sovereignty have practical effects with respect to the enforcement of private international law, which is not readily achieved without recourse to litigation or arbitration. This presents problems for consumers. The purpose of consumer protection legislation is to give consumers rights which can ideally be obtained without recourse to the courts. But not every country has these laws, and their provisions are not consistent. We will look first at consumer protection arrangements in Australia.
The Australian Competition and Consumer Commission (ACCC) is the agency primarily responsible for the enforcement of consumer protection laws in Australia at the national level. International cooperation can be achieved through international networks of consumer protection agencies, like the OECD Committee on Consumer Policy, the International Marketing Supervision Network (IMSN), and the International Society of Consumer and Competition Officials (ISCCO).(39)
One of ACCC’s key strategies is working together with overseas agencies to consider how best they can protect the interests of consumers in the increasingly global marketplace. They are learning how we can improve our enforcement techniques and improve cooperation levels with overseas consumer protection agencies, how we can encourage ethical traders to take self-regulatory action to ensure that the interests of consumers are protected and how consumers themselves can avoid the ever growing number of international scams targeted at them.(40)
Techniques used include co-operation on cases, co-operation agreements,(41) internet sweep days, ACCC internet clinic, self-regulatory initiatives,(42) best practice model, alternative compliance mechanisms.(43)
The emphasis is upon self-regulation, education, and international co-operation, rather than the enforcement of national consumer laws, whose application may be problematic.
The same technology that Internet frauds use is proving invaluable to international law enforcers whose job is to track down fraudsters and stop their activities.(44) In the USA, the FTC also plays an active role in public policy discussions on international consumer protection principles for the global economy.(45)
Conclusion
Traditionally, the formation of legal norms for conducting trade was by States, subject to certain principles accepted by the international community. But this has proven inadequate for the control of electronic commerce, because this can be said to be truly international, having no physical presence.
The new environment has necessitated an increased degree of international co-ordination, if not co-operation. It is no longer possible for the nation-State to be the sole, or even prime, regulator of economic norms. Decisions respecting the forms of law will be made not at the national level, but internationally. These will be made by political blocks such as the European Union and the United Nations, and, in some instances, by non-governmental organisations.
Perhaps more than any other business activity, electronic commerce requires a balanced approach of "co-regulation," or what has been called "a new paradigm for governance that recognizes the complexity of networks, builds constructive relationships among the various participants (including governments, systems operators, information providers, and citizens), and promotes incentives for the attainment of various public policy objectives in the private sector."
Governmental regulation and enforcement has a role to play in this regard. Whatever regime emerges must, however, have a large measure of consistency, predictability and transparency. A key component in this regard is arriving at common understanding of the jurisdictional rules that will apply to the regulation and enforcement of consumer protection standards by the various governmental authorities.(46)
Biography
Noel Cox, Lecturer in Law at the Auckland University of Technology, New Zealand, is a Barrister of the High Court of New Zealand, and of the Supreme Courts of Tasmania, New South Wales, South Australia, and the Northern Territory.
(1) The internet, what we call "cyberspace", is an interconnected electronic communications network. It has no physical existence as a whole, though comprised of a large number of individual networks.
(2) See, for example, Walter B Wriston, The Twilight of Sovereignty: How the information revolution is transforming our world (Scribner, New York, 1992).
(3) American Banana Co v United Fruit Co 213 US 347, 357 (1909).
(4) Roberts, Adam & Guellf, Richard (eds), Laws of War (Oxford University Press, Oxford, 2000).
(5) For one small aspect of this see Ben Boer, "The Globalisation of Environmental Law: The Role of the United Nations" (1995) 20(1) Melbourne University Law Review 101-125.
(6) See for example, Clift, J, "The UNCITRAL Model Law and electronic equivalents to traditional bills of lading" (1999) 27 Journal of the Section on Business Law of the International Bar Association 311-317.
(7) Goldsmith, Jack L, "Regulation of the Internet: Three Persistent Fallacies" (1998) 73 Chicago-Kent Law Review 1119-1131.
(8) See Goldsmith for a criticism of the "regulation sceptics", who (using descriptive and normative claims) assert that the internet is fundamentally different to earlier situations, and requires unique means of regulation; Jack L Goldsmith, "Against Cyberanarchy" (1998) 65 University of Chicago Law Review 1199-1250.
(9) See, for example, Noel Cox, "The regulation of cyberspace and the loss of national sovereignty" (2002) 11(3) Information and Communications Technology Law 241-253.
(10) Roger Tassé and Maxime Faille, "Online Consumer Protection in Canada: The Problem of Regulatory Jurisdiction" (August 2001) Internet and E-Commerce Law in Canada, available at <http://www.butterworths.ca/booksample.asp?sample=journal_403.sample&bookid=403> at 2 May 2003.
(11) Substantive foreign law will apply, generally, where the parties have included a choice of law provision in a contract; where under the forum’s own laws status is determined under the laws of the place of birth or marriage; in tort, where lex loci delicti applies; and in the enforcement of foreign judgments (assuming that the application of foreign law does not offend public order); Ogilvy Renault, "Jurisdiction and the Internet: Are the traditional rules enough?" paper prepared by the Uniform Law Conference of Canada (1998), available at <http://www.law.ualberta.ca/alri/ulc/current/ejurisd.htm> at 6 May 2003, n7.
(12) In New Zealand governed by the Reciprocal Enforcement of Judgments Act 1934 (NZ).
(13) Law Commission of New Zealand, Electronic Commerce Part Two: A Basic Legal Framework (Law Commission of New Zealand, Wellington, 1999) NZLC R58, paras 12-21.
(14) Friedrich Juenger, "Judicial Jurisdiction in the United States and in the European Communities: A Comparison" (1984) 82 Michigan Law Review 1195, 1211.
(15) i.e. Bensusan Restaurant Corp v King, 40 USPQ (2d) 1519 (SDNY), confirmed by US Court of Appeals (2d cir) 10 September 1997.
(16) Ogilvy Renault, "Jurisdiction and the Internet: Are the traditional rules enough?" paper prepared by the Uniform Law Conference of Canada (1998), available at <http://www.law.ualberta.ca/alri/ulc/current/ejurisd.htm> at 6 May 2003.
(17) Though there are important exceptions, including in the consumer law field.
(18) The Case of the ‘SS Lotus’, 1927 PCIJ (ser A) No 10, 18-25.
(19) Blackmer v US, 284 US 421, 436 (1932) ; US v Rech, 780 F2d 1541, 1543 n 2 (11th cir, 1986).
(20) Jodie Bernstein, Director, Bureau of Consumer Protection, U.S. Federal Trade Commission, "Fighting Internet Fraud: A Global Effort" (May 2000) 5(2) Economic Perspectives, An Electronic Journal of the U.S. Department of State, available at <http://usinfo.state.gov/journals/ites/0500/ijee/ftc2.htm> at 4 March 2003.
(21) Roger Tassé and Maxime Faille, "Online Consumer Protection in Canada: The Problem of Regulatory Jurisdiction" (August 2001) Internet and E-Commerce Law in Canada, available at <http://www.butterworths.ca/booksample.asp?sample=journal_403.sample&bookid=403> at 2 May 2003.
(22) The internet service providers (ISP) are middlemen in a sense, though the consumer is largely unaware of their existence.
(23) See Georgios Zekos, "Internet or Electronic Technology: A Threat to State Sovereignty (1999) 3 Journal of Information, Law and Technology", <http://elj.warwick.ac.uk/jilt/99-3/zekos.html> at 6 May 2003.
(24) Though not necessarily because of any profound difference between cyberspace and territorial space, but rather because of the complexity of cyberspace; Jack L Goldsmith, "Against Cyberanarchy" (1998) 65 University of Chicago Law Review 1199-1250.
(25) Lawrence Collins (ed), Dicey and Morris on the Conflict of Laws (13th ed, Sweet & Maxwell, London, 2000) ch 32.
(26) Johnson, David R. and Post, David G, "Law and Borders: The Rise of Law in Cyberspace" (1996) 48 Stanford Law Review 1367.
(27) Burk, Dan L., "Muddy Rules for Cyberspace" (1998-99) 21 Cardozo Law Review 121, available at <http://www.cardozo.yu.edu/cardlrev/v21n1/burk.pdf> at 6 May 2003.
(28) Jack L Goldsmith, "Against Cyberanarchy" (1998) 65 University of Chicago Law Review 1199-1250.
(29) Overby, A.B., "Will cyberlaw be uniform?: an introduction to the UNCITRAL Model law on Electronic Commerce" (1999) 7 Tulane Journal of International and Comparative Law 219-310.
(30) cf Serafini, Shirley & Andrieu, Michel, The Information Revolution and its Implications for Canada (Minister of Supply and Services, Ottawa, 1981), p 96.
(31) See The White House, "A Framework for Global Electronic Commerce" (1997) <http://www.w3.org/TR/NOTE-framework-970706.html> at 6 May 2003.
(32) Children’s Online Protection Act, 1998, Pub. L. No. 105-277, Div C, tit. 13, ch 1302(6) available at <http://www.cdt.org/legislation/105th/speech/copa.html> at 6 May 2003.
(33) Common Position Adopted by the Council with a View to the Adoption of a Directive of the European Parliament and the Council on Certain Legal Aspects of Information Society Services, in Particular Electronic Commerce, in the Internal Market 14263/1/99 REV (February 28, 2000) ("Electronic Commerce Directive").
(34) Qiu, Jack Linchuan, "Virtual Censorship in China: Keeping the Gate between the Cyberspaces" (1999-2000) 4 International Journal of Communications Law and Policy 1. China has regulated access to the internet through centralised filtered servers, and by requiring filters for in-state internet service providers and end-users; Timothy Wu, "Cyberspace Sovereignty? – The Internet and the International System" (1997) 10 Harvard Journal of Law and Technology 647, 652-654.
(35) <http://www.econsumer.gov/> at 7 May 2003. As yet, such tools are only partly successful, due to incomplete coverage and limited knowledge of their existence among consumers.
(36) Too many, if this is seen as primarily a jurisdictional problem in traditional conflict of laws terms.
(37) Allan Asher, Deputy Chairman Australian Competition and Consumer Commission, "Existing Framework for Consumer Protection in E-Commerce An Australian Perspective", Asia-Pacific Economic Cooperation Electronic Commerce Steering Group Workshop on Consumer Protection, 20 July 2000, available at <http://www.accc.gov.au/speeches/2000/asher_apec_20_7.htm> at 4 March 2003.
(38) ‘Lectric Law Library’s Lexicon, <http://www.lectlaw.com/def/c114.htm> at 6 May 2003.
(39) Allan Asher, Deputy Chairman Australian Competition and Consumer Commission, "Existing Framework for Consumer Protection in E-Commerce An Australian Perspective", Asia-Pacific Economic Cooperation Electronic Commerce Steering Group Workshop on Consumer Protection, 20 July 2000, available at <http://www.accc.gov.au/speeches/2000/asher_apec_20_7.htm> at 4 March 2003.
(40) Ibid.
(41) One example is the Econsumer website, available at <http://www.econsumer.gov> at 24 April 2003.
(42) Including private initiatives such as the Internet Consumer Protection Agency.
(43) Allan Asher, Deputy Chairman Australian Competition and Consumer Commission, "Existing Framework for Consumer Protection in E-Commerce An Australian Perspective", Asia-Pacific Economic Cooperation Electronic Commerce Steering Group Workshop on Consumer Protection, 20 July 2000, available at <http://www.accc.gov.au/speeches/2000/asher_apec_20_7.htm> at 4 March 2003.
(44) Jodie Bernstein, Director, Bureau of Consumer Protection,
U.S. Federal Trade Commission, "Fighting Internet Fraud: A
Global Effort" (May 2000) 5(2) Economic Perspectives, An
Electronic Journal of the U.S. Department of State, available at
<http://usinfo.state.gov/journals/ites/0500/ijee/ftc2.htm>
at 4 March 2003.
(45) Ibid.
(46) Roger Tassé and Maxime Faille, "Online Consumer Protection in Canada: The Problem of Regulatory Jurisdiction" (August 2001) Internet and E-Commerce Law in Canada, available <http://www.butterworths.ca/booksample.asp?sample=journal_403.sample&bookid=403> at 2 May 2003.