Comparative U.S. & EU approaches to e-commerce regulation: jurisdiction, electronic contracts, electronic signatures and taxation.

• Author: Pappas, Christopher William
• Position: The Holland and Hart Private International Law Award

INTRODUCTION

The beginning of the 21st century has brought with it explosive growth in a new medium for trade, namely: e-commerce as made practicable through the continued evolution of the Internet. (1) Because major businesses have entered the realm of e-commerce, most firms believe that they must cater to the desires of the consumer, and that means doing business online. (2) Increasingly, consumers are choosing to make purchases via the Internet and are skipping the trip to the store. (3) A modern consumer can purchase a compact disc, a couch, or a new car at four in the morning without having to leave her house, deal with traffic and salespeople, or even change out of her pajamas. (4) Furthermore, a consumer is no longer restricted to products available in one store, one town, or even one country because the Internet transcends boundaries and is accessible from anywhere in the world.

MEASUREMENT OF E-COMMERCE

While it is difficult to accurately measure the impact of the Internet on commerce, some estimates report that at the end of 1999, there were nearly 260 million, and by mid 2002, over 580 million Internet users worldwide. (5) By 2005, that number is estimated to reach more than 765 million. (6) The Internet has evolved into a significant and accepted business medium through which consumers and businesses come together in the buying and selling process. Department of Commerce statistics conservatively estimate that e-commerce transactions totaled seventeen billion dollars in the first three calendar quarters of the year 2000. (7) Even those estimates are much lower than individual company reports suggest. (8)

THESIS

Growth in the use of the Internet has forced businesses to become familiar with, and understand the complexities of e-commerce. (9) Lawyers have played, and will continue to play, a significant role in helping these businesses learn about doing business online. For a lawyer to adequately represent her clients, she must, therefore, understand the complicated legal ramifications of doing business online. (10) Attorneys must understand and keep current with technology and business as well as legal developments. (11) This paper will analyze and compare the approaches to the regulation of e-commerce taken by the two historically largest and most developed economic markets of the world: the United States and continental Western Europe (as represented by the European Union). Generally, the European Union will be analyzed as one governmental body, although the difficulties of this presumption will be investigated.

The primary goals of this paper are to compare the broad policies behind U.S. and EU approaches to the regulation of e-commerce and the specific means of regulation adopted for four of the main issues that modern lawyers are facing in regards to e-commerce: (1) jurisdiction, choice of law, and consumer protection; (2) electronic contracts; (3) electronic signatures; and (4) taxation of e-commerce. This paper does not purport to serve as an exhaustive analysis of the issues involved in e-commerce, but rather, aims to provide a general comparison of the regulatory approach taken by two of the leading markets in the world today.

TYPES OF E-COMMERCE

Traditional commerce occurs without the use of the Internet. (12) "Bricks and mortar businesses," called such in reference to the bricks and mortar that are used to construct their businesses, have no Internet component. (13) There are few businesses remaining, most small and locally focused, that can be classified as true bricks and mortar businesses. Most firms have integrated e-commerce, defined for purposes of this analysis as "any business transaction that occurs over, or is enabled by, the Internet," (14) at some level of their operations. Some are traditional companies that have incorporated the Internet into their business. American Airlines and L.L. Bean are examples of traditional brick and mortar businesses that are now classified as a "clicks and mortar" companies, because of their significant Internet presence. (15) Over the past few years, another category of business has become recognized in the marketplace. "Clicks," more commonly referred to as "Dot-coms" in reference to their website urls, are businesses that are only involved in e-commerce on the Internet and do not have a physical retail presence. (16)

There are several ways in which the Internet is used as a platform for commerce. (17) E-commerce transactions between two businesses are referred to as business-to-business e-commerce, or "B2B." (18) Government contracting between a business and a government falls under business-to-government e-commerce, or "B2G." (19) Transactions in which the government offers its services to consumers through the Internet are designated government-to-consumer transactions, or "G2C." (20) Lastly, the most familiar form of e-commerce takes place between businesses and consumers. (21) This paper will focus on these business-to-consumer transactions, referred to as "B2C." (22)

Business-to-Consumer (B2C)

Many key issues that arise from B2C transactions have direct analogies to traditional consumer transactions. Other issues are unique to e-commerce transactions. Jurisdiction, an issue as old as law itself, has been brought to the forefront once again as questions regarding appropriate jurisdiction arise with every cross-border e-commerce transaction. (23) Nations want to be able to ensure the protection of local consumers and jurisdiction over e-commerce transactions is essential to effecting this protection. (24) Similarly, electronic signature issues are a new twist on a traditional area of law. (25) Lastly, the topic that has perhaps the greatest room for future evolution and adaptation is that of the taxation of B2C transactions. (26)

THE UNITED STATES GENERALLY

The United States is a free-market, capitalist economy. (27) This has become even more apparent as the U.S. attempts, through its role as the world's economic hegemon, to spread political and economic deregulation via treaties (both bilateral and multilateral), and its role in, and arguably control over, international organizations such as the United Nations, World Bank, and World Trade Organization. (28) As a free-market economy, the U.S. subscribes, in principle, to a hands-off, minimalist approach to the regulation of commerce. (29) The U.S. has attempted to implement this laissez-faire philosophy in the area of e-commerce as well. (30) The White House, under former President Bill Clinton, issued a Framework for Global Electronic Commerce that purports to guide U.S. regulation in accordance with this attitude. (31)

U.S. Framework for Global Electronic Commerce

This Framework lists five principles that the U.S., and other nations, should adhere to in attempting to regulate e-commerce: (1) "The private sector should lead;" (32) (2) "Governments should avoid undue restrictions on electronic commerce;" (33) (3) Where governmental involvement is needed, its aim should be to support and enforce a predictable, minimalist, consistent, and simple legal environment for commerce;" (34) (4) Governments should recognize the unique qualities of the Internet;" (35) and (5) "Electronic Commerce over the Internet should be facilitated on a global basis." (36)

The private sector should lead. (37) The expansion of the Internet has been primarily driven by the private sector. (38) Regulatory policy should, as in the traditional marketplace, allow the market to generate innovation, expanded services, broader participation, and lower prices. (39) As such, the government should welcome private sector participation as a formal part of the policy making process. (40) The general goal of e-commerce regulation should be to encourage industry self-regulation and support private sector organizations. (41)

Governments should avoid undue restrictions on e-commerce. (42) By the time government regulation is put into force, it is often outdated due to the continued evolution of the technology driving the Internet and e-commerce. The resulting unsuitable regulation is likely to hinder the essential evolution of business models as they adapt to best utilize the Internet. (43) As such, nations should refrain from unnecessary, restrictive involvement or intervention in e-commerce.

Where government involvement is necessary, its aim should be to support and enforce a predictable, minimalist, consistent, and simple legal environment for e-commerce. (44) The twin aims of consumer protection and e-commerce facilitation should be weighed. (45) Consumer protection should be realized through a predictable, contractual model. (46) E-commerce will be best facilitated by regulation designed to ensure competition, protect intellectual property and privacy, prevent fraud, foster transparency, support commercial transactions, and facilitate dispute resolution. (47) Because transactions based on contracts can ensure predictability and flexibility at the same time, this principle focuses on the appropriateness of the contractual model to the unique legal issues that arise from e-commerce. (48)

The Framework for Global Electronic Commerce also recommends that nations should recognize the unique qualities of the Internet. (49) Existing regulatory schemes designed to regulate traditional technologies and transactions may not be directly applicable to electronic commerce issues. (50) Therefore, existing laws should be adapted to reflect the complexities of e-commerce. (51) Where appropriate, new regulation may be necessary to address new issues raised by e-commerce. A recent example of this phenomenon at work is in the area of electronic signatures, where lawmakers approved new legislation regulating the use of electronic signatures in commerce. (52)

Lastly, electronic commerce should be facilitated on a global basis. (53) While the U.S. unquestionably desires to lead in the facilitation of e-commerce, it is obvious that...