Are traditional agency principles effective for Internet transactions, given the lack of personal interaction?

• Author: Furnari, Nancy R.

1. INTRODUCTION

   While no one can question the fact that the law is constantly changing,(1) there are some general principles of law that have remained relatively stable over time. These principles may be applied to different types of fact patterns than in earlier years, but generally their underlying premises remain the same. How can the rapidly advancing world of technology affect these deeply imbedded principles of law? Judges, practitioners, and laymen are continuously forced to reevaluate the legal ramifications of everyday activities as the law changes. But what happens when the law does not catch up with the technology of the times?

   Agency law is a category of law that has remained relatively constant over the years.(2) Even though agency law has different interpretations in different jurisdictions, the underlying principles are similar.(3) However, with the rapid expansion of Internet transactions, these well settled principles may not be as effective as they are for the traditional personal transactions people have engaged in throughout the years.

   While there has been virtually no case or statutory law on the effect of impersonal Internet transactions on traditional agency principles,(4) it is wise to take a look at the issues soon to arise. To fully understand these issues, it is first necessary to understand how the Internet functions.

   "An internetwork or an Internet is a network of networks."(5) The entire World Wide Web is built largely upon the notion of hyperlinking, whereby a consumer jumps from one site to the next.(6) Each site leads to many other sites, all of which are interconnected in some way.(7) An individual may be searching for flowers one minute and the next minute she may be entering into a highly complex contract to buy a car. One site leads to another, and then another, and so on. Moreover, people browsing the Internet may simply enter in a search term at a search engine's web site and, almost instantly, a list of thousands of sites may appear on the screen.(8) The structure and function of the Internet, with all of the advertisements and hyperlinks, lead consumers to transactions they may not have entered into, or even considered, had they been faced with the personal, one-on-one communication traditionally associated with the buyer-seller relationship.(9)

   The World Wide "Web is a system that makes the exchange of data on the Internet easy and efficient."(10) A "Web server" is "a computer and software ... that stores and distributes data to other computers throughout the Internet that request the information.`"(11) A "Web browser" is "software running on an individual's ("client") computer that requests information from the Web server and displays it in a manner directed in the data file itself."(12)

   After the Web browser is launched (started), the computer is directed to dial an Internet service provider (with which an account has been arranged). The browser is then given the address of a Web "site" where a Web server will respond by sending a "page" of information. This "page" may have text of various sizes and styles, with pictures and other graphics intermixed. Certain pictures and text will have special highlights or underlines. These special highlights indicate that further information is available. All the individual needs to do is to move the mouse indicator over the highlighted item and click, and the remote Web server will respond with the appropriate information.(13) "It is the notion of an interlinked community that makes the World Wide Web such a dynamic and thriving environment. Hyperlinking is what the Web is all about.... no site is an island."(14) So how does a person know where one advertisement or company begins and another ends? When there are multiple icons and banners on a page, how does the average consumer separate one from the other? Sure, one may know that Colgate and Crest are not the same entity and are not part of the same business conglomerate, but what about those many "no-name" companies, companies that either share a web page or have hyperlinks to one another? And what about a "no-name" company that shares a page with a well-known company or is linked with one? One question of real significance is whether a consumer has purchased something from a "no-name" company because he thought it was related to, or part of, the familiar company name.(15) This question raises issues involving agency relationships.

   A group of leading business users has suggested that:

   governments need to clarify the legal definitions, practices and structures that pertain to commercial activities in an electronic environment, and to seek multilateral agreements on critical legal matters, especially the laws regarding ... agency.... Where appropriate, governments should adjust existing laws and regulations so that they apply to "intangible" as well as "material" product environments.(16) While some jurisdictions have recognized the risk of consumer confusion in this area, many others have not.(17) Even among those

   states that have recognized the risk and have developed some protective measures, none have adequately addressed the specific legal ramifications, such as agency relationships, that may result from consumer confusion.(18)

2. INTERNET COMMERCE: A DIFFERENT WAY OF TRANSACTING

   1. What Is Internet Commerce?

      To understand the fundamental issues that arise from Internet commerce, it is necessary to understand what Internet commerce actually is. Various scholars, practitioners, and businesspeople have defined Internet commerce in a number of ways.(19) The most common definition, and the one most relevant to this Comment is, "`the buying and selling of products and services over the Internet."'(20) A broader definition of Internet commerce refers "to all forms of commercial transactions involving both organizations and individuals, that are based upon the electronic processing and transmission of data, including text, sound and visual images."(21) Internet commerce "include[s] advertising, trading, and after-sales, as well as online exchange over both private and public networks."(22) The differences in the consumer market today, as compared to just a decade ago, are seen in both the products and services available, as well as how they are bought and sold.

      Until fairly recently, individuals who wanted to take advantage of the highly complex world of the Internet had to learn numerous systems to make full use of the resources available.(23) Today, it is much simpler. Consumers and others browsing the Internet have virtually everything done for them, without even having to think. A web browser or other program does most of the thinking for the consumer.(24) While the Internet transactions are still interactive, they can be characterized as more passive than the average personal, paper transactions.(25) There is virtually no human interaction or negotiating; all a consumer has to do is point and click.

   2. Foreseeable and Unsettled Ramifications of Impersonal Internet Transactions

      Although the Internet has become a widely used medium for many daily activities and responsibilities, and is flooded with information and advertising, there are still comparatively few transactions for value over the Internet, compared to the total number of transactions for value in the world.(26) This may account for the absence of relevant statutes and case law on the issues of consumer confusion in Internet transactions, and the possible agency relationships that may be formed through apparent authority as a result of this confusion.

      Moreover, the number of Internet transactions for value is likely to increase dramatically over the next few years--an estimated 16% of all consumer purchases may be done by electronic transactions by the turn of the century.(27)

      However, one of the major elements of consumer purchases is missing in Internet transactions. This is the face-to-face contact that has formed the basis of so many transactions.(28) With that element missing, the key element of trust is also missing. Can it reasonably be said that consumers transacting over the Internet place the same amount of trust in a seller on the Internet as they do with a merchant with whom they have discussed the matter in person? One of the advantages of the traditional face-to-face transactions is that goods are usually exchanged in a physical place.(29) A consumer has a fairly reliable sense that she will have some recourse if there is a problem with the transaction. She has a "store" to go to or she at least has some idea of where to begin looking to reach the seller.(30) This same advantage is not always present with Internet transactions.(31)

      Internet commerce, especially information commerce, may lack the "packag[ing] to help identify the sender after the goods are delivered."(32) Some of these sales may be of significant value and others may be minimal. Confusion as to liability arises here. For instance, "providers of information on the World Wide Web might choose to charge a fraction of a penny to each person accessing their pages. Browsers may be configured to pay these charges, up to a predefined limit, without ever troubling the user."(33) Does giving the browsers the right to charge for the seller's services create some type of agency relationship?

3. TRADITIONAL AGENCY PRINCIPLES

   In general, the basic premise behind agency principles "is to enable a person, through the services of another, to broaden the scope of his activities and receive the product of another's efforts, paying such other for what he does but retaining for himself any net benefit resulting from the work performed."(34) Liability may be found through an agency relationship based on the laws of contract.(35)

   Fundamental agency principles have been laid out in many states and throughout the country with a high degree of consistency.(36) "`An agency is a fiduciary relationship which results from a manifestation of consent by...