E- Commerce and its Impact on Pricing

November 1, 1999

Ben Goodger is a Partner at Willoughby & Partners. He may becontacted at ben@iprights.com

‘A long time ago – maybe last Thursday…’ is how one of the Winnie thePooh stories starts. It’s a bit like that with any discussion of the world ofe-commerce. There are bound to be things in this article which are out-of-dateby the time you read it and the impact of e-commerce on pricing is no exception.

What I will try to do however is explore some of the issues which a businessengaging, or planning to engage, in e-commerce should be considering informulating its pricing strategy. I will first emphasise that e-commerce has aprofound effect on models of doing business generally, and pricing is only apart of that. I will then touch briefly on what I see as some of the economicfactors which affect pricing considerations in the cyber-context. Finally I willreview some of the specific legal issues which may influence decisions onpricing.

Impact of E-commerce on Business Models Generally

The implications of conducting business through the medium of the Internetare far reaching. Merely to consider price alone would be to take too narrow aperspective. The transformation that is being brought about by e-commerce iswhat causes an impact on pricing.

The most obvious effect is speed and efficiency. Take billing and paymentpractices. In the traditional model, the seller prints out and mails the bill,the customer receives the bill, opens the envelope, writes a cheque, records atransaction in his cheque book, puts the cheque in the envelope, stamps it andmails it. The seller opens the envelope, records the payment, banks the chequeand waits for it to clear. Where billing is done electronically the sellermerely sends the bill to the customer who reviews and pays it on screen. Allrecords are updated automatically. The saving in time, cost and administrationis enormous. It has been estimated that online bill payment could save $46billion per annum in the US alone.

Another important effect of the Internet is summed up by the ugly term ‘disintermediation’.Put more bluntly this is ‘cutting out the middle man’. If an airline cansell tickets direct to customers, tempting them with a discount for buyingonline, and providing full details of its timetable of flights and availability,what is the point of using a travel agent to buy your tickets, especially asthey charge a commission for the privilege of you doing so? Dell Computers hasalways emphasised that its business is founded on direct selling and hasembraced the Internet wholeheartedly, to the extent that it is planning to doall its sales online in the near future. Much of its business already comes fromonline sales. This enables it to offer not only the cheapest possible prices,but also (another of the great advantages of the Internet) to deliver to thecustomer exactly what that customer requires, ie products configured andassembled to that customer’s specific needs. This ‘one to one’ serviceextends to many other areas, eg car sales. You want a purple Volvo estate with atrailer fitting? No problem.

It has not taken long for entrepreneurs to realise that the customer whowishes to buy an airline ticket to a specific place or a specific type of Volvoreally needs a central repository of information from which to locate somethingwhich answers as closely as possible to his specific needs and is also the rightprice. This gives rise to new business models, for example ‘aggregators’. Avery good example is autobytel.com, which seeks to collate as much informationabout cars on the Internet (mainly in the US at the moment) as it is possible toget. This pulls together information so that you can locate exactly what youwant. Another good example is lastminute.com. – this business will take leftover tickets from airlines, theatres and hotels and sell them cheaply to peoplewho are willing to buy on the spur of the moment. Its stock, because of theflexibility of the Internet, can and does change hourly. Only a company based onthe Net can handle such rapidly changing business. Vendors are happy because itenables them to offload unsold stock, consumers are happy because they can pickup a bargain very cheaply.

Moving more directly to the pricing area, a business like priceline.comactually enables the customer to state what price he is willing to offer for aproduct or service and Priceline then goes out to try and match it on theInternet. This kind of business serves to underline that pricing is really notwritten in stone and in a curious way returns modern business to traditionalhaggling at the bazaar.

The middlemen who have been cut out of the loop are, like the aggregators,going to have to add significant value to their service offering in order tostay in business. And a lot of businesses, rather than being pure Webbusinesses, will use the Internet as one amongst a number of simultaneousselling channels. In this context the power of brands has never been moreimportant. In the confusion and chaos of the Internet, market-place brands whichcan be trusted, as long as they continue to deliver good quality service, willbe in a much more powerful position than businesses trying to build themselvesentirely on the Web. It is relatively cheap and easy to set up on the Internet,but what is often not appreciated is that a vast amount of money has to be spenton marketing and raising brand awareness. Amazon.com, probably the mostsuccessful Internet company, is still not making a profit, as it is spending somuch on marketing. It is being challenged by established brand names such aswaterstones.com or whsmithonline which have many years heritage in the minds ofconsumers. This could enable them to leapfrog Amazon.

Finally, the most obvious general point of all, globalisation. You can set upan international trading company on the Internet in a few weeks, something whichhas never been possible before. As such you can undercut prices in otherregions. The effect on differential pricing in different regions is radical. Adetailed examination of specific competition (anti-trust) law aspects liesoutside the scope of this article.

Economic Factors affecting E-commerce Pricing

I now turn to specific economic factors which have an impact on pricing.

Cost Reductions

It goes without saying that running a single warehouse in a territory orregion which fulfils orders coming over the Internet is a lot cheaper thanrunning a chain of stores. Every time prices, products or promotions, you arenot involved in expensive store closing or refitting – you merely have toamend your Web site. Fewer staff are required to service the operation. Anotheruseful advantage for e-traders, certainly in the USA, is that if you have nophysical presence in a State you are not obliged to collect local sales tax,usually 6%. With no stores, there are lower stock-keeping costs. The savings inoperating costs through transacting electronically, in the financial servicessector alone, are estimated to double over the next three years and many of thecosts of the Internet are coming down. Only a few years ago the UK domain nameregister, Nominet, charged £100 for a domain name. Owing to the incredibledemand for domain names (currently running at 28,000 per month) it has droppedits basic price to £5 per domain name for members of Nominet.

Multiple Income Streams

In addition to prices charged, there are various other ways in which thetraders can derive revenue. For certain services there are regular subscriptionfees, eg provision of ‘real-time data’. In addition nearly all commercialWeb sites now carry advertising (eg ‘banner ads’). This often enablestraders who are selling below cost price to continue trading purely through therevenue they are receiving from advertising. How sustainable this is in the longterm is debatable.

Ferocious Competition

Not surprisingly, as the Internet is essentially built around the provisionof information and with the rise of ‘aggregators’ and search tools speciallydesigned to seek out best prices, price competition on the Internet isferocious.

For example, the book industry is currently in the grip of an Internet pricewar, which many in the industry are finding alarming. Recently bol.com actuallygave away 20,000 books, at a cost of more than £100,000. Why did they do this?The answer is because they got 40,000 book buyers to register their e-mailaddresses and gained a lot of publicity. Electronic book sellers are desperatelyencouraging people to use the Internet to increase their market share. ‘Priceis a way of encouraging trial’ says Simon Murdoch the MD of amazon.co.uk.

Amazon.com recently offered discounts on New York best sellers of up to 50%.Whsmithonline has offered similar discounts this summer, but the situation is,as everyone in the industry is aware, not sustainable in the long term. Byspending enormous amounts of money on bringing in customers and building upbrand presence, the booksellers are looking to secure their businesses for thelong term. But it has been suggested that this price war will have a damagingeffect on the entire book industry as it is educating customers to expect rockbottom prices for books (whether on the high street or on the Internet) and thatit may be difficult to move back to higher prices in the future.

The Dinosaurs are not Dead

I think it is also probably true that the ‘bricks and mortar’ businessesare, contrary to what many have claimed, unlikely to go out of business as aresult of the Internet. Established retailers like Wal-Mart can keep theirprices at very low levels for longer than pure Web businesses. They have verydeep pockets and they can finance their Web operations from profits (anunfamiliar concept to most Web companies). They can also cross-market from theirWeb site to their stores. For example if you go into a store and cannot purchasethe item you want, you are often encouraged to give your e-mail address so thatthey can contact you electronically to provide you with that item. Immediatelyyou are captured as an Internet customer. As hinted above, the future ofretailing is probably going to be a ‘multi-channel one’ where businessessupport their overall operation using a variety of means: the Internet, HighStreet stores, digital television. I forsee a problem however in maintainingprice consistency between all these different outlets.

Internet Structure Generally

It seems likely that those commodities where price is the major determinant (egbooks, cds, software, airline tickets) will be sold primarily over the Internetin the future. But there is much more to the buying experience than just price.Value for money and quality of service are equally important. The challenge ofthe Internet will, I believe, change and hopefully improve the customer-drivenshopping and buying experience throughout the rest of the commercialmarket-place.

Specific Legal Issues Affecting E-commerce Pricing

It is impossible to comment here on every possible legal issue which mayimpact on pricing in an e-commerce context. I can only attempt a whistle-stoptour. There are three types of issues: law/regulation which directly addressespricing on the Internet (there is very little of this to date); law/regulationwhich affects pricing for traders generally, and which is relevant thereforebecause the Internet is merely another avenue of selling things; law/regulationwhich may or may not be directly relevant to e-commerce but which in any eventimposes a compliance burden on businesses, the cost of which will either have tobe swallowed or passed on to customers in increased prices.

Contractual Issues: Formalities

The recent Argos price case (discussed below) illustrates why one needs tounderstand precisely how a contract is formed electronically. A quick canterthrough some basic principles is therefore called for.

Offer and acceptance As a general rule a contract is formedunder English law when the parties have reached agreement on its terms. But whencan such agreement be said to happen? The basic rule is that for the offeree’sacceptance to be effective and the contract to become binding the acceptancemust be communicated to the offeror.

One of the problems with electronic contracts is that there is a differenceon the technological level between a contract made by e-mail and by a Web site.Communication with a Web site is instantaneous, whereas the sending of e mailmessages is not instantaneous and not, as I am sure we have all experienced,particularly reliable.

E-mail: postal rule The rule mentioned above about acceptancetaking effect when communicated to the offeror is subject to certain exceptions.For example, where the failure by the offeror to receive the acceptance is hisown fault. This could encompass failure to collect e-mail messages, leaving themunread on the server.

Another and more troublesome rule is the very old-established principle underEnglish law known as the postal rule (Adams v Lindsell (1818) I B &Ald 681). Where acceptance is sent in the mail it is deemed to take place fromthe time of sending, even if it never actually arrived. The consensusseems to be that this applies to e-mail, as well as snail mail. But this casemade it clear that it is always open to the offeror to stipulate the means ofacceptance and thus exclude the postal rule. The best practice, it is suggested,is to make the offer subject to a date on which the offer will lapse. And ratherthan refer to ‘5 days from receipt of the offer’ (which raises the questionof when receipt happened) it is best to specify the time and date eg ‘12 noonBST 10 July’. Alternatively ensure that you merely make an invitation totreat. You can then accept or reject the offer (if you receive it).

Web sites: simultaneity The position regarding Web sites iseasier since, as stated above, communication is real time. Communication ofacceptance will be verified by a ‘checksum’ confirming that a communicationhas been received. If it is not, the sender of the message will know straightaway, when he sees a signal such as ‘server not responding’. It was held ina case in the 1950s (Entores Limited v Miles Far East Corporation [1955]2 QB 327) that a telex communicates instantaneously and thus contracts made bytelex are made when the telex is received. The position is likely to be similarin cyberspace.

The conundrum illustrated by this discussion, is controlling when thecontract becomes binding. This was dramatically illustrated in the recent Argoscase. On its Web site Argos offered Sony TV sets at a price of £3 each. Theyshould have been priced at £299.99, but the figure was rounded up to £300 andthe two noughts left off by mistake. Within a few hours, over £1 million worthof orders had been made, including one person who had ordered 1,700 sets.

Argos claimed that they should not have to honour this price on essentiallytwo grounds:

  • The price was clearly a mistake. The Courts can declare a contract void if the seller has made a genuine mistake.
  • On the Web site Argos was merely making an invitation to treat. The purchaser makes the offer and then it is up to Argos whether or not to accept that offer. Argos (not surprisingly) chose not to accept that offer.

Whether Argos succeeds in these arguments will depend on whether it hadreliable systems in place to stop the error happening. Under the ConsumerProtection Act 1987 it is a criminal offence to give consumers a misleadingprice indication. This could result in a fine of up to £5,000 in themagistrates’ court each time a consumer is misled. Argos’s defence would bethat they acted diligently and took all reasonable steps to avoid giving theconsumer a misleading indication. The nightmarish distribution power of theInternet means the effects of a single pricing error can multiply rapidly. In myview Argos will escape liability but they and all internet traders should drawconsiderable lessons from this.

Contractual Issues: Incorporation of Terms

Price is one of the terms of a contract. Other terms which impact on thebottom line include who bears the cost of delivery, length of guarantees andlimitation of liability. In getting your pricing right, you need to ensure youget your terms right.

What terms? Where there is no express contract, terms may wellbe implied into the contractual relationship between the parties. It can thenmatter whether the contract is characterised as one for the supply of goods orservices (see ICL v St Albans [1996] 4 All ER 481 for a discussion ofthis). And you should also of course beware of misrepresentations which inducethe other party to enter into the contract. Web sites, like all promotionalmaterial, are apt to contain enthusiastic statements about the product orservice (including prices) which it may be that the offeror does not wish tobound by in the actual contract. A mere ‘entire agreement’ clause in theterms and conditions excluding the effect of all such statements may not beconsidered effective. It is much better to ensure that your Web site does notcontain any specific statements which you are not willing to stand by.

Negotiated via e-mail Turning again to electronic contracts bye-mail, what about where a complex contract is negotiated this way? How can onebe certain that the version one is agreeing to contains all the edits and is thefinal ‘agreed’ version? How can one be sure that pricing terms will not bealtered after the contract is digitally signed? The answer is probably going tolie in technology. It is possible for two parties simultaneously to annotate andsuggest amendments while they are connected online, the text staying unaltereduntil the parties both agree. Similarly, to prevent post-signature alteration ofcontracts, programs can safeguard against this by identifying any alterationthat occurs after signature or completion.

Web sites It is vital to ensure that your terms and conditionsare incorporated in selling via a Web site within the Single Market, not leastbecause of jurisdictional issues. The problem is that the marketing departmentof a company is likely to be very resistant to forcing a potential buyer tofight through a thicket of legalese in order to get to the part where they getto buy. One therefore often sees on Web sites a statement to the effect that thepurchaser accepts the ‘Terms’ which are merely hypertext-linked. Unless onecould show a course of dealings whereby the purchaser has come to be aware ofthe applicability of such terms, I suggest that it is unlikely that a courtwould allow such a device to be effective. It really is much better to presentthe terms on screen and oblige the purchaser at least to scroll through thembefore reaching the accept button which is accompanied by a statement that hehas read and understood the terms. There is US case law (Pro-CD v Zeidenburg1996) indicating that this procedure, known as ‘click-wrapping’, is morelikely to be effective than shrink-wrapped terms for software or terms printedon the back of an order form. Indeed the very fact that the purchaser could nothave gone ahead with the purchase without having to scroll through the terms ofthe contract makes the enforceability of these terms arguably greater thantraditional terms written in fine print so small you need a magnifying glass!

It is vital, in the pricing context, to ensure that what you state on yourWeb site is always accurate and up-to-date. Virgin Atlantic Airways was forcedto illustrate the importance of this a few years ago. The US Department of Tradewas one of the first US federal agencies to police advertising on the Internet.It received a complaint from a consumer that a fare which was advertised on theVirgin Atlantic Web site at a particular price was no longer available. The farehad expired before Virgin up-dated its Web site which listed various availablefares. The Department of Trade imposed a $14,000 civil penalty against Virginfor mis-advertising at this price (Virgin Atlantic Internet Penalty: New YorkTimes, 21 November 1995).

Directive 1999/44/EC on certain aspects of the sale of consumer goods andassociated guarantees I should mention a new item of EU legislationwhich falls into the category of legislation which, whilst not specificallytargeting e-commerce, undoubtedly affects it – it applies to all consumergoods transactions. In many respects this legislation is similar to UK sale ofgoods legislation. However there are some subtle differences. The obligations ofthe seller include the delivery of goods in conformity with the contract forsale, ie goods complying with their description and possessing qualities ofthose in any sample or model, fit for any particular purpose stated by thecustomer and accepted by the seller, fit for the purposes for which such goodsare normally used and showing the quality and performance normal for such goods,taking into account any uncorrected public statements on specificcharacteristics of which the seller was aware and which might have influencedthe consumer.

The consumer can seek redress in respect of new goods within two years fromthe date of delivery of the goods. This appears to be considerably longer thanthe ‘reasonable period of time’ under UK legislation and may impact on thebottom line in terms of allowing for ‘long tail’ claims, and increasedinsurance costs. The seller is also liable for any lack of conformity, and theconsumer may seek to have the goods repaired or replaced free of charge. If suchremedies are impossible or ‘disproportionate’ the consumer may seek to havethe price reduced or the sale rescinded. This legislation must be brought intoforce in all Member States no later than 1 January 2002.

Contractual Issues: Jurisdiction

The biggest legal difficulty presented by the Internet is that it effectivelyabolishes geographical boundaries. This is a wonderful thing for thecybertraveller but it is a legal nightmare.

Why should that be? International commerce has been established forcenturies, and there are various rules relating to which court has jurisdictionand if so what law it should apply. However, these rules have usually addresseda contractual or tortious dispute relating to activities in the real, tangible,world, involving conflict between the laws of usually only a very small numberof countries.

Trading in cyberspace blows these notions to smithereens. My Web site will beaccessible by millions of different Internet users in all countries ofthe globe. Thus the global nature of the Internet means a headache in terms ofcompliance with national legislation affecting pricing in all target markets.

Which law applies? The Rome Convention provides that a choice oflaw clause in an international contract will generally be respected even if themandatory applicability of the rules of certain countries in certain situationscannot be excluded. Thus it is vital, as a first point, to ensure that anycontract you make on the Net contains an express choice of law clause.

Can laws of third countries have mandatory effect? It is howevervital to be aware that many countries claim the right, whatever the contractsays, to impose their own domestic laws, particularly on issues of public policyor consumer protection, frequently relevant in the context of pricing. Forexample: it is illegal in Germany to make ‘two for the price of one’ offers,or use free offers to promote goods.

The only way to be absolutely sure you do not become subject to these laws isto ensure that you do not contract with consumers. This would necessitatesetting up some kind of screening process which would be difficult to policeeffectively. And consumers may be your primary target customers.

At this point perhaps a ‘reality check’ is sensible. Businessmen do notengage in commerce without accepting some levels of risk. My recommendation isthat if they wish to start e-commerce operations, the benefits are likely to begreat and accepting some measure of risk is probably worth it. There is such apolitical head of steam to encourage e-commerce that many national governmentsare trying to bend over backwards to encourage small traders and others toindulge in e-commerce.

Having said that, I would suggest that if you are trading throughout the EUSingle Market, you nominate which of the 15 countries are your top, say, four orfive key target markets and then invest in clearing national laws in thosecountries as thoroughly as possible. If you can clear all 15, fine, but that isobviously a matter for your legal budget. Then you have to ensure you complywith the laws of the countries you have properly researched and, as such, it islikely that you will end up complying with the vast majority of applicable laws.The other option is to put disclaimers on your Web site stating that the pricesand offers on the site are not deemed to be made to persons in certain specifiedterritory (eg outside the Single Market). The effectiveness or otherwise of suchnotices has not been tested yet but if a company can be shown to have taken allreasonable steps to prevent an offer being made in certain territories then myinstinct is that it is likely to escape significant liability. It goes withoutsaying, however, that an effective insurance policy is essential. It is possibleto arrange policies specifically related to the risks of e-commerce, althoughthey are expensive. This of course impacts on the bottom line, and therefore onprices.

The Distance Selling Directive

This legislation provides protection for consumers who are involved withdistance selling, including electronic commerce using the Internet. Thoughlaudable in its aims, many have questioned some of the specific requirements ofthis Directive in the context of e-commerce. All contracting consumers must beentitled to a copy of the terms of their contract in writing, and this appearsto mean in tangible form. This is a contradiction of the ‘paper-free’advantage of e-commerce! Similarly, consumers must be entitled to a 7-day‘cooling-off period’ in which they may withdraw from the contract. One ofthe other great advantages of the Internet, as we have discussed, is that it isso fast, in many cases instantaneous. E-commerce can only develop if users enjoythe benefits of that speed and convenience. This kind of ‘over-regulation’could, in my view, stifle, rather than promote, e-commerce. And compliance is afactor in determining pricing.

Personal Data Directive

I was recently asked to speak about the European perspective on e-commerce ata conference in San Francisco. What struck me there with some force was that ofall the legislative moves taking place within the EU single market at themoment, the one which is causing most concern to US companies looking to doe-commerce with Europe, is the new Data Directive.

In many ways the aims of the directive are laudable. A worrying aspect of theInternet is that capture of information about customer preferences can be madewith pinpoint accuracy. It is as if a man is following you around with aclipboard in Sainsburys not only noting what you buy but also which goods youexamine and replace on the shelves. From this all sorts of detailed profiles canbe built up for future targeted advertising. The EU Data Directive thereforelays down what must be the toughest regime for data protection in the world.

It is striking that while on the one hand the Commission is calling for lessregulation to promote e-commerce, on the other hand it is forcing Member Statesto implement legislation which is so stringent as to be virtually unworkable.The counter-argument is that, unless adequate protection for personal data is inplace, individuals will not have sufficient faith that their rights areadequately protected and as a result may not engage in e-commerce at all. Itwould be fascinating to know how much ‘abuse of users’ other countries aregenuinely experiencing. My assessment is that this is exaggerated, and thatover-regulation here could get in the way of the development of e-commerce.

The compliance burden imposes a significant cost to e-traders, and thusaffects pricing. It not only involves the registration requirement in all theMember States (and each Member State which has set up a registration authority– not all have yet – has differing rules), but also ensuring that your Website complies with the rules and taking out insurance in case you break therules and are required to pay compensation.


The Internet abolishes national boundaries in trading and for nationalgovernments this creates a great taxation problem. I do not propose to go intothis in any great detail, firstly because I cannot claim to be a taxationexpert, and secondly because no-one really knows the answer. A recent EUinitiative (e-commerce and indirect taxation – COM (98) 374.17.6.1998)envisages a VAT system based on taxation origin. The proposed EU e-commerceDirective discussed below specifically excludes application to taxation (recital(18)) but interestingly it states that, for the purposes of applicable laws, aservice provider is deemed to be established in a territory if it pursues aneconomic activity using a fixed establishment for an indeterminate duration –‘the presence and use of the technical means and technologies required toprovide the service do not constitute an establishment of the provider’(emphasis added). I suspect similar principles may be employed to establishplace of taxation.

As noted above, at present e-commerce offers a wonderful pricing advantage totraders in that most traders are not selling their goods subject to indirecttaxation both here and in the US. E-traders should enjoy this price advantagewhile they can. It has been argued that governments within the single market may‘give up’ on this point and allow businesses to sell goods net of indirecttaxes. The quid pro quo will simply be to raise corporation tax on the increasedprofits made from such trading!

Financial Services

One of the industries most affected by the Internet is likely to be thefinancial services industry, although commentators have pointed out that thereis a lot of confusion within the industry as to how to position themselves onthe Net. According to a recent survey, 70% of US financial institutions do nothave a pricing strategy for e-commerce but by the year 2001 expect 14% of theirtechnical budgets, the equivalent of what they spend now to support their branchnetworks, to be devoted to e-commerce.

I highlight two important pieces of forthcoming legislation for this sectorwhich will impose a potentially costly compliance burden.

Proposed EU Financial Services Distance Selling Directive

This Directive, originally put forward in October 1998, aims to ensure a highlevel of protection for consumers of retail financial services purchased at adistance. It covers amongst other things banking, insurance and investmentactivities.

Prior to the contract, consumers are entitled to a comprehensive set ofinformation, to enable them to enter into the contract on an informed basis. Websites will have to be carefully set up so that the customer does receive thisinformation, or attention is drawn to it. Customers also have a ‘cooling offperiod’, ie a general right of withdrawal without penalty or giving reason.Member States are to be free to set the period at between 14 and 30 days,depending on the financial service offered. This cooling off period does notapply to products/services whose value are affected by price fluctuations overwhich the seller has no control (eg foreign exchange services).

Whilst again laudable in its aim of protecting consumers, this Directivemilitates against the instantaneous, compressive advantage of the Internet inimposing a time lag. How this time lag can be built in is an interestingtechnological point. Presumably sellers of financial services will be able totrigger an e-mail to the purchaser stating that, since they have not heard fromthem during the relevant period, the contract is deemed to be binding.

Draft UK Financial Services and Markets Bill

This Bill proposes a complex piece of legislation. Amongst other things, itprohibits the promotion of financial products and services on the Internet,unless the promotor is authorised by the FSA or the communication itself isapproved by a person so authorised. If not, the contract may be unenforceableand the aggrieved party may be entitled to compensation. ISPs and other passivenetwork providers are exempt.

There will be a direct cost in obtaining authorisation therefore, if thiscannot be avoided. In addition the exemption regime may not be clear enough forWeb site operators to avoid being caught. To ensure clarity those operatorsshould seek specialist advice. This does not come cheap.

‘Financial promotion’ is extremely widely defined in clause 19. It coversany communication of information which ‘might reasonably be expected to leaddirectly or indirectly to engagement in investment activity’. This covers allforms of communication whether formal or informal, solicited or not. As theambit of this term is so wide and the implications of non-compliance areexpensive, then advice will be needed to ensure that companies know where theystand. This will have to be passed on to consumers in terms of price.

Regulation of Activity in the EU

Finally, no discussion of e-commerce in the Single Market would be completewithout a brief consideration of the draft E-Commerce Directive, Proposal for aEuropean Directive on Certain Legal Aspects of Electronic Commerce in theInternal Market (Com 1999/427).

The draft Directive contains some interesting proposals which may wellinfluence future thinking with regard to e-commerce generally, including thefollowing proposals.

  • Information society service providers should only be subject to the law of the Member State in which they are established. There has been debate as to whether consumer contracts would be exempt from this so that the laws of the consumer’s country could apply.
  • As noted above, the place of establishment of a service provider is not proposed to be where the service provider’s equipment is based, where its Web site is accessible or where its services are targeted, but the ‘centre of its activities’. The meaning of this is debatable.
  • Member States would be required to ensure that their legislation allows contracts to be concluded electronically and any legal requirements which may stop a contract from being concluded electronically must be removed.
  • As to the ‘moment of conclusion of contract’, the proposals neatly deal with the Argos situation discussed above. The Directive proposes that the contract is concluded when the recipient of the service or goods has received from the service provider, electronically, an acknowledgement of receipt of the recipient’s acceptance. Acknowledgement of receipt is deemed to be received when the recipient of the service/goods is able to access it. The service provider is obliged to send the acknowledgement of receipt immediately. This, in English law terms, institutes a regime whereby what is contained on a Web site is an ‘invitation to treat’.
  • Each Member State would be required to amend any national legislation which would hamper the use of schemes for out of court settlement of disputes through electronic channels

The proposed Directive actually contains specific legislation referring topricing and e-commerce in Article 5(2):

‘Member States shall lay down in their legislation that where InformationSociety Services refer to prices, and other essential terms and conditions,these are to be indicated accurately and unequivocally and must include alladditional costs.’

This underlines the need to ensure that prices and terms are kept accurateand up-to-date on a Web site. I would interpret this certainly to mean that ifthere are additional costs for delivery (eg post and packaging) then these mustbe stated. Any special terms attaching to the promotion (eg ‘offer closes 30September 1999’) will also need to be stated fairly and clearly.

Draft UK E-Commerce Bill

Again, this Bill should be mentioned although there is nothing in the Billwhich impacts directly on pricing. The key elements of the UK proposal cover thefollowing aspects:

  • it introduces a new approvals regime for providers of cryptography support services (encryption services for electronic signatures and the confidentiality of electronic communication and data storage)
  • it sets out a regime whereby electronic signatures can be admissible in court
  • it seeks to ensure that legislation is up-dated to allow the use of electronic communications where things are, for example, required to be in writing or sent by post
  • it provides powers, vested in law enforcement agencies, requiring disclosure of electronic keys to decrypt information where necessary.

The Bill has been the subject of considerable controversy which has got inthe way of the Government’s aims of promoting UK as a favourable regime fore-commerce. Many believe that the ‘Home Office’ issues have hijacked a Billwhich should really be doing no more than confirming some of the basic legalprinciples discussed at the outset of this article, namely that contractingelectronically is perfectly valid. I agree with those who think that thenon-controversial aspects of the Bill should be split from the lawenforcement/public interest issues so that the Bill can then be allowed toproceed.


Trying to keep up-to-date with all that is happening in the world of theInternet and e-commerce is like trying to drink a lake. The above is an attemptto draw out some of the more salient points which will impact on the pricingstrategy of any business which is looking to conduct e-commerce. There areclearly many other issues which are thrown into relief by e-commerce, such asdifferential pricing structures between different states within the SingleMarket and indeed between the Single Market and other parts of the world.

Selling on the Internet can only be good for driving prices down. What Ithink we will see is a synthesis of:

  • ferocious pricing competition
  • continual pressure to ensure that product/service standards are maintained
  • innovative ways of adding value to the service.

Exciting times lie ahead.