Dual qualified to practice inEngland and Wales and in the US states of Massachusetts and Colorado, he hasover 15 years’ post-qualification experience representing suppliers and usersof information technology goods and services. Prior to joining Osborne Clarke,David headed the IT practice at SJ Berwin and Co and previously was EuropeanLegal Director for Informix Software.
The fifth bi-annual conference of the International Federation of ComputerLaw Associations was held on 18 and 19 June at the spectacular Holmenkollen ParkHotel in Oslo, Norway – near the famous Olympic ski jump. The hotel issituated in the hills high above Oslo and offered the conference delegates abreathtaking panorama of Oslo and the surrounding area. Many of us also took theopportunity to scale the seemingly endless stairs to take in the view at the topof the terrifying ski jump.
In the two days of the conference, there were a number of interestingspeakers on a variety of topics relevant to electronic commerce. In the interestof brevity, in this article I will focus only on the presentations that were mypersonal highlights.
Odd Einar Dorum, the Norwegian Minister of Transport and Communicationsopened the conference and challenged lawyers to use ‘economic ways ofthinking’ to apply rules of law creatively to promote commerce. He indicatedthat the Norwegian government strongly supports the growth of e-commerce andwishes to help facilitate its development in Norway by building trust for userssuch as in the areas of privacy and consumer protection and establishing groundrules for e-commerce.
The EU and the Thrust Towards an Electronic Marketplace
Maria Martine-Pratt from DGXV then gave a Commission perspective one-commerce. The EU believes that the internal market will receive benefit fromand provide benefit to e-commerce. The Commission would like to have a light,clear and consistent EU-wide legal framework to achieve this. There arecurrently many areas of legal uncertainty with respect to electronic commerce,such as regulation of advertising online, recognition of online contracts andliability of Internet Service Providers. To this end, she announced to thedelegates that more guidance from the Commission and draft Directives onelectronic signatures, regulation of encryption and conditional access should beout by the end of this summer.
Recent Trends in US Internet Litigation and Impact on EU Countries
Peter Brown, partner at Brown, Raysman, Millstein, Felder & Steiner,spoke on legal developments in the US with respect to infringement ofintellectual property rights on the Internet, particularly copyright andtrademarks. Jay Westermeier, a partner at Fenwick & West and the currentPresident of the CLA in the US, followed Brown with a talk about jurisdictionalissues on the Internet. Since the US has recently had more legislation andlitigation in these areas than Europe, the approach taken in America may be ofgreat interest to European legislators, courts and academics.
One of the most important recent developments in US law is the adoption ofthe No Electronic Theft (`NET’) Act. The NET Act amends the US Copyright Act toprovide greater copyright protection by amending the provisions governingcriminal copyright infringement. Prior to this legislation, the US Copyright Actrequired that, in order to be liable for criminal copyright infringement, theinfringer must have received commercial advantage or private financial gain. Ina famous infringement case against a defendant by the name of LaMacchia, thecase was dismissed because, although the defendant was proved to have made anddistributed illegal copies of software, it was not done for his financial gain.The NET Act will close the LaMacchia loophole. Copyright infringement under thenew Act will be deemed to take place without such gain taking place, and damageswill be assessed if the retail value of the copies made is at least $1,000.
Peter Brown noted several cases relating to direct infringement by Web siteoperators and contributory infringement by ISPs. In Playboy v Sanfilippo,the defendant had scanned copies of thousands of images from Playboy magazine onto its Web site and charged subscribers to view them. Direct infringement by thedefendant was found. In Marobie-FL, Inc. v National Association of FireEquipment Distributors and Northwest Nexus, Inc, the plaintiff broughtcopyright infringement claims against both the Web site operator and the ISP.The court found direct infringement against the Web site operator, and held thatthe ISP might be liable for contributory infringement – the key issue beingwhether the ISP had knowledge of the copyright infringement.
With respect to hypertext linking, besides the Shetland Times caseknown to most of you, he mentioned a closely watched case in the US related tolinking. Ticketmaster Corporation has filed a claim against MicrosoftCorporation claiming that Microsoft wrongly appropriated and misusedTicketmaster’s name and trademarks by including unauthorised links toTicketmaster’s Web site from Microsoft’s Seattle Sidewalk site. The case raisessome of the key issues with respect to hyperlinking. He noted that the prevalentview in the US is that by publishing a site on the Web a publisher makes thesite available for linking. In the absence of a violation of rights in the waythe link is structured (ie an infringing or diluting use of a trademark,copyright infringement, etc) a link in itself is generally not viewed asviolating any rights.
The practice of using frames to incorporate third-party content into Websites has also been litigated in the US. Unlike hypertext links, which transfera viewer to another Web site, with framing the contents of the remote framed Website are displayed, under the URL and often with the logos and advertising ofthe original Web site. In Futuredontics v Applied Anogramics, Inc, thecourt refused to dismiss a case alleging copyright infringement based on thecreation of a framed link to a Web site. In Washington Post Co v Total News,Inc, which settled, it was alleged that the publisher of totalnews.com, aWeb site offering hundreds of links to news organisations, was liable undercopyright and trademark law for having framed the contents of other news sites.The external sites were viewed within a frame surrounded by a border thatincluded the Total News logo and commercial advertisements sold by Total News.The plaintiffs alleged dilution of their trademarks, direct and indirectrepresentation of plaintiffs trademarks in a manner likely to cause confusionamong consumers as to the origin or sponsorship of defendant’s services, unfaircompetition with plaintiffs and misappropriation of plaintiffs’ intellectualproperty and interference with the plaintiffs’ relationship to advertisers.
Peter Brown also mentioned recent trademark infringement cases arising out ofthe use of invisible references to trademarks in ‘meta tags’. Meta tags areembedded in the hypertext markup language tagging used to create Web sites. Thetags, which are not visible to viewers of a Web page (but can be seen by viewingthe source of the HTML), contain data such as keywords for search engines andother information which may be used to retrieve a document. Many Internet searchengines will retrieve documents or Web pages based on information contained inmeta tags. In Playboy Enterprises, Inc v Calvin Designer Label, a federalcourt granted injunctive relief to restrain the publisher of a Web site fromusing embedded references to ‘Playboy’ in the coding underlying its Website. In Instuform Technologies, Inc v National Envirotech Group LLC,which was settled, the plaintiff also alleged trademark infringement based onhidden references to its trademarks on the defendant’s Web site.
Jay Westermeier began his talk by discussing Compuserve, Inc v Patterson,the leading case relating to jurisdiction of contract law disputes on theInternet. In that case, Compuserve sought to establish personal jurisdictionover a Texas company with whom Compuserve had entered into online softwaredistribution agreements. The court found there was jurisdiction because: (i)there was a written electronic contract providing the agreement was governed byOhio law; (ii) the defendant used the Ohio-based network to advertise, marketand distribute his product; (iii) he derived income and benefit from themarketing relationship with the plaintiff; and (iv) he initiated the events thatled to the filing of the lawsuit by sending an e-mail to Ohio. This casedemonstrates that where there is a high level of activity by a defendant in aparticular forum and the parties have agreed a choice of law and forum, there islittle question that a court will find jurisdiction. In another case, ZippoMfg Co v Zippo Dot Com, Inc, a court found that an on-going onlinecontractual relationship between a California company and Pennsylvania residentswas sufficient grounds to establish jurisdiction.
The more difficult situations for determination of jurisdiction arise whenthe connection is more attenuated, such as where there is no contractualrelationship, but only a Web site. Where there is only a Web site and noadditional action towards the forum, US courts thus far have held that the Website is similar to an advertisement, and is not sufficient to conferjurisdiction. One court noted that to do otherwise would be to subject anyonewith a Web site to nationwide and worldwide jurisdiction and this would beinconsistent with prior case law and public policy. The most well known US casesstanding for this rule are Hearst Corp v Goldberger and McDonough v FallonMcElligot, Inc.
Where a Web site is accessible in a US jurisdiction and a defendant has takenother actions with respect to the forum, courts have been more likely to findthe existence of jurisdiction. For example, sending an e-mail to a forum stateor using the Web site to gather marketing information about a forum may besufficient to establish jurisdiction. Jurisdiction has also been found where thecontent of the Web site contains material that involves false advertising,deceptive trade practices or consumer fraud.
With respect to international jurisdiction, there have been no reported casesholding that US courts may exercise jurisdiction over overseas defendantsbecause of contacts with the US via the Internet. The only US case thattangentially involved the issue is the case Playboy Enterprises, Inc vChuckleberry Publishing, Inc, involving an Italian Web site, where it washeld that a prohibition of sale or distribution of a magazine in the US extendsto sale or distribution through the Internet.
In relation to courts outside the US, a German court found a US-based companywas in violation of German trademark law and subject to German jurisdiction in adispute involving an Internet domain name, since domain names are accessiblefrom Germany. In a Hong Kong court, jurisdiction was found in a copyrightdispute against a California Internet service provider and individual user.Jurisdiction in the latter case was predicated under a Hong Kong statute whichprovides jurisdiction over activities which produce harm in Hong Kong.
Introduction to the Proposal for a Framework for Electronic Trade
Professor Ray Nimmer of the University of Houston gave a fascinating talk onthe proposed amendments to the US Uniform Commercial Code, to incorporate a newArticle 2B addressing licensing and electronic commerce transactions. ProfessorNimmer is on a task force involved in the drafting of this key legislation forthe UCC, which when completed, hopefully by the end of 1999, will beincorporated into law by each US state.
Nimmer pointed out that the current UCC has given parties in traditionalsales of goods a well understood legal framework to establish contractformation, terms and enforcement rights. It is now the intention with 2B toadapt this framework to the digital era and to the new information products andservices that will increasingly drive global electronic commerce. He noted thata White House Report, Framework for Global Electronic Commerce (July 1, 1997)supports the adoption of such uniform legislation by all states.
The Report strongly encourages the growth of electronic commerce andadvocates minimal government regulation of electronic commerce.
Professor Nimmer stated that one of the overriding principles in the newdraft 2B is freedom of contract of the parties. He discussed a number of otherissues in 2B that are interesting changes from the current UCC.
In the formation stage of an electronic agreement, 2B accommodates the shiftfrom ‘a writing’ to ‘a record’. The draft also lays the framework forrecognition and authentication of digital signatures. The draft states that ‘arecord or authentication may not be denied legal effect, validity orenforceability solely on the ground that it is in electronic form’.
Assent to terms of an agreement is a crucial consideration in electroniccontracting. Interesting questions arise such as whether two computers cancreate a contract and whether the silence of a prospective licensee whenpresented with licence terms constitutes assent. These questions are bothaddressed by 2B. To the former the answer is yes – an electronic agent maymanifest assent. To the latter the answer is no – 2B states that mereretention of information or a record without objections is not a manifestationof assent; 2B requires some physical manifestation of assent – any beingsufficient. Professor Nimmer noted that some telecoms providers in the US mayencounter problems in this regard with a current common practice. In theirdirectory enquiry service, after providing the requested telephone number someproviders will automatically dial the requested telephone number, if the callerstays on the line.
Clicking a button ‘I agree’ on a Web site will suffice to evidence assentonly if the user has had a chance to review the terms and circumstances areclear that he has done so. 2B specifically provides that an opportunity toreview terms of a licence is a precondition to manifesting consent. If the termsof a licence are not made available until after payment is made, the licenseehas the right to return the product for a refund if he does not agree with them.This refund right does not exist under current law.
He noted that the conflict of law rules in the US are in pandemonium – thatthere are currently about 50 different rules, many of them inconsistent. Thegrowth of Internet use will create additional uncertainties. 2B has includedsome conflict of law rules for application to licensing and electronic commercetransactions. Under the draft rules, the parties are in general free to chooseapplicable law, however the choice is not enforceable to the extent it variesmandatory law that cannot be varied by agreement under the law of thejurisdiction whose law would apply in the absence of the agreement. In theabsence of a choice of law provision, for an access contract or where softwareor information is delivered electronically, the law applicable to the principalplace of business of the licensor will govern. Where there is physical deliveryof a software product to a consumer, the law of the consumer’s jurisdictionapplies. In all other cases, the law of the jurisdiction which has the mostsignificant connection to the transaction applies.
A unilateral mistake in a contract occurs where one party by his own errorenters into a contract or a contract term he did not intend. The traditional UCCapproach to unilateral mistake is that the party making the mistake is bound byhis error and the contract he entered. Under the draft UCC 2B, a consumer makinga mistake has the opportunity to correct errors caused either by its informationprocessing system or by its own error in the use of the information processingsystem. This is subject to the conditions that the consumer promptly notifiesthe other party upon discovery of the error, returns or destroys any copies ofthe information and has not used or received a value from the product. Thisright is given only in relation to errors in the creation of a contract – itdoes not give a consumer the right to return a product because of a change ofmind.
Transborder Data Flow Issues
The final highlight presentation for me was given by SCL’s own ChristopherMillard, a partner at Clifford Chance in London. He presented a most usefulanalysis of law and policy in relation to data protection and transborder dataflows, outlining a history of data protection, the EU Data ProtectionDirectives, restrictions on transborder data flows and options for overcomingthem and offering a global perspective.
Data protection legislation has been enacted to regulate and requireregistration of the electronic storage, use and transfer of personal informationabout individuals. Christopher Millard pointed out that data protectionlegislation has been enacted in only 36 jurisdictions in the world, primarilylocated in Europe.
The US is conspicuously absent as a country that has or intends to have suchlegislation.
He described the current environment where multinationals are massivelynetworked, SMEs are increasingly dependent on cross-border communications, 100million people have Internet access, Internet traffic routings are notpredictable, millions of Web pages are routinely cached and mirrored in multiplejurisdictions and ‘push’ and ‘pull’ technologies are being routinelyused in information exchange.
From 24 October 1998, under the EU Data Protection Directive, EU MemberStates may permit transfers of personal data only to countries with ‘adequateprotection’. Other than the 36 jurisdictions, the world will be‘inadequate’ under this legislation. This could, in theory, cause acalamitous disruption of worldwide industry. The most important exceptions tothe EU Directive restrictions on transfer of personal data are where there is‘clear and unambiguous consent’ of the individual, where the information isrequired in the performance of a contract or where there are ‘appropriatecontractual solutions’ agreed between the controller and a processor to ensurecompliance with the Directive.
Christopher Millard concluded that consent will be increasingly important andthat technology may facilitate informed consent, for example, using notice andclick-though on Web sites or contractual consents in employee and customercontracts. In reality, the vast majority of transfers will fall outside theDirective, since neither businesses nor the regulators will have the resourcesto achieve full compliance. The US is unlikely to implement the Directive, butChristopher Millard assures us that transborder data flows will not suddenlystop. If it is unworkable, the question must be raised: why have the Directive.A strong justification cited by Christopher Millard is because there is noindependent tort for invasion of privacy in the UK. Even if it is impractical topolice and enforce the wide scope of the Directive, it still allows individualsto have a remedy against abuses of their personal information.
All in all, a very good conference and well worth the trip. I, like manyothers who have been regulars at the IFCLA conferences through the years, lookforward to Paris in 2000.