Good morning, my name is Robert Holleyman, II. I am President and CEO of the Business Software Alliance, an association of the leading 18 software companies in the world. Approximately 90% of the office productivity software in use today worldwide is created by our member companies. In addition, the majority of our member company's software is sold internationally.
All sales of computer programs are subject terms and conditions set out in a license or a contract. Companies rely on these legal instruments to ensure they get paid, to clearly state their obligations to their consumers, and anticipate problems and disputes that may arise. Legal certainty, about the enforceability of the agreements, and the rights and obligations that accrue to both the vendor and the consumer is critically indispensable to a successful business transaction.
A good license or contract does two things. It spells out what the parties intended the transaction to encompass. A good agreement also anticipates problems, misunderstandings and disagreements which may arise, by stating both the means and solutions that the parties agree to follow. In this context, two key elements are the jurisdiction whose law will be applied to resolve the dispute, and the courts that will called upon to arbitrate it.
The issue of applicable law and jurisdiction are also critical in our ongoing battle with pirates: unscrupulous people who steal our software. Our principal line of defense against pirates is the Copyright Act, and property interests our members enjoy in the computer programs under that law. In this context, we rely on the law not to settle disagreements with our customers, but to stop theft. In this context, the choice of law and choice of forum issues are clear when the thief resides in the United States - the Copyright Act governs, and jurisdiction is held by federal courts - but it is much less clear when the transaction takes place with person residing in foreign countries. Unfortunately, too many countries still do not have strong copyright laws. Penalties for infringement are weak in many countries, and obtaining search orders and other evidence gathering is also a serious problem.
The Internet makes all this much more complicated. Legal certainty with respect to an on-line commercial transaction is indispensable to the growth of e-commerce. The Congress has taken a significant step in the right direction in the past two weeks by enacting digital signature legislation. But that bill only addresses formalities, like authentication, associated with an on-line sale.
LEGAL GOODS
Putting all this in context, not too long ago, almost all business to consumer commerce was conducted within driving distance of the consumer's home. Even much of the business to business commerce was conducted locally or regionally..
However, as transportation networks became more efficient, American consumers grew more comfortable purchase goods and services from businesses nationwide in search of lower prices or better selections. The Uniform Commercial Code grew over time to handle disputes that arose between purchasers since only a few transactions occurred in which all of the possible dispute resolution mechanisms fully negotiated.
The Internet has continued to change how consumers and businesses around the world shop for goods and services. Let me highlight the three primary areas of Internet transactions today that are relevant for this morning's discussions:
Until recently, most Internet consumers were Americans who shopped on websites owned and operated by American businesses. For consumers and most businesses, there is little thought given to the jurisdictional issues faced when making a transaction over the Internet unless something goes wrong. Historically, sales of goods have been governed by the by the Uniform Commercial Code (UCC). While the UCC remains a solid body of law for sales of goods, the reality of software industry transactions is that most often software is licensed, not sold.
The Business Software Alliance has been involved in the updating of the UCC, by strongly advocating the adoption of the Uniform Computer Information Transactions Act (UCITA). UCITA bridges the gap between existing commercial law that is focused on goods, and the information industry. UCITA follows existing court decisions that allow a choice of law and forum that has some reasonable basis to the transaction because it is often impossible for a seller, whether it be a large multinational business or someone selling a souvenir stamp on an auction site, to know the law of every location that their good(s) may wind up in. Larger businesses often include a pre-determined choice of law and forum clause in their contracts.
As the Internet continues to expand internationally, commerce is increasingly crossing international boundaries. American businesses recognize this and are creating country specific websites and sales divisions. As the world's leader in software, American software companies tend to have the most websites targeted at specific nations. For example, Adobe has 31 individual country websites; Microsoft has 67; Symantec has 24. The entire transaction with one of our member companies may be entirely via the Internet with no physical product ever shipped. Despite this increasing reach of sales, most e-commerce sites limit the choice of law in some manner to no more than a few specific locations - perhaps one on each continent. Choice of forum is usually less restricted.
These efforts to establish localized web based business still leave uncertainty about whose law applies to the transaction, and which court has the authority to adjudicate it. Resolving these issues is not simple. A "one size fits all" rule is unlikely to work. As an example, lets assume a US person is selling a computer program to a person residing in France. France has well-developed copyright law, as well contract and consumer protection laws. In this instance, setting the default rule for applicable law to be either that of the country of the purchaser, or the vendor, could work relatively well. By contrast, if the US business is selling online to a person in Mongolia, setting the default rule to be the law of the consumer, Mongolia, would create substantial uncertainty for the US business. By contrast if the default rule were the law of the country of the vendor, and if a US person were purchasing from a site in Mongolia, the US consumer could be a substantial disadvantage.
Similar complexities arise in respect of anti-piracy. If the vendor were located in a country with weak copyright laws, and that person was selling pirated US software to US customers, it would be very hard for the US copyright owner to take legal action against the pirate.
For these reasons, while establishing predictable rules is very important, it is probably too early to develop a single default rule (either country of origin, or country of consumption, at this time.
ILLEGAL GOODS AND SERVICES
My discussion so far has been limited to the sale of legal goods and services. However, it is vital that during any discussion of jurisdictional issues related to Internet transactions that the issue of illegal goods and services is discussed as well. One of the core missions of the Business Software Alliance is the protection of the intellectual property of our member companies through education and prosecution in the civil and criminal courts. Until recently, most of the Internet piracy cases that BSA and the Department of Justice discovered had a clear jurisdiction in the United States. As the Internet continues to grow, this will no longer be the case.
As BSA steps up the international piracy fight and the Department of Justice steps up its criminal prosecutions due to your pressure, I expect criminal enterprises to attempt to avoid jurisdiction by spreading their activities across the world using computer and financial institutions in locations with little to no oversight.
CONCLUSION
As a matter of principle, the Business Software Alliance believes that the choice of law and forum, as specified in the licensing agreement or contract, should be enforceable. The choice should be left to the parties to the transaction, and not dictated by a one size fits all rule. BSA does not believe that governments should make this choice for the parties, but leave it to them instead.
I thank you for the opportunity to testify today and look forward to working with you and your staff as you deal this issue in the months to come.