Testimony
of
Marc
Pearl
General
Counsel & Senior Vice President
Information
Technology Association of America
Before the House Judiciary Committee
Subcommittee on Courts and Intellectual Property
Hearing
on
The Internet and Federal Courts:
Issues and Obstacles
June 29, 2000
0
Testimony
of
Marc
Pearl
Information
Technology Association of America
Before
the House Judiciary Committee
Subcommittee
on Courts and Intellectual Property
June
29, 2000
Introduction
I am Marc Pearl, Senior Vice President of Government
Affairs and General Counsel of the Information Technology Association of
America (ITAA). Our Association represents over 400 direct and 26,000
affiliate member companies in the information technology (IT) industry B the enablers of our technology-based and
increasingly digital dependent Information Age economy. ITAA members are
located in every state in the United States, and range from the smallest IT
start-ups to industry leaders in the custom software, services, systems
integration, telecommunications, Internet, and computer consulting fields.
Additionally, ITAA serves as the Secretariat of the World Information
Technology and Services Alliance (WITSA), an association of 41 IT
organizations from around the world.
ITAA appreciates the opportunity to express our
perspective on the subject of this hearing B The Internet and Federal Courts: Issues and Obstacles B particularly as it relates to the proposed Hague
Conference Convention on Jurisdiction and Foreign Judgments. We commend
this subcommittee for discussing the ramifications of this proposed treaty and
the issues at hand.
This hearing will help educate and demonstrate the need
for Congress, in general, and this Judiciary Committee, in particular, to
actively engage itself in the debate and discussion on the legal similarities
and differences between analogue and digital; between our traditional forms of
establishing contractual relationships and what the Internet does to those
agreements. We live in a networked world and our ability to confront issues of
global legal impact cannot and should not be left solely to policymakers who
reside in Paris, Geneva, Brussels, or Tokyo.
Electronic Commerce and Legal Uncertainties
The Internet presents a number of unique challenges to
contractual relationships, which must be addressed domestically as well as
globally. It is an interactive and ubiquitous medium, which defies traditional
notions of Aphysicality.@ Additionally,
this relatively new way of delivering information, products and services
creates business uncertainty in that it transparently and effortlessly crosses
state, provincial and national boundaries. The famous New Yorker
cartoon exemplifies that no one knows if you are a dog on the Internet. Not
only does this raise basic anonymity and privacy issues, but changes the way
in which we treat and identify a Acustomer.@ What then is the true
definition of a Aconsumer,@ for example, if we don=t precisely know with whom we are doing business
online? Should there be differences in contractual terms between a large and
small vendor and consumer?
ITAA has been the leading trade association voice in
identifying and discussing these issues. We have worked closely with Congress,
the Administration, state legislatures and foreign governments to confront
many of the challenges and resolve many of the legal obstacles presented by
the Internet and electronic commerce. Our ultimate goal has been to urge
policymakers throughout the world to follow the principles put forth in the
1997 Clinton Administration document entitled: A Framework for Global
Electronic Commerce, focusing on preventing premature regulation and
legislation; encouraging industry self-regulation and technology solutions.
Many of the legal and policy models found in traditional commerce may not be
appropriate for e-commerce, for example.
A key necessity of Adoing business@
in the digital environment is knowing and then being able to abide by a common
set of principles, laws and regulations.
These laws and regulations are under dynamic development and discussion
throughout the world in a number of government, quasi-government and industry
forums. I have attached to this testimony a document which was prepared by
ITAA, WITSA and the United States Council of International Business (USCIB)
and distributed at the recent E-Commerce Experts Meeting of the Hague
Convention in Ottawa. It outlines a number of national and international
organizations that are looking at the issue of jurisdiction in the context of
global e-commerce.
In short, it would be imprudent for the United States to
encourage the passage of a treaty dealing with a court=s enforcement of judgment regarding an electronic
contract among foreign parties before a number of fundamental issues are
settled at the outset of a contract=s formation. The draft Hague Convention woefully ignores the advent of
electronic commerce and inadequately addresses its uniqueness as a means of
facilitating the delivery of digital products and services. The United States
government cannot and should not encourage a Diplomatic Conference to draft
such a treaty until and unless it confronts the uniqueness and ubiquity of
e-commerce, particularly regarding the many questions surrounding jurisdiction
in the global digital environment.
E-Commerce in Context B The Digital Facts and Predictions
Before outlining the legal uncertainties, it is essential
to put into perspective the growing significance of electronic commerce B
not only in the United States, but also throughout the world.
If B
as even Federal Reserve Chairman Allan Greenspan states B information technology is the engine of our country=s robust economic growth, then electronic commerce
is its rocket fuel. Dramatic growth is occurring in business-to-business (B2B)
and business-to-consumer (B2C) E-commerce, and more government services are
being offered electronically. The Internet is literally rewriting economic
history.
C
Based on surveys done by NUA Internet Surveys (http://www.nua.ie)
and Fletcher Research more than 201,000,000 people (of 6 billion in the world)
had Internet access in September 1999 B with connections growth in
Europe at an annual rate of 138%.
C IT
represents over 6% of global gross domestic product (GDP), a spending volume
of more than $2 trillion, and over 8% of US GDP B according to the WITSA-issued report Digital
Planet
C A
recent US Department of Commerce report indicated that 35% of our nation=s real economic growth from
1995 to 1998 came from IT producers
C Forrester,
a respected market research firm, forecasts that the US e-commerce marketplace
is worth $290 billion this year and will grow to more than $2.7 trillion by
2004
C More
than 100 million (37%) of Europeans will be online by 2004, more than 80
million in the Asia-Pacific region will be online by 2003, and only 35% of
Internet users will be from the United States in 2003.
C By
2005 almost 60% of all Internet users will speak a language other than
English.
This new Aengine of the 21st century@ B enabled by the ubiquity of
the personal computer, the maturation of computer networking and the
phenomenal growth of the Internet B promises to change not only the methodology
of business processes, but also the very way in which the whole supply chain
is managed.
The simple reason the Internet is transformational is
what Frances Cairncross of The Economist calls Athe death of distance.@ The traditional relationship between a seller and buyer in
the pre-Internet world, even with supersonic airplanes, telephones, and faxes,
was circumscribed by the physical distance between the two, especially when it
came to exchanging information. Even large organizations were limited, as they
could not afford to be in touch with a multiplicity of suppliers or customers.
The Internet has virtually eliminated distance, boundaries, and those cost
factors.
E-commerce is literally changing the way the world does
business. It is proving to be a rising tide that can lift all boats B the multi-national
corporation and the small main street shop owner alike. This is not, by the
way, a one-way street of U.S. businesses selling products or services to the
rest of the world. Businesses and consumers are able to obtain products and
services from all parts of the world at competitive prices. The Web makes
geographic distance, language and cultural barriers practically irrelevant.
For example:
C Visit a site like http://www.peoplink.org
and you will quickly appreciate how e-commerce can create global markets for
small businesses. The site offers artwork from craftsmen and artisans from
Asia, South America and Africa to buyers around the world.
C Villages in Peru are now selling fresh
vegetables directly to supermarkets and restaurants in New York City B an option that was simply
not financially viable before the Internet.
C Gold miners in the Amazon Basin now have
direct, timely information about the global price of their precious commodity,
empowering them in ways not possible before.
While businesses are sellers, they are also buyers. Just
as the Internet empowers individual consumers, it empowers businesses as
customers B
giving them access to more vendors for the goods and services they need to
operate.
However, while barriers to entry are low, it is important
to recognize that there is a need for global cooperation by both business and
government to facilitate e-commerce and to provide a substantial degree of Abusiness
certainty.@
This is where, unfortunately, the Hague Convention proposal shows both
its pre-maturity and immaturity.
Hague Convention and Enforceability of Judgments
A major foundation to
attain global Abusiness
certainty@
is providing a framework for businesses to understand basic precepts in the
development of contract terms and conditions. It also entails allowing the
contracting parties to privately contract acceptable terms, conditions and
limitations, particularly with respect to recognizing which court is competent
to hear any disputes. The ability of a court to then have its judgment (based
on the contract terms negotiated by the parties) enforced in foreign
jurisdictions, according to identifiable, clear and predictable rules,
contributes to increased legal certainty. This should be the case, whether the
parties are entering into traditional or electronic agreements, or
providing/receiving analogue goods/services or digital widgets.
Many US companies, however,
have long been concerned that foreign courts choose not to enforce U.S. court
judgments, whether based in contract or not. Jurisdiction in cross-border
transactions has always been B and with the proliferation of e-commerce is
even more B
an important issue for global business.
Since 1992, the Hague
Conference has been reviewing this issue and released its Draft Convention
on Jurisdiction and Foreign Judgments in Civil and Criminal Matters late
last Fall. The proposed draft, however, does not adequately address the issues
surrounding electronic commerce and the evolution of a national borderless
technology of the Internet. Unfortunately, it ignores the reality and
complexities of electronic commerce and its negative impact on business
certainty for businesses and consumers.
In the intervening eight
years since this Convention was first conceived, traditional contracts for
goods and services have increasingly migrated to the Internet. As I have
attempted to point out above, new models of business relationships are being
developed B
including contracts for digital products, as well as the means of delivering
products and services. It is becoming increasingly difficult for US courts at
both the federal and state levels B let alone their counterparts throughout the
world B
to definitively resolve disputes regarding contract formation and contract
interpretation.
When presented with the
latest version of the proposed draft convention early this winter, every
segment of the electronic commerce industry B representing backbone, hardware, software,
telecommunications, content, retailer, and IT service provider B responded in kind. We
analyzed the draft, identified a number of questions of particular concern to
both the providers and users of IT regarding the potential impact on
electronic commerce, and presented our concerns at the E-commerce Experts
Meeting of the Hague Convention in Ottawa.
ITAA has helped lead an
informal coalition of e-commerce companies and associations in identifying to
the US government and the Hague Conference delegates an extensive list of
issues implicitly and explicitly contained or ignored in the proposed draft.
Our major concern focused on the proposed draft being too narrow and how it
would negatively impact electronic commerce. We pointed out that by treating
jurisdiction issues without treating choice of law issues would result in
increasing, rather than decreasing legal uncertainty in the digital
environment. We found that while the proposed Convention does not create
substantive rules of law, nor set out rules for choice of law, it incorrectly
assumes that a court properly seized with a case will apply a reasonable rule.
Some of the
outstanding/unanswered issues we identified in the draft proposal include:
C
Where and when is an electronic contract concluded?
C
Does an electronic contract constitute a Awriting@?
C
Is an electronic/digital signature on an electronic contract legally
recognized and enforceable?
C
What constitutes an Aoffer@ and/or an Aacceptance@ when utilizing the
Internet?
The Hague Conference
document attempts to resolve some of the enforcement of contract issues that
present conflict among foreign claimants. With respect to e-commerce policy
and legal issues, however, the document raises more questions than it answers,
particularly in the areas of:
C
Delivery and performance
C
Payment
C
Location of the parties
C
Identity of the parties
C
The ability of the contracting parties to utilize the principle of Afreedom
of the parties@
to agree by contract to a jurisdiction in the event of a dispute.
The Internet=s impact on traditional
legal doctrines also brings into question many of the proposed Asolutions@ contained in the Draft
Convention on Jurisdiction and Foreign Judgments in Civil and Commercial
Matters. This is a document intended to settle foreign jurisdiction issues
following a court=s
judgment. In addition to a severe lack of legal precedence, nationally and
globally, a number of issues at the outset of a contract=s formation B which need to be settled
long before contracting parties are in need of one court=s judgment and another
court=s
enforcement B
have yet to be settled. Electronic commerce challenges the usual notions of
jurisdiction and traditional legal frameworks, particularly in an increasingly
global world where national borders disappear. These issues include:
C
How to best Ainterpret the intent@ of the parties?
C
How to apply the Areasonable person@ principle?
C
What type of relationship exists or was contemplated?
C
Who has jurisdiction in this contractual relationship?
C
Which court can best settle Achoice of law@ issues arising from the
contract?
C
Should the Alaw of origin@ or the Alaw of destination@ apply?
Additional issues raised,
but not adequately addressed or answered, in the draft Convention included:
C
While the fundamental proposition of the proposed Convention states
that a defendant may be sued in the courts of the State where it is Ahabitually
resident@
B Can an entity be reside in
more than one State?
C
How should digital information, software products and IT services be
treated B as goods, as services, or as something new
and unique?
C
How should Internet/website Asolicitations@ be handled?
C
Can a Aconsumer@ (however it is ultimately defined) be
precluded from selecting an Internet/online alternative dispute resolution
mechanism?
C
By merely establishing a website, is an online vendor engaged in trade
or professional activities in or directed to the citizens in a foreign state?
C
Should the proposed treaty also cover employment contracts, torts, and
the converging mix of civil and criminal law issues?
C
If the proposed Convention has carved out intellectual property and
copyright disputes, why not trademark and in rem actions?
C
What is the relationship of this proposed Convention with other
conventions/treaties dealing with matters of jurisdiction B
e.g. Brussels and Lugano Conventions? How will it deal with existing bilateral
agreements and Aautonomous@ private international law
rules?
These are just some
outstanding questions left unanswered by this draft convention, which the
e-commerce community has identified. This does not even touch upon the general
jurisprudence issues that have been raised by other interested parties.
It is essential for the
U.S. government and our key trading partners to review carefully the
cost-benefit analysis of obtaining foreign court enforcements in the face of
successfully meeting the challenges and obstacles presented by e-commerce.
Conclusion: Working Towards a Constructive
Solution to a Difficult Issue
If there should be a fundamental principle for Internet
public policy, it is to draw upon the wisdom of the Hippocratic Oath B Afirst do no harm.@ There is a natural temptation with technology policy to
tinker at the margins to reach desired ends.
However, the Internet is evolving with such speed and dynamism that
even the best-intentioned interventions can have unanticipated negative
consequences. In the United
States, we are taking a market-driven approach to ensuring that parties may
determine the appropriate technologies and rules for assuring the confidence
and validity of an electronic transaction. The role of government should be to
promote a technology-neutral legal framework and remove paper-based obstacles
that are found in our laws and which impede engaging in e-commerce.
This Committee deserves great credit for pursuing these
policies and discussing the relevant issues that impact global electronic
commerce. Let us not act precipitously or permit foreign governments to push
through a treaty, which is not in the best interests of US-based businesses
and consumers, and which could negatively impact a global embrace of
electronic commerce.
Thank you very much for this opportunity to appear before
you today.
|
United
States Council for International
Business
|
|
|
Dear Delegates:
Jurisdiction in cross-border transactions is
an important issue for global business. The Hague Conference has been
reviewing this issue since 1992 and recently released its
Draft Convention on Jurisdiction and Foreign Judgments in Civil and
Commercial Matters. During the last eight years we have seen the
advent of commercialization of the digital environment, adding a new element
to the work of the Hague Conference.
It is no surprise that jurisdictional issues
have become more complex because of electronic commerce. Various organizations
on a global and regional scale B both governmental and in the private
sector B
have begun to address the complexities inherent in better understanding the
impact e-commerce has on the nature of contractual relationships.
At the request of the business community, the
United States Council for International Business (USCIB) and the World
Information Technology and Services Alliance (WITSA) together with other
industry representatives and the Internet Law and Policy Forum, have attempted
to set forth a non-exhaustive catalogue of completed and ongoing work being
conducted in a wide variety of global fora on the issue of jurisdiction in the
context of electronic commerce.
Included is both the completed and ongoing work of the
following organizations: