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Jurisdiction: Building Confidence in a Borderless Medium

July 26-27, 1999
Montreal, Canada

New Directions for International Projects in the Coming 2000's

Hal Burman
Office of Legal Adviser
Department of State
Washington, DC


"Jurisdiction" has become an ubiquitous term covering many of the gaps in the global legal framework for internet standards and rules, as well as the uncertainties (which translates into applications that never see the market) and cost inefficiencies due to the lack of reasonably predictable answers. Variously applied, its reach includes jurisdiction for regulating crossborder computer-based activities by national states, enacting new laws or the application of existing laws, the capacity of national court systems, and the effect of terrestrial boundaries and trade agreements on electronic data or services via internet. No other term has drawn as much of the ECom world's attention over the last year.

Uncertainty still abounds as to how existing treaties, regulations or national court decisions regarding trade rights, intellectual and data rights, consumer rights, or related areas of the law will be applied in ECom cases. An unavoidable question is whether domestic resolution should precede international standards, and whether cross-border projects should be an important source even for domestic rules efforts. Finding the right topics to focus international efforts on however has not advanced well during the last year.

A short discussion list of possible topics that could be the focus of new international work on, or closely implicating concepts of jurisdiction, follows. The first of course are efforts to examine broadly the wide range of jurisdictional issues, both as constraints on the exercise of nationally-based actions and as international standards. Secondly, a number of projects are being proposed, some of which are noted below, for possible international action which necessarily rest on or significantly implicate jurisdictional standards.

A word about the second list. It was drawn primarily from industry and private sector recommendations as to what could be substantial value for enhancing ECom, and does not cover other areas of concern such as torts, privacy, communications content, etc. It also does not include matters already before various international fora, public or private, such the OECD, ITU, WIPO, UNCITRAL, UNIDROIT, ICC and others, and therefor does not include data security, privacy rights, electronic signature systems, copyright and patent submission rights, electronic registries, taxation and bandwidth, to name a few already in process.

General projects on jurisdiction and applicable law:

Preliminary work is underway or planned on general aspects of internet jurisdiction at the ILPF, the Hague Conference, regional bodies such as the EU and NAFTA, and national law based bodies such as the ABA's Science & Technology section and the Cyberspace Law committee's jurisdiction project. Resolution of jurisdiction issues also has importance for ongoing work at ITU, ISO, UNCITRAL, UNIDROIT and others.

The success of any of these efforts may depend on answers to some upfront issues: should abstract jurisdictional standards or preexisting concepts drive the process, or should they be result- driven, and reflect developing practices and newer substantive rules? Stated otherwise, at least for the commercial law, should economic and transactional results be the litmus test? Should such rules be separately stated as needed for each major commercial and trade sector (and, by implication separately stated for differing tort, privacy, consumer and content issues)? Within the commercial law, are current trends toward party autonomy and non-nexus choice of law appropriate (often seen as necessary to assure that applicable law points toward states with modern, ECom-focused laws)? Should commercial predictability, which favors rules that can be facially applied, as opposed to rules that often call for post facto analyses, be favored? Should separate rules be negotiated for consumer rights enforcement, rather than seek to merge commercial parties and consumer issues in the same rules? My answer to the first would be "result-driven", and a "yes" to the five questions that followed.

Departing from traditional approaches, the key to progress may be guidelines that lead not to imposing the law, but rather to constraints on exercising or permitting jurisdiction, as well as restating the minimum contacts and place of performance tests. Prior reliance on the such fading concepts as center of gravity, interest analyses and characteristic performance are now fully challenged by technological innovations. While concepts such as passive sites, interactivity and purposeful availment have been used recently in US jurisprudence to supplement older tests on minimum contacts, these standards are not as of now accepted internationally, and a number of countries apply more structured rules drawn from very different traditions.

What is clear is that absent consensus, the growing potential exposure globally to multiple jurisdictional laws has significantly raised risk levels and is increasingly the unseen barrier to commercial applications of new technologies. These factors drive the "yes" answers to the five questions above.

Possible projects which must resolve jurisdictional issues - (pick any three):

On-line dispute settlement systems and virtual magistrates:

A number of proposals for on-line methods of dispute resolution have been advanced, but none have so far gained wide usage, and few have reached the pilot stage. Uncertainty as to both applicable law within the dispute process and jurisdiction for enforcement has been one of the main obstacles. Application by analogy of existing jurisdictional laws, conventions, regulations or court decisions regarding dispute resolution, consumer rights, enforceability and related areas of the law are largely uncertain.

Commonly suggested models for dispute systems online, created outside existing juridical systems, range from: internet consumer contract systems; third-party data services systems (with rules binding senders and receivers); industry and sector specific dispute systems; and online spinoffs of existing ADR facilities, such as administered arbitration centers.

Discussions of the various online models quickly raise issues such as whose law and whose procedures will apply, and even if agreed, enforcement remains uncertain when the process is cut loose from terrestrial tethers. Disputes in a networld can quickly and without prior arrangement involve participants from a number of countries. The relation to existing terrestrial courts is of course a major factor to be dealt with.

Another option discussed is linkage to arbitral systems already in place, especially with regard to international commercial disputes, where a wide-spread treaty system for enforcement is already in place. The practice and precedents for that however were not designed for the networld, and the possibility remains that new interpretations or even amendments may be needed might be explored, in order for the applicability of the New York and Panama Conventions to have requisite predictability.

Promotion of basic ground rules to enable ECom:

A number of countries or political jurisdictions (states within the U.S., for example) are exploring general infrastructure rules, often based to some extent on the UNCITRAL Model Law on Electronic Commerce, a broadly negotiated document. Some of its provisions indirectly serve as applicable law pointers; are those provisions on the right track for ECom today?

Some countries have supported the U.S. proposal for a convention which would embody many of the UN's model provisions, along with basic principles such as party autonomy, and thus achieve an enabling but otherwise minimalist approach to international rules, at least for the short term until global and domestic commercial patterns become more clear. Should this, i.e. minimalism at this stage in ECom development, be a model for new work on jurisdiction?

Other avenues for inclusion of general ground rules on applicable law are the proposed new ECom provisions for the UNIDROIT Principles of International Commercial Contracts, the draft European Principles, etc.

Electronic transactional laws:

Some commentators have proposed an expansion of the UNCITRAL Model Law on ECom to take on a number of electronic contracting law issues (relevant to commercial parties not consumers), including related jurisdictional and applicable law provisions. Proposals for this work would draw on new or proposed domestic laws in a number of countries, such as in the U.S. the new draft Uniform Electronic Transactions Act (UETA) and the new draft Uniform Communications and Information Act (UCITA), both of which are expected to be approved for adoption later this July in Denver. Current developments in other countries would also bring to the table a number of new approaches for consideration. Issues covered would range from basic contract formation rights to rights in computer data, which would highlight the intersection of traditional contract laws and copyright laws within a net environment. The intersection of those laws creates new ground for assessment of the jurisdictional issues.

Electronic transfer of rights to tangible goods:

Transfers of rights by computer while goods are in production, transit, or otherwise in bailment today occurs in a relatively small number of sectors, and largely within closed or limited access network systems. Absence of generally agreed infrastructure laws or predictability of applicable law or at least a rationalized choice of jurisdiction is a major factor in that restrained growth. It has thus been proposed that a wide area of trade in goods could take place much more efficiently between countries, and at lower cost, if supported by an appropriate ECom framework, including rules on applicable law for electronic bills of lading, title documents or security interest transfers.

Such systems could build on Canadian electronic registries which are multilingual and can span jurisdictions, as well as the EU's Bolero experience and other pilot efforts. Revisions might spinoff to the 1991 UN convention on transport terminals, and the OAS 1989 road transportation convention (the OAS may take up revisions to that convention this year, in part to upgrade it for ECom). This type of project raises the intersection of ECom technology applications and proposed rules to the fore, with significance for jurisdictional analyses.

Electronic transfer of intangible rights:

Electronic letters of credit, standbys, bank guarantees and other computer generated "intangibles" offer many innovations and cost efficiencies in trade, but are little used today in view of uncertainty as to applicable law or business standards or controlling jurisdictional issues. Predictability of applicable law or commercial standards is a requisite for financial instruments, and a new consensus on standards that can be widely adhered to may be a key to assure enforceable transfer of rights by computer. A closely related topic, but one raising separable regulatory issues, is the so far limited progress on electronic money, such as Mondex, E-cash, etc., whether in open or closed computer based systems. Computer useage precedents in international EFT systems such as SWIFT, which do not rely on resolution of jurisdiction issues, have had more applicability for crossborder credit cards than E-money.

Electronic clearance and settlement of securities and other evidences of ownership or interests in business entities, as between regulated and/or unregulated markets in various countries, is a separate possible topic in this category. Such an effort could draw on experience under new laws designed for electronic clearances, such as Uniform Commercial Code Article 8, and laws or rules in a number of countries implementing or proposed for electronic market systems and online securities transactions. Substitution of electronic "entitlements" based on computer data bytes, in place of paper certificates with silver seals is difficult enough; extending that internationally is a challenge. Such an effort would need to resolve both regulatory and private law jurisdictional issues within the same package to have any assurance of likely enforcement.

Rights in electronic data:

Building on the recent revisions to existing IP treaty systems by the World Intellectual Property Organization (WIPO), which revised certain international copyright standards to take into account electronic data and rights, it has been suggested that further work be sought on rights of ownership and contract rights in computer data and software licensing or sales. Issues raised in the deliberations on the proposed UCC Article 2B, including those eliminated in the pared down version likely to be approved as a draft uniform law in the U.S., as well as developments in other countries would contribute to such work. The intersection between the commercial law and IP laws proved difficult in the 2B process, not least the default provisions on applicable law pointers.

Standard terms for electronic commerce:

Differing terms and usages in various countries, some of which are still in the formation stage, create problems in efforts to align new rules or practice standards, or in reaching consensus on applicable law. Work is underway on some aspects of ECom terminology at organizations such as the International Chamber of Commerce (ICC), along the lines of INCOTERMS (ICC's proposed "E-Terms" and GUIDEC, for example); in ANSI and UNECE's work on standardized EDI message sets; at ITU and ISO, and (hopefully) through private sector bodies such as the Internet Law and Policy Forum (ILPF).

Crossborder recognition:

Because of the difficulty in various areas of commercial practice of acceptance, transferability and reliance on computer generated documents when transmitted across borders (especially as between civil and common law states), proposals have been made for agreements on crossborder recognition and enforcement. The usual options are agreements based on harmonized substantive standards, agreements by category (as in trade agreements) or agreements on jurisdiction and/or applicable law. Mutual acceptance by virtue of accreditation under some agreed standards is another viable option.

Several years ago the first category appeared more achievable across the transatlantic region than it does now. As an example, efforts to harmonize message authentication and electronic signature laws evolved into sharp differences between states that seek effectively to regulate ECom by emphasizing particular applications of a given technology (PKI), versus states that seek to avoid such intrusion in the marketplace as well as the development of competing technology applications, especially at this early stage of ECom development. This has made substantive harmonization probably out of reach for now, at least for the critical transatlantic market.

Recognition on the basis of mutual acceptance of certain document categories, and failing that, on the basis of rules that reliably predict jurisdiction and/or applicable law remain a possibility, as does accreditation. Again, illustrating the gulf between the sides, the U.S. and Canada in a number of areas of practice would expect to be able to accept actions by private accreditation bodies where appropriate. Most EU civil law states have at best a limited tradition for accreditation by anything other than government agencies. While efforts have been made to advance the accreditation route , agreement on jurisdiction and applicable law rules standards may remain on the table, at least for message transmission, certification and to some extent value- added services.

Omnibus protocol to amend multilateral treaty regimes:

A number of treaty regimes (as well as consensual rules) negotiated in prior years did not contemplate electronic communications or computer technologies, and uncertainty as to application of their provisions reduces reliance on computer methodologies in those fields. Reasoning by some commentators interpreting existing treaties or international standards in ways that can avoid these problems is not a substitute for evidence of consensus or new statements of practice on which sufficient commercial reliance can be placed.

A review of such instruments to determine whether their application is predictable or problematic would be a real step forward. This could be followed by the drafting of understandings on existing terms, or proposals for amendments where necessary. It has been suggested that such a project could result in omnibus protocol(s), in which States that adopt them would change their treaty relations with other states that have also so acted. The same principle could apply to private sector consensual rules or standards that are widely implemented, such as the FIDIC rules, the ICC's INCOTERMS and UCP, etc.

General comments:

International developments on the electronic commerce (Ecom) front are at a crossroads. The economics of globalization of commerce and telecommunications, and the opening up of ECom trade and services between countries and between distant parties are pushing the need for new legal standards and new concepts of jurisdiction. The concept of physical "territory" as the basis either for regulation or application of law is itself proving to be difficult to apply in some cases. Existing "direct effects" theories for extraterritorial application of national laws may also no longer work appropriately.

In recent years, public law initiatives in this field have focused on areas such as expansion of trade, including liberalization of trade in services, telecommunications; and proposed restraints on taxation of cross-border internet commerce. The U.S. and the NAFTA states have emphasized as well the avoidance of over-regulation, to allow market forces to determine future technological and commercial trends, in comparison to some countries in the EU and elsewhere. Benign acceptance, not computer-friendly rules in many EU states up to this point has allowed the growth of cross-border company operations, credit card systems, and other modern marvels without agreement as to underlying territorial legal differences and without resolving jurisdictional issues with the U.S. and others outside the EU. More recently, the exercise of jurisdiction by the EU and the possibility of imposition of incompatible rules may, if not resolved, bring ECom into the forefront of trade conflicts.

The gaps at least for now that have grown between the two sides of the Atlantic could at any point create real time obstacles for crossborder internet activity. This is visible, for example, at the intersections of data rights, consumer protection, security standards, message authentication, cryptology export, and national security and law enforcement. These gaps are generating recent standoffs in international bodies such as the OECD, making real consensus on common standards difficult. In turn, if these gaps remain, substantial progress on ECom at organizations such as the WTO, ITU, UNCITRAL and others may prove difficult.

As one illustration, multilateral negotiations on unification of ECom law produced significant progress at UNCITRAL on international electronic funds transfers in 1992 and the now widely used UN Model Law on Electronic Commerce in 1996. As unresolved public policy problems grew between groups of states, however, progress on the private law front has bogged down, as has been seen at the OECD and UNCITRAL with regard to work on electronic signature systems and message authentication.

All of the above test the limits of private law unification in newly developing electronic practices. Older paradigms sought to harmonize existing legal standards and established commercial practices. To facilitate the coming age of computer commerce, however, new standards and new default principals of commercial law may at times be needed many years -- maybe decades -- before the older paradigm could produce them.

At the same time, the effort to anticipate the market and its legal needs has its own hazards, such as that experienced in efforts to find consensus on electronic signature and message authentication systems. Given the laws of unintended consequences, untimely development of rules can restrict market development and work against new technological applications. It also appears unlikely for most areas of ECom that there will be the alternative of "instant customary law", in which new technology applications have produced consensus around standards without delay, such as has occurred for some aspects of international space law.

The path forward therefore requires new visions.


Comments can be sent to Hal Burman at the Office of the Legal Adviser (L/PIL) 2430 E Street, N.W. Washington, DC, 20037-2800, by fax to (202)776-8482, email to pildb@his.com "hburman", or voice mail at (202)776-8421.

The viewpoints expressed above are strictly personal and do not necessarily reflect the positions of any agency of government.

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