Jurisdiction: Building Confidence in a Borderless Medium
July 26-27, 1999
E-commerce Directive and the Internal Market
Mike Pullen, Associate
Dibb Lupton Alsop, Brussels
Article published in "Legal Week"
E-commerce should be viewed as a commercial distribution medium which is
subject to the EU internal market rules and freedoms. It is clear, however,
that if the internal market is to work, e-commerce must be regulated at EU
level. Towards this end on 18th November 1988 the European Commission
adopted a draft directive on electronic commerce ("Directive"). The object
of the Directive is to guarantee the free movement of electronic commerce
services throughout the internal market, which at the same time offering a
high level of consumer protection.
The Directive incorporates the fundamental pillars of the internal
market: country of origin control and mutual recognition of national law.
These principles have been re-affirmed by the European Court of Justice
("ECJ") in a number of cases on the free movement of goods and services.
The Directive will mean that businesses offering electronic commerce
services will only have to deal with one law - that of the Member State in
which they are established rather than the laws of up to fifteen different
Member States. The Directive contains detailed rules for determining where
a business is established. The principle of mutual recognition obliges each
EU Member State to accept that the laws of other Member States provide an
adequate level of protection despite the fact that those laws may be
different or less restrictive than its own law.
Mutual recognition is an established and uncontroversial principle which
is constantly applied in a multitude of sectors (eg the New Approach
Directives on technical standards which apply to products and govern areas
such as toy safety and low voltage). Despite this a number of consumer
groups in the EU have attacked the use of mutual recognition in the
Directive. It seems surprising if not perverse that a concept which is
uncontroversial when applied on a daily basis to product safety should
become so when applied to the marketing of electronic services.
The European Commission has chosen to use the principles of country of
origin and mutual recognition rather than the full harmonisation of national
laws across the EU as the basis for the Directive because it recognises that
Member States operate a number of widely differing sets of rules governing
marketing, promotions, advertising and sponsorship which are impossible to
harmonise without killing off electronic commerce in its infancy.
The decision to base the Directive on the principles of mutual
recognition and the country of origin will overcome the setbacks suffered by
the internal market when the ECJ delivered its ruling in the Keck case in
which it was decided that restrictions on advertising and marketing
techniques which applied equally to both imported and domestic products and
did not discriminate in law or in fact against traders fell outside the
scope of Article 30 of the Treaty and therefore restrictions or bans on such
methods of communication did not hinder the free movement of goods. This
judgement has been used as a legal justification for the failure by the
European Commission to pursue infringement proceedings in respect of
national laws that restrict the free movement of services. This is despite
the fact that the ECJ has constantly refused to apply the Keck principle to
services under Article 59 of the EU Treaty (see Bosman Alpine and De
Agostini). The ECJ's refusal to apply to the Keck doctrine to the free
movement of services is hardly surprising as the restrictions which the ECJ
stated fall outside the scope of Article 30 in Keck are secondary
restrictions insofar as the free movement of goods is concerned, i.e. goods
can still enter a national market even though they cannot be marketed
effectively. However if this concept is to be applied to the free movement
of services it would constitute a primary barrier to free movement because
services would not be allowed to enter national markets. This would have
the effect of fragmenting the internal market and distorting trade flow.
The Directive will be a major step forward in increasing the
competitiveness of e-commerce within the EU. It will also allow a great
deal of consumer choice, for example a consumer in Member State A who is not
able to take advantage of offers such as a three for the price of two
promotion through normal retailing channels in that State due to the
existence of a national unfair competition law may contact a website in
Member State B and receive such an offer as the business established in
Member State B would not be subject to the restrictions of Member State A.
Also consumers will continue to enjoy a high level of protection as the
Directive does not affect the provisions of other legislation such as the
Distance Selling Directive, the Unfair Contract Terms Directive and the
Product Liability Directive which impose a standardised set of rules for
consumer protection throughout the EU.
Consumers will also retain their rights to sue suppliers for breach of
contract in the consumer's country of domicile under the provisions of the
Brussels Convention. Furthermore contracts concluded between suppliers and
consumers who are domiciled in different countries cannot be used to take
away the rights a consumer would enjoy in his country of domicile which are
protected under the terms of the Rome Convention.
The Directive allows Member States to derogate from its provisions on a
case by case basis to impose restrictions on e-commerce services supplied
from another Member State if necessary to protect the public interest on the
grounds of the protection of minors, sexual and racial discrimination,
public health or security and consumer protection. However such
restrictions would need to be proportionate to their stated objective.
Furthermore the Directive introduces the important caveat that such
restrictions can only be imposed after the Member State where the service
provider is established has been asked to take adequate measures to meet the
above public interest criteria and has failed to do so and the intention to
impose the restrictions has been notified in advance to the European
The Directive has been criticised both by consumer groups and by a number
of industry lawyers. In the author's view the criticism from all sides is
based on a misunderstanding of EU law in general and the Directive in
particular. The consumer group's view that the adoption of the Directive
will have a negative effect on present EU consumer protection legislation is
mistaken. The fact of the matter is that the Directive will actually
strengthen EU consumer protection law by requiring, inter alia, the
transparency of advertising and marketing communications and increased
co-operation between the regulators. Therefore the author finds it
surprising that consumer groups are taking such a negative view of the
Directive which has many benefits to consumers while at the same time
encouraging competition throughout the EU.
The position of some sectors of industry can only be understood in the
light of the fundamental misunderstanding by many lawyers when it comes to
setting the Directive in the context of the general body of EU law. For
example papers received by the Commission from some UK industry lobbying
groups contained the assertion that commercial communications (advertising,
direct marketing etc) to consumers would not be covered by the Directive
because Article 59 of the EU Treaty requires services to be provided for
remuneration and consumers did not pay to receive advertising. This
position was taken despite the fact that the Directive contains several
articles covering on-line commercial communications and in ignorance of the
case law of the European Court of Justice which establishes the principle
that a service is provided for remuneration if it is paid for by the
advertiser or direct marketer.
The E-commerce Directive is a step forward in the development of an
EU-wide internal market for the provision of on-line goods and services.
However, there are some notable omissions from the Directive which need to
be addressed. These omissions generally highlight areas where the internal
market does not work efficiently, either on or off line (eg allowing
national protectionist measures to be enforced under the smokescreen of
consumer protection or public policy). It should also be mentioned that
there is currently a major threat to the principle of country of origin
contained in the Directive caused by the revisions to the Brussels
Convention which seems to provide (certainly in respect of consumers) that
contracts for the supply of goods and services will be governed by the laws
of the country of destination. It will be interesting to see how the EU
manages to reconcile the two conflicting principles contained in the
Brussels Convention and the Directive.