The Legal Pains of E-Commerce

SINGAPORE (07/17/2000) - It's not news that many Singapore companies are jumping onto the Internet bandwagon to stake out new investment opportunities, as well as to tap a wider international customer base.

The concern is that the Internet offers up a legal minefield. And there are companies that are navigating the "digital frontier" with their eyes half shut, and making little attempt to seek professional help. This is according to at least one member of the legal profession.

"Not all companies understand the legal issues surrounding e-commerce. Some do, but can't afford the legal fees, while others just don't see a need for it.

There are so many uncertainties and novel situations on the Net that can put a company's business at peril," said Toh See Kiat, partner at Tan Peng Chin & Partner.

Keeping up-to-date with the law, as technologies advance and change, would serve as a precautionary measure against legal "time bombs" from exploding under their feet, he added. Paul Fitzgerald, partner at Arthur Loke & Co, agreed with Toh's last point.

He, however, believes companies generally do have a good grasp of the basic legal issues in e-commerce.

"It's only with the more complex issues that arise, such as inter-jurisdictional conflicts of law, where their understanding is poor," Fitzgerald said.

The problem isn't that the regulatory framework hasn't been fully defined, he said, but rather the provisions have yet to be tested in the court of law. And this is hardly surprising since technologies tended to evolve faster than the speed in which regulators can respond.

Indeed, the legal issues relating to e-commerce venture are multifarious. These issues range from contract formation practices and requirements (which includes jurisdiction and conflicts of laws) to consumer protection (such as privacy and local language requirements) and protection of databases and content on Web sites.

But the biggest worry among companies here are cyberspace contracts, said Fitzgerald.

"The most pressing issues that affect any e-commerce venture relate to minimizing potential liability and ensuring the enforceability of electronic contracts," he added.

Limited liability Regardless of the e-commerce space companies are in, care must be taken to ensure that business exposure to risk and liabilities are limited. And there are several key elements that have to be considered -- this was the view shared by both Fitzgerald and Toh.

First, focus on authentication and security.

Companies need to ensure that documents can be authenticated as having come from a certain source. Certification procedures, such as the use of digital signatures, are equally critical and have to be put in place by all contracting parties before the commencement of the business, said Fitzgerald.

Second, extreme care has to be taken in structuring electronic contracts.

Companies need to ensure that the contracts are made on their terms. Terms of the contracts must be made clear so that the other parties are fully aware of their rights and liabilities.

"You want to be able to share both the legal and business risks with your partners -- be it business, technology, content or service providers," Toh said.

Third, know the laws or dictates of the countries to avoid infractions.

"You need to know what your rights are and what laws impact on your business.

For example, is it illegal to sell games of chance? What are the copyright laws and how do I deal with the intellectual property owners of content on my site," Toh said.

In matters of e-commerce disputes, where transactions are involved, the key point is to ensure that the effective choice of law is made, said Fitzgerald.

"If an ineffective choice of law is made, then there may well be uncertainty over what law applies and what the effect will be," he said.

This is the fundamental issue in cross-order trade.

"The Internet is borderless, but laws are territorial," said Wilson Wong, partner, IT & Licensing Group, Allen & Gledhill.

Each state has its own set of laws in relation to a particular act or transaction, and even its own set of rules as to when it will take jurisdiction over a cross border transaction, Wong explained.

"And because it's impossible to apply e-commerce transactions, this results in uncertainty and chaos with the different rules for different states. What is needed is a global treaty setting uniform standards for all states," he said.

Another potential problem area that has gotten much attention is privacy. The question is: to what extent can companies make use of their consumers' details for profiling purposes in order to provide personalized services?

There is currently no privacy legislation in Singapore, said Wong.

"Common law imposes an obligation of confidentially over any information which the recipient was informed was confidential or which was imparted in circumstances suggesting an obligation of confidence," he said.

"In Singapore, a misuse of personal information in the sense of a breach of a person's privacy does not give rise to any civil liability," Fitzgerald admitted. Compensation or remedies are available only if the laws governed by the Computer Misuse Act have been violated.

The Computer Misuse Act of Singapore deals specifically with only unauthorized intrusion or interference in computers, and does not protect against violations of privacy. Not all countries have introduced privacy laws, as some are more concerned with the protection of individual data.

Toh, on the other hand, offers an interesting view on the privacy issue.

"In much of Asia, the concept of private personal space is absent," he said.

"Privacy ‘violations' themselves become the much hyped bogeyman of the Net. Web companies collect data on their customers. But so have the physical world of traditional companies for decades!"

The extent of which data is collected by companies would depend the amount of information made available to them in the first place.

"If you'd unquestioningly filled in three pages of forms to get your supermarket discount card, why are you now worrying about breach of privacy on the Net?" he said.

Although the legal evolution appears to be somewhat lagging, Singapore legislators have taken great pains and have made progress in establishing the Electronic Transactions Act, and Computer Misuse Act to provide necessary framework for e-commerce.

It is still early days, yet, however. Whether the pace of legislation will ever keep up with changes in the New Economy remains to be seen.

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