What You Don't Know Can Hurt You

FRAMINGHAM (08/15/2000) - The good news is that on the Internet, everyone has equal shelf space. Right? The U.S. Government Working Group on Electronic Commerce waxed rhapsodic about this in its November 1998 annual report: "In this emerging digital marketplace, anyone with a good idea and a little software can set up shop and become the corner store for the entire planet."

That's not too hard to believe, either. One of my friends, who is a sailing nut, recently needed a part for his boat's diesel engine--it was made in Japan and he lives in Seattle. So he searched the Internet and found a lone individual who specializes in such parts--in Australia.

I share this anecdote to demonstrate all that is good and powerful about the Internet and to highlight its great promise: untold access for customers and sellers alike. But can the promise be kept? Increasingly, the reality for most businesses is a flurry of regulation by numerous countries and states with no guiding principle of uniformity. A global corporation might be able to hire enough lawyers to deal with nonuniform legal rules, but not the corner store.

Does the proverbial corner store really have a future in national and global commerce?

THE PRIVACY PREDICAMENT

We could blame it all on the European Union (EU). It did start it, after all, with the EU data protection directive. Data protection is good. But too much protection is bad, particularly in the United States, where First Amendment principles regarding the free flow of information make sweeping regulatory pronouncements problematic. For example, the EU directive counts as private information almost everything that personally identifies an individual. Such things may be personal, but are they really private? In contrast, consider the 1994 U.S. Driver's Privacy Protection Act. It regulated the dissemination and use of "personal information" contained in state motor vehicle records. Sounds logical, and it even sounds like the EU and the United States are headed in the same direction. Oops, what about the U.S. Constitution? In Condon v. Reno [Janet Reno, Attorney General, et al., v. Charlie Condon, Attorney General of South Carolina, et al, 98-1464], the court discussed whether there is a constitutional right of privacy in personal information. Noting that the right to privacy in the nondisclosure of some forms of personal information is at best "murky," the court nevertheless concluded that such a right did exist in its jurisdiction. However, even assuming a right of nondisclosure, it was not violated for several interesting reasons. Among them was the fact that the sweeping prohibition on disclosure of identifying information was too open-ended and included information that was otherwise freely available (and not constitutionally protected) in public records. Also "medical or disability information" could be personal information entitled to protection, but not as a sweeping matter: "For example," the court wrote, "the fact that an individual wears eyeglasses is not an intimate personal matter since it is obvious to anyone who sees that individual." In the end, the circuit court's analysis didn't matter because the Driver's Act was later upheld by the U.S. Supreme Court. To the contrary, the court viewed the personal data as an "article of commerce" that was "owned" by the states who historically have sold it for significant revenue.

Measured under a privacy analysis, how logical are the EU rules for the United States? Moreover, what U.S. business-person or lawyer would predict that the fact that someone wears glasses is so private that the law needs to protect that information?

MY GUARANTEE, YOUR GIMMICK

The point here is that privacy, like most other legal topics, is a complex area, and sweeping approaches by one jurisdiction will not necessarily work in another.

For example, The Wall Street Journal reported late last year that the Dodgeville, Wis., mail-order retailer Lands' End was "running afoul of a German law banning marketing gimmicks such as an unconditional lifetime guarantee, which happens to be one of Lands' End's guiding principles...." Most U.S. lawyers would raise their eyebrows at the word "gimmick" in this description.

Here a lifetime guarantee is not a gimmick. It's a serious liability that few companies will undertake. But apparently in Germany, it is a gimmick. There may be logical reasons for this, but viewing a lifetime guarantee as an illegal gimmick simply would not occur to most U.S. attorneys.

It seems almost absurd to us. But did the German consumer rise up and say, "Hey, we like broader access to goods and can live with some oddities when we are dealing with foreign companies?" No. Again, according to The Wall Street Journal, a spokesman for a German consumer group says, "Lands' End had better play by the rules. 'As long as the law is there,' he says, 'they have to abide by it.'" New EU efforts at consumer protection don't seem to be approaching any kind of unification. Online vendors could potentially have to comply with 15 sets of idiosyncratic national rules, such as France's demand that all contracts be in French even if none of the parties is in France.

SEEKING HARMONY

If these jumbled practices hold, say goodbye to the Internet's promise of giving everyone an equal chance to participate in the global market. In reality, those who can afford lots of lawyers to survey the consumer or other laws of myriad countries (or states) can compete--everyone else better think twice.

How do we get countries and states in the United States to look at the Internet and global commerce with new eyes, and examine their old laws--including consumer laws--with those new eyes? How many of the old laws really need to be repeated and individualized in national or global commerce and which ones might businesses and their customers handle on their own? After all, if my friend can buy his engine parts from an Australian outlet, why does he need a local outlet? He doesn't. And once that sinks in, competition to entice him back should increase.

The common response that there are bad people in the world and that fraud can occur on the Internet is invalid. That is a given. Laws will not stop the really bad people: In most cases, they conduct their schemes and are gone before the law can catch up. In the meantime, those who would like to comply are left to deal with legal regimes created for the really bad guys. Laws should be such that compliance can be attained through reasonable, not Herculean effort.

Debates over the level of needed regulation have raged for years. The challenge is to engage those debates again while considering the promise and realities of global commerce and the need to make it feasible for all sizes of companies. It might just work.

Holly Towle is a partner in the technology and intellectual property practice of Preston Gates & Ellis in Seattle, where she regularly advises clients on the impact international technology and intellectual property laws have on U.S. companies. She can be reached at hollyt@prestongates.com.

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