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Few Internet law issues create a greater challenge than Internet jurisdiction, which raises the fundamental question of whose law applies to activity that takes place online. While some experts initially hoped that the Internet might breed a new era of global legal harmonization, a closer examination reveals that legal differences are cropping up everywhere as countries become more assertive in ensuring that their Internet legal framework is consistent with national policy priorities. For businesses operating online, the resulting melting pot of legal rules presents some tough challenges. Internet jurisdiction has always been identified as one of the Internet’s most challenging issues and in recent years that challenge has intensified by virtue of competing and potentially conflicting regulations. A recent study reveals that businesses, particularly those located in Canada and the United States, are increasingly responding to Internet jurisdiction risk. In 2003, the American Bar Association joined forces with the International Chamber of Commerce, a global leader on Internet jurisdiction policy, and the Internet Law and Policy Forum, a global consortium of technology companies, in crafting a detailed survey to examine the practical effects of Internet jurisdiction risks on companies worldwide (I served as the co-chair of the survey project). The survey was translated into seven languages and distributed in 45 countries to hundreds of companies. The survey distribution was designed to encompass small, medium and multinational companies and cut across all business sectors including media companies, IT and financial service companies, and retailers. The 277 responses suggested that there is considerable concern over the challenges presented by Internet jurisdiction, though a divide is emerging on the issue between North America on one side and Europe and Asia on the other. By a ratio of six to one, North American companies said that the Internet jurisdiction issue has become worse over the past two years and four of every five companies said they feel that matters will worsen by 2005. In contrast, responding Asian and European companies thought that the risk associated with the issue has improved since 2001 and will improve further by 2005. Survey respondents left little doubt that the Internet was responsible for the problem as a majority of companies thought jurisdictional issues are an increasing problem attribute their concern to the emergence of the Internet and e-commerce. While compliance challenges such as competing copyright or privacy laws capture much of the attention, when companies were asked which jurisdictional issues posed the greatest concern, first on the list was actually litigation risk. This suggests that the risk of getting hauled into court is the biggest fear of companies operating online, exceeding concerns associated with conflicting legal frameworks. Other notable concerns included industrial and consumer regulations, e-commerce regulation, taxation and privacy. Consistent with leading cases such as the Yahoo! France case, in which the Internet portal was sued in France for content available on its site, and the Australian Gutnick case, in which Dow Jones was sued in Australia for one of its articles that appeared in Barron’s magazine, it is the media sector that was clearly the most affected by Internet jurisdiction. For example, more than half of media company respondents indicated that they have adjusted their business operations in response to Internet jurisdiction risk. The survey also revealed that some companies, particularly those situated in North America, now seek to influence jurisdictional outcomes by using both technological and legal approaches to mitigate risk. The most common methods to achieve this include the insertion of legal terms on Web sites, the use of a local server, the use of a national (country-code) top domain name, or the posting of local content. North American companies are also more likely to attempt to identify the geographic location of their users or refrain from interacting with people in certain jurisdictions. Sixty-nine percent of North American respondents indicated that they employed techniques to identify user location, compared with 41 percent of Asian companies and 29 percent of European companies. Not surprisingly, North American respondents see litigation as the leading concern related to Internet jurisdiction. Companies are increasingly refraining from interacting with certain “higher risk” jurisdictions citing fears of liability in the target jurisdiction, liability in the home jurisdiction, and user fraud as the primary reasons for doing so. They attempt to achieve this by employing technical measures to block access to their site or by establishing registration requirements. The use of geo-locational technologies, which purport to identify the location of Internet users, is still relatively rare. Although the survey provides a good snapshot of evolving Internet jurisdictional practice in the developed world, it is noteworthy that attempts to obtain information from companies in the developing world were largely unsuccessful. Respondents in developing countries, particularly in Latin America, experienced significant difficulty in completing the survey as many organizational representatives candidly admitted that they were unfamiliar with Internet jurisdiction risks and with their organization’s approach to the issues. As the roller coaster ride of Internet law rules continues, it is becoming increasingly apparent that business approaches to the Internet is also changing. This new survey suggests that businesses are starting to proactively respond to Internet jurisdiction risk by adapting their approach to e-commerce. If the dust ever settles, the online businesses of tomorrow may be quite different from what exists today. To subscribe to the Internet & Law Strategy newsletter, click here.

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