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For centuries, we’ve relied on geographic boundaries to define the reach of laws and courts. But in cyberspace, there are no borders and no settled jurisdictions. Perhaps no company better understands this dilemma than Yahoo Inc. Last year, Yahoo was sued in a French court for allowing Nazi paraphernalia to be sold through its U.S. Web site. That site, like most others, can be accessed anywhere in the world. The lawsuit which had resulted in a pro-plaintiff ruling, should have sent a shiver through boardrooms across America. Forget about Nazi memorabilia. How many U.S.-based Web sites have started doing business “in” France, or South Africa or Singapore, without ever considering where or how the inevitable disputes might be settled? The reality is that the Internet has opened up a world of opportunity and a world of risk. Businesses and consumers can enjoy the benefits of global electronic communications and transactions, but they must also be prepared for the uncertainty of a new (and mostly unformed) legal infrastructure. Online disputes between parties in different sovereign jurisdictions will become increasingly common, and courts in those competing sovereigns will have to determine whose law extends to the disputed conduct. The questions of whose law applies and where business entities may be hauled into court are serious considerations for any company engaging in Internet activities. Last summer, a report by an American Bar Association team of international lawyers, led by the Cyberspace Law Committee, pushed for more concerted attention to these issues. The matter has also been discussed by the European Union, where new rules governing jurisdiction have recently been passed. The real problem is that no one country or confederation can mandate global certainty regarding the allocation of Internet jurisdiction. If individuals in Country A disagree with actions taken by or through a Web site based in Country B, and the laws of Countries A and B differ in their treatment of said actions, the seeds of a complex jurisdictional dispute are sown. Such is the case confronting Yahoo. YAHOO! EN GARDE In a French court in April 2000, two French groups, the Union of French Law Students and the International League Against Racism and Anti-Semitism, filed suit against Yahoo for hosting auctions that sold such Nazi paraphernalia as medallions, flags, and swords. The memorabilia auctions could not be accessed through Yahoo France’s French-language site, Yahoo.fr, but only through the English-language site, Yahoo.com. Nevertheless, the two groups alleged that Yahoo was violating a French law that makes it illegal to sell or exhibit anything that incites racism. In its defense, Yahoo argued that the French court did not have jurisdiction over the California company. But the court disagreed. In May, Yahoo was ordered to pay fines to the two groups and block access to the Nazi memorabilia auctions. Yahoo appealed. In November, after reviewing the opinions of three experts empanelled to consider Yahoo’s argument that complete screening of French visitors from Yahoo.com was impossible, the French court rejected Yahoo’s appeal. It instructed the company to institute a filtering system that would block 90 percent of French Web users or face severe, daily monetary fines. (Yahoo has since changed its guidelines to prohibit the auction of Nazi items not only in France, but throughout the world.) In December, perhaps in anticipation of the attempted execution of the judgment in the United States, the company filed a complaint in U.S. District Court in California seeking a declaratory judgment that the French court lacks jurisdiction over the American site. The case is pending as of this writing. In the meantime, German prosecutors contemplated action against Yahoo Deutschland over the sale of Mein Kampf, Adolf Hitler’s notorious manifesto, but then decided not to take legal action in March 2001. However, if the suit had proceeded, a German court, inspired by the French example, could have gone after U.S. Yahoo sites that supply the unedited version of Mein Kampf to German citizens. In short, the jurisdictional issues for those engaged in e-commerce do not end with one French judge. A BEGINNING IN BRUSSELS Of course, cross-border disputes involving U.S. and European parties are not new. But the Internet makes doing business outside one’s domestic market substantially easier. That means more sellers, including companies with little international expertise, and more buyers, including individual consumers, are doing business across borders. The Internet also makes it more difficult to cabin off activities in one country under one legal regime from activities in another country under another legal regime. The European trade community has been working on the cross-border problem for years. The Brussels Convention, in place since 1968, proclaims that courts in one European Union country must recognize and enforce civil and commercial decisions handed down by courts in other EU countries. Almost a decade ago, when the Internet boom was in its early stages, the international Hague Conference on Private International Law proposed to create a Convention on Jurisdiction and the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters. In 1999, a preliminary draft of this convention was released that included a proposal for establishing jurisdictional rules to govern international cases. The United States expressed reservations, specifically taking issue with the provisions giving consumers the right to sue in their country of residence regardless of contractual agreements. This draft convention has not been finalized. More recently, the European Union has attempted to address some of the jurisdictional quandaries specifically posed by the Internet. In November 2000, the EU Council approved new rules under the Brussels Convention that guarantee consumers greater protections when making transactions online. The so-called Brussels I rules give the consumer the right to sue entities from other EU member states that sell products in the consumer’s own EU member state. The rules say that if an entity pursues commercial or professional activities in a consumer’s state, or “by any means directs such activities to that Member State or to several states including that Member State,” then the consumer has the right to sue the entity in his or her own state. The key to these rules is the phrase “by any means directs such activities.” It is unclear what level of Internet activity an entity can engage in before it will be considered to be “by any means” directing activity across a border. Brussels I supporters say that the new rules are necessary to increase consumer confidence in e-commerce. Critics respond that the new rules, if anything, increase uncertainty and may subject businesses that sell products online to multiple jurisdictions. (There are 15 EU member states.) The risk is that an entity with a Web site on which transactions can be initiated will be viewed as directing its activities to every member state irrespective of the language of the site or the lack of any specific invitation to consumers in a particular country. This potential exposure may force companies to confine their online trading to one national market, thus undermining the open-market advantages of the Internet. The phrase “by any means directs such activities” is not defined in the Brussels I regulations. A statement from the EU Council and Commission suggests that the mere fact that a Web site is accessible is not sufficient for Brussels I to apply. However, this statement does not have the force of law. And if supporters and critics of Brussels I agree on one thing, it is their uncertainty as to how the courts will define the standard. In addition to its own lack of internal clarity, Brussels I may also contravene other efforts to establish jurisdiction rules for the Internet both within Europe and around the world. To begin with, the European Parliament in May 2000 passed an E-Commerce Directive supporting a “country of origin” approach to cross-border disputes. In other words, a company selling goods or services online across borders should generally be regulated by the EU state where the company is established. The E-Commerce Directive has yet to be approved by each country within the EU. However, in light of the Brussels I rules, which are now EU law, it’s likely that the directive will not be approved and instead will be thrown back to the European Commission for rewriting. It’s also uncertain how Brussels I will interact with the EU’s Long Distance Selling Directive. This directive, passed in 1997, gives consumers a limited opportunity to withdraw for any reason from any contract agreed to online. The directive provides that after a consumer enters an electronic contract with an Internet vendor, the vendor is required to send the consumer a written confirmation of the contract. After receiving the written confirmation, the consumer has a minimum of seven days within which to withdraw from the contract. The Long Distance Selling Directive further establishes that consumers cannot lose this protection through a “choice of law” provision in the contract. Any provision mandating that disputes be handled according to the laws of a non-EU member state will be disregarded, so long as the vendor has a close connection with the territory of at least one member state. Finally, there is the proposed Hague Convention on Jurisdiction. This convention provides that a court in a consumer’s home country should have jurisdiction only when a Web site is specifically targeted to that country. In contrast, Brussels I suggests that a court in a consumer’s home country may have jurisdiction if a merchant “by any means” directs activities to that country or to several countries including that country. How these two approaches will be reconciled remains to be seen. Furthermore, the Hague Convention would be an international treaty on Jurisdiction, one that would necessarily encompass cross-border disputes involving American, Asian, and African parties as well as European parties. Yet the success of such a treaty may be inhibited by the fact that Brussels I apparently pre-empts coverage of EU online disputes. And because the EU has stated that it will adopt the Brussels I rules as its official position in future Hague Conference meetings, any global treaty may be difficult to achieve. BORN IN THE U.S.A. Like their European counterparts, Americans too have been grappling with the significant impact that jurisdictional issues have on the future of e-commerce. In July 2000, six sections of the American Bar Association completed an extensive two-year examination of global jurisdiction and the Internet. The resulting report, “Achieving Legal and Business Order in Cyberspace: Jurisdictional Issues Created by the Internet,” points out that the increasing novelty, complexity, and cost of jurisdictional questions are a serious impediment to the growth of e-commerce. See TheBusiness Lawyer, 55 Bus. Law. 80 et. seq. (August 2000); www. abanet.org/buslaw/cyber/initiatives/draft.rtf. The draft report concludes that no one state or nation can individually bring certainty to the jurisdiction area. Therefore, the report advocates the creation of a multinational Global Online Standards Commission. Working in conjunction with other international bodies considering similar issues, the Global Online Standards Commission would develop uniform jurisdictional principles and protocol standards by a specific date. The report recommends caution in imposing jurisdictional oversight or protections that could have negative extraterritorial implications in cyberspace. To sum up, appropriate authorities are aware of the need for clearer and more predictable jurisdictional rules to handle international Internet disputes. However, the actual rules are still a work in progress. In the meantime, companies must focus on the fact that a Web site can be seen anywhere there is a computer. They should be aware that, while U.S. courts will generally not assert jurisdiction over businesses online unless the business purposely directs its conduct at a specific market on a continuous and systematic basis, the rules in the rest of the world may not be as favorable. The Internet is bringing us all closer together. Even as it provides many exciting opportunities for growth, it also presents challenges and risks for those who choose to enter cyberspace. So remember Yahoo, and be careful out there. Thomas Vartanian chaired the ABA Jurisdiction Project that conducted the jurisdiction study and drafted the report discussed in this article.

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