SPEAKERS CONTENTS INSERTS
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INTERNET AND FEDERAL COURTS: ISSUES AND OBSTACLES
COURTS AND INTELLECTUAL PROPERTY
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
JUNE 29, 2000
Serial No. 106
Printed for the use of the Committee on the Judiciary
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For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR S. SMITH, Texas
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
LINDSEY O. GRAHAM, South Carolina
MARY BONO, California
SPENCER BACHUS, Alabama
JOE SCARBOROUGH, Florida
Page 3 PREV PAGE TOP OF DOCDAVID VITTER, Louisiana
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
THOMAS E. MOONEY, SR., General Counsel-Chief of Staff
JULIAN EPSTEIN, Minority Chief Counsel and Staff Director
Subcommittee on Courts and Intellectual Property
HOWARD COBLE, North Carolina, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
Page 4 PREV PAGE TOP OF DOCELTON GALLEGLY, California
BOB GOODLATTE, Virginia
WILLIAM L. JENKINS, Tennessee
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
MARY BONO, California
HOWARD L. BERMAN, California
JOHN CONYERS, Jr., Michigan
RICK BOUCHER, Virginia
ZOE LOFGREN, California
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
BLAINE MERRITT, Chief Counsel
VINCE GARLOCK, Counsel
DEBBIE K. LAMAN, Counsel
ALEC FRENCH, Minority Counsel
EUNICE GOLDRING, Staff Assistant
C O N T E N T S
June 29, 2000
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Coble, Hon. Howard, a Representative in Congress From the State of North Carolina, and chairman, Subcommittee on Courts and Intellectual Property
Burk, Dan L., professor, University of Minnesota
Holleyman, II, Robert W., president, Business Software Alliance
Kovar, Jeffery P., assistant legal advisor for private international law, Department of State
Pearl, Marc A., senior vice president, Government Affairs and General Counsel Information Technology Association of America (ITAA)
Perritt, Henry H., Jr., dean, vice president for Downtown Campus, and professor of law, Chicago-Kent College of Law, Illinois Institute of Technology
Pincus, Andrew, general counsel, United States Department of Commerce
Thurmon, Mark A., assistant professor of law, University of Florida on
behalf of American Intellectual Property Law Association (AIPLA)
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Vartanian, Thomas P., managing partner, Fried, Frank, Harris, Shriver & Jacobson on behalf of American Bar Association
Veta, D., Jean, Deputy Associate Attorney General, Department of Justice
Zittrain, Jonathan, executive director, Berkman Center for Internet & Society Harvard Law School
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Berman, Hon. Howard L., a Representative in Congress From the State of California: Prepared statement
Burk, Dan L., professor, University of Minnesota: Prepared statement
Coble, Hon. Howard, a Representative in Congress From the State of North Carolina: Prepared statement
Conyers, Hon. John, Jr., a Representative in Congress From the State of Michigan: Prepared statement
Holleyman, II, Robert W., president, Business Software Alliance: Prepared statement
Page 7 PREV PAGE TOP OF DOC Kovar, Jeffery P., assistant legal advisor for private international law, Department of State: Prepared statement
Pearl, Marc A., senior vice president, Government Affairs and General Counsel Information Technology Association of America (ITAA): Prepared statement
Perritt, Henry H., Jr., dean, vice president for Downtown Campus, and professor of law, Chicago-Kent College of Law, Illinois Institute of Technology: Prepared statement
Pincus, Andrew, general counsel, United States Department of Commerce: Prepared statement
Thurmon, Mark A., assistant professor of law, University of Florida on
behalf of American Intellectual Property Law Association (AIPLA): Prepared statement
Vartanian, Thomas P., managing partner, Fried, Frank, Harris, Shriver & Jacobson on behalf of American Bar Association: Prepared statement
Veta, D., Jean, Deputy Associate Attorney General, Department of Justice: Prepared statement
Zittrain, Jonathan, executive director, Berkman Center for Internet & Society Harvard Law School: Prepared statement
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Material submitted for the record
INTERNET AND FEDERAL COURTS: ISSUES AND OBSTACLE
THRUSDAY, JUNE 29, 2000
House of Representatives,
Subcommittee on Courts and
Committee on the Judiciary,
The subcommittee met, pursuant to call, at 10 a.m., in Room 2141, Rayburn House Office Building, Hon. Howard Coble [chairman of the subcommittee] presiding.
Present: Representatives Howard Coble, Elton Gallegly, Bob Goodlatte, Edward A. Pease, James E. Rogan, Howard L. Berman, John Conyers, Jr., and Zoe Lofgren.
Staff present: Blaine Merritt, chief counsel; Vince Garlock, counsel; Chris Katopis, counsel; Eunice Goldring, staff assistant; Alec French, minority counsel; and Sam Garg, minority counsel.
OPENING STATEMENT OF CHAIRMAN COBLE
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Mr. COBLE. Good morning, ladies and gentlemen. The subcommittee will come to order. Today the subcommittee will conduct an oversight hearing on the Internet and Federal courts: Issues and Obstacles. Imagine for the moment that you are the owner of a small business in Thomasville, North Carolina, which happens to be in my district, and you sell end tables and chairs. That is the chair capital of the world, by the way. You want to maximize your business opportunities, so you begin offering your wares over the Internet. All of a sudden, you find yourself being sued in several States and a few foreign countries. The question in your mind is, to what did I expose myself by putting up a Web site?
This hearing will examine the impact of the Internet on key issues of civil procedure and the Federal courts, such as personal jurisdiction, conflict of laws, venue, and judgment enforcement, both on the domestic and international law fronts. The example of my furniture seller illustrates the issues before the subcommittee today. Where can a person be sued? Which law applies? Can and will a foreign court enforce the judgment of a United States court abroad?
Over the years, as means of travel and communications improved, so did the need of courts and Congress to refine the rules for determining its authority in a particular case. As more and more commerce is transacted over the Internet, these basic procedural clashes are becoming more pronounced.
Is the current legal framework used by our courts workable in cyberspace? We will examine whether or not the current law for procedural issues such as jurisdiction, choice of law and enforcement of judgment can provide for the smooth enforcement of law in today's Internet environment or whether the Congress needs to act to ensure basic constitutional protections. We will also examine the implications that international agreements or treaties may have on the United States courts.
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With no legislation directly pending before us, it is a good time for us to consider what is the appropriate congressional role, if any, in shaping these tremendously important issues. At one end of the spectrum, some will argue that the Internet should be free to develop its own set of rules and guidelines. At the spectrum's opposite end, others contend that the Internet cannot reach its full potential as a means of commerce without certainty and that Congress is duty-bound to protect American interests and our national sovereignty.
Long ago when I was in law school, I must confess that I didn't find civil procedure to be the most thrilling experience of the day. But in retrospect, I regret that I was not more attentive. It might make the job a little easier today. But now with the many issues challenging the Federal courts concerning cyberspace, I must admit that this should be a rather interesting discussion. As the deployment of the new technologies make international commerce more commonplace, we see an explosion of business transactions taking place over the Internet. With these evolutions in technology, the law must evolve as well to protect American citizens, business interests, and judicial integrity. I look forward to the witnesses today illuminating this subcommittee on this rather important topic.
Before I recognize the ranking member from California, I must give most of the credit to him because it was Howard Berman's idea that this hearing be conducted. With that in mind, I am pleased to recognize the gentleman from California.
[The prepared statement of Mr. Coble follows:]
PREPARED STATEMENT OF HON. HOWARD COBLE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH CAROLINA
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Good morning. The Subcommittee will come to order.
Today the Subcommittee will conduct an oversight hearing on ''The Internet and Federal Courts: Issues and Obstacles.'' Imagine that you are the owner of a small business in Thomasville, North Carolina, and you sell end tables and chairs. You want to maximize your business opportunities so you begin offering your wares over the Internet. All of a sudden, you find yourself being sued in several states and a few foreign countries. The question in your mind is, ''What did I open myself up to by putting up a web site?''
This hearing will examine the impact of the Internet on key issues of civil procedure and the federal courts, such as personal jurisdiction, conflict of laws, venue, and judgment enforcement, both on domestic and international law fronts. The example of my furniture seller illustrates the issues before the Subcommittee today. Where can a person be sued? Which law applies? Can and will a foreign court enforce the judgement of a United States' court abroad?
Over the years, as means of travel and communications improved, so did the need of courts and Congress to refine the rules for determining its authority in a particular case. As more and more commerce is transacted over the Internet, these basic procedural clashes are becoming more pronounced.
Is the current legal framework used by our courts workable in cyberspace? We will examine whether or not the current law for procedural issues such as jurisdiction, choice of law, and enforcement of judgement can provide for the smooth enforcement of law in today's Internet environment, or whether the Congress needs to act to ensure basic Constitutional protections. We will also examine the implications that international agreements or treaties may have on the United States courts.
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With no legislation directly pending before us, it is a good time for us to consider what is the appropriate Congressional role, if any, in shaping these tremendously important issues. At one end of the spectrum, some will argue that the Internet should be free to develop its own set of rules and guidelines. At the spectrum's opposite end, others say that the Internet cannot reach its full potential as a means of commerce without certainty and that Congress' is duty-bound to protect American interests and our national sovereignty.
When I was in law school, I must confess I did not find Civil Procedure class to be the most thrilling experience. But now, with the many issues challenging the federal courts concerning cyberspace, I must admit this should be a rather interesting discussion. As the deployment of new technologies make international commerce more commonplace, we see an explosion of business transactions taking place over the Internet. With these evolutions in technology, the law must evolve as well to protect American citizens, business interests, and judicial integrity. I look forward to the witnesses today illuminating this Subcommittee on this rather important topic.
The Chair recognizes the Gentleman for California, Mr. Berman
Mr. BERMAN. Thank you, Mr. Chairman. I see the first line of my opening statement has me congratulating you for holding this hearing and remarking how forward-looking you are on Internet policy issues. Probably in the context of what you just said, I will omit that comment. Anyway, it isyou didn't find civil procedure too thrilling; I can't even remember civil procedure, not to mention conflicts of laws.
Page 13 PREV PAGE TOP OF DOC But the fact is this territory that we are going to explore today does present some of the greatest legal challenges created by the Internet. The challenges are not new. But because of the Internet, the questions of court jurisdiction and choice of law in both the international and the State context have heightened importance. As long as there have been governments and legal institutions we have been grappling with these same essential questions.
When someone living in California is harmed by the acts of a company located in North Carolina, and the harm occurred in a third State, to which State court does the plaintiff go for redress and which State's law applies? The same issues arise in international transactions. In the U.S. we have relied for the most part on case-by-case analysis of the facts and several general rulings have developed. As much as U.S. law leaves room for uncertainty, in the international context the rules are even less clear. With the dramatic increase in interstate consumer transactions and international business transactions of all kinds over the Internet, there is a heightened need to address these issues.
The Internet has become a catalyst to finding solutions long sought but not always aggressively pursued. I am concerned for the consumer who has to figure out what court has jurisdiction and what law applies where the consumer is injured in California by a hair dryer manufactured in one foreign country and ordered over the Internet from another foreign country. I know the issues are not new, but the confusing circumstances are now becoming a regular part of many consumers' reality.
One of my greatest concerns is in the area of intellectual property. I very much believe that the information is really the age of intellectual property and the Internet is only as valuable a resource as the intellectual property that it contains. I am interested in seeing how best we can ensure a safe legal environment for this critical element of the Internet.
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We need to find anotherwe need to find ways to facilitate redress for the wrongs that may be perpetrated using this new medium. Whether consumer protection, intellectual property infringement, or other tort or contract matters, we need to ensure a stable legal environment for the Internet.
The views that we are going to hear today, Mr. Chairman, are very divergent and I look forward to the testimony. I thank you again for holding the hearing.
[The information referred to follows:]
PREPARED STATEMENT OF HON. HOWARD L. BERMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
I want to thank the Chairman for holding this hearing. It shows once again how forward-looking he is on Internet policy issues.
The territory we are about to explore presents some of the greatest legal challenges created by the Internet. Actually, the challenges are not newbut because of the Internet, the questions of court jurisdiction and choice of law in both the interstate and international contexts have heightened import.
As long as there have been governments and legal institutions, we have been grappling with these same essential questions: When someone living in California is harmed by the acts of a company located in North Carolina, and the harm occurred in a third state, to which State's court does the plaintiff go for redress, and which State's law applies? The same issues arise in international transactions. In the U.S. we have relied, for the most part, on case-by-case analysis of the facts, and several general rules have developed. As much as U.S. law leaves room for uncertainty, in the international context, the rules are even less clear.
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With the dramatic increase in interstate consumer transactions and international business transactions of all kinds over the Internet there is a heightened need to address these issues. The Internet has become a catalyst to finding solutions long sought but not always aggressively pursued.
I am concerned for the consumer who has to figure out what court has jurisdiction, and what law applies where the consumer is injured in California by a hair dryer manufactured in one foreign country and ordered over the Internet from another foreign country. I know the issues are not new, but the confusing circumstances are now becoming a regular part of the many consumer's reality.
One of my greatest concerns is in the area of intellectual property. I have said this before, and I very much believe that the Information Age is really the Age of Intellectual Propertythe Internet is only as valuable a resource as the intellectual property that it containsand I am interested in seeing how best we can assure a safe legal environment for this critical element of the Internet.
We need to find ways to facilitate redress for the wrongs that may be perpetrated using this new medium. Whether consumer protection, intellectual property infringement or other tort or contract matterswe need to assure a stable legal environment for the Internet.
The views we will hear today are divergent and I look forward to the testimony.
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Thank you, Mr. Chairman.
Mr. COBLE. I thank the gentleman.
Our first government witness this morning in order of introduction is the Honorable Andrew Pincus who is General Counsel, the chief legal advisor for the Commerce Department. Mr. Pincus also serves as a Senior Policy Advisor to the Secretary and the Department on a broad range of domestic and international issues. Mr. Pincus holds a bachelor of arts degree from Yale College where he was graduated cum laude, and a law degree from the Columbia University School of Law.
Our next witness is D. Jean Veta who serves as Deputy Attorney General at the United States Department of Justice. As Deputy Associate Attorney General, Ms. Veta advises the Associate Attorney General of the leadership of the Department on a wide range of legal and policy issues, with particular issues on oversight and management of e-commerce and technology policy matters. A native of Cheyenne, Wyoming, Ms. Veta was graduated magna cum laude from Tulane Law School. Ms. Veta also graduated summa cum laude, Phi Beta Kappa, with honors in political science from Tulane University's Newcomb College.
Our final witness on this panel is the Honorable Jeffery D. Kovar, who is the Assistant Legal Advisor for Private International Law at the Department of State. He directs United States activities relating to the creation and implementation of new and uniform international rules of private law. A graduate of Williams College and the University of Michigan School of Law, Mr. Kovar began his legal career as a law clerk to the Honorable Hugh H. Bowness of the United States First Circuit Court of Appeals. We have written statements from each of the witnesses, which I ask unanimous consent to submit into the record in their entirety.
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Every witness who appears before our subcommittee, folks, is requested to limit the oral testimony to 5 minutes. When the red light appears, that is your signal and you will not be hauled away in shackles or in chains, but we do need to wrap it up because we have a seven-member panel that will follow you all.
I am not going to shoot the messengers, but if you folks would take back to your respective bosses the importance of our receiving these written statements in a timely fashion. We received two of your statements late last night, and the third statement was received yesterday morning. And, of course, this takes away the effectiveness of the statement as to the subcommittee. Because we were not able to submit the two that were received last night to members of the subcommittee, they have not even seen the statements yet. So if I can nudge somebody downtown, let me know who it is. I think we would all benefit from that if we could get these statements in a timely way.
I think with regard to the next panel, those statements, I think without exception, were received in a timely fashion. So if you all would do that for me, I would be appreciative.
Mr. COBLE. Ms. Veta, why don't we start with you?
STATEMENT OF D. JEAN VETA, DEPUTY ASSOCIATE ATTORNEY GENERAL, DEPARTMENT OF JUSTICE
Ms. VETA. Thank you, Mr. Chairman. I will certainly take back your message. We apologize for not getting the statements to you sooner, on behalf of the administration.
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On behalf of the Department of Justice, I want to thank you and the other members of the subcommittee for this opportunity to appear before you today and to share with you our thoughts on how the Internet is changing the way Federal and State courts handle civil litigation.
The issues we are exploring today are for the most part in their early stages of development. And I commend you, Mr. Chairman, and you, Mr. Berman, and the rest of the members of the subcommittee for your foresight in seeking to assess the current state of the law regarding jurisdiction and the Internet.
In addressing today's subject I will touch briefly on three separate issues. First, the types of jurisdictional issues that typically affect cyberactivity when the parties end up in a lawsuit. Second, what the parties can do to minimize potential jurisdictional disputes. And third, the substantive authority of regulatory agencies to regulate parties in cyberspace.
Here and in my written testimony, I also am limiting my comments in two additional respects. First I have focused on jurisdictional issues that affect civil as compared to criminal litigation. And second, this morning I will focus exclusively on domestic issues, leaving the discussion of international issues to my colleagues from State and Commerce.
A major theme I hope you will take away from our testimony today is that we believe the principles stated in our report on unlawful conduct on the Internet applies with equal force in the civil context; namely, online conduct should be treated the same as off-line conduct to the extent feasible. Additionally, we do not believe that it is necessary or appropriate to develop an entirely new body of Federal statutory law to address cyberjurisdiction issues. Rather, we believe that the courts are adequately developing these rules under applicable State and Federal law. And they should be allowed to continue.
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Let me turn now to my first topic; namely, the types of jurisdictional issues that arise in cyberlitigation. In my written testimony I have divided the topic of jurisdiction into four categories. First, and most commonly, jurisdiction refers to whether a court has the power to adjudicate claims against a litigant; namely, personal jurisdiction over the litigant. Second, jurisdiction may loosely refer to whether a court proceeding is being held in the proper location or venue. Third, the term jurisdiction has sometimes been used to refer to choice of law. That is, the decision of a court to apply one State's laws over another State's. Lastly, jurisdiction can refer to the statutory grant of regulatory authority to a State or Federal agency.
Although all four of these jurisdictional concepts raise important issues which are discussed in detail in my written testimony, I want to focus this morning on the concept of personal jurisdiction. One of the most vexing questions, as you have pointed out this morning when you were talking about litigation involving the Internet, is where can a plaintiff sue someone who is engaged in wrongful behavior in cyberspace?
As noted in my written statement, the Federal and State courts have generally applied the same personal jurisdiction doctrine to online activity that they apply in the physical world. Specifically, the courts look to see whether the defendant has minimum contacts with the forum State; that is, the State in which the defendant is being sued. And the courts also consider whether the State's exercise of personal jurisdiction is consistent with the Constitution's due process clause which provides that the assertion of jurisdiction must be consistent with traditional notions of fair play and substantial justice.
Page 20 PREV PAGE TOP OF DOC In applying this traditional doctrine to cyberactivities, courts have compared Internet phenomenaWeb pages, e-mail, the use of Internet equipment, and interactive online activityto real world phenomenanational print or broadcast advertisements, telemarketing, and the physical distribution of goods. To determine whether personal jurisdiction exists in the Internet context, courts are frequently asked to consider such things as whether the defendant engages in significant interactive activity over the Internet in the forum State, or whether the defendant targeted his activity toward the forum State, or whether the effects of the defendant's activity are sufficient to warrant jurisdiction in the forum State.
Similar approaches are being adopted in the areas of venue and choice of law. In each of these areas, the courts are busy grafting the uniqueness of the Internet onto the already existing framework set out by the Supreme Court's due process jurisprudence, and other applicable law. Although different courts may at different times reach different decisions in different cases, this phenomenon is not terribly different from what other courts do in other emerging new areas of law.
Turning to the second area of my testimony, I note that people transacting business on the Internet have the power to address jurisdictional issues. Many parties enter into contracts and include specific provisions regarding the State in which the lawsuit may be brought and the law that will apply should a dispute arise. While this approach may be especially well suited to business-to-business transactions, a note of caution must be added when considering these concepts in the consumer context. For example, a consumer may click on the button that says I agree, following a Web operator's extensive boilerplate, simply because the consumer intends to proceed further into the Web site. Under these circumstances it is entirely appropriate for the court to consider whether there has truly been a meeting of the minds.
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The third point has to do with an agency's substantive authority to regulate. Now, while this is not a jurisdictional issue of concern primarily to the Federal Government, because our jurisdiction extends throughout the United States, it can come up in issues affecting the States, because the scope of their authority will often be questioned when they consider whether their State laws will apply to conduct of a defendant who is beyond the State's borders.
Through this brief overview of the various jurisdictional issues involving the Internet, I hope we have aided you in thinking about the challenges that lie ahead. I thank you for the opportunity to testify today. And I will be happy to answer your questions.
Mr. COBLE. Thank you, Ms. Veta.
[The prepared statement of Ms. Veta follows:]
PREPARED STATEMENT OF D. JEAN VETA, DEPUTY ASSOCIATE ATTORNEY GENERAL, DEPARTMENT OF JUSTICE
Good morning, Mr. Chairman and Members of the Subcommittee. On behalf of the Department of Justice, I appreciate this opportunity to appear before this Subcommittee and to share with you our thoughts on how the Internet is changing the way in which federal and state courts and regulatory agencies conceive of their jurisdiction in civil lawsuits involving private litigants.
''Jurisdiction'' is a broad concept and can be used to refer to four separate concepts. First and most commonly, jurisdiction refers to whether a court has the power to adjudicate claims against a litigantin legal parlance, whether the court has ''personal jurisdiction'' over the litigant. Second, jurisdiction may loosely refer to whether a court proceeding is being held in the proper location, or venue. A court that possesses personal jurisdiction over a defendant, but which is not the proper venue for the action, might be said not to have ''jurisdiction'' over the lawsuit. Third, jurisdiction has sometimes been used to refer to the decision of a court to apply one state's law over another's, when the law of two or more states are relevant to a dispute. This is often referred to as ''choice of law.'' Lastly, jurisdiction can refer to the statutory grant of authority a state or federal regulatory agency possesses. For example, when a court holds that an agency does not have ''jurisdiction'' to regulate a certain activity, it is expressing its view that the legislature did not invest that agency with substantive authority over that activity.(see footnote 1)
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Although all four concepts are longstanding and well-developed, their application to the Internet raises new and difficult questions. As a starting point in addressing these issues, we believe the principle articulated in the Report of the President's Working Group on Unlawful Conduct on the Internet, which was chaired by the Attorney General, applies with equal force in the civil contextonline conduct should be treated the same as offline conduct, to the extent feasible. Additionally, we do not believe that it is necessary or appropriate to develop an entirely new body of federal statutory law to address cyber-jurisdiction issues. Rather, and for the reasons explained more fully below, we believe that the courts are adequately developing jurisdictional jurisprudence under applicable state and federal law, and should continue to take the lead on these issues.
We have narrowed the focus of this testimony in two ways we believe that the Subcommittee will find helpful. First, we will concentrate on how these jurisdictional issues affect litigation and regulation in the civil context. Second, we will focus on how these issues play out within the boundaries of the United States, leaving most of the international jurisdictional issues for the State Department to discuss in its testimony. We will therefore give the most attention to how jurisdictional issues among the states and within the United States are being addressed. Not surprisingly, most of these issues involve application of state long-arm statutes and other state laws, and are not appropriate subjects of federal regulation. We nevertheless agree with the Subcommittee that these issues warrant careful thought and discussion by policymakers and other interested parties.
On behalf of the Department, I commend this Subcommittee for its foresight in holding this hearing to assess the current state of the law regarding jurisdiction and the Internet. We believe that we can best contribute to this dialogue by identifying the issues we think will likely present the greatest challenges in the coming years in this difficult area.
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As the Supreme Court noted in its first major decision to grapple with Internet issues, the Internet is ''an international network of interconnected computers.''(see footnote 2) Cyberspace renders geographical boundaries between states and nations less meaningful. Information placed on the Internet is instantly available to anyone else who accesses the data, no matter where they are on the globe. Indeed, while current Internet architecture allows Web site operators to restrict access to their sites through the use of passwords or credit card numbers, such screening mechanisms do not usually operate to screen people based on where they live and can be subverted by persons ''posing'' as someone else using their credit card or password.
As the Commerce Department has stated, the Internet is now a driving force in our economy, generating more than $5.3 billion in retail sales in the first quarter of 2000 alone.(see footnote 3) The federal government and the states have largely opted not to regulate this fledgling new medium at this time, and businesses and individuals have taken advantage of this faster, less-capital-intensive means of transacting business. Other individuals have availed themselves of the Internet's ability to ''broadcast'' around the world to sell their products or speak their minds.
Business to business commerce may be even greater than this. According to a summary prepared by The Industry Standard, forecasts for 2003 of the dollar value of transactions between U.S. businesses that are conducted electronically range from $634 billion to $2.8 trillion. See Stacy Lawrence, Behind the Numbers: The Mystery of B2B Forecasts Revealed, The Industry Standard, Feb. 21, 2000 <http://www.thestandard.com> (visited June 28, 2000).
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Some of these activities, as one might expect, have resulted in lawsuits. Businesses have sued one another for breach of contract, based on contracts entered into over the Internet or involving Internet-based services. Other companies have sued for infringement of their trademarks or under statutes prohibiting ''cybersquatting'' (the practice of reserving a ''Web address,'' such as www.mtv.com, in order to force MTV to purchase that name for its own use) or ''spamming'' (the practice of sending unsolicited commercial electronic mail, or e-mail). Individuals maligned in Internet publications have sued for defamation.
Because jurisdiction historically has been tied to physical locationwhereby the key to jurisdictional questions was determining where, geographically, an activity took placethe advent of cyberspace and the Internet has predictably required policymakers, litigants, and academics to step back and re-evaluate how jurisdiction is to apply in this new medium. We will now address these jurisdictional issues.
One of the most vexing issues raised in litigation involving the Internet is this: When a person engages in wrongful behavior in cyberspace, where can he or she be sued?
The answer to this question generally depends, first and foremost, on state law. State long-arm statutes govern the reach of a state's courts. Most states, however, define their long-arm statutes to reach as far as the federal Due Process Clause will constitutionally permit.
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The definition of permissible personal jurisdiction under the Due Process Clause has changed over time. Until the 1940s, a court's jurisdiction depended upon a defendant's physical presence (or the presence of her property) within the geographical boundaries of a state. In other words, a person residing in State B could only be sued in a court in State A if she were served with process while traveling in State A or if she owned property in State A and the lawsuit dealt with the property.(see footnote 4)
Since 1945, the Court has interpreted the Due Process Clause more flexibly.(see footnote 5) Under current law, a state may exercise jurisdiction over an out-of-state resident if the court finds that ''there exist minimum contacts between the defendant and the forum state'' and the state's exercise of personal jurisdiction over the defendant would not offend ''traditional notions of fair play and substantial justice.''(see footnote 6)
A person is said to have ''minimum contacts'' with a state if she purposefully directs her activities toward that state.(see footnote 7) The existence of minimum contacts confers ''specific'' personal jurisdiction over her and empowers a state to hale her into that state's court with respect to a lawsuit ''aris[ing] out of or relat[ing] to those'' contacts.(see footnote 8) If she has ''continuous and systematic'' interaction with the state, the state has ''general'' personal jurisdiction over her and may exert its jurisdiction over her with respect to any valid cause of action.(see footnote 9)
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Whether the exertion of personal jurisdiction is reasonablethat is, whether it adheres to ''traditional notions of fair play and substantial justice''depends upon five factors: (i) the burden of the out-of-state lawsuit on the defendant; (ii) the forum state's interest in resolving the dispute; (iii) the plaintiff's interest in receiving convenient and effective relief; (iv) the interstate judicial system's interest in obtaining the most efficient resolution of controversies; and (v) the shared interest of the several states in furthering fundamental substantive social policies.(see footnote 10)
The Court adopted this more flexible standard in recognition of the ''fundamental transformation of . . . [the] national economy over the years'' and ''the increasing nationalization of commerce.''(see footnote 11) Under these circumstances, requiring a company that conducted business in several states to be sued in those states was not unreasonable; most companies able to engage in interstate activities were financially well-off enough to be able to defend themselves in legal actions in those distant jurisdictions. The Internet arguably works another ''fundamental transformation of . . . [the] national economy'' if the financial indicators are to be given any weight. Moreover, this transformation may affect one of the principle assumptions of the ''minimum contacts'' rule. The barriers to entering the Internet marketand offering goods on an interstate and international basisare low, which arguably makes it less reasonable to expect Internet start-up companies to defend themselves in lawsuits throughout the United States.
The federal and state courts grappling with how personal jurisdiction applies on the Internet have not questioned the ''minimum contacts'' framework.(see footnote 12) Instead, they have devoted time to analogizing Internet phenomena (Web pages, e-mail, the use of Internet equipment, and interactive online activity) to ''real-world'' phenomena (national print or broadcast advertisements, telemarketing, and physical distribution of goods).
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Surveying these opinions reveals four primary approaches to determining whether a state court may exert personal jurisdiction over a person based on her Internet activities consistent with the constraints of the Due Process Clause. First, and most easy to analogize to the ''real'' world, a court may ask whether the defendant specifically availed herself of Internet machinery located in a particular state. Just recently, for example, the 10th Circuit Court of Appeals held that Oklahoma had personal jurisdiction over Bell Atlantic because Bell Atlantic knowingly used an Oklahoma Internet service provider's server equipment located in Oklahoma.(see footnote 13) This rationale may also apply when a person enters into a contract to use such services or equipment in a known jurisdiction.(see footnote 14)
Second, and most useful for persons who post Web pages, a court may look to the level of interactivity between the person's Web site and the users he is reaching in a particular state. The leading case on the ''interactivity'' standard is Zippo Manuf. Co. v. Zippo Dot Com, Inc.(see footnote 15) There, the District Court defined a three-point, ''sliding-scale'' spectrum of interactivity. At one end of the spectrum is the defendant who ''clearly does business over the Internet.''(see footnote 16) Over him, personal jurisdiction is appropriately exercised. At the other end is the defendant who has ''simply posted information on an Internet Web site which is accessible to users in foreign jurisdictions.''(see footnote 17) This sort of ''passive'' activity, under the Zippo test, is insufficient to warrant the exercise of personal jurisdiction.(see footnote 18) The ''middle ground'' of the spectrumwhich, admittedly, accounts for most of the spectrumis left to ''interactive Web sites where a user can exchange information with the host computer'' and where ''the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information that occurs on the Web site.''(see footnote 19) In this last context, jurisdiction may hinge on whether the party simply exchanged information from the Web site or entered into a full-fledged contract for goods or services on that site.
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Third, a court may look to the volume of business that an Internet company conducts with the residents of the forum state.(see footnote 20) Under such a test, companies doing substantial business with residents of a state would be subject to jurisdiction, while companies engaged in a few small transactions could not be hauled into that state's court. This test may, to some extent, take into account the relatively small size of many Internet start-up companies; on the other hand, such an approach may also disadvantage consumers.
Fourth, a court may examine the ''effects'' that a particular person's behavior has in a specific state. In a trademark case alleging that a party's use of ''nissan.com'' and ''nissan.net'' infringed on Nissan Motor Company's trademark, the District Court held that the defendant's collection of advertising revenue from a state where the effects of its deception were felt was sufficient to confer specific jurisdiction.(see footnote 21) Similarly, the New Jersey Supreme Court recently held that a person sued for defamation could be sued in New Jersey because the effects in New Jersey of his use of an electronic bulletin board physically located elsewhere was sufficient to confer jurisdiction over him in the New Jersey courts.(see footnote 22)
These approaches, while seemingly different, actually dovetail nicely and will often yield the same outcome when applied to the same facts. If, for example, a Web site operator ''targets'' residents of a certain stateor, more broadly, residents living in the United Statesthe courts of that state (or the United States, in the latter example) will likely be able to assert personal jurisdiction over the site operator under any of the tests: such an operator is likely to have used machinery or entered into contracts in that state, is likely to have a highly interactive site designed to reach customers of the targeted jurisdiction, is likely to generate a substantial volume of business, and is likely to have some effect in the target jurisdiction. This is not surprising, as this sort of purposeful direction at a jurisdiction is part of the very definition of what amounts to ''minimum contacts'' under the Court's post-1940s due process jurisprudence.(see footnote 23)
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As this brief survey of leading cases indicates, the courts are busy grafting the uniqueness of the Internet onto the already-existing framework set out by the Supreme Court's due process jurisprudence. At this point in time, they seem to be handling the task well, which counsels strongly in favoring of allowing this precedent to develop without legislative intervention.
We observe that persons transacting business on the Internet are not entirely powerless to influence whether another state's courts will have personal jurisdiction over them. In many cases, the parties enter into contracts. One of the terms the parties may negotiate is a ''forum selection clause'' that dictates where jurisdiction is appropriate. Such clauses may present unique problems where Internet transactions are concerned; nonetheless, in appropriate circumstances they may encourage the parties to reach a ''meeting of the minds'' in advance and simply resolve disputes in the agreed-upon forum.
Internet users may also be able to take some unilateral actions to indicate that they do not wish to ''purposefully direct'' their business to a certain forum. For example, a company could place a banner on its Web site that stated that it intended to do business solely with New York residents (and back that up by listing a 1800 number that only worked from within New York, or requiring purchasers to enter New York mailing addresses). As the Internet architecture evolves, Web site operators may also be able to ''screen out'' users who do not claim to be from only those states with which they want to do business. While these actions are no guarantee against the exertion of authority, they would be relevant to a court's inquiry into intent.
Page 30 PREV PAGE TOP OF DOCVenue
The next ''jurisdictional'' topic is venuethat is, assuming that the state or federal court has personal and subject matter jurisdiction over the lawsuit, where should the suit be litigated?
Like personal jurisdiction, venue has traditionally been pegged to geographic location. The federal venue rule for diversity cases, for example, provides that venue is proper in one of three possible judicial districts: a judicial district where any defendant resides if they all reside in the same state; one where a substantial part of the events or omissions giving rise to the claim occurred; or, if venue is not otherwise available, in a judicial district where any of the defendants is subject to personal jurisdiction at the time the action is commenced.(see footnote 24)
Because Internet communications and the attendant online activities ''occur'' somewhere, but not necessarily in an easily identified judicial district, courts must address how these rules are to be applied when an Internet transaction is implicated in a lawsuit. Of course, the parties can designate by agreement where the suit is to be litigated. If the parties have not provided for venue by agreement, the three traditional venue possibilities prescribed by federal statute will still provide the full range of appropriate venues in most cases. Courts sitting in districts in which either of the parties reside or in which significant parts of the disputed transactions occurred each have a sufficient connection to the lawsuit to hear and decide it. One can also imagine disputes in the online world in which, for example, courts in the district where one of the party's Internet service provider maintains its equipment (and possibly evidence relating to the suit) may be a proper site for the lawsuit. These situations may occur so infrequently that no special rules are necessary, and resolution of them can be left to the courts on a case-by-case basis as they arise.
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Choice of Law
A third question that courts adjudicating Internet disputes involving residents from different state are forced to address is this: Which state's substantive law applies?
When the parties have entered into a contract, the answer is usually straight- forwardlook to the contract to see whether the parties have agreed upon which state's law is to govern any disagreements involving the contract. As a general rule, as long as the contractual provision is reasonable, courts will honor it.(see footnote 25) Thus, as with personal jurisdiction and venue, parties entering into business transactions can avoid some of the uncertainty in the law by including such clauses in their negotiated documents.(see footnote 26)
When a person commits a tort or does not enter into a contract with an enforceable forum selection clause, the ''default'' choice of law controls. It is important to keep in mind that the state court deciding the choice of law issue applies its own state's ''choice of law'' rule to render its decision.(see footnote 27) The states are currently split in using one of three ''choice of law'' rules.
Some states apply the rule from Restatement (First) of Conflict of Laws, which hinges its selection of law on the state where the right to be asserted vested. This often translates into a requirement that a state court apply the law of the state where the ''last act'' necessary to complete the tort occurred.(see footnote 28) Other states follow the Restatement (Second), which looks to the law of the state with the ''most significant relationship'' to the action, and lists several factors to be considered in making this assessment.(see footnote 29) A last group of states follows an ''interest'' test and will apply the substantive law of the state having the greatest policy interest in its law to the case.(see footnote 30)
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Choice of law issues are largely subject to debate in the ''real world,'' and the complications attendant to the doctrine are multiplied when the doctrine is applied to cyberspace. If, for instance, a person posts defamatory language on a Web site, a court following the First Restatement choice of law rule might apply the law of the states where the defamatory statements are read, if reading the defamatory material is deemed to be the ''last act'' of the tort. There is no evidence, however, that the choice of law principles currently applied by the courts are inadequate to apply to lawsuits involving the Internet. Thus, although choice of law issues are often difficultin both the physical world and the cyberspace caseswe again believe that the state and federal courts are best suited to addressing these issues at this time.
Substantive Authority to Regulate
Unlike personal jurisdiction, venue, and choice of law, which are defined largely by constitutional constraints and decisional law, jurisdiction as it refers to the substantive authority of a state or federal agency is largely a creature of legislative design.
The substantive authority of federal agencies to regulate companies and individuals domesticallythat is, within the boundaries of the United States is plenary once the terms of the authorizing statute are satisfied. Likewise, the authority of a federal court to review such action is typically set forth by statute. For example, the Administrative Procedure Act generally provides for the court's review of final agency action.
Federal authority to regulate extraterritorially is less certain. The Restatement (Third) of Foreign Relations provides a set of default rules that tie authority to regulate to one of several sovereign interests. More specifically, §402 the Restatement provides that a nation has jurisdiction to prescribe law with respect to: (i) conduct that takes place within its geographic borders; (ii) the status of persons within its geographic borders; (iii) conduct outside its territory that has or is intended to have a substantive effect within its geographic borders; (iv) the activities, interest, status, or relations of its citizens regardless of where they are in the world; and (v) certain conduct outside its territory by any other person that is directly against the security of the state or against a limited class of other state interests.(see footnote 31)
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Nations are also in the process of further clarifying and developing this area of law through treaty negotiation. For example, as the State Department discusses in its written testimony, a Hague convention on Jurisdiction and the Recognition and Enforcement of Foreign Civil Judgements is currently under negotiation.
States, within the United States, are currently grappling with similar issuesnamely, when it is permissible to regulate the activity of companies that do business with its residents over the Internet, but are physically located outside its boundaries. The reach of permissible state regulation, like the reach of nations, is constrained. In the case of individual states, the constraint is imposed by the state's authorizing statutes and the prohibitions of the so-called ''dormant Commerce Clause,'' which in essence prohibits a state from discriminating against out-of-state businesses.
Through this brief overview of the four major ''jurisdictional'' issues involving the Internet today, we hope we have aided this Subcommittee in its thinking about the challenges that lie ahead and which are most appropriate for federal oversight and involvement.
Thank you for the opportunity to testify today. I will be pleased to respond to your questions.
Mr. COBLE. Mr. Pincus.
Page 34 PREV PAGE TOP OF DOCSTATEMENT OF ANDREW PINCUS, GENERAL COUNSEL, UNITED STATES DEPARTMENT OF COMMERCE
Mr. PINCUS. Thank you, Mr. Chairman. And thank you for having me here to testify. This hearing serves a very valuable purpose by focusing attention on these issues. I think another way in which this will be helpful is in pointing out that this question of jurisdiction really asks a lot of different questions that are bundled together. You sometimes hear people say, ''let's solve the jurisdiction problem,'' and there really are a large number of problems that may have very different solutions that come under the heading of jurisdiction.
We believe that it is very important to take them separately because there may be very different answers to the question of judicial jurisdiction. For example, whereas Ms. Veta said we have a minimum contact test in the United States that can pretty easily be adapted to the question of whether a court has personal jurisdiction in a particular case as opposed to the choice of law questions, which we think, especially on the international scale, create very, very complicated problems that may require revision in the existing approach. I do not mean that we should necessarily create new rules for cyberspace that are different than other places, because we think generally medium neutral rules are better. But because the number of cross-border transactions is increasing dramatically and will increase even more dramatically, especially in the consumer context, it may create the need to rethink whether there aren't different approaches to jurisdiction and choice of law issues that make sense.
And again with respect to choice of law, I think it is very important to look at those issues on a subject matter by subject matter basis. Solutions that may work for an intellectual property, for example, where in some areas at least there is a fairly well developed international legal regime and some large degree of international consensus, may not work in areas such as consumer protection, which is at the opposite end of the scale. And we are only at the very beginning of finding out what international consensus with respect to those issues might be.
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So, it is our view that it is very important to unpack this big suitcase of jurisdiction and look at everything separately.
What we have tried to do is experiment on a case-by-case basis and look at how there might be ways, especially in the international arena, to address the problem in the choice of law context. And I thought it might be useful to talk a little bit about those individual issues to illustrate the bigger issue.
The jurisdiction issues have been talked about really most frequently in the consumer protection context. It has really been talked about as two extreme choices, if you will. Many in the business community have argued for a country-of-origin approach to choice of law: The consumer protection laws that govern a transaction should be the rules where the seller is, because it is easy for the sellerit is one set of rules. Consumer advocates, on the other hand, have said that solution really doesn't work. It should be the rules where the consumer is located, because the consumer is familiar with those rules. That is the country that has the concern about protecting its consumers, so those rules should apply.
We see problems with both of those approaches.On the country-of-origin approach, there is obviously a considerable danger of a ''race to the bottom.'' There is no guarantee that wherever the seller decides to locate is a place that has any real consumer protection. But the seller might be selling to the whole world, and that could really create a situation, where consumers are vulnerable to sellers located in the Cayman Islands of consumer protection, if you will, with no real protection.
Page 36 PREV PAGE TOP OF DOC On the other hand, country-of-destination approach really puts a tremendous burden on Web site operators to learn and comply with the consumer protection laws of every place in the world. And that burden, we are afraid, would really prevent the Internet from realizing its full potential, because sellers just don't do that. So as a practical matter they begin to target their activity. That would undercut one of the great promises of the Internet.
So what we have tried to advocate is a third way, if you will, an approach that tries to bridge the gap and that is beginning to be worked on by people in the business community. And it would go something like this:
At the end of last year in the OECD, there was agreement on substantive consumer protection principles essentially what constitutes a good level of consumer protection. Constitutes is something that the United States and all the countries of the OECD signed on to. If those protections were coupled with real and effective alternative dispute resolution, and offered to consumers as the consumer protection that would be available in association with a particular transaction, that would have a couple of benefits. First of all, it would be good consumer protection. It would be really effective relief because the consumer could proceed with ADR instead of having to figure out where the particular seller could be sued, and it would also allow sellers to offer their wares on a broader basis because they wouldn't have the burden, necessarily, of complying with 150 or 200 different consumer protection codes depending on where the consumer was. So we see creating mediating institutions like the one I just described. And the business community with others is really already up and running this, trying to put this thing into practice as a way to try and bridge these jurisdictional gaps. Thank you, Mr. Chairman.
Mr. COBLE. Thank you, Mr. Pincus.
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[The prepared statement of Mr. Pincus follows:]
PREPARED STATEMENT OF ANDREW PINCUS, GENERAL COUNSEL, UNITED STATES DEPARTMENT OF COMMERCE
Thank you for the opportunity to testify today. As you know, the global nature of the Internet gives rise to important jurisdictional issues. In fact, almost every major policy area in electronic commerce raises these issues. From tax to content restrictions, and intellectual property to standards, the policies and approaches adopted in individual countries or regions are likely to have an impact on persons located outside those countries or regions. Broadly speaking, these jurisdictional problems can be divided into three categories: (1) issues related to the prescription or establishment of rules and policies; (2) issues concerning the ability of courts to decide cases; and (3) issues related to the enforcement of judicial and other decisions.
In my statement this morning, I will make some general observations on jurisdiction and electronic commerce. I will also describe a few of the Administration's activities and initiatives in this area, as a means of demonstrating how we are working to overcome jurisdictional problems in the online global marketplace. In addition, I will comment on the draft Hague Convention on jurisdiction and the recognition of foreign judgments, and provide our preliminary views on the implications of that draft text for electronic commerce.
Jurisdictional issues relating to cross border commerce are not new; in our global economy there already is a very considerable amount of cross-border trade. As a general matter, however, this trade consists of business-to-business transactions. In that context, choice of law and choice of forum clauses generally are employed to address manybut not alljurisdictional issues. The relatively limited number of regulatory regimes applicable in the business-to-business context also helps reduce the number of jurisdictional issues.
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Electronic commerce will expand greatly the number of international business-to-business transactionsand open that field to small and medium companies. It also enables cross border business-to-consumer transactions on a global scale.
As a general matter, our goal should be to apply the same jurisdictional principles to on-line and off-line commerce. In some contexts, this should be relatively straightforward. For example, the ''minimum contacts'' principle that governs adjudicative jurisdiction is being applied by courts to electronic transactions, as my colleague from the Department of Justice will discuss.
The situation is more complex with respect to prescriptive jurisdictionquestions of which country's (or state's ) law applies to a particular transaction. The choice of law clauses that have been employed in the business-to-business context may be less effective with respect to consumer transactions (depending on the applicable law), either because such clauses may be invalid with respect to consumer transactions or because they may not reach the regulatory statutes and regulationsfor example, consumer protection lawsthat apply in the consumer context. The growth of these types of electronic transactions therefore may place considerable stress on existing jurisdictional principles, and may justify some revision of those approaches.
A considerable amount of analysis is now underway with respect to these issues, both in governments and in the private sector. Because of the large number of substantive areas of law that may be affected, and the complexity of the question, our view is that we should not rush to judgment. Each substantive legal area must be analyzed on its own terms, and it is essential that we consider alternatives to existing choice-of-law rules.
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Speed has the benefit of creating certainty, but that benefit will be small indeed if the legal principle chosen has the effect of thwarting the development of this new medium of commerce. Caution and experimentation although frustrating because they do not produce clarity in the short term make much more sense because they are more likely to lead to approaches that will allow electronic commerce to realize its full potential.
The following are just a few examples of the Administration's efforts to minimize or eliminate the jurisdictional problems that arise in the context of cross-border electronic transactions.
In 1998, the President directed Secretary Daley, in consultation with the Federal Trade Commission and other relevant agencies, to ''foster appropriate consumer confidence in electronic commerce by working to ensure effective consumer protection online.'' He indicated that this should ''include exploring opportunities for global cooperation to enforce consumer protection laws and facilitating partnerships between industry and consumer advocates to develop redress mechanisms for online consumers.''
In working to implement this directive, we have observed that the Internet has great potential to boost the growth of international consumer transactions. At the same time, as I noted earlier, it raises some of the most difficult challenges regarding jurisdiction and choice of law. For example, when a dispute arises in an international consumer transaction, what law applies to the transaction and which court should hear the dispute?
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Consumer groups, such as the Transatlantic Consumer Dialogue (TACD), have argued for a ''country of destination'' approach to these issues, whereby the applicable law and appropriate forum would be that of the consumer. Often, as part of this proposal, they indicate that courts should generally not enforce choice of law and choice of forum clauses in consumer contracts. They consider that this is the best means to protect consumers in cyberspace.
Many online merchants have argued for precisely the opposite a ''country of origin'' approachin which the law and forum would be that of the seller. As part of their proposal, these businesses argue that courts should enforce choice of law and choice of forum clauses in consumer contracts. They consider that this is the best means for providing merchants with certainty as to the rules governing their transactions.
We see problems with both approaches. A country of destination approach would place a tremendous regulatory burden on merchants, especially small and medium-sized enterprises. It would require them to know and comply with the laws of hundreds of jurisdictions, and defend suit in locations all across the globe. Also, in certain circumstances, it may be advantageous to consumers to allow them to agree to choice of law or forum clauses, such as cases where they could obtain discounted prices or other benefits. For these and other reasons, a pure country of destination approach might not be the best means of promoting global consumer transactions.
At the same time, we see problems with a country of origin approach. This could lead to a ''race to the bottom,'' in which businesses locate in jurisdictions where there are little or no consumer protections. Moreover, if we consider it is a difficult task for businesses to know and understand the laws of foreign jurisdictions, it would likely be unfair to expect consumers to understand these laws in all circumstances. In addition, it could effectively deny consumers any remedy since they might need to travel to a distant jurisdiction to seek a remedy for a low value purchase. Finally, it might even interfere with the ability of governments to protect their citizens.
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Given the difficulties we see with both approaches, we believe there must be a third way. In particular, we consider that private sector codes of conduct, combined with effective alternative dispute resolution mechanisms, have the potential to resolve online consumer disputes in a manner that is efficient, fair, cost-effective and really practical. While this will likely not be a ''magic bullet'' that solves all the problems, this might be the best approach for addressing the great majority of them.
Accordingly, the Administration is working to facilitate and promote the development of fair and effective self-regulatory mechanisms. In close consultation with the Federal Trade Commission, we participated in a process at the Organization for Economic Cooperation and Development (OECD) that produced guidelines for the protection of online consumers in December of 1999. These guidelines set benchmarks for consumer protection on a global basis.
In early June 2000, we also worked with the Federal Trade Commission to sponsor a workshop on alternative dispute resolution for online transactions. The workshop brought together consumer groups, businesses, governments and other stakeholders, from both domestic and foreign organizations and locations, to discuss and consider how to promote the further development of ADR for online transactions. The workshop demonstrated that there is a wide variety of private sector efforts already underway. In addition, it showed that the best approach to ADR for a particular transaction might vary depending on the value or type of transaction at issue. Over the coming months, we intend to continue this important dialogue with all interested stakeholders.
We have also been pleased to see that the private sector is already taking steps to establish codes of conduct for online consumer transactions. For example, the online division of the Better Business Bureau, BBBOnline, is working to finalize a code of online business practices, including certain requirements for the resolution of consumer complaints. In addition, the Electronic Commerce and Consumer Protection Group, whose members include some of the leading companies in online commerce, have issued a code of best practices which also includes provisions for the establishment of ADR mechanisms.
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Ultimately, strong codes of conduct, backed by practical and effective ADR systems, can potentially obviate some of the difficult jurisdictional issues that arise in the context of online consumer transactions. They can boost consumer confidence, increase certainty for businesses, and clear the way for a more seamless environment for global consumer transactions. We look forward to continuing to work with all interested stakeholders on these important issues. And we will, of course, continue to explore other mechanisms for promoting consumer confidence in Internet transactions.
COMMERCIAL LEGAL FRAMEWORK ISSUES
Another area that raises important jurisdictional issues relates to the development of a uniform commercial legal framework for global electronic transactions. President Clinton and Vice President Gore, in issuing the Framework for Global Electronic Commerce in July 1997, noted that ''[m]any businesses and consumers are still wary of conducting extensive business over the Internet because of the lack of a predictable legal environment governing transactions.'' As part of the Administration's effort, President Clinton directed Secretary Daley to ''work with the private sector, State and local governments, and foreign governments to support the development, both domestically and internationally, of a uniform commercial legal framework that recognizes, facilitates, and enforces electronic transactions worldwide.''
The process of developing an appropriate commercial legal framework for global electronic transactions primarily involves revising and updating traditional legal requirements for paper contracts, handwritten signatures, and other physical documentation. In very general terms, there are two different approaches that governments have taken to revising these legal requirements.
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The first is a market-based approach that recognizes there are many different technologies and methods for producing electronic documentation. It revises legal requirements for physical documentation, but does not confer any legal benefits on particular technologies or methods. This approach is represented by the recently enacted bipartisan federal legislation called the Electronic Signatures in Global and National Commerce Act (ESIGN). It is also represented by the model state legislation, the Uniform Electronic Transactions Act (UETA), and by an international model law issued by the United Nations Commission on International Trade Law (UNCITRAL) in 1996.
The second approach involves greater government involvement. It consists of establishing detailed regulations that specify the technology and implementation model that must be used in order to obtain a legal benefit, such as a presumption of validity. In particular, these detailed regulations generally focus on the method for authenticating or signing an electronic document. This legislative approach is represented by a few state laws, a 1997 German law, and several other foreign laws. We consider these detailed regulations to be unnecessary at this time. Moreover, they have the potential to disrupt the operation of commercially significant systems that use different authentication methods and models. They also could deter the growth and development and use of innovative and more efficient authentication methods and models.
The important question for commercial actors is how do these two approaches interrelate? Specifically, when commercial entities wish to engage in electronic transactions across jurisdictions that take different approaches to this issue, how can they have certainty that their transactions will be recognized and enforced in all the relevant locations?
Page 44 PREV PAGE TOP OF DOC We have developed a policy that answers this question and promotes the recognition and enforcement of electronic transactions on a worldwide basis. At its core, this policy reflects the reality that the vast majority of authentication in use in the market today occurs in contract-based or ''closed systems.'' Closed systems are arrangements in which parties are already related to each other in some way, and they conduct electronic transactions under a mutually-agreed authentication system. Sophisticated versions of this model are found in sectors ranging from manufacturing to the banking and financial services industries where commercial parties establish the technological approach they will rely on as well as their rules for operating, assigning risk and settling disputes.
Our policy identifies four steps that every government should take to ensure the recognition and enforcement of these closed systems, and thereby ensure the free flow of cross-border electronic transactions. In particular, governments should: (1) eliminate paper-based legal barriers to electronic transactions by implementing the relevant provisions of the 1996 UNCITRAL Model Law on Electronic Commerce; (2) reaffirm the rights of parties to determine for themselves the appropriate technological means of authenticating their transactions; (3) ensure any party the opportunity to prove in court that a particular authentication technique is sufficient to create a legally binding agreement; and (4) treat technologies and providers of authentication services from other countries in a non-discriminatory manner.
These steps can be taken both by governments that adopt a market-based approach to these issues, and by governments that adopt a regulatory approach. Once widely incorporated into national and regional laws, these principles will form the uniform legal framework that is needed to ensure the recognition and enforcement of electronic transactions on a worldwide basis.
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These principles have been adopted and approved in a variety of multilateral and bilateral contexts. In October 1998, the OECD Ministers approved a Declaration on Authentication for Electronic Commerce affirming these principles. Further, the Global Business Dialogue on Electronic Commerce (GBDe), a global private sector initiative, has issued recommendations to governments that strongly embrace this approach. In addition, we entered joint statements affirming these principles with several important trading partners, including France, Colombia, Japan, Jordan, the Netherlands, Korea, Ireland, Australia, Chile, Egypt, and the United Kingdom.
Another set of fundamental jurisdictional issues relates to national policies on data protection. In the Framework for Global Electronic Commerce, President Clinton and Vice President Gore established a priority to ''ensure that differing privacy policies around the world do not impede the flow of data on the Internet.'' In particular, they noted with concern that ''the European Union (EU) has adopted a Directive that prohibits the transfer of personal data to countries that, in its view, do not extend adequate privacy protection to EU citizens.''
The EU Directive establishes a comprehensive regulatory scheme governing the handling of personal information by all industry sectors and organizations in Europe. It also contains a particularly significant provision, as noted by the President and Vice President, which prohibits the transfer of personal data to third countries unless the third country in question provides ''adequate'' protection for that data. U.S. industry expressed uncertainty about the application of this ''adequacy'' standard to the United States, since we do not have comprehensive privacy legislation like the Directive. The U.S. approach relies on a mix of sector-specific laws and regulations, combined with effective industry self-regulation.
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In an effort to bridge the gap between our different approaches to privacy, and provide U.S. businesses with assurance of continued data flows from Europe, the Department of Commerce and the European Commission have developed a fully enforceable, self-regulatory framework to satisfy the Directive's adequacy requirement. The framework is called the ''safe harbor,'' and very recently the EU Member States, acting through the committee established by Article 31 of the Directive, voted unanimously to approve the safe harbor as an ''adequate'' system.
The safe harbor is an entirely voluntary arrangementno U.S. organization is required to participate. It is one of several approaches that U.S. firms may wish to use to be assured of continued data flows from Europe. On a broader level, the safe harbor is a creative and innovative vehicle that helps to bridge the gap between the EU and U.S. approaches to data protection. In this regard, the safe harbor can likely serve as a model in other contexts as we seek to ensure the development of a seamless global commercial environment for electronic transactions.
HAGUE CONVENTION ON JURISDICTION
As a final matter, I will provide a few comments on the draft Hague treaty on the recognition and enforcement of foreign judgments. As Mr. Kovar mentioned earlier, the Commerce Department recently began participating in the process to review the electronic commerce implications of this draft convention.
Since the convention was first proposed in 1992, the importance of electronic commerce has grown substantially. Forecasters are now predicting even greater growth, and some predictions are that the value of business-to-business transactions will exceed $2 trillion by 2003. Soon, electronic transactions may be so pervasive that the concept of ''e-business'' fades, and people just refer to it as ''business.'' Thus, while transacting business through the Internet might not have been a significant issue during the earlier stages of the Hague discussions, global markets and industries are now overwhelmingly headed in this direction. It is now critical for all member countries in the Hague to consider carefully the implications of this draft treaty for electronic transactions. Indeed, over time, those are likely to be the bulk of the transactions it would regulate.
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We consider there might be substantial benefits for the United States to conclude a treaty on this topic. Greater recognition of U.S. judgments abroad might be commercially important to U.S. persons. U.S. persons might also gain considerably if foreign practices of ''exorbitant'' jurisdiction were scaled back. Also, global commerce might benefit from a more efficient and rational means for allocating judicial resources and enforcing court judgments in foreign countries.
But at this time, there is much work to be done. Our initial review indicates that many of the current rules are targeted to the offline world, and would make little sense online. For example, the treaty establishes separate provisions governing contracts that involve ''goods'' and those that involve ''services.'' This raises an unnecessary and very complex classification issue as to whether or under what circumstances digitally delivered products are ''goods'' or ''services.'' Several international fora are currently struggling with this divisive and difficult issue, due to treaty provisions adopted well before the advent of Internet.
The draft also establishes several jurisdictional tests that are based on the place where an action or activity occurred. For example, the current rules provide that an action in contract can be brought in the State where the goods were ''supplied.'' Setting aside the classification issue of goods verses services, Internet transactions often don't have an obvious place of supply. For example, a U.S. company might send a software product through a server in Canada to a company located in Japan. This analysis might be even further complicated by other factors, such as that the seller might not even know where the buyer is located.
In addition, the draft raises difficult public policy issues. For example, it establishes essentially a ''country of destination'' approach to consumer contracts. As mentioned earlier, consumer groups and certain online businesses have very different views on this issue, and we see problems with both of their approaches. It is not likely that this issue can be easily resolved in the near term. At the very least, we may need to give alternative dispute resolution mechanisms, and private sector self-regulatory initiatives, more time to mature before resolving this issue in the text of a treaty.
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One of the positive elements of the draft is that it recognizes the importance of party autonomy in the context of business-to-business transactions. The draft rules would enforce choice of forum clauses in these transactions. For years, respect for party autonomy in the merchant to merchant context has been a critical tool for overcoming jurisdictional issues in the offline world. This same respect for party autonomy will continue to be a critical ingredient for handling jurisdictional issues in the online world. As such, we are pleased to see this element in the draft convention, and consider it is important to advocate for this approach in a variety of settings outside the Hague treaty.
Overall, given the developments with electronic transactions and other issues, we will need to work very hard to forge a consensus both domestically and internationally on the appropriate shape and structure of a treaty on issues as complex and difficult as personal jurisdiction and the recognition of foreign judgments. We note, for example, that the European Union has had considerable difficulty reaching consensus within Europe on how these issues should be handled in a draft EU regulation on jurisdiction. Our firm hope is that Hague member countries will allow sufficient time for the negotiations, and will not feel constrained to push for a premature conclusion of the process. Such flexibility will likely be indispensable to creating a meaningful opportunity to develop a set of rules that deserve and enjoy widespread international support.
Thank you for asking me to testify this morning. I would be glad to answer any questions.
Mr. COBLE. Mr. Kovar.
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STATEMENT OF JEFFERY P. KOVAR, ASSISTANT LEGAL ADVISOR FOR PRIVATE INTERNATIONAL LAW, DEPARTMENT OF STATE
Mr. KOVAR. Thank you, Mr. Chairman and members of the subcommittee, for inviting me to testify on behalf of the Department of State. I would like to tell you briefly about negotiations the Department is leading at the Hague Conference on Private International Law for a Convention on Jurisdiction and the Recognition and Enforcement of Foreign Judgments.
This is a project the U.S. initiated as far back as 1992 to try to level the international playing field for American litigants and fill a major gap in the legal infrastructure of the global marketplace. There is now no effective international regime for enforcing the judgments of national courts in transnational legal disputes. And the United States is a party to no regional or bilateral agreements providing for the reciprocal enforcement of judgments. This widening gap between the increasingly global marketplace and the isolated national court systems could eventually have a major inhibiting or distorting effect on the development of the world market. Moreover, American litigants are generally at a disadvantage, at least vis-a-vis our major trading partners in developed countries.Federal and State courts in the United States have a long tradition of enforcing foreign judgments from countries with reliable legal systems. But American judgment holders are very often not able to enjoy equal enforceability abroad.
The Hague Convention negotiations, if successfully concluded, hold out the promise of addressing this important need. The draft Convention would establish new common rules of jurisdiction in tort and contract for international cases and would provide for the enforcement of resulting judgments.
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As you might imagine, even without considering the special jurisdiction problems raised by transactions carried out on the Internet, agreeing on a common set of jurisdictional rules that would apply in Federal and State courts in international cases poses very special difficulties for the United States. As you heard today from Ms. Veta, we tend in the United States to determine jurisdiction based on a due process analysis of the fairness to the defendant. Most other countries, by contrast, seek to set up more objective-looking rules of jurisdiction. And the draft provisions of the Convention tend to reflect this latter approach.
Thus, we may be faced with hard choices about whether or not we should accept the prohibition of certain traditional rules of jurisdiction in international cases covered by the Convention: practices such as tag jurisdiction and general doing business jurisdiction, and the acceptance of new positive rules that are unfamiliar in the way they are formulated, such as jurisdiction based on the place of performance stated in a contract, and jurisdiction based on the place of injury in tort.
When the Hague negotiations were first proposed by the United States, no one predicted the immensely difficult issues that would suddenly arise from the explosion of the Internet. However, the Hague negotiations have provided a forum for these difficult issues to be considered at the international level. And there is now an intense effort around the world to consider the possibility of drafting international rules of jurisdiction governing Internet transactions.
The Hague Conference held an initial roundtable workshop in Geneva in September 1999 on Internet jurisdiction and choice of law issues. Then it called a special experts meeting in Ottawa last February, devoted to electronic commerce issues raised in this draft Convention. For our part, the Department of State has sought the assistance of the Department of Commerce, the Department of Justice, the FTC, and has reached out to business, consumer, and legal groups engaged in these issues. The Hague will be holding another international expert's meeting in Ottawa early next year on these Internet jurisdiction issues. And we hope that this meeting will help prepare for the final negotiations of the Convention that are scheduled to begin in June of 2001, with completion targeted in late 2001 or early 2002.
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The Hague conference has also sought outside expertise to consider the special litigation issues raised by international patent, trademark, and copyright litigation, including through the Internet. It has asked the World Intellectual Property Organization to convene a meeting of experts to help it address these issues.
For our part, the Department of State is consulting closely with the private sector and with the Departments of Justice and Commerce, especially the Patent and Trademark Office. The Department believes we must take an extremely careful and deliberate approach in the Hague negotiations on issues related to the Internet. We do not have firm views on the proper outcome of these issues and we are seeking to consult as widely as possible to ensure that all the various interests are heard. We hope very much that effective solutions will emerge on the Internet jurisdiction issues as well as the many other extremely difficult and controversial aspects of the draft Convention.
We have a lot to gain from a successful Convention. And we are trying vigorously to reach the right balance of provisions to enable us to achieve a Convention to which the United States could be become a party. We hope, Mr. Chairman, to remain in close contact with the subcommittee and we will be happy to answer any questions you have.
Mr. COBLE. Thank you.
[The prepared statement of Mr. Kovar follows:]
PREPARED STATEMENT OF JEFFERY P. KOVAR, ASSISTANT LEGAL ADVISOR FOR PRIVATE INTERNATIONAL LAW, DEPARTMENT OF STATE
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Thank you Mr. Chairman and members of the Subcommittee for inviting me to testify on behalf of the Department of State.
The Department is leading U.S. efforts at the Hague Conference on Private International Law to negotiate a Convention on Jurisdiction and the Recognition and Enforcement of Foreign Civil Judgments.(see footnote 32) The Hague projectwhich was undertaken at the initiative of the United Stateswould create harmonized rules of jurisdiction in international civil cases as well as common rules for enforcing abroad the resulting judgments. A successful convention would level the international playing field for American litigants and fill a major gap in the legal infrastructure of the global marketplace.
Although international commerce, trade, and communications are accelerating at a breathtaking pace, and the growth of the Internet promises to make boundaries less and less relevant for commerce, the judicial settlement of transnational disputes remains largely confined to national territories. There is no effective regime for coordinating and enforcing the work of national courts in resolving transnational legal disputes. If this widening gap between the global marketplace and the isolated national court systems is not addressed, it could well slow progress and inhibit growth in trade.
The Hague Convention negotiations, if successfully concluded, hold out the promise of addressing this important need. In this testimony, we will provide some history and background to the Hague negotiations, including how the Convention would work, describe some of the major obstacles facing our delegation, explain how we are addressing the critical issues of electronic commerce and intellectual property, and give some sense of what we think the road ahead looks like.
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The recognition and enforcement of judgments from one jurisdiction to another has long been understood as a fundamental requirement for fully integrated markets. Thus, the framers of the U.S. Constitution included the Full Faith and Credit Clause to ensure that judgments from one state would be enforceable in every other. In the same way, as part of their movement toward a unified market several European countries concluded a convention in 1968 to provide recognition and enforcement of each other's judgments. This convention, called the Brussels Convention, became a required ticket of admission to the Common Market and then the European Union. The Brussels Convention scheme was extended to non-EU countries in Europe in 1988 through a companion instrument called the Lugano Convention.
For many countries the enforcement of foreign judgments is not a matter of general law but is addressed through treaties. The United States is not a party to any convention or bilateral agreement on the recognition and enforcement of foreign judgments. We made an effort to conclude a treaty with the United Kingdom in the 1970s, but it was ultimately blocked by the U.K. insurance industry, which was nervous about the enforcement of U.S. tort judgments against them in U.K. courts.
By contrast with the practice of most countries, however, the United States has led the way in enforcing foreign country judgments on the basis of comity. The Supreme Court embraced this approach over 100 years ago in the case of Hilton v. Guyot, 159 U.S. 113 (1895). Judgments from countries with reliable legal systems are now predictably enforceable in federal and state courts in the United States under the common law or under the Uniform Foreign Money Judgments Act. Although the Supreme Court in Hilton suggested that it was appropriate also to require a showing of reciprocity in the country where the judgment was rendered, this requirement is no longer a part of most state law.
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Thus, while U.S. courts are perceived as the most open in the world to the recognition and enforcement of foreign civil judgments in the absence of a treaty obligation to do so, the ability of U.S. judgment holders to enforce their judgments abroad is much more problematic. Even in those countries that will, in principle, enforce foreign judgments in the absence of a treaty, the reach of U.S. long-arm jurisdiction, what they perceive to be ''excessive'' jury awards, and punitive damages are sometimes considered reasons not to enforce U.S. judgments. U.S. litigants deserve the same opportunity to have their judgments enforced abroad as that enjoyed by foreign litigants in the United States.
The successful negotiation at the Hague Conference of a convention on jurisdiction and the recognition and enforcement of foreign civil judgments would be a huge step toward an international regime for enforcing foreign court judgments. The negotiations, which have been underway since 1996, involve more than 45 countries from around the world, including virtually all major U.S. trading partners. The Hague Conference is well known here for producing the Conventions on Service of Process and the Taking of Evidence Abroad, Abolishing the Requirement of Legalization, and International Child Abduction to which we are a party. Moreover, the Hague Intercountry Adoption Convention is currently being considered by the House and Senate for advice and consent to ratification and implementing legislation, and has solid support from the adoption community. The Hague Conference has traditionally been a professional and non-political forum of experts in the area of conflict of laws.
If successful, the Hague Jurisdiction and Judgments Convention would establish a regime governing jurisdiction to sue defendants from party states in tort and contract, and would improve predictability in the enforcement of the resulting judgments. This requirement that the Convention create uniform rules of jurisdiction comes as a surprise to many Americans. It reflects both the approach of the Brussels Convention and a deep-seated feeling among many other delegations that they do not wish to enforce U.S. judgments unless we make our jurisdiction practices consistent with their view of what constitutes appropriate international rules. Since litigants from most developed countries have no substantial difficulties enforcing judgments in the United States, their governments believe they have substantial negotiating leverage over us. This would perhaps not be the case if our states included reciprocity requirements in their law.
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Agreeing on a rigid set of jurisdictional rules poses special difficulties for the United States. Because the Due Process Clause puts limits on the extension of jurisdiction over defendants without a substantial link to the forum, the United States is unable to accept certain grounds of jurisdiction as they are applied in Europe under the Brussels and Lugano Conventions. For example, we cannot, consistent with the Constitution, accept tort jurisdiction based solely on the place of the injury, or contract jurisdiction based solely on place of performance stated in the contract.
At the same time, civil law attorneys (and their clients) are profoundly uncomfortable with jurisdiction based on doing business or minimum contacts, which they find vague and unpredictable. They feel strongly that certain aspects of U.S. jurisdictional practice must be restricted under the Convention. Although this divide has been partially bridged by agreement to permit some grounds of jurisdiction under national law to continue outside the Convention, critical choices and hard negotiations remain. If the Convention is to regulate jurisdiction in international litigation it must bridge vast differences in approach toward general and specialized jurisdiction among the various countries involved. It must also provide strong and clear benefits to outweigh the inevitable concerns about giving up some current litigation options in international cases.
Apart from jurisdiction, agreement must also be reached on how to handle a huge array of issues raised by this sweeping and ambitious project. Some of the issues include: concurrent filings in the courts of more than one state; forum non conveniens; provisional and protective measures; punitive, non-compensatory and ''excessive'' damages; a lack of fairness or impartiality in the judgment court; and scope of application to government litigation.
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The fifth negotiating session in October 1999 produced a preliminary draft text, and the original schedule called for a final negotiating session this coming fall. However, after extensive consultations with industry and consumer groups, the private bar, and with government litigators,(see footnote 33) the Department of State concluded that this text is not close to being ratifiable in the United States and cannot be an effective vehicle for final negotiations.
Acutely aware of the need for more time, in May we successfully requested the Hague Conference to extend the negotiations for another year or more, and to split the final session into two parts. We also secured a commitment from other delegations to make a renewed effort to seek real compromises on these difficult issues by meeting informally before the next session in June 2001 to try to achieve new drafts. Frankly, if other delegations do not begin to show more flexibility on many key provisions, we will be unable to achieve a convention that could attract sufficient support in the United States.
ELECTRONIC COMMERCE AND INTELLECTUAL PROPERTY ISSUES
When the Hague Convention negotiations were first proposed by the United States in 1992, and when they began four years later, no one predicted the immensely difficult issues that would suddenly arise from the explosion of electronic commerce. You will hear a great deal about these issues today.
Recognizing that revising rules of jurisdiction applicable to the Internet raised issues that had not yet been explored, the Hague Conference held a roundtable workshop in Geneva in September 1999, then called a special experts meeting in Ottawa last February devoted only to electronic commerce issues raised by the draft Convention. Because the issues relate to commercial electronic transactions, the Department of State specifically sought the assistance of the Department of Commerce with this phase of the discussions. The Ottawa session provided an opportunity for interested business and consumer groups to engage delegations and begin to educate them about the special litigation problems that arise from commerce on the Internet. A follow-on meeting in Ottawa is now planned for early next year.
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Similarly, the special litigation issues raised by international patent, trademark, and copyright litigation, including through the Internet, call for experts to consider carefully the potential effects of the current draft on international litigation involving intellectual property (IP) rights. Under the Brussels Convention, and reflected in the current draft of the Convention, jurisdiction over certain types of claims involving registered intellectual property rights is limited to the country of registration. This requirement has led to major clashes of interpretation among Brussels Convention parties, and those concerns have in turn been raised over the Hague draft. Recognizing these difficulties, the Hague Conference has asked the World Intellectual Property Organization (WIPO) to convene a meeting of experts to address the problems of jurisdiction in international litigation involving IP rights. The Department of Commerce, especially the Patent and Trademark Office, is providing assistance with this aspect of the discussions.
There is no consensus on the electronic commerce and intellectual property issues in the United States or elsewhere, and the Department believes we must take an extremely careful and deliberate approach in the Hague negotiations. We do not have firm views on the proper outcome of these provisions, and are seeking to consult as widely as possible and ensure that all the various interests are heard. We hope very much that effective solutions will emerge that will enable the Convention to move forward to a successful conclusion.
THE ROAD AHEAD
A carefully conceived and properly balanced Hague Convention would represent a tremendous opportunity for many American litigants, and we are trying vigorously to reach the right balance of provisions to enable us to achieve a convention to which the United States could become a party. However, given the strong litigation orientation of our society and the differences between our established jurisdiction practices and those of many of the other participating countries at the Hague, the Convention negotiations present special challenges. When you add the enormous uncertainties raised by the growth of trade and commerce on the Internet, and the complex choices for intellectual property litigation, the obstacles can seem overwhelming. Nevertheless, the promise is great, and we hope that we can ultimately succeed.
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In the months ahead we will continue to reach out to as many groups, associations, and experts as we can from the private and public sector to make them aware of the draft Convention and seek their views on the opportunities and difficulties it presents for us. It is only by understanding as clearly as possible the litigation issues raised that we can be in a position to attempt to achieve a balance of provisions that could allow us to ratify and implement the final Convention.
We hope, Mr. Chairman, to be able to remain in close contact with the Subcommittee on these issues, and thank you very much for the interest you have shown.
Mr. COBLE. Thanks to the entire panel. For each of you, if you could comment for me on what the effect of the adoption of a country-of-origin or a country-of-destination approach will have on the jurisdiction of the enforcement of copyright law.
Ms. VETA. I didn't hear the end of your question. The effect of country of origin or destination on what?
Mr. COBLE. On the approach in determining jurisdiction, what effect that would have on the enforcement of copyright law.
Ms. VETA. On copyright law, as Mr. Pincus pointed out, in some respects focusing either on country of origin or country of destination, one can end up being both over-inclusive and under-inclusive. And especially in areas of copyright law which present their own issues, even domestically within the United States, I think they are further complicated by just going with a single approach as was suggested there, and I think more along the lines that Mr. Pincus was suggesting is more likely the way to address the issue.
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Mr. COBLE. Do you all want to add to that?
Mr. PINCUS. Could I just briefly, Mr. Chairman? I think copyright illustrates the sort of disastrous approach the country of origin approach could have, because you have a situation where any pirate anywhere in the world would locate in a place that didn't have very good, or any copyright protection, and say, ''well, I am located in country X and what I am doing complies with our copyright law, or we don't have any copyright law.'' So that could be disastrous for owners of an intellectual property because it would essentially create safe havens for piracy. So I think that approach would clearly be disastrous.
A country-of-destination approach I thinkas I said in the beginning, I have to think a little bit more about thatit obviously provides at least for a way for rights owners to protect themselves in markets in which there is strong copyright protection. I do think one of the useful things about copyright is there are international norms that provide good copyright protection, and that may also provide a reference point for dealing with some of these issues in that context.
Mr. COBLE. Mr. Kovar, you want to weigh in on this?
Mr. KOVAR. Mr. Chairman, just to say that the current draft of the Hague Convention does take a country of destination approach, and it is for reasons such as those that have been raised here that the Department has said that we are not in a position to accept that formulation now, and instead we have to explore all these issues. I think, as Mr. Pincus has said, the copyright issue is a good example of why it is hard to take a bright-line rule.
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Mr. COBLE. Each of you contends that a multinational agreement on these issues is beneficial to American interests. But each of you further concludes that the current direction of the Hague Convention is going in a manner which will not be acceptable. Now, my question to you all is, how do we arrive at a consensus? Do you all have a magic wand in your briefcases?
Mr. PINCUS. If I may, I think one of the good things about the Hague process is that there has been a recognition that when the Hague Conference embarked upon this process in 1992 the world looked a lot different. And there now are some very significant issues that have to be addressed just because the Internet has really changed the framework of global interaction so much. And I think the good thing is that the Hague Conference recognized that the area of electronic commerce and the area of intellectual property are areas where there has to be special study.
And there was a discussion in Ottawa on electronic commerce earlier this year. As Mr. Kovar said, there is scheduled to be a discussion of intellectual property issues. So we are hopeful that we can engage in some consciousness-raising with our colleagues in governments around the world about these issues and about the need to address them in a way that is sensible, given the new electronic environment in which we are operating.
And I think the other thing is that the private sector has in recent months, as a result of the process that led up to the Ottawa meeting in which we consulted quite a bit with the U.S. private sector, has become much more aware of these discussions. And I think as the U.S. private sector alerts its colleagues around the world, my guess is in other countries there will be the same kind of discussion that we are having here.
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Mr. COBLE. Mr. Kovar.
Mr. KOVAR. Mr. Chairman, just to say that the negotiations have reached, in a sense, a crisis point. The U.S. stated very forcefully to the other members that the current draft could not be accepted in the United States, but the reaction so far has been let's try to work things out. And we were able to get the other States to agree to extend the deadline for completing the Convention and to try to work in a more consensus-seeking manner.
The other key to this is to bring in as much as possible, not only in the United States but around the world, the real stakeholders in the private sector into this process. And we hope that that will continue. I think it is too early to write off the project altogether, but we certainly have a tough road ahead. Thank you.
Mr. COBLE. My red light appears. But did you want to add anything?
Ms. VETA. In the interest of time, Mr. Chairman, I think my colleagues have covered it.
Mr. COBLE. I will recognize the gentleman from California.
Mr. BERMAN. Thank you, Mr. Chairman. I am wondering if any black helicopters have been moved to the Hague.
Page 62 PREV PAGE TOP OF DOC Two areas I want to pursue. One is Ms. Veta talked about sort of these overriding principles: online conduct should be treated like off-line conduct is, which in the context of the limitations you put on your testimony, I assume you may have been referring just to domestic or U.S. disputes where the parties arethe parties are U.S., the harm takes place in the U.S. Or were you thinking in broader terms?
Ms. VETA. Well, my focus is primarily domestically. And some of the tough issuesfor example, when you gave your hair dryer exampleyou can have the same difficulty if you order it through a catalogue as compared to whether you order it online. So to that extent, I think they are the same issues. By the same token, if you are ordering something either from a catalogue from Germany or doing it online, then I think you are going to have the same difficult issues.
And to that extent one would argue, as Mr. Pincus pointed out, you would want to address the issue of the relationship between the consumer and the manufacturer or the seller in the same way that was neutral to the medium.
But with that said, I think it is also important that we recognize that in some cases there may well be distinctions between what happens over the Internet and what happens in other ways in which commerce is conducted, and we will need to pay attention to them.
Mr. BERMAN. But when you talk about alternative dispute resolutions or you talk aboutwhat is happening at the Hague? What is going on? Is this about electronic commerce? Is this broader? Is this about all kinds of commercial disputes? This is obviously an approach, it sounds like, that at leastwell, my guess is, maybe on process and substantive law, is to try and develop an approach that sets ground rules that would supercede national laws or State laws. Am I wrong about that?
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Mr. PINCUS. Either supercede them or be something that even consumers could opt into by contract. And in some countrieshere we have rules aboutStates have rules about choice of law clauses and consumer contracts and what their scope can be, and those rules in some other countries are even more rigorous. So the idea would be to provide perhaps a contractual option, perhaps superceding national laws, or some deferral by national laws to this entity.
It really is a new idea, so we have to get the system up and running and see how it works, and then see how it interacts with national law. It may be that, as a practical matter, if this option gets up and running and works, it takes care of so many of the disputes, such a large chunk, that there are not a lot of people wanting to look to their judicial remedies afterward, anyway.
Mr. BERMAN. What kind of disputes? Is there any limitation on the type of disputes that these parties are considering?
Mr. PINCUS. Well, I mean, the Hague process essentially started before all this got going, in 1992 really, at theMr. Kovar can talk about thisat the insistence of the United States, to deal with the asymmetry in enforcement of foreign judgments. Our legal principles are relatively friendly to the enforcement of judgments.
Mr. BERMAN. It is only about the question of enforcement of judgments.
Page 64 PREV PAGE TOP OF DOC Mr. KOVAR. It started with the enforcement of judgments. The problem is that
Mr. BERMAN. As we started as a citizen legislature.
Mr. KOVAR. The difficulty is that, as we have said, in the U.S. our courts are generally fairly friendly to the enforcement of judgments from countries with reliable legal systems, whereas our litigants have much more difficulty taking their judgments abroad and getting them enforced. So we would really like to see an enforcement of the judgments Convention.
Mr. BERMAN. I will remind you that the victim of terrorism legislation comes up for hearing during the process.
Mr. KOVAR. There are two reasons why we are also dealing with jurisdiction, which is not necessarily an obvious step for American lawyers, thinking about the problem of judgments. The first is because that is the way the Europeans do it. They have a fully functioning Convention with 15 parties. That instrument sets up uniform rules of jurisdiction, and the enforcement of judgments follows from compliance with those rules. So naturally that is their approach. Also, since European judgments already get enforcement in this country, many delegates say, well, if we are going to give the United States enforcement of judgments we want to cut back on U.S. jurisdiction. Whether justified or not, many people outside of this country are afraid of the U.S. legal system. They don't understand the use of juries and punitive damages and so on. In their view, they want the U.S. to agree to rules of jurisdiction that will limit in some ways what they see as excessive use of long-arm jurisdiction.
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So that is the process we have gotten ourselves into. We think that if it is done right, the deal could be a good one. But we are not there yet. We have a lot of problems with the current draft's treatment of the Internet issues, making it a much more difficult exercise overall. But that is essentially what we are trying to deal with.
Mr. BERMAN. Mr. Chairman, I know my time is up. Just make sureI am still not quite understanding. It is about enforcement of foreign judgments. It may be taking into account questions of, then, limits on jurisdictional reach. But it is not about substantive rules or contract interpretations or any substantive body of law.
Mr. KOVAR. It is not about any substantive body of law. It is not.
Mr. BERMAN. It is not limited to the Internet.
Mr. KOVAR. It is not limited to the Internet. It is not about choice of law rules either. It is only about jurisdiction and then the resulting enforcement of judgments. But it would apply to the Internet on its face. That is why we are grappling with those issues.
Mr. COBLE. Since Howard and I don't have to share this with any other of our colleagues, I will go with a second round. Howard, if you have other questions. I just have three questions I want to put to you all.
Page 66 PREV PAGE TOP OF DOC Mr. Kovar and/or Mr. Pincus, regarding the Yahoo case, it concerns me that American business interests can be found liable in foreign courts. My question to you is twofold. Do you all share my concern about that (a); and (b), do you have any suggestion as to how my discomforted concern can be assuaged?
Mr. KOVAR. Mr. Chairman, could we be sure we know which case this is? Yahoo in trans
Mr. COBLE. The French court.
Mr. KOVAR. Where the court has ordered Yahoo not to allow an auction to people in France of certain items that relate to the Nazis.
Mr. COBLE. Yes.
Mr. KOVAR. I think this case raises broader policy issues that we are not dealing with in the Hague Judgments Convention, that really relate more to substantive law, and they will have to be dealt with in a different way. But the basic issue of jurisdiction and enforcement of judgments would not necessarily be a problem in this case under the Convention that we are drafting, because the Convention would provide certain instances which courts are not required to enforce foreign judgments. And one of those instances is where a judgment is contrary to public policy. And it could very well be that in a case like this or some other hypothetical, there is an order of a court in France, they go to the U.S. and try to enforce it against Yahoo, and the U.S. courts could refuse to enforce it on public policy grounds.
Page 67 PREV PAGE TOP OF DOC Mr. COBLE. Mr. Pincus.
Mr. PINCUS. Thank you, Mr. Chairman. This is one instance of a large complex of issues that really go to the question of what substantive law will govern Web site operations and how we can prevent a situation where one country can essentially rule the world by telling a Web site operator what can or can't be displayed on that Web site simply because it might be accessible by people in that country. It is a complicated issue.
It arisesfor example, just to give you a few other instancesthere are some countries in Europe that prohibit comparative advertising. We think comparative advertising is great because it gives the consumer a basis for choice. In some places in Europe, comparative advertising is prohibited. It is illegal. So what do you do if your Web site audience is where you want, but you also want to provide that kind of comparative information?
There are other kinds of content rulings, in Germany for example, relating to the Nazi era that have also caused problems from time to time. And I think the balance here that has to be struck is, as I say, not letting one country dictate the content of the Internet by saying you have to go by our rules.
On the other hand, especially when there are to be interactions with the citizens of a country, you want to be sure that countries can protect their consumers against fraud and other things, and that is the balance that has to be struck. We have talked about a number of different rules that might deal with something that is simply posted, as opposed to whether there is an action or targeting of citizens of a country. I think those are things that are going to be worked out and that are really under active discussion now.
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Mr. COBLE. Mr. Kovar, some have complained that one of the greatest concerns that the administration has with the Hague Convention involves the provision that allows a court not to enforce a judgment it considers excessive. Now, these same critics would say that an international agreement is being sacrificed or compromised for the trial bar. How would you respond to that?
Mr. KOVAR. The issue of damages, both what would be considered punitive damages or noncompensatory damages in general, and compensatory damages that some countries may find excessive, is one that we have worked very hard on in the Convention. And we have tried to consult very closely with the trial bar in this country, as well as with other members of the bar, to try to deal with this in the most rational and effective way that we can. We think we have found a provision that takes a middle line. And at least so far, that seems to have been greeted with a fair amount of appreciation. What the provision does is say that in exceptional cases, if the defendant is able to prove the damages are grossly excessive, then the enforcing court can reduce them. But in doing so, the court has to take into account conditions in the country where the judgment came from.
In other words, if in China, for example, what is considered the value of a lost eyeball is not so high, the court can't simply say we don't think a lost eyeball is worth this much money. They have to also take into account the value of that in the United States.
And in the same way in the punitive damages issues, we found that it was impossible to get the other countries to agree to enforce punitive damages when they don't grant them. But to the extent their courts grant punitive damages or something similar to them, then under the Convention they are expected to enforce the orders to the extent they have similar forms of damages. Thank you.
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Mr. COBLE. Ms. Veta, I meant to ask you this, in the first round. Does your Department engage in any sort of monitoring of legislation passed by various States which might interfere with the Federal treatment of e-commerce, particularly as it relates to these jurisdictions and choice of law issues?
Ms. VETA. Well that is a very good question, Mr. Chairman. As you know, we have no formal monitoring role. On the other hand, to the extent that it may infringe on Federal jurisdiction, the Federal agencies do pay close attention to what is going on in the States. So we have that protection. The other protection that we have is if a State does overreach in the eyes of the Federal Government and in the eyes of the parties, undoubtedly, especially with the robustness of the Internet industry, someone is likely to bring a suit claiming that that State law does go too far, and then that issue would be litigated through the courts. And to the extent the United States had an interest, we would be a party to that lawsuit.
Mr. COBLE. I thank you. Mr. Berman.
Mr. BERMAN. I would like to talk about their alternative dispute resolution. I mean, I think in labor lawI mean, the National Labor Relations Act and the Federal courts have given a certain deference to arbitration, contractually agreed to arbitration. Where do you see the Federal Government's desire to favor alternative dispute resolution? How do you see it manifesting itself?
Mr. PINCUS. Well as a general matter even outside the arbitration context, the Federal Arbitration Act does give a broader blessing, if you will, for arbitration. The real question in the consumer contextand we had a workshop on this with the FTC a few weeks agois how do you construct a sort of mass arbitration system. For almost every model that is out thereexcept for that of the Better Business Bureau which is working on an online ADR system and which has tremendous experience with adjudicating large numbers of small disputesthe real question is how do you develop a system that is fair and equitable, but efficient enough, so that if all you are talking about is consumer transactions, the cost of each arbitration is not enormous compared to what is at stake. This efficiency is essential to ensure so that the system doesn't ultimately collapse.
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There are other efforts under way. BBB online is one. There are a number of private entities that demonstrated their online dispute resolution processes, that are working on it. What we are hoping is that this workshop with the Trade Commission will foster is some experimentation out there in the world to get some systems up and running so that we can have some experience with them; because right now, no one really knows what it would look like. Everyone thinks it would be a good idea to create this animal, but no one knows quite what it would look like and how it would function.
We have some people in the private sector who have pledged to get some systems up and running, and to start using them in their own relationships with consumers. I think then we will have a better idea of what the parameters of good ADR are, what are some of the elements that make sense, and exactly how the system would work. But we need a little bit of experimentation, I think, in order to get there and see then what kind of role is there for government in either backing this up or making it legally effective or whatever would be appropriate.
Mr. BERMAN. On the Internet, where iswhat is the contracting State in an Internetin an agreement made on the Internet?
Ms. VETA. Mr. Berman, if I understand your question, to the extent that the parties enter into a contract online on the Internet, typically what one would expect, especially in the business-to-business transaction, is that that Internet contract would specify the State where disputes should be litigated.
Page 71 PREV PAGE TOP OF DOC Now, if the contract doesn't do that, then I would suggest you use the standard kind of jurisdictional analysis that you would use if a company in California contracted with a company in North Carolina through the mail or by fax, to figure out where a jurisdiction is. And that is where either the California party was, or the North Carolina party, or whatever was going on in the contract.
Mr. BERMAN. But that is not the court of the contracting State, is it? I mean, that is where you have decided under the different tests you enunciated earlier, jurisdiction is appropriate or at least an appropriate alternative.
Ms. VETA. If I understand your question, in terms of where the contracting State is, if you think about it in the physical world, the known cyberworld, contracts don't just happen in a State. They happen where the parties are located, or the contract specifies where the dispute will be litigated. So, for example, again with the California company and the North Carolina company, they may fax back their signatures over the telecommunication wires. And where the contract occurred, I guess one would argue, is at that point where the offer was accepted, going back not only to civil procedure but Contract 101. And so just as that offer was accepted where the accepting party was located, so too if the accepting party does that over the Internet, it would be the State where the accepting party is located.
Mr. PINCUS. It is much more complicated, because one of the facts of life on the Internet is that you don't necessarily know where in the physical world your counter-party is located, because nothing in the way you are interacting tells you. At least if you have a telephone number or fax, you might know where that fax machine is from the area code. But if all you are doing is trading e-mails, there is nothing in the address that will tell you.
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Mr. BERMAN. From the wireless phone on the airplanes.
Mr. PINCUS. Exactly.
Mr. COBLE. We have been joined by the gentleman from Michigan, Mr. Conyers, the ranking member for the Judiciary Committee. Mr. Conyers.
Mr. CONYERS. Thank you, Mr. Chairman. I was going over another Internet problem in another subcommittee of Judiciary just a few minutes before I came here. This one has the blessing of not having any bill before us, which is a rare feature of our committees, where we just come and talk about it. And I can see why. In the other subcommittee, we had three bills before us on the same subject. On this one we have none; and, I think, appropriately so.
I have a statement that I would like to enter into the record.
Mr. COBLE. Without objection it will be done.
[The information referred to follows:]
PREPARED STATEMENT OF HON. JOHN CONYERS, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
We are here to discuss an issue of increasing importance: how do we apply the traditional civil laws and procedures of jurisdiction to conduct on the Intenet.
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Over the years, the Supreme Court has struggled with the concept of jurisdiction in civil suits. We have dozens of cases on jurisdiction, minimum contacts, choice of law, and venue, issues that must be resolved in any civil proceeding. Those concepts are difficult enough to grasp without the Internet, but more and more in the Information age, legal claims in civil suits are based upon contracts entered into on the Intenet.
The courts have come out in different directions about how those traditional civil procedure concepts apply to Internet transactions, and it may be up to Congress to straighten everything out.
What makes this issue especially difficult, though, is that it is not a purely domestic one; it affects every nation that has access to the Internet. While the Hague Conference made an attempt to resolve these issues and issued its recommendations in late 1999, the State Department found that the proposal disadvantaged American citizens more than it helped them. Clearly, this would be an objectionable solution.
I intend to review all of the different issues, proposals, and testimony to see how we can craft a policy that works for all of the parties involved.
Mr. CONYERS. I really regret having missed the initial discussions by this first panel. I think that this has national and international implications, and I appreciate the discussion that will be coming after this panel, and I don't think I will use any more time.
Page 74 PREV PAGE TOP OF DOC Mr. COBLE. I thank the gentleman.
The gentlelady from California, Ms. Lofgren.
Ms. LOFGREN. Thank you, Mr. Chairman. Unfortunately, I have had to join this proceeding late as I was at another subcommittee hearing investigating monks and nuns. I decided I would better serve by coming over to this subcommittee. The other proceeding seeks to protect us from an incursion of religious of foreign priests coming in to the U.S.most certainly a threat to the Nation. I regret very much that I therefore missed the testimony of these three witnesses. I know from the reputations of these witnesses, andin some cases past experience, that they have guidance to offer. I will read their written testimony.
I thank you Mr. Chairman, for holding this hearing. We serve ourselves well when we arm ourselves with pertinent informationas the chairman has led us to do on so many occasions. Therefore I look forward to the next panel. Thank you.
Mr. COBLE. I thank the gentlelady. We thank the panel. We will invite the second panel to come forward.
While you are doing that, let me recognize our summer law clerk Jed Winter. Jed, if would you stand up. Jed did a great deal of work and assisted the minority and majority staff regarding this hearing and the materials. I think, Jed, you are going into a clerkship in New York? We wish you well. It has been good having you with us this summer.
We are pleased to have our second panel with us. I want to apologize in advance to the audience for the length of these introductions. But I think it is important that we all know the ability and credentials that these witnesses bring to the table. So I will have a rather detailed introduction of our witnesses.
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Our first witness is Mr. Thomas P. Vartanian, who is the managing partner of the Washington office of the New York law firm of Fried, Frank, Harris, Shriver & Jacobson. He is testifying on behalf of the American Bar Association. Mr. Vartanian is also an adjunct professor in the graduate law program at the Georgetown University Law Center, where he teaches a course on 21st century banking issues.
Mr. Vartanian is the Chair of the American Bar Association's Committee on Cyberspace Law and is a member of the ABA Banking Law Committee. He is a coauthor of two recently published books entitled: 21st Century Money, Banking, and Commerce, and The Management of Risks Created by Internet-Initiated Value Transfers, and a contributing author of the Year 2000 Legal Guide.
Our next witness is Mr. Mark A. Thurmon who is the assistant professor of law at the University of Florida, testifying on behalf of the American Intellectual Property Association. Professor Thurmon is also of counsel to the firm of Fulbright & Jaworski in Austin, Texas. He will serve as vice chairman of the AIPLA's Internet and Cyberspace Committee for 20002001. He received his J.D. degree from Duke University School of Law after graduating from Louisiana State University with a BSEE degree. He spent 5 years in the United States Navy.
Our next witness is Mr. Henry H. Perritt, Jr., who is the dean of the Chicago-Kent College of Law, and vice president of the downtown campus of the Illinois Institute of Technology. Dean Perritt is responsible for the establishment of the Institute of Science, Law and Technology, a university-wide framework for faculty, student and professional collaboration interested in technology and the law. He earned his B.S. degree from engineering at MIT, a master's degree in management from MIT's Sloan School, and a J.D. From the Georgetown University Law Center.
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Our next witness is Mr. Dan L. Burk, of the University of Minnesota School of Law. Professor Burk is an expert in the law of intellectual property and is internationally recognized for his scholarship on cyberlaw and biotechnology. He is the author of numerous papers on the legal and societal impact of new technologies, including articles on scientific misconduct, the regulation of biotechnology, and the intellectual property implications of global computer networks. He holds a B.S. in microbiology from the Brigham Young University, an M.S. in molecular biology and biochemistry from Northwestern University, a J.D. cum laude from the Arizona State University, and a JSM from the Stanford University.
Our next witness is Jonathan Zittrain who is the executive director of the Berkman Center for Internet & Society at Harvard Law School. Mr. Zittrain's research includes analysis of Internet filtering technologies and attempts to regulate the deployment of strong cryptography. He earned his J.D. and MPA from Harvard and his B.S. in cognitive science and artificial intelligence in 1991 from Yale University.
Our next witness is Marc A. Pearl, who is the senior vice president of government affairs and general counsel at the Information Technology Association of America. In addition to handling ITAA's in-house legal duties, Mr. Pearl coordinates the organization's overall policy agenda. Mr. Pearl has represented the industry in international forums and negotiations, and served a member of the U.S. Government Delegation to the 1996 WIPO Diplomatic Conference in Geneva and the February 2000 Experts Meeting on E-Commerce at the Hague Convention. Mr. Pearl received his undergraduate degree with honors from the Case Western University in Cleveland, and his law degree from Emory University in Atlanta.
Page 77 PREV PAGE TOP OF DOC Our final witness on this panel is Mr. Robert W. Holleyman, who is president and CEO of Business Software Alliance here in Washington where he is responsible for BSA's public policy, education, and enforcement campaigns in 65 countries. Mr. Holleyman frequently testifies before Congress and represents the software industry before foreign governments on policy issues affecting the high-tech industry. Prior to joining BSA in 1990, Mr. Holleyman spent 8 years on Capitol Hill as senior counsel for the United States Senate Committee on Commerce, Science and Transportation, and as legislative director and assistant to former United States Senator Russell B. Long. He earned his B.A. degree in political science at Trinity University in San Antonio, Texas and his J.D. at Louisiana State University Law Center.
We have written statements from all the witnesses on this panel, which I ask unanimous consent to submit into the record in their entirety.
Gentlemen, it is a pleasure to have each of you here. You bring great credentials and talents to our subcommittee. I would reiterate our earlier request to you, if you could limit your oral testimony to 5 minutes, that will enable us to move along and stay on schedule. And your warning will be when the red light appears in your eyes.
Mr. COBLE. Mr. Vartanian, why don't you start us off?
STATEMENT OF THOMAS P. VARTANIAN, MANAGING PARTNER, FRIED, FRANK, HARRIS, SHRIVER & JACOBSON ON BEHALF OF AMERICAN BAR ASSOCIATION
Mr. VARTANIAN. Thank you, Mr. Chairman. I appreciate the opportunity to be here and to discuss with the subcommittee the complex jurisdictional issues raised by the movement of commerce onto the Internet. Anyone doing business in cyberspace needs to know what laws to apply and what laws to obey, whether it be a question of what taxes are due, and where, or what consumer protections apply to the sale of products and services.
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A Web site can generally be viewed by anyone with a computer in any part of the planet at any time. This tends to make the location of the sponsor of the site less relevant, but has dramatically broadened the reach of every Web site. Executives must know in any business what laws to follow in order to understand their liabilities and accurately price their products. Consumers must know what rights they have.
Perhaps there is no greater example of this problem than the recent decision by a French court requiring Yahoo, Inc. to block access in France to U.S.-based auction sites selling objectionable materials.
Even more illustrative perhaps is the development of personal area networks, or PANs, where data and transactions move with the person. For example, I wear a JAVA i-button ring with a 64K chip in the face, and I carry on this ring my digital signature, a securities trading program, and several other documents. And with this connector, which fits onto the ring, I can download the information on any PC anywhere in the world. So my jurisdiction moves with me.
If consumers order a book online from their home in Virginia from a seller physically located Paris, is it as if the book seller boarded a plane and delivered the book to the purchaser in Virginia, or as if the purchaser flew to Paris to buy the book off the shelf. That is my way of asking the question: Does the push and pull of technology make a difference in how the law of jurisdiction should be applied?
Some transactions are even more difficult to analyze than what would appear at first blush. For example, if the words of a book are sold online and are downloaded by the purchaser, rather than actually shipping the hard copy of the book, is that the sale of a product or the sale of a service? It may make a difference.
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And if an electronic agent such as a cyber-robot exercises decisions for a party in a way that does not necessarily involve the party, or suggest a physical location for that action, how is the jurisdictional analysis affected?
To attempt to answer these questions or at least establish the academic and practical boundaries for their exploration, the American Bar Association established its transnational jurisdiction in Cyberspace Project in April 1998, through the sponsorship of six separate sections of the American Bar Association. More than 100 lawyers in approximately 20 countries have worked together toward the release of a report for the July 2000 meeting of the Bar Association.
Dean Perritt, to my right, represented Kent Law School, which acted as the reporter for this project. The project studied Internet jurisdiction in different areas and its draft report is now on the Web site hosted by Chicago-Kent Law School (www.kentflow.edu/cyberlaw). The project report will be published in the August 2000 edition of The Business Lawyer. I commend this report to the subcommittee for its study and review.
In order to attempt to develop principles that may be used to solve the jurisdiction questions that arise as more and more products and services are offered over the Internet, at the Bar Association we found it necessary to explore several threads that seem to flow into all of these different issues. I will list them very briefly:
First, the relevance or irrelevance of physical location. Activity occurring in cyberspace may be difficult to ascribe to any specific physical space, even though the parties themselves exist in real, not virtual space. Courts, therefore, are forced to reexamine the criteria that they will use to determine what the relationship must be between the forum, the parties, and the conduct.
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Second is targeting. Today, entities seeking a relationship with residents of a forum can target their Web site to avail themselves of the benefits of that jurisdiction. Language, graphics, software can be used to focus the direction of the Web site. But the concept of targeting is more easily stated than understood, both from a technological and legal point of view.
Third, the power parameters on the Internet are changing. Jurisdiction rules sometimes reflect presumed power imbalances between buyers and sellers. But those presumptions may need to be reevaluated or reexamined, given the manner in which the Internet empowers consumers vis-a-vis sellers. Consumers can use BOTs, for example, to shop for product availability around the globe by price and terms. Thus, the concern that buyers may have little competitive power in commercial transactions and be easily taken advantage of may not be as true in cyberspace.
Forth, contractual choice. Many disputes between parties are subject to contracts to determine the terms and conditions upon which they have agreed to interact. When parties have equal bargaining power and therefore an equal ability to accept or reject such clauses, the clauses are generally enforced. To the extent that the Internet is both limiting the ability of the seller to confine its market and consequently dramatically widening the options available to buyers, the presumption of inequality in business-to-consumer transactions is called into question.
Lastly, the intersection between jurisdiction and substantive liability. The dynamics of cyberspace may encourage States to create new rules of substantive liability for third parties who have a physical presence in the State's territory. Should the junctions in the flow of electronic commerce and money be employed to impose or enforce jurisdictional standards and rules? For example, most electronic commerce flows through Internet service providers and the money flows through various different payment mechanisms.
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I see my time is running out, so I would like just to conclude with a recitation of 10 recommendations that I view as important and that may also be found in the ABA report:
First, a multinational global online standards commission should be established to study jurisdiction issues and develop uniform principles and global protocol standards.
Second, intelligent electronic agents should be employed to electronically communicate jurisdictional information and rules, enabling such pre-programmed agents to facilitate automated decisions to transact business with each other or not.
Third, voluntary industry counsels and cybertribunals should be encouraged by governmental regimes to develop private-sector mechanisms to resolve electronic commerce disputes.
Fourth, self-regulatory regimes should be encouraged to forge workable codes of conduct rulings and standards among a broad spectrum of electronic commerce participants.
Fifth, personal and prescriptive jurisdiction should not be asserted based solely on the accessibility of a passive Web site.
Sixth, good faith efforts to target and prevent access by users to a site or service through the use of disclosures, disclaimers, software, and other technological blocking or screening mechanisms should insulate the sponsor from assertions of jurisdiction.
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Seventh, users and sponsors should be encouraged to identify with adequate prominence and specificity the State in which they habitually reside.
Eighth, safe harbor agreements among nations should be encouraged to resolve jurisdictional conflicts in cyberspace.
Ninth, global regulatory authorities of highly regulated industries such as banking and securities should be encouraged to reach agreement regarding how laws will be applied to financial products and services offered in a global electronic commerce environment.
And tenth, any use of any intermediaries in the flow of electronic information commerce and money, such as Internet service providers and payment systems, require careful exploration before being proposed for adoption.
I appreciate the time afforded by the committee and look forward to your questions.
Mr. COBLE. Thank you.
[The prepared statement of Mr. Vartanian follows:]
PREPARED STATEMENT OF THOMAS P. VARTANIAN, MANAGING PARTNER, FRIED, FRANK, HARRIS, SHRIVER & JACOBSON ON BEHALF OF AMERICAN BAR ASSOCIATION
Page 83 PREV PAGE TOP OF DOCIntroduction
I appreciate the opportunity to be able to discuss with the Subcommittee the complex jurisdictional issues raised by the movement of commerce onto the Internet. As Chairman of the American Bar Association's (''ABA'') Committee on the Law of Cyberspace, I have directed the two-year transnational project on jurisdiction in Cyberspace for the ABA. While I will borrow liberally from it in my remarks and testimony, I appear here as a private attorney and expert on the law of Cyberspace. Therefore, my testimony reflects my views alone and not those of the ABA.
''Jurisdiction'' is a word that makes even the most intense legal theoreticians' eyes glass over. Yet it has become an intensely important subject even to business people because of the new environment in which they find themselves competing. Simply stated, anyone doing business in Cyberspace needs to know what laws to obey, whether it be a question of what taxes are due and where, or what consumer protections apply to the sale of their products or services.
As we know, a web site can generally be viewed by anyone with a computer in any part of the planet at any time. This tends to make the ''location'' of the sponsor of the site less relevant, but broadens the geographic reach of a business. However, it is geography and location that have been the basis upon which our territorial laws have been constructed and applied. Therefore, there is no more fundamental issue that must be resolved in order to facilitate the development of efficient electronic distribution channels than the question of whose laws apply to electronic commerce. In business-speak, executives must know what laws to follow in order to understand their liabilities and accurately price their products. Perhaps, there is no greater example of this problem than the recent decision by a French court requiring Yahoo! Inc. to block access in France to U.S.-based auction sites selling Nazi memorabilia and artifacts.(see footnote 34)
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The Need for Jurisdictional Predictability
Should the jurisdictional principles applied to commerce in Cyberspace be any different from those that are applied to commerce in the physical world? In cross-border Cyberspace transactions, who should protect the consumer? Who should be able to levy taxes? Who should enforce the terms of a commercial transaction?
Certainly, global commerce, whether electronic or otherwise, is not a unique or new development. Many principles do not need to be altered significantly even though the use of Cyberspace has changed some of the accepted dynamics of commerce. But the creation by Cyberspace of a new ''environment'' in which commerce can flourish has provided a basis for these questions to be raised. For example, it allows governments that see the assertion of jurisdiction as the precursor to the imposition of taxation, or businesses which see jurisdictional confusion as a shield behind which they can hide,(see footnote 35) to leap into the void purportedly created by these new dynamics.
To decide what laws apply in Cyberspace, those responsible for the creation of laws must first decide whether Cyberspace is a place, a means of communication, or a state of mind. I submit that the Internet merely represents yet another means of communication along a continuum of technological developments that date back to the discovery of electricity. But that does not mean that these questions are easily answered.
Second, if this new means of conducting business is to fully succeed and be as efficient and economical as possible, commercial rules that are at least predictable, if not certain, must be developed. Predictability requires a legal infrastructure that allows the participants to an electronic transaction to consummate it without undue concern over the risk of repudiation, the means of enforcement or the rules of dispute resolution. Jurisdictional predictability for a business may suggest that the law of the country of origin should apply, while for a consumer, it will mean that the law of the country of destination should apply. Is there an easy compromise to these polar alternatives?
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The Dynamics of Online Commerce
When an online purchase is made, either directly or through the intervention of an electronic agent, or ''Bot,'' has the buyer stepped into a new place or simply used a different means of communication, much like a phone, fax or satellite link, to effect that purchase? Should it matter where the hardwires, servers, routers and artificial intelligence agents we use are located?
If a consumer orders a book online from her home in Virginia from a seller physically located in Paris, is it as if the bookseller boarded a plane and delivered the book to the purchaser in Virginia, or as if the purchaser flew to Paris to buy the book off the shelf? Does the ''push'' and ''pull'' of technology make a difference in how the law of jurisdiction should be applied?
The argument that jurisdiction should not attach where digital transmissions are ''pulled'' into a locale was unsuccessfully made in United States v. Thomas, 74 F.3d 701, 70607 (6th Cir. 1996), a criminal case in which the defendant argued that he had not ''pushed'' pornographic pictures into Tennessee from his server in Los Angeles and should not be subject to Tennessee's pornography laws. Rather, he asserted that, given the way digital technology works, the 0's and 1's he transmitted were actually ''pulled'' into Tennessee by a computer that must have had a less than noble intent, as it took those 0[s and 1's and created a pornographic picture. A difficult argument to make, perhaps, but the question seems valid. Should a business be subject to the laws of whatever jurisdiction into which a consumer drags its digital message? What are the commercial costs of such a result? And how are such results enforced?(see footnote 36)
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A similar set of issues were raised in Minnesota v. Granite Gate Resorts, Inc., No. C6957227, 1996 WL 767431 (Minn. Dist. Ct. Dec. 11, 1996), aff'd, 568 N.W.2d 715 (Minn. Ct. App. 1997) and aff'd, 576 N.W.2d 747 (Minn. 1998), which applied the laws of Minnesota to an online gambling business located in Las Vegas that operated through a server in Belize. Sweeping legal assertions that every transmission viewable in a state is subject to the criminal and civil laws of that state are difficult to harmonize since they essentially mean that each such state regulates the entire Internet! Should every jurisdiction be able to impose its advertising, gambling, consumer protection and tax laws to every web site that can be seen by a visitor to that site? At least one federal court in New York concluded that such a result would violate the Commerce Clause of the U.S. Constitution and that the Internet should be viewed as a federal presence. (See American Library Association v. Pataki, 969 F. Supp. 160 (S.D.N.Y. 1997)).
While understanding where one may be haled into court is worthwhile, the issues subsumed by the concept of jurisdiction in Cyberspace are far broader and more important. For example, when an online distributor of financial products located in the United States sells mutual funds registered in Germany through a German division to a German-speaking person who happens to reside both in Germany and Austria, there are regulatory jurisdictional questions that both parties should be interested in beyond the question of where one party may sue the other over a dispute:
1. Where does the seller reside for organizational purposes?
2. What countries can regulate these Cyberspace solicitations and/or sales transactions?
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3. Who can tax the business as well as the transaction?
4. Under which laws are the terms of the transaction enforceable?
5. In what country(ies) must the product be registered or licensed?
Some transactions are even more difficult to analyze than would appear at first blush. For example, if the words of a book are sold online and are downloaded to the purchaser, rather than actually shipping a hard copy of the book, has a product been sold or a service provided? Electronic commerce actually blurs the lines of demarcation between products and services, a distinction which could be critical to regulation and taxation of electronic transactions. And, if an electronic agent, or Bot, executes decisions for a party in a way that does not necessarily suggest a physical location for the action, how is the jurisdictional analysis affected?
New Jurisdictional Paradigms
To attempt to answer these questions, or at least establish the academic and practical boundaries for their exploration, the ABA established its Transnational Jurisdiction Project in April 1998, through the sponsorship of six separate sections(see footnote 37) and under the direction of the Committee on the Law of Cyberspace of the Business Law Section. More than 100 lawyers in approximately 20 countries have worked together toward the release of a report at the July 2000 meeting of the ABA in London. The report will explain how the rules of jurisdiction have traditionally operated, how the Internet has affected it and what options are available to the market to deal with these changes in the areas of (a) taxation, (b) the sale of goods and services, (c) financial services and securities, (d) intellectual property, (e) public laws and gambling, (f) consumer protection and (g) data protection. The Project's draft report and related research is set forth at http:www.kentlaw.edu/cyberlaw.(see footnote 38) The Project's report will be published in the August 2000 edition of the Business Lawyer. I commend this report to the Subcommittee for its study.
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One conclusion reached by the ABA draft report, with which I strongly agree, is that, in order to attempt to develop principles that may be used to solve the jurisdiction questions that arise as more and more products and services are offered over the Internet, it is necessary to explore several threads that seem to flow throughout these issues.
The Relevance of Physical Location(see footnote 39)
Activity occurring in Cyberspace may be difficult to ascribe to any specific physical space, even though the parties themselves always exist in real, not virtual, space. Courts and legislatures have focused on physical location as the touchstone of both personal and prescriptive jurisdictional inquirieswhere a negligent act took place, the injury was suffered, a contract was entered into or was to be performed, a security was offered for sale or a trademark infringed.
Technology, however, reduces and frequently may eliminate the need for physical contact in the creation of legal relationships between parties and/or government regulators. Courts, therefore, are forced to reexamine the criteria that they will use to determine what the relationship must be between the forum, the parties and the conduct occurring outside the forum. For example, if a doctor in Wyoming, using detailed verbal and visual information supplied to her electronically by a patient living in Illinois to diagnose the patient using assistance from a physician online in Boston, the doctor has created a legal tie between herself in Wyoming with Illinois and Massachusetts, which may be sufficient to permit any of these states to assert jurisdiction (i.e., to hear a dispute or claim by the patient, impose regulatory limitations or apply substantive principles of law).
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Today, entities seeking a relationship with residents of a foreign forum can ''target'' their web site to avail themselves of the benefits of that jurisdiction. Language, graphics and software can be used to focus the direction of a web site. But the concept of ''targeting'' is more easily stated than understood, both from a technological and a legal point of view. Moreover, the issues become multidimensional when it becomes necessary to determine what constitutes legally sufficient targeting when a web site can be accessed by the entire world.
As a threshold matter, the maintenance of a web site, by itself, should not constitute targeting the world. There is no legal or practical reason why the posting of a company's marketing brochure, without more, should create multijurisdictional issues.(see footnote 40) However, designing a web site whose only focus, or at least primary commercial focus, is on the population of a single forum, clearly does target that forum. A site in French, offering to sell securities at prices quoted in francs and supplying French tax information, is targeted at least to France. At issue is whether it might also be considered to target, for instance, French-speaking Morocco, where it is also accessible.
The critical issues are the intent of the web site sponsor and what constitutes sufficient evidence of that intent. The site itself provides the primary evidence of that intent. It may state where it intends to sell its products and utilize filtering software to block participants from other states. It may contain a list of fora it does not intend to target. But filters may be by-passed, and stated intent may not reflect reality.(see footnote 41)
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Jurisdictional rules (particularly regulatory applications of consumer protection laws) sometimes reflect presumed power imbalances between buyers and sellers. But those presumptions may need to be reevaluated given the manner in which the Internet empowers consumers vis a vis sellers.
Power in a commercial relationship depends upon knowledge and choice. Electronic commerce expands consumer choice because it opens up every market to every buyer regardless of where the seller is located. Consumers can use Bots, for example, to shop for product availability around the globe by price and terms. Thus, the concern that buyers may have little competitive power in commercial transactions and be easily taken advantage of by sellers on whom they are reliant because of geography, may not be as appropriate in electronic commerce transactions. On the other hand, the large numbers of sellers on the Internet may result in a kind of information overload for buyers, negating some of the improved leverage they have gained in this new market structure.
But technology can address this problem. Cyber-robots, or Bots, can give consumers powerful tools to assimilate the enormous amounts of information with which the Internet confronts them. Such cyberagents, using artificial intelligence, can be programmed to understand consumer preferences, attitudes and rules of commercial engagement and run interference for them. They can roam in virtual space without human intervention, endowed with such information, and apply their artificial intelligence to conduct all manner of commercial, social and intellectual transactions with other Bots. In turn, they can appoint sub-agents, capable of speaking in multiple languages or ultimately communicating through a universal ''computer-speak.''
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The Internet not only empowers consumers, it also may reduce a seller's power to define its market. In traditional commerce, a seller defines its market through its advertising strategy, budget, investment in distribution channels and physical locations. But on the Internet, unless a seller takes substantial measures, the default market is now global. Thus, a buyer can search out a relatively passive seller. To what extent does that affect the protections that the user needs? Might there be situations in which the enfeebled seller needs protection from the empowered buyer?
The technology that has created novel jurisdictional issues may be able to assist in their solution. Industries interested in developing voluntary rules to resolve jurisdictional complications created by electronic commerce can develop universal electronic protocols that employ multilingual, intelligent electronic agents to:
communicate the site sponsor's and user's country of origin;
disclose to each other the laws, rules, respective protections and dispute mechanisms that would apply; and
enforce the user's preprogrammed choices to reject the ''site,'' or give the user the choice to override the program and transact business under terms that do not match the preprogrammed preferences.
Page 92 PREV PAGE TOP OF DOC Many disputes between parties are subject to contracts that determine the terms and conditions upon which they have agreed to interact. This is particularly true in business-to-business transactions. Frequently, such contracts will provide that a dispute must be lodged in the courts of a specified state (''choice of forum'') and must be resolved according to the substantive law of a specified state (''choice of law'' clause).
When parties have equal bargaining power and, therefore, an equal ability to accept or reject such clauses, the clauses are generally enforced. But in consumer transactions, the buyer is assumed to be confronted with a stark option: accept the terms imposed by one of a limited number of sellers serving her market or forego the purchase. In an attempt to protect the consumer from disadvantageous choice of forum and law clauses, the E.U. will enforce them only if they favor the consumer. In the U.S., they are usually enforced, unless they are ''unreasonable.''(see footnote 42)
To the extent that the Internet is both limiting the ability of a seller to confine its market and, consequently, dramatically widening the options available to buyers, the presumption of inequality in business-to-consumer transactions is called into question and, therefore, the policy reasons for refusing to enforce contractual choice of forum and law clauses in that context are correspondingly weakened.
The Intersection Between Jurisdiction and Substantive Liability
Historically, changes in substantive law have driven changes in jurisdictional rules, rather than the reverse. The dynamics of Cyberspace may, however, encourage states to create new rules of substantive liability for third parties who have a physical presence in the state's territory. A state unable to compel a nonresident merchant to collect sales tax on sales to its residents might insist that a resident financial institution collect that tax if credit cards issued by it are used by the resident for the purchase. Indeed, most elements of electronic commerce pass through certain gateways or choke points, such as Internet Service Providers, credit card processors or financial institutions.
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Should the junctions in the flow of electronic commerce and money be employed to impose or enforce jurisdictional standards and rules? And what would the cost be to the private sector? Governments should be cautious about imposing the policing functions of electronic commerce on the private sector for fear of skewing the economic balance that may make electronic commerce so efficient a form of business.
The Internet, unlike earlier forms of electronic communication, moves data in a widely diffused fashion, which raises questions about what laws should apply to it. The resolution of the jurisdictional legal uncertainties created by electronic commerce will be a function of the reconciliation of a wide variety of factors and national and state interests. In that regard, I strongly endorse the proposed solutions of the draft ABA report and offer my own version of those which I view as most important:
1. Since no one state or nation can bring about predictability and certainty in global electronic commerce, a multinational Global Online Standards Commission (''GOSC'') should be established to study jurisdiction issues and develop uniform principles and global protocol standards. The GOSC's charter should require it to complete its work by a specific sunset date and to work in conjunction with other international bodies considering similar issues.(see footnote 43) The agenda of the GOSC should include the points discussed below.
2. Technology should be used to solve the issues that it creates. There is no need to impose the burden upon consumers to read and negotiate the jurisdictional terms of their electronic commerce experience on a global basis. Intelligent electronic agents can be programmed to electronically communicate jurisdiction information and rules (including rules relating to taxation), enabling such preprogrammed agents to facilitate the user's or sponsor's automated decision to do business with each other. Similar software products have been deployed (e.g., P3P) to allow consumers to use such electronic agents to monitor their journey through Cyberspace and warn them when they are entering a site whose privacy policies do not match their preferences. Businesses and/or nations of the world must, however, agree on the rules and standards under which such agents will operate.
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3. Cyberspace needs new forms of dispute resolution to reduce transaction costs for small value disputes and to erect structures that work well across national boundaries. Voluntary industry councils and cyber-tribunals should be encouraged by governmental regimes to develop private sector mechanisms to resolve electronic commerce disputes. Government-sponsored online cross-border dispute resolution systems may also be useful to complement these private sector approaches.
4. Self-regulatory regimes should be encouraged to forge workable codes of conduct, rules and standards among a broad spectrum of electronic commerce participants to provide an efficient and cost effective jurisdictional model that governments can adopt and embrace.
5. Personal or prescriptive jurisdiction should not be asserted based solely on the accessibility of a passive web site.
6. Good faith efforts to prevent access by users to a site or service through the use of disclosures, disclaimers, software and other technological blocking or screening mechanisms should insulate the sponsor from assertions of jurisdiction.
7. Users (purchasers) and sponsors (sellers) should be encouraged to identify, with adequate prominence and specificity, the state in which they habitually reside, so that jurisdictional consequences will not be a surprise to either party.
8. Safe harbor agreements, such as the one negotiated between the United States and the European Union in the context of personal data protection, should be encouraged to resolve jurisdictional conflicts in Cyberspace. They should include a public law framework of minimum standards, back-up governmental enforcement and the opportunity for a multiplicity of private, self-regulatory regimes that can establish their own distinctive dispute resolution and enforcement rules.
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9. Global regulatory authorities of highly regulated industries, such as banking and securities, should be encouraged to reach agreement regarding how laws will be applied to financial products and services offered in a global electronic environment.
10. Any use of intermediaries (''choke points'') in the flow of electronic information, commerce and money, such as Internet Service Providers and payments systems, to regulate commercial behavior and to enforce jurisdictional principles impose significant, new legal burdens on those private entities which require careful exploration before being proposed for adoption.
Thank you for the opportunity to offer my views to the Subcommittee. I look forward to your questions.
Mr. COBLE. In a sense of fairness, I gave Mr. Vartanian 8 minutes, so I will give the same to you all. The reason we are trying to do this is as briefly as we can, is that I am sure that there will be an inevitable floor vote, and I think it will be before too long. So let's go with 8 minutes for each witness. This is a very important topic, and I don't want to be preferential to Mr. Vartanian. So, Mr. Thurmon.
STATEMENT OF MARK A. THURMON, ASSISTANT PROFESSOR OF LAW, UNIVERSITY OF FLORIDA ON BEHALF OF AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION (AIPLA)
Mr. THURMON. Thank you, Mr. Chairman. I promise I will try to keep it brief.
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I appreciate the opportunity to testify this morning on behalf of the American Intellectual Property Law Association. As your subcommittee well knows, our Association has been actively involved in dealing with a number of important Internet issues as they relate to and impact on the intellectual properties of our members.
But this morning I am going to talk about something a little different than what the other witnesses are talking about. Rather than talking about the problems that courts have faced and will face in dealing with these disputes, I want to tell you about a program that is in place right now, and this is being widely used as an alternative to court litigation to resolve these disputes. It is a form of ADR implemented by ICANN, the Internet Corporation for Assigned Names and Number, for resolving domain name disputes. This is ICANN Uniform Dispute Resolution Procedure, also frequently known as the UDRP. The UDRP targets b-a-d faith registration and use of domain names. It is substantively similar to the anti-cybersquatting legislation enacted last fall. There are some differences substantially, but they do target some of the same types of conduct.
The UDRP provides no damages and can only offer the remedies of transferring or canceling a domain name. How does this program work? Well, ICANN set this up back in October of last year. It went into effect initially in December of 1999, it was fully effective in January of this year. So it has been in place for about 6 months and approves dispute resolution providers. The dispute resolution providers then take the responsibility for setting up the administrative structure necessary to handle the dispute resolution process. The dispute resolution providers also appoint panelists who are qualified to actually hear and resolve these disputes.
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The proceeding is implemented simply by filing a complaint with one of the dispute resolution providers, together with whatever evidence the complainant feels is appropriate. A period is then allowed for an answer by the domain name registrant, and the domain name registrant may also submit evidence with that answer. That is the end of the activity by the parties. No further evidence is taken, no hearings are held, no motions are allowed. That is it. A complaint and answer goes to the panel and the issues are then resolved based on those filings alone.
The decisions normally issue in about 4 to 5 weeks from the implementation of the procedure. It is less costly than Federal litigation under the Anti-Cybersquatting Act, at least in most cases, and the remedies are self-implementing. If the panel orders that the domain name be transferred, for example, there is a 10-day period to challenge that decision, and if no challenge is lodged that will be implemented by the domain name registrar, the domain name in my example would be transferred. So it is a self-implementing remedial scheme.
What are the results of this? I think we have a unique opportunity here because we have two substantively similar schemes in place that went into place at about the same time. And I am talking about the UDRP and the Anti-Cybersquatting Act. So it is a great opportunity to compare and contrast and see how these things work.
The UDRP, at least in terms of numbers, has been enormously successful. As of June 22, there have been over 1,000 cases filed under the UDRP and over 500 decisions. And that is probably the more significant number. Over 500 of these disputes have been resolved under this. It is difficult to tell exactly how many cases have been filed under the Anti-Cybersqatting Act, but we have only been able to fine about a dozen or so reported decisions based on some aspect of a proceeding under that act.
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So it certainly appears that the trademark owners out there are widely opting for this form of ADR; that is, the ICANN UDRP.
So, such what are the lessons we can learn from there? Well, first of all, it is very clear that ADR can work if it is properly tailored to the Internet context. But also of great importance is the secondary or peripheral benefit of this type of process. Personal jurisdiction and enforcement of judgments are moot issues. Where a party is physically located is of no consequence under the ICANN UDRP. Enforcement of judgments does not become an issue because they are self-implementing. So that is a really great benefit of a program like this.
The last point I want to make is we believe the reason that this works is because ICANN and the domain name registrars, working pursuant to ICANN's directions, have the power to implement effective remedies. In the case of a domain name dispute, deleting or transferring the domain name at issue is certainly an effective remedy.
So we believe that power to implement some type of effective remedy is a key. We also think there is potential and it warrants additional study to see whether this type of procedure might be appropriate in a broader context. We are currently working with ICANN through some of the various ICANN organizations toward that goal. Thank you.
Mr. COBLE. Thank you, Professor Thurmon.
[The prepared statement of Mr. Thurmon follows:]
Page 99 PREV PAGE TOP OF DOCPREPARED STATEMENT OF MARK A. THURMON, ASSISTANT PROFESSOR OF LAW, UNIVERSITY OF FLORIDA ON BEHALF OF AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION (AIPLA)
I appreciate the opportunity to appear before the Subcommittee today on behalf of the American Intellectual Property Law Association (AIPLA) to present the views of the Association at this Oversight Hearing on The Internet and Federal Courts: Issues and Obstacles.
The American Intellectual Property Law Association is a 10,000 member, national bar association constituted primarily of lawyers in private and corporate practice, in government service, and in the academic community. The AIPLA represents a wide and diverse spectrum of individuals, companies and institutions involved directly or indirectly in the practice of patent, trademark, copyright and unfair competition law, as well as other fields of law affecting intellectual property. Our members represent both owners and users of intellectual property.
The Internet is an exciting new medium. It has given us a new vocabulary, a new way of communicating, new ways of doing business, and, of course, a new set of legal disputes. Intellectual property disputes, particularly trademark and copyright disputes, were among the first of the new Internet cases. This result should not have surprised us, as one of the key attributes of the Internet is the ability to quickly and easily transmit information. Intellectual property is, at its base, information of one sort or another. The Internet makes it easier to utilize information that belongs to others, and thus, makes infringement of intellectual property rights easier and makes the potential impact of individual infringements much more significant.
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With the flood of Internet intellectual property disputes came a number of peripheral controversies. Personal jurisdiction is perhaps the most significant of these controversies. Many Internet intellectual property disputes have involved difficult personal jurisdiction questions. In addition, many disputes have resulted in default judgments that may be difficult to enforce outside the United States. These problems are not really new, but the frequency of such problems in the Internet cases has resulted in a good deal of focus on this issue.
Certain reforms have improved this situation, but problems remain. Some of these problems may be inherent in our legal system. For example, an intellectual property owner will not always be able to enforce its rights in the forum of its choice. That ''problem'' is largely a matter of perspective, as the same party would likely contest personal jurisdiction in a remote and inconvenient forum.
The AIPLA has been concerned by the substantive and procedural problems posed by the Internet. Our Association has been actively involved in a number of past and ongoing efforts relating to the Internet and intellectual property. We have worked, and continue to work, with the Internet Corporation for Assigned Names and Numbers (ICANN) to ensure that intellectual property rights are protected as control of the domain name system and other aspects of the Internet are moved from the Department of Commerce to ICANN. We have also worked with the World Intellectual Property Organization, to further the common interests of intellectual property owners and users throughout the world.
We appreciate the attention given these important issues by Congress and, in particular, by this Subcommittee. We believe oversight hearings such as this one are an important means for interested parties to express their concerns on timely Internet issues. We applaud the Subcommittee for its efforts to stay abreast of the problems and issues raised by the fast-paced Internet world.
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We present the views of our Association in three parts. First, we outline the more common types of Internet intellectual property disputes and explain the kinds of jurisdictional issues that arise in these disputes. In the second part, we discuss two important recent reformsthe Anticybersquatting Consumer Protection Act and the ICANN Uniform Dispute Resolution Policy (UDRP) for domain names disputesand explain the impact these reforms have had on jurisdictional issues. Finally, we present a few discussion points and questions that may stimulate debate on these issues. In this final part of our statement, we offer no clear solutions, but we do attempt to identify certain aspects of the recent reforms that have worked and explore the possibility of building upon such successes.
INTERNET INTELLECTUAL PROPERTY CASESAN OVERVIEW
Internet intellectual property disputes are common and varied. Certain types of disputes, however, have been more common than others. We briefly discuss the following types of disputes in this section:
Cybersquatting and other bad faith domain name registration disputes
Copyright infringement, in particular music piracy
Patent infringement, in particular business method patents
Other Internet trademark issues, such as linking and framing.
Page 102 PREV PAGE TOP OF DOC Most of our discussion focuses on the question of whether there is personal jurisdiction over a defendant under a particular set of facts. Subject matter jurisdiction is seldom in dispute in the intellectual property cases because these disputes usually involve claims based on federal statutory law. We do not, therefore, discuss the potential for subject matter jurisdiction disputes, although we recognize that such disputes are important.(see footnote 44)
Personal jurisdiction can be important at the beginning or end of a legal fight. In many cases, a defendant will challenge personal jurisdiction through a motion to dismiss early in the proceeding. That is the context of most published decisions involving personal jurisdiction disputes. But personal jurisdiction issues can be equally important when trying to enforce a default judgment obtained against an absent defendant. This latter situation is particularly troublesome in the Internet context because of the increasing number of cases involving U.S. plaintiffs and foreign defendants. In many such cases, the U.S. plaintiff will be unable to enforce such a judgment in another country.
Enforcement should be less problematic if the Defendant resides in the United States, but personal jurisdiction can be an important issue in that context, too. If a defendant resides in a remote state (i.e., other than the forum where the plaintiff's suit was filed), the defendant may allow the plaintiff to obtain a default judgment and then challenge the jurisdiction of the court that issued the default judgment when a subsequent enforcement action is brought in the state where the defendant resides. If such a challenge is successful, the default judgment will not be enforced.
Bad Faith Domain Name Disputes
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Cybersquatting is one of the highest profile of the Internet intellectual property disputes. Cybersquatting has received a great deal of attention from courts, commentators, Congress, and organizations involved in the administration of the Domain Name System. This attention has resulted in important reforms, which are discussed below.
In the paradigm cybersquatting case, a person registers a well-known trademark as a domain name and then tries to sell the domain name to the trademark owner. Real examples of cybersquatting abound and the courts have uniformly condemned the practice. There were serious jurisdictional questions in the early cybersquatting cases, however, because the cybersquatters seldom resided in the same forum as the trademark owners. In most of the cases, the fight was over which U.S. district court should hear the case, although there have been cybersquatting cases involving foreign defendants.
Courts typically find personal jurisdiction over a cybersquatter in the trademark owner's home forum if the cybersquatter has taken steps to sell the name, for a profit, to the trademark owner. These decision are based on the Supreme Court's decision in Calder v. Jones, 465 U.S. 783 (1984), where jurisdiction was found over two nonresident reporters because of the intentional nature of the reporters' acts. Such acts were characterized as a targeting of the plaintiff in her home forum. Thus, the defendant reporters should have reasonably expected to be hailed into court there to answer for their actions.
In the cybersquatter cases, the courts have held that an attempt to sell a domain name to a trademark owner constitutes a targeting of the trademark owner in its home forum. See, e.g., Panavision Int'l L.P. v. Toeppen, 938 F. Supp. 616 (C.D. Cal. 1996), aff'd, 141 F.3d 1316 (9th Cir. 1998). The cybersquatter's acts are analogous to those of the reporters in the Calder v. Jones case. This logic has been followed by courts considering cybersquatting cases.
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Cybersquatting, of course, is not the only abuse of the domain name system that implicates trademark rights. Another example is the use of a competitor's trademark to divert business from the competitor. Classic passing off is also possible via the Internet, as are other types of bad faith infringement. These other scenarios present some of the same jurisdictional issues that have become common in the cybersquatter cases.
Courts are likely to follow in these cases the same approach used in the cybersquatter cases. That is, if the facts show that defendant has targeted the plaintiff trademark owner, personal jurisdiction over the defendant is likely in the plaintiff's home forum. But these other cases include scenarios that pose problems under this approach. Consider, for example, a person who registers a well-known trademark as a domain name and then refuses to communicate in any way with the trademark owner. The registrant has denied the trademark owner use of its property on the Internet, but has the registrant targeted the trademark owner in the owner's home forum? This abuse of the domain name system can be just as harmful to a trademark owner as the cybersquatting situation.
Internet Copyright Infringement
Music piracy is the hot Internet intellectual property issue of the day. The recording industry has brought suit against a number of prominent players in the Internet music ''sharing'' business. These include cases against mp3.com and napster.com. Although these cases raise extremely interesting and important substantive legal issues, there have been no significant personal jurisdiction disputes in these cases.
Page 105 PREV PAGE TOP OF DOC If the entertainment plaintiffs decide to pursue actions against smaller players or even individual infringers, personal jurisdiction could become an important issue, especially if the infringer resides outside the United States. This scenario is quite common, with news stories of individuals from various countries around the world disseminating protected works over the Internet. First run movies are now available, although the file size and quality are major impediments to wide piracy of such films. For now, the debate is likely to continue to focus on music piracy.
There have been cases brought against individual infringers for music piracy. These include cases brought against college students. Some of these cases were brought in the forum where the defendant resided, thus avoiding any personal jurisdiction issue. There likely were other reasons (e.g., local media coverage) for the plaintiffs' choice of forum in these cases, but the important point here is that few of the music piracy cases have involved jurisdictional disputes.
There have been fewer Internet patent infringement cases, but the number of such cases will increase significantly as more business method patents are issued. The patent infringement cases to date have not involved many personal jurisdiction disputes. There is the potential for such disputes, however, as the owners of business method patents attempt to enforce their patents against smaller Internet users. So long as the fights are truly clashes of the titans, jurisdiction problems will be rare.
The recurring problem of enforcing U.S. intellectual property rights against a foreign defendant will be a problem here, too. In the past, U.S. patent owners had certain remedies against the non-U.S. defendant, such as blocking importation through an action before the International Trade Commission. Such remedies will be of little help against an infringer using a patented business method or software from a computer located in a country that is not friendly to the U.S.
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Other Trademark Disputes
Many, probably most, trademark disputes do not involve bad faith. In such cases, the Calder v. Jones targeting logic will not hold. The typical argument for jurisdiction over a nonresident defendant is that the defendant sells infringing goods in the forum state and, therefore, the infringement, or at least some of the infringing acts, occur in the forum state.
This argument is often less compelling when the only allegedly infringing act in the forum state is the ''presence'' of an Internet site. Almost all courts have held that operating a passive, noncommercial Internet site, without more, will not support personal jurisdiction in a remote forum. If, however, the site is commercially significant, and the defendant does a good deal of business with residents of the forum state via the site, personal jurisdiction is likely.
There are perhaps an infinite number of other types of trademark disputes. The reason we treat this group of cases separately is that the key recent reforms have focused on the bad faith cases. To the extent these reforms have eliminated or reduced jurisdictional problems, such improvement will not apply to the ''other'' trademark cases.
The Anticybersquatting Consumer Protection Act and ICANN's UDRP are substantive measures intended to curb the bad faith registration and use of domain names. These two reforms have much in common, but differ in several important respects. In this section, we give an overview of these reforms and explain the impact they have had on the personal jurisdiction problems described above.
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The Anticybersquatting Consumer Protection Act
The Anticybersquatting Consumer Protection Act(see footnote 45) was passed as part of a large omnibus bill last fall. It was signed by President Clinton on November 29, 1999, and became effective immediately, although certain remedies under the Act may only be applied prospectively. The Act targets bad faith registration or use of domain names.(see footnote 46)
The Act provides for statutory damages of $1,000 to $100,000 per violation. These damages are meant to compensate trademark owners for the harm caused by cybersquatting and to deter future cybersquatting activity. AIPLA fully supported the Act, especially the statutory damages provisions, and believes these damages are an important part of this reform package.
The Act also creates a federal in rem action against a domain name. The in rem provisions were included in the Act to ensure that U.S. trademark owners would have legal recourse in the United States. The in rem provisions require the trademark owner to attempt to locate the domain name registrant and to provide the registrant with reasonable notice of the intended action. If the trademark owner, after making such efforts, is unable to identify a U.S. forum with personal jurisdiction over the registrant, an in rem action may be filed. If the in rem procedure is used, the Act's statutory damages are not available.
The in rem procedure was challenged in an early case and upheld by the court. In Caesars World, Inc. v. Caesars-Palace.com, 2000 U.S. Dist. LEXIS 2671, 54 U.S.P.Q.2d 1121 (E.D. Va. March 3, 2000), the owner of the domain name appeared and argued that the in rem proceeding was unconstitutional because the owner was available to litigate the dispute. The Court disagreed, finding that the trademark owner had made a reasonable effort to locate the domain name owner and had provided the domain name owner reasonable notice of the in rem proceeding. The latter effort obviously worked, as the domain name owner appeared and challenged the court's jurisdiction.(see footnote 47)
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The Act is also important for symbolic reasons. By enacting a new federal law that prohibits cybersquatting and other bad faith abuses of the domain name system, Congress and the President sent a strong signal to the Internet community. The U.S. Government made clear that it recognizes and supports the rights of intellectual property owners in this new medium. AIPLA and its members believe that such support is vital to the future economic role of the Internet as a new forum for conducting business.
The ICANN UDRP
The long-awaited ICANN dispute resolution policy went into effect for most domain name registrars on December 1, 1999. The policy went into effect for the three then remaining registrars (America Online, Name-It Corp., and NSIthe three largest registrars) on Jan. 3, 2000. The ICANN policy was published in late August, 1999 with the implementation announced in October, 1999.
The ICANN dispute resolution policy targets abuse of the domain name system. The policy requires a showing of bad faith registration and use, although the examples of what constitutes such a showing indicate that ''use'' will be construed rather broadly. The decisions under the policy confirm this reading.
The ICANN policy uses an administrative dispute resolution process. A party with a complaint about a domain name submits its complaint to an approved dispute resolution provider, which must have a list of approved panelists who are qualified to resolve domain name disputes. The dispute is ultimately decided by the panelists, who inform the provider of their decision. The provider then informs the domain name registrar of the outcome, and, after a 10-day waiting period, the domain name registrar complies with the panel decision. The panel decisions are to be in writing and published on the Internet, except in exceptional cases where the panel finds some compelling reason to withhold publication.
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There are four approved dispute resolution providers under the ICANN policy; WIPO, The National Arbitration Forum, the disputes.org/eResolution Consortium, and CPR Institute for Dispute Resolution.(see footnote 48) Each provider has a different background. Although there may be reasons to favor one provider over another, the selection of a provider appears to be less important than the underlying facts and the manner in which those facts are presented.
ICANN now provides a statistical summary of the proceedings under the UDRP on its site. See http://www.icann.org/udrp/proceedings-stat.htm. As of June 22, 2000, there have been 1016 proceedings(see footnote 49) and 535 decisions under the UDRP. Another 57 proceedings have been disposed of without decision (e.g., due to settlement or agreed withdrawal of the complaint). ICANN also now provides full-text searching of the decisions under the UDRP and provides an index of the decisions. The decisions rendered under the UDRP are published and prior decisions are often cited in subsequent decisions. Although at least one U.S. court has explicitly noted that such decisions are in no way binding on a U.S. court, a few U.S. court decisions have noted with approval the reasoning applied in some of the UDRP decisions. It appears, therefore, that the UDRP decisions constitute a new body of quasi-common law. It will be interesting to see what impact this new body of law will have on future legal proceedings.
A proceeding under the UDRP is instituted by filing a complaint with one of the approved dispute resolution providers. The ICANN policy, and its supporting rules, specify the particular requirements for the complaint. Each dispute resolution provider provides additional guidance for submitting a complaint. The complainant must identify the type of remedies sought. Only cancellation or transfer of the domain name are available as remedies.
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One particularly important part of the ICANN rules is the requirement that a complainant submit to the jurisdiction of a court in ''at least one specified mutual jurisdiction'' for purposes of a challenge to a decision under the UDRP.(see footnote 50) The term ''mutual jurisdiction'' is defined in the domain name registration agreement, and in the rules, as either the location of the domain name registrar or the residence of the registrant. This provision could be important to U.S. trademark owners if the domain name owner and the registrar are located outside the United States.
It is important for a U.S. trademark owner considering an ICANN UDRP complaint to first determine where the applicable domain name registrar is located. Several of the newly approved registrars are located outside the United States, with one in Kuwait, two in China, and several in Europe. A U.S. trademark owner may find tribunals in other jurisdictions significantly less inclined to provide the kind of broad trademark protection we have come to expect from U.S. courts.
Once an approved dispute resolution provider receives a formal complaint, the provider checks the complaint for administrative compliance with the ICANN rules and, if the complaint complies with requirements, forwards the complaint to the domain name owner. The domain name owner (i.e., the registrant) has 20 days to submit a response, which must provide a specific response to each allegation contained in the complaint. The response must provide or identify specific evidence that negates the accusations of bad faith. The ICANN policy provides examples of the types of evidence that would negate such accusations.
If no response is submitted, the panel resolves the dispute based on the complaint. If a response is submitted, the panel resolves the dispute based on the complaint and the response. There is no formal procedure for taking additional evidence, although the dispute resolution provider is authorized to implement additional procedures necessary to carry out its functions. It is clear, however, that the intention and expectation is that most domain name disputes will be amenable to resolution based on the materials submitted with the complaint and response. In-person hearings are allowed only in extraordinary cases.
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The panel's decision is sent to the domain name registrar for implementation. A 10-day waiting period is provided to allow the registrant time to challenge a panel's decision in court. The registrant must submit evidence within the 10-day period showing that it has filed suit challenging the panel's decision or the decision will be implemented by the registrar. If evidence of such a challenge is submitted to the registrar, no action will be taken until the parties or the court inform the registrar that the dispute has been resolved. The registrar will respect settlement agreements.
Panel decisions must be reached, and sent to the provider, within 14 days of the submission of the complaint and response. If no response is submitted, the 14-day period runs from the date a response was due. The decisions are in writing and provide the reasons for the decision. 'If after considering the submissions the panel finds that the complaint was brought in bad faith, for example in an attempt at reverse domain name high-jacking or was brought primarily to harass the domain-name holder, the panel shall declare in its decision that the complaint was brought in bad faith and constitutes an abuse of the administrative proceeding.'' This explicit directive was included to deter abuses of the UDRP.
One significant difference between the new ICANN UDRP and the older NSI dispute resolution policy is the effect of court proceedings. Under ICANN's policy, if ''any legal proceedings are initiated prior to or during an administrative proceeding in respect of a domain name dispute that is the subject of the complaint, the panel shall have the discretion to decide whether to suspend or terminate the administrative proceeding, or to proceed to a decision.'' Under NSI's policy, the administrative process stopped if either party filed suit.
Page 112 PREV PAGE TOP OF DOC The new ICANN UDRP went into effect just as the new Anticybersquatting Consumer Protection Act became effective. The ICANN process offers an administrative alternative to the new litigation option created by the Act. The remedies under the ICANN process are more limited, but based on the number of ICANN complaints filed, this difference appears to be less important to trademark owners than the time and cost savings offered by the ICANN UDRP.
Substantively, the ICANN UDRP and the Anticybersquatting Consumer Protection Act are similar. Although the UDRP requires a showing of bad faith registration and use of a domain name, the decisions indicates a very broad interpretation of the word ''use'' by the ICANN panels. Where there is a clear difference between the registrant's state of mind at the point of registration and the point of use, the substantive difference between the UDRP and the Act will be important. There have been some such cases brought under the UDRP, but in the vast majority of the proceedings under the UDRP, the outcome presumably would have been the same under the Act.
The UDRP renders personal jurisdiction issues moot. Domain name registrants agree to be bound by the administrative UDRP proceedings as part of their domain name registration agreement. This contractual approach to administrative dispute resolution works, at least in part, because ICANN has the authority to implement effective remedies against the registrants. That is, even if a domain name registrant did not want to be bound by the outcome of a proceeding under the UDRP, the registrant's domain name will still be deleted or transferred if the panel so decides.
A typical UDRP proceeding involving one domain name will cost about $1000 in official fees. The legal fees required to prepare and submit an ICANN complaint are likely to be similar to the fees required to prepare and submit a complaint under the Anticybersquatting Consumer Protection Act. There should be no additional costs involved with the ICANN proceeding, although there will be additional costs for an action brought under the Act. Even if a defendant makes no appearance in an action brought under the Act, the plaintiff will have to move for default and later for a default judgment. In addition, the plaintiff will have to enforce any judgment obtained. Enforcement follows as a matter of course in the ICANN process. Most ICANN cases are resolved in 46 weeks.
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THOUGHTS AND QUESTIONS FOR THE FUTURE
The timing and similarity of the Anticybersquatting Consumer Protection Act and the ICANN UDRP provide a unique opportunity to compare and contrast the efficacy of administrative versus legal dispute resolution. The outcome of this comparison could not be more striking. To date, there have been over 1000 complaints brought under the UDRP and over 500 published decisions. It is not possible to accurately determine how many cases have been filed under the Act, but we can count the reported decisions. To date, there have been about a dozen such decisions, including several that are ''published'' only on the Lexis and Westlaw services.
Many trademark owners apparently prefer the UDRP to the Act. The UDRP provides the relief the trademark owners need most: cancellation or transfer of the domain names. It is fast and usually less expensive than a federal case brought under the Act. Although the Act offers the possibility of statutory damages, most trademark owners have opted for the UDRP to resolve their cybersquatting disputes. Such choices may be driven by a variety of considerations, but one consideration may be the difficulty, or perceived difficulty, in enforcing a judgment for damages against a cybersquatter. There also is the reality that a judgment under the Act is not self-executing, whereas the UDRP decision requires no further action by a prevailing complainant.(see footnote 51)
Another important difference between the UDRP and a federal case under the Act, is the complete elimination of jurisdictional issues in a proceeding under the UDRP. If the dispute centers on the registration and use of a domain name, there is jurisdiction. The old notions of personal jurisdiction so common to litigators in the United States have no role in the ICANN proceedings. Physical location is of no consequence. The entity conducting the procedure has the power to implement the judgments reached under the procedure. No more is needed.
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This point is important. The UDRP is a good example of an administrative procedure specifically developed for the Internet context. The efficacy of this administrative procedure suggests that similar procedures might be effective in resolving other types of Internet disputes.
Several questions follow from these lessons. Would it be possible to extend the UDRP to include other types of trademark disputes that arise on the Internet? If not, why not? Although it would surely require additional panelists and probably additional dispute resolution providers, that would not appear to be a valid reason to forego such a potentially effective remedial process. And why not try similar procedures for other types of specialized Internet disputes, including patent and copyright disputes?(see footnote 52) Choice of law issues and conflict of law issues will arise during the development process of any such procedure, but that was true for the ICANN UDRP, too.
Perhaps the biggest difference between the domain name disputes and other types of Internet disputes is the availability of an appropriate remedy. When the dispute centers on registration and use of a domain name, an obvious remedy, should the complainant prevail, is cancellation or transfer of the domain name. That remedy is easy to carry out. But what remedy would be appropriate for other types of Internet disputes?
The deletion or suspension of a domain name can be a very powerful remedy. Even if the dispute does not directly involve the domain name, it may be appropriate to delete or suspend the domain name of a party that is found to be violating the legal rights of others via the Internet. For example, if a person in Sweden is using a web site to pirate music and to provide that music to others, we believe it would be appropriate to suspend the domain name being used by that person.
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Of course, the person in this example could simply apply for a new domain name, but that would pose problems. First, if persons have come to know the site by its domain name, much traffic will be lost if a new domain name is used. Second, by the time the Internet traffic found the new site, that domain name could also be deleted or suspended, assuming the site is being used for the same illicit activities. And third, the domain name system could take the more extreme step of denying the person any new domain names by using the IP address of the person's computer. There are ways around that solution, too, but at some point, it becomes too difficult and ineffective to work around all the obstacles and most persons are likely to eventually give up the fight.
Another question, and one of particular relevance here, is whether ICANN should establish a pilot program for administratively resolving certain other types of Internet legal disputes. Could Congress, or the Department of Commerce, encourage ICANN to modify the domain name registration agreement to also include an agreement to resolve certain disputes through such an administrative process? While we continue to work with ICANN, we believe the development of broader administrative dispute resolution procedures may require input from the U.S. Government. We believe that some further investigation of this possibility is warranted.
Perhaps the most troubling Internet ''procedural'' problem facing intellectual property owners today is the prospect of non-U.S. infringers acting via the Internet. This problem is already common and will become more common as the numbers of Internet users residing outside the United States continues to climb. What can a U.S. intellectual property owner do to combat such problems? If the non-U.S. resident does not appear in the case, the plaintiff may obtain a default judgment, but such judgments are worthless unless the country where the infringer resides will enforce the judgment. We know that many countries will not enforce such judgments.
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Unless some form of binding administrative dispute resolution procedure is adopted to resolve such disputes, it seems the only viable long-term solution is through international treaty or its equivalent. We believe treaty discussions on these issues should go forward, but we are concerned that such processes may be too slow to effectively respond to the legal disputes arising on the Internet. That is why we believe some form of extended administrative dispute resolution process offers the best hope for the future.
Mr. COBLE. Mr. Perritt.
STATEMENT OF HENRY H. PERRITT, JR., DEAN, VICE PRESIDENT FOR DOWNTOWN CAMPUS, AND PROFESSOR OF LAW, CHICAGO-KENT COLLEGE OF LAW, ILLINOIS INSTITUTE OF TECHNOLOGY
Mr. PERRITT. Thank you, Mr. Chairman and members of the committee, for the opportunity to be here this morning. I appear in my individual capacity and not on behalf of any organization or institution.
I would like to make four brief points. First of all, even if Jeff Kovar and his colleagues succeed in negotiating an international treaty on civil judgment enforcement that is acceptable to the United States, that is not enough. It will help, because it will reduce uncertainty. But it is not enough to solve the problem of your furniture manufacturer in Thomasville, North Carolina, who sells furniture through the Internet. The problem that will remain is that if the treaty says that your furniture manufacturer must litigate in, let's say, Tirana, Albania where one of his customers is, that is not going to be a very attractive proposition if he sold $1,000 worth of furniture, because it will cost him more to litigate there than the transaction was worth. And if the treaty says that your furniture manufacturer gets to litigate at home, in North Carolina, that won't be a very attractive proposition for the purchaser of the furniture in Tirana, Albania.
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The problem is that the transaction costs of adjusting disputes through conventional judicial institutions are too high for many of the low-value transactions that represent the Internet's greatest potential.
So, second, what we must do is to develop new kinds of global institutions to deal with these problems of electronic commerce. And we have begun to do so. Professor Thurmon gave the very good example of the ICANN dispute resolution process. And as someone who has served as a panelist under that process, I agree with him as to its effectiveness, fairness, and promise.
The agreement negotiated the between the Department of Commerce and the European Commission to provide a so-called privacy safe harbor is another promising example of a new kind of international institution. It is a strong example of hybrid regulation, where public law provides a general framework with some minimum standards and some backup enforcement, but leaves most of the details to be worked out through private self-regulation.
And there also are some promising beginnings with respect to informal private dispute resolution mechanisms that are so badly needed for these small-value transactions like the hypothetical furniture sale from Thomasville to Tirana. One of the most pervasive dispute resolution techniques that exists in all of our lives is the credit card chargeback mechanism. And indeed it is relied upon, at least subconsciously, by most consumers and small businesses who do business already through the Internet's World Wide Web. And we need to understand the promise of the credit card chargeback mechanism as a very successful private dispute resolution mechanism to encourage further expanse of e-commerce.
Page 118 PREV PAGE TOP OF DOC Third, American leadership has been essential to encourage development of these new international institutions. The Clinton-Gore administration deserves enormous credit for taking leadership, initially expressed in the Framework for Electronic Commerce issued in 1997. It not only was a sound statement of policy, but it worked. Against all odds and lots of doubts, we have persuaded people who grew up in the European civil law tradition to embrace the idea of private self-regulation for certain parts of the Internet.
But even if American leadership has been successful in the short term in providing breathing space for electronic commerce, it will not be successful in the long term if our ideas don't work. And we have to make sure that they do work.
So, my fourth point is that there have been promising beginnings, there are promising initiatives, some of which are bearing fruit, but now the challenge must be met as much by Visa and American Express and BBB Online and Trustee and the Internet Privacy Alliance, all private initiatives, as by the Federal Trade Commission and French consumer protection authorities.
We must ensure that the new initiatives for private self-regulation provide real compliance and enforcement; adopt rules that are linked to broadly accepted norms for privacy protection, consumer protection, and respect for intellectual property; and we must have some kind of third-party audit mechanism to reassure the people in America and elsewhere that these private self-regulatory regimes are working.
You asked at the beginning of the hearing, Mr. Chairman, what role the legislative process can play. It can play a very important political role in serving as a kind of prod to remind the people who have advocated self-regulation that they must step up to the plate, and turn it into a reality. And more than that, when the Congress and State legislatures and Parliaments in other countries consider legislation, they always should consider the possibility of legislation that includes a safe harbor, so that private institutions who know the Internet the best and who are themselves the innovators in a constantly changing environment, can be given the opportunity to work out the details within a broad public law framework that is publicly acceptable. Thank you.
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[The prepared statement of Mr. Perritt follows:]
PREPARED STATEMENT OF HENRY H. PERRITT, JR., DEAN, VICE PRESIDENT FOR DOWNTOWN CAMPUS, AND PROFESSOR OF LAW, CHICAGO-KENT COLLEGE OF LAW, ILLINOIS INSTITUTE OF TECHNOLOGY
Thank you Mr. Chairman for the opportunity to appear today. I request that this prepared statement be included in the record even though I summarize it orally.
My basic biographical information is attached to this prepared statement.
The subject of the relationship between the Internet and courts is an important one, implicating broader questions of jurisdiction over the Internet. Chicago-Kent College of Law recently finished working with dozens of members of the American Bar Association to complete a report on Internet Jurisdiction. This report is available on the Internet at www.kentlaw.edu/cyberlaw. Its main observations will be presented at the American Bar Association's annual meeting in London in July of this year. I will offer some insights gleaned from my involvement in the project and my other involvements with the Internet and Law over the last 10 years:
1. Rapidly expanding e-commerce and political activity on the Internet make it difficult to localize conduct, even though localization is the method traditionally used to determine what state or government has jurisdiction to make rules and to apply those rules to particular conduct.
2. The most interesting forms of governance for the Internet are hybrid forms of regulation, in which public institutions establish ''floors'' for minimum standards and provide backup enforcement when private dispute resolution and enforcement do not work. Within this broad framework represented by public law, a variety of private self regulatory mechanisms can work out the details, accommodating rules and dispute resolution procedures to the particulars of constantly evolving markets and democracy. Such hybrid regulatory approaches have been embraced by the United States Department of Commerce and the European Commission as a model for protecting privacy, and by the United States Congress for protecting children's online privacy and copyright, in the Children's Online Protection Act and the Digital Millennium Copyright Act, both of which have safe harbors for private self regulation. Hybrid regulation also has promise for protecting consumer interests.
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3. Effective dispute resolution is a prerequisite to realizing the potential of the Internet. Having to file a lawsuit in the regular courts is not a very attractive alternative when difficulties in localizing the relevant conduct create jurisdictional uncertainty, and when the costs of a lawsuit far outstrip the value of the transaction. The European Commission, the United States Government, academics, and participants in e-commerce recognize the importance of dispute resolution. There are some important successes with the ICANN/WIPO domain name dispute resolution process, which has already handled some 300 cases successfully.
4. One of the most attractive forms of informal dispute resolution that has great promise for the Internet is represented by credit card ''chargebacks,'' the mechanism required by Federal Reserve Board Regulation Z, and used voluntarily in many other countries in Europe and elsewhere. When a consumer has a dispute with a merchant involving credit card payment, the consumer can cause the card issuer to ''chargeback'' the amount of the sale until the dispute over delivery or performance is resolved. This is a powerful and low cost method of dispute resolution. Its success in satisfying both merchants and consumers is exemplified by the miniscule amount of litigation occurring over the last couple of decades over credit card charge back arrangements. The OECD was correct in its white paper issued last Spring that proponents of e-commerce should focus on extending the chargeback idea. The United States Government through its diplomatic channels with the OECD should encourage this point of view in Europe and elsewhere.
5. Many myths exist. First of all, the United States and Europe take remarkably similar approaches to basic concepts of prescriptive and adjudicative jurisdiction. We use different terminology, and sometimes have different starting points in terms of legal philosophy, but our legal systems deal with similar problems and would resolve most contested cases in exactly the same way.
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6. I have been involved in discussions over a proposed international treaty on the international enforcement of civil judgments, a project of the Hague Conference on Private International Law. These discussions have been illuminating and have promise for helping provide an appropriate framework to encourage electronic commerce on the Internet. As the discussions continue, we must focus attention sharply on differences between European and American interest groups on whether consumer contracts should be treated specially, understanding in a more precise way similarities and differences between European approaches and the approaches of state consumer protection agencies in the United States. We also need to reconcile an apparent conflict between U.S. Constitutional requirements for ''purposeful availment'' before one can be subjected to jurisdiction, and the proposal in the current draft convention that would allow jurisdiction over one who merely causes injury within a jurisdiction. Perhaps most important, the drafters of the proposed convention should understand and embrace the opportunity to use new methods of dispute resolution as a way of bridging the gap with respect to consumer transactions.
7. One final word about the potential for private dispute resolution. Before I got involved in Internet law, I was predominantly a labor and employment lawyer. I know of the power of private institutions, such as those long a feature of American collective bargaining, to make rules and decide disputes more cheaply, more quickly, and more in tune with the interests of the parties than many public institutions can. Accordingly, the call for self regulation of the Internet resonates with me. I think the Clinton/Gore Administration has shown outstanding leadership in shepherding e-commerce and the Internet through the early stages of its life.
But industry proponents of self regulation must now step up to the plate, and they must do it more aggressively than they have in the past. Self regulation will not be acceptable in the long run unless it is backed up by real sanctions for violators, unless there is an independent audit mechanism for determining compliance, and unless the ground rules within the self regulatory regime are appropriately linked with widely shared norms of conduct, such as those involving privacy, and consumer protection.
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Mr. COBLE. Dean Perritt, you extended kudos to the Clinton-Gore administration. I hope you want to consider kudos to the Congress generallypardon our immodestybut to this committee and its membership specifically.
Mr. PERRITT. I agree with you, Mr. Chairman, and extend those kudos.
Mr. COBLE. Nothing like asking for praise. We are very modest here.
Mr. ROGAN. I ask unanimous consent that the order of the kudos be reversed.
Mr. COBLE. That may be subject to objection.
Mr. COBLE. But, without objection, Professor Burk.
STATEMENT OF DAN L. BURK, PROFESSOR OF LAW, UNIVERSITY OF MINNESOTA LAW SCHOOL
Mr. BURK. Thank you, Mr. Chairman, and I am happy to extend kudos to you, Mr. Chairman, and to the committee, for holding hearings on this important topic and I am very happy to be here.
Page 123 PREV PAGE TOP OF DOC Let me begin my oral testimony by sounding a note of caution with regard to the proposals for ADR that were advanced in the first panel and some of what we heard about ADR on the second panel. Many of us that have been involved in the ICANN process that Mr. Thurmon described are deeply disturbed about the fairness and some of the procedural aspects of that process. In particular, there are some disturbing trends among those 500 decisions that he mentioned have been handed down so far. And so I would commend the committee to look carefully at the ADR options but sound a note of caution that while efficiency and speed are important attributes of a dispute resolution process, fairness is also important.
You may recall, Mr. Chairman, that in your civil procedure class that you referred to at the beginning of the hearing, one of the reasons we have these very complex rules about procedure in the court system is because we are deeply concerned about fundamental fairness in the system, and we don't want to drop the fairness with the rules if we try to simplify those rules.
I have focused my written testimony on the types of guidance and oversight that this body might offer to the Federal courts in adapting the tools that the courts now have to deal with jurisdiction in the Internet context. And for example, some of my discussion there goes directly to some of the testimony given by Ms. Veta in the first panel, where she discusses personal jurisdiction in minimal context. Most of her discussion there deals with State courts under the 14th amendment. We know from the Supreme Court that State courts are limited by the 14th amendment and by the reach of the law statute in that particular State, as Ms. Veta pointed out.
The situation is very different, though, for Federal courts. Federal courts are not limited by the 14th amendment, they are limited by the 5th amendment, and the scope of jurisdiction for a Federal court is potentially much broader than that of the State court. However, as I point out in my written testimony, in the majority of instances, Federal courts have been instructed so far by Congress to act as if they were State courts and to limit the reach of their jurisdiction as if they were constrained by the 14th amendment.
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So one of the topics that will be appropriate to look at by this body would be whether there are instances where it might be necessary and appropriate to expand the jurisdiction of the Federal courts to the limits of the 5th amendment besides the limited exceptions that exist today.
Similarly, I have also said something in my written testimony about a matter that goes directly to your earlier question, Mr. Chairman, about copyright and country-of-origin versus country of destination rules. The Federal courts have developed a rule, a very prudent sort of housekeeping rule, that they will not apply U.S. law outside of U.S. borders unless they receive clear guidance to do so from Congress. That is a prudent rule because the courts don't want to take it upon themselves to create an international incident. If Congress wants them to extend the reach of U.S. jurisdiction outside of U.S. territory, they want to know that for certain.
The result of that is in the case of U.S. patent or copyright law, the law ends at the border. Courts will generally not extend those kinds of intellectual property outside of the U.S. territory.
In the case of U.S. trademark law where there is indication in the Lamb Act that Congress did intend for the statute to be applied outside of the U.S. borders, the courts have extended U.S. trademark law under the Lamb Act outside of the United States. And so another appropriate topic to look into is whether there are instances wherein Congress may want to give the courts a more clear signal as to whether or not they should extend the reach of U.S. law outside of U.S. borders, particularly in the context of the Internet because, as we have discussed here, it is a transborder medium.
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Finally, let me say a word or two about a topic that I do not see addressed in any of the written statements but which have been touched upon in the previous panel, which goes directly to Mr. Berman's concern about intellectual property and consumers on the Internet. As many members of the subcommittee are aware, the situation with regard to State contract law on the Internet and in computer information transactions is in the process of changing very rapidly as States are considering and beginning to enact something called the Uniform Computer Information Transactions Act, which was produced by what Mr. Berman might call a citizen legislature, and is now being enacted by actual legislatures in the States. That statute purports to solve some of our jurisdictional problems in ways that were discussed in the first panel, by allowing the parties to the contract to designate a forum and a jurisdiction that would apply to that transaction.
But many of us who have studied this statute are deeply concerned that it may in fact confuse consumers in the ways that Ms. Veda indicated. When they click on that button, do they actually know or understand where this will be litigated or adjudicated if there is a dispute? Do they understand which law will actually apply?
Now, Congress should, of course, be cautious in entering into an area such as contract law that has traditionally been the province of State law. But because this applies to computer information intellectual property, it may be appropriate to take a hard look at the interaction between State and Federal law in this instance and whether the adjudication and the designation of forum for intellectual property transactions on the Internet is appropriate.
I thank you again for the opportunity to be here and look forward to your questions.
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Mr. COBLE. Thank you, Professor Burk.
[The prepared statement of Mr. Burk follows:]
PREPARED STATEMENT OF DAN L. BURK, PROFESSOR, UNIVERSITY OF MINNESOTA
Mr. Chairman and Members of the Subcommittee:
My name is Dan Burk; I am a Professor of Law and Vance K. Opperman Research Scholar at the University of Minnesota Law School, where I teach courses in the areas of intellectual property and cyberlaw. For the past several years, a particular focus of my teaching and scholarship has been on legal issues related to the global communications medium of the Internet. I am very pleased to appear before you today to offer background testimony on the issues and obstacles facing the federal courts as they assume their role in adjudicating matters related to the Internet. This is a challenging and important topic, and I applaud your leadership, Mr. Chairman, and that of your colleagues in addressing this set of issues.
When the global computer network we call the Internet first exploded into popular consciousness, the public appropriated from science fiction a new word to describe the sense of place inherent in this new communications mediumcyberspace. So compelling was this feeling of separateness, of a digital realm outside of physical space, that some commentators proposed that the Internet should somehow comprise its own territory, beyond the jurisdiction of any geographic nation-state. This lead some to conclude that on-line activity might lie beyond the reach of current law, or that such activity might somehow constitute a law unto itself.
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Yet, however compelling the sense of separate space users may have when interacting with the global computer system, arguments proposing the network as a separate legal jurisdiction confuse metaphor with reality. As Michael Froomkin at the University of Miami has observed, no one lives in ''cyberspace.'' The activities and interactions of cyberspace are generated by people in the physical world, located within the borders of geographic nations, and have physical and social effects within the territories of those nations. Neither do we treat any other communications medium in this fashion; we do not speak of the ''telephonespace'' in telephone system as comprising its own jurisdiction, or of ''broadcastspace'' in the broadcast medium as comprising its own jurisdiction.
At the same time, there is no denying that the Internet is jurisdictionally unusual. More than any previous communications medium, it links individuals and entities across geographic jurisdictions, allowing activity that rapidly traverses political borders. The result is that on-line activity may involve individuals in multiple jurisdictions, affecting the social, political, and economic situation within the borders where those individuals reside. Each of jurisdictions effected thus has a stake in regulation of the on-line activity that will impact its citizens. The inevitable result is the assertion of legal jurisdictions by a multiplicity of sovereigns.
This result is quite the opposite of that which would obtain under the theory of the cyberspace as a separate territory: rather than too little jurisdiction over the Internet, there may well be too much jurisdiction, as the many geographic states and nations connected to the medium vie to regulate the on-line activity that originates or terminates within their borders. The great challenge facing the federal courts as they begin to adjudicate legal disputes arising out of on-line activity will be to sort and prioritize the many overlapping jurisdictional assertions that might be applied to the Internet. The great challenge facing the members of this body and their colleagues will be to ensure that the courts have the tools necessary to accomplish this daunting task.
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The federal courts have of course already begun to grapple with some of these issues, using the analytical tools now available. From the issues that been identified to date, it is already possible to discern some of the recurring problems that the courts will face. I shall use some of these current experiences to illustrate the range of issues facing the courts, drawing one example from the three areas of legal procedure that comprise the procedural requirements of court jurisdiction: the first from the area of subject matter jurisdiction, or court authority over the type of dispute; the second from the area of personal jurisdiction, or court authority over a party to the dispute; and finally a third from the area of venue, or proper location of the adjudicatory forum. Additionally, I shall draw the first two examples from civil court procedure, and the third from criminal court procedure, in order to illustrate the unique problems posed by each of these differing areas of procedural law.
Subject Matter: Territoriality
The Internet reaches over national borders, but if national laws are to be applied to transborder activity, customary international law requires that there must be some connection with the nation whose law is being applied. The oldest and best-recognized basis for application of law is territoriality, by which the law of a nation is properly applied within the borders of its territory. This principle is of limited assistance when the activity occurs outside the border, as may occur on the Internet. Other principles of jurisdiction exist, such as the nationality principle: a nation may regulate the activity of its citizens wherever they are located. But beyond these readily accepted jurisdictional bases, exercise of extraterritorial jurisdiction becomes controversial.
Page 129 PREV PAGE TOP OF DOC As a consequence, the courts have developed principles limiting the extraterritorial reach of statutes. The general presumption in U.S. law, articulated repeatedly by the Supreme Court, has been that unless Congress expressly indicates otherwise, statutes are presumed to be territorially circumscribed.(see footnote 53) This presumption was adopted in part to avoid potential conflicts with the substantive law of other nations.(see footnote 54) The presumption thus places the majority of U.S. statutes by default on the most firm and widely accepted basis of sovereign authority, while recognizing legislative competence to exercise sovereignty on some other basis. Congress can exercise authority on one of the other, possibly more controversial bases, but the Court will not presume this to be the case without is some indication that the legislature intends to do so. Additionally, this approach also implies an inherent separation of powers rationale: if Congress, with its responsibilities for foreign relations, wishes to potentially intrude on the prerogatives of other sovereigns, then it can explicitly do so, but the courts will not take it upon themselves to infer such an intent.
A clear example of this principle is found in a substantive area of law with which this committee is quite familiar: intellectual property. Because of the territoriality presumption, federal courts have repeatedly held that U.S. patent and copyright law end at the border, because the federal statutes that give rise to such intellectual property contain rights no express exercise of extraterritorial authority.(see footnote 55) But federal trademark law has been treated differently, in part because of its constitutional pedigree. Unlike the patent and copyright statutes, which rest upon the patent and copyright clause, the Lanham Act draws upon the constitutional commerce power, and the statute contains language extending the Act to ''all commerce'' that may be lawfully regulated by Congress.(see footnote 56) This would include not only interstate commerce, but also foreign commerce. The courts have taken this language as express authority to apply the Lanham Act extraterritorially, and they have done so with some frequency.(see footnote 57)
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Although this minimalist default principle of territoriality displays admirable prudence and restraint in extending the reach of U.S. law, it has the disadvantage of being an inference drawn from silence. It may well be that Congress intended trademark law to be extraterritorial and copyright not to be. Or it may simply be that Congressional silence on copyright territoriality means that Congress did not consider the international scope of copyright at all. In a world of transborder computer networks, it may be desirable to give courts clear and explicit guidance as to the reach of federal statutes, rather than leaving them to interpret the lack of explicit guidance.
Personal Jurisdiction: Fifth Amendment Contacts
A second matter that has been the subject of considerable consternation is the scope of personal jurisdiction in U.S. courts where on-line activity is concerned. Traditionally, jurisdiction over an individual was premised on the physical presence of the person in the forum; this continues to be a viable jurisdictional basis,(see footnote 58) the Due Process Clause of the Fourteenth Amendment constrains state courts from exercising personal jurisdiction over defendants who lack sufficient contacts with the forum state.(see footnote 59) Via ''long-arm'' statutes, states may authorize their courts to exercise jurisdiction over extraterritorial defendants up to the limits of inherent in the Fourteenth Amendment. A court may exercise jurisdiction over the defendant if the defendant has ''minimum contacts'' with the forum such that he or she might anticipate defending the particular type of legal claim there. Unless the defendant has sufficient quantum of contact with the forum state, that state's exercise of jurisdiction over the defendant would offend ''traditional notions of fair play and substantial justice.''
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The Supreme Court has also offered a list of five jurisdictional ''fairness factors'' that may require a separate assessment, especially when the defendant's contacts with the forum are attenuated.(see footnote 60) The factors to be weighed before subjecting the defendant to jurisdiction include the inconvenience to the defendant of defending in that forum, the forum state's interest in adjudicating the dispute, the plaintiff's interest in obtaining convenient and effective relief, the interstate judicial system's interest in efficient resolution of interstate conflicts, and the shared interest of the states in furthering substantive social policies. Additionally, where jurisdiction over foreign nationals is at issue, the Supreme Court has indicated that potential interference with the procedural and substantive policies of other nations, as well as the impact on the foreign relations policies of the United States may constitute additional fairness factors for consideration.(see footnote 61)
These due process considerations constrain the reach of state courts. But the source and potential scope of authority for federal courts is quite different. Where federal courts are concerned, similar due process considerations apply, but arising under the Fifth Amendment constitutional constraints on the federal government, rather than the Fourteenth Amendment constraints on the states.(see footnote 62) Under an unfettered Fifth Amendment jurisdictional analysis, Fourteenth Amendment concerns surrounding state sovereignty vanish, as there is no question of interstate comity when the sovereign in question is the federal government.(see footnote 63) Due process considerations of fairness and affiliating contacts remain central in a federal jurisdictional analysis, but contacts inquiry may in theory consider contacts with the nation as a whole, rather than with any particular state.(see footnote 64)
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However, at present federal courts are seldom able to exercise personal jurisdiction to the full extent that the Fifth Amendment might allow. The jurisdictional reach of federal courts is set by Congress within the limits of Fifth Amendment due process, and Congress has generally instructed federal courts to exercise no more jurisdictional authority than would a state court sitting in the same territory. This jurisdictional limitation has been closely tied to service of process: federal courts are constrained by the service is permitted under the ''long-arm'' statute of the state in which the federal court is situated.(see footnote 65) However, in ''federal question'' cases where a federal statute authorizes nationwide service of process, a federal court may instead exercise jurisdiction to the nationwide limits of the Fifth Amendment.(see footnote 66) Additionally, under Federal Rule of Civil Procedure 4 (k)(2), a district court may look to the nation as a whole to aggregate contacts if the jurisdiction conferred under the local long arm statute is insufficient and if jurisdiction would not lie in any other district.(see footnote 67)
One can easily imagine situations in which on-line activity would be too diffuse to support personal jurisdiction in any individual state. Under the current Federal Rules of Civil Procedure, federal courts will often be just as powerless to exercise jurisdiction as would the state courts in a given areanot because of constitutional constraints, but because of the limits of Congressional authorization. But this need not necessarily be the case. Congress has a variety of options to expand the latitude of federal court jurisdiction, for example by taking pains to ensure each statute that might be applied to the Internet has a provision for nationwide service of process. Alternatively, Congress could authorize federal court jurisdiction to the limits of the Fifth Amendment in situations other than the unusual case addressed by FRCP 4 (k) (2). At a minimum, Congress could authorize federal courts to engage in service of process to the limits of the fourteenth amendment, even if the currently applicable state long-arm statute does not do so.
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Venue: Criminal Adjudication
Unlike civil trials, where the possibility of default judgments requires an extensive jurisprudence of fairness in personal jurisdiction, questions of criminal jurisdiction will almost always be couched in terms of venue. This is because criminal jurisdiction is always based upon the physical presence of the defendant within the forum and before the tribunal.(see footnote 68) The constitution's confrontation clause precludes criminal ''default judgments.'' In turn, physical presence for a criminal trial within the United States is almost never an issue because of the constitution's extradition clause(see footnote 69) and an implementing extradition compact among the states(see footnote 70)as long as there is a facially proper complaint, extradition is available. As a practical matter, then, a criminal jurisdiction question can really only turn on whether there was a facially proper complaint, that is, whether there is probable cause to believe that the defendant committed all or part of the crime alleged within the venue of the particular forum. Under criminal jurisdictional doctrine, venue lies if a material element of the crime was initiated or completed within the forum.(see footnote 71) For some multi-jurisdictional crimes, such as kidnapping, a material element of the crime need only have been in the process of execution within the forum.(see footnote 72)
The interaction of these rules may subject Internet to unexpected criminal liability in almost any jurisdiction with Internet connectivity. Once venue is properly established, obtaining extraditionand hence jurisdiction over the person of the defendantfrom another state is relatively trivial. This problem was demonstrated in a non-Internet electronic communications case, United States v. Thomas.(see footnote 73) The defendants were convicted of supplying obscene materials to Memphis Tennessee from their dial-up computer bulletin board service (BBS) in Milpitas, California. The defendants argued that venue in Tennessee was improper because the files were downloaded by a subscriber, rather than sent by the BBS operators. The court rejected that argument, holding that because the effects of the defendants' conduct reached Tennessee, venue was proper there. At least one subsequent court has expressed concern about the application of this standard to the medium of the Internet, because unlike the BBS operators in Thomas, the owners of websites have little control over where their material may be downloaded(see footnote 74) Some guidance to the courts or amendment to the rules governing venue may be required in order to resolve issues of this type.
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The global reach of the Internet and the rapid increase of transborder on-line activity will require careful consideration to properly update the jurisdictional reach of federal courts. I congratulate the committee for holding these hearings to begin addressing these issues, some of which I have outlined in my testimony, and would be happy to answer any questions that the members of the subcommittee might have.
Mr. COBLE. Mr. Zittrain.
STATEMENT OF JONATHAN ZITTRAIN, EXECUTIVE DIRECTOR, BERKMAN CENTER FOR INTERNET & SOCIETY HARVARD LAW SCHOOL
Mr. ZITTRAIN. Thank you, Mr. Chairman, Ranking Member Berman, and the members of the committee and counsel. I believe the Internet will not look much like it does now tomorrow. The Internet itself is a moving target and it has very technical protocols and parameters, and thus the world we find ourselves in when we surf or when we pull up that Web site to Thomasville, North Carolina is going to change. I think those changes have pretty profound implications for some of the jurisdictional conundrum that we are trying to talk about today.
On the Internet today, once one puts up a Web site he is open for business around the world. Anybody in Tirana, Albania is but a click away. As a result, we see jurisdictional confusion over whose rules should apply. In an overlap, multiple rules conflict, and in that instance we would see whoever's rules are most restrictive becoming the slowest ship in the convoy, slowing the rest of the convoy down.
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These are truly difficult questions to address. However, again, I think the Internet is changing. One of the key changes regards what we take to be anonymity on the Net: the fact that when you surf on the Internet, people pretty much don't know who you are and you are but a number, and that number can change. It is not going to be so in the future. Increasingly, people will access the Internet with status connections, whether wire-full or wireless, and those connections themselves have identity. You may not know who the person is, but it will become increasingly easy to find out where the person is located, in a way that is difficult to fake; what jurisdiction the person calls home; of what country he is a citizen, or of what Stateand it basically means that even Mr. Vartanian's ring is something which, when he plugs in, may not say, ''I am Mr. Vartanian,'' but instead, ''I am an American citizen and I am in France right now as I plug in.''
These changes to the Internet's infrastructure mean that some of the current problems may attenuate. You will have a form of what I call ''selective sovereignty.'' Each sovereignty can try to affect only those within its jurisdiction, jurisdiction being an expression of power only on those whom rightfully it might want to do so.
So, for example, in the Yahoo-France case, where French courts have asked Yahoo not to stop auctioning off certain memorabilia, but instead to restrict the ability of those who are in France from participating. They are trying to regulate people who are on French soil. Yahoo's answer so far is: We can't do it. We either have to shut down the whole auction or we allow the French citizens to participate as well.
In the new Internet, in which we know where people are, there is no longer that Hobson's choice. It is suddenly possible with a flick of a switch to exclude those who are from France from participating in the auction. Indeed, the merchant in Thomasville can decide where the jurisdictions are in which he would like to offer his wares, and people who aren't in those jurisdictions won't be able to see them.
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Ditto for Internet gaming. If a particular State wants to restrict particular citizens in the State from gaming, it can reasonably ask certain Internet sites to do that, not just along the geographic dimension, but along other dimensions like age. It may be a lot easier soon for Web sites to say: We have certain material and unless you can present a certificateunless your ring can show that you are over the age of 18we are afraid we can't show you this material.
Apart, then, from this possibility of selective sovereignty which can allow for multiple regimes to coexist without having to confusingly overlapor cause the slow ship in the convoy problemwe have this other issue that has been tossed around, and that is one of private jurisdiction. I believe jurisdiction underscores the exercise of power. We think of jurisdiction in terms of courts or legislatures. Those are public bodies exercising power that is granted to them through civic processes. Private jurisdiction is exactly not that. Private bodies that can come to exercise power and, indeed, where formerly they may have had to turn to a public body for satisfaction of some right, instead they can use self-help to vindicate that right.
Let me give you three quick examples. The first is one that has already been talked about. That is the Uniform Dispute Resolution Policy of ICANN. This is now a private regime, to be sure, currently under some form of oversight by the Commerce Department of the United Statesoversight to be phased out if all goes well or as predicted over the next couple years. And in this regime, no matter where one is in the world, if one has a domain name that ends in com, net or org, one has by contract had to agree to submit any disputes over that name in the first instance to an alternative dispute resolution process.
Page 137 PREV PAGE TOP OF DOC Now, I share Dean Perritt's view that this process on its face looks relatively fair. It has some of the trappings of due process, et cetera, and yet there are worries about accountability with private bodies that you wouldn't have necessarily with well-functioning public ones. I take Professor Burk's concerns to be along those lines.
At the very least, a private body like ICANN is exhibiting a common universal substantive law, exactly what Professor Kovar said. The Hague rules weren't about but one universal law under which everybody will have to accede in the first instance, again simply by getting the domain name. That is something for which I would imagine certain public bodies may wish to retain great interest in and oversight of, to see that those processes remain responsive to the people whom they are supposed to serve.
A second and more obscure exampleand I suppose, in a sense, a form of alternative dispute resolution: If I have a dispute with somebody who is sending me e-mailsuppose they are sending me unsolicited commercial e-mail, otherwise known as spamcan I try to sue them? There are certain States that have tried to pass laws about it, but they run into the current Internet problems of jurisdiction and finding out who is doing it and getting the right attachment upon them.
I have an alternative right now. I can go to somebody named Paul Vixie. Paul Vixie is an Internet engineervery nice guyimpatient with the fact that there is no law against spam. He has created something that is called a real-time ''black hole'' list. It is simply a list that he keeps of people he believes have aided, abetted, or participated in spamming. If you get on Paul's bad listit turns out that there are a number of people who subscribe to it. Those people run mail servers. They run, for example, the hotmail.com server. So if I am on Paul's bad listI have been found by Paul to be a spammerand I try to send e-mail to somebody at hotmail.com, it will not be delivered. It is simplyand this is a verb, I understand''black-holed.''
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This means, then, that one person with an organizationwho is a noble person doing good work, protecting us from spamI am happier with him out there, but he too shares concerns about what this means in the larger senseis undertaking private rulemaking. Paul sets his own procedures as to who gets on his list. Right now it is so popular that apparently approximately 65 to 70 percent of your mail will go nowhere if you end up on his list. Indeed, certain server administrators on the Internet, all of them private partiesnone of the byways of the Internet that route packets from one place or another are public, they are not like roads or streetssubscribe to this list at the router level. Which means they will even refuse to carry packets, whether e-mail or not, from somebody on a bad list like Paul's.
That means that surfing the Internet could become more and more difficult if you are somebody that ends up on the wrong side of the tracks there. That is another form of private lawmaking. Private sheriffs, in effect, that are coming to fill the void left when public bodies say that they will leave the Internet alone.
Now, I believe that leaving the Internet alone has led to a form of pleasant anarchy so far for most of us that we appreciate and respect. It has created the boom that we have all been able to benefit from today but there are, of course, concerns with this private lawmaking that I believe public bodies ought to be looking into. Thank you very much.
Mr. COBLE. Thank you Mr. Zittrain.
[The prepared statement of Mr. Zittrain follows:]
Page 139 PREV PAGE TOP OF DOCPREPARED STATEMENT OF JONATHAN ZITTRAIN, EXECUTIVE DIRECTOR, BERKMAN CENTER FOR INTERNET & SOCIETY HARVARD LAW SCHOOL
The Internet of tomorrow will be quite different than it is right now, transforming the issues and obstacles for the federal courts and legal jurisdiction that prevail today.
I. The Internet Today: Anonymity, Lawlessness, and Individual Freedom
The current structure of the Net makes it relatively easy for a given user to remain anonymous, and for his or her communications-including information transactions-to happen without third-party constraint. For the user, this can be liberating whether or not her actions are lawful. She may largely ignore the law without fear of material consequence. Even if she is found, issues of jurisdiction across borderscan imply multiple and perhaps conflicting legal regimes.
A wide spectrum of oxen are gored by the free-for-all of today's Net:
1. Commercial Interests face problems with identity theft, credit card fraud, widely disseminated leaks of sensitive company information, and outright falsehoods designed to manipulate a stock price.
2. Publishing Interests face rampant and wholesale piracy of intellectual property.
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3. Individuals face anonymous threats and spam.
4. Consumers face untrustworthy online merchants.
5. Governments face and inability to limit certain illegal content and transactions.
6. All Internet users face failure of the Net caused by cyber attacks.
Start with the premise of the free flow of information and money among anonymous parties who could be anywhere, and one cannot help but end up appreciating the Internet as an instrument of anarchy: widespread freedom from the burdens of unjust, illegitimate, or simply ill-advised law, and widespread flouting of the responsibilities entailed by just, legitimate, and reasonable restrictions on behavior.
II. The Internet Tomorrow: Architectures of Control
Of course, it is not a fact of nature that the Internet more or less enables the free flow of information and money among anonymous parties who could be anywhere. The Internet was built by people, and while it has a momentum all its own, its architecture can be redefined by peopleindeed, it is in the process of being fundamentally altered right now.
A. Anonymity is becoming rarer and more expensive for a user to maintain.
Computers themselves, rather than merely ''virtual'' network connections, will come to have permanent serial numbers associated with them and, in typical cases, these numbers will be broadcast to interlocutors each and every instant those computers are used on the Internet.
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The advent of a common digital signature platform means that soon people will be able to assert facts about themselves-such as their identities-that can be verified with far more certainty than the signature on a legally binding check or contract.
B. Alternative paths of access to the Internet may dwindle
As we move to a world of high-speed, dedicated access, user choices between ISPs may be limited. In many neighborhoods there may only be high-speed access provided by a cable television company over its hybrid fiber-coax network, or by a baby Bell over augmented copper wires. In these instances, those who are deemed to have abused the network (or others on it) can potentially be cut off without much alternative short of moving to another house, providing a powerful incentive to behave according to whatever rules are laid down.
Unique hardware-based serial numbers mean that a computer could be ''blacklisted'' on the Internet among many of its users and gatekeepers, forcing the subject of the blacklisting to purchase a new machine to continue engaging in whatever behavior resulted in inclusion on the blacklist.
Thus, commercial interests who worry about identity theft or credit card fraud will come to use digital signature technology to ensure that consumers are who they say they are. Those who wish to identify the posters of particular information on the Net-whether companies fighting alleged leaks, business people reacting to alleged libel, citizens wanting to prosecute alleged physical threats, email users resenting spam, or governments wanting to prosecute (or persecute) allegedly subversive comments-will find it easier to track the posters down or at least cause a tuning out of the flow of such comments.
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III. Implications of Change: Private or Public Sheriffs?
As governments are empowered, so are many private parties in a position to effect control over Internet use. A decision to refrain from formal lawmaking may itself enable this control, as can certain laws designed expressly to further private enforcement of private laws.
The most important shift, then, from today's Internet to tomorrow's, is the shift from the public to the private. A number of bottlenecks are arising within the formerly ''dumb,'' nondiscriminatory network, and they can be used to effect control both through public and private means. In the former category, the usual political processes through which policy is made (and, in the United States, subjected to judicial review), will determine how that control is exploited. In the latter category, we may find whole swaths of activities traditionally thought to be public now becoming private. The ''streets'' through which email and other data travel from sender to recipient are, after all, private, and as they become ''smarter'' they can become more selective about what to let through and to what to deny passage. Whether through appropriate adjustment to intellectual property laws, through judicious application of antitrust and competition doctrines, or through affirmative creation of certain open spaces and activities, not subject to many forms of private restriction-think of the common carrier or public accommodation doctrines-the real challenge to government in the coming e-era may be to prevent undue private regulation of activities, rather than simply arrive at the right level of public regulation of these activities.
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Chairman Coble, Ranking Member Berman, Members of the Subcommittee:
My name is Jonathan Zittrain, and I am the executive director of the Berkman Center for Internet &Society at Harvard Law School, where I teach and study cyberlaw.
I have structured my testimony today to share some educated guesses about where the global Internet is headed, and about the social and legal impacts of the Internet as it is likely to be tomorrow. This is because I believe that the Internet of tomorrow will be quite different than it is right now, in turn transforming the issues and obstacles for the federal courts and legal jurisdiction that prevail today.
I. The Internet Today: Anonymity, Lawlessness, and Individual Freedom
The current structure of the Net makes it relatively easy for a given user to remain anonymous, and for his or her communications including information transactions to happen without third-party constraint. This can be quite liberating for the user, and in many instances quite worrisome to those who would seek to restrict that person's online behavior. After all, if he or she can't be found or identified, or her data packets blocked under particular circumstances, the fact of legal jurisdiction is merely academic: those subject to a law that bears on online behavior can readily ignore it without material consequence. Further, even the academic aspect of legal jurisdiction can seem confusing: the Internet enables parties at a distance to interact much more easily, implicating multiple and perhaps conflicting legal regimes.
If one is generally averse to government regulation, perhaps another wrench in the workings of its exercise is to be cheered.
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But a wide spectrum of oxen are gored by the free-for-all of today's Net. For commercial interests generally, there are worries about identity theft and credit card fraud, as well as widely disseminated leaks of sensitive company information or outright falsehoods designed to manipulate a stock price. For publishing interests specifically, there is the rampant and wholesale piracy of intellectual property enabled by such programs as Napster, which is now wildly popular on college campuses worldwide.
For individuals generally, there exist the prospects of receipt of anonymous threatening emails or even harmless, if annoying, unsolicited spam advertisements. For consumers specifically, there is uncertainty about whether online merchants can be trusted to be who they say they are and deliver what they promise whether the merchandise be a digital or physical good.
For governments generally, there is an inability to limit certain content or transactions deemed illegal. The Chinese government objects to a broad range of speech deemed subversive; a French court is rebuffed by Yahoo!in its demand to cease allowing those on French soil to participate in auctions of Nazi memorabilia; in Quebec, the bureau of language enforcement at one point challenged certain web sites for failing to include a French alternative to English text. Here in the United States, the difficulties have typically arisen around attempts to restrict citizens access to gambling and child pornography, as well as kids access to material whose exclusion from a school library or lower shelf of a newsstand would be wholly unremarkable.
Finally, for anyone on the Internet, there is the dangerdifficult to quantifythat someone far away could wreak havoc on the Net itself, or computers hooked up to it, through any of a number of kinds of cyberattacks.
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Start with the premise of the free flow of information and money among anonymous parties who could be anywhere, and one cannot help but end up. Zittrain appreciating the Internet as an instrument of anarchy: widespread freedom from the burdens of unjust, illegitimate, or simply ill-advised law, and widespread flouting of the responsibilities entailed by just, legitimate, and reasonable restrictions on behavior. Of course, I do not seek to categorize which laws fall into which category; rather I wish to emphasize the ways in which the Internet's current resistance to law's exercise amounts, depending on one's view and the circumstances, to both more freedom and more lawlessness.
If the technical architecture of the Internet were simply a fact of nature, each interest threatened by its features could attempt to deal with it, however imperfectly, through enactment of new laws, or more robust enforcement of existing laws. In the intellectual property context, for example, this subcommittee marked up the No Electronic Theft Act, which criminalized a wide swath of copyright infringement (roughly, that done merely for fun rather than profit)that had formerly been subject only to civil penalties. The FBI has run operation Innocent Images, in which agents participate in chat rooms, awaiting those who seek to traffic in child pornography and who part with enough information to permit their arrest, should they be on U.S. soil.
In other words, the Internet will have lowered the costs of some activities those depending upon communication at a distance and raised the cost of others those depending on ready surveillance and control. Certain government restrictions would be more expensive to implement and, in some cases, thus be abandoned. These would include restrictions against others sought from government court systems by private citizens: cases against defamation, harassment, threat, and fraud might be more costly to bring and less likely to result in recovery from a reachable defendant.
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Work might be done at an intergovernmental (or interstate) level to clarify choice of law and forum, but if the Internet's fundamental architecture and. Zittrain protocols don't change, the underlying problems of identification of lawbreakers and distance of parties will remain.
II. Towards tomorrow's Internet: Architectures of control
Of course, it is not a fact of nature that the Internet more or less enables the free flow of information and money among anonymous parties who could be anywhere. The Internet was built by people, and while it has a momentum all its own, its architecture can be redefined by people indeed, it is in the process of being fundamentally altered right now.
I will highlight some of these changes.
First: anonymity is becoming rarer and more expensive for a user to maintain.
The original Net was built by and for people in research environments. With little or no expectation of mass adoption and the concomitant use of the Net for commercial transactions it was natural enough for the architects to trust that users of the system wouldn't misrepresent their identities.
This trust was propagated through the very network itself: each computer or point of presence on the Internet needs a unique if temporary serial number, a so-called IP address, so that it can be distinguished from every other computer hooked in. These numbers, in the first instance, were distributed in large blocs by a researcher in southern California, and ultimately found their way to every machine on the Net. Those who configured the machines had them broadcast their assigned number and were trusted not to use someone else's, or an unassigned, number. There was little incentive for such behavior called IP. Zittrain spoofing and engaging in it could confuse the network and even allow data intended for someone else to end up on one's own desktop.
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In today's free-for-all, there exist individual Internet users who are happy to engage in IP spoofing, whether to steal another's identity, to cloak their own activities, or just to try to disrupt the network. Already the network architects have responded: nearby data routers to one's computer no longer take that computer's announcement of its IP address as fact, and most Internet configurations now see to it that numbers are automatically assigned to computers each time they re turned on by whatever service provider is granting Internet access to that computer.
Thus, as we shift from a world of modems to a world of always-on, static Internet access from home, office, and cybercafe, the network is automatically assigning unique, quasi-permanent, somewhat traceable, and difficult-to-spoof serial numbers to every user of the Net. Indeed, the next version of IP protocol so-called IPv6 anticipates that these numbers will include, as a part, a separate unique number assigned to a given computer/network card from the moment it leaves its factory. Thus computers themselves, rather than merely virtual network connections, will come to have permanent serial numbers associated with them and, in typical cases, these numbers will be broadcast to interlocutors each and every instant those computers are used on the Internet.
Further, the advent of a common digital signature platform means that soon people will be able to assert facts about themselves such as their identities that can be verified with far more certainty than the signature on a legally binding check or contract. The cost and burden of virtually carrying and proffering an I'm over 18 card, or an I'm a citizen of the United States and Washington, D.C. card, will drop. It will become simple to create online activities that, for whatever reason, are intended to be limited to those who meet certain. Zittrain verifiable criteria, and to exclude those who cannot or will not show that they meet those criteria.
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Second: alternative paths of access to the Internet may dwindle. Several factors point to this prospect. On today's Internet, access can be achieved by using a computer modem to dial the phone number of another computer it could be anywhere which is already hooked up to the Internet. Thus dial-up ISPs, or Internet service providers, are plentiful, and one can readily switch to another if there is dissatisfaction with (or a refusal to serve by)the first.
As we move to a world of high-speed, dedicated access, the choices are much fewer. In many neighborhoods there may only be high-speed access provided by a cable television company over its hybrid fiber-coax network, or by a Baby Bell over augmented copper wires. In these instances, those who are deemed to have abused the network (or others on it)can potentially be cut off without much alternative short of moving to another house, providing a powerful incentive to behave according to whatever rules are laid down.
Further, the existence of unique hardware-based serial numbers, whether on the network card as MAC codes or on the central processing chips themselves (as Intel has attempted and, for now, aborted), means that a computer could soon be blacklisted on the Internet by many of its users and gatekeepers, forcing the subject of the blacklisting to purchase a new machine in order to continue engaging in whatever behavior resulted in inclusion on the blacklist. Further still, as computer access to the Internet itself shifts towards dedicated single-use network appliances such as TV jukeboxes and shopping terminals, the opportunity to drift from appointed paths will greatly diminish.
In essence: the dumb but reliable network that is the Internet is getting smarter, and bottlenecks are now possible within it. These bottlenecks can be. Zittrain used to enforce certain levels of identity, and punishment (in the form of denial of network access)should particular rules be broken.
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It may be useful to revisit the issues I inventoried in Part I of this testimony in light of these shifts. Commercial interests who worry about identity theft or credit card fraud will come to use digital signature technology to ensure that consumers are who they say they are. Those who wish to identify the posters of particular information on the Net whether companies fighting alleged leaks, businesspeople reacting to alleged libel, citizens wanting to prosecute alleged physical threats, email users resenting spam, or governments wanting to prosecute (or persecute)allegedly subversive commentators will find it easier to track the posters down or at least cause a tuning out of the flow of such comments.
The effort required for piracy of intellectual property online will skyrocket with the introduction of new systems of hardware and software designed to distribute content as a service rather than a product. College students who ship too much music around even on today's networks may find their dormitory network connections shut down, as universities find themselves in the uncomfortable but technically quite possible position of policing their own networks at the behest of publishers.
Yahoo! may find it harder to credibly object to a French court that the technology simply doesn't allow French internet users to be excluded from certain auctions, and the Congress may find, for better or worse, that the Hobson's choice occasioned by the Communications Decency Act filter out certain materials from kids eyes (an impossibility on the current Net), or go to jail is suddenly quite resolvable and thus no longer unconstitutional. In a world of digital certificates, one can rather effortlessly and definitively assert that one is over 18, permitting others accurately to withhold certain Internet content from those who are not. Similarly, a particular state could more reasonably ask an. Zittrain Internet gambling site to prohibit access by those unable to certify citizenship from a jurisdiction other than that state.
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Finally, the recent spate of alarming cyberattacks and viruses, itself justification for the Council of Europe's Draft Convention on Cybercrime, which the United States may seek to join may be lessened as those who mount them become easier to identify and stop at the network level.
As we look towards the Internet's future, then, over time there will be less lawlessness (or, depending on one's view, less freedom)on the Net. As a practical matter, it will be easier to identify those who break a law, and to prevent certain online behaviors. Indeed, the decrease of anonymity and increase in bottlenecks on the Internet could actually enable far more thorough control on behavior than that available before the Internet existed.
Actually reaching a lawbreaker who is in a distant country for non-Net- based enforcement purposes (arrest, service of process, fines, etc.), and sorting through overlapping jurisdictional and choice of law claims, will remain challenges, but the outlines of solutions are beginning to emerge.
Traditional lawmaking bodies would do well to note some of the boundariless, quasi-private dispute resolution mechanisms springing up, and in some cases their ability to bind all relevant Net users to their outcomes. For example, many domain name controversies that would have ended up in court with corresponding questions about jurisdiction and choice of law are now resolved entirely through a uniform dispute resolution policy promulgated by ICANN, the new non-profit charged with overseeing certain functions in the prevailing domain name framework. Today, if one is to register or renew a domain name within the most popular domains (.com,.net and,.org), one must first agree to submit to a single dispute resolution procedure by which the control. Zittrain of the name can be challenged, and if the challenge is successful, the name withdrawn from the use of the registrant.
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This is a form of lawmaking and governance, universally applied, but largely independent of traditional lawmaking bodies. Is it a good thing or a bad thing? It depends, of course, on one's view of the substantive policies enforced by the system, and on how much one likes the current anarchy or at least overlapping and at time contradictory rules of the Net as it stands. Of course, such dispute resolution may amount to simply one more set of rules to compete with those flowing from traditional sovereigns. After all, the recent Anticybersquatting Consumer Protection Act, Pub.L.No. 106113, is Congress's response to the very problems of trademark infringement that ICANN's uniform domain name dispute policy was designed to solve. A domain name holder might survive a claim lodged under ICANN's procedure, but this would clearly be trumped by an adverse federal court decision under the Anticybersquatting Act.
More important, the adoption of digital signature and certification technologies can defeat the idea that the Internet knows no boundaries. With them, different Internet experiences can be tailored to different users depending on such criteria as one's citizenship, age, or location. Thus, as I've hinted above, Minnesota can seek to restrict gambling activities of its citizens without insisting that everyone else's gambling be limited; Quebec can more easily insist that those who communicate with Quebec citizens favor one language over others; governments generally can better collect transaction taxes by tracing transactions to their points of consumer origin. For better or worse, the opportunity to enact laws concerning Internet use, targeted near-perfectly only to those citizens over which the lawmaking body has actual jurisdiction, is fast approaching.
III. Implications of change: Public or private sheriffs?
Page 152 PREV PAGE TOP OF DOC What are the implications of all this for the exercise of jurisdiction by the federal courts, and more generally the exercise of government power on the Internet through law?
Just as governments are empowered to effect control over Internet use, so too are many private parties. A decision to refrain from formal lawmaking may itself enable this control, as can certain laws designed expressly to further private enforcement of private laws.
For example, Internet engineer and protocols designer Paul Vixie, tired of receiving spam email, has set up the Realtime Blackhole List. Paul's list is one of several private efforts to simply document who is engaging in the sending of unsolicited email. Network administrators can, in turn, subscribe to a list like Paul's, and with or without the knowledge of their email subscribers, decide to blackhole, i.e. delete, any email emanating from an entity on that list. Thus, if Paul's non-profit elects to blackhole someone, that person's email will not find its way to anyone with a Hotmail account, since Microsoft, which runs Hotmail, subscribes to Paul's list.
It is now possible, and through some unconfirmed reports, actual, that a commercial web site, exchanging information with affiliate sites about whom buys what, could elect not to do business with those consumers deemed to be too smart shoppers those who always have the $10 coupon for a $10.01 purchase, or who take advantage of introductory offers or loss leaders and never come back. Indeed, a web merchant might choose among customers or at least set varying prices according to any number of factors. Thus can a consumer new to a particular merchant find her transaction rejected, or subject to a much higher cost than that found by another Internet user
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The producers of popular music, in collaboration with manufacturers of hardware and software, are building systems that prevent users from copying or lending the music they wish to hear. These systems are, in turn, backed up in the United States by the Digital Millennium Copyright Act, which criminalizes those who crack systems designed to protect any work covered by copyright. Libraries, which have, thanks to copyright's first sale doctrine, found themselves able to purchase and then lend out freely copies of books, records, and CDs, may find there is no longer anything to lend: there are simply access rights to material, defined and enforced with remarkable specificity by the technological system that serves up the material.
The most important shift, then, from today's Internet to tomorrow's, is the shift from the public to the private. A number of bottlenecks are arising within the formerly dumb, nondiscriminatory network, and they can be used to effect control both through public and private means. In the former category, the usual political processes through which policy is made (and, in the United States, subjected to judicial review), will determine how that control is exploited. In the latter category, we may find whole swaths of activities traditionally thought to be public now becoming private. The streets through which email and other data travel from sender to recipient are, after all, private, and as they become smarter they can become more selective about what to let through and to what to deny passage. Whether through appropriate adjustment to intellectual property laws, through judicious application of antitrust and competition doctrines, or through affirmative creation of open spaces and activities, free of private restriction think of the common carrier or public accommodation doctrines the real challenge to government in the coming e-era may be to prevent undue private regulation of activities, rather than simply to arrive at the right level of public regulation.
Page 154 PREV PAGE TOP OF DOC Mr. COBLE. Mr. Pearl.
STATEMENT OF MARC A. PEARL, SENIOR VICE PRESIDENT, GOVERNMENT AFFAIRS AND GENERAL COUNSEL INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA (ITAA)
Mr. PEARL. Thank you, Mr. Chairman. I want to take a moment of personal privilege, to recognize my son who is an entering high school senior this year, who is here today. I make this observation in relationship to your kudos. He recently interned at the Senate Judiciary Committee, and I wanted him to have a more complete picture of how Congress works by being able to be with you this morning.
Mr. COBLE. Well, I hope he didn't learn too many bad habits from Senator Hatch and Senator Leahy over there, but I suspect they took good care of him.
Mr. PEARL. ITAA, Mr. Chairman, as you know, represents thousands of direct and affiliate member companies located throughout the United States. Our members range from the smallest IT start-ups to industry leaders and customs software, IT services systems integration, telecommunications and the Internet. Additionally, and of particular concern and relevance to this hearing this morning, ITAA serves as the Secretariat of WITSA, the World Information Technology and Services Alliance, which is an association of 41 organizations around the world.
I appreciate the opportunity to express our industry's perspective on the subject of this hearing. ITAA is currently involved in a wide range of issues involving the Internet and Federal courts, from taxation to information security to privacy to accessibility, though my testimony this morning will focus solely on the proposed Hague Conference draft Convention on Jurisdiction and Foreign Judgments.
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We commend the subcommittee and particularly you, Mr. Chairman, and Mr. Berman, for initiating this discussion on the global implications to U.S. conditions and Federal law if such a Convention is adopted. We must all better understand the similarities and the differences between analog and digital; between traditional ways of establishing contractual relationships and how the Internet affects those agreements.
A key necessity of doing business, whether traditionally or digitally, is first knowing and then being able to follow a common set of principles, laws, and regulations. E-commerce presents a number of unique challenges to contractual relationships. And because it is so new and so different, it tends to upset business certainty. The Internet is an inactive and ubiquitous medium which defies traditional notions of physicality, delivering information products and services transparently across national boundaries. The simple reason the Internet is transformational is what Frances Cairncross of ''The Economist'' calls ''the death of distance.'' The traditional relationship between a seller and a buyer in a pre-Internet world even with supersonic airplanes and telephones and faxes was circumscribed by the physical distance between the two, especially when it came to exchanging information. Even large organizations were limited, as they could not afford to be in touch with a multiplicity of suppliers or customers.
The Internet has virtually eliminated distance boundaries and those cost factors. We must therefore be careful not to regulate this new international business medium in a diplomatic vacuum. The Hague Conference cannot view itself as an isolated treaty-forming organization. Its actions will have ramifications across the global online community.
In this context, I have attached to my written testimony what we call the ''jurisdiction road map'' which we prepared with the United States Council for International Business and distributed at the E-commerce Experts Meeting at the Hague Convention held in Ottawa earlier this year. It outlines all the various government and quasi-governmental organizations that are looking into jurisdiction across a wide body, not just the Hague conference process.
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Now, as we have been told this morning, the Hague has been studying the issue of developing the treaty to deal with judicial enforcements of foreign judgments since 1992 and replaced its draft Convention late last year. The document, however, inadequately addresses and in some cases woefully ignores the advent of e-commerce. In that intervening 8-year period, as I have also detailed in my written testimony, people and businesses throughout the globe that are utilizing the Internet and traditional contracts for goods and services are increasingly migrating to e-commerce. New models of business relationships and contracts are being developed for digital products, as well as how those products and services are delivered. It is not merely using the Net to more efficiently move hair dryers or furniture or cars. It is also delivering new kinds of digital products and services to address these things. And most foreign countries don't know how to do it.
By hasty actions we risk doing harm to our burgeoning digital economy. The U.S. Government should not and therefore in no way, shape, or form encourage nor acquiesce in the convening of a diplomatic conference process that threatens to confuse rather than clarify the legal norms surrounding international electronic commerce.
On our Web site www.ITAA.org, you can find a number of hypotheticals that will illustrate a number of the global transactions that are not adequately addressed in this draft Convention. The e-commerce community has identified a number of additional vexing questions that must be addressed, questions affecting both the providers and the users of IT.
For example, and I will just summarize some of the more cogent and important ones: Is a digital signature on an electronic contract legally recognized and enforceable? What constitutes an offer or an acceptance on the Internet? Should the law of origin, as we heard this morning, or the law of destination apply to electronic contracts? How should digital information software products and IT services be treated; as goods, as services, or something new and unique? By merely establishing a Web site, is an online vendor engaged in an activity directed at the citizens in a foreign State? What is the relationshipand this is an important issue for this committeeof this proposed Convention with other treaties dealing with matters of jurisdiction? And how will it deal with existing bilateral agreements and autonomous private international law rules? These are but a few of the issues not addressed in the current draft Convention.
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In short, the document raises more questions than it answers and, as currently drafted, puts the analog cart before the digital horse. This committee deserves a great deal of credit for pursuing these policies and discussing the relevant issues that impact global electronic commerce. Let us not act precipitously or permit foreign governments to push through a treaty which is not in the best interest of business and consumers here or abroad, a treaty which could negatively impact a global embrace of electronic commerce.
Whether you act, as Mr. Perritt says, as a prod or as a speed bump, Congress in general and this committee in particular has an enormously important role to play.
Thank you very much for the opportunity to appear before you today. I will be happy to answer any questions.
Mr. COBLE. Thank you, Mr. Pearl.
[The prepared statement of Mr. Pearl follows:]
PREPARED STATEMENT OF MARC A. PEARL, SENIOR VICE PRESIDENT, GOVERNMENT AFFAIRS AND GENERAL COUNSEL INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA (ITAA)
I am Marc Pearl, Senior Vice President of Government Affairs and General Counsel of the Information Technology Association of America (ITAA). Our Association represents over 400 direct and 26,000 affiliate member companies in the information technology (IT) industrythe enablers of our technology-based and increasingly digital dependent Information Age economy. ITAA members are located in every state in the United States, and range from the smallest IT start-ups to industry leaders in the custom software, services, systems integration, telecommunications, Internet, and computer consulting fields. Additionally, ITAA serves as the Secretariat of the World Information Technology and Services Alliance (WITSA), an association of 41 IT organizations from around the world.
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ITAA appreciates the opportunity to express our perspective on the subject of this hearingThe Internet and Federal Courts: Issues and Obstaclesparticularly as it relates to the proposed Hague Conference Convention on Jurisdiction and Foreign Judgments. We commend this subcommittee for discussing the ramifications of this proposed treaty and the issues at hand.
This hearing will help educate and demonstrate the need for Congress, in general, and this Judiciary Committee, in particular, to actively engage itself in the debate and discussion on the legal similarities and differences between analogue and digital; between our traditional forms of establishing contractual relationships and what the Internet does to those agreements. We live in a networked world and our ability to confront issues of global legal impact cannot and should not be left solely to policymakers who reside in Paris, Geneva, Brussels, or Tokyo.
Electronic Commerce and Legal Uncertainties
The Internet presents a number of unique challenges to contractual relationships, which must be addressed domestically as well as globally. It is an interactive and ubiquitous medium, which defies traditional notions of ''physicality.'' Additionally, this relatively new way of delivering information, products and services creates business uncertainty in that it transparently and effortlessly crosses state, provincial and national boundaries. The famous New Yorker cartoon exemplifies that no one knows if you are a dog on the Internet. Not only does this raise basic anonymity and privacy issues, but changes the way in which we treat and identify a ''customer.'' What then is the true definition of a ''consumer,'' for example, if we don't precisely know with whom we are doing business online? Should there be differences in contractual terms between a large and small vendor and consumer?
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ITAA has been the leading trade association voice in identifying and discussing these issues. We have worked closely with Congress, the Administration, state legislatures and foreign governments to confront many of the challenges and resolve many of the legal obstacles presented by the Internet and electronic commerce. Our ultimate goal has been to urge policymakers throughout the world to follow the principles put forth in the 1997 Clinton Administration document entitled: A Framework for Global Electronic Commerce, focusing on preventing premature regulation and legislation; encouraging industry self-regulation and technology solutions. Many of the legal and policy models found in traditional commerce may not be appropriate for e-commerce, for example.
A key necessity of ''doing business'' in the digital environment is knowing and then being able to abide by a common set of principles, laws and regulations. These laws and regulations are under dynamic development and discussion throughout the world in a number of government, quasi-government and industry forums. I have attached to this testimony a document which was prepared by ITAA, WITSA and the United States Council of International Business (USCIB) and distributed at the recent ECommerce Experts Meeting of the Hague Convention in Ottawa. It outlines a number of national and international organizations that are looking at the issue of jurisdiction in the context of global e-commerce.
In short, it would be imprudent for the United States to encourage the passage of a treaty dealing with a court's enforcement of judgment regarding an electronic contract among foreign parties before a number of fundamental issues are settled at the outset of a contract's formation. The draft Hague Convention woefully ignores the advent of electronic commerce and inadequately addresses its uniqueness as a means of facilitating the delivery of digital products and services. The United States government cannot and should not encourage a Diplomatic Conference to draft such a treaty until and unless it confronts the uniqueness and ubiquity of e-commerce, particularly regarding the many questions surrounding jurisdiction in the global digital environment.
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ECommerce in ContextThe Digital Facts and Predictions
Before outlining the legal uncertainties, it is essential to put into perspective the growing significance of electronic commercenot only in the United States, but also throughout the world.
Ifas even Federal Reserve Chairman Allan Greenspan statesinformation technology is the engine of our country's robust economic growth, then electronic commerce is its rocket fuel. Dramatic growth is occurring in business-to-business (B2B) and business-to-consumer (B2C) E-commerce, and more government services are being offered electronically. The Internet is literally rewriting economic history.
Based on surveys done by NUA Internet Surveys (http://www.nua.ie) and Fletcher Research more than 201,000,000 people (of 6 billion in the world) had Internet access in September 1999with connections growth in Europe at an annual rate of 138%.
IT represents over 6% of global gross domestic product (GDP), a spending volume of more than $2 trillion, and over 8% of US GDPaccording to the WITSA-issued report Digital Planet
A recent US Department of Commerce report indicated that 35% of our nation's real economic growth from 1995 to 1998 came from IT producers
Forrester, a respected market research firm, forecasts that the US e-commerce marketplace is worth $290 billion this year and will grow to more than $2.7 trillion by 2004
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More than 100 million (37%) of Europeans will be online by 2004, more than 80 million in the Asia-Pacific region will be online by 2003, and only 35% of Internet users will be from the United States in 2003.
By 2005 almost 60% of all Internet users will speak a language other than English.
This new ''engine of the 21st century''enabled by the ubiquity of the personal computer, the maturation of computer networking and the phenomenal growth of the Internetpromises to change not only the methodology of business processes, but also the very way in which the whole supply chain is managed.
The simple reason the Internet is transformational is what Frances Cairncross of The Economist calls ''the death of distance.'' The traditional relationship between a seller and buyer in the pre-Internet world, even with supersonic airplanes, telephones, and faxes, was circumscribed by the physical distance between the two, especially when it came to exchanging information. Even large organizations were limited, as they could not afford to be in touch with a multiplicity of suppliers or customers. The Internet has virtually eliminated distance, boundaries, and those cost factors.
E-commerce is literally changing the way the world does business. It is proving to be a rising tide that can lift all boatsthe multi-national corporation and the small main street shop owner alike. This is not, by the way, a one-way street of U.S. businesses selling products or services to the rest of the world. Businesses and consumers are able to obtain products and services from all parts of the world at competitive prices. The Web makes geographic distance, language and cultural barriers practically irrelevant. For example:
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Visit a site like http://www.peoplink.org and you will quickly appreciate how e-commerce can create global markets for small businesses. The site offers artwork from craftsmen and artisans from Asia, South America and Africa to buyers around the world.
Villages in Peru are now selling fresh vegetables directly to supermarkets and restaurants in New York Cityan option that was simply not financially viable before the Internet.
Gold miners in the Amazon Basin now have direct, timely information about the global price of their precious commodity, empowering them in ways not possible before.
While businesses are sellers, they are also buyers. Just as the Internet empowers individual consumers, it empowers businesses as customersgiving them access to more vendors for the goods and services they need to operate.
However, while barriers to entry are low, it is important to recognize that there is a need for global cooperation by both business and government to facilitate e-commerce and to provide a substantial degree of ''business certainty.'' This is where, unfortunately, the Hague Convention proposal shows both its pre-maturity and immaturity.
Hague Convention and Enforceability of Judgments
A major foundation to attain global ''business certainty'' is providing a framework for businesses to understand basic precepts in the development of contract terms and conditions. It also entails allowing the contracting parties to privately contract acceptable terms, conditions and limitations, particularly with respect to recognizing which court is competent to hear any disputes. The ability of a court to then have its judgment (based on the contract terms negotiated by the parties) enforced in foreign jurisdictions, according to identifiable, clear and predictable rules, contributes to increased legal certainty. This should be the case, whether the parties are entering into traditional or electronic agreements, or providing/receiving analogue goods/services or digital widgets.
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Many US companies, however, have long been concerned that foreign courts choose not to enforce U.S. court judgments, whether based in contract or not. Jurisdiction in cross-border transactions has always beenand with the proliferation of e-commerce is even morean important issue for global business.
Since 1992, the Hague Conference has been reviewing this issue and released its Draft Convention on Jurisdiction and Foreign Judgments in Civil and Criminal Matters late last Fall. The proposed draft, however, does not adequately address the issues surrounding electronic commerce and the evolution of a national borderless technology of the Internet. Unfortunately, it ignores the reality and complexities of electronic commerce and its negative impact on business certainty for businesses and consumers.
In the intervening eight years since this Convention was first conceived, traditional contracts for goods and services have increasingly migrated to the Internet. As I have attempted to point out above, new models of business relationships are being developedincluding contracts for digital products, as well as the means of delivering products and services. It is becoming increasingly difficult for US courts at both the federal and state levelslet alone their counterparts throughout the worldto definitively resolve disputes regarding contract formation and contract interpretation.
When presented with the latest version of the proposed draft convention early this winter, every segment of the electronic commerce industryrepresenting backbone, hardware, software, telecommunications, content, retailer, and IT service providerresponded in kind. We analyzed the draft, identified a number of questions of particular concern to both the providers and users of IT regarding the potential impact on electronic commerce, and presented our concerns at the E-commerce Experts Meeting of the Hague Convention in Ottawa.
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ITAA has helped lead an informal coalition of e-commerce companies and associations in identifying to the US government and the Hague Conference delegates an extensive list of issues implicitly and explicitly contained or ignored in the proposed draft. Our major concern focused on the proposed draft being too narrow and how it would negatively impact electronic commerce. We pointed out that by treating jurisdiction issues without treating choice of law issues would result in increasing, rather than decreasing legal uncertainty in the digital environment. We found that while the proposed Convention does not create substantive rules of law, nor set out rules for choice of law, it incorrectly assumes that a court properly seized with a case will apply a reasonable rule.
Some of the outstanding/unanswered issues we identified in the draft proposal include:
Where and when is an electronic contract concluded?
Does an electronic contract constitute a ''writing''?
Is an electronic/digital signature on an electronic contract legally recognized and enforceable?
What constitutes an ''offer'' and/or an ''acceptance'' when utilizing the Internet?
The Hague Conference document attempts to resolve some of the enforcement of contract issues that present conflict among foreign claimants. With respect to e-commerce policy and legal issues, however, the document raises more questions than it answers, particularly in the areas of:
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Delivery and performance
Location of the parties
Identity of the parties
The ability of the contracting parties to utilize the principle of''freedom of the parties'' to agree by contract to a jurisdiction in the event of a dispute.
The Internet's impact on traditional legal doctrines also brings into question many of the proposed ''solutions'' contained in the Draft Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters. This is a document intended to settle foreign jurisdiction issues following a court's judgment. In addition to a severe lack of legal precedence, nationally and globally, a number of issues at the outset of a contract's formationwhich need to be settled long before contracting parties are in need of one court's judgment and another court's enforcementhave yet to be settled. Electronic commerce challenges the usual notions of jurisdiction and traditional legal frameworks, particularly in an increasingly global world where national borders disappear. These issues include:
How to best ''interpret the intent'' of the parties?
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What type of relationship exists or was contemplated?
Who has jurisdiction in this contractual relationship?
Which court can best settle ''choice of law'' issues arising from the contract?
Should the ''law of origin'' or the Alaw of destination'' apply?
Additional issues raised, but not adequately addressed or answered, in the draft Convention included:
While the fundamental proposition of the proposed Convention states that a defendant may be sued in the courts of the State where it is ''habitually resident''Can an entity be reside in more than one State?
How should digital information, software products and IT services be treatedas goods, as services, or as something new and unique?
How should Internet/website ''solicitations'' be handled?
Can a ''consumer'' (however it is ultimately defined) be precluded from selecting an Internet/online alternative dispute resolution mechanism?
Page 167 PREV PAGE TOP OF DOC By merely establishing a website, is an online vendor engaged in trade or professional activities in or directed to the citizens in a foreign state?
Should the proposed treaty also cover employment contracts, torts, and the converging mix of civil and criminal law issues?
If the proposed Convention has carved out intellectual property and copyright disputes, why not trademark and in rem actions?
What is the relationship of this proposed Convention with other conventions/treaties dealing with matters of jurisdictione.g. Brussels and Lugano Conventions? How will it deal with existing bilateral agreements and ''autonomous'' private international law rules?
These are just some outstanding questions left unanswered by this draft convention, which the e-commerce community has identified. This does not even touch upon the general jurisprudence issues that have been raised by other interested parties.
It is essential for the U.S. government and our key trading partners to review carefully the cost-benefit analysis of obtaining foreign court enforcements in the face of successfully meeting the challenges and obstacles presented by e-commerce.
Conclusion: Working Towards a Constructive Solution to a Difficult Issue
If there should be a fundamental principle for Internet public policy, it is to draw upon the wisdom of the Hippocratic Oath''first do no harm.'' There is a natural temptation with technology policy to tinker at the margins to reach desired ends. However, the Internet is evolving with such speed and dynamism that even the best-intentioned interventions can have unanticipated negative consequences. In the United States, we are taking a market-driven approach to ensuring that parties may determine the appropriate technologies and rules for assuring the confidence and validity of an electronic transaction. The role of government should be to promote a technology-neutral legal framework and remove paper-based obstacles that are found in our laws and which impede engaging in e-commerce.
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This Committee deserves great credit for pursuing these policies and discussing the relevant issues that impact global electronic commerce. Let us not act precipitously or permit foreign governments to push through a treaty, which is not in the best interests of US-based businesses and consumers, and which could negatively impact a global embrace of electronic commerce.
Thank you very much for this opportunity to appear before you today.
[NOTE: The appendix material submitted by Mr. Pearl is not printed here but is on file with the House Judiciary Committee's Subcommittee on Courts and Intellectual Properties.]
Mr. COBLE. I was going to mention this earlier and I failed to. We are blessed with a very fine representation, cross-section on this panel: legal and professional associations, business interests, law professors. And, Mr. Holleyman, even though you are batting number 7 since you are the final witness, we will designate you the cleanup hitter. It is good to have you back with us, Mr. Holleyman.
STATEMENT OF ROBERT W. HOLLEYMAN, II, PRESIDENT, BUSINESS SOFTWARE ALLIANCE
Mr. HOLLEYMAN. Thank you, Mr. Chairman. I will happy to be in this position as the cleanup hitter on this and would like to cover a few quick points. I would particularly like to thank you, Mr. Chairman and Mr. Berman, for this subcommittee's effort to engage in this very forward-looking exercise.
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We have seen certainly in the area of intellectual property, about which I have appeared before you on a number of occasions, that you have been a very thoughtful panel. This has led to changes in both U.S. law and our international obligations that have greatly benefited the American software industry. My presentation today on behalf of the members of the Business Software Alliance should be particularly useful as we also think about the ways in which the Internet will be used as a means of distributing legitimate information products such as computer software.
Our CEOs in the BSA just 2 weeks ago released a survey in which they concluded that although only 12 percent of software is delivered online today, by 2005, 66 percent of all software will be delivered online. This figure shows that there is both a rapid use of the Internet by consumers and businesses and a use of the Internet to ensure that products like software are distributed at the lowest possible cost.
There are also issues of relevance that are vital to software companies in two principal ways. One is our ability to enforce our copyright-based property interest against pirates; and, secondly, our ability to write sound contracts and enforce those contracts both domestically and internationally.
Let me highlight three aspects of these issues. My first point is that pirates have covered the Internet with a vengeance. I won't go through all the statistics because this subcommittee knows all too well of the proliferation of pirated software sites, we did a search this morning and found 500,000 references to sites that contain pirated software for easy download, and the extent to which legitimate auction sites on the Internet are being used as sources of advertising illegal copies of software. Finally, new file sharing programs like Free Net will greatly complicate the issue of protecting intellectual properties.
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The copyright laws are of course our best defense, but enforcing those laws is not easy. In this area we particularly need to recognize that one of the biggest threats is the danger that certain countries will become copyright infringement havens. It is easy to see where pirates would be attracted to establish their Web sites and businesses in countries where their copyright liability is thin and the danger of prosecution is low.
My second point is that choice of law and jurisdiction issues are also critical for legitimate sales of software. Predictability in contract law is a key issue in U.S. interstate commerce. This has traditionally been the province of State law and the Uniform Commercial Code, where software is typically licensed, not sold. That is why there have been new efforts like adoption of the Draft Uniform Computer Information Transactions Act that are seeking to fill the gaps in the States. Several States have acted since last summer when UCITA, the Uniform Computer Information Transaction Act, was proposed. Two States have now adopted UCITA and others are considering it. This Congress has also been active in this area of commercial law, just 2 weeks ago giving approval to digital signatures legislation.
One of the things, however, I would leave for this subcommittee today is that as the Internet evolves, we believe this subcommittee has a legitimate interest in examining interstate commerce and whether States are moving with the speed which is necessary to ensure that there is a free flow of e-commerce and copyrighted work information products.
My third point is that it is important to consider jurisdiction and choice of law issues to provide predictability and certainty both in a domestic context and in an international context. Let me speak first about international. One-size-fits-all solutions for international transactions should be avoided. As an example, the proposed Hague Convention that has already been discussed today would establish a rule that the consumer's home country laws always apply. From a business perspective, this would create tremendous uncertainty. In many instances we can't pinpoint the location of the consumer, and even where we can, it is extremely complex and burdensome to comply with the vast number of different laws in place in the world.
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Similarly, if a country-of-consumption rule were applied in a universal fashion, vendors would be exposed to substantial uncertainty about their true legal obligations.
However, applying a rigid country-of-origin rule that the vendor's local law always applies would create tremendous dangers in an area like piracy which I have already highlighted. Pirates or pirate services could establish their business with impunity in de facto piracy havens.
The second consideration wish to highlight is the need to adhere to the principle that parties should have the freedom to choose and agree on issues of applicable law and jurisdiction. A critical premise of U.S. commercial law is freedom of contract. This should not be modified by international treaty. Provided a contract term is not unconscionable or dishonest, the parties should be free to choose the laws and forum that will apply.
Once again, Mr. Chairman, I want to thank you for letting me present the BSA's views on this issue. The members of the Business Software Alliance and I look forward to working with you and your staff on these key issues in your continuing quest to ensure that the Internet and e-commerce flourish. Thank you.
Mr. COBLE. Thank you.
[The prepared statement of Mr. Holleyman follows:]
PREPARED STATEMENT OF ROBERT W. HOLLEYMAN, II, PRESIDENT, BUSINESS SOFTWARE ALLIANCE
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Good morning, my name is Robert Holleyman, II. I am President and CEO of the Business Software Alliance, an association of the leading 18 software companies in the world. Approximately 90% of the office productivity software in use today worldwide is created by our member companies. In addition, the majority of our member company's software is sold internationally.
All sales of computer programs are subject terms and conditions set out in a license or a contract. Companies rely on these legal instruments to ensure they get paid, to clearly state their obligations to their consumers, and anticipate problems and disputes that may arise. Legal certainty, about the enforceability of the agreements, and the rights and obligations that accrue to both the vendor and the consumer is critically indispensable to a successful business transaction.
A good license or contract does two things. It spells out what the parties intended the transaction to encompass. A good agreement also anticipates problems, misunderstandings and disagreements which may arise, by stating both the means and solutions that the parties agree to follow. In this context, two key elements are the jurisdiction whose law will be applied to resolve the dispute, and the courts that will called upon to arbitrate it.
The issue of applicable law and jurisdiction are also critical in our ongoing battle with pirates: unscrupulous people who steal our software. Our principal line of defense against pirates is the Copyright Act, and property interests our members enjoy in the computer programs under that law. In this context, we rely on the law not to settle disagreements with our customers, but to stop theft. In this context, the choice of law and choice of forum issues are clear when the thief resides in the United Statesthe Copyright Act governs, and jurisdiction is held by federal courtsbut it is much less clear when the transaction takes place with person residing in foreign countries. Unfortunately, too many countries still do not have strong copyright laws. Penalties for infringement are weak in many countries, and obtaining search orders and other evidence gathering is also a serious problem.
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The Internet makes all this much more complicated. Legal certainty with respect to an on-line commercial transaction is indispensable to the growth of e-commerce. The Congress has taken a significant step in the right direction in the past two weeks by enacting digital signature legislation. But that bill only addresses formalities, like authentication, associated with an on-line sale.
Putting all this in context, not too long ago, almost all business to consumer commerce was conducted within driving distance of the consumer's home. Even much of the business to business commerce was conducted locally or regionally..
However, as transportation networks became more efficient, American consumers grew more comfortable purchase goods and services from businesses nationwide in search of lower prices or better selections. The Uniform Commercial Code grew over time to handle disputes that arose between purchasers since only a few transactions occurred in which all of the possible dispute resolution mechanisms fully negotiated.
The Internet has continued to change how consumers and businesses around the world shop for goods and services. Let me highlight the three primary areas of Internet transactions today that are relevant for this morning's discussions:
American businesses selling to Americans
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Foreign businesses selling to Americans
Until recently, most Internet consumers were Americans who shopped on websites owned and operated by American businesses. For consumers and most businesses, there is little thought given to the jurisdictional issues faced when making a transaction over the Internet unless something goes wrong. Historically, sales of goods have been governed by the by the Uniform Commercial Code (UCC). While the UCC remains a solid body of law for sales of goods, the reality of software industry transactions is that most often software is licensed, not sold.
The Business Software Alliance has been involved in the updating of the UCC, by strongly advocating the adoption of the Uniform Computer Information Transactions Act (UCITA). UCITA bridges the gap between existing commercial law that is focused on goods, and the information industry. UCITA follows existing court decisions that allow a choice of law and forum that has some reasonable basis to the transaction because it is often impossible for a seller, whether it be a large multinational business or someone selling a souvenir stamp on an auction site, to know the law of every location that their good(s) may wind up in. Larger businesses often include a pre-determined choice of law and forum clause in their contracts.
As the Internet continues to expand internationally, commerce is increasingly crossing international boundaries. American businesses recognize this and are creating country specific websites and sales divisions. As the world's leader in software, American software companies tend to have the most websites targeted at specific nations. For example, Adobe has 31 individual country websites; Microsoft has 67; Symantec has 24. The entire transaction with one of our member companies may be entirely via the Internet with no physical product ever shipped. Despite this increasing reach of sales, most e-commerce sites limit the choice of law in some manner to no more than a few specific locationsperhaps one on each continent. Choice of forum is usually less restricted.
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These efforts to establish localized web based business still leave uncertainty about whose law applies to the transaction, and which court has the authority to adjudicate it. Resolving these issues is not simple. A ''one size fits all'' rule is unlikely to work. As an example, lets assume a US person is selling a computer program to a person residing in France. France has well-developed copyright law, as well contract and consumer protection laws. In this instance, setting the default rule for applicable law to be either that of the country of the purchaser, or the vendor, could work relatively well. By contrast, if the US business is selling online to a person in Mongolia, setting the default rule to be the law of the consumer, Mongolia, would create substantial uncertainty for the US business. By contrast if the default rule were the law of the country of the vendor, and if a US person were purchasing from a site in Mongolia, the US consumer could be a substantial disadvantage.
Similar complexities arise in respect of anti-piracy. If the vendor were located in a country with weak copyright laws, and that person was selling pirated US software to US customers, it would be very hard for the US copyright owner to take legal action against the pirate.
For these reasons, while establishing predictable rules is very important, it is probably too early to develop a single default rule (either country of origin, or country of consumption, at this time.
ILLEGAL GOODS AND SERVICES
My discussion so far has been limited to the sale of legal goods and services. However, it is vital that during any discussion of jurisdictional issues related to Internet transactions that the issue of illegal goods and services is discussed as well. One of the core missions of the Business Software Alliance is the protection of the intellectual property of our member companies through education and prosecution in the civil and criminal courts. Until recently, most of the Internet piracy cases that BSA and the Department of Justice discovered had a clear jurisdiction in the United States. As the Internet continues to grow, this will no longer be the case.
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As BSA steps up the international piracy fight and the Department of Justice steps up its criminal prosecutions due to your pressure, I expect criminal enterprises to attempt to avoid jurisdiction by spreading their activities across the world using computer and financial institutions in locations with little to no oversight.
As a matter of principle, the Business Software Alliance believes that the choice of law and forum, as specified in the licensing agreement or contract, should be enforceable. The choice should be left to the parties to the transaction, and not dictated by a one size fits all rule. BSA does not believe that governments should make this choice for the parties, but leave it to them instead.
I thank you for the opportunity to testify today and look forward to working with you and your staff as you deal this issue in the months to come.
Mr. COBLE. I think you recently spent some time in my torrid State with the weather 95 degrees. I commend you for that. Mr. Holleyman was there with the AIDS bicycle tour. And you all got back when? When did you arrive here?
Mr. HOLLEYMAN. Sunday. It was 330-mile ride.
Mr. COBLE. I believe I would take that on in January, or February might be better.
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Mr. HOLLEYMAN. Much more preferable.
Mr. COBLE. We have been joined by the gentleman from Virginia, Mr. Goodlatte and the gentleman from California, Mr. Rogan. And if time permits, this is such a significant issue, I hope maybe we can have two rounds of questioning if we don't hear the floor buzzer go off.
Professor Burk, your written testimony suggests that the Congress should be more active in exercising Federal court jurisdiction to the limits of the fifth amendment. If you would, elaborate a little more in detail about how this can be done and what effect it might have?
Mr. BURK. Mr. Chairman, as I outlined in my written testimony and as I mentioned in my oral testimony, right now in the run-of-the-mill situation, the Federal courts have been instructed by Congress to act as if they were State courts and to limit their jurisdiction to the same personal jurisdiction that the State court across the street in their own territory would have.
There are some exemptions to this. The current rules, the Federal rule, you indicate to the Federal court that if Congress has put into statute a provision for a nationwide service of process, that in that instance the Federal court can then exercise jurisdiction to the limits of the fifth amendment, or nationwide. Similarly, if the Federal court finds that no other court would have jurisdiction because it would fail, not having enough minimum contacts with the State that the court is sitting in, it can again under the Federal Rules of Civil Procedure, exercise jurisdiction nationwide.
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You can easily imagine the situation in which a foreign defendant, perhaps one of the pirates that was just talked about, has nationwide contacts, but insufficient contacts with any one State for a Federal court to obtain personal jurisdiction over that offshore individual, it would then perhaps be appropriate for jurisdiction to be exercised to the limits of the fifth amendment nationwide. That is a fairly easy case that could occur under the current rules.
It is appropriate to look at our other statute that is applied to online situations and see if similar situations arise where we want to instruct the Federal courts to exercise this broader jurisdiction that State courts cannot do.
Mr. COBLE. Thank you, sir.
Mr. Holleyman and/or Mr. Pearl, let me put a two-part question to you. In your opinion, is the administration taking the right approach in this area, particularly regarding the Hague Convention,(a); and (b), is there serious interest in a global dispute resolution mechanism for all Internet transactions akin to what ICANN has developed for domain names?
Mr. HOLLEYMAN. Mr. Chairman, I do think this administration is correctly pointing to some of the flaws that lie in the current draft of the Hague Convention, particularly on the problems that can be created if we looked at the country of destination as the forum for consumer transactions. On the issue of alternative dispute resolution, we welcome that suggestion being placed on the table. It is one that our organization has not circulated among our membership, and we would welcome discussing that and other alternatives.
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Mr. COBLE. Mr. Pearl?
Mr. PEARL. I think that the approach that the administration has taken in terms of recognizing very early that there needed to be an industry-government dialogue in this country and to get many of our organizations and our members who have interests across both ponds, so to speak, involved in the process is an important one, and we appreciate that. I am troubled, however, that during the course of the intervening 6 or 8 months, since we were made aware of the e-commerce deficiencies in this document, that the administrationfrom a policy standpointhasn't been more forthright with respect to how can we let the Hague know that there are some major troubling issues here. That it can'tthat if they are going to go beyond just the enforcement of a judgment, that they have to not apply European doctrines and approaches to this document as a kind of a ''tit for tat.'' That kind of message has not, I don't think, been sufficiently communicated, which is why we appreciate the holding of this hearing and getting it onto the official record. It will hopefully in essence be used as a message and as a communication device to the various forums that Mr. Kovar talked about, in Geneva and in Paris, over the course of the next 6 to 8 months.
I fear there is going to be a policy void over the next 8 to 10 months, both in terms of people leaving the administration, from a policy standpoint in terms of the Congress winding down, in terms of the new administration coming in and being able to get its sails righted. I think that under the kind of consistency of this subcommittee, there is an important message that can be in fact put forward on an international global scale. And I hope that kind of message, is thatwe in industry would like to work with you on making sure that the administration and your contacts and your colleagues throughout the world hear about these kinds of concerns that have been raised.
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With respect to what Mr. Holleyman said, our organizations likewise are looking very seriously at how we can find the balance between an efficient and fair system of online ADR. A customer in North Carolina cannot easily get retribution with a supplier in France or Bangladesh or India or wherever in terms of finding the right courts. There are some important efficiencies and a fundamental fairness that can be found through an online ADR process if done to the mutual benefit of all. We want to work with the consumer communities internationally in trying to find the best and most efficient and fair process.
Mr. COBLE. Thank you, sir.
Dean Perritt and Mr. Zittrain, Professor Thurmon's testimony indicates that a few U.S. courts have noted with approval the reasoning applied in some of ICANN's uniform dispute resolution cases. Is there a danger that such international tribunal activities may weaken the sovereignty of the U.S. Federal system, and what does that mean for United States business interests?
Mr. PERRITT. Well, Mr. Chairman, I don't think that it is likely to weaken sovereignty in a direct sense because it would still be within the sovereign power of the United States.
Mr. COBLE. Professor, I did not even mean to imply that it would, but I wanted to hear your take on it.
Mr. PERRITT. So I think my response is that we do not need to be concerned about a direct weakening of sovereignty, because there is no yielding of sovereignty by the United States as might occur through a treaty process. On the other hand, I think that the concern that Mr. Zittrain raises is one that deserves consideration, because private bodies such as ICANN have enormous power since they control access to the Internet through the domain name process. People really don't have much choice whether they are going to have a domain name, if they are going to participate in Internet e-commerce. To the extent that the rules adopted by a body such as that are not harmonious with the rules that democratic political institutions would prefer in the United States or elsewhere, then there is a kind of indirect threat to sovereignty.
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And I take that to be Mr. Zittrain's point; that we need to be concerned when we have a lot of private sheriffs rushing around, because the private sheriffs are not as accountable through the democratic political process as the public sheriffs. Nevertheless, I think that the potential of well-constructed private governance mechanisms like ICANN and like the private things developed by BBB Online and the other bodies is so great as to resolve some of these jurisdictional and choice of law problems that really can't be solved in any other attractive way, that it is worth trying these things out and finding out if there are indeed accountability problems. And if it turns out that there are accountability problems, we can deal with actual problems as opposed to imagined ones.
Mr. COBLE. Mr. Zittrain.
Mr. ZITTRAIN. I think the United States has a special relationship both with the Internet proper and with ICANN in particular. The company that currently manages registration of names under com, net, and org is located not far from here, in Virginia, and incorporated in the United States. ICANN itself is a California nonprofit. So should ICANN go completely off the rails, the United States would legally be in a privileged position to exercise some form of power over it and bring it back on.
That said then, from the point of view of those who register domain names and wish to use them, if one has the resources and the talent, there is an ability to, for instance, invoke the Anti-Cybersquatting Consumer Protection Act, regardless of an ICANN decision, and try to seek resource there. So the only entities perhaps left out to try, if any, would be the sort of small fry, the ones who face the proceeding, lose under the proceeding, and simply don't have the resources to invoke other rights that would otherwise flow from the government.
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Mr. COBLE. Thank you, sir.
And since we applied the 8-minute rule for the witnesses, we will have the 8-minute rule for the members as well. So, Mr. Berman for 8 minutes.
Mr. BERMAN. Thank you, Mr. Chairman. This has really been an excellent panel. It has just a lot of ideas. The problem is I can forget in digital time, you think have you a hold on it and often it is hard to hold onto. But I am going to take the testimony and study it because I have a feeling that will be very helpful and I appreciate your coming.
This ICANN thing, it is such aI mean, it has been lauded and criticized, but the one thing it is, it is pretty narrow. I mean, it is maybe a nice little pilot project but it is also maybe the easiest one. And even there, apparently it isthere is not uniform consensus. What are the substantive rules by which Mr. Perritt makes a decision or is on a panel that makes a decision? What are you applying? Whose rules of who should have it; who should get it? Should the person who has it keep it?
Mr. PERRITT. Well, Congressman Berman, as you say, the process is narrow both in its subject matter and in terms of the constraints that are placed on the panelists by the rules. First of all, there are the UDRP rules issued by ICANN which are meant to be honored by every domain name registrar in the system. And those provide the standards pursuant to which a domain name can be found to impermissibly intrude upon trademark. And then there are procedural rules that are issued by the different accredited bodies such as
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Mr. BERMAN. But the substantive rules onit is just about trademarks.
Mr. PERRITT. About conflicts between domain names and trademark interests.
Mr. BERMAN. That is the only substantive thing. So it is a narrow aspect and a narrow set of principles here.
Mr. PERRITT. That is right. But when you sit as a panelist, you are not free to do whatever you like. It is like an arbitratorwell, it is actually very much like what a labor arbitrator must do. A labor arbitrator under a collective bargaining agreement is obligated to interpret the collective bargaining agreement, and that is it.
Mr. BERMAN. By the way, I mean I am familiar with that process. But if I don't like the arbitrator's award, I can't get a new review in Federal court, but I can seek a review that says there was no foundation for or justification for that award, and that it was frivolous and arbitrary and exceeded the arbitrator's authority and all that.
Can I do that from an ICANN decision? Can I go to Federal court when I don't like self-executed ICANN ruling?
Mr. PERRITT. Yes. And you can do
Page 184 PREV PAGE TOP OF DOC Mr. BERMAN. Can I get compensation for somebody for having the fact that it was executed before I got to have the Federal judge throw it out?
Mr. PERRITT. You can do more with the ICANN rules than you can do with a labor arbitration award. You can start all over again, get de novo decision in a court of competent jurisdiction.
Mr. BERMAN. Although isn't that going toisn't the ability to do that going to diminish people's enthusiasm for participating in these kinds of processes? If everybody is going to get two bites at the apple, de novo review somewhere else if they lost this, why spend my time letting them hit me again?
Mr. PERRITT. Not necessarily, Mr. Berman. One of the interesting things that we have learned from alternative dispute resolution processes in other sectors such as court arbitration, where in all but two States you have a constitutional right to de novo jury trial if you don't like the arbitration award, and with credit card chargebacks where there is no diminution of the right to have a lawsuit between the merchant and the consumer, despite the right to have a de novo trial in court, most people don't do it when they have confidence in the ADR mechanism. And that is because, when the systems are well designed, it is much much cheaper to resort to the ADR mechanism than to go to court. And once again, if the mechanism is well designed and people have confidence in it, it is giving a kind of prediction of what a court is going to do. And so it is only if you really believe that you are going to get something a lot better in court that a rational person will elect to get the de novo trial.
Mr. BERMAN. I wonder when we talk about the situation with Albania, and maybe in the context of this signature bill we should have set up electronic litigation, I wonder how the proponents of these things felt about being able to be served electronically by a click on a lawsuit and litigate through that process. The Europeanthe issue of what the Europeans want and the Hague Convention, is this about a very understandable reaction of businesses about a European law that is more consumer oriented in the context of rules of law and ease of challenging, you know, warranties or things like this? Is there some of that? Or is it simply that in the context of the e-commerce world, letting people who you don't know where they are getting jurisdiction in their operations, when if you had any conscious ability toI mean, Professor Zittrain seems to say if it isn't now, if Yahoo says they can't block this now, this will be sometime near in future when they will be able to block the transaction to the jurisdiction that you don't like the law of and therefore not be forced to sell into that jurisdiction, but I am just wondering whatI would like you to go a little more into the motivations for this concern about this European grab to get jurisdiction in the form of the consumer. Anyone.
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Mr. PEARL. Mr. Berman, I think it is partly the emphasis on the consumer aspect. There exists a Brussels Convention in Europe which the Europeans find to be in terms of point of destination and setting certain rules that they like, that they can in essence make more global, and force down the throat ofwhether it be the United States or Asia, which is also having some troublesome and vexing questions in respect to this. It is partly a European Community reaction, and I think we have seen this across the board in the international context, of the U.S. dominance of the Internet is being reacted to primarily in the European community in a very perplexing way.
We don't want the Internet to be overly U.S. centric, and we want our legal rules to apply. And in the context of the Hague, you must be careful what you wish for. Eight years ago United States companies wanted to have their judgments against foreign nationals enforced in these foreign jurisdictions. But as we heard in the first panel, this draft has gone far beyond that because in essence they have put their stamp on it. It is not a U.S. versus Europe, but in point of fact it is a clashing of cultures. We have got to recognize that a lot of these culturesand I think Professor Perritt and I witnessed that at the Ottawa meeting of the e-commerce expertsthis clashing of cultures is going to in fact potentially produce a document that the United States will have to walk away from.
If the United States walks away from a ''international treaty,'' what does that say in terms of
Mr. BERMAN. What do you mean, walk away?
Page 186 PREV PAGE TOP OF DOC Mr. PEARL. Meaning we wouldn't become a signatory to that process if, as we heard from the State Department and the Department of Commerce today, what is now written is not something that the United States could support and the Senate would never ratify.
Mr. BERMAN. My time is up.
Mr. COBLE. I thank the gentleman. The gentleman from Virginia, Mr. Goodlatte.
Mr. GOODLATTE. Thank you, Mr. Chairman. First I want to thank you for holding this hearing and thank this panel. They have been very helpful.
I would like to follow up on the choice of law issue and ask you in general if you can tell me, has this already become a serious problem? Have there been a great many instances in which courts, both in the U.S. and elsewhere, are having to make choice of law decisions regarding matters involving transactions of various types over the Internet? And related to that, have there been instances citedand I would say to the Chairman, I am absolutely sure that this furniture company in Thomasville, North Carolina is fictitious, because knowing the good quality of the furniture manufacturers in the gentleman's district, none would suddenly find themselves sued in several States and a few foreign countries. But knowing that there are other companies that do get sued quite a bit, I wonder are there companies now experiencing this problem already in terms of finding themselves sued by people from the far corners of the globe, or is this something we simply need to be looking forward to?
Page 187 PREV PAGE TOP OF DOC Mr. PERRITT. There certainly are many cases, hundreds of cases involving personal jurisdiction issues. And so that already is a cottage industry for people who fondly recall Penoyer versus Neff from their first year civil procedure courses. Interestingly, however, there are not very many choice of law cases. I suspect that is because much of the litigation has been stimulated by alleged trademark infringement by domain names, and that is a matter of Federal law, most of it is within the United States. And so there are not difficult choice of law issues lurking there.
But one of the most interesting cases that I think portends some of the problems, and also indeed some of the solutions, was a case that the Second Circuit decided, and it didn't involve the Internet, the case called Itar-Tass, and it involved a copyright infringement dispute that had some connections with Russia and also with the United States. And the Second Circuit, finding little guidance in the international law and in U.S. copyright law, concluded that Russian law should apply to the origin and ownership of the copyright which certainly did originate in Russia, but that U.S. law should apply to the infringement issues, including fair use.
And I think that one of the difficulties in coming up with some general solution to the choice of law problem, distinct from the personal jurisdiction problem, is that at least under U.S. approaches to choice of lawand, for that matter, the Europeans to some extent do thisyou may choose different law for different pieces of the controversy. It can be quite difficult to write general rulings that provide good guidance in this area.
So my sense would be that, especially in the choice of law area where we have so little experience so far about what the real problems are, that we should be wary of adopting public law rules and we should get some more experience with the private self-regulatory approaches and the forum selection rules and the contracts and difficulties that may arise.
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Mr. GOODLATTE. Mr. Vartanian.
Mr. VARTANIAN. Where I see the choice of law issue, most interestingly, it has not yet ripened into judicial consequences. But let me give you an example of the kinds of things that I see a lot. I practice in the financial services industry and it is really a very perplexing issue. Let's say, for example, we have a New York bank that has a London division that wants to issue German mutual funds in Germany. So they register those securities or that deposit instrument or whatever it is they are issuing in Germany and they post it on their Web site. But German-speaking people live around the world. So German-speaking people in Austria or Morocco or any place else can go on that Web site and try to buy those securities or engage in those financial practices. It may be that those securities and those financial practices are not legitimate, not legal and not authorized or registered in a particular country where a consumer is who happens to speak German. So that business may have a very difficult time trying to figure out how to use electronic commerce to facilitate this facile form of business for their customers and at the same time not put themselves in very precarious positions vis-a-vis the imposition of jurisdiction by nation states around the world. This is a critical issue that cries out for some sort of predictability, at least from the point of view of those businesses that are trying to do that kind of business.
Mr. GOODLATTE. What is the solution?
Mr. VARTANIAN. I think if the solution were easy, I guess the Bar Association wouldn't have taken 2 years to write its report. The solutions are very difficult. They revolve around, it seems to me, a number of different possibilities including private rights of contract, including harmonization of laws, including treaties between nation states.
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So, for example, in the financial services business, the Basel accord has been one example over a number of years that doesn't involve the Internet, where regulators around the world agreed on how products and how financial services would be regulated. Those kinds of examples I think set a good predicate for us. But in the final analysis, it seems to meand one of the things that we kept coming back to in the American Bar Association study was the fact that what we really need are standards in a lot of different areas. We need standards that tell us how the technology should work, and we need standards to determine how jurisdiction will be negotiated between parties or between BOTs and cyberagents.
Mr. GOODLATTE. Who sets those standards?
Mr. VARTANIAN. That of course, again, is the $64,000 question, because no one can set the standards and say to everybody else, here are the standards, take them or leave them. I think one of the driving forces here should be the State governments being the prod to private citizens and private organizations and private businesses taking on that mantle and that responsibility to try to do it for themselves so that if you want to play the game of electronic commerce, you have to play by these standards, and if you don't, you may be out. It is much like the rules that eBay uses for its auction site. If you don't play right the first time, you may never get the chance to play again.
Mr. PERRITT. I think that there is an awful lot of common ground here. I think one of the things that has surprised many of us who have participated is that there is more common ground than most people think. Who would have said 3 years ago that we would ever get the Europeans to agree to a private self-regulatory regime to protect privacy? But in the end, we worked out a way to do that.
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I have participated in a National Research Council committee that is half German and half American, and have been at the Ottawa and Geneva meetings that Mr. Kovar mentioned. In those settings I think people started out, even the law professors, thinking that we just had irreconcilable differences of approach to jurisdiction and choice of law. I think what we learned by being engaged is that in fact we have very similar approaches, we just use different terminology.
So I think that the process that has been put in motion by this committee and by the Department of Commerce and the Federal Trade Commission to engage people in talking about these issues is one that will permit us to discover common ground. And if we work on specific sectors, I think the likelihood is great that we will be able to find solutions.
Mr. GOODLATTE. Thank you. I hope we have a second round.
Mr. COBLE. Don't think we have abandoned you, Professor Thurmon. I have a question for you on my second round, if the lady from California doesn't. Mr. Goodlatte has been actively involved in the Internet Caucus, as has our next speaker, the gentlelady from California, Ms. Lofgren.
Ms. LOFGREN. Thank you, Mr. Chairman. This has been a very useful hearing. I have appreciated all of the testimony. It is interesting to consider how many issues the Internet poses for people and for governments. I have a high level of confidence that ultimately the issues posed for business will be resolved because commercial interests have the ability to come to legislative bodies and to present the issues and to sort through those issues.
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What we don't do sufficiently wellI thinkbecause of the press of time, is to inquire carefully into those aspects of two law that are noncommercial. And I think, Mr. Zittrain, your comments were of particular interest to me because it is something I have been discussing with my colleagues for some months, which is that the architecture of the Internet is changing, and this is drivento some degreeby the needs of the commercial sector. That is both good and bad. First, it is in fact occurring. The commercial sector will provide tools for enforcement of rights that are granted by legislative bodies through technology. There is value in that.
Second, but I am however, concerned, as the architecture of the Internet is changing before our eyes, about the implications to free speech, and to civil liberties? If this is an issue in the United States, it is more of an issue throughout the world. We have had a discussion treating ICANN as an enforcer. That concerns me. The ability to enforce is much broader than the service currently provided by ICANN. Thus, we have governance issues as well as liberty issues. I like Esther Dyson a lot, but Esther Dyson has not been elected by anyone. I trust her good judgment, but she is not held to the first amendment standard that Congress must respect.
When you look at the first amendment, it states that Congress shall make no law restricting free speech, or the free exercise thereof. But does that apply to Paul, the creator of the real-time black hole group, and to people who have hotmail accounts? I know that there is lack of awareness out there because my son has a hotmail account. He is not aware of what Paul is doing.
Right now the United States for the most partdominates the Internet although its influence is diminishing in favor of other nations. I understand why other nations may not be completely comfortable with our dominance. But I think there is an advantage this is the case because this is a Nation founded upon principles of individual liberties and rights. We have an opportunity to exercise control while we still dominate the Net.
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I have a question, Mr. Zittrain. Are there steps that the Congress should take, or could take, that would implicate the changing nature of the architect of the Internet, that might result in the protection of civil liberties for not only U.S. citizens but others as well?
Mr. ZITTRAIN. That is such a great question and one that I think can consume somebody thinking about it, exactly as you say, is an important point of reflection. Now is the time to be coming to answers on it. The best I have come up with so far is both looking into our own constitutional traditions and looking at a case that I think is still good law but it hasn't come up very much, Marsh versus Alabama, the Gulf Shipbuilding Company. She wanted to walk in the area and the company owned the area lock, stock, and barrel. They pointed to the sign and said, ''Private Property, you are trespassing, get out.'' And she said, ''First amendment.'' And they said, ''Congress shall make no law,'' not Gulf Shipbuilding Company.
The outcome in that case was actually a vindication of her right to walk down the private property, the street owned by the Gulf Shipbuilding Company, because the whole architecture of the city was not one that had been the one in which the first amendment was enacted, the one of public streets, a lattice of them around private spaces.
So there may be some lessons there, either out of the constitutional tradition, or turning them toward statutory solutions, that we could look to. For instance, common carrier doctrine imposes rules on this, that you can't just decide you don't like the conversation that somebody is having on the phone and, as a result, deny them service. Of course, common carrier regulation has a whole host of other regulations that a Web site from North Carolina selling furniture would not want to go near.
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Perhaps a more gentle push might be something like public accommodation doctrine. Here is where we say, reaching far back into the common law that certain forms of carriers and things like that, have certain common law duties, at least to let anybody who walks into the inn and says here is some money, I'd like a room for the night, they have got to be given the room if it is available.
I think those sorts of principles could be quite important as a counterweight to emerging private sheriffs. Of course, it is still emerging. It is too early to tell. It is just that the second phase after ''too early to tell'' is ''too late to do anything about it.''
I guess my sense, just to take it to the top level of this, is we want an Internet with end-to-end neutrality. We want the intermediaries to be as neutral as possible as they handle packets. So far, we have enjoyed that by happenstance. We can't guarantee what the happenstance will be in the future.
Ms. LOFGREN. I am just throwing these questions out. I have not settled upon a point of view. Should Congress take an interest in establishing principles for the transmission of packets at the router level and for ISPs, or not? Or should we consider a common carrier approach? Our approach has beenand I have been very much a supporter of thisthat we do not take a heavy hand on the regulation of the Net. I think that has been very important for the growth of the Internet. Should Congress, as some suggested, take a role in the IP numbers that will be embedded in hardware or perhaps on the next generation of chips? Intel blinked the first time around, but should that be a proper subject for a governmental inquiry in your view?
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Mr. ZITTRAIN. I think it is, even though as I say that I can hear the hinges of Pandora's box creaking as we say, well, maybe Congress should take a look. Perhaps the sanest way to do so without unduly unnerving the commercial interests that don't want to get caught in the middle and see a web of regulation come down would be through such instruments as safe harbors. Look, we are not telling you what to do but, however, we are happy to carve out certain areas of immunity for you, the middle person, should you be willing to subscribe to these principles. If you don't want to subscribe, fine; more power to you. But just realize other things could happen through common law or other such things. But in the meantime if you are willing, as a carrier of packets, to route them under mutual principles that follow in that instance, we will help you.
I mean, we have some precedents for that with the Communications Decency Act which in a provision still stands, even though most of the act has been overturned by the Supreme Court. It has held information service providers largely immune in the area of State kinds of causes of action, defamation, libel, those sorts of things, for content that they carry. Now there wasn't a quid pro quo there. It just holds them immune. End of story. They could have made a quid pro quo that would say, you are immune but you have got to be neutral in certain ways as you treat your customers. That could be particularly important, as in the event that AOL doesn't like what I am doing and telling me to go away, I can just find somebody else.
But in an era that is emerging of few alternatives to high-speed Internet access, that kind of turndown by the Internet service provider could mean a lot more.
Ms. LOFGREN. If I may just indulge one final question? Do you believe that the impending onset of broadband wireless will have an impact on the Internet architecture issue that you have described to us?
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Mr. ZITTRAIN. Absolutely. I think it will have a big impact. I am very much in favor of strong intellectual property rights. I don't cheer the wholesale copying of stuff. However, there is a balance struck, a balance struck in the Copyright Act. I could imagine the Copyright Act becoming increasingly irrelevant as technical self-help means are used to lock stuff up. In that sense, you are not just protecting your rights, you are simply imposing constraints. If you only got one bottleneck and a bottleneck in effect run by a company that has content interests as well as conduit interestswe are not just here to route your packets, we are also here to sell you certain contentyou may well see the balance tilt.
Ms. LOFGREN. Thank you, Mr. Chairman.
Mr. COBLE. I thank the lady. The gentleman from California, Mr. Rogan.
Mr. ROGAN. Mr. Chairman, thank you. I especially want to thank every single one of the witnesses for not just their oral testimony but for their prepared testimony submitted to the committee. I have found everybody's statements to be very illuminating and raising a number of questions in a very complex issue.
I want to just read very briefly, to put my first question in perspective, an abridged paragraph of Mr. Pearl from your testimony. I read it first because it will set my question in proper perspective, but secondly because I personally agree with the sentiment in it. And you have expressed it far more cogently and succinctly than I could.
Page 196 PREV PAGE TOP OF DOC''If there should be a fundamental principle for Internet public policy, it is to draw upon the wisdom of the Hippocratic Oath'first do no harm.' there is a natural temptation with technology policy to tinker at the margins to reach desired ends. However, the Internet is evolving with such speed and dynamism that even the best-intentioned interventions can have unanticipated negative consequences. The role of government should be to promote a technology-neutral legal framework and remove paper-based obstacles that impede engaging in e-commerce. Let us not act precipitously or permit foreign governments to push through a treaty which is not in the best interests of the U.S.-based businesses and consumers and which could negatively impact a global embrace of electronic commerce.''
I applaud that statement. I think that is the right approach. Having said that, my good friend and colleague from California, Mr. Berman, made reference in his questions to the Yahoo case, which I am sure all of you are familiar with. Essentially in that case, there was a Yahoo auction, and one of the things that was being auctioned on Yahoo was Third Reich and neo-Nazi paraphernalia. It is legal to sell that in the United States. There is no prescription against selling that in the United States. But when Yahoo posted this item out on their Web site, one of the places it ended up being posted was France. And in France it is apparently against the law to post such things or to sell such things. And so a judgment apparently was entered against Yahoo. The French court ruled against Yahoo and the attorney for Yahoo said the real question before this court is whether a French jurisdiction can make a decision on the English content of an American site run by an American company, for the sole reason that French users have access via the Internet.
So taking the desire of trying to keep government regulation out of the growth of the Internet wherever possible, but also recognizing that through the Internet and through this now global system that we find ourselves engaging with instant e-commerce transactions at the click of a mouse, if we don't start to pursue some of these issues by way of treaty or some other formula, it creates, I would imagine, a horrible chilling effect on the Internet and particularly upon e-commerce.
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And, Mr. Pearl, I might as well start with you. I would just like to get your comments on that, and any of the other gentlemen who wish to weigh in, please feel free.
Mr. PEARL. Mr. Rogan, I think you are raising the dilemma that we have when we live in an Internet world. It is not just how France deals with it but how, for example, Amazon.com had to deal with, to the selling of Mein Kampf in Germany; or how the Internet deals with hate speech in Germany or speech in general in China as the PNTR process moves forward. We are witnessing the opening up, whether it is wireless or by land, the kind of Internet connections that the Chinese will have and how they are going to deal with speech.
In Greece you have restrictions on children's advertising. And therefore, would a Disney site, for example, which isn't necessarily even written in Greek, be accessed and violate certain children's advertising laws and restrictions that exist in Greece?
In essence, the architecture that Ms. Lofgren was talking about goes even a step further. The Yahoo attorney talked about English sites. There is going to be, and already is, software which does automatic translations. So, therefore, if an American furniture manufacturer out of North Carolina puts up a Web site, which has no intention of selling to any foreign land but is picked up by an ISP in some country, and that ISP has an ability to translate all of that English into French or German or Greek or Chinese, is that all of a sudden, unbeknownst to the quote-unquote ''advertiser'' to the Web site, now doing business in that country under the language of that country, thereby reaching the citizens?
You are absolutely right. We need to look at some aspect of a treaty not in the area of ''one size fits all'' approach but a sense of a global interconnectedness. And the problem that was not raised today, that we in the e-commerce community were faced with in January of this year, was the possibilityand put forward even by the U.S.of the Hague Convention just pulling the e-commerce component out of this document. Our initial and immediate response was, well, it would be interesting, but you can't do it. Doing so is like saying we are not going to deal with faxes, or telephones, or mail, or whatever the means of communication and delivery is. You can't separate out e-commerce.
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So I think we do have to look at this very deliberatively, and this process and this hearing is going to start this. None of us, certainly I don't, have any of the answers of how we deal with these complex issues. But we do have to address it and try to convince our trading partners and consumers globally that we are in fact trying to in essence efficiently, fairly, in an inexpensive way, deliver products and services in the best way that we can.
Mr. ROGAN. I certainly am no expert in that area of law, but it sounds like when you look at it from this approach, we probably have no right to look down our long noses at other countries, because my understanding of the law here in California or in the United States is that under current law if there is no statute or treaty governing choice of law, for instance, in the choice of law for these international transactions, the courts will handle this simply on a case-by-case basis.
I think it was you, Mr. Holleyman, you talked about the incredible need for there to be predictability and to remove as much uncertainty. Are we evenlet me ask the dean and maybe the two professors, have we even been able to do that domestically on these issues, or are we all over the playing field with respect to the choice of law arguments?
Mr. PERRITT. There was a discussion, I think a year ago in January, at the Association of American Law Schools, the Law Professors Association, by the experts on choice of law, and they almost got into a fight. The one thing they agreed upon is the choice of law in the United States is such a complete mess that it is almost impossible to know what a well-motivated, well-trained judge will do in a particular case, because the rules are so overlapping and permit someone to justify almost any outcome.
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So it is difficult to imagine, with so much difficulty in having a predictable orderly house of our own, undertaking to negotiate an international agreement on choice of law.
Now the personal jurisdiction thing I suspect is a different matter. And as Mr. Kovar suggested, we may, even though serious problems remain, we may be within striking range on that.
Mr. ROGAN. It seems there are even a universe of people out there where Congress can give lessons of civility. I yield back.
Mr. COBLE. The distinguished gentleman from Florida, heretofore ignored, will now be ignored no longer. Professor Thurmon, tell us if you can what the AIPLA's experience with ICANN can teach us regarding the benefits and the detriments of multinational resolution systems.
Mr. THURMON. You are referring to systems such as the UDRP system that I spoke about?
Mr. COBLE. Yes.
Mr. THURMON. Yes, Mr. Chairman. We think this teaches us that a number of disputes can be resolved efficiently and fairly through alternativeor, really, it is an administrative dispute resolution process; certainly an alternative to court litigation. It has been the experience of our members that the process does work and that it is a very fair process. The alternative to this type of process to leave the trademark owners with the only option to enforce their rights against a cybersquatter or some other bad-faith party is to bring a court case. The cybersquatters know this and they can use that as leverage against the trademark owners to exact some price on ''settlement,'' quote, settlement of these disputes. That is not leverage that these parties should ever have. We believe it is much more fair to have an inexpensive and fast administrative process, at least to take the first cut at resolving these disputes as long as you include in it a means, a mechanism for challenge through some appropriate tribunal. And the ID does have that.
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Mr. COBLE. One of the problems with ICANN dispute resolution policy, as I understand it, can only apply to those willing to have it applied to them. Now, we have already seen evidence of island nations setting up domains beyond the reach of ICANN. Doesn't that indicate, Professor, a universal ADR program is unreachable?
Mr. THURMON. I don't think those are necessarily unreachable as a matter of ultimate authority or technical capability to reach them. It is just that currently ICANN has focused on the three generic top-level domains. ICANN is also currently working on expanding those and introducing new generic top-level domains. Our expectation is they will roll those into the IDRP when they come out. But what you are talking about is the country code top-level domains. And there are some 250 country code top-level domains all over the world. And just as a practical matter, it is going to be some time, I think, before ICANN specifically addresses that. There are discussions within ICANN, the intellectual property to ICANN has raised that issue, and those are being discussed. But again as a practical matter, it is probably not going to happen anytime soon.
Mr. COBLE. Thank you, Professor.
Mr. Vartanian, I think it is safe to say that we, as Members of Congress, are concerned about protecting consumers, particularly from inequitable commercial transactions. Now, your testimony suggests that it is potentially less of a concern for Internet commerce. I would have concluded just the opposite. Walk me through this.
Mr. VARTANIAN. Mr. Chairman, what I have tried to suggest is that perhaps the concern has shifted somewhat. The power of the buyer has increased to the extent that they have the ability to go out to many, many different organizations, find the price, find the terms, and then make a buying decision.
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For example, this Christmas I bought a video camera. And I went online and I used one of the BOTs and one of the aggregators that told me about all the video cameras and where they were available. I made a choice. And then it then told me what the prices were for each of those video cameras at every organization that was offering it on the Internet. At that point I then had a price in mind. I then went one step further. I said, tell me the terms upon which the video camera is being offered. And I would look at the terms. In one case, I remember deciding that one of the organizations offered me the video camera at a slightly cheaper price, but if I returned it, the restocking price was $150; whereas another organization gave me the video camera at a little higher price, but the restocking price was only $50. So I have finally, after all that maneuvering, made a decision where I had all these different sellers out there soliciting my business based on price, terms, and even warranties, and I had a lot more power than if I just walked down the block and walked into the only video store in town and said, I want to buy whatever you have.
Now, that doesn't mean that there aren't a lot of organizations out on the Internet trying to create a situation where they can take advantage of the consumer, where they can create fraud, where they can take the consumer's money and not provide a product. There is still an enormous exposure in the Internet that we have to protect consumers from. But all I am saying is that some of the traditional concepts we have about the power of the consumer and the power of the seller are changing because of the technology of the Internet.
Mr. COBLE. Once the ABA draft report is published, if you had your druthers, what would you like to see as the next activity?
Page 202 PREV PAGE TOP OF DOC Mr. VARTANIAN. If I had my druthers, once this report is finalized and published, I would like to see some sort of global commission established by which these standards, all of the standards and all of the issues, are debated among the nation states and we find some common ground; because without finding common ground among the various nations on this planet, we are not going to find a way to execute electronic commerce as facilely and as efficiently as it can be incorporated into our lives.
Mr. COBLE. Let me have one more question before my red light illuminates. Professor Burk, this hearing is to focus on jurisdictional issues. I understand that these issues are of critical importance to the intellectual property community as well. Explain to us for the record why; and what is at stake for intellectual property interests?
Mr. BURK. I think some of the issues that are at stake have been previously indicated to you by Mr. Holleyman. We have a variety of different types of intellectual property that are out there. In some cases there are international treaties such as the Baron Convention on the TRIPS agreements to WTO that establish minimum international standards, for example, for copyright, patent law. And patent law is becoming increasingly important for software.
There is no treaty similar to the Baron Convention. There are some standards under TRIPS. So it is very possible we can have differences between jurisdictions. We can have some countries that choose to become havens, as he described. And then we have all the sorts of problems that were indicated with regard to trying to enforce intellectual property interests country by country, particularly if there is some limitation to the reach of a particular country's courts, as I indicated before.
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So, in the case of software such as Mr. Holleyman spoke about, there may have been a very different kind of e-commerce going on. Unlike your furniture manufacturer who knows where she is sending that chair, because there is a physical object that has to be shipped, the transaction for software can take place online. And as he indicated, you may not know where the consumer is located, and that greatly complicates the question of what intellectual property will apply and can you get jurisdiction over that individual.
Mr. COBLE. Thank you, Professor. I am sure my constituents in Thomasville are going to be grateful to all of us for all the face time they have gotten today.
The gentleman from California, Mr. Berman.
Mr. BERMAN. Thank you, Mr. Chairman. You are just talking tothe one thing we miss on this panel is a really good Internet anarchist. We thought perhaps Mr. Zittrain would serve that role, but it turns out that he even talks about the benefits of a day when we will have more accountability and responsibility by parties on the Internet and greater ability to control where things go and where purchases are made through new technology. So no one seems to fit the bill for that.
But in Mr. Vartanian's testimony he talked about this court decision, ALA versus Pataki, which held that the State obscenity regulations covering Internet activities violates the commerce clause because such activities are in interstate commerce. Then we had other discussions about the Federal space, the fifth amendment, but if that were done, thenI mean, as I recall it, and I could be wrong, where you got a Federal space, all of a sudden the State laws states aren't supposed to operate there.
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What does that do about issues like contract law, consumer protection laws, laws on advertising; you know, all the general laws that involve businesses that are in interstate commerce but we allowedCongress doesn't speak in those areas, many many cases, many fewer every day with these Republicans in control, they are so Federal oriented these days, but would there be a vacuum of laws in effect?
Mr. BURK. The majority of law governing the commerce, like the majority of law governing every other kind of commerce in this country, will be State law. It is only when the States begin to try and balkanize the country into economic enclaves that we have been told that the Constitution or the Federal law will then step in and prevent that from happening. And so there shouldn't be a vacuum. State law should continue to be able to operate unless A State is attempting to either export its law into other States and violate their sovereignty, or unless the State is attempting to intrude on the prerogatives of Congress and the Federal Government by governing things that can't be governed by a State.
Mr. BERMAN. So you don't think this is a real problem. The jurisdictional solution doesn't becomethis notion of going into the Federalization and taking the fifth amendment limits with the Federal courts in order to get hold of people is not going to beis not something that you are as strongly for as I thought you were.
Mr. BURK. Quite on the contrary. I think that the commerce clause issue that you raise is going to be perhaps the most important problem that we grapple with in the next 2 or 3 years in State/Federal relationships, because the States are still jockeying around trying to figure out how much authority do they have over the Internet. It would be very much as in the early days of the Republic when the States were trying to figure out how much control do they have over the waterways, how much control do they have over the road system. So States will attempt to regulate aspects of the Internet, and the courts and Congress will have to tell them when they have gone too far and when they haven't. And that type of jurisdiction that we are talking about will be very important to that process.
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Mr. PEARL. I think that the bill that this committee and that this Congress and that the President is going to sign, I am told tomorrow, on digital signatures and digital authentication is a case in point in terms of trying to, in essence, raise the bar. And speaking about the architecture, not necessarily the choice of law, not necessarily the substance of what needs to be dealt with, it is in fact a means of delivery of product and service. This Congress does recognize that it has a role in the case of digital signatures, the formation of a contract and the records of those contracts, even through the law regarding in signatures, contracts are based in State law.
But the fact is that the Federal Government has in essence preempted from the discussion how in fact we are going to determine the desire of the parties to enter into a contract electronically in this case. That kind of deliberation and that kind of approach and process is something that we need to look at further.
This committee understands the complexities of the Internet and the digital signature law is the perfect example of what this Congress has successfully done in the context of jurisdiction and what this panel and this hearing is all about.
Mr. BERMAN. One other question. Again, taking thisI want to just go back to this ICANN issue and how narrow it is. How does alternative dispute resolution work when you get into consumer tort claims against foreign manufacturers? Your need for discovery, you don't have that ability to executeI mean, we are not going to require every consumer in the world to post a bond.
Page 206 PREV PAGE TOP OF DOC Mr. PERRITT. I don't think it does work very well for that kind of claim. But it has great promise for contract claims even in the consumer protection area. And I think that it is likely that the vast majority of disputes that might, if unremedied, stunt e-commerce development are those arising out of contracts between merchant and consumer. And I think the success of things like the credit card chargeback system, very simple, not terribly prominent in people's minds, but it provides enough assurance and confidence that people use it and it is almostI mean, I have triedit is almost impossible to find a lawsuit about the credit card agreement.
And what I take from that is that the merchants and the consumers both must be satisfied enough by what they get out of that mechanism that they don't go to court very much.
Mr. BERMAN. Or $30 isn't worth the effort.
Mr. PERRITT. Right. But of course many credit card transactions are for more than 30 bucks. So I don't think that anyone can claim that this dispute resolution thing is the solution to all problems.
And your tort claim is a good example of what is quite difficult to solve, because the plaintiff is frequently a stranger to the contract that sets up the dispute resolution mechanism. But it may be quite a step forward if we can come up with a mechanism that deals with the contract disputes.
Mr. BERMAN. Thank you, Mr. Chairman.
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Mr. THURMON. Mr. Berman, if I could, one thing that we have learned from the UDRP, which is very thorough, it is very focused on a particular type of trademark problem, is that only when it is that narrow, probably the greatest obstacle to getting a practice like the UDRP is the choice of law and conflict of law issue. You have to reach some level agreement on a transnational basis as to some minimum standards and, in this case, as to what sorts of activity are inappropriate in the context of a domain name use.
So when we look around for candidates for other types of Internet ADR methods, I think one of first things we need to look at is what is the level of harmonization in that area of law. And to plug my own Association's interest, as this subcommittee knows, there has been a great deal of work on the last, well, many years, aimed at greater harmonization in the area of intellectual property. We believe because of those efforts, there is something of a head start there in potential future efforts to expand these types of ADR mechanisms in the area of intellectual property.
Mr. BERMAN. Except we do see that frequently one way to solve problems is to agree to nationalto allow individual countries to interpret the things they have obligated themselves to in their own way.
Mr. THURMON. It is a difficult process. And that was the most difficult aspect of creating the policy of the UDRP, the actual substantive rules of that policy; you know, getting agreement on what those substantive rules should be. So even when it is very narrow, that is difficult.
Page 208 PREV PAGE TOP OF DOC Mr. BERMAN. Thank you, Mr. Chairman.
Mr. COBLE. I thank the gentleman.
The gentleman from the Roanoke Valley of Virginia, Mr. Goodlatte.
Mr. GOODLATTE. Thank you, Mr. Chairman.
Mr. Holleyman and Mr. Pearl, what kind of experiences are your companies having with suits from a variety of different jurisdictions around the world. Are they getting flooded with cases in which the jurisdiction is founded in places all over the world, in
Mr. HOLLEYMAN. At this point, my companies have not been telling me that they have been flooded with suits. Certainly we are trying to bring some of our own suits enforcing copyrights in a variety of jurisdictions. But I am not aware of a rush to file suits against any of our companies.
Mr. GOODLATTE. Mr. Pearl.
Mr. PEARL. The same. I think that what is happening is that the laws are trying to catch up. In the criminal area, for example, the I Love You Virus, in the Philippines, there was a rush to arrest the suspect, the alleged instigator of it, and then the Philippine law enforcement tried to find a law to fit the crime. There have not been, however, flowing from that incident, lawsuits for example, against ISPs or the software companies, at all. We haven't seen that because I think that people understand that you are in this environment and certain things happen beyond our control. We have seen lawsuits against the Amazon.coms or the Yahoos! There are instances where governments have taken action, but they are based on certain legal precedents that are already in place.
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By and large, I think it goes back to what I was saying before in terms of the digital signature and what has been said here in terms of what is going on. Yes, sir, you are limited in choice if you choose not to go online, but you are making a choice that you are not going to abide by certain rules that exist in that kind of global environment. So once you decide to move into the online environment, you are going to move into an opting-in kind of mentality that says I am going to opt into the rules that are put forward by the supplier, by the vendor, or whatever it is.
I think that, by and large, there has been a general acceptance by individual consumers and by businesses that once you move into that aspect of utilizing that part of the architecture, that you abide by certain rules, and certain things will or won't happen and you will move forward from that standpoint. But it is a completely different area than the kind
Mr. GOODLATTE. We will get to piracy in a minute. So neither one of you are aware of a rash of either consumer or business customers who are taking advantage of the fact that it is inconvenient to go to who knows where in the world to defend a suit that may be of only a few thousand dollars or, in the case of a consumer case, might even be smaller than that.
Mr. PEARL. Only in the copyright trademark area has it been more of a proliferation at this point.
Mr. GOODLATTE. I agree with your comment that we have to be careful, Mr. Holleyman, in terms of where we head with this. We don't want a situation where that sort of jurisdictional advantage proliferates in terms of having to go and defend in a multitude of different places. I suspect probably in the case of consumer disputes, something like what is done with credit cards or something like with eBay is a better way to resolve these.
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What is the solution when it comes to piracy, where you want to have the ability to go where the culprit is; to go and get them, but you arrive and find that the laws are very unfriendly to you?
Mr. HOLLEYMAN. We may need to pursue options to examine the extent to which U.S. Federal courts could have jurisdiction, and then there would be issues of execution of those. Intellectual property rights protection might be an appropriate area where this Congress needs to make a statement.
Secondly, we clearly need to ensure that as this is discussed in the draft Hague Convention, that we are not adopting a rule, as I indicated in my testimony, that would facilitate the creation of piracy or infringement havens.
Mr. GOODLATTE. Thank you, Mr. Chairman.
Mr. ROGAN. [Presiding.] The Chair recognizes our friend and colleague from California.
Ms. LOFGREN. Just to follow up a little bit on Mr. Berman's questions relative to ICANN and cybersquatting, I don't knowI mean, I want to ask Mr. Burk, if my memory serves me well, you hinted you have some concern about the implementation of the Cybersquatting Act. I voted for it. We had hearings on it. I think I felt it was appropriate. But with every good thing, there arise concerns. We were for the electronic signature. We fought hard for that. Yet, there are implications relative to thatthat we now need to deal with. As I recall, ICANN was not enthusiastic about accepting its new role. They were concerned that they lacked the expertise to become trademark experts. We tried, however, to deal with that.
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My question is this: Is this process, in fact, as to U.S. law in U.S. cases, appropriately applying U.S. trademark law? The barrier to knowing about these cases, given the low amounts in controversy and the cost of litigation might preclude these cases from actually flow into the public arena, into the real law arena. What are you seeing? What, if anything, should Congress do to address that issue?
Mr. BURK. Let me make a short comment about that and then I will ask either Dean Perritt or Mr. Zittrain to comment further.
My primary concern was actually about the ICANN dispute resolution process itself rather than about the Cybersquatting Act, although there is an interesting jurisdictional question, as you know, in the Anti-Cybersqatting Act dealing with jurisdiction, one way to try and address the question. We are still seeing how that plays out.
I think that your concern is quite correct; that as Mr. Zittrain indicated earlier, the folks who may get hung out to dry in this process are the small fry who don't have the ability to, as you say, bring a further suit or pursue the appeal in a de novo action in a U.S. court. So that really leaves them with only the ICANN process, and we are still determining whether that actually will work fairly in their favor or not.
Mr. THURMON. If I could just comment very quickly on that. It is the view of the members of our Association that the ICANN UDRP is actually more fair to the small frys than the alternative would be, because it is certainly much less expensive for
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Ms. LOFGREN. The goal.
Mr. THURMON. If you arefor an individual person, they can submit their answer and whatever evidence they want electronically. They can't do that if they are sued in Federal court. And so the cost and obstacles to showing up and defending against something are certainly lower in the UDRP context than in the alternative of litigation.
Ms. LOFGREN. Can I just follow up and say: that is what we hope to achieve, and for exactly the same reasons. But the question I have really is, should the process go sideways in terms of the application of law? What remedy is available? The individuals involved are not going to be going to court, as I said, because the amounts in controversy are too low. There is a public interest to apply the laws we have adopted. What mechanism is available, if the process goes ''sideways,'' shall we say, to bring it back to the rule of law in the bill given the process that is occurring?
Mr. THURMON. As far as what is built into the ICANN policy, I think probably the only ultimate check on that would be the ability to challenge an individual proceeding. There is a 10-day holding period when a panel decision is issued, before it is implemented, to allow such a challenge. But I think as a practical matter, the real check on that is simply the volume of the proceedings and the level of expertise and qualifications of the panelists. I mean, most of these panelists are either academics, very experienced practicing attorneys within the area of trademark.
Ms. LOFGREN. I am not criticizing the people involved. I am just trying to deal with the larger public policy issues of the relationship between these private entities and public entities. I think ICANN is the first surfacing of that conjunction. I am not at all critical of ICANN or the people who are trying to make it work. I am just trying to explore the question. Pretty soonand I think Mr. Zittrain had this rightwe are going to have a much different situation than we do right now. We have given remarkably little consideration to how the views of the public characteristic of a democratic government can be distributed among these private systems that are going to have the real control.
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Mr. PERRITT. One of the advantages of a private system as opposed to a treaty-based system is that it is easy for a national government to pull things back from the private system. And I think that the concerns that have been expressed should stimulate groups like this committee to watch carefully the development of things like ICANN, the extension of credit card chargebacks, and these other mechanisms.
I think the other thing that the Congress has done that is a very interesting model is in the safe harbor area generally. The Digital Millenium Copyright Act has very stringent constraints, procedural as well as substantive.
I think another way that governments can act to protect against abuses by the private entities is to write safe harbors that condition immunities on certain kinds of minimum standards.
Ms. LOFGREN. You look like you have a comment on this, Mr. Zittrain.
Mr. ZITTRAIN. I might draw a line between private and proprietary rulemaking. We have with ICANN a problem that was a quasi-private/quasi-public problem about domain names that it was trying to solve, an opportunity to try to take the middle path and see what happens. I am loath to make predictions, but my guess is that 5 years from now we won't be talking about dot com and dot net. It is just from a consumer point of view too awkward a way to navigate around the Internet.
Page 214 PREV PAGE TOP OF DOC That means in this entire system certain procedures as to handling disputes could become moot and be replaced by a system that is a proprietary one; real names, or Microsoft Internet Explorer key words, some system against critical mass that people use to direct you around.
The best I can think of from the ICANN process right now is to learn what lessons we can, so that when the day comes that inevitably a new system has eclipsed it, we can in a most reasonable way figure out how to operate it in the public interest as much as possible, knowing too that it is within the context of the larger court procedures and stuff.
I agree that the small fry in the first instance has a better chance in an ICANN proceeding under the UDRP than under any particular court proceeding, given how hard it is to just show up in court and make one's case. The problem is that to somebody trying to take the name away from the small fry, if you lose, you just go under the Cybersquatting Act, which, to be sure, created new substantive trademark laws.
Ms. LOFGREN. At least that was a product of a public policy.
Mr. ZITTRAIN. That is right.
Mr. BERMAN. Will you yield? In part why we had to do that was because we wanted to move beyond sort of the narrow trademark issue. I mean, it came up. I mean, Mr. Rogan and Ms. Lofgren and Mr. Goodlatte, they were all very involved and came up with elected officials, they came up with famous names. Then there were unfamous names and people who had no interest in trademarking their names but wanted to have a mechanism. ICANN didn't offer it.
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Ms. LOFGREN. I guess that the concern I still haveand we are not going to solve it because these are issues without ready answersbut we have to strike a balance. We passed a bill that gave protection. However, whatever you protect, you also risk infringing some freedom and free speech. So that doesn't mean you shouldn't go forward, but it means there is a delicate balance, and you must proceed cautiously.
We all have to run for election every other year. If we make a mistake, we will get yanked and somebody else will be elected and the balance will change. That is how it should be. If the un-elected bodies start making those decisions, there is no remedy for the public at large. That is the issue that we have not yet addressed, for which we don't have answers.
Mr. ZITTRAIN. The first test case under this theory may well be back in the intellectual property copyright arena as things likeI don't know if you remember Steven King's e-book, Riding the Bullet, that just came out. As a consumer, if you try to print out Riding the Bullet, you can't. If you try to lend it to a friend, you can't. As more attempts come about to control property in that way, it really will be a test of things like the first sale doctrine by which a library is entitled to lend a book, even though it is resulting in a lost sale because people read the book from the library and don't buy it.
Ms. LOFGREN. The interplay between the right of parties to make their own contracts in the first amendment. We don't have answers to these issues. Thank you, Mr. Chairman.
Page 216 PREV PAGE TOP OF DOC Mr. COBLE. [Presiding.] I thank the gentlelady.
The gentleman from California, Mr. Rogan.
Mr. ROGAN. Thank you, Mr. Chairman. This hearing has been very informative, and again I thank all of the witnesses. It seems like the paradox is circular. We have these jurisdictional problems that give us difficulties in enforcing rights; now we are trying to figure out in cyberspace how to enforce and protect rights.
One of the suggestions is to have an alternative dispute resolution forum like ICANN, or similar to ICANN. Yet we acknowledge that at ICANN the remedies available are fairly limited. It can strike a domain name, it can change a domain name, it can shift a domain name, but it can't pursueas the gentleman from California suggested earliermoney damages or other traditional remedies. If it attempts to get those remedies, we return to choice of law and the jurisdictional issues.
So it is clear there are no easy answers. I don't know if an easy answer is to be found. And I suspect, Mr. Zittrain, you are correct; by the time we figure it out, we will be so far beyond the current paradigm that it no longer will fit.
I want to ask a couple of questions to clarify the earlier discussion. Dean Perritt, you were talking about the credit card issue where alternative dispute resolution essentially is in place. So, if I get my credit card receipt, and if I want to dispute it, I go to a quasijudicial arbiter employed by the credit card company who tries to resolve the dispute. Is that pretty much the way it works?
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Mr. PERRITT. Well, it is actually a lot thinner than that in most instances. For credit cards in the United States Federal Reserve Regulations, sets certain standards for these things. But what typically happens is the credit card company suspends your obligation to pay until the merchant can substantiate the legitimacy of the charge. Even if there is some need for dispute resolution beyond that, it is not usually very clear what happens. Most of the disputes stop at that level. But typically there is not third-party arbitration of these disputes.
Mr. ROGAN. But if the dispute continues, then there is the option to persue a small claims jurisdiction or some other forum. The rules are fairly clear, and generally we are not dealing with the jurisdictional issues on a case-by-case basis. We have pretty much a set formula for how to proceed.
Have you given any thought, or do you have any suggestions as to what should be the next step if friendly dispute resolution was not successful?
Mr. PERRITT. In terms of public law?
Mr. ROGAN. Yes.
Mr. PERRITT. Well, I think I would look hard at whether I could write a safe harbor that trimmed off the unsatisfactory edges of private dispute resolution and centered the private efforts on something that would be more satisfactory, because I think it is so difficult, for reasons that you just identified, to write a public law that is not going to be obsolete as technology changes, and write one that is going to be acceptable broadly in a world that we understand so poorly. So I think the law should lag in this area.
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I think that innovation comes appropriately in a market economy from entrepreneurs. Lawmakers, appropriately, have hearings like this to try to understand what is going on, but that you ought not to write law until there are demonstrated instances of problems. And for the most part, we don't have any of those yet. We are imagining things that might happen. And I think we are a lot better off to wait for real problems to come up that people care enough about to sue each other over them, and we get some judicial decisions and we can see exactly what it is that the Congress needs to fix before we try to fix it.
Mr. ROGAN. I think that your policy suggestion is sound, but it sure would make our campaign commercials far less titillating.
Mr. COBLE. I thank the gentleman. I thank the witnesses again for your testimony. The subcommittee very much appreciates the time and your contribution. I apologize for the marathon run that we have had today, but I think that speaks to the issue. The issue is very popular and very significant.
This concludes the oversight hearing on the Internet and Federal Courts: Issues and Obstacles. The record will remain open for one week.
Mr. COBLE. Thank you for your cooperation and the committee stands adjourned.
[Whereupon, at 1:30 p.m., the subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
PREPARED STATEMENT OF MOTION PICTURE ASSOCIATION OF AMERICA AND THE RECORDING INDUSTRY ASSOCIATION OF AMERICA
Thank you for the opportunity to submit written comments for the record in the Subcommittee's recent oversight hearing on ''The Internet and Federal Courts: Issues and Obstacle.'' As you know, a critically important element of this hearing is the focus on the proposed Convention on Jurisdiction and Foreign Judgments in Civil and Commercial matters. We commend you for taking the initiative, by way of this hearing, to raise the profile of these complex and often difficult issuesmany of which are of crucial importance both to the competitiveness of many American businesses and to the future growth of global electronic commerce. While many of these issues are still being defined, we wish to highlight for the record just a few of the very fundamental concerns raised by the Draft Convention.
The proposal for a convention originated with the United States, which, in 1992, suggested the formation of a convention that would require member states to enforce each other's judgments. This proposed convention was intended to deal with the experience of U.S. companies that successfully sued foreign entities in U.S. courts, but could not enforce the judgments in the defendants' home states. The Hague Conference project, however, has been expanded well beyond that purpose and poses a number of very significant concerns.
On October 30, 1999, the Hague Conference released the text of a Draft Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters. This document presents 41 articles addressing the scope of the Draft Convention, jurisdiction, recognition and enforcement of foreign judgments, and other general matters. These articles are aimed at creating harmonized rules regarding jurisdiction and enforcement of judgments in international commerce and trans-border conduct. Since 1992 when the Convention was first conceived, however, electronic commerce has flourished and global communications networkslike the Internethave permeated almost every aspect of the daily interactions of businesses and individuals around the world. Unfortunately, the language of the Draft Convention ignores in many respects the advent of electronic commerce and the numerous, detailed, and painstakingly negotiated laws, regulations, and directivesrecently enacted or even now pendingthat relate to electronic commerce. Accordingly, the Draft Convention includes provisions that are dangerous when applied to the unique policy issues that are raised by, just to mention a critical example, the impact of electronic cross-border transactions on the establishment of jurisdiction. These shortcomings are so significant that the U.S. Department of State has raised questions whether the draft is an adequate basis for negotiation.
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Because the proposed Draft Convention is based on more traditional notions of commerce and related contractual and jurisdictional issues, it has the potential to negatively impact global electronic commerce by raising more questions than it resolves. We will not attempt an exhaustive treatment of these concerns here, but wish to summarize just a few of the many problems raised by the Draft Convention.
1. Article 4Choice of court. Article 4which addresses contractual ''choice of court'' provisionsis excessively vague given the backdrop of recent enactments in the United States and abroad relating to electronic contracts and digital signatures, particularly in an era of click-wrap and shrink-wrap licenses. Article 4 also raises important questions about the effect of the Draft Convention on many contracts, such as those entered into orally or through the exchange of documents, the validity of which have long been recognized in the United States.
2. Article 6Contracts. Article 6 provides that a buyer of goods or services may bring an ''action in contract'' in a state where: (a) In the case of the provision of goods, the goods were supplied in whole or in part; (b) In the case of the provision of services, the services were provided in whole or in part; and (c) In a case involving the provision of both goods and services, performance of the principal obligation took place in whole or in part.
To begin with, there is little justification for the separate delineation of goods and services. Labeling something as either a good or a service has potentially significant implications in the arena of international tradea challenge that is exacerbated by the continued blurring of the lines between goods and services in an electronic environment where supplying goods does not necessarily involve the physical delivery of tangible goods. Not only is there little international consensus as to what constitutes either a good or a service in the digital environment, but there is, in fact, a significant degree of ongoing debate and disagreement in the World Trade Organization and elsewhere on this very subject. Moreover, the distinction proposed by the Draft Convention raises further problems by requiring a determination to be made in some cases as to what is the ''principal obligation'' and where it took place. For example, in the context of a contract involving the delivery of a copyrighted work that is embodied in a physical medium, such as a compact disc or DVD, does the principal obligation relate to the intellectual property or the physical medium itself? The Draft Convention's distinctive treatment of goods and services does not in any way lead to a clarification of these issues, but serves instead to institute additional confusion and contention.
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Even more troubling are the implications of a regime that provides a blanket default rule recognizing the competent place of jurisdiction as the place of supply or delivery of goods or services. Such a rule would potentially result in companies that do business online having to understand and comply with the laws of each and every country worldwide and to defend suits in hundreds of jurisdictions. Moreover, traditional jurisdiction notions of place of delivery, place of supply, and place of performance are often and increasingly difficult to identify in the digital environment. For example, does the performance of a pay-per-download agreement occur in the place of business of the copyright owner, the location of the host server to which the file is uploaded and from which a copy is made, at the place where the consumer initiates or receives the download? Internet technology adds the further complication that businesses may not be able readily to identify the location or even the identityof an online customer when entering into an electronic transaction. The Draft Convention does not begin to address these questions.
A blanket ''country of origin'' rule poses similar difficulties to the ''country of destination'' rule discussed above. For example, in the case of cross-border transmissions of copyrighted works, a willful infringer might avoid all liability by locating in a jurisdiction that affords no copyright protection. These are all issues that must be carefully considered and which are wholly neglected by the broad-brush treatment afforded by the Draft Convention.
3. Article 7Contracts concluded by consumers. Article 7 allows a ''consumer'' plaintiffdefined as a person or entity that ''concluded a contract for a purpose which is outside its trade or profession''to sue the seller in the country where the consumer resides, if the seller is a commercial entity that has engaged in or solicited business in that country. On the other hand, this draft Article provides that consumers may not be sued in any place other than where they reside, even if they agreed to be sued elsewhere at the time they made their contracts.
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This provision raises many of the same problems highlighted in the discussion of Article 6 above. Such a rule would expose businesses that choose to conduct business online to litigation and liability in each and every country where their website is accessible and could result in having to defend suits simultaneously in hundreds of venues around the globe. Such a proposition would constitute a major barrier to entry for many businesses contemplating launching an online venture or expanding their existing business to the Internet. Moreover, as indicated above, it would prove unworkable in many cases given that the location or identity of a customer may be difficult or impossible to discern.
This draft Article also disregards the freedom of consumers to contract while providing a definition of ''consumer'' that is so broad as to include even large, commercial enterprises. Such a bar to jurisdiction would appear to apply even in cases involving contracts that meet the parameters of a valid agreement set forth in Article 4. There appears to be little policy justification for inhibiting the freedom of competent partiesparticularly well-advised corporate entitiesto enter into arms length and mutually beneficial contractual arrangements. Again, the specter of defending suits in each and every country in which a website is accessible would, at best, lead to increased costs for consumers and, at worst, result in fewer entities willing to engage in electronic commerce. These problems are only compounded when factoring in the costs and difficulties involved in identifying the location or identity of a consumer.
4. Article 8Individual contracts of employment. Article 8 limits the courts in which disputes between employers and employees may be heard. Employer employee relations are governed by detailed national lawslaws that would be overruled by the Draft Convention. Moreover, the Draft Convention could invalidate arbitration provisions to the extent such agreements are entered into before a dispute arises.
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5. Article 10Torts or delicts. Article 10 provides for tort jurisdiction in the country where the act causing the injury took place or where the injury arose, with a limitation on proper jurisdiction tied to the defendant's proving it could not have reasonably foreseen that an act or omission could result in an injury of the same nature in the state. It exempts from that limitation, however, injuries caused by ''conspiracy to inflict economic loss.'' The Draft Convention offers no guidance as to what constitutes a ''conspiracy to inflict economic loss,'' leaving this phrase as a broad, undefined term that may, in fact, defeat whatever benefit is inherent in such limitation
6. Article 37Relationship with other conventions. Article 37 provides a number of alternatives that would subordinate the provisions of the Draft Convention to certain other international instruments, including a proposal that would effectively carve out Member States of the European Union by making specific ''European instruments'' applicable in instances where those instruments and the Draft Convention would otherwise apply according to their terms. These proposals would seem to undermine the purported harmonization that the Draft Convention seeks to achieve, and they underscore the unsettled nature of the issues the Draft Convention seeks to address.
The Draft Convention poses many other problems of language and definition. What are outlined above are but a few examples of the more significant problems of principle. While the Convention is rooted in a sound principlefacilitating the recognition and enforcements of judgments across bordersits scope has been significantly broadened since its inception and the prudence of its terms have been called into question by many, particularly in light of the revolutionary changes associated with a digital economy. As business paradigms are redefined, so too must the legal paradigms
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PREPARED STATEMENT OF THOMAS P. VARTANIAN, FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
The resolution of the jurisdictional legal uncertainties created by electronic commerce will be a function of the reconciliation of a wide variety of factors and national and state interests.
1. A multinational Global Online Standards Commission (''GOSC'') should be established to study jurisdiction issues and develop uniform principles and global protocol standards.
2. Intelligent electronic agents should be employed to electronically communicate jurisdiction information and rules, enabling such preprogrammed agents to facilitate automated decisions to transact business.
3. Voluntary industry councils and cyber-tribunals should be encouraged by governmental regimes to develop private sector mechanisms to resolve electronic commerce disputes.
4. Self-regulatory regimes should be encouraged to forge workable codes of conduct, rules and standards among a broad spectrum of electronic commerce participants.
5. Personal or prescriptive jurisdiction should not be asserted based solely on the accessibility of a passive web site.
Page 225 PREV PAGE TOP OF DOC 6. Good faith efforts to prevent access by users to a site or service through the use of disclosures, disclaimers, software and other technological blocking or screening mechanisms should insulate the sponsor from assertions of jurisdiction.
7. Users (purchasers) and sponsors (sellers) should be encouraged to identify, with adequate prominence and specificity, the state in which they habitually reside.
8. Safe harbor agreements among nations should be encouraged to resolve jurisdictional conflicts in Cyberspace.
9. Global regulatory authorities of highly regulated industries should be encouraged to reach agreement regarding how laws will be applied to financial products and services offered in a global electronic environment.
10. Any use of intermediaries (''choke points'') in the flow of electronic information, commerce and money, such as Internet Service Providers and payments systems, requires careful exploration before being proposed for adoption.
BOOKS AND ARTICLES BY HENRY H. PERRITT, JR. ON INFORMATION TECHNOLOGY AND LAW
ELECTRONIC CONTRACTING, PUBLISHING AND EDI LAW (1991 John Wiley & Sons; co-author: Michael Baum)
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TRADE SECRETS: A PRACTITIONER'S GUIDE (Practising Law Institute 1994 with annual supplements)
EVERYTHING SOLO PRACTITIONERS NEED To KNOW ABOUT COMPUTERS (Practicing Law Institute 1995)
INTERNET BASICS FOR LAWYERS (I 11 pages) (Practicing Law Institute 1996)
HOW TO PRACTICE LAW WITH COMPUTERS (31) ED. 1998)
LAW AND THE INFORMATION SUPERHIGHWAY (740 pages, Aspen Law & Business 1996, with annual updates)
Federal Electronic Information Policy, 63 TEMPLE L.REV. 201 (1990).
The Electronic Agency and the Traditional Paradigms of Administrative Law 44 ADMIN.L.REV. 79 (1992)
Market Structures for Electronic Publishing and Electronic Contracting in BUILDING INFORMATION INFRASTRUCTURE: ISSUES IN THE DEVELOPMENT OF THE NATIONAL RESEARCH AND EDUCATION NETWORK (HARVARD UNIVERSITY AND MCGRAW-HILL 1992)
Tort Liability, the First Amendment, and Equal Access to Electronic Networks, 5 HARV.J.LAW &
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Electronic Records Management and Archives, 53 U.PITT.L.REV. 963 (1992).
Tort Liability, the First Amendment, Equal Access, and Commercialization of Electronic Networks, 2 ELECTRONIC NETWORKING (Meckler) 29 (Fall, 1992)
Format and Content Standards for the Electronic Exchange of Legal Information, 33 JURIMETRICS J. 265 (1993)
Introduction, The Congress, the Courts and Computer Based Communications Networks: Answering Questions about Access and Content Control, Symposium, 38 VILL.L.REV. 319 (1993)
Dispute Resolution in Electronic Network Communities, 38 VILL.L.REV. 349 (1993)
Commercialization of Government Information: Comparisons between the European Community and the United States, 4 INTERNET RESEARCH 7 (Meckler Summer 1994) Per-rift Page 2
Unbundling Value in Electronic Information Products: Intellectual Property Protection for Machine Readable Interfaces, 20 RUTGERS COMP. &
President Clinton's National Information Infrastructure Initiative: Community Regained?, 69 CHLKENT L.REV. 991 (1994) (Charles Green Lecture)
Page 228 PREV PAGE TOP OF DOCVideo Depositions, Transcripts and Trials, 43 EMORY L.J. 1071 (1994)
Access to the National Information Inftastructure, 30 WAKE FOREST L.REV. 51 (1995)
Sources of Rights to Access Public Information, 4 WILLIAM & MARY BILL OF RIGHTS J. 179 (1995)
Should Local Governments Sell Local Spatial Databases Through State Monopolies?, 35 JURIMETRICS J. 449 (1995).
Payment Infrastructures for Open Systems, 3 DATA LAW REPORT I (No. 1, July, 1995)
The Information Highway: On Ramps, Checkpoints, and Tollbooths, 13 GOV'T INFO. Q. 143 (1996).
Mapping the Information Superhighway, 3 INT'L J. LAW &(1996)
Legal and Technological Infrastructures for Electronic Payment Systems, 22 RUTGERS COMP. &
Jurisdiction in Cyberspace, 41 VILL. L. REV. I (1996)
Page 229 PREV PAGE TOP OF DOCReassessing Professor Hibbits's Requiem For Law Reviews, 30 Akron L. Rev. 255 (1996)
Property and Innovation in the Global Information Infrastructure, 1996 U. Chi. Legal F 261 (1996)
Information Access Rights Based on International Human Rights Law, 45 Buff. L. Rev. 899 (1997) (with Christopher J. Lhulier)
Cyberspace Sevr-Government: Town-Hall Democracy or Rediscovered Royalism?, 12 Berkeley Tech. L.J. 413 (1997)
Electronic Freedom of Information, 50 ADMIN. L. REV. 391 (1998)
Cyberspace and State Sovereignty, 3 J. INT'L LEGAL STUD. 155 (1997)
The Internet as a Threat to Sovereignty? Thoughts on the Internet's Role in Strengthening National and Global Governance, 5 IND. J. GLOB. LEG. STUD. 423(1998)
Chinese Economic Development, Rule Of Law, And The Internet (with Randolph R. Clarke), 15 GOVT INFO. Q. 393 (1998) Perritt Page 3
Book Review, The Reluctant SheriffThe United States After the Cold War, by Richard N. Haas, 26 SYRACUSE J. INT'L LAW &
Will the Judgment-proof Own Cyberspace? 32 INT'L LAWYER 1121 (1998)
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False Alarm: European Privacy Law and International Jurisdiction, 51 FED. Comm. L. J. 811 (1999) (with Margaret G. Stewart)
Policing International Peace and Security: International Police Forces, 17 WISCONSIN INT'L L. J. 281 (1999)
The Internet is Changing International Law 73 CHIKENT L. REV. 997 (1998)
International administrative law for the Internet: mechanisms of accountability 51 ADMIN. L. REV. 871 (1999)
The Internet is Changing the Face of American Law Schools, 33 IND. L. REV. 253 (1999)
Book review: Lawrence Lessig, Code and Other Laws of Cyberspace, 32 CONN. L. REV. 1061 (2000).
The Internet is Changing the Public International Legal System (forthcoming,Ky. L. Rev.(2000))
Dispute Resolution in Cyberspace: Demand for New Forms of ADR (forthcoming,Ohio St. Dis. Res. J. (2000))
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ELECTRONIC ACQUISITION AND RELEASE OF FEDERAL AGENCY INFORMATION, Report Prepared for the Administrative Conference of the United States, October 1, 1988.
ELECTRONIC PUBLIC INFORMATION AND THE PUBLIC'S RIGHT T0 KNOW, proceedings of conference in October, 1989, sponsored by Benton Foundation and Bauman Family Foundation.
MARKET STRUCTURES FOR ELECTRONIC PUBLISHING AND ELECTRONIC CONTRACTING ON A NATIONAL RESEARCH AND EDUCATION NETWORK, prepared for Conference on Information Infrastructure for the 1990s, November 29December 1, 1990, Kennedy School of Government, Harvard University
FEDERAL AGENCY ELECTRONIC RECORDS MANAGEMENT AND ARCHIVES, prepared for the Administrative Conference of the United States, December 1, 1990.
THE ROLE OF FORMAT AND CONTENT STANDARDS AND OTHER CONVENTIONS IN FACILITATING ELECTRONIC EXCHANGE OF ACCOUNTING AND LEGAL INFORMATION, Report to the National Center for Automated Information Retrieval (''NCAIR'') (February 1, 1991) Perritt Page 4
PUBLIC INFORMATION IN THE NATIONAL INFORMATION INFRASTRUCTURE, Report to the Regulatory Information Service Center, General Services Administration, and to the Administrator of the Office of Information and Regulatory Affairs, Office of Management and Budget, May 20, 1994
ELECTRONIC DOCKETS: USE OF INFORMATION TECHNOLOGY IN RULEMAKING AND ADJUDICATION, prepared for the Administrative Conference of the United States, September 8, 1995
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PREPARED STATEMENT OF HON. JOHN CONYERS JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
We are here to discuss an issue of increasing importance: how do we apply the traditional civil laws and procedures of jurisdiction to conduct on the Intenet.
Over the years, the Supreme Court has struggled with the concept of jurisdiction in civil suits. We have dozens of cases on jurisdiction, minimum contacts, choice of law, and venue, issues that must be resolved in any civil proceeding. Those concepts are difficult enough to grasp without the Internet, but more and more in the Information age, legal claims in civil suits are based upon contracts entered into on the Intenet.
The courts have come out in different directions about how those traditional civil procedure concepts apply to Internet transactions, and it may be up to Congress to straighten everything out.
What makes this issue especially difficult, though, is that it is not a purely domestic one; it affects every nation that has access to the Internet. While the Hague Conference made an attempt to resolve these issues and issued its recommendations in late 1999, the State Department found that the proposal disadvantaged American citizens more than it helped them. Clearly, this would be an objectionable solution.
I intend to review all of the different issues, proposals, and testimony to see how we can craft a policy that works for all of the parties involved.
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(Footnote 1 return)
Jurisdiction can also refer to subject matter jurisdiction, which is prescribed to the federal courts by statute.
(Footnote 2 return)
ACLU v. Reno, 521 U.S. 844, 849 (1997).
(Footnote 3 return)
See <http://www.census.gov/mrts/www/current.html> (visited June 24, 2000).
(Footnote 4 return)
See, e.g., Pennoyer v. Neff, 95 U.S. 714 (1877).
(Footnote 5 return)
International Shoe Co. v. Washington, 326 U.S. 310 (1945).
(Footnote 6 return)
See World Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 491 (1980) (quotations omitted); Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1982).
(Footnote 7 return)
Burger King, 471 U.S. at 472.
(Footnote 8 return)
(Footnote 9 return)
See Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408 (1984).
(Footnote 10 return)
Burger King, 471 U.S. at 477.
(Footnote 11 return)
McGee v. International Life Ins. Co., 355 U.S. 220, 22223 (1957).
(Footnote 12 return)
We recognize that the courts could not depart from the standard, which is binding Supreme Court precedent. We simply mean to observe that the courts have also not questioned whether the premises of this precedent apply equally in cyberspace.
(Footnote 13 return)
Intercon, Inc. v. Bell Atlantic Internet Solutions, Inc., 205 F.3d 1244 (10th Cir. 2000). Although this case was heard in federal court on diversity jurisdiction grounds, the District Court applied Oklahoma's long-arm statute.
(Footnote 14 return)
See CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996) (finding personal jurisdiction over an Ohio defendant where defendant entered into a contract to distribute software through plaintiff's Ohio Internet server and defendant repeatedly sent his software files to the Ohio server via e-mail).
(Footnote 15 return)
952 F. Supp. 1119 (W.D. Pa. 1997).
(Footnote 16 return)
Id. at 1124.
(Footnote 17 return)
(Footnote 18 return)
In some respects, this is a rejection of the ''stream of commerce'' theory, which provides that a defendant should be subject to personal jurisdiction in any state where his product, floating down the ''stream of commerce,'' might foreseeably end up. See Asahi Metal Indus. Co. v. Superior Court of California, 480 U.S. 102 (1987).
(Footnote 19 return)
Zippo 952 F. Supp. At 1124.
(Footnote 20 return)
See, e.g., Note, Richard A. Rochlin, ''Cyberspace, International Shoe, and the Changing Context for Personal Jurisdiction,'' 32 Conn. L. Rev. 653, 67172 (2000).
(Footnote 21 return)
See Nissan Motor Co., Ltd. v. Nissan Computer Corp., 89 F. Supp. 2d 1154 (C.D. Cal. 2000).
(Footnote 22 return)
See Blakey v. Continental Airlines, Inc., 164 N.J. 38 (N.J. 2000).
(Footnote 23 return)
See supra note 6 and accompanying text.
(Footnote 24 return)
See 28 U.S.C. §1391(a). A defendant also has the right to ask the court to move venue to a different, appropriately authorized venue, ''[f]or the convenience of parties and witnesses [and] in the interest of justice.'' See 28 U.S.C. §1404(a).
(Footnote 25 return)
See Gary B. Born, International Civil Litigation in the United States Courts: Commentary and Materials 655 (1996).
(Footnote 26 return)
On the other hand, courts may question whether the parties have come to a meeting of the minds with regard to choice of law when a consumer has simply clicked ''I agree'' to a website operator's extensive boilerplate as a condition to proceeding further into the website.
(Footnote 27 return)
See Restatement (Second) of Conflict of Laws §6(1) (''A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law.'').
(Footnote 28 return)
See Restatement (First) of Conflict of Laws §377 (1934).
(Footnote 29 return)
See Restatement (Second) of Conflict of Laws §145 (1971). Factors to be considered in assessing which jurisdiction has the ''most significant relationship'' include: (i) the place where the injury occurred; (ii) the place where the conduct causing the injury occurred; (iii) the domicile, residence, nationality, place of incorporation and place of business of the parties; and (iv) the place where the relationship, if any, between the parties is centered. Id. at §145(2).
(Footnote 30 return)
See generally Kermit Roosevelt III, ''The Myth of Choice of Law: Rethinking Conflicts,'' 97 Mich. L. Rev. 2448, 246165 (1999).
(Footnote 31 return)
See Restatement (Third) of Foreign Relations §402 (1986).
(Footnote 32 return)
The U.S. delegation includes members from the State and Justice Departments, as well as distinguished advisers from private practice and academia, including representatives of the American Bar Association, the Association of Trial Lawyers of America, and the Maritime Law Association.
(Footnote 33 return)
We have consulted with the American Bar Association, the Association of Trial Lawyers of America, the American Law Institut), the American Corporate Counsel Association, the American Society of International Law, several consumer organizations, the Maritime Law Association, trade associations and industry groups, bar associations in Chicago and New York, federal agencies with substantial litigation interests, and leading practitioners and academics. At the same time there are other groupssuch as state litigating agencies and attorneys general and the banking industrywith which we have not yet been able to meet directly on the convention.
(Footnote 34 return)
Association Union des Etudiant Juifs de France and Ligue Contre de Racisme et l'Antisemitisme v. Yahoo! Inc. and Yahoo! France, TGI de Paris, Ordonnance de refere du 22 May 2000. See generally Thomas P. Vartanian, Robert H. Ledig & Lynn Bruneau, 21st Century Money, Banking & Commerce ch. 19 (1998).
(Footnote 35 return)
At least one group of ''self-taught crypto experts'' are attempting to establish, through a start-up, HavenCo. Ltd., an offshore jurisdiction that can avoid the imposition of laws. See Simson Garfinkel, Welcome to Sealand. Now Bugger Off, Wired (Magazine) (July 2000), available at <http://www.wired.com/wired/archive/8.07/haven.html> (visited June 26, 2000).
(Footnote 36 return)
See also Thomas P. Vartanian, The Confluence of International, Federal and State Jurisdiction Over E-Commerce, pts. I & II, J. of Internet L. (Nov. & Dec. 1998); Thomas P. Vartanian, A US Perspective on The Global Jurisdictional Checkpoints in Cyberspace, Internet L. & Reg. (May 1999).
(Footnote 37 return)
The American Bar Association (''ABA'') sections involved are: Business Law; Intellectual Property; International Law; Public Utilities; Science and Technology and Taxation.
(Footnote 38 return)
See also Thomas P. Vartanian, It's a Question of JurisdictionIrreconcilable Differences in Cyberspace, Bus. L. Today (July/Aug. 1999).
(Footnote 39 return)
The five themes discussed here and in the ABA report were presented in a speech by Thomas P. Vartanian. See Thomas P. Vartanian, ECommerce & Internet Regulation, Address Before the 1999 BNA Public Policy Forum on ECommerce & Internet Regulation (Nov. 15, 1999), available at <http://internetconference.pf.com> (visited June 26, 2000).
(Footnote 40 return)
This principle has been articulated by the courts in Zippo Manufacturing Co. v. Zippo Dot Com, Inc., 952 F. Supp. 119 (W.D. Pa. 1997) and Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414 (9th Cir. 1997).
(Footnote 41 return)
At least one court has determined that the failure of a seller to adequately screen residents of a particular jurisdiction from using the site to purchase unregistered securities and engage in online gambling left the seller susceptible to the laws of that jurisdiction. New York v. World Interactive Gaming Corp., 1999 N.Y. Misc. LEXIS 245 (N.Y. Sup. Ct. July 22, 1999).
(Footnote 42 return)
See the ABA draft jurisdiction report pages 3637, available at <http:www.kentlaw.edu/cyberlaw/> (visited June 26, 2000).
(Footnote 43 return)
For example, the Global Business Dialogue, the Hague Conference on Private International Law, the Internet Law and Policy Forum, the International Chamber of Commerce, the United Nations Commission on International Trade Laws, the World Intellectual Property Organization, the World Trade Organization and others are studying jurisdiction issues in Cyberspace. The Committee of Experts on Crime in Cyberspace of the Council of Europe released a draft treaty that would require all participating nations to adopt new laws requiring government access to encrypted information, expanding copyright and criminalizing possession of common security tools, available at <http://conventions.coe.int/treaty/en/projets/cybercrime.htm> (visited June 26, 2000). The Global Internet Project has issued recommendations for businesses and organizations to follow and measures for governments to consider regarding cybercrimes, available at <http://www.gip.org/pr20000516a.htm> (visited June 26, 2000).
(Footnote 44 return)
Subject matter jurisdiction disputes can arise in transnational intellectual property disputes, because of differing legal rules in different countries. That issue is beyond the scope of this statement.
(Footnote 45 return)
The Act is codified at 15 U.S.C. §1125 (d).
(Footnote 46 return)
This is an important difference between the Act and ICANN's UDRP. The UDRP requires bad faith registration and use, a point discussed briefly below.
(Footnote 47 return)
In a more recent case, a plaintiff unsuccessfully tried to invoke the Act's in rem procedure. See Lucent Tech. v. lucentsucks.com, 2000 U.S. Dist. LEXIS 6159 (E.D. Va., May 3, 2000). In this case, the court held that because the defendant could be found, an action against the defendant must be brought, rather than an in rem action against the domain name.
(Footnote 48 return)
The CPR Institute for Dispute Resolution was approved as a provider effective May 22, 2000, but is limited to 20 proceedings per month for its first two months of operation.
(Footnote 49 return)
This number does not include actions terminated for recommencement.
(Footnote 50 return)
Although the submission to jurisdiction is limited to such challenges, it may be difficult for a U.S. trademark owner to contest jurisdiction over other related matters if such matters are brought in the same action that challenges a UDRP decision.
(Footnote 51 return)
Of course, if the UDRP decision directs the registrar to transfer the domain name(s) to the complainant, some administrative actions will be required by the complainant to effectuate the transfer.
(Footnote 52 return)
We restrict our comments to intellectual property disputes, as that is within the ambit of issues which AIPLA addresses, but this logic should apply with equal force to other specialized legal disputes that arise on the Internet.
(Footnote 53 return)
See, e.g., American Banana Co. v. United Fruit Co., 213 U.S. 347 (1909); Foley Bros, Inc. v. Filardo, 336 U.S. 281 (1949); Benz v. Compania Naviera Hidalgo, N.A., 353 U.S. 138 (1957); McCulloch v. Sociedad Nacional de Marineros de Honduras 372 U.S. 10 (1963); EEOC v. Arabian Am. Oil Co., 499 U.S. 244 (1991).
(Footnote 54 return)
EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 248 (1991).
(Footnote 55 return)
See, e.g., Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972) (patent law); Subafilms, Ltd. v. MGM-Pathe Communications Co., 24 F.3d 1088 (9th Cir. 1994) (copyright); see also generally Curtis Bradley, Territorial Intellectual Property Rights in and Age of Globalism, 37 VA. J. INT'L L. 505 (1997).
(Footnote 56 return)
15 U.S.C. §1127
(Footnote 57 return)
See, e.g., Steele v. Bulova Watch Co., 344 U.S. 280 (1952); Nintendo of America, Inc. v. Aeropower Co., 34 F.3d 246 (2d Cir. 1994); Sterling Drug, Inc. v. Bayer AG, 14 F.3d 733 (2d Cir. 1994); Totalplan Corp. Of America v. Colborne, 14 F.3d 824 (2d Cir. 1994); American Rice, Inc. v. Arkansas Rice Growers Coop. Ass'n, 701 F.2d 408 (5th Cir. 1983).
(Footnote 58 return)
See Burnham v. Superior Court, 495 U.S. 604 (1990).
(Footnote 59 return)
World Wide Volkswagen v. Woodson, 444 U.S. 286 (1980)
(Footnote 60 return)
Burger King, v. Rudzewicz, 471 U.S. 462, 477 (1985).
(Footnote 61 return)
Asahi Metal v. Superior Court, 480 U.S. 102, 115 (1987).
(Footnote 62 return)
See Omni Capital Int'l v. Rudolf Wolff & Co., 484 U.S. 97 (1987
(Footnote 63 return)
See Hayeland v. Jaques, 847 F.Supp. 630 (D.C.Wis 1994).
(Footnote 64 return)
See generally 4 CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1067.1 (Supp. 1995).
(Footnote 65 return)
Omni Capital, 484 U.S. at 97
(Footnote 66 return)
See, e.g., Mylan Lab Inc. v. Akzo, 2 F.3d 56 (4th Cir. 1993).
(Footnote 67 return)
See, e.g., Eskofot v. E.I. DuPont de Nemours & Co., 872 F.Supp. 81 (S.D.N.Y. 1995).
(Footnote 68 return)
See WAYNE R. LAFAVE & AUSTIN W. SCOTT, JR., CRIMINAL LAW §2.9(d) (2d ed. 1986).
(Footnote 69 return)
U.S. CONST. art IV, §2.
(Footnote 70 return)
See UNIFORM CRIMINAL EXTRADITION ACT, 11 U.L.A. §6 (1974).
(Footnote 71 return)
See WAYNE R. LAFAVE & JEROLD H. ISRAEL, CRIMINAL PROCEDURE §16.1 (c) (2d ed. 1992).
(Footnote 72 return)
Id.§16.1(d), 16.2(a). See also B.J. George Jr., Extraterritorial Application of Penal Legislation, 64 MICH. L. REV. 609, 62223 (1966); Larry Kramer, Note, Jurisdiction Over Interstate Felony Murder, 50 U. CHI. L. REV. 1431, 1437 (1983).
(Footnote 73 return)
74 F.3d 701 (6th Cir. 1996)
(Footnote 74 return)
ACLU v. Reno, No. 991324 (3rd Cir., filed June 23, 2000)