Untitled
Untitled
TRADING PRACTICES
Markets and the Law
Series Editor:
Geraint Howells
Lancaster University, UK
Markets and the Law is concerned with the way the law interacts with the market
through regulation, self-regulation and the impact of private law regimes. It looks at
the impact of regional and international organizations (e.g. EC and WTO) and many
of the works adopt a comparative approach and/or appeal to an international
audience. Examples of subjects covered include trade laws, intellectual property,
sales law, insurance, consumer law, banking, financial markets, labour law,
environmental law and social regulation affecting the market as well as competition
law. The series includes texts covering a broad area, monographs on focused issues,
and collections of essays dealing with particular themes.
CRISTINA COTEANU
Secretary of State on European and International Affairs,
Ministry of Justice, Romania
First published 2005 by Ashgate Publishing
The author hereby asserts her moral rights to be identified as the author of the work
in accordance with the Copyright Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised
in any form or by any electronic, mechanical, or other means, now known or
hereafter invented, including photocopying and recording, or in any information
storage or retrieval system, without permission in writing from the publishers.
Notice:
Product or corporate names may be trademarks or registered trademarks, and are
used only for identification and explanation without intent to infringe.
K3842.C68 2004
343.07 1 1--dc22
2004045818
ISBN 13: 978-0-7546-2417-2 (hbk)
Contents
4 Electronic Agents 69
9 Fair Trading Principle – The Starting Point for Online Consumer Law
in Europe? 171
References 211
Index 237
To Patrick and our daughter, Alexandra
Series Editor's Introduction
Geraint Howells
University of Lancaster, UK
It is a great pleasure and honour to be invited to write a preface to this book. The
author first came to my attention when she was awarded the ' International Prize of
the IACL - International Association of Consumer Law' on the occasion of the 9th
Annual Meeting of IACL at Athens in April 2003. Her reputation as a scholar of
d istinction will be further enhanced by this present work.
One of the strengths of the book is its clear structure and presentation. The author
is one of these gifted people who has a knowledge of techno logy and an ability to
explain it to others. She combines this with a sound grasp of law both in Europe and
the US. She provides abundant analysis of relevant case law.
Her central message is a powerful one. Through numerous examples she
illuminates how the internet does not in practice equalise asymmetries of
information and power. Rather it has the opposite effect of magnifying the unequal
bargaining power between producers and consumers ami emphasising the
vulnerable position of consumers on the internet.
She brings the monograph up to-date with a discussion of the current debate
about fair trailing principles within the EU. Conscious of the international character
she seeks ways to develop universal principles or fair trading. Her work will assist
in the development of such a framework. but one suspects the internet will continue
to pose unique problems for consumers in the coming years. This book might
suggest that these unique features call for special solutions not necessarily identical
to those developed in the off-line world.
Preface
Ian Walden
Queen Mary, University of London
During the early years of the Internet, one of the central misconceptions bandied
about in the popular media was that the Internet was unregulated and, more
importantly, incapable of being regulated. As the Internet phenomenon took off at
an exponential rate, governments became increasingly anxious to take some form of
regulatory initiative, either to facilitate the further growth of Internet-based activity,
from a domestic economic perspective, or to constrain behaviours that were felt to
threaten traditional interests, such as right-holders, and particular actors, such as
consumers. In our post dot.com boom era, a more sober assessment of the legal
aspects of the Internet has revealed that the challenges for the Internet as an
environment are not a lack of law and regulation, but an excess; continuing
uncertainty over issues of validity and applicability, and an inadequacy of
enforcement mechanisms, themes that are central to this book.
This book is concerned with a particular area of Internet law relevant to us all:
consumer protection. The statistics show that, in spite of the dot.com downturn, an
ever increasing number of us are looking to the Internet and its services to engage
in and carry out an ever more diverse range of activities and transactions, from
buying cheap flights to meeting long-lost relatives. In terms of assessing the future
shape of our Information Society, we are still ‘looking through a glass darkly,’ yet
we are impelled to carry on looking, imagining and debating.
The central thesis of the author is that existing consumer protection law fails to
adequately protect the consumer when shopping online and, therefore, such laws
need to be racast and tailored for this global online marketplace. It argues that the
unique features of the online environment require countries to agree to cooperate
and harmonise their laws in order to protect adequately their citizens, as consumers,
when transacting across the Internet.
The legal and policy issues addressed in this book are complex and challenging.
The author is to be congratulated for her bravery in choosing to pursue such a
difficult and broad field of study. The result of her efforts, this book, contributes to
this important and ongoing debate.
Introduction
regulation as a ‘protective padding,’ filling the legal gap in the regulation of the
electronic marketplace.
Whilst having witnessed a proliferation of consumer legislations at national and
European level, we notice that consumers still face difficulties when shopping
online. The purpose of this study is to explore the fundamental rationales for cyber
consumer protection in the electronic marketplace. Some commentators argue, ‘the
final avenue for consumer protection on the information superhighway is consumer
self-help.’8 Others simply argue that there is no need for regulation over the
Internet.9 The main arguments supporting these views rely on a socio-political
ideological approach. This approach can be described as the absolute opposition of
Internet users towards any government regulation of cyberspace. By rejecting
government regulation, Internet users label themselves ‘netizens,’ citizens of the
Internet world, and agree to abide by their own self-imposed rules of ‘netiquette.’10
In line with this approach, but with a more legal touch, there are those views which
consider that the existence of cyberspace creates a legal ‘disorder’ which does not
necessarily rest on the creation of the rule of law but only on ‘an unbounded and
perhaps permanently lawless’ state.11 To these views, we can also add the
arguments of those who rely on the ability of the Internet to provide technical
solutions to the whole range of consumer problems including issues of security and
lack of information issues. For example, according to this technological approach,
consumers would be able via electronic agents to identify the country, laws,
protection, standards and remedial options most favourable for consumers whilst
shopping on the Internet.12 Certainly, these views do not contradict the regulation
of cyberspace. However, we can infer from this approach that technical remedies
have the advantage over the need for a regulatory approach.
Faced with these views, the study develops an opposing argument and argues that
the electronic market is experiencing new failures, which should be addressed by
legislation tailored to the peculiarities of the electronic marketplace. In doing so, the
main consumer protection rationales are approached from the perspective of the
technological specificity of electronic market, and of the electronic marketplace
failures.
The technological specificity of the electronic marketplace relies on the spatial and
temporal separation between consumers, retailers, and products in electronic markets;
on the encryption methods that make it easier to disguise the nature of transactions;
and in general on the electronic markets that disregard national barriers and traditional
means of forming contracts. These particularities generate new transactions, involve
new technological tools and services and finally require a new architecture of
consumer law suitable to respond to the innumerable questions relating to consumersí
needs of protection in cyberspace. By a new architecture of cyber consumer law, it is
understood that the identification of key issues that exist in a multitude of substantive
legal areas, such as electronic contracts, online privacy and advertising, online dispute
resolution and professional rules, as well as the manner in which these elements and
key issues are regulated (or self-regulated) to form a complex set of rules and
principles, protect the consumer against unfair commercial practices. The final
purpose of designing this architecture is to demonstrate the need of a regulatory
framework for an electronic marketplace that brings a new layer of sophistication
requiring consumers to deal with new forms of electronic market failures.
Introduction xi
The starting points for considering electronic marketplace failures are based
upon the analysis of the unequal bargaining power and of the asymmetry of
information. The unequal bargaining power is considered as a discrete rationale for
consumer protection, a global concept for those market and private law failures
which cause consumers to suffer economic detriment.13
In demonstrating the unequal bargaining power arising from online standardised
contracts, the study identifies the main characteristics of the process of online
standardisation. These characteristics range from the authoritarian process of
designing terms and conditions – which means that the online contracts are prepared
by business and imposed on consumers worldwide via the electronic medium, and
ambiguous presentation of terms and conditions – whereby standardised terms and
conditions relating to certain products or services are incorporated into a web page
or floppy disk; to the non-negotiability of online terms and conditions in online
consumer contracts including licence agreements and contracts concluded via
electronic agents.
Furthermore, it is argued that the emergence of licence agreements or contracts
embodied in mass-market transactions and the multiplication of the role of
electronic agents change our traditional view of unequal bargaining power based on
the lack of negotiation between the consumer and the trader. It shows that the
electronic market brings up a real dichotomy between current trading practices and
our traditional view of unequal bargaining power. This dichotomy arises particularly
from the US legal decisions in the area of the licence agreements such as shrink-
wrap, click-wrap and browse-wrap agreements.
In order to provide a complete picture of the unequal bargaining power, the study
explores some of the essential aspects of unequal bargaining power in contracts
concluded via (or through) electronic agents. In order to do so, it identifies the role
of the electronic agents in online consumer transactions, and consumers’ problems
emerging from the conclusion of contracts via electronic agents; it illustrates the
multiplication of causes of unequal bargaining power within the B2C relationships
intermediated by the electronic agents and provides a comparative analysis between
the traditional and the technological model of contracts concluded via electronic
agents. Finally, the study proposes solutions for alleviating the unequal bargaining
power in the area of consumers’ contracts concluded via electronic agents.
Another area is relating to online dispute resolution (ODR). ODR procedures are
observed in a general manner by the doctrine. Nevertheless, the fundamental
question of unequal bargaining power seems to be ignored. In order to fill the gap
in this area, it is shown that multiple ramifications of ODR arising from ODR
clauses, ODR information, ODR mechanisms and procedures, are all susceptible of
creating unequal bargaining power in online consumer transactions. In
demonstrating this, the main arguments rely on the examination of the main causes
of unequal bargaining power relating to the inadequacy of technical and
technological abilities of consumers; the imbalance of legal knowledge between
consumers and traders in ODR procedures; and to mandatory ODR clauses and the
provision of information about ODR procedures.
With respect to the asymmetry of information, the study outlines its detrimental
effect on the loss in consumers’ surplus14 that they experience due to the lack of
information on price, terms and conditions, characteristics of product and services
xii Cyber Consumer Law and Unfair Trading Practices
and to the difficulties in verifying through experience the performance and the
characteristics of product or service advertised. The study argues that the
asymmetry of information in online consumers’ transactions is much worse than in
off-line environment and that the economic models such as the ‘price dispersion’
process are simplified methods for analysing the asymmetry of information in the
context of consumer transactions. The exacerbation of asymmetry of information in
the electronic market is generated by the ability of online businesses to collect
valuable marketing information, the absence of physical location of marketers (or
traders), the low cost to access the Internet, the tampering of a homepage website
with labels certifying the respect of codes or false trust marks can easily mislead
consumers and the difficulty of enforcing protecting consumer rules. All these
trends demonstrate how different the potential risks of online misleading advertising
are in comparison with consumers’ risks in the traditional market. Whilst exploring
the imperfection of the electronic market in the area of online misleading
advertising, the study investigates the appropriateness of the current legal
framework to deal with online misleading advertising issues. To this end, the
analysis takes into consideration the European Union and the US legal frameworks
in the area of commercial communications; it also focuses on the most relevant US
legal cases relating to cases such as: allowing online subscriptions without
delivering the specified products or services; technical fraud such as embedding
terms; selling misleading domain names; failure of disclosing information in the
area of jewellery products etc.
One of the purposes of this study is also to demonstrate that an adequate response
to these evolving failures cannot be guaranteed only by applying traditional
consumer protection concepts. The unique nature of the Internet and the difficulty
of locating users lead to unpredictable results when applying the traditional
jurisdictional concept according to which the national law is applied over everyone
and everything within the territorial national borders. Yet another example of
conceptual differences, which might arise in the area of the consumersí contracts is
relating to the formation of the contract. There are major differences between the
formation of a contract in off-line and online environments. In the off-line
environment, the consumer has normally the opportunity to read the terms and
conditions. In the online environment, a consumer involved for example, into a click
wrap agreement whilst indicating his/her consent by clicking a button or a box
installed on a floppy disk will be compromised into its terms and conditions. In sum,
it is the global and virtual aspect of e-commerce which highlights the likelihood that
a consumer might be subject to uncoordinated and inconsistent consumer rules that
the consumer ‘never intended to reach and possibly was unaware were being
accessed.’15 That demonstrates that cyber consumer protection could not be limited
to one single geographical territory. The traditional concepts are connected to
geographic limits. Nevertheless, ‘geography is a virtually meaningless construct on
the Internet.’16
By exploring the main rationales for consumer protection, the study provides
firstly a conceptual framework for the analysis of online unfair commercial
practices. The study investigates the unfairness of commercial practices within the
framework of the totality of the B2C commercial relationships including pre-
contractual, contractual and post-contractual stages of the online consumer
Introduction xiii
[i]n the past, the fundamental legitimacy of governing authority has always been based on
physical presence and territorially-empowered courts, but the global information
infrastructure is composed of every jurisdiction on the planet and cyberspace itself exists
in no physical place. Since every substantive area of human interaction is potentially
impacted by electronic commerce, sources of law and regulatory interests are potentially
all sources of law in every jurisdiction.19
On the basis of this emergent electronic market, the study ventures to predict that
there is a need for a new interconnected look between the different national legal
xiv Cyber Consumer Law and Unfair Trading Practices
commercial practices in the United Kingdom and United States models as well as
on the model proposed by the Directive concerning Unfair Business-to-Consumer
Commercial Practices in the Internal Market.
The study shows that the ‘unfair commercial practices’ regulatory model should
be supplemented by a deontology of fair trading. The electronic marketplace
enhances the international dimension of duty of trading fairly that goes beyond the
traditional model practised by a local merchant. In order to increase the consumers’
confidence in the electronic marketplace, there is a need for a new deontology of fair
trading which involves the professionalisation of the business-to-consumer
commercial relationship. The study shows that regulatory elements that support a
deontology of fairness are already in place. In order to step forward to a common
fair trading principle, a code or international convention should set uniform
interpretations of fair trading principle on an ethical universal basis.
The methodology of this study is based on the analysis of the European Union
and United States relevant legal regulatory material in the area of online consumer
contracts, licence agreements, electronic agents, online misleading advertising,
disclosure of information and online consumer redress mechanisms. The legal
material is appraised and comparative analysis produced in order to examine the
way in which legal principals and concepts may cope with key issues of great
importance for increasing consumers’ confidence in cyberspace. Throughout the
study, in order to make the analysis easier to follow, examples are drawn in order
to illustrate hypothetical or unfair commercial practices. The methodology is also
based on the analysis of most important case law in the area of electronic
contracts, licence agreements, online disputes resolution, and failure to disclose
information.
The area of research proposed by the study is limited to those aspects of law
which are specific to the cyberspace environment. Sometimes, it has been difficult
to make a precise distinction between off-line and online legal environment since
some consumer problems arising over the Internet might be more or less resolved
by the legislation existing in the traditional environment. In order to map out the
main evolutionary lines of online unfair commercial practices, the study approaches
in a very general way some the main economic theories and political views relating
to consumer protection law.
NOTES
1 All over our research, we have used the expression of ‘consumer protection’ combined
with the term ‘cyber’. ‘Cyber’, a derivative of the word ‘cybernetic’, means in Greek ‘to
govern’ (kubernân).
2 Since 1960 most developed countries have enacted significant consumer protection
legislation. However, as it was suggested by J.P. Cunningham, consumer protection is
not a modern phenomenon: ‘legislation regulating prices of foodstuffs existed in ancient
Rome and in medieval England’ in Fair Trading Act 1973, Consumer Protection and
Competition Law, Sweet & Maxwell, London, 1974, p. 15.
3 I.D.C. Ramsay, ‘Rationales for Intervention in the Consumer Marketplace’, OFT, 1984,
p. 15.
4 E. Yannon, ‘On-line purchasing’, Maryland Bar Journal, March/April, 2002.
xvi Cyber Consumer Law and Unfair Trading Practices
INTRODUCTION
Since 1970, the traditional marketplace has experienced rapid changes: ‘from mass
production for a homogeneous market to specialized products and services
competing for segmented/targeted consumer and business markets; from brand
2 Cyber Consumer Law and Unfair Trading Practices
Goods (books, ✓ – ✓
CDs, food,
clothing, cars)
Services (banking ✓ ✓ –
services, database
access, education,
legal services etc.)
Digital products ✓ ✓ –
(software, music,
movies etc.)
Such taxonomy may well lead to a reconsideration of the way in which consumer
protection rules are applicable in the electronic marketplace. For example, it can
lead to the conclusion that into a specific online consumer transaction where the
product is physically delivered, the consumer protection should be considered under
the traditional national consumer law. Would this criterion of classification of
electronic commerce according to the means of performance (online or physical
performance) offer better criteria for consumer protection in the electronic
marketplace? That means that consumers would be obliged to assume the particular
risks of the electronic marketplace on the basis of traditional consumer principles
that probably are not adequate for the new environment. As it will be observed in
the following chapters relating to the unequal bargaining power and asymmetry of
information, sometimes the application of traditional legal principles can be
insufficient for effective protection of consumers in cyberspace.
A narrow interpretation of electronic commerce might be a key inhibitor for
4 Cyber Consumer Law and Unfair Trading Practices
This typology demonstrates that the online medium ‘offers several different
facilities through which commercial activities may be conducted. Given the variety
of these forms of communication, the online medium may be more properly viewed
as a collection of several different media, united by their common use of computer-
to-computer communications at a distance.’12 The variety of online services,
ranging from networks and websites to listserv and chat rooms, is not only public
networks but also the place that creates a tremendous risk for online consumer
protection.
Infrastructure of the Electronic Marketplace 5
1.1.1.1.1 Electronic mail and Listserv Electronic mail is one of the most popular
and simplest forms of communication in cyberspace. E-mail is not an instantaneous
form of communication. The sender does not normally receive immediate feedback
concerning the delivery of its message. The message, which can contain text or
images, sounds or entire computer programs, is sent into the Internet and routed
around by various computers until it reaches its destination.13 By using a piece of
software called ‘mailer,’ the e-mail can be sent into cyberspace. The mailer then
breaks the message down into smaller pieces known as packets. The packets travel
separately across the networks but are ultimately recombined at the destination.
During the trip, the packets bump along from router to router through bridges and
switches. Each router or switch looks at the packet’s destination, without inspecting
its contents, and decides the best way to pass it along.14
Sending e-mail was compared with ‘sending a first class letter.’15 Judge Preska
in American Libraries Association v. Pataki criticized this comparison for two
reasons. On the one side, it is considered that the sender directs his message to a
logical rather than geographic address, and therefore need not to know the location
of his correspondent in real space. On the other side, Judge Preska argues that ‘most
programs provide for a “reply” option, which enables the recipient to respond to the
sender’s message simply by clicking on a button; the recipient will therefore not
even need to type in the sender’s e-mail address. A further distinction concerns the
level of security that protects a communication. Whilst first-class letters are sealed,
e-mail communications are more easily intercepted.’16
In order to prevent the risk of unauthorised interceptions of messages, consumers
can encrypt information about their transactions. The use of encryption technology
is expected to become more common in the next years.
The difference between listserv and E-mail consists in the fact that listserv allows
the transmission of ‘one-to-many’ messages whilst e-mail is ‘one-to-one’
communication. The role of listserv servers is to maintain lists of computer users’
names and electronic mail addresses. It is a service adapted to the exchange of
information. Whilst many web sites allow visitors to correspond with the site
owners by electronic mail, in most situations, ‘it is the visitor who must actively
access the site himself rather than “receive” the site in the same way as he would
passively receive electronic mail.’17
1.1.1.1.2 Usenet newsgroups and chat rooms Usenet newsgroups and chat rooms
allow users to discuss topics of common interest online. Within the framework of
Usenet groups, users are allowed to read or send messages to newsgroups without
any prior subscription, and there is no way for a speaker who posts an article to a
newsgroup to know who is reading the message.18 However, when someone visits
a Usenet group in which he cannot post anonymously to newsgroups, by making a
comment or addressing a question he will automatically give his e-mail address.
Thus, Usenet newsgroups might present a risk for the protection of privacy by
allowing unwanted junk e-mail (spamming practices). While legal considerations
around the unsolicited e-mail are now focused around the principle of opt-out19
allowing transmission of unsolicited mail until the recipient asks for the mailings to
cease, spamming practices within newsgroups continue to be viewed as highly
offensive by users who access a newsgroup in order to find material on a particular
6 Cyber Consumer Law and Unfair Trading Practices
topic, and instead must wade through screen after screen of commercial postings
that are of no interest.20 Legislation against illegal spam and its enforcement may
be useful but not sufficient as long as technical standards do not effectively impede
new methods of spamming practices. For example, a study by MX Logic, an e-mail
security solutions provider, shows that after the entry into force of the US Can-Spam
Act in January 2004, the compliance was still at low levels21 and e-mail recipients
had to take matters into their own hands to prevent spam from entering their
inboxes.
Usenet newsgroups remain unsecured in terms of consumer protection since
many of them are used for misleading promotions including pyramid schemes,
fraudulent business opportunities, and deceptive health claims. Contrary to what
many people seem to think, the newsgroups are regulated with regard to unfair
commercial practices. Placing advertising in a newsgroup may be subject to
consumer protection standards which prohibits misleading and deceptive
advertising regardless of the user’s location.
1.1.1.1.3 World Wide Web Developed in 1992 by Tim Berners-Lee,22 the web is
the common method of communicating one-to-many information online. It is
known as the common expression used to describe Internet. The information is
available through web pages.
The web allows file transfer facilities, meaning that consumers accessing a web
page are able to download files onto their own computer hard drives.
From a business perspective, the web is one way through which businesses can
attract consumer attention by describing products via textual, graphical, and
multimedia material designed to entice the viewer to spend more time absorbing
marketing messages.23 It allows businesses to deliver electronically online services
and to target consumers by collecting valuable marketing information. Furthermore,
it is an interactive place where acceptance may be indicated by clicking on a
particular button and where companies can provide a large amount of information
about their products and services via commercial communications such as banner
advertisements, electronic agents and rich media.24
From a consumer perspective, the web is a contradictory place. Whilst the web
is the place where users can find alternative sources of goods and services and
that offer the possibility to easily turn to third-party sources that provide
additional information, it remains the place where the online transaction,
marketing, security and privacy issues are often blurred by the technical
peculiarities of the Internet.
It can be concluded from this brief list of online consumer services that the
electronic marketplace is characterised by potential failures related to the
conclusion of the contract, privacy, security issues, misleading advertising etc. As
noted later in this study,25 the particularities of the electronic market also raise
questions with regard to the performance aspects in online consumer transactions.
Before approaching these in the following section, the chapter determines the
manner in which the law apprehends the evolution of the electronic marketplace
from the perspective of the B2C commercial relationship.
Infrastructure of the Electronic Marketplace 7
The architecture of cyber consumer law could not be imagined without drawing up
the legal profile of consumer and seller within the electronic marketplace. In the
following sections, the chapter endeavours to see how law reasons de iure condendo
on the consumer and seller’s existence in cyberspace.
Whilst in a B2B transaction, the parties to the contract are presumed to have
equal bargaining power but in a B2C transaction, this level playing field is not
presumed and consequently, the consumer would require special needs to be
protected. In a B2B relationship, an equal bargaining power would be translated in
an equal ability to accept or reject enforceable contractual clauses. In a B2C context,
the consumer is generally considered as being the weaker party. For example, a
consumer who will have difficulties in discharging the burden of proof in relation to
large companies would be compensated by special protection that would prevent the
abuse of the consumer by professional parties.
8 Cyber Consumer Law and Unfair Trading Practices
1.1.2.1.1 What is the notion of ‘consumer’ within the cyberspace context? There
is no internationally agreed definition of a ‘consumer’. In the United States, Section
101(15) of the Uniform Computer Information Transactions Act (UCITA)
elaborated by the US National Conference of Commissioners on Uniform State
Laws defines ‘consumer’ as:
In the European Union, there are a large number of national definitions for
‘consumer’. For example, in Belgium, the Cour de Cassation held in the Saint-Brice
case that the ‘consumer’ who needs the protection of Art. 94 of the LPC (Loi sur les
pratiques du commerce et sur l’information et la protection du consommateur) the
most, is the least attentive consumer who accepts without criticism the representations
made to him and is not in a position to see through the traps, exaggerations or the
manipulative silences.34 Within the framework of the German credit law,35 the term
‘consumer’ relates to all natural persons unless the agreement stipulates that a credit
contract is intended for the pursuit of an already existing professional activity. Credit
for funding the starting up of a professional activity therefore remains subject to
German law. In the United Kingdom credit law, the consumer or rather the debtor is
defined as being the person (‘the individual’) who has received credit under a
consumer credit agreement, including the person whose rights and obligations have
been transferred by transfer or entitlement. This person may be a partnership or any
other association of persons not entirely made up of legal persons.
In European law,36 the term ‘consumer’ has different legal connotations. The
‘consumer’ is defined as ‘a natural person who, in transactions is acting for
purposes, which can be regarded as outside his trade or profession’37 or ‘who is
acting for purposes, which are outside his or her trade, business or profession.’38
The point arises of the individual contracting partly for business, partly for other
purposes. Since the regulation does not require a consumer to be acting ‘wholly’
outside the business, it seems arguable that as long as one purpose was outside the
person’s business, he or she could still be a consumer despite the business purpose.
A more restrictive test, whilst still recognising that having some business purpose
will not disqualify a person being a consumer, is to read the definition as requiring
the consumer to act primarily for purposes which are outside of his or her
business.39
The definition of ‘consumer’ is subject to many other European legal provisions.
For example, definitions that are different to some extent from those mentioned
above are suggesting that a consumer may also be ‘any natural person who (...) is
acting for purposes which are not directly related to his trade, business or
profession.’40
Within the framework of self-regulatory approaches, the term ‘consumer’ applies
‘to individuals acting in their personal, family, or household capacity.’41 For
example, the ‘Guidelines for Merchant-to-Consumer Transactions’ specifies that it
Infrastructure of the Electronic Marketplace 9
[a] small business owner has no more negotiating power in this transaction than an
individual homemaker, it is entirely unrealistic to expect either of them to retain a lawyer
to interpret the terms. Narrow definitions of ‘consumer’ that exclude small businesses will
put small businesses into an unreasonable and unfair situation. (...) And the small business
will not have the bargaining power or the legal budget that we normally associate with
business-to-business transactions.46
‘extension’ to small business would avoid unfair situations, which would slow down
entrepreneurship and independent business values.
carry out services with reasonable care and skill.53 What happens in practice, if
the contract contains both elements of goods and services? Contracts, which refer
to both elements, could be treated distinctly or considered in accordance with its
predominant characteristics. That means that a contract of services endowed with
predominant characteristics specific to the sale of goods, would ultimately be
qualified as being a sales contract.54 This distinctive approach has important
legal consequences for the establishment of the liability regime. For example, in
the US case, Neilson Business. Equipment Center Inc. v. Monteleone,55 the court
determined firstly, the nature of the contract and secondly, ‘measured’ the
specialised knowledge of the defendant in computer technology. Firstly, the court
stated that when a mixed contract is presented, it is necessary to review the
factual circumstances surrounding the negotiation, formation and contemplated
performance of the contract to determine whether the contract is predominantly
or primarily a contract for the sales of goods. Neilson contracted to supply a turn-
key computer system; this is a system sold as a package which is ready to
function immediately. Secondly, the court stated that the plaintiff relied on
Neilson’s expertise to provide a computer system tailored to the needs of Dr
Monteleone. The contract between Neilson and Dr Monteleone was finally
considered as a sale of goods where the provision of specialised services was
accessory to the sale. If the contract were considered as being as a contract of
service, the court may have imposed the liability based on the reasonable care
negligence standard. This standard is less rigorous than the strict liability. The
providers of services are permitted to reduce their responsibility towards
consumers by issuing disclaimers and remedy limitations. Finally, the
qualification of a given party to a transaction as ‘seller,’ is important in
determining the qualification of a contract; qualification that, at its turn, should
identify the applicable regime of liability.
CONCLUSIONS
NOTES
14 G. Fresen, ‘The Internet: an introduction to basic legal risks that impact consumers’, 10
Loy. Consumer L. Rep. 64, 1998.
15 Reno v. ACLU, 929 F 117 S.Ct. 2329 (1997).
16 American Libraries Association v. Pataki 969 F.Supp. 160 (S.D.N.Y. 1997).
17 W.A. Effross, ‘The Legal Architecture Of Virtual Stores: World Wide Web Sites And The
Uniform Commercial Code’, 34 San Diego L. Rev. 1263, 1997, at 1268.
18 American Libraries Association v. Pataki 969 F.Supp. 160 (S.D.N.Y. 1997).
19 The ‘opt-out’ option presumes that a consumer welcomes junk e-mail unless they
expressly signalled his/her objection (for example, by entering his/her name on a register
set up for this purpose) whilst ‘opt-in’ presumes that a consumer does not want e-mail
unless he/she expressly consented. According to Article 7 of the Electronic Commerce
Directive, ‘Member States shall take measures to ensure that service providers
undertaking unsolicited commercial communications by electronic mail consult
regularly and respect the opt-out registers in which natural persons not wishing to
receive such commercial communications can register themselves.’ See also, the US
Can-Spam Act of 2003 (‘An Act to regulate interstate commerce by imposing limitations
and penalties on the transmission of unsolicited commercial electronic mail via the
Internet legislation’) entered into force January 2004.
20 J. Rothchild, ‘Protecting the Digital Consumer: the Limits of cyberspace utopianism’, 74
INLJ 893, Indiana Law Journal, Summer, 1999.
21 According to MX Logic, an e-mail security solutions provider, has been tracking CAN-
SPAM compliance since the act went into effect by examining 10,000 random unsolicited
commercial e-mails every week. (‘CAN-SPAM Compliance Higher – But Still Low’,
October 13, 2004 available at http://www.emarketer.com/Article.aspx?1003087).
22 Developed by Tim Berners-Lee, a physicist at the nuclear physics research centre,
CERN, the www uses the system known as a hypertext to create links between
documents. (Lloyd, I.L., ‘Information Technology Law’, Butterworths, 1997, p. 8.)
23 J. Rothchild, ‘Protecting the Digital Consumer: the Limits of cyberspace utopianism’, 74
INLJ 893, Indiana Law Journal, Summer, 1999.
24 Rich media ads include audio-enhanced banners and streaming audio-video advertising.
(I. Maghiros, ‘The Supply of Information to the Consumer: When More is Actually
Less’, 2000, available at: http://www.jrc.es/pages/f-report.en.html.)
25 See chapter 2, section 2.2.1 on ‘The particularities of global electronic marketplace’.
26 DG enterprise, ‘E-business report no. 2’, European Commission, 28 November 2000,
drafted by Patrick Vittet-Philippe and Reinhard Buescher.
27 ‘Business-to-business’ (B2B) represents all business transactions and relationships
between trading partners. These relationships are not new; they have existed for as long
as business has existed – albeit in the form of face-to-face, phone, and fax
communication. The advent of EDI in the mid-1960s and, more recently XML, has given
companies the ability to communicate electronically and significantly increase the
speed, reliability, and efficiency of their transactions.
28 Business-to-government (B2G) occurs at a business-to-government level in connection
with public procurement, and with administrative functions like customs and excise.
29 Consumer-to-consumer (C2C) refers to electronic auctions and represents a significant
growing part in electronic commerce. For example, E-Bay is an example of C2C
relationship with 145,000 products available for auction in 1100 categories.
30 Report on 2nd Quarter 2004 E-Commerce Sales available at
http://www.census.gov/mrts/www/ecom.pdf.
31 ‘Western Europe B2C E-Commerce’, Online Article by eMarketer, July 2004 available
at http://www.emarketer.com/.
32 P. Vittet-Philippe and R. Buescher, DG enterprise, E-business report no. 2, European
Commission, 28 November 2000, p. 3.
14 Cyber Consumer Law and Unfair Trading Practices
course of a business’ and the other party does contract ‘in the course of a business’. In
the case of R&B Customs Brokers, the Court of Appeal held that the acquisition of a car
by R&B Customs Brokers, the transaction was not ‘in the course of a business’ but rather
dealing as consumer (R&B Customs Brokers v United Dominion Trust [1988]1 All ER
847), See also Davies v Sumner [1984] 3 All ER 831; Devlin v Hall [1990] RTR 320.
46 Comment of Cem Kaner to US Federal Trade Commission, ‘Perspectives on Consumer
Protection in the Global Electronic Marketplace’, 1999.
47 Art 2(1), Directive 97/7/EC of the European Parliament and of the Council of 20 May
1997 on the protection of consumers in respect of distance contracts (OJ L 144,
4.6.1997, p. 19.
48 Art 2(3), Directive 97/7/EC of the European Parliament and of the Council of 20 May
1997 on the protection of consumers in respect of distance contracts (OJ L 144,
4.6.1997, p. 19.
49 W.A. Effross, ‘The Legal Architecture Of Virtual Stores: World Wide Web Sites And The
Uniform Commercial Code’, 34 San Diego L. Rev. 1263 (1997), at 1268.
50 Uniform Computer Information Transactions Act (UCITA) (Last Revisions or
Amendments Completed Year 2002, National Conference of Commissioners on Uniform
State Laws).
51 Article 2 of the Revision of Uniform Commercial Code, available at:
http://www.law.upenn.edu/bll/ulc/ucc2/2300.htm.
52 K.B. Keltener, ‘Networked Health Information: Assuring Quality Control on the
Internet’, available at: http://www.law.indiana.edu/fclj/pubs/v50/no2/keltner.html.
53 Section 13 of Supply of Goods and Services Act 1982, amended in 1994.
54 F.M. Greguras et al., ‘Electronic Commerce: On-Line Contract Issues’, Issues, 452
PLI/Pat 11, 24 1996, available at: http://www.batnet.com/oikoumene/ec_contracts.html
Contracts for services ‘are governed by the UCC only when services are incidental to a
sale of goods. This means that contracts with Internet access providers, as well as
contracts for information services, may still be governed by common law. The common
law may also apply to a transaction that does not fall within the formal definition of a
“sale”, such as shareware or free sample software.’
55 Equipment Center Inc. v. Monteleone 524 A.2d; 1172 (1987).
Chapter 2
As discussed in the previous section, that approach rejects the simplified image of a
‘perfect electronic market.’ It demonstrates that the electronic market is
characterised by innumerable failures. The key market failures with respect to
consumer protection reflect the inability of parties to identify the risks of a
particular transaction to determinate the potential consequences of a specific
business practice or to undertake commercially valuable exchange relationships.
The consequences of the electronic market failures may result in higher prices,
lower quality and a lesser choice of products and services. For the purpose of this
study, this section examines two case studies relating to privacy (subsection 2.2.1)
and misleading advertising of prices (subsection 2.2.2). The analysis shows that it is
20 Cyber Consumer Law and Unfair Trading Practices
difficult to agree with those views that envisage the electronic marketplace as an
area where governmental regulatory intervention should be avoided. Consumer
protection legislation should help to rectify market failures by redressing the unfair
inequalities of information and power in the B2C commercial relationship.
If a consumer tries to book online a return ticket from Dover–Calais through the
website of a company which operates crossing transfers, he risks a great deal of
wasted time and energy. Whilst the company advertises the cheapest crossing
transfer on its website (‘Up to 50% off if you register on-line now!’), in order to
benefit from this advert, the consumer is obliged to provide his personal data,
lifestyle and travel pattern data online and to accept that this information is traded
to third parties.
After inputting all his personal data, the consumer can try in vain for hours and
hours to fill out the booking application form displayed on the company website for
22 Cyber Consumer Law and Unfair Trading Practices
the special offer. The only booking possible would be at the full rate whilst the
website continued to display advertising for a cheaper price. Having contacted the
company through an e-mail message, several days later the consumer receives
several messages. One of the messages explains that all the departures for his
crossing are fully booked, whilst the other message admits that their feedback is too
late and that he should have sent his message to an e-mail address intended for
customer services and which in reality he did. Nevertheless, the company’s replies
leave his questions unanswered. Even if he asked for an explanation on the causes
of their trading practice, the company did not make any attempt to provide an
explanation with regard to the accuracy of the content of the website.
From an economic standpoint, this example shows that the electronic market has
failed to meet the consumer’s legitimate expectations. The causes of this failure
might lie either in the website malfunction or in the attempt of perpetrating
deceptive trade practices. Nevertheless, the company did not indicate any computer
malfunction.
It goes beyond our purpose here to analyse the specific online legal aspects of
misleading advertising.20 These aspects will be analysed in a following chapter.21
However, it should be noticed that in this case, the price indication orients the
consumer decision to deal with this specific company which offers special fares and
that there is no need for evidence of a specific completed purchase transaction to
prove whether or not a price promise was misleading. According to the decision of
the High Court of Justice Queen’s Bench Division (Divisional Court)22 a consumer
does not need to complete a specific transaction to prove whether or not a price
promise is misleading. In this case, Dixon was prosecuted for a misleading price
indication in connection with a price promise advertised on the outside of the store.
A trading officer checked the advertising indication by asking whether the store
would be more competitive than a local competitor’s price. The answer was negative
and the sale was not concluded.
A case that addressed similar issues concerns the online advertisement made by
Virgin Atlantic Airways. In 1996, the company was punished for its misleading
online advertisement accessible to consumers via the UK server. The US
Department of Transportation discovered that the list of fares was no longer
available in relation with the USA flights.23 Furthermore, in an adjudication of July
2000 against Easyjet Airline, the UK Advertising Standards Authority (ASA) whilst
considering that the complaint against the company was not upheld, deemed that the
web pages accessed before a customer entered into a transaction, constituted an
advertisement.
Moreover, in a French case of May 2004 against a travel agency, the Pontoise
Tribunal24 discussed the unavailability of services suggested with the sale. Flight
tickets were posted online at a certain price but at the time of the reservation, they
were unavailable or proposed at a higher price. Even if ongoing technical problems
with the update of the web pages might mean these pages were never in real time,
it remains legally reprehensible. The Tribunal considered that it was beholden on the
travel agency to check the availability of online services suggested to the supplier
concerned before their marketing.
At least three lessons can be learned from this case study:
Electronic Market Failures and Consumer Confidence 23
• Whilst the legal principles which apply to traditional advertising are similar to
online advertising, new legal issues arise in connection with online
advertising. In our case, if consumers are seeking injunctive relief under the
online advertising law, they have to prove that the advertisement is false
advertising. However, within a virtual environment where technical problems
may happen, false advertising is difficult to prove. In these online areas of 20
business practices where consumers systematically cannot find practical
solutions through the rules of the ‘perfect market’ (self-regulatory methods), a
regulatory governmental intervention would be required.
• Advertising on the telephone, radio, TV, made in print or online falls within
the same legal regimes. Consequently, online businesses are responsible for
reviewing the information contained by an advertisement placed on a website
with the same care as an advertisement made in a print publication. A piece of
information which is not updated, may become a false advertising.
According to the US Federal Trade Commission, advertising agencies or
website designers are responsible for reviewing the information used to
substantiate ad claims. They may not simply rely on an advertiser’s assurance
that the claims are substantiated.25
• Similar to traditional advertising, online advertising is a mechanism which
provides consumers with information about the existence of special prices or
specific products or services. From a practical standpoint, the case study
described above departs from the traditional market where companies, for
example, advertise by phone. As a case in point, it will be more difficult for
the supplier offering his products or services by phone, to require consumers
to make an immediate payment without prior delivery of the advertised
products or services. In general, the technique of advertising by phone allows
consumers to exercise their preferences and choices in time. Usually, it is only
after the reception of the products that the consumer decides to keep the goods
or not and, finally, to pay. The same principles apply to television advertising
in which after seeing the advertisement, the consumer will visit a store,
examine the product, and ask questions regarding its functioning.
2.3.1 Inexistent web address URL or different from the real name of the
company
In the traditional market, when consumers travelling abroad want to bring back
some souvenirs from their trips, they might risk being caught in a tourist trap.
Nevertheless, whilst consumers would probably encounter potential difficulties in
obtaining redress, at least they will have the possibility of addressing their
complaint to a company, which has a physical location. In the electronic market, the
web address URL (Uniform Resource Locator), may be different from the legal real
name of the company. In absence of the physical location of a company, a national
court established in the consumer’s country would not accept jurisdiction since a
lawsuit involves the provision and the exchange of legal documents between
litigation parties. Consequently, national courts may refuse to have jurisdiction on a
matter related to a company with no physical location.
The absence of physical location of a company has also a real impact on the
formation of online services contracts. For example, in the case of online services,
26 Cyber Consumer Law and Unfair Trading Practices
A trader may legitimately divert users to the new page/s if a page or set of pages
have moved to another URL. However, there are cases when consumers are diverted
before or during the transaction, to an URL that has no connection with the sender
or delivery papers. For example, a consumer who is trying to book a hotel room
online through the website www.travelshoppe.com site is diverted automatically to
a site called www.travellersweb.ws. The ‘ws’ suffix indicates that the site is based
in the Pacific island of Western Samoa. However, a number of features indicated that
the business was based in the UK (for example, British spelling and prices in pounds
sterling).31 In this case, the performance of the booking service is certainly located
on a server located in a third jurisdiction where there is no consumer legislation.32
The operation of diverting consumers to other website or URL addresses might
have as their final purpose not only the legal evasion, escaping of regulated
territories, but also marketing reasons. For example, in the UK case, ASA v. ‘888
Casino’,33 by clicking on ‘cancel button’, consumers were diverted to the
defendant’s website. Defendants considered that Internet users were accustomed to
being exposed to a wide variety of advertising, some of which was bolder than
advertising in more traditional media. This is a clear case in which defendants
attempted to impose unfair commercial practice standards to consumers. For the
defendants, diverting consumers was a reality in practice since (1) the Internet was
a transient medium that needed to create attractive and attention grabbing
advertisements in order to be commercially viable; (2) other advertisers used similar
tactics. Finally, the Authority of Advertising did not agree with their view of
commercial practice via the Internet.
There are also cases when a consumer is diverted to other sites on which can be
displayed advertisements for online gambling, instant credit, and pornography. This
practice, called ‘tangled web’ can be avoided only by shutting down the computer,
an operation that might risk losing your data in unsaved application. If a consumer
returns to the initial page they will be stuck in websites they are not interested in.
Diverting consumers to another website might be also done when consumers
mistyped an URL into their browser; they were directed to a website or series of
sites where they were bombarded with advertising, literally trapped in a tangle of
webpages.34 In addition to exposing users to illicit advertising, consumers may
infringe the trademark rights of legitimate website owners. For example, in FTC v.
Zuccarini the defendant deliberately maintained the domain names to divert
consumers from Shields’ website, which harmed the goodwill associated with the
Joe Cartoon mark. Zuccarini diverted consumers from the joecartoon.com website
either for commercial gain or with the intent to tarnish or disparage Shields’ mark
Electronic Market Failures and Consumer Confidence 27
Approaching the issue of electronic records36 requires taking into consideration the
peculiarities of electronic transactions. The different stages of the consumer
information process are missing in an electronic transaction. Despite the
requirement for a written acknowledgement or receipt, a consumer would not
receive any confirmation of the service recipient or he will receive it only after a
certain delay. In certain cases, the confirmation of the service recipient and
electronic record are very important. For example, a consumer who is visiting a
travel agency’s website, to book a ‘last minute’ special offer for a weekend abroad,
will need to receive an electronic receipt of his flight booking at least a day before
his date of departure. If the consumer would like to sue the travel agency, he would
need proof of the existence of the special offer, its terms and conditions. Even if the
consumer prints out a copy containing information about the special offer and a
copy indicating the service request, he would probably need to prove that his request
was received by the travel agency and that the request was made when the special
offer was already available on the website. The peculiarity of electronic transactions
reinforces the unpredictability surrounding electronic records.
If the predictability has itself a virtual appearance in the electronic market then
how can traders be made more accountable about records in the electronic market?
In finding solutions, several underlying assumptions should be considered in any
research for setting up a coherent legal approach of the electronic records.
From the traders’ standpoint, compulsory regulatory frameworks for electronic records
are (1) burdensome for consumers; (2) create consumer frustration or confusion.37
(1) Legal approach of electronic records is burdensome because of additional
steps that can dissuade consumers from making transactions online. These steps
28 Cyber Consumer Law and Unfair Trading Practices
relate to the consumer consent procedure necessary for sending and receiving
electronic transactions. Section 101 of the Electronic Signatures in Global and
National Commerce Act (E-Sign Act) states that information required by law to be
in writing can be made available electronically to a consumer only under two
cumulative conditions – if the consumer affirmatively consents to receive the
information electronically38 and the trader clearly and conspicuously discloses
specified information to the consumer before obtaining his consent.39 Section
101(c)(1)(C)(ii) adds that a consumer’s consent to receive electronic records is valid
only if the consumer ‘consents electronically or confirms his or her consent
electronically, in a manner that reasonably demonstrates that the consumer can
access information in the electronic form that will be used to provide the
information that is the subject of the consent.’40 Requiring consent for receiving
electronic records is beneficial for consumers because it increases awareness of
consumers in considering the legal impact of electronic information. Such type of
burden might be resolved or minimised over time as businesses and consumers
adjust to the consent procedure and gain experience by sending and receiving
documents in an electronic form.
(2) The reverse of the consumer input in receiving electronic records was
interpreted as an issue of consumer frustration or confusion.41 Asking for consumer
consent becomes a question of good practice ensuring that the consumer is able to
deal with an electronic format. A request for consumer’s consent reduces the risk of
changing the terms of contracts unilaterally by the traders and allows time for
reflection for consumers before confirming consent electronically.
For traders, compliance with the consumer consent requirement, presents the
advantage of legal certainty of electronic documents. Traders have ‘some assurance
that they have obtained consent and provided electronic documents in a manner
sufficient to make the electronic transactions legally valid.(…). In addition, they
obtain information to show that the record they provided could be accessed by the
consumer.(…) As a result, the consumer consent provision may protect e-commerce
businesses from baseless legal claims by providing an electronic or paper document
trail of the transaction when disclosures or other records are provided electronically
to consumers.’42 Furthermore, the retention of electronic records’ policy
management may be an element that differentiates traders. The record retention
process is often costly, challenging to implement and sometimes technically
difficult to manage. However, it can give a trader considerable advantage over other
traders in respect of the ability to guide consumers through their abilities to choose
between different alternatives of doing online transactions.
The issue of record retention should provide responses to the following questions:
What is the scope of the duty to preserve? When does a business’s duty to preserve
documents, including electronic records, arise? What are the records that should be
preserved? Should a trader preserve every e-mail or electronic document? In
general, statistics shows that companies are not well prepared to ensure the
authenticity of electronic records. To the question addressed in 2003: ‘If legally
challenged…can your business demonstrate that its electronic records are accurate,
Electronic Market Failures and Consumer Confidence 29
reliable and trustworthy – many years after they are created?,’ 62% of companies
responded slightly or not at all confident.43
Record retention refers to the accuracy of electronic records at the time of and
which remain accessible for later reference and with the emergence of electronic
transactions, it becomes a real duty for traders regulated by legal and technical
standards. If at legal level, the duty to provide electronic records represents a
requirement of professional diligence, at the technical level it can be considered as
a concern of compliance that should achieve many business benefits.44 For
example, from a legal standpoint, according to the Uniform Electronic Transactions
Act (UETA) if parties have agreed to a conduct transaction by electronic means and
a law requires a person to provide, send, or deliver information in writing to another
person, the requirement is satisfied if the information is provided, sent, or delivered,
as the case may be, in an electronic record capable of retention by the recipient at
the time of receipt. An electronic record is not capable of retention by the recipient
if the sender or its information processing system inhibits the ability of the recipient
to print or store the electronic record.45
A different, technical but convergent approach is provided by the British
Standard Institute which launched a new version of the Code of practice for legal
admissibility and evidential weight of information stored electronically.46 The duty
of care as provided by this Code of practice is described in terms of technical needs
as a requirement of a company for having an information security policy. The Code
of practice identifies technical and procedural issues on retention records and
establishes the measures to be taken by the companies in order to ensure efficient
record retention. It establishes a duty of care ensuring a reliable record retention in
terms of system availability time and information accuracy. The implementation of
the Code does not guarantee a legal effect to an electronic record but it may serve
as standards by ensuring a uniform technical level of acceptance. A uniform
standard does not guarantee that rogue traders will not look for a competitive
advantage by failing to comply with technical or legal requirements. If from a legal
standpoint, traders may encounter enforcement actions under state consumer
protection laws for unfair or deceptive practices, compliance with the self-
regulatory codes remains to be enforced by auditing and/or delivering of quality
labels for companies keen on having an information security policy.
For the sake of the consumer’s confidence, the OCDE in its Guidelines refers to
the retention process as to a duty of trader to ensure adequate maintaining and
appropriate access to record information. The OCDE Guidelines specifies that
redressing the balance between the trader and consumer with regard to the reliability
of electronic records requires businesses to provide consumers with a clear and full
text of the relevant terms and conditions of the transaction in a manner that makes
it possible for consumers to access and maintain an adequate record of such
information.47
According to the US Electronic Signatures in Global and National Commerce
Act (E-Sign Act)48 of June 30, 2000, an electronic contract or record satisfies legal
requirements for retention in writing, if it accurately reflects the information set in
the contract or other record; and remains accessible to all persons who are entitled
to access by statute, regulation, or rule of law, for the period required by such
statute, regulation, or rule of law, in a form that is capable of being accurately
30 Cyber Consumer Law and Unfair Trading Practices
reproduced for later reference by all parties or persons who are entitled to retain the
contract or other record. The question then arises whether a record may be reliable
if for example, it allows the sender to be changed every time it is opened. As almost
all business records are now created and stored electronically, it is clear that
businesses must ensure that electronic records remain unaltered. Regulating the
distortion of electronic records has become a priority for many countries. Thus, the
US Sarbanes – Oxley (SOX) Act, in its section on ‘Destruction, Alteration, or
Falsification of Records’ states ‘[w]hoever knowingly alters, destroys, mutilates,
conceals, covers up, falsifies or makes entry in any record, document or tangible
object with the intent to impede, obstruct, or influence the investigation ... shall be
fined under this title, imprisoned not more than 20 years or both.’49 The risk of
alteration exists not only when it is a deliberate deterioration but also when
electronic records may be made up of a word-processed document with a dynamic
link to a database, or when electronic records are built on the fly and never recorded
anywhere. When information is provided by integrated multiple systems, and
consist in temporary webpage built-in response to a user accessing the system.
Usually, it is unlikely that electronic records will reproduce the exact form in which
the consumer accessed the system. In deciding how to address this critical issue it
is important to note that businesses have much more information about the
reliability of electronic records than consumers. As a rule, consumers will not have
the sophistication necessary to assess the reliability of electronic records.
Best practices in the area of electronic records retention should ensure continuing
identity and integrity of records against media and across technological change.
Sometimes, electronic records may be affected by obsolescence of digital medium.
For example, floppy disks have changed considerably in their capacity for storing
information over the past few years, making it impossible to use earlier models. A
consumer who would like to consult a stored electronic document would not be able
to view it in its original form due to the lack of interoperability50 of different
software programs. Under the emerging duty of care, businesses should be able to
demonstrate that they have taken best practices to establish rules, regarding which
records should be authenticated, by whom, and the means of authentication.51
These best practices need not only to be defined but also implemented.
An important advance in the clarification of the best practices relating to both
legal and technical aspects of electronic discovery is illustrated by the case of
Zubulake v. UBS Warburg.52 This first American case encompassing five written
decisions in the area of an employment discrimination case, clarifies the obligation
of preserving electronic evidence in litigation and the lawyer’s duty to monitor their
clients’ compliance with electronic data preservation and production. The Court
stated that ‘obligation to preserve evidence arises when the party has notice that the
evidence is relevant to litigation or when a party should have known that the
evidence may be relevant to future litigation.’53 Moreover, it is considered that the
‘duty to preserve attache[s] at the time that litigation [is] reasonably anticipated.’54
The legal consecration of the best practices reminds companies that they are
operating in a different environment that progressively creates its own rules. In this
environment, the consumer consent remains the effective tool to promote consumer
confidence in the electronic marketplace. It enhances the consumer in his right to
receive hard copy versions of his transactions. The basic principle is the agreement
Electronic Market Failures and Consumer Confidence 31
between parties with regard to the kind of technology, format used and their
methods of exchange. If such an agreement cannot be established then the following
step should be to provide hard-copy versions of the transactions documents.
In the European Union, the Directive on Invoicing55 addresses issues such as the
obligation to issue an invoice, the content of an electronic invoice, it provides for the
acceptance of electronic records by the Member States and for the storage of
electronic invoices. The reliability of electronic records is dependent on two
cumulative conditions: authenticity and integrity which are satisfied by means of an
advanced electronic signature within the meaning of Article 2(2) of Directive
1999/93/EC of the European Parliament and of the Council of 13 December 1999
on a Community framework for electronic signatures. Member States may however
ask for the advanced electronic signature to be based on a qualified certificate and
created by a secure signature creation device. If mutual recognition were not
effectively applied, the overall costs of electronic invoicing will be increased.
Certification obtained in one Member State does not represent recognition in the
others. For these reasons, the Directive allows that invoices may, however, be sent
by other electronic means subject to acceptance by the Member State(s) concerned.
The Commission will present, by the latest on 31 December 2008, a report, together
with a proposal, if appropriate, amending the conditions on electronic invoicing in
order to take account of possible future technological developments in this field.
The Directive might act as a catalyst not only to establish common rules on the
information to be included on invoices and the form the invoices should take in
order for VAT authorities to recognise their validity but also for encouraging
companies in a real record retention policy.
verification seems to entail delay and expense.70 Obviously, the use of digital cash
would enable the growth of e-commerce only if banks implementing this electronic
system could ensure consumer privacy protection.
determined by the manner in which e-banking will find solutions for the two
irreconcilable needs of the electronic market characterised by the need of growing
for the banks by developing impersonal online services and the consumers’ needs of
personal contact and information.
The 3-D Secure enables consumer and trader to authenticate each other by
exchanging digital certificates (electronic identifications) before proceeding with an
online transaction, assuring the consumer that he is dealing with a legitimate trader
and providing the trader with proof of participation of the real consumer. The
principle of dividing the 3 domain is to identify the risk level and to enforce the
liability of each party in its own field. It is expected that such a program would
enhance consumer confidence in cross-border transactions.
The approach known as 3-D (3 Domain) Secure technology excludes the liability
of traders to the banks when (1) the trader adopts this programme; (2) the bank
authenticates the cardholder using Verified by Visa programme; and (3) after
verifying authentication, the bank authorises the transaction and the trader receives
a final approval. Chargeback due to non receipt of goods is still possible.
In general many banks do not inform consumers about the existence of
chargeback procedures. Besides, when a problem occurs for the consumer (for
example because the card information was used fraudulently), he is usually asked to
prove that the payment was not due, so he is obliged to contact the trader who is
probably located in another country in order to get documents that confirm payment
was not due. Finally, even in the future, the consumer’s knowledge about the
existence of the chargeback will be more transparent, as the practical problems
remain the same when fraud or abuse intervene.
38 Cyber Consumer Law and Unfair Trading Practices
CONCLUSIONS
The chapter demonstrates that analysis of the electronic market through the model
of the ‘perfect market’ might lead to a confusing conclusion that there is no need for
governmental regulatory or self-regulatory intervention. However, the ‘perfect
electronic market’ is far from possessing its own corrective effects. On the basis of
two case studies relating to online privacy and marketing, it has been shown that the
electronic market is far from ‘perfect’ and that there is an imperative need for
appropriate cyber consumer legislation. The need for appropriate cyber consumer
legislation is doubled by the need for effective enforcement of legislation in cross-
border transactions.
On the basis of different national legal cases and of a factual example in the area
of online misleading advertising, it has been clarified that the particularities of the
electronic marketplace do not lead to the same forms of unfair commercial practices
as in the off-line marketplace. For example, whilst certain resemblances exist
between traditional and online unfair advertising, fundamental differences still
remain. If consumers are seeking injunctive relief under the online advertising law,
they have to prove that the advertisement is false advertising. However, within a
virtual environment where technical problems may happen and where a company
may disappear before the beginning of any legal proceeding, false advertising is
difficult to prove.
The chapter also illustrates the most important aspects of the virtual organisation
of companies which range from the difficulties for consumers who are confronted
with the recognition of the website, to web pages being modified permanently, from
web address URL different from the real name of the company; to risk of consumers
being diverted to different URL addresses. These structural particularities of the
electronic market increase the lack of confidence of consumers in doing electronic
transactions and diminish the possibility of effective enforcement of consumer
legislation.
Another electronic market failure discussed by the chapter is about electronic
records. Uncertainty surrounding electronic records is enhanced by the
unpredictability or inexistence of legal rules as well as by the lack of legal results of
the technical standards for effective record management. In demonstrating this
issue, the chapter clarifies the 3 confidence fields of electronic payments: confidence
in the security of payment systems; confidence in the use of inexpensive electronic
payment instrument; and confidence in the effectiveness of rules governing
electronic payments and implicitly on the methods of payment. It has been
concluded that enhancing trust in the minds of consumers in connection with the
security of payment systems is more than a question of technology; it is a question
of explaining technology knowledge in order to be easily understood by the
consumer. The consumer need for readily-available information increases
progressively with the range of quantitative and varied national security
requirements.
In sum, the consumer’s confidence is synonymous of fair commercial practices
that includes reliable electronic records and retention of electronic records policy;
secure user friendly and cost-effective payment system; and the respect of privacy
and enhancing privacy technologies. In our view, the future of e-banking will be
Electronic Market Failures and Consumer Confidence 39
determined by the manner in which e-banking finds solutions for the two
irreconcilable needs of the electronic market, characterised on the one side by the
need for the banks to grow by developing impersonal online services, and on the
other side by the consumers’ desires for personal contact and information tailored to
their personal needs.
NOTES
information society services, their use should be allowed on condition that users are
provided with clear and precise information in accordance with Directive 95/46/EC
about the purposes of cookies or similar devices so as to ensure that users are made
aware of information being placed on the terminal equipment they are using. Users
should have the opportunity to refuse to have a cookie or similar device stored on their
terminal equipment.’
14 J.M. Spaeth, M.J. Plotkin, S.C. Sheets, ‘Privacy, Eh!: the Impact of Canada’s Personal
Information Protection and Electronic Documents Act on Transitional Business’, 4
Vanderbilt Journal of Entertainement Law and Practice, Vol. 28. No. 4, 2002.
15 ‘Sellers try to soothe fears about personal data safety’, in USA Today, April 27, 2001, p.
2.
16 P.P. Swire, ‘Markets, Self-Regulation, and Government Enforcement in the Protection of
Personal Information’, available at http://www.osu.edu/units/law/swire.htm, 1996.
17 E. Alderman, C. Kennedy, The Internet, Consumers and Privacy, Internet Policy
Institute, July 2000, available at: http://www.internetpolicy.org/briefing/current.htm, p.
4.
18 The ‘opt-out’ option presumes that a consumer welcomes junk e-mail unless they
expressly signalled his objection (for example, by entering his name on a register for this
purpose) whilst ‘opt-in’ presumes that a consumer does not want e-mail unless he
expressly consented.
19 T. Novak, D.L. Hoffman, M. Prelata, ‘Building Consumer Trust in Online Environments:
The Case for Information Privacy’, available at:
http://www2000.ogsm.vanderbilt.edu/papers/CACM.privacy98/CACM.privacy98.htm.
20 Almost all countries are endowed with legislation, which prohibits misleading
advertising. According to the EU Directive, the misleading advertising is defined as any
advertising which in any way, including its presentation, deceives or is likely to deceive
the persons to whom it is addressed or whom it reaches and which by reason of its
deceptive nature, is likely to affect their economic behaviour or which, for those reasons,
injures or is likely to injure a competitor.
21 See chapter 8 on ‘Online Misleading Advertising’.
22 See DSG Retail Ltd v. Oxfordshire County Council, No. CO 4793/00, Neutral Citation
Number: [2001] EWHC Admin 253, High Court of Justice Queen’s Bench Division,
Divisional Court.
23 M. Chissick and A. Kelman, Electronic Commerce Law and Practice, 2nd ed, Sweet and
Maxwell, 2000, p. 220.
24 TGI Pointoise, Ordonnance of 20 February 2001, Register Number: 01/00381, minute:
REF/2001/466.
25 US FTC Report on, ‘Advertising and Marketing on the Internet: Rules of the Road’,
2000, available at: www.ftc.org.
26 Consumer International Survey, ‘Consumers – Shopping: An International Comparative
Study of Electronic Commerce’, available at:
http://www:consumerinternational.org/compaigns.
27 S. Singleton, ‘U.S. Perspectives on Consumer Protection in the Global Electronic
Marketplace’, March 25, 1999.
28 M.D. Smith, J. Michael, Bailey, E. Brynjolfsson, ‘Understanding Digital Markets:
Review and Assessment’, 2000 E. Brynjolfsson, B. Kahin, eds. Understanding the
Digital Economy, MIT Press, Cambridge.
29 C. Swindells, ‘Legal Regulation of Electronic Commerce’, in the Journal of Information,
Law and Technology (JILT), 1998 available at: http://elj.warwick.ac.uk/jilt/98-
3/swindells.html.
30 W.A. Effross, ‘The Legal Architecture Of Virtual Stores: World Wide Web Sites And The
Uniform Commercial Code’, 34 San Diego Law Review, 1998, at 1268.
Electronic Market Failures and Consumer Confidence 41
INTRODUCTION
In 1965, the US Special Committee on Retail Instalment Sales posed the following
question: ‘It is fair to ask precisely what it is that the consumer is to be protected
from. Must he be protected from his own lack of knowledge or discipline? … Is he
to be protected from the “fringe” operator who may take advantage of the ignorance
and gullibility of the consumer to cause him to overbuy or pay too much?’1 This
question is still relevant today not only from a historical standpoint but also from its
updated perspective. At that time, consumer protection answered this question by
formulating the major rationales for government regulation of the marketplace: the
inequality of bargaining power,2 the growing and frequently total disparity of
knowledge concerning the characteristics and technical components of the goods or
services and the disparity of resources that reflected itself in a consumer’s difficulty
to obtain redress unaided for a legitimate grievance.3 Amongst these rationales,
unequal bargaining power was considered as a discrete rationale for consumer
protection, ‘an umbrella concept for those market and private-law failures which
cause consumers to suffer economic detriment.’4 The major part of the doctrine5
described unequal bargaining as including two major aspects: unfair standardised
terms and the ineffectiveness of consumer redress mechanisms. The first aspect
evolves from the premise that contracts should be based on the negotiation of terms
and conditions between consumers and traders. The lack of bargaining power was
compared with the phenomenon of ‘standards contracts’ or ‘contracts of adhesion.’6
Formulated several decades before, these views are still alive today. However,
one might wonder how standardised contracts emerge in this new global electronic
marketplace and what are their consequences on the negotiation process between
parties of equal bargaining power? In order to answer these questions the chapter
starts by analysing the standardisation of online contracts and elaborating the basis
for a new view on unequal bargaining power ensuing from the B2C online electronic
transactions. The chapter demonstrates that the standardisation of online contracts
can be problematic in protecting consumers in cyberspace and that this market
failure cannot be addressed by an application of traditional views based on ‘the
contract-as-consent model,’7 which involves a meeting of the minds between two
humans. The adherence of many scholars to this model is not surprising at all, as
usually providing answers to the new issues emerging from the development of
information technologies would require the application or the adaptation of general
principles of law. Though, it is not that with the advent of Internet these principles
become inadequate but rather that they risk being transformed by a technological
context in obsolete methods of legal reasoning. Building on that critique, my
inclination remains nevertheless towards regulatory intervention. This consists of
46 Cyber Consumer Law and Unfair Trading Practices
the chance to read the form may be diminished by the use of fine print and convoluted
clauses. (…) [D]ickering over contract terms may not take place between parties of equal
power. More often, the case will be that there is no opportunity to bargain at all where the
enterprise has such disproportionately strong economic power that it simply dictates the
terms.14
3.2.2.1 Contracts for the Sale of Physical Goods and of Contracts for the Supply
of Services
For contracts for the sale of physical goods and of contracts for the supply of
services, standardised terms can normally be viewed by consumers via a link at the
bottom of the home page or elsewhere or by giving the consumer the opportunity of
either downloading or asking via e-mail. Nevertheless, sometimes standardised
terms and conditions refer to various issues relating to security and privacy,
passwords and online payments, which have no direct relation to the consumer’s
transactions. For example, eToys’s ‘terms and conditions’ page provides the
information about the conditions, which apply to the acceptation of an offer:
[t]he receipt of an e-mail order confirmation does not constitute the acceptance of an order
or a confirmation of an offer to sell. eToys reserves the right, without prior notification, to
limit the order quantity on any item and/or [sic] refuse service to any customer.
Verification of information may be required prior to the acceptance of any order.16
Moreover, frequently, the ‘terms and conditions’ might lack coherence as instead of
having the opportunity to consult the ‘terms and conditions’ under a unique
reference, consumers will be obliged to download terms and conditions which can
be found under different titles such as: ‘Return/Exchange Policy,’ ‘Shipping
Information,’ and ‘Please click here for legal restrictions and terms of use applicable
to this site.’ The fragmentation of terms and conditions under different titles could
be time-consuming and cumbersome for consumers who want to view these terms
and conditions.17 Faced with innumerable links relating to different legal issues,
consumers will finally not have any knowledge about the terms and conditions
which apply to their transaction.
Another type of B2C commercial contract relates to the supply of digitised products.
Digitised products can take the form of software, newspapers, music, movies, and
Standardisation of Online Contracts 49
in a container or wrapper that advises the purchaser that the use of the software is subject
to the terms of a licence agreement contained inside the package. The licence agreement
generally explains that, if the purchaser does not wish to enter into a contract, he or she
must return the product for a refund, and that failure to return it within a certain period
will constitute assent to the licence terms.22
50 Cyber Consumer Law and Unfair Trading Practices
Shrink-wrap agreements differ from other adhesion contracts in that they do not
invite a signature on the contract, but rather purport to infer acceptance from the
offeree’s conduct.23
The key questions, which arise from shrink-wrap agreements, relate to the
moment of the formation of contract and to the incorporation of the standardised
terms into the sale contract. As will be noticed from the analysis of the legal
decisions presented below, courts are reserved when enforcing shrink-wrap
agreements in consumer transactions. In general, in their analysis of the validity and
enforceability of contracts, the courts proceed in two stages: first, they proceed to
the examination of contract in order to see if it presents the characteristics of an
online standardised contract; second, if evidence exists that the contract in question
is a standard contract, the court will scrutinise whether its terms and conditions are
unreasonably favourable to the party against whom unfairness is directed.
In Step-Saver Systems, Inc. v Wyse Technology24 a software vendor made a
number of sales to a value-added reseller. The court held that shrink-wrap
agreements are unenforceable because the user learned about the producer’s licence
terms only after payment. The court argued that shrink-wrap standardised terms
could not change the terms of the already existing sale of goods contract since the
purchaser had not expressly assented to the new terms. In a similar case, Arizona
Retail Systems, Inc. v Software,25 the court concluded that the terms of the licence
agreement are not applicable. In all material respects, the subsequent purchases in
this case are equivalent to the purchases in Step-Saver.
In ProCD Inc v Zeidenberg,26 the plaintiff (ProCD) compiled information from
over 3,000 directories into a telephone book database containing approximately 95
million telephone listings (the database in SelectPhone cost more than $10 million
to compile) and developed a search engine that facilitates the use of the database.27
ProCD licensed the database at a higher price for commercial users and a lower
price for private users.28 Zeidenberg bought the licence as a private user package,
but ignored the licence,29 extracted the listings, and made the database commercially
available over the Internet through his own proprietary search engine.30
The court of first instance held that the licence is unenforceable because the
purchaser had not been able to know its content before the sale was concluded. The
lower court decision was overruled by the circuit court, which enforced the shrink-
wrap contract. The court stated that the consumer accepted the contract when he
assented to the licensing terms on his computer. Furthermore, the main argument
used by the court was focused on the formation of the contract in particular, i.e. how
and when the contract was formed, whether a vendor may propose that a contract of
sale be formed, not in the store or over the phone with the payment of money, but
rather after the customer had the chance to inspect both the item and the terms.31 In
the ProCD case, Judge Easterbrook held that ‘[s]hrink-wrap licenses are
enforceable unless their terms are objectionable on grounds applicable to contracts
in general (…).’32
The district court held the licence agreement not enforceable, as the agreement
terms were not on the outside of the package and thus were unknown to the purchaser
at the time of purchase. The court reasoned that the buyer did not agree to terms that
were unknown to the buyer at the time of purchase.33 Judge Easterbrook disagreed
with the holding of the district court and concluded ‘[a] vendor, as master of the offer,
Standardisation of Online Contracts 51
may invite acceptance by conduct, and may propose limitations on the kind of
conduct that constitutes acceptance.’ ‘A contract for sale of goods may be made in
any manner sufficient to show agreement, including conduct by both parties which
recognise the existence of such a contract.’34 Furthermore, the court argued that the
licence agreement at issue was a proposed contract that a buyer may accept by using
the software after having an opportunity to read the licence.35
Finally, it was considered that the consumer did not accept the terms of the
contract by purchasing the software, but he accepted the terms by using the
software. The court’s decision was founded on the option of returning the software
within thirty days of sale. Others commentators argued that in the ProCD case, the
seller splashed the licence on the screen when the program was run and would not
let the buyer proceed without indicating acceptance.36
In the Hill v. Gateway 2000 case,37 the court followed the ProCD decision.38 In
the Hill case, the consumers ordered a computer by phone and paid with a credit
card.39 It was held that the consumers had knowledge of the agreement, even if they
had not read it, but the court did not address the issue of notice of the agreement’s
terms.40 The terms of the contract were included in the computer’s box, stipulating
‘[t]his document contains Gateway 2000’s Standard Terms and Conditions. By
keeping your Gateway 2000 computer system beyond thirty (30) days after the date
of delivery, you accept these Terms and Conditions.’41 The Hills did not return the
computer within the period prescribed. The plaintiffs sued Gateway for breach of
contract, fraud, and racketeering. The terms of the contract contained an arbitration
clause; however, before considering the arbitration clause, the court was obliged to
address the question relating to the enforceability of contract terms. The court held
that the Hills were bound by the terms in the licensing agreement, because they
agreed to the terms of the contract by using the computer. The district court refused
to enforce the arbitration clause, stating that ‘the present record is insufficient to
support a finding of a valid arbitration agreement between the parties or that the
plaintiffs were given adequate notice of the arbitration clause.’42 However, by
applying the ProCD reasoning, the court reversed the district decision and enforced
the arbitration clause.
Once again, the court’s decision seems to be more a victory for click-wrap rather
than an increasing consensus for consumer protection. Assuming that a consumer
does not agree to an arbitration clause, for instance, it seems like an undue burden
to require a consumer to ship back the computer to reject the clause.43
In Brower v. Gateway,44 the court refused to enforce the arbitration clause in
Gateway’s shrink-wrap agreement, which was ‘unreasonably favourable’ to
Gateway. The arbitration clauses required that Gateway purchasers with claims
against the company could not sue, but were instead required to arbitrate, paying a
$4000 fee, $2000 of which was non-refundable, to participate in arbitration
proceedings in Chicago, and pay Gateway’s legal fees in the event that they lost.
Finally as it was suggested by Brown,45 the combination of the ProCD and
Gateway decisions left little doubt that courts would enforce computer software and
hardware agreements when the consumer can only read the contract after the
purchase and after opening the sales packaging.
In Klocek versus Gateway, Inc.,46 the court refused to enforce the arbitration
provision contained by a shrink-wrap agreement. The court found that by ordering
52 Cyber Consumer Law and Unfair Trading Practices
a computer, the consumer had made an offer to buy a computer that the
manufacturer accepted by sending the computer and accepting payment. The
manufacturer had included terms in the computer’s box but ‘did not communicate
to plaintiff any unwillingness to proceed without plaintiff’s agreement to the
[license terms].’ Finally, the court held that the terms could not become part of the
contract unless the purchaser agreed to them, which the purchaser did not.
In the UK, the case of Beta Computers (Europe) Ltd v. Adobe Systems (Europe)
Ltd47 in 1995 can be considered as the first case relating to the validity of shrink-
wrap licences.48 In this case, the Scottish Court of Session held that a shrink-wrap
agreement is enforceable and that the contract for supply was concluded only when
the shrink-wrap terms had been seen and accepted by the purchaser. In this case, it
was the purchaser who sustained the enforceability of shrink-wrap agreements.
Adobe had ordered a piece of Informix software from Beta, which supplied the
software package. The software was delivered in a package, which showed that the
software was subject to strict end user licence conditions under the name of the
author. It stated on the package that ‘Opening the Informix S.I. software package
indicates your acceptance of these terms and conditions.’ The company attempted to
return the package unopened, but the suppliers refused to accept its return and sued
for payment of the price. The argument of the suppliers consisted in the fact that
there was an unconditional and unqualified order for identified software; that, as
they had supplied what was ordered, the defenders were obliged to pay the price. In
this case Lord Penrose considered that the supply of off-the-shelf software against
payment is not a contract for the sale of goods, but is a sui generis contract
incorporating elements of purchase and licence.
What are the lessons that could be learned from the Beta decision with regard to
consumer protection? If consumers do not accept the licence terms, the retailer
should refund them. The retailer cannot claim that he is not concerned by the
contract intended to benefit the third party owner of the intellectual property rights.
With respect to software companies, the court argued that if the shrink-wrap
agreements were unenforceable, this would create concern for the computing
industry which is based on licence agreements to limit the fiscal damage caused by
consumers using software without paying. The Beta decision was criticised by
Robertson, who argues that ‘notwithstanding the desirability or otherwise of shrink-
wrap licences, the relevant law did not exist to justify the findings of the Court.’49
All the legal decisions presented above demonstrate that it is quite difficult for a
lawyer to draft a unique sample of a shrink-wrap agreement, which is totally
enforceable worldwide. In order to compensate for unequal bargaining power
arising from shrink-wrap or click-wrap agreements, the court indicated in the
ProCD case that a software company that simply includes: a conspicuous notice of
the existence of licence terms on the package; an ‘I agree’ routine in its software at
start-up time; and an opportunity for a refund should be able to claim that its
agreements’ terms are enforceable.
It is doubtful whether the enforceability of shrink-wrap agreements in the
electronic marketplace can be definitively resolved through the three conditions
indicated by the court in the ProCD case. In order to ensure that a realistic equal
bargaining power exists between consumers and software companies, I consider that
the following steps should be considered by software companies:
Standardisation of Online Contracts 53
A ‘click-wrap’ licence presents the user with a message on his or her computer
screen, requiring that the user shows his or her assent to the terms of the licence
agreement by clicking on an icon, and ‘[t]he product cannot be obtained or used
unless and until the icon is clicked.’52
In Groff v. America Online. Inc,53 the court upheld the validity of a click-wrap
choice of forum by an AOL subscriber. Although the plaintiff, stated ‘I never saw,
read, negotiated for or knowingly agreed to be bound by the choice of law ...’, the
court argued that the plaintiff by clicking the ‘I agree’ button placed next to the ‘read
me’ button or the ‘I agree’ button next to the ‘I disagree’ button agreed at the
conclusion of the subscription agreement, which contained the forum selection
clause.54 The court held that plaintiff could not claim that he was uninformed in the
area of contract law. The plaintiff, as pointed out by defendant (…) had been at the
bar in that state for approximately thirty years.55 The court quoted the case Moretti
& Perlow Law Office v. Aleet Associates,56 where the plaintiff was resisting his claim
being transferred from Rhode Island to New York under a forum selection clause in
the agreement. The court observed, ‘[W]ith respect to overweening bargaining
power (plaintiff) is an experienced Rhode Island attorney well-versed in the
rudiments of contract law. If he did not read and understand the motor vehicle lease
in question, he surely should have done so.’57 This argument is not consistent as it
54 Cyber Consumer Law and Unfair Trading Practices
can lead to the idea that all lawyers who are subject to unequal bargaining power
would be at fault when entering into a standardised contract relationship.
In Caspi v. Microsoft Network,58 the court was called upon to determine the
validity and enforceability of a forum selection clause contained in an on-line
subscriber agreement of the Microsoft Network (MSN). The court held that a
membership agreement for an on-line computer service with an Internet service
provider (ISP) provided adequate notice of the forum selection clause. Potential
subscribers were free to scroll through the computer screens that presented the terms
before clicking in agreement. The clause was presented in exactly the same format
as most other provisions and was not presented unfairly.59
In RealNetworks, Inc., Privacy Litigation,60 the court ruled, in answer to a
defence based on procedural unconscionability, that the click-wrap agreement is
binding on the user because the arbitration clause appeared in the final paragraph of
the agreement under the caption ‘Miscellaneous,’ which included provisions on
choice of law and forum. The court noted that the clause was in the same font as the
rest of the agreement, was freely viewable without time restrictions. It also noticed
that users should agree to the online licence agreement before being able to install
software from the provider’s website.
The Williams v. America Online, Inc. case61 addressed the issue of unequal
bargaining in connection with click wrap agreements. In this case the plaintiffs, a
group of users that installed AOL version 5.0 (‘Software’) on their computers,
claimed that the installation of this software ‘caused unauthorized changes to the
configuration of their computers so they could no longer access non-AOL Internet
service providers, were unable to run non-AOL e-mail programs and were unable to
access personal information and files.’62 The plaintiffs claimed that the defendant’s
commercial practice is unfair and infringed consumer protection laws.
The court considered that the evidence showed that AOL’s software altered the
users’ systems before they had a chance to review the click-wrap agreement and the
alterations would proceed even when users rejected the agreement. The court also
concluded that because users’ systems were changed before the agreement could be
reviewed; consumers had no notice of the forum selection clause, and no opportunity
to accept or reject it. Given this contextual situation, the court held that AOL could
not invoke the forum selection clause to require users to proceed in Virginia.
In Specht v. Netscape Communications Corp.,63 the court rejected a claim by
Netscape that ‘the mere act of downloading indicates assent’ because ‘clicking on
an icon stating “I assent” has no meaning or purpose other than to indicate such
assent,’ but ‘[t]he primary purpose of downloading is to obtain a product, not to
assent to an agreement.’ The court argued that ‘SmartDownload is available from
Netscape’s website free of charge,’ and that ‘[b]efore downloading the software, the
user need not view any license agreement terms or even any reference to a license
agreement, and need not do anything to manifest assent to such a license agreement
other than actually taking possession of the product.’ The court compared
SmartDownload to ‘a free neighbourhood newspaper, readily obtained from a
sidewalk box or supermarket counter without any exchange with a seller or vender.
It is there for the taking.’64
The court held that the only indication that a contract is being formed is one small
box of text referring to the licence agreement, a text that appears below the screen
Standardisation of Online Contracts 55
used for downloading and that a user need not even see before obtaining the product:
‘Please review and agree to the terms of the Netscape Smart Download software
license agreement before downloading and using the software.’ Couched in the mild
request, ‘Please review,’ this language reads as a mere invitation, not as a condition.
The language does not indicate that a user must agree to the licence terms before
downloading and using the software. The court argued that while clearer language
appears in the ‘License Agreement’ itself, the language of the invitation does not
require to read those terms or to provide adequate notice other than that a contract
is being created or that the terms of the ‘License Agreement’ will bind the user.65
In America Online, Inc. v. Superior Court,66 the California Court of Appeal
found grounds on which to decline to enforce consumer click-wraps. The court
invoked a public policy exception to consumer choice of forum and considered that
the forum selection clause in a click-wrap agreement made during an installation
process on CD-ROM is unfair and unreasonable. The court argued that the clause
(a) was not negotiated at arm’s length, (b) was in a standard ‘form’ contract, (c) was
in small text and placed at the end of the agreement, hence not readily identifiable
by plaintiff and (d) was contrary to California public policy which affords its
citizens specific and meaningful consumer remedies. The prime difference between
the Virginia consumer protection law and that of California was that the California
statute allows a consumer to bring a class action, Virginia’s does not.67 In this case,
the central issue when considering consumer click-wrap agreements is no longer the
consumer assent but rather the public policy issue.
It can be concluded from this overview of the main US legal decisions, that click-
wrap agreements are scrutinised by the courts through a process which risks being
variable when interpreting the notion of ‘assent’ or the non-negotiability of terms
and conditions. Certainly, most of this variability is due to the contextual situation
peculiar to each case.
cannot be said that merely putting the terms and conditions in this fashion
necessarily creates a contract with anyone using the website.’72 However, the court
considered the intentional conduct from which Ticketmaster could infer consent:
The motion to dismiss the second claim (breach of contract) is founded on the ‘terms and
conditions’ set forth on the home page of the Ticketmaster site .... In defending this claim,
Ticketmaster makes reference to the ‘shrink-wrap license’ cases, where the packing on the
outside of the CD stated that opening the package constitutes adherence to the license
agreement (restricting republication) contained therein. This has been held to be
enforceable. That is not the same as this case because the ‘shrink-wrap license agreement’
is open and obvious and in fact hard to miss. Many websites make you click on ‘agree’ to
the terms and conditions before going on, but Ticketmaster does not. Further, the terms
and conditions are set forth so that the customer needs to scroll down the home page to
find and read them. Many customers instead are likely to proceed to the event page of
interest rather than reading the ‘small print’. It cannot be said that merely putting the terms
and conditions in this fashion necessarily creates a contract with anyone using the website.
The motion is granted with leave to amend in case there are facts showing Tickets’
knowledge of them plus facts showing implied agreement to them.73
ProCD Inc v. Zeidenberg Shrink-wrap agreement enclosed – shrink-wrap licences are enforceable unless their terms are
86 F. 3d 1447 (7th cir. in the software package was objectionable on grounds applicable to contracts in general
1996) assented to and therefore was – the seller or licensor in a transaction has the power to
enforceable condition acceptance on certain conduct by the buyer
– the consumer should have the opportunity to see and
reject terms upon opening package and the right to
obtain refund
Hill v. Gateway 2000, Inc., An arbitration agreement – the Hills were bound by the terms in the licensing
105 F.3d 1147 (7th Cir. packaged inside a computer agreement, because they agreed to the terms of the
1997) shipping box was enforceable contract by using the computer
– refusal to enforce the arbitration clause, opining that ‘the
present record is insufficient to support a finding of a
valid arbitration agreement between the parties or that
the plaintiffs were given adequate notice of the
arbitration clause’
Brower v. Gateway, 246 Refusal to enforce the arbitration – the arbitration clause in Gateway’s shrink-wrap
A.D.2d 246, 676 clause in Gateway’s shrink-wrap agreement was ‘unreasonably favourable’ to Gateway
N.Y.S.2d 569 (1st Dept. agreement – the clause required that Gateway purchasers with claims
1998) against the company could not sue, but were instead
required to arbitrate, paying a $4000 fee, $2000 of
which was non-refundable, to participate in arbitration
proceedings in Chicago and pay Gateway’s legal fees in
the event that they lost
Klocek v. Gateway, Inc., Unenforceability of the arbitration – by ordering a computer, the consumer had made an offer
104 F.Supp. 2d 1332 provision contained by the shrink- to buy a computer that Gateway accepted by sending the
(D.Kansas 2000) wrap agreement computer and accepting payment
– Gateway had included terms in the box with the
computer but ‘did not communicate to plaintiff any
unwillingness to proceed without plaintiff’s agreement
to the [license terms].’
– the terms could not become part of the contract unless
the purchaser agreed to them, which the purchaser did
not
UK – Beta Computers Enforceability of shrink-wrap – the court held that the supply of off the shelf software
(Europe) Ltd v. Adobe agreements for payment was not a contract for the sale of goods, but
Systems (Europe) Ltd 1996 is a sui generis contract incorporating elements of
SLT 604; 1996 SCLR 587 purchase and licence
– the contract cannot exist until the terms are accepted by
the purchaser of the licence terms intended to benefit the
third party owner of the intellectual property rights, so
those terms were enforceable
Click-wrap agreements
Groff v. America Online, Enforceability of a click-wrap – the assent based on website that required the user to
Inc., No. PC 97-0331, choice of forum by an AOL click on ‘I agree’ or ‘I disagree’
1998 WL 307001 subscriber – regarding the overweening bargaining power (plaintiff)
(R.I.Super. 1998) the plaintiff cannot claim that he is uninformed in the
area of contract law. Plaintiff, as pointed out by
defendant (…) has been at the bar in this state for
approximately thirty years
Caspi v. Microsoft A forum selection clause – that membership agreement for on-line computer service
Network, L.L.C., 732 A.2d contained in the click-wrap with Internet service provider (ISP) provided adequate
528 (N.J. App. Div. 1999) agreement of an on-line service notice of the forum selection clause; potential
provider was enforceable subscribers were free to scroll through the computer
screens that presented the terms before clicking
agreement with mouse, the clause was presented in
exactly the same format as most other provisions and
was not presented unfairly
– when a website user is not required to actively assent to
the terms of the click-wrap agreement, and the terms of
the agreement are accessible only via a hyperlink at the
bottom of the home page, which the user must scroll
down to see, the terms of the click-wrap agreement may
not be enforceable
– refuse to enforce a clause only if it fits into one of three
exceptions to the general rule: (1) the clause is a result
of fraud or ‘overweening’ bargaining power; (2)
enforcement would violate the strong public policy of
New Jersey; or (3) enforcement would seriously
inconvenience trial
RealNetworks, Inc., The click-wrap agreement is – enforceability even though the arbitration clause
Privacy Litigation, 2000 binding on the user as against a appeared in the final paragraph of the agreement under
WL 631341 (N.D. Ill.) defence of procedural the caption ‘Miscellaneous’, which included provisions
unconscionability on choice of law and forum
– the clause was in same font as the rest of the agreement,
was freely viewable without time restrictions
– users should agree to the online licence agreement before
being able to install software from the provider’s website
Williams v. America Unenforceability of a forum – AOL’s software altered the users’ systems before they
Online, Inc., 2001 WL selection – the user’s systems had a chance to review the click-wrap agreement; and
1356825 were changed before the the alterations would proceed even when users rejected
agreement could be reviewed the agreement
– the user’s systems were changed before the agreement
could be reviewed; consumer had no notice of the forum
selection clause, and no opportunity to accept or reject it
Specht v. Netscape Users cannot be bound by a valid – the act of downloading the software did not sufficiently
Communications Corp., click-wrap contract without manifest the plaintiffs’ assent to be bound by the terms
150 F.Supp.2d 585 viewing licence agreement, of the licence agreement
(S.D.N.Y. 2001) without requirement that user – Netscape’s download page for the SmartDownload
view it or click on agreement software contained a single brief reference to the licence
agreement, with a link to the text of the agreement. The
proposal to form a contract with users was presented under
a small box of text located at the bottom of the download
page that invited users to review the licence agreement
– the language of the invitation did not require the reading
of the licence terms or provide adequate notice that a
contract was being created or that the terms of the
licence agreement would bind the user
America Online, Inc. v. Unenforceability of consumer – the court invoked a public policy exception to consumer
Superior Court, 90 Cal. click-wraps agreements on the choice of forum and considered that the forum selection
App. 4th 1 (2001) basis of a public policy exception clause in a click-wrap agreement made during
to consumer choice of forum installation process on CD-ROM is unfair and
unreasonable
– the clause (a) was not negotiated at arm’s length, (b) was
in a standard ‘form’ contract, (c) was in small text and
placed at the end of the agreement, hence not readily
identifiable by plaintiff and (d) was contrary to
California public policy which affords its citizens
specific and meaningful consumer remedies
Browse-wrap agreements
Ticketmaster Corp. v. Unenforceability of a browse- – Ticketmaster’s terms of use did not constitute a binding
Tickets.com, Inc., No. CV wrap agreement due to the fact contract with a user of the site, noting that ‘[I]t cannot
99-7654 (C.D.Cal. Mar. 27, that terms and conditions are not be said that merely putting the terms and conditions in
2000) formulated to bind an user this fashion necessarily creates a contract with any one
using the website’
– the court dismissed the plaintiff’s breach of contract
claim but gave the plaintiff leave to amend ‘in case there
are facts showing [defendant’s] knowledge of [the terms
of the click-wrap agreement] plus facts showing implied
agreement to them’
Pollstar v. Gigmania Ltd Browser wrap agreement may be – This licence agreement can be viewed on the home page
2000 WL 33266437 (E.D. arguably valid and enforceable but on a different webpage that is linked to the home page
Cal.). although users could see the – The consumer is not obliged to assent to the licence
licence but they did not have to agreement by clicking ‘I agree’. However, the consumer
click on anything in order to see is alerted to the fact that use of the website was subject
the concert information to a licence agreement because of a notice that appeared
on the home page
62 Cyber Consumer Law and Unfair Trading Practices
Almost every website contains a little link at the bottom of the home page labelled ‘terms’
or something similar. If you click on these terms, you will most often see a full-blown
purported adhesion contract containing much fine print, in which the user exculpates the
firm for its own negligence, agrees to binding arbitration or litigation on its home turf
under its home jurisdiction’s law, agrees to limit damages to the price of the product,
waives all warranties express and implied, and so on.75
[w]hat is different (between online contracts and those made by traditional methods) is the
method by which those contracts are formed (…). When we add to this the fact that a seller
may not be communicating directly with the customer but instead form part of a virtual
marketplace or Internet shopping mall, and that the customer may not be making
purchasing decisions directly but acting through an automated agent, it becomes obvious
that the process of contract formation is not so straightforward as in the physical world.78
It is this difference that relates more to method than substance79 that influences our
traditional view on unequal bargaining power between consumer and traders. Whilst
from a ‘substance’ perspective, the online standard contracts seem to be identical to
traditional standardised contracts, from a ‘method’ form, the online contracts and
specially mass-market licences are different from negotiated licences. As suggested
by the Official Summary of UCITA, ‘A term is not part of a mass-market license
unless the term is readily available to the licensee and until the licensee has had an
appropriate time to review it.’80 This means that the terms and conditions must be
immediately available to the consumer either in nonelectronic form or in electronic
form that the licensee can print or store electronically.
This dichotomy is reflected by the legal decisions presented above and
summarised in the conclusions of this chapter.
CONCLUSIONS
There is no miracle solution to deal with unequal bargaining power ensuing from
the standardisation of online licence agreements. The emergence of licence
agreements and, as will be observed in the following chapter, the multiplication of
the role of electronic agents change our traditional view of unequal bargaining
power based on the lack of negotiation between the consumer and trader. The new
Standardisation of Online Contracts 63
NOTES
1 U.S. Special Committee on Retail Instalment Sales, Small Loans And Usury, 1965, p. 9.
2 I. Ramsay, Consumer Protection, Text and Materials, Law in Context, London, 1989,
p. 33.
3 J. Ziegel, ‘The Future of Canadian Consumerism’, 51 Can. Bar Rev, 1973, p. 33.
4 I. Ramsay, Consumer Protection, Text and Materials, Law in Context, Weidenfeld and
Nicolson, London, 1989, p. 57; The author analyses the most important scholarly efforts
in order to provide a comprehensive analysis of consumer protection rationales.
5 Even before the development of modern consumer protection laws, the legal doctrine
represented by Kessler concluded in 1943 that: ‘Standards contracts are typically used
by enterprises with strong bargaining power. The weaker party, in need of goods or
services, is frequently not in a position to shop around for better terms, either because
the author of the standard contract has a monopoly […] or because all competitors use
the same clauses. His contractual intention is but a subjection more or less voluntary to
terms dictated by the stronger party, terms whose consequences are often understood
only in a vague way, if at all.’ (F. Kessler, ‘Contracts of Adhesion: Some Thoughts about
Freedom of Contract’, Columbia L Rev., 629 pp. 631–2, 1943, M.J. Trebilcock, in
‘Consumer Protection in the Affluent Society’, 16 McGill LJ 263, 1969.) In line with
Kessler, Slawson added later that ‘… the overwhelming proportion of standards forms
are not democratic because they are not, under any reasonable test, the agreement of the
consumer … recipient to whom they are delivered.’ (D. Slawson, ‘Standard Form
Contracts and Democratic Control of Lawmaking Power’, Harvard Law Rev., 1971,
p. 529.)
6 Rakoff considers the contract of adhesion in the following terms: ‘The term “contract of
adhesion” has acquired many significations and therefore needs definition. One of the
factors that intuitively lie at the core of the concept is the use of standard form
documents. But that element is certainly not sufficient; two parties could employ
standard forms as the basis for a negotiating session, and no one would be concerned.’
(T.D. Rakoff, ‘Contracts of Adhesion: An Essay in Reconstruction’, 96 HVLR 1173
Harvard Law Review, April 1983.)
7 M.J. Radin distinguishes between two views or models of contract. The contract-as-
consent model (…) involves a meeting of the minds between two humans, or at least
Standardisation of Online Contracts 65
WHICH POINT YOU WILL RETURN TO THE PRIOR WEB PAGE WITHOUT THE
SOFTWARE BEING DOWNLOADED.’
19 See Pollstar v. Gigmania, Ltd., 2000 WL 33266437, *6 (E.D.Cal. 2000) (using the term
‘browser wrap’).
20 M.A. Lemley, Intellectual Property and Shrink-Wrap Licenses, 68 S. Cal. L. Rev. 1239,
1995.
21 Ticketmaster Corp. v. Tickets.com Inc., 54 U.S.P.Q.2d 1344 (C.D. Cal. 2000).
22 Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y. July 5, 2001).
Shrink-wrap licenses have been enforced by the courts in ProCD, Inc., v. Zeidenberg, 86
F.3d 1447 (7th Cir. 1996), Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir.), cert.
denied, 522 U.S. 808 (1997), and Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 676
N.Y.S.2d 569 (N.Y. App. Div. 1st Dep’t 1998).
23 B. Goodman, ‘Honey, I Shrink-Wrapped the consumers: the shrink-wrap agreement as
an adhesion contract,’ Cardozo Law Review 21 CDZLR 319 October, 1999.
24 Step-Saver Systems, Inc. v Wyse Technology 939 F.2d 91 (3rd Cir. 1991).
25 Arizona Retail Systems, Inc. v Software Link, Inc. 831 F. Supp. 759 (1993).
26 ProCD Inc v Zeidenberg 86 F. 3d 1447 (7th cir. 1996).
27 See ProCD II, 86 F.3d at 1449.
28 See ProCD II, 86 F.3d at 1449.
29 The shrink-wrap license was printed on the actual CD-ROM and in the user’s guide and
appeared on the screen every time the program ran. The licence limited the use of the
listings to non-commercial purposes. See ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640,
645 (W.D. Wis. 1996), rev’d, 86 F.3d 1447 (7th Cir. 1996).
30 See B. Covotta and P. Sergeeff, ProCD, Inc. v. Zeidenberg, Berkeley Technology Law
Journal 1998.
31 ProCD Inc v Zeidenberg 86 F.3d 1447 (7th Cir. 1996).
32 ProCD Inc v Zeidenberg 86 F.3d 1449 (7th Cir. 1996).
33 See D. Davidson, ‘Click and Commit: What terms are users bound to when they enter
web sites?’, William Mitchell Law Review, 2000, available at: http://www.westlaw.com.
34 ProCD Inc v Zeidenberg 86 F.3d 1452 (7th Cir. 1996).
35 See also, U.C.C. §2-204(1). ‘A contract for sale of goods may be made in any manner
sufficient to show agreement, including conduct by both parties which recognizes the
existence of such a contract.’
36 See, W.A. Effross, ‘The Legal Architecture Of Virtual Stores: World Wide Web Sites And
The Uniform Commercial Code’, 34 San Diego L. Rev. 1263 (1997), at 1268.
37 Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997).
38 See also, M. Grossman and A. Hift, ‘Software Licensing: Shrinkwrap and Clickwrap
Agreements’, February 2000, available at http://www.gigalaw.com/articles/grossman-
2000-02a-p2.html.
39 Hill v. Gateway 2000. Inc., 105 F.3d 1147 (7th Cir. 1997). (The court succinctly set forth
the relevant facts of the case: ‘A customer picks up the phone, orders a computer, and
gives a credit card number. Presently a box arrives, containing the computer and a list of
terms, said to govern unless the customer returns the computer within 30 days.’)
40 See D. Davidson, ‘Click and Commit: What terms are users bound to when they enter
web sites?’ William Mitchell Law Review, 2000, available at: http://www.westlaw.com.
41 Brower v. Gateway, 246 A.D.2d 246, 676 N.Y.S.2d 569 (1st Dept. 1998).
42 Brower v. Gateway, 246 A.D.2d 246, 676 N.Y.S.2d 569 (1st Dept. 1998).
43 J.M. Gutermuth and S. Jurkiewicz, ‘Consumers Contracting over the Internet:
Determining Offer, Acceptance and material terms’, available at: http://gsulaw.gsu.edu/
lawand/papers/fa00/gutermuth_jurkiewicz/.
44 Brower v. Gateway, 246 A.D.2d 246, 676 N.Y.S.2d 569 (1st Dept. 1998).
Standardisation of Online Contracts 67
64 Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y. July 5, 2001).
65 Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y. July 5, 2001).
66 America Online, Inc. v. Superior Court, 90 Cal. App. 4th 1 (2001).
67 D.T. Rice, ‘Copyright Disputes involving online activities’, Patents, Copyrights,
Trademarks, and Literary Property Course Handbook Series PLI Order No. G0-0124
September 26-27, 2002.
68 Specht v. Netscape Communications Corp., 150 F.Supp.2d 585 (S.D.N.Y. 2001), Pollstar
v. Gigmania, Ltd., 170 F. Supp.2d 974 (E.D. Cal. 2000).
69 Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y. July 5, 2001).
70 Ticketmaster Corp. v. Tickets.com, Inc., No. CV 99-7654 (C.D. Cal. Mar. 27, 2000).
71 The defendant Tickets had established hyperlinks allowing its customers to bypass the
Ticketmaster home page and instead go directly and deeply into the Ticketmaster site.
72 Ticketmaster Corp. v. Tickets.com, Inc., No. CV 99-7654 (C.D. Cal. Mar. 27, 2000).
73 Ticketmaster Corp. v. Tickets.com, Inc., No. CV 99-7654 (C.D. Cal. Mar. 27, 2000).
74 170 F. Supp 2d 974 (E.D. Cal. 2000).
75 M.J. Radin, ‘Online Standardization and the integration of text and machine’, Fordham
Law Review, March, 2002.
76 According to Section 102 of Uniform Computer Information Transactions Act, ‘Mass-
market transaction’ means a transaction that is: (A) a consumer contract; or (B) any other
transaction with an end-user licensee if: (i) the transaction is for information or
informational rights directed to the general public as a whole, including consumers,
under substantially the same terms for the same information; (ii) the licensee acquires
the information or informational rights in a retail transaction under terms and in a
quantity consistent with an ordinary transaction in a retail market; and (iii) the
transaction is not: (I) a contract for redistribution or for public performance or public
display of a copyrighted work; (II) a transaction in which the information is customized
or otherwise specially prepared by the licensor for the licensee, other than minor
customization using a capability of the information intended for that purpose; (III) a site
license; or (IV) an access contract. (Uniform Computer Information Transactions Act
‘UCITA’ (Last Revisions or Amendments Completed Year 2002, National Conference of
Commissioners on Uniform State Laws).)
77 H.K. Towle and B. Dengler, ‘Contract formation: electronic contracts and online terms’,
Practising Law Institute, Patents, Copyrights, Trademarks, and Literary Property Course
Handbook Series PLI Order No. G0-00D9, April-May, 2000.
78 C. Reed, Internet Law, Butterworths, London, 2000, p. 175.
79 J.C. Dodd and J.A. Hernandez, ‘Contracting In Cyberspace’, Computer Law Review and
Technology Journal, Summer 1998, p. 1.
80 See UCITA – Summary of the UCITA, available at: http://www.ucitaonline.com; See
also Section 209 of UCITA (Uniform Computer Information Transactions Act (Last
Revisions or Amendments Completed Year 2002, National Conference of
Commissioners on Uniform State Laws)).
81 The contract-as-consent model (…) involves a meeting of the minds between two
humans, or at least voluntariness, or at least consent. (..) (M.J. Radin, ‘Humans,
Computers, and Binding Commitment’, Indiana Law Journal, Fall 2000, Addison C.
Harris Lecture, October 26, 1999).
82 ProCD II, 86 F.3d at 1452.
83 ProCD II, 86 F.3d at 1451.
84 See also Brian Covotta and Pamela Sergeeff, ‘ProCD, Inc. v. Zeidenberg’, 13 Berkeley
Tech. L.J. 35, 35 n.3 (1998).
85 Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y. July 5, 2001).
86 M.J. Radin, ‘Humans, Computers, and Binding Commitment’, Indiana Law Journal,
Fall 2000, Addison C. Harris Lecture, October 26, 1999).
Chapter 4
Electronic Agents
INTRODUCTION
As was noted in the previous chapter, unequal bargaining power in its traditional
sense includes two major aspects: unfair standardised terms and the ineffectiveness
of consumer redress mechanisms. They are based on the premise that contracts
should be based on the negotiation of terms and conditions between consumers and
traders and that the consumer redress mechanisms should enhance consumers’
rights of access to justice through effective means of resolution of cross border
disputes at a low cost.
A new area of unequal bargaining power that may arise in the electronic
marketplace concerns the use of electronic agents1 in the online consumers’
transactions. There are views that suggest that by concluding contracts without any
human interaction, electronic agents allow the reduction of transactional costs and
broad comparative shopping.2 It is true that within the framework of the electronic
market, the electronic agents and shopbots3 will normally lead to a radical reduction
in the cost of obtaining and distributing information. They will normally reduce
consumers’ information acquisition costs4 and will lower their risk when making
purchases. However, whilst many consumers will have access to wide sources of
web information, many cyber consumers would have difficulty in searching for
perfect, accurate and timely information or they may simply not be sophisticated
enough to search and locate all the useful information.5 The use of electronic agents
may enhance the ability to access useful information. Nevertheless, this beneficial
effect by the electronic agents may be cancelled out by the emergence of new ranges
of unequal bargaining causes relating to the existence of unfair standardised terms,
the technological defectiveness of electronic agents, their reduced technical
capacities and the consumers’ lack of knowledge with respect to the technical
capacities of electronic agents.
The purpose of this chapter is to explore some of the essential aspects of unequal
bargaining power in contracts concluded via (or through) electronic agents. In order
to do so, the chapter identifies first the practical aspects of the electronic agents in
online consumer transactions and the consumers’ problems when concluding
contracts via electronic agents. Secondly, it illustrates the multiplication of causes
of unequal bargaining power within the B2C relationships intermediated by the
electronic agents and provides a comparative analysis between the traditional and
the technological model of contracts concluded via (or through) electronic agents.
Finally, it proposes some solutions for alleviating the unequal bargaining power that
might be generated by consumers’ contracts concluded via (or through) electronic
agents.
70 Cyber Consumer Law and Unfair Trading Practices
There are different categories of electronic agents.6 The most important type of
agents in the B2C commercial relationship are: search information agents,7 watcher
agents8 and agents for e-commerce.9 Many of these electronic agents provide
practical advantages for consumers. Consumer agents collect information about a
number of products and services requested by consumers. They also provide
comparisons with classified advertisements. When consumers want to buy products
or services in the electronic marketplace, they may use an agent that acts on their
behalf. Consumers should provide the agent with specified terms and conditions
such as desired date to sell item by; a desired price; the lowest acceptable price and
then release it into the marketplace to interact and complete a transaction. In order
to complete a transaction, the consumer agent and trader agent require
confirmation from the consumer. This confirmation is usually made by e-mail or a
screen message if the consumer is already on line. If the consumer is interested in
purchasing the product, he/she will finally confirm the conclusion of the sale. An
interesting ongoing research project for consumers is Kasbah, a project that uses
multiple agents ‘that [are] intended to help bring about a fundamental change in the
way buying and selling is conducted doing much of the work on the user’s
behalf.’10 At the moment, the system supports the buying and selling of CDs and
books.
In the future, there are plans to allow electronic agents to complete transactions
without any human interference. The electronic agent would automatically be able
to buy the product and arrange for delivery. This process will be facilitated by the
use of electronic cash. Electronic agents definitely revolutionise the manner in
which online transactions between consumers and traders are made in cyberspace.
Nevertheless, whilst this process is accompanied by access of consumers to useful
information which helps them to make reasonable choices, practical questions
might arise in connection with the impossibility for consumers to read the terms and
conditions or to review their consent in a contract concluded with or via an
electronic agent.
The risks of unequal bargaining power in online consumer contracts involving the
use of electronic agents are suggested by both their technological and legal
definitions.
From a technical perspective, Wooldridge and Jennings define ‘electronic agents’
as ‘... a hardware or (more usually) software-based computer system that enjoys the
following properties:
of a contract, when consumers have not had the opportunity to read the
standardised terms and conditions. The electronic agent programmed by
consumers will conduct the whole process of creating the contract. According to
the provisions of the UCITA, an agent must act independently in a manner relevant
to creating or performing a contract. Mere use of a telephone or e-mail system is
not use of an electronic agent. The automated system must have been selected,
programmed or otherwise intentionally used for that purpose by the person that is
bound by its operations. The legal relationship between the person and the
electronic agent is not equivalent to common law agency since the ‘agent’ is not a
human.19
The consumer will normally be responsible for the operations of the electronic
agent. Section 107(d) of UCITA clearly specifies that a person that uses his or her
own electronic agent for authentication, performance, or agreement, including
giving assent, is bound by the operations of the electronic agent, even if no
individual was aware of or reviewed the agent’s operations or the results of the
operations. According to these provisions, the contracts concluded by consumers
using electronic agents are automatically valid. As suggested by Radin:
instead of asking for intent of both parties, UCITA asks for objective characteristics of
reason to know on the part of one party what the other party will infer. UCITA’s provisions
about electronic agents are similarly difficult to parse, but also seem to move away from
the traditional picture of consent.20
This transition from traditional to technological consent might pose questions with
regard to unequal bargaining power between consumer and trader (or trader’s agent)
since the consumer would not have the possibility of reading the terms and
conditions of a contract concluded by the agent programmed by traders. If
consumers do not have the possibility to read terms and conditions, it might be
possible for electronic agents to conclude contracts containing unfair standardised
terms and conditions.
If under general principles of consumer protection, the consumer seems to be
well protected against concluding contracts by electronic agents online containing
unfair or unconscionable terms, the situation becomes more complex when
electronic agents have been given negotiating powers.21 In this hypothetical
situation, confirming assent becomes a relevant issue in considering the validity and
the enforceability of contracts.
Whilst in Europe, manifestation of assent by electronic agents is not yet
regulated, in the United States, a legal model is provided by the US National
Conference of Commissioners on Uniform State Laws in the Uniform Computer
Information Transactions Act (the UCITA) in Section 112(b):
(b) An electronic agent manifests assent to a record or term if, after having an opportunity
to review it, the electronic agent: (1) authenticates the record or term; or (2) engages in
operations that in the circumstances indicate acceptance of the record or term. Supposing
that a electronic agent would manifest assent to an electronic transaction in which the
consumer made an error in programming with wrong instructions related to the purchasing
of ten (10) books instead of one (1). In this case, the consumer’s defence is guaranteed by
UCITA under provisions related to ‘electronic error.’ ‘Electronic error’ means an error in
Electronic Agents 73
(1) A contract may be formed by the interaction of electronic agents of the parties, even if
no individual was aware of or reviewed the electronic agents’ actions or the resulting terms
and agreements.
(2) A contract may be formed by the interaction of an electronic agent and an individual,
acting on the individual’s own behalf or for another person, including by an interaction in
which the individual performs actions that the individual is free to refuse to perform and
which the individual knows or has reason to know will cause the electronic agent to
complete the transaction or performance.28
(1) If the parties have agreed to use a security procedure to detect changes or errors and
one party has conformed to the procedure, but the other party has not, and the
nonconforming party would have detected the change or error had that party also
conformed, the conforming party may avoid the effect of the changed or erroneous
electronic record.
74 Cyber Consumer Law and Unfair Trading Practices
(2) In an automated transaction involving an individual, the individual may avoid the
effect of an electronic record that resulted from an error made by the individual in dealing
with the electronic agent of another person if the electronic agent did not provide an
opportunity for the prevention or correction of the error and, at the time the individual
learns of the error, the individual:
(a) promptly notifies the other person of the error and that the individual did not intend
to be bound by the electronic record received by the other person;
(b) takes reasonable steps, including steps that conform to the other person’s
reasonable instructions, to return to the other person or, if instructed by the other
person, to destroy the consideration received, if any, as a result of the erroneous
electronic record; and
(c) has not used or received any benefit or value from the consideration, if any, received
from the other person.
(3) If neither paragraph (1) nor paragraph (2) applies, the change or error has the effect
provided by other law, including the law of mistake, and the parties’ contract, if any.
(4) Paragraphs (2) and (3) may not be varied by agreement.29
This section tackles the human error in the formation of the contracts formed by
electronic agents but eludes the question of technological defectiveness and reduced
technical capacities of electronic agents and their consequences in electronic
transactions.
In civil law countries, consumers are bound only by those terms and conditions
to which they manifest assent. In order to determine the validity of an online
contract, the judges will verify whether the parties subjectively intended to be bound
by the contract. So, in the case of contracts concluded by electronic agents on behalf
of consumers, consumers would need to have the opportunity to review the contract
terms in order to engage intentionally in conduct from which the trader or the
electronic agent will infer the consumer’s assent to the respective terms and
conditions. This is also confirmed by the Official Comment to Section 112 of the
UCITA, intentional conduct
is satisfied if the alternative of refusing to act exists, even if refusing leaves no alternative
source for the computer information. On the other hand, conduct is not assent if it is
conduct which the assenting party cannot avoid doing, such as blinking one’s eyes. Courts
use common sense in applying this standard in common law and will do so under this Act.
Actions in a context of a mutual reservation of the right to defer agreement to a contract
do not manifest assent; neither party has any reason to believe that its conduct will suggest
assent to the other party.30
Consumers would need to have the opportunity to review the contracts’ terms
not only in order to avoid their engagement in the contracts based on unfair
standardised terms but also in order to prevent their involvement in contracts
containing terms and conditions different from those programmed via the
electronic agents.
Electronic Agents 75
Other potentially unfair situations for consumers might arise from being unable to
agree or review their consent which may lead electronic agents to conclude
electronic contracts under terms or conditions different from those specified by the
user. This is the case when electronic agents do not understand the significance of
legal terms from different legal systems and accept contracts made under other
terms or conditions different from those specified by the user. Consequently,
electronic agents will make electronic mistakes in the negotiation and conclusion of
a contract. In some ways, even for a consumer in its own legal system, it may be
difficult to understand the implication of various terms or conditions agreed upon
between the parties. However, this might not be an excuse for accepting the
electronic agents’ mistakes resulting from their reduced technological capacities.
Indeed, these hypothetical situations might have significant repercussions on the
balance of bargaining power between consumer and trader and raise important
questions relating to the validity and enforceability of contracts31 concluded by
electronic agents under unfair terms and conditions; or, with regard to the liability
of contracts concluded in case of non-performance and error.
The Uniform Computer Information Transactions Act (UCITA) in Section
112(e)2 provides the following rules to the opportunity to review consent:
(1) A person has an opportunity to review a record or term only if it is made available in
a manner that ought to call it to the attention of a reasonable person and permit review;
(2) An electronic agent has an opportunity to review a record or term only if it is made
available in manner that would enable a reasonably configured electronic agent to react to
the record or term.32
As was noticed, electronic agents in their search for making the best deal according
to the consumer’s requirements, have the ability to conclude negotiated contracts
76 Cyber Consumer Law and Unfair Trading Practices
providing alternatives across a range of prices and added value options indicating an
adequate transaction, whilst taking the consumer’s demands into account. As
Lerouge suggested, the development of the use of electronic agents may finally
appear as a chance for the consumer. By creating a mechanism that allows the
consumer to indicate the minimum of protection in the terms and conditions of a
contract, sellers will be encouraged to create clear, protective terms and conditions.
Well-used, electronic agents may actually help consumers not familiar with
disclaimers and therefore reduce the imbalance between buyers and sellers.34 From
this perspective, one might conclude that in the future, electronic agents would
avoid the risk of unequal bargaining power.
By outlining the differences between the traditional and the technological
model of unequal bargaining power in consumer contracts concluded via
electronic agents and by providing proposals for alleviating the risks of unequal
bargaining power, this subsection illustrates an opposite view to those who
advocate a complete eradication of risks of unequal bargaining power in the
electronic marketplace.
Products
Consumer Trader
Services
Contract
Unequal Bargaining
Power
Unfair Standardised
Terms
Contract
One might wonder if the consumer should be expected to control all the stages of
programming electronic agents? According to Kerr ‘part of the problem is that the
operations of these devices will not always be dictated by those who program them.
The electronic devices of tomorrow will “learn for themselves” what is necessary in
the usual course of business to complete the transaction.’38 It can be concluded that
consumers will not need technical knowledge for programming their agents. In the
long run, this statement might be true. Nevertheless, the difference between lack of
knowledge and knowledge relating to the technical capacities of electronic agents
Electronic Agents 79
will usually substantiate the consumers’ intentions in transactions that pose legal
risks. This situation is due to the particularities of electronic agents. Electronic
agents are a piece of software through which consumers can input their social
preferences. Nevertheless, it would be difficult for consumers to determine whether
the electronic agent was functioning according to their specifications. That is why
the ability of controlling the technical capacities of electronic agents will always
constitute a rationale for protecting consumers when dealing via (through)
electronic agents. Cavanillas suggests that ‘e-suppliers should pay the “cost of
confidence” in ecommerce (the cost of probability of unwanted contracts being
concluded by mistake and the cost of the technical tools and procedures employed
to reduce the probability of mistakes).’39 The solution provided by Cavanillas
would probably make the difference between the added value of remedy solutions
offered by the electronic marketplace and those offered by the traditional
marketplace.
4.3.2 Proposals for alleviating unequal bargaining power arising from the
conclusion of the contracts via (through) electronic agents
The first type of proposal relies on the self-regulatory proprieties of the electronic
marketplace. Stuurman and Wijnands propose the certification of agents by
reference to a particular class of security standards. This system is based on the
creation of independent verification marks for agent security features.41 As for the
classical market, in order to alleviate this risk of unequal bargaining power,
consumers may probably use electronic agents as they use brand names as a signal
of product quality. In case that they do not have enough experience to look for
information, they look at the information provided by electronic agents. One might
wonder about the reliability of information provided by electronic agents. The
trustworthiness of the electronic agents is an uncertain field where practical
solutions are looking to the challenges raised by their impact on the online
consumer transactions. Yip and Cunningham confirm this view when arguing that:
[m]oreover, human society has many aids to help with the decision: a brand conveys more
than just a name, it also has the reputation of the company behind it. Media helps to
distribute information regarding companies’ trustworthiness and also trust in the justice
system which seeks to protect members of its society. Our existing agent models lack the
80 Cyber Consumer Law and Unfair Trading Practices
Finally, the process of labelling websites proposed by Lerouge might resolve the
trustworthiness of the information. Through labelling, electronic agents will be
accredited with regard to their capacities to function properly. Furthermore, it may
impose an obligation on the programmer to inform users if the electronic agent was
submitted to an audit or labelling control. A doubting element to the labelling
method is formulated by Radin, who expresses a hope ‘that ideological labels will
not prevent us from working constructively on the future of consent in the
contractual infrastructure of electronic commerce.’43 As will be noticed in the
following subsection, there is an imperative need for regulating electronic agents.
Regulating the use of electronic agents can reduce the risk of unequal bargaining
power in the tripartite relationship between consumer–business–agents. Lerouge
suggested that programmers could not promote any electronic agent services
without first ensuring that they are conforming to the law. It is also considered that
the regulation of electronic agents could limit programmers’ abilities to exempt
themselves from liability. Lerouge suggests that establishing technical criteria by
law is not easy since such criteria run the risk of preventing technological
evolution.44
In my view, any proposal for lessening the unequal bargaining power generated
by the conclusion of consumers’ contracts via electronic agents goes through a
clarification of the legal relationship between consumer (C) (and consumer’s agent
– CA) and business (B) (and business’s agent – BA). Several views set the basis of
the relationship between C –CA and B–BA on the basis of the theory of
appearance45 or of the theory of agency.46 The applicability of these traditional
theories to the electronic agents is a controversial issue in the doctrine. The purpose
of this subsection is not to determine the adequacy or inadequacy of these theories
for the electronic marketplace. Such an attempt will require a study in greater detail
of different comparative aspects of these legal institutions in common and civil law
systems.
Nevertheless, it might be relevant to note that these theories are based on
different legal connotations peculiar to various legal systems. A comparative
analysis would also be useless, since the current legal framework on electronic
agents is very clear; it rejects any comparison with the theory of agency. The
Official comments to UCITA provide that ‘[t]he legal relationship between the
person and the automated agent is not equivalent to common law agency, but takes
into account that the “agent” is not a human. However, parties that use electronic
agents are ordinarily bound by the results of their operations.’47 According to US
legislation, the consumers are responsible for the acts of their agents. That means
that in comparison with the traditional market, when consumers usually do not read
terms and conditions of their contracts, in the electronic marketplace, consumers
would be obliged to pay much more attention to the terms and conditions they input
to their electronic agents.
Electronic Agents 81
From a legal perspective, the relationship between consumer (C) (and consumer’s
agent – CA) – business (B) (and business’s agent – BA) requires a complete re-
conceptualisation of the theory of the agency specially designed to address the issue
of the formation of consumers’ contracts via electronic agents. The re-
conceptualisation of the theory of the agency in the electronic marketplace should
clarify fundamental questions facing consumers when using electronic agents. What
are the legal consequences of electronic agents on consumers’ transactions? What is
the legal status of electronic agents? When legal problems arise in relation with the
use of electronic agents, who should support the cost of liability? Who is the person
responsible for loss, errors and costs arising from electronic agent faults and
failures? Is it the consumer or the electronic agent programmer? Should liability
depend on the ability of the consumers to control the programming of the electronic
agents? Should we speak of a vicarious, absolute liability or ‘joint and several
liability’ between the consumer–agent–business? The allocation of risks in online
consumers’ transactions will depend on the responses to these questions.
CONCLUSIONS
NOTES
1 At the European Union level, there are no provisions referring to electronic agents.
Article 9 of the Directive 2000/31/EC of the European Parliament and of the Council of
8 June 2000 on certain legal aspects of information society services, in particular
electronic commerce, in the Internal Market (Directive on electronic commerce) provide
that ‘Member States shall ensure that their legal system allows contracts to be concluded
by electronic means.’ According to the US National Conference of Commissioners on
Uniform State Laws ‘Electronic agent’ means a computer program, or electronic or other
automated means, used independently to initiate an action, or to respond to electronic
messages or performances, on the person’s behalf without review or action by an
individual at the time of the action or response to the message or performance. Section
102. Definitions (27) (UCITA as amended in 2002).
2 These views are suggested by J.-F. Lerouge in ‘The Use of Electronic Agents
questioned under contractual law: suggested solutions on a European and American
level’, John Marshall Journal of Computer and Information Law, 18 JMARJCIL 403,
Winter 1999.
3 Shopbots are considered as Internet-based services that provide ‘one-click’ access to
price and product information from numerous competing retailers. In so doing, they
reduce buyer search costs for product and price information by at least 30-fold compared
to telephone-based shopping and even more compared to physically visiting the retailers.
(M.D. Smith and E. Brynjolfsson, ‘Consumer Decision-making at an Internet Shopbot’,
July 23, 2001, available at: http://ebusiness.mit.edu/erik1.)
4 Information and search costs are a category of costs necessary for obtaining information
in order to engage a commercial transaction.
5 R. Warner, ‘Border disputes: Trespass to chattels on the Internet’, Villanova Law Review
47 VLLR 117, 2002.
6 For an overview of the different categories of electronic agents see: S. Gonzalo, ‘A
business outlook on Electronic agents’, November 2000; C. Revelli, Intelligence
stratégique sur Internet, Dunod, Paris, 1999.
7 The role of these agents is to optimise the research of information. One of the most
known agents in this category is ‘Copernic’ (from Copernic.com).
8 The role of watcher agents consists in identifying useful information required by users
on a permanent basis. The information is provided to the user by news flash. An example
of a watcher agent available on the Internet is ‘Tierra Highlights’ built-up by
Register.com.
9 The main task of agents for e-commerce is to facilitate e-Commerce by helping users get
the products or services they want at the best price. Some examples of this type of agent
are ‘BargainFinder’ developed by Andersen Consulting, ‘Jango’ available at:
http://www.jango.com, ‘Shopper.Com’ available at: http://www.shopper.com.
10 Electronic Purchasing Agents available at: http://purchasing.about.com/library/
weekly/aa020698.htm.
11 W. Wooldridge, Michael and Nicholas R. Jennings, ‘Agent Theories, Architectures, and
Languages: a Survey’, in Wooldridge and Jennings Eds., Intelligent Agents, Berlin:
Springer-Verlag, 1995, 1-22, N.R. Jennings and W. Wooldridge, ‘Applications of
Intelligent Agents’, Queen Mary & Westfield College, University of London, available
at: http://www.ai.univie.ac.at/~paolo/lva/vu-sa/html.
12 Section 202(a) of the Uniform Computer Information Transactions Act (UCITA) (Last
Revisions or Amendments Completed Year 2002, National Conference of
Commissioners on Uniform State Laws).
13 United States Uniform Electronic Transaction Act (UETA) available at:
http://www.law.upenn.edu/bll/ulc/fnact99/1990s/ueta.htm.
Electronic Agents 83
14 Section 19, Uniform Electronic Commerce Act 1999, Canada, defines ‘“Electronic
agent” as computer program or any electronic means used to initiate an action or to
respond to electronic documents or actions in whole or in part without review by a
natural person at the time of the response or action.’ available at:
http//www.law.ualberta.ca/alri/ulc/current/euecafin.htm.
15 Section 202(a) of the Uniform Computer Information Transactions Act (Last Revisions
or Amendments Completed Year 2002, National Conference of Commissioners on
Uniform State Laws).
16 J. Bing, ‘Legal Aspects of Electronic Agents: With an Emphasis on Intellectual Property
Law’. Paper delivered at the University of Bologna, Faculty of Law, 2002 cited by A.
Artosi, in ‘On the Notion of an Empowered Agent’ paper delivered by the Department
of Philosophy, University of Bologna.
17 A. Artosi, in ‘On the Notion of an Empowered Agent’ paper delivered by the Department
of Philosophy, University of Bologna.
18 UCITA §202(a). Uniform Computer Information Transactions Act (Last Revisions or
Amendments Completed Year 2002, National Conference of Commissioners on Uniform
State Laws).
19 Uniform Computer Information Transactions Act (Last Revisions or Amendments
Completed Year 2002, National Conference of Commissioners on Uniform State Laws)).
20 M.J. Radin, ‘Humans, Computers, and Binding Commitment’, Indiana Law Journal,
Fall 2000, Addison C. Harris Lecture, October 26, 1999.
21 C. Reed, Internet Law, Butterworths, Law in Context, 2000, p. 181.
22 Uniform Computer Information Transactions Act (Last Revisions or Amendments
Completed Year 2002, National Conference of Commissioners on Uniform State Laws).
23 H.K. Towle and B. Dengler, ‘Contract formation: electronic contracts and online terms’
Practising Law Institute, Patents, Copyrights, Trademarks, and Literary Property Course
Handbook Series PLI Order No. G0-00D9, April-May, 2000.
24 Restatement (Second) of Contracts, §153. a.
25 United States Uniform Electronic Transaction Act (UETA). The UETA was drafted by
the National Conference of Commissioners on Uniform State Laws. The UETA was
approved at the 1999 Annual Meeting. UETA is available at: http://www.law.upenn.edu/
library/ucl.htm.
26 United States Uniform Electronic Transaction Act (UETA), available at:
http://www.law.upenn.edu/library/ucl.htm.
27 United States Uniform Electronic Transaction Act (UETA), available at:
http://www.law.upenn.edu/library/ucl.htm.
28 United States Uniform Electronic Transaction Act (UETA).
29 United States Uniform Electronic Transaction Act (UETA).
30 Section 112 UCITA (as amended in 2002) available at: http://www.law.upenn.edu/
bll/ulc/ucita/ucita02.htm.
31 In case of contract concluded by electronic agent under unfair or unconscionable terms,
consumers are legally protected through similar rules that apply to off-line environment.
Supposing that an electronic agent has agreed terms and conditions, which are unfair to
consumer, the EU Unfair Terms Directive (Council Directive 93/13/EEC of 5 April 1993
on unfair terms in consumer contracts, Official Journal L 95, 21.04.1993) protects the
consumer against unfair non-negotiated terms in a contract signed with a professional.
According to the provisions of this directive, a term is unfair when it establishes a
significant imbalance, to the consumer’s detriment, between the rights and obligations of
the contracting parties. (Council Directive 93/13/EEC of 5 April 1993 on unfair terms in
consumer contracts, Official Journal L 95, 21.04.1993, Article 3, §1.) When assessing
the unfair nature of a contractual term some consideration should take into account: the
nature of the goods or services covered by the contract; the circumstances surrounding
84 Cyber Consumer Law and Unfair Trading Practices
the drawing up of the contract; the other terms in the contract or in another contract to
which it relates. According to the provisions of Article 4§2, the assessment of the unfair
nature of the terms ‘shall relate neither to the definition of the main subject matter of the
contract nor to the adequacy of the price and remuneration, on the one hand, as against
the services or goods supplied in exchange, on the other, in so far as these terms are in
plain intelligible language.’ However, where there is doubt as to the meaning of a term,
the interpretation most favourable to the consumer will prevail.
32 Section 112(e) UCITA (as amended in 2002) available at: http://www.law.upenn.edu/
bll/ulc/ucita/ucita02.htm.
33 H.K. Towle and B. Dengler, ‘Contract formation: electronic contracts and online terms’
Practising Law Institute, Patents, Copyrights, Trademarks, and Literary Property Course
Handbook Series PLI Order No. G0-00D9, April-May, 2000.
34 J.-F. Lerouge, ‘The Use of Electronic Agents questioned under contractual law:
suggested solutions on a European and American level’, John Marshall Journal of
Computer and Information Law, 18 JMARJCIL 403, Winter 1999.
35 I.R. Kerr, ‘Providing for Autonomous Electronic Devices in the Uniform Electronic
Commerce Act’, p. 35, available at: http://www.law.ualberta.ca/alri/ucl/current/ekerr.htm.
36 Section 107(d) of Uniform Computer Information Transactions Act (Last Revisions or
Amendments Completed Year 2002, National Conference of Commissioners on Uniform
State Laws).
37 Uniform Computer Information Transactions Act (Last Revisions or Amendments
Completed Year 2002, National Conference of Commissioners on Uniform State Laws).
38 I.R. Kerr, ‘Providing for Autonomous Electronic Devices in the Uniform Electronic
Commerce Act’, p. 59, available at: http://www.law.ualberta.ca/alri/ucl/current/ekerr.htm.
39 Cavanillas, ‘An introduction to web contracts’ in E-commerce law and practice in
Europe, Woodhead Publishing Limited: Cambridge, 2001.
40 For example TRUSTe, an organisation founded by CommerceNet and the Electronic
Freedom Foundation, has developed a system to facilitate the monitoring of website
privacy policies, in which registered websites display a TRUSTe certification, or
‘trustmark’. This trustmark indicates the level of privacy protection provided by the site.
Available at: http://www.etrust.org/.
41 Stuurman, Wijnands, ‘Intelligent Agents: a curse or a blessing? A survey of the legal
aspects of the application of intelligent software systems’, See also E.M. Weitzenboek,
‘Electronic Agents and the Formation of Contracts’, International Journal of Law and
Information Technology, Vol. 9, No. 3, pp. 204-234, available at: http://www3.oup.co.uk/
inttec/Oxford University Press 2001.
42 A. Yip and J. Cunningham, ‘Some Issues on Agent Ownership’, COMMA Group,
Department of Computing, Imperial College of Science, Technology and Medicine,
London, UK, supported by the EC project Agentcities.RTD.
43 M.J. Radin, ‘Humans, Computers, and Binding Commitment’, Indiana Law Journal,
Fall 2000, Addison C. Harris Lecture, October 26, 1999.
44 J.-F. Lerouge, ‘The Use of Electronic Agents questioned under contractual law:
suggested solutions on a European and American level’, John Marshall Journal of
Computer and Information Law, 18 JMARJCIL 403, Winter 1999.
45 Poullet argues that ‘the Code civil theory of the appearance, considered as a source of
obligations, might solve the problem taking into account the needed balances between
the interests of the user of these technologies and the contracting party.’ Y. Poullet,
‘Conclude a Contract Through Electronic Agents?’ (1999) (research paper for the
Research Centre for Computer Law, University of Namur); see also J.-F. Lerouge, ‘The
Use of Electronic Agents questioned under contractual law: suggested solutions on a
European and American level’, John Marshall Journal of Computer and Information
Law, 18 JMARJCIL 403, Winter 1999. In the same article, Lerouge suggests that the
Electronic Agents 85
theory of the appearance in the civil law constitutes a source of binding obligations that
may be justified by a consideration of equity and legal security taking into account the
position of the victim of the semblance.
46 There are views pro and con the theory of agency. For example, Fischer suggests the
applicability of the theory of agency to the electronic agents: ‘[w]hen computers are
given the capacity to communicate with each other based upon preprogrammed
instructions, and when they possess the physical capability to execute agreements on
shipments of goods without any human awareness or input into the agreements beyond
the original programming of the computer’s instructions, these computers serve the same
function as similarly instructed human agents of a party and thus should be treated under
the law identically to those human agents’ (J.P. Fisher, ‘Computers as Agents: A
Proposed Approach to Revised U.C.C. Article 2’, 72 Ind. L. J. 545, 570,1997). The major
part of the doctrine agrees that the theory of agency is not applicable to the electronic
marketplace due to the lack of personality or representativeness of electronic agents.
47 Official Comments to the UCITA, available at http://www.ucitaonline.com/ucita.html.
Chapter 5
INTRODUCTION
The term ‘Online Dispute Resolution’ (ODR) ‘is used loosely to include the use of
the Internet and other web and computer based technologies for facilitating
alternative dispute resolution.’1 The growth of the electronic marketplace leads to a
prevalence of disputes in B2C commercial relationships relating to the issue of
quality or delivery disputes, excessive delivery costs, absence of information on
possible associated costs, breach of privacy policy, breach of security of confidential
information, non reimbursement of goods returned,2 disputes arising from online
banking transactions etc. These disputes are usually characterised as time
consuming and by a difference between the low economic value of the electronic
transaction and the costs of a judicial settlement. Confronted with these drawbacks,
consumers would probably like to resolve their disputes by opting for ODR and
without turning to the courts. However, a quick perusal of commercial practices
demonstrates ODR procedures and decisions in their current form may be
particularly inaccessible (1), lack of effectiveness (2), lack of efficiency (3) and
risks being unfair in protecting the consumer (4).
(1) Inaccessibility concerns the inability of the ODR providers to provide
information of its existence, to involve user-friendly procedures, to ensure
proportionate procedural costs, to be easy to handle.
(2) Ineffectiveness of ODR is relating to the inability of the procedures to operate
by ensuring consumer complaints are dealt with by the appropriate process and by
reassessing their performance.
(3) Lack of efficiency refers to the inability of the ODR scheme to be appropriate
for resolving consumers’ problems and to provide proper terms and conditions.
Most of ODR costs are disproportional in comparison with the value of commercial
transactions and consumers’ lack of confidence is reduced by the failure of ODR
providers to provide evidence of the respect of principle of independence to the
panel in charge of ODR decisions.
(4) Unfairness can be defined in connection with unequal bargaining power:
‘[w]hen the decision-making process in a going private transaction resembles an
arm’s length bargaining process, the result of the process – the substantive terms of
the transaction – may be considered fair on the assumption that it will resemble the
result of an arm’s length bargaining process.’3
ODR procedures, and from mandatory ODR clauses to the provision of information
about ODR procedures.
Although the literature on ODR4 procedures is quite extensive, the
fundamental question of unequal bargaining power seems to be left out. Several
authors remarked on the emergence of unequal bargaining power between
consumer and trader in connection with ODR. Thornburg points out ‘the types of
pressures that lead merchants to impose [ODR] clauses resolving uncertainty in
their favour are intensified on the Internet.’5 Katsh, Rifkin and Gaitenby comment
that ODR ‘is a power that marketplace owners do have, since parties that refuse
to participate and abide by decisions could be threatened with exclusion.’6
Finally, Ponte concludes that unequal bargaining power arises because there are
no clear means of redress for consumers and that there are no uniform laws and
no unified court system.7 To complement these views, the chapter attempts to
provide answers to the following several questions. Should we believe that
transferring the exercise of negotiating power from online traders to ODR
providers, which we see today, resolves the risk of unequal bargaining power for
consumers? Would the lack of negotiating power of the consumer finally be
resolved via complex ODR technological programmes or rather through
international regulatory frameworks? How would consumers be protected via
technological remedies that they are not able to control? Finally, on the basis of
this analysis, the aim of this chapter is to demonstrate that there is still enough
room for governmental intervention to alleviate the unequal bargaining power
raised by private ODR. For the sake of coherence in the examination of the causes
mentioned above, the chapter starts by providing a brief overview of the main
legal framework of ODR in online consumer transactions.
5.1 Starting Points for Online Dispute Resolution (ODR) in Online Consumer
Transactions
ODR is a means of dealing with consumer and merchant complaints and disputes
arising from the provision of services by electronic means but it does not exclude
conflicts arising in the traditional marketplace. ODR is characterised by the
intervention of an independent third party, by decisions which might be non-binding
proposals or recommendations (mediation’s case), or, binding decisions
(arbitration’s case) and not by face-to-face meetings between disputing parties.
Either in the European Union or the United States, the reflections around ODR
procedures are encouraged by the general interest for fostering the confidence of
consumers in electronic commerce.
At the international level, ODR is strongly related to the work of the Organisation
for European Cooperation and Development (OECD). Thus, the Guidelines section
on Dispute Resolution and Redress provides that businesses, consumer
representatives and governments should ‘work together to continue to provide
consumers with the option of alternative dispute resolution mechanisms that provide
effective resolution of the dispute in a fair and timely manner and without undue
cost of burden to the consumer.’27
The OECD’s Report on ‘Legal Provisions related to business-to-consumer
alternative dispute resolution in relation to privacy and consumer protection’28
mentions that all OECD Member countries expressed an interest in promoting fair
and effective ODR as a way to resolve small value B2C disputes, particularly
cross-border disputes. Nevertheless, the current differences in existing legal
frameworks affect the operability of ODR in the cross-border context. Consumers,
as businesses, do not always have information of the type of ODR existent in a
particular country. The interest in providing an ODR legal framework is to lessen
Online Dispute Resolution 91
practical problems facing consumers who wish to take action against online traders
across national borders.
At non-governmental level, ODR was subject to several recommendations issued
by a number of international non-governmental organisations such as GBDe (Global
Business Dialogue on e-commerce),29 the TABD (Transatlantic Business
Dialogue)30 and the TACD (Transatlantic Consumer Dialogue).31 Furthermore, the
‘Electronic Commerce and Consumer Protection Group’ (‘E-Commerce Group’)
made up of leading technology companies such as America Online, AT&T, Dell,
IBM, Microsoft, Network Solutions and Time Warner has launched the Guidelines
for Merchant-to-Consumer Transactions.32 These Guidelines stipulate that
merchants should provide consumers with fair, timely, and affordable means to
settle disputes and obtain redress. The Guidelines also recommend that merchants
should establish internal mechanisms to address consumer complaints. These allow
merchants to contractually require consumer participation, if notice is given at the
time of the transaction. Merchants are encouraged to participate in reputable,
independent third-party dispute resolution programmes, including online dispute
resolution processes. It also suggests ‘third-party dispute resolution programs
should encourage consumers to seek redress through a Merchant’s internal
complaint mechanism prior to being granted access to third-party dispute resolution
programs.’33
At present, there is no international legal framework for ODR procedure. This
absence is justified by some authors through the fact that technology and e-
commerce have outpaced the ability of governments worldwide to construct a viable
multilateral instrument to govern the problems or disputes arising from e-commerce
transactions.34 Others authors consider that if an international legal framework on
ODR would exist, it should be primarily established on a self-regulatory basis. For
example, Ethan Katsh, Janet Rifkin and Alan Gaitenby argue that:
[a] marketplace could … rely on an arbitration process … and use the threat of exclusion
as the mechanism for enforcing the terms of the ruling. … [w]e increasingly felt that eBay
could be considered to be a jurisdiction in itself, a legal authority in itself, an entity that
might even be considered to be able to exercise a loosely defined sovereign power…35
In the same vein, Schultz suggests that ‘online non-binding arbitration could work:
independent from state and courts, with its own system of enforcement, and its own
threats to back its orders. Maybe this mechanism could illustrate how dispute
resolution in cyberspace should best be implemented.’ In my view, even if ODR is
endowed with self-regulatory frameworks, in practice they would still lack
effectiveness. These self-regulatory frameworks are too general and any attempt to
launch a workable self-regulatory system at international level will fail due to the
diverging consumer protection rules existing at national level. Self-regulatory legal
systems in relation to ODR procedures might be essential in the preparatory work
of national governments and in the formation of a ‘customary cyber consumer
law.’36 Nevertheless, if ODR is to play a challenging role in promoting electronic
commerce on a real, international level, the regulation of ODR should be made
through coordinated international governmental interventions aiming to establish
effective legal rules of ODR in consumer transactions.
92 Cyber Consumer Law and Unfair Trading Practices
Online disputes arising on the Internet, despite clichés about ‘Internet speed,’ can be
time-consuming to resolve, legally murky, and factually complex.37 Many ODR
mechanisms in online consumer transactions present several differences in
comparison with traditional off-line ADR mechanisms. Whilst mediation and
arbitration are already well known and used in the off-line world, in an online
environment they are influenced by the interactivity and unpredictability of
cyberspace. On the contrary, Automated Settlement Systems are a new form of ODR
specific for the online environment. The following section describes the main
functional mechanisms of ODR in online consumer transactions. This description
will be useful for understanding the main causes of unequal bargaining power
between consumer and trader confronted with conflicting transactions issues.
[m]ediation is often recommended and encouraged where parties have had an ongoing
relationship and the mediator can draw on the parties’ prior and continuing experience.
That is missing in many ODR transactions where the parties are often consumers or buyers
in one-shot deals and there is no past experience and not much interest in ensuring a future
working relationship, but only an interest in resolving this one dispute.52
advises the parties whether there has been settlement and, if so, at what amount. If
the computer finds there is no settlement, the parties are so advised.56 For
consumers, it is very important to read the terms and conditions of an automated
negotiation carefully, as the outcome generated by the computer can be a legally
binding contract. Amongst the most important systems of automated negotiation
(blind bidding systems) are cybersettle.com or clickNsettle.com.
After outlining some of the main functional mechanisms of ODR, the following
chapter focuses on the legal analysis of the interconnection between unequal
bargaining power and ODR, under its multiple legal forms (ODR clauses, ODR
information or ODR mechanisms and procedures).
5.3 What are the Causes of Unequal Bargaining Power (UBP) in Relation to
ODR?
The unequal bargaining power (UBP) generated by ODR can be summarised by the
position of the consumer who is coerced to accept the trader’s compromise deal
from a weak position. A consumer who purchases over the Internet would have
much more difficulty in pursuing a complaint in a different country due to the
redress costs, mandatory ODR clauses, inadequacy of information about ODR, lack
of legal knowledge or language constraints.
The causes of unequal bargaining power relating to ODR actors are presented in
the Figure 5.1 below. They will be analysed in detail in the following sections. At
first sight, the figure shows that causes of unequal bargaining power are multiple.
They lie in the fact that companies may require high redress costs, may draft
arbitration clauses and consumers may lack technological and legal knowledge of
ODR mechanisms. Some of these instances of unequal bargaining power illustrated
in the figure are also present in the traditional world.57 For example, the mandatory
arbitration clauses and redress costs are also failures persistent in the traditional
market. The purpose of this section is to explore the wide range of causes that create
unfair advantages if a dispute arises in cyberspace and which consumers cannot
negotiate.
Online Products
Consumer Trader
Online Services
Contract
Online Dispute
Resolutions
Trader
Unequal
Bargaining
Power
• Redress Costs
Consumer • Mandatory
ODR Clauses
• Inadequacy of
Information
about ODR
Inadequacy of
Technical Abilities
and of Legal
Knowledge
The technical and technological abilities of consumers to deal with ODR procedures
encompass various ranges of online skills such as typing skills, knowledge of
foreign languages, use of e-mail, connection speeds, and hardware availability.
96 Cyber Consumer Law and Unfair Trading Practices
Some scholars reject the view of unequal bargaining power based on the lack of
technological knowledge. Thus Linden considers that
[t]he use of email seems to cut across all age brackets from 4 years old to 90 years old.
[...] If an individual can use the Internet at all, they seem to have mastered to one degree
or another, the use of email. [...] Therefore, it is not necessary for the disputant to learn a
new skill set to invoke the use of email in the process of dispute resolution.58
In the same sense, Friedman rejects unequal computer knowledge in that the ‘[u]se
of e-mail has increased dramatically in the legal and business worlds during the past
two years, and will continue to do so....’.59 In my view, because of this inequality of
computer and legal knowledge between consumers and traders, the use of ODR
mechanisms impairs the consumer’s ability to conduct adequate ODR procedures.
As Katsh and Rifkin suggested, ‘technological skill and equipment that affects
ability to participate [in ODR procedures] can create a power imbalance.’60 In order
to counteract the unequal bargaining power emerging for ODR, consumers should
have a sound knowledge of technological issues. As suggested by Eisen, ‘online
mediation shifts power to those who understand computers. Even when there is a
serious economic imbalance between the parties, access to the [online] highway to
resolve the dispute makes sense: the economic size of the parties is “invisible” to the
particular dispute resolution process.’61 Furthermore, Eisen argues:
[t]hose who have worked with online graphical environments would be able to process
information more readily than others. Because most communication would be textual,
disparities in literacy levels would give an advantage to those who read quickly; those who
cannot read at all or who do so less well would be disadvantaged. Participants with
extensive expertise in complex litigation will have additional advantages over those who
do not. For example, industry groups with experience in document management could
threaten to dominate the process by generating voluminous E-mail messages that other
participants would have to read and digest.62
From a practical point of view, in order to avoid the criticism of creating unequal
bargaining power, ODR systems should be conceived in a ‘proactive’ manner. This
means that ODR procedures should elicit from consumers their potential and basic
abilities, the knowledge that supports them to solve disputes in interaction with a
virtual and spontaneous online environment, characterised by various cultures and
time zone differences. In a ‘proactive’ ODR process, consumers should be directed
to respond to a list of questions by which the answers can contribute in a fair way
to solve their dispute with the trader. A ‘proactive’ ODR process can be imagined
by comparison with consumer labelling systems. Labelling systems are based upon
an understanding of human information processing limitations and characteristics.63
Similar to labelling systems, ODR procedures should be conceived in a ‘proactive
way’ as a measure in terms of availability, simplicity and accessibility. The
availability and simplicity of ODR are characterised by the capacity of ODR
systems to be operated without the parties having to study in detail how the system
works, and without them having to acquire expensive software or hardware.64 Other
abilities would be needed to counteract unequal bargaining power especially the
enhanced capacities of consumers to communicate and detect potential risks of
Online Dispute Resolution 97
unequal bargaining power in ODR. This aspect relates to the accessibility of legal
information and is underlined in the following section.
It can be concluded that whilst it is expected that the variations in the practical
use of ODR procedures and of the Internet in general will level out with time, if the
failure in negotiation is due to the inadequacy of the technological and technical
knowledge of consumers, a remedial solution might consist in enhancing the
responsibilities of traders in establishing ‘proactive’ ODR systems.
The imbalance of legal knowledge between consumers and traders can arise in the
pre-dispute stage in which consumers would need to consider which form of ODR
would apply to their transaction; or, in the dispute stage in which consumers would
need to be circumspect without overlooking fundamental requirements of
procedural justice and due process. Faced with all these requirements, consumers
will be weighed down by the burden of responsibility. For example, in order to
decide whether methods of ODR proposed by traders are suitable to their electronic
transactions, consumers would not only need to check the terms and conditions
under which the transaction will be conducted, they would also need to have a real
sound knowledge in the use of ODR procedures. This is because the use of ODR
procedures in online consumer transactions is strictly related to the interactivity of
electronic medium where consumers should react directly to pursue their claim. So,
understanding ODR procedures can go to the extent of possessing practical and
legal knowledge about the use of a specific ODR procedure. In the hypothetical
case, where traders will not specify any particular form of ODR, one might wonder
whether consumers should agree with the trader on a specific form of ODR which
would apply in the event of a dispute arising in connection with their transaction. It
is difficult for a consumer to agree with a trader prior to a dispute. That is difficult
even for the most experienced consumer to anticipate which form of ODR or
judicial action would better correspond to a particular potential dispute. The
appropriateness of ODR to a specific dispute depends on the need to provide
conclusive proof or reverse the burden of proof by requiring high and costly
technological expertise, or by the need to demonstrate the unfairness of a
commercial practice on the grounds of particular facts. For example, in cross-border
situations, consumers should anticipate whether they would like to resolve their
dispute on the basis of a particular law rather than in the furtherance of their
interests and goals. Consequently, by requiring consumers to agree with a specific
form of ODR before the appearance of a dispute, the balance of power will always
tilt toward the trader rather than in the favour of the consumer.
As mentioned in the previous section, ODR procedures should be designed in a
proactive manner. This also includes the capacity of ODR procedures to support
consumers to choose the most appropriate ODR process and to introduce and clearly
draft their complaint. If these factors are ignored, they may create reasonable claims
of unequal bargaining power. These claims are justified by situations common to the
off-line environment such as: consumers may encounter difficulties in making a
complaint which clearly explains the cause of their complaint; they can have
98 Cyber Consumer Law and Unfair Trading Practices
[a]s the consumer has the burden of proof, any weakness, or even any ‘tie’ in terms of the
weight of the written evidence will go to the seller. Further, if the arbitrator has any pro-
defendant bias, the lack of live evidence may make it less likely that the consumer’s
presentation can counteract that bias.67
Other factors that suggest unequal bargaining power in ODR procedures relate to
the lack of legal representation of consumers on the Internet. Due to the low
economic value of the electronic transaction, consumers may renounce any recourse
to an arbitrator or mediator. In the absence of sufficient sophistication, consumers
will be normally penalised for their lack of inadequate ODR knowledge.
Experienced traders in ODR procedures would usually forestall any arguments
contained in consumer complaints by providing large quantities of research on a
particular point of their dispute with a consumer.
Providing consumers with pertinent legal advice may alleviate some of the
disparities of legal sophistication between consumers and traders but not all the area
of UBP. Perritt suggests,
in all but the simplest cases, counsel is invaluable in helping a naive disputant understand
the procedure, the relevant rules for decision, and the most effective way to prevent a case.
Online arbitration systems should allow for counsel, perhaps subject to control by the
arbitrator, who may determine in simple cases that no counsel is permitted.68
Redress costs are often at the root of potential failure in the consumer market, and
are particularly important for understanding the rationales of consumer protection.
Online Dispute Resolution 99
The question which arises is whether consumers should pay the costs of ODR.
Practice varies from one country to another. At the international level, it is accepted
that ‘consumers can contribute to ADR costs but argued that those costs must be
proportional to the value of the transaction and the amount in dispute – that is, that
consumers should be able to obtain redress without losing the value of the purchase
in dispute resolution costs.’69 In general, consumers might be required to pay ODR
costs that exceed the amount of the claim. This is quite common as the electronic
market is characterised by low value cyber consumer online disputes. The
complexity of technical and jurisdictional issues in connection with online disputes
may represent a déni de justice when redress costs are too high. According to
statistics established in 2001, by the Consumer International Organization, only 13
ODR providers from 29 operational ODR services work to solve B2C disputes for
small amounts and issues other than those of monetary settlement.70 Eight of the
ODR schemes provide free services for consumers, and four providers charged fees
at an affordable rate to consumers in general disputes.71
The costs required by ODR providers within the framework of Automated
Settlement Systems72 reflect the fact that these mechanisms do not always help
consumers to relieve the pressure of the redress costs. For example, the redress costs
imposed by SettlementOnline are of $300 for each claim.73 Within the framework
of CyberSettle, the costs depend on the amount of the settlement. For example, any
settlement under $5000 costs $100.74 These ODR schemes reveal the imperfection
of the electronic market with regard to ODR since in order to obtain satisfaction, the
consumers would be obliged to support redress costs.
The imbalance of technical knowledge between consumer and trader can be
compared with that existing in the traditional market where consumers might lack
professional knowledge of products and services. As in the traditional market, it is
general practice that the States do not provide legal aid for ODR. There are also
some exceptions. In France, for example, legal aid can be granted to pay the fees of
the lawyer who conducts transactional negotiations.75 Nevertheless, it should be
noted that legal aid is granted on the basis of financial need, not in rapport with the
sophistication of the litigant.
In general, the position of relative weakness of consumers is fostered by the fact
that traders are aware that cyberspace is not necessarily an environment favourable
to repeat player consumers. The consumers are interested in one-shot deals. That is
why the dispute resolution clauses in standardised contracts are chronically
undervalued by one-shot players: ‘they are a mean by which traders enrich
themselves at the expense of those with whom they contract, by systematically
impairing the enforceability of the latter’s statutory rights.’76
Other causes of UBP relate to the fact that traders obtain the consent of the
consumer to pre-dispute mandatory ODR clauses which are unfair to consumers.
The term of pre-dispute mandatory ODR clauses does not mean that these clauses
are mandated by law. Pre-dispute mandatory ODR clauses concern the clauses
which are included in standard form contracts and which are presented to consumers
100 Cyber Consumer Law and Unfair Trading Practices
Mandatory ODR clauses in the online environment can be fixed by traders in the
‘terms and conditions’ of a consumer contract; in a click-wrap agreement where the
terms and conditions are presented to the user with a message on his or her computer
screen, requiring that the user shows his or her assent to the terms of the licence
agreement by clicking on an icon; in the terms of a contract accompanying the
product for which the consumer has already paid.79
The legal status of mandatory ODR clauses is different in the United States in
comparison with the European Union. In the European Union, consumers cannot
waive the protection of the national consumer law of their Member State.80 In most
EU Member States, consumers are free to agree to ODR on a contractual basis,81
subject to the restrictions that apply generally to contracts such as fraud, duress or
public policy concerns (e.g. unconscionability, non-waivable rights, clauses unfair
to an individual, and concerns of equity and fairness).82 The question which arises
is whether ADR clauses in consumer contracts are not in principle forbidden by
Directive 93/13/EEC on unfair terms.83 According to the Unfair Terms Directive, ‘a
contractual term which has not been individually negotiated shall be regarded as
unfair if, contrary to the requirement of good faith, it causes a significant imbalance
in the parties’ rights and obligations arising under the contract, to the detriment of
the consumer.’84 Furthermore, the directive includes a non-exhaustive and
indicative list of clauses, which can be declared unfair. Amongst these, clauses
which figure as unfair include clauses that ‘exclude or hinder the consumer’s right
to take legal action or exercise any other legal remedy.’85 Moreover, the European
Court of Justice held in Océano Grupo Editorial SA v. Roció Murciano Quintero
joined cases that:
[a]ny dispute relating in any way to your visit to Amazon.com or to products you purchase
through Amazon.com shall be submitted to confidential arbitration in Seattle, Washington,
except that, to the extent you have in any manner violated or threatened to violate
Amazon.com’s intellectual property rights, Amazon.com may seek injunctive or other
appropriate relief in any state or federal court in the state of Washington, and you consent
to exclusive jurisdiction and venue in such courts. Arbitration under this agreement shall
be conducted under the rules then prevailing of the American Arbitration Association. The
arbitrator’s award shall be binding and may be entered as a judgment in any court of
competent jurisdiction. To the fullest extent permitted by applicable law, no arbitration
under this Agreement shall be joined to an arbitration involving any other party subject to
this Agreement, whether through class arbitration proceedings or otherwise.89
[t]he consumer is generally not a repeat player, or legally savvy enough to understand the
full import of the clause – what rights and recourse they are in fact giving up. Consumers
can be and are held to these contracts, but no one creating these clauses could credibly
assert that more than a small percentage of consumers read all of the small print on each
transaction.90
5.3.3.1.2 Consumers should travel long distances to resolve their disputes, to get
enforcement abroad or to pay expensive long-distance teleconference charges The
use of the term ‘ODR’ does not exclude that certain forms of dispute resolution or
stages of the respective proceedings are carried out traditionally and not entirely
online.95 So, the label ‘ODR’ might sometimes be misleading. By accepting ODR,
consumers risk incurring either expensive long-distance teleconference charges, or
even travel and related expenses. This situation would be unfair if a consumer, who,
for example, makes a transaction worth 400 Euro would need to travel to another
state in order to get redress or to obtain the enforcement of their decision.
In this case, ODR will be profitable for traders but certainly not for consumers
who in most cases will decide not to proceed with their claims. For example, in
Brower v Gateway Inc96 involving the purchase of a computer and related software
products, the arbitration agreement stipulated arbitration before the International
Chamber of Commerce (ICC) Court of Arbitration. The New York Appellate Court
held that the arbitration agreement was unenforceable and remanded the case back
to a lower court to encourage the parties to find an appropriate arbitration procedure
for their small claims dispute.
Most websites do not contain any information about ODR procedures and do not
appear to provide any information about ODR providers, training, licensing, and
selection of lawyers or neutrals, monitoring or auditing of performance, and
enforcement of ODR decisions is often insufficient.99 The inadequacy in providing
information to consumers is one of the causes of unequal bargaining power between
consumers and traders. Certain views seem to uphold the duty of consumers being
informed and of researching specific ODR. This view can be elicited from the
following suggestion: it is important ‘to allow users to find rapidly and easily the
information concerning the ODR providers and the services they propose. This can
be done through networks that can offer different services …’100 In my view, the
provision of information should lie with the trader’s responsibility to make the
process of dispute resolution comprehensible to consumers. Nevertheless, it cannot
be concluded from the presence of multiple hyperlinks with ODR providers and
services that traders will automatically be exempt from the obligation to provide
ODR information. Such a view reassures the opinions of those who completely tilt
the debate towards the provision of information by ODR providers. The provision
of information by ODR providers of their services is of paramount importance in
convincing a consumer to submit his or her dispute to their authority and represents
an essential part of promoting or advertising activities by ODR providers.
Nevertheless, the disclosure of information on traders’ websites will better help
consumers in making informed decisions about ODR providers and procedures.
Furthermore, as consumers should have the liberty to choose between several ODR
providers, they should be able to exercise this opportunity from the trader’s website
and not by doing time-consuming researches to find the best ODR procedure or
provider. It is quite improbable that consumers after looking for a product or a
service that meets their expectations and after collecting and comparing this general
information will spend time gathering preliminary information about ODR
procedures via different professional ODR providers. The disclosure of information
on the trader’s website will allow consumers not only to understand the nature of the
dispute resolution process but also to clarify their rights, the obligations of traders
and the roles of ODR providers.
Alleging that an ODR is unfair requires the diagnosis of the procedural and
substantive aspects of unfairness. An ODR is unfair when it creates a significant
imbalance between the rights and the obligations of the parties and deprives the
consumers of an advantage corresponding to their reasonable expectations. In order
to ensure the protection of consumers against unfair arbitral proceedings, the
American Arbitration Association (AAA) through the National Consumer Disputes
Advisory Committee launched the Consumer Protocol composed of a statement of
15 principles for fairness of ADR programs.101 The Protocol provides that ‘[a]ll
parties are entitled to a fundamentally fair ADR process.’102 Whilst the Consumer
104 Cyber Consumer Law and Unfair Trading Practices
These duties will be better accepted and respected by the traders if they are
formulated within the framework of governmental regulatory framework. The
disclosure of information on ODR procedures has previously been satisfied by its
acceptance as a general duty upheld by guidelines of non-governmental
organisations113 by European law114 or international law.115 However, despite its
general acceptance, there are many online companies that do not seem to pay too
much attention to the principle of disclosing information on ODR procedures.
Accepting that disclosure of information remains at the stage of ‘duty’, variations in
the interpretation of this principle will be dependent on the circumstances of a
particular dispute being dealt with in a national electronic marketplace. This legal
context will not reinforce consumer confidence in the electronic market
environment. The disclosure of information should be regulated from the
perspective of its existence as an obligation under a trader’s responsibilities,
operating in a global electronic marketplace.
The substantive unfairness of ODR refers to circumstances such as inclusion in
the terms of an ODR clause of an inconvenient forum-selection clause; or imposing
on consumers to waive their procedural rights to go to court. These elements of
unfairness were analysed above in relation to the standardised online contracts.116
As a reminder, in Patterson v. ITT Consumer Financial Corp.,117 the arbitration
agreement ‘on its face suggests that Minnesota would be the locus for the
arbitration.’118 Usually, the consumer cannot possibly negotiate such clauses.
Therefore, the consumer should not be considered as giving consent to this type of
clause if it is to his/her detriment.
106 Cyber Consumer Law and Unfair Trading Practices
CONCLUSIONS
The role of ODR should be that of enforcing the consumer’s rights of access to
justice, through effective means of resolution of cross border disputes, ensuring a
low cost. In order to handle complaints and responses electronically, and to have the
capabilities to bring the parties together in real time to discuss the dispute if need
be, the ODR need to be flexible and account for possible variations in law, language
and custom between different jurisdictions; they must be low cost considering the
potential expense of bringing a complaint against an online company – at distance;
and provision must be made to ensure the decision is binding on the supplier.119
Detailed governmental regulation of ODR could theoretically solve the concerns
of substantive and procedural unfairness. The remaining ODR question is whether
challenges raised by technology would be a driving force for equal bargaining
power through legislation. Another remaining question is whether an international
legal framework would move ahead at a faster pace than technology to ensure
effective consumer protection. Confronted with this dilemma and contrary to
Reagle’s view, my inclination is towards regulatory intervention and not towards
technology since I believe we are better served by educating and focusing designers
on the relevant principles of law rather than explaining notions of computer
networks to lawyers.120
How otherwise, could we imagine designers appraising the hidden face of law in
sophisticated technological models where the negotiation process between parties is
driven by software without the intervention of a human third party? Finally, as Teitz
judiciously remarked, ‘[p]arties to crossborder transactions must have confidence
(…) in the capacity to resolve subsequent disputes in an equitable and efficient
manner, even if those disputes involve parties and occurrences half way around the
world.’121
NOTES
Fair Trading Tribunal is an independent, statutory Tribunal established under the Fair
Trading Tribunal Australian Act 1998. This Tribunal may ask for a neutral evaluation to
be undertaken to assess the strengths and weaknesses of each party’s case and offer an
independent opinion of the likely outcome of the matter. For more information,
available at: http://www.agd.nsw.gov.au/ftt/ftt.nsf/pages/ftt_1; escrow mechanisms
allow purchasers to escrow their payments until they accept delivered merchandise.
5 E.G. Thornburg, ‘Going private: Technology, due process, and Internet Dispute
Resolution’, U.C. Davis Law Review, 34 UCDLR 151, 2000.
6 E. Katsh, J. Rifkin and A. Gaitenby, ‘E-Commerce, E-Disputes, and E-Dispute
Resolution: In the Shadow of Ebay Law’, 15 Ohio St. J. on Dis. Res. 705, 720-721,
2000.
7 L.M. Ponte, ‘Boosting Consumer Confidence in E-Business: Recommendations for
establishing fair and effective dispute resolution programs for B2C online transactions’,
Albany Law Journal of Science and Technology, 2002, 12 ALBLJST 441. See also,
L.M. Ponte, ‘Cyberjustice: Online Dispute Resolution for E-Commerce’, Prentice Hall,
August 31, 2004.
8 Uncitral Conciliations Rules, General Assembly Resolution 35/52, available at:
http://www.uncitral.org/en-index.htm.
9 Rules of arbitration of the International Chamber of Commerce (in force as from 1
January 1998) available at: http://www.iccwbo.org/court/english/arbitration/rules.asp.
10 Chartered Institute of Arbitrators, Arbitration rules, 2000 http://www.arbitrators.org/
Materials/Arb/rules.htm.
11 Green Paper on alternative dispute resolution in civil and commercial law, European
Commission, Brussels, COM(2002) 196 final 19.04.2002.
12 5 U.S.C. §571 (2000).
13 This objective was reaffirmed at the European Council at Santa Maria da Feira in June
2000 when the ‘e-Europe 2002 Action Plan’ was approved available at:
http://europa.eu.int/information_society/eeurope/action_plan/index_en.htm.
14 The first recommendation (Commission Recommendation of 30 March 1998 on the
principles applicable to the bodies responsible for out-of court settlement for
consumers which was adopted on 30 March 1998 (OJ L 115,17.4.1998, p. 31)), relates
to the procedures which, no matter what they are called, lead to a resolution of the
dispute through the active intervention of a third party who formally adopts a position
with regard to a solution. This first recommendation, which sets out the seven minimum
principles for the establishment and operation of ADR facilities, does not relate to the
procedures often referred to as ‘mediation’ procedures.
15 The second recommendation (Commission Recommendation of 4 April 2001 on the
principles for out-of-court bodies involved in the consensual resolution of consumer
disputes) (OJ L 109, 19.4.2001, p. 56) relates to the procedures which are limited to a
simple attempt to bring the parties together to convince them to find a solution by
common consent. It may be that the third party is called upon to propose a solution
informally.
16 Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on
certain legal aspects of information society services, in particular electronic commerce,
in the Internal Market (Directive on Electronic Commerce) (OJ L 171, 17.7.2000, p. 1).
17 The main consequence ensuing from the European Commission approach relies on
various national structures in the process of implementation of out-of-court settlement
of consumer disputes (OCSD). The variety of national structures range from the
Ombudsman in the UK and the National Board for Consumer Complaints in Sweden to
arbitrage panels in Belgium or France. This diversity may be perceived as a positive
element of the proximity for consumers that contribute to strengthen their confidence.
However, the same diversity might be questionable when approaching the functioning
108 Cyber Consumer Law and Unfair Trading Practices
46 There are over 30 online mediation providers as for example SquareTrade; Trusted
Shops; Which? Web Trader; Web Assured; WebMediate; BBBOnline; Claim Resolver;
CEDR; Consensus Mediation; ECODIR; e-Mediator.co.uk; etc.
47 Alternative disputes resolution, Global Business Dialogue on Electronic Commerce,
September 26, 2000.
48 See for example, the Mediation Room.com, http://www.themediationroom.com.
49 E. Katsh and J. Rifkin, Online Dispute Resolution, Resolving Conflicts in Cyberspace,
San Francisco, Jossey-Bass, 2001, pp. 140-142.
50 C. Cherry Lisco, Vice President, Dispute Resolution Services, SquareTrade, ‘Case
Study in Online Mediation: Resolution Across Borders’, www.squaretrade.com.
51 L.E. Teitz, ‘Providing legal services for the middle class in cyberspace: The promise
and challenge of on-line dispute resolution’, Fordham Law Review, 70 FDMLR 985,
December, 2001.
52 L.E. Teitz, ‘Providing legal services for the middle class in cyberspace: The promise
and challenge of on-line dispute resolution’, Fordham Law Review, 70 FDMLR 985,
December, 2001.
53 Processing over 10,000 cases a month, SquareTrade handles a wide variety of disputes;
from goods and services, to traditional commercial and property disputes (Cara Cherry
Lisco Vice President, Dispute Resolution Services, SquareTrade, www.squaretrade.com).
54 Green Paper on alternative dispute resolution in civil and commercial law, Brussels,
19.04.2002, COM (2002) 196 final, p. 6.
55 Resolving E-commerce dispute online: asking the right questions about ADR, OECD,
July 2002.
56 B.G. Davis, ‘Building The Seamless Dispute Resolution’, Texas Wesleyan Law Review,
8 TXWLR 529 symposium 2002.
57 S. Goldberg, E. Green and F. Sander, Dispute Resolution, Boston: Little Brown, 1985,
p. 389.
58 J. Linden, ‘Low Tech On-Line Dispute Resolution’, ADR Online Monthly,
http://www.ombuds.org/center/adr2002-5.html.
59 G.H. Friedman, ‘Alternative Dispute Resolution and Emerging Online Technologies:
Challenges and Opportunities’, 19 Hastings Comm&Ent. L.J. 695, 1997.
60 E. Katsh and J. Rifkin, Online Dispute Resolution, Resolving Conflicts in Cyberspace,
San Francisco, Jossey-Bass, 2001, p. 78.
61 J.B. Eisen, ‘Are we ready for mediation in cyberspace?’, Brigham Young University
Law Review, BYULR 1305, 1998.
62 J.B. Eisen, ‘Are we ready for mediation in cyberspace?’, Brigham Young University
Law Review, BYULR 1305, 1998.
63 W.K. Viscusi and W.A. Magat, Learning about Risk, Harvard University Press,
Cambridge, 1987, p. 41.
64 T. Schultz, ‘Online Dispute Resolution: An Overview and Selected Issues’, United
Nations Economic Commission for Europe Forum on Online Dispute Resolution,
Geneva, 6-7 June 2002.
65 E.G. Thornburg, ‘Going private: Technology, due process, and Internet Dispute
Resolution’, U.C. Davis Law Review, 34 UCDLR 151, 2000.
66 H. Perritt, ‘Dispute Resolution in Cyberspace: Demand for New Forms of ADR’, 15
Ohio St. J. on Dis. Res. 675, 684, 2000.
67 E.G. Thornburg, ‘Going private: Technology, due process, and Internet Dispute
Resolution’, U.C. Davis Law Review, 34 UCDLR 151, 2000.
68 H. Perritt, ‘Dispute Resolution in Cyberspace: Demand for New Forms of ADR’, 15
Ohio St. J. on Dis. Res. 675, 684, 2000.
69 ‘Dispute Resolution in Electronic Commerce’, Discussion Paper, Australia Consumer
Affairs Division, The Treasury, October 2001.
Online Dispute Resolution 111
INTRODUCTION
For the purposes of this research, the disclosure of information is approached from
the perspective of its content and of its form. The disclosure of information in these
chapters refers not only to material information about products and services that can
be viewed by consumers when entering the trader’s website but also to commercial
communications.3
In general terms, the disclosure of information in online consumer transactions
refers to the obligation of traders to provide information which helps consumers to
make informed decisions. The compliance of traders with the obligation of
disclosing information should take into account the content of product or service
information, and on the other hand, the form in which this information is presented
to consumers.
The content of product or service information, on which consumers may take
their decision, may be insufficient or inaccurate. The failure to provide sufficient
information about product or service prices, the characteristics and qualities of the
products and services, may represent a serious failure of the electronic marketplace
to the same extent as the inaccuracy of information.4 As remarked by Rothchild,
‘[f]or many purchasing decisions, consumers can gather the necessary information
on their own, through inspection of items offered for sale or by making small,
experimental purchases.’5 In the electronic marketplace, the inspection product will
be much more difficult than in the traditional marketplace as consumers will not
Disclosure of Online Information 117
have the possibility to examine or test online products and services. In a stricter
sense, disclosure of information refers to the placement and the proximity of
disclosures, the use of hyperlinks, frames, pop-up screens and interstitials to make
disclosures in banner ads.6 When disclosure of information is not presented clearly
and conspicuously on the website, consumers risk not perceiving or understanding
its meaning.
The disclosure of information may refer to the information on the vendor’s identity
– allowing the possibility for the consumer to be aware of the identity of the person;
on the product or service – the consumer will need to receive a description of the
product or service; on all terms and conditions of sale including: the price, delivery
prices, customs duties, shipping charges, geographic limitation, time of delivery; on
the method of payment and any cost implications of using different options; on
cancellation and complaint procedures – the consumer should have the possibility
to cancel and to communicate their complaints and to know beforehand how these
will be dealt with; on the processing of personal data – the consumer should be
aware if their personal information is being collected and for what purpose. The
seller should inform the consumer about his policy on the use of personal data; on
the payment security system – the consumer should be informed if the information
provided in the selling process is well protected etc. The respect of the obligation of
disclosing information by online traders is important since on the one hand,
cyberspace represents a medium which allows a quick delivery of information and
on the other hand, online traders lack any personal contact with consumers.
Three Directives are relevant for consumers’ information in respect of the electronic
marketplace: the Electronic Commerce Directive,7 the Distance Selling Directive8
and the Distance Marketing of Financial Services Directive.9
The Electronic Commerce Directive deals with information society services such
as online newspapers and specialised news services including financial information;
online selling of various products including books, computer hardware and
software, pharmaceuticals; the online provision of financial services including
online banking, online investment. The Electronic Commerce Directive provides
specific rules relating to electronic commerce that are intended to ensure that the
contract concluded between consumers and sellers by electronic means is based on
a free and valid consent. Article 5 ensures that transparency rules are applicable with
regard to a service provider’s identity and place of establishment. The information
to be provided refers to the name of the service provider, his geographic address,
details permitting his rapid contact, and relevant entries in trade or similar registers.
In addition, the information provided by seller to consumer must be clear,
comprehensive and unambiguous at all stages of the online purchase process leading
to the conclusion of the contract. This information must be supplied prior to the
order being placed by the recipient of the service. The information duty includes all
118 Cyber Consumer Law and Unfair Trading Practices
the different stages for the formation of contracts, whether or not the concluded
contract will be filed by the service provider and will be accessible, the technical
means for identifying and correcting input errors prior to the placing of the order
and the languages offered for the conclusion of the contract. Furthermore, the
service provider must also indicate any relevant codes of conduct to which he
subscribes and information on how these codes can be consulted electronically.
These requirements of better information have been transposed almost literally
by most of the EU Member States and the EEA countries. Only Ireland introduced
additional information by which a service provider shall provide details of how
individuals can register their choice about receiving or not receiving unsolicited
commercial communications.10
Whilst the Electronic Commerce Directive sets up transparency and information
special requirements for the electronic market in European law, a new layer of
protection for consumers will be added by the proposed Directive on Unfair
Commercial Practices,11 the proposed Regulation on Enforcement Cooperation12
and the proposed Regulation on Sales Promotions,13 Whilst high legal standards are
now in place, it seems however that in practice there is plenty of room for achieving
compliance for Internet service providers.14
The Distance Selling Directive contains specific rules relating to conclusion of
distance contract between consumers and business. These rules are designed to
protect consumers who buy goods and services by mail order, phone, fax and
Internet. Two provisions are relevant concerning the obligation to provide
information to the consumer: prior information and written confirmation of
information. According to these rules,15 the consumer shall be provided with
information relating to the identity of the supplier, the main characteristics of the
goods or services, the price of the goods or services, including all taxes, delivery
costs, where appropriate, the arrangements for payment, delivery or performance,
the existence of a right of withdrawal, the cost of using long distance
communication, the period for which the offer or the price remains valid and the
minimum duration of the contract in the case of contracts for the supply of products
or services to be performed permanently or recurrently. These provisions therefore
require businesses engaged in e-commerce to provide sufficient information on
terms, conditions of sale and costs of a transaction in order to enable consumers to
make an informed choice.
Just like the electronic commerce rules, the distance selling rules stipulate that
this information should be clear, comprehensive and easily accessible with regard to
the principles of good faith in commercial transactions. This means that the
information should be provided in such a way as to give consumers an adequate
opportunity to review their decision before entering into the transaction and they can
retain a record of the agreement. Moreover, the consumer must receive written
confirmation, or confirmation in another durable medium, setting out his rights and
obligations prior to the agreement. This information should set out the time of
delivery where goods not for delivery to third parties are concerned.16
Distance Marketing of the Financial Services Directive17 includes EU common
rules on the information that must be supplied to consumers when financial services
are provided at a distance. The Directive complements the Distance Selling
Directive which does not apply to financial services. Whilst the Electronic
Disclosure of Online Information 119
(1) the supplier including the identity and the main business of the supplier, the
geographical address; the identity of the representative of the supplier; the
trade register in which the supplier is entered and his registration number or
an equivalent means of identification in that register; where the supplier’s
activity is subject to an authorisation scheme, the particulars of the relevant
supervisory authority;
(2) the financial service including a description of the main characteristics of the
financial service; the total price to be paid, including all related fees, charges
and expenses, the basis for the calculation of the price enabling the consumer
to verify it; notice of special risks; notice of the possibility that other taxes
and/or costs may exist that are not paid via the supplier or imposed by him;
the period for which the information provided is valid; the arrangements for
payment and for performance; any specific additional cost;
(3) the distance contract including information on the right of withdrawal where
the right of withdrawal exists, its duration and the conditions for exercising
it, the minimum duration of the distance contract in the case of financial
services to be performed permanently or recurrently; practical instructions
for exercising the right of withdrawal; the contractual clause relating to the
law applicable to the contract etc;
(4) redress including information about the existence of any out-of-court
complaint and redress mechanism; the existence of guarantee funds or other
compensation arrangements, not covered by Directive 94/19/EC of the
European Parliament and of the Council of 30 May 1994 on deposit
guarantee schemes and Directive 97/9/EC of the European Parliament and of
the Council of 3 March 1997 on investor compensation schemes;
Article 3 states that the information shall be provided in ‘good time’
before the consumer is bound by any distance contract or offer. In addition,
Article 4(2) states that Member States may impose, or maintain, more
stringent prior information requirements. The obligation of information is
further detailed in Article 5 (1) which requires the supplier to provide all
the terms and conditions as well as the information as described by Articles
3 and 4 ‘on paper or other “durable medium” available and accessible to
the consumer in good time before the consumer is bound by any offer.’18
This obligation can be fulfilled immediately after the conclusion of the
contract, if the contract has been concluded at the consumer’s request using
a means of distance communication which does not enable providing the
contractual terms and conditions and the information in conformity with
Article 5 (1).
120 Cyber Consumer Law and Unfair Trading Practices
(1) the act of downloading allows retention through printing or saving of terms
and conditions by means of the consumer’s computer;
(2) the terms and conditions presented on the website are directed to him in an
accessible way. It is not compulsory that the online information targets
consumers by creating the impression that the consumer was ‘specially
selected’ to receive the information;
(3) the act of downloading is equivalent to a request for information since the
data stored on the floppy or on the hard drive of the consumer’s computer can
be considered as a stock of information.
OECD Guidelines also provide that where more than one language is available to
conduct a transaction, businesses should make available in those same languages all
information necessary for consumers to make an informed decision about the
transaction. Businesses should provide consumers with a clear and full text of the
relevant terms and conditions of the transaction in a manner that makes it possible
for consumers to access and maintain an adequate record of such information.
Where applicable and appropriate given the transaction, such information should
include the following: i) an itemisation of total costs collected and/or imposed by
the business; ii) notice of the existence of other routinely applicable costs to the
consumer that are not collected and/or imposed by the business; iii) terms of
delivery or performance; iv) terms, conditions, and methods of payment; v)
restrictions, limitations or conditions of purchase, such as parental/guardian
approval requirements, geographic or time restrictions; vi) instructions for proper
use including safety and health care warnings; vii) information relating to available
after-sales service; viii) details of and conditions related to withdrawal, termination,
return, exchange, cancellation and/or refund policy information; and ix) available
warranties and guarantees. All information that refers to costs should indicate the
applicable currency.
To avoid ambiguity concerning the consumer’s intent to make a purchase, the
consumer should be able, before concluding the purchase, to identify precisely the
goods or services he or she wishes to purchase; identify and correct any errors or
modify the order; express an informed and deliberate consent to the purchase; and
retain a complete and accurate record of the transaction. The consumer should be
able to cancel the transaction before concluding the purchase. Consumers should be
provided with easy-to-use, secure payment mechanisms and information on the
level of security such mechanisms afford. The OECD rules with regard to the
provision of information are exemplary by their precision. However, the old
recurrent question of the legal effect of the ‘soft rules’ seems to be true more than
ever. In order to correct the asymmetries of information, the OECD model provides
rules for best practices rather than for binding rules. This international model has
Disclosure of Online Information 123
When evaluating the proximity and the placement of a disclosure in the context of
a web page, the traders should consider that the disclosure is more likely to be
effective if consumers view the claim and disclosure together on the same screen.34
For example, when a disclosure is not placed next to the product or service,
consumers might have difficulties in accessing the necessary information.
Sometimes a disclosure may not appear on the same screen, as the product or
service information or the disclosure may be too long to be placed next to the
product or service to which it makes reference. In this case, traders should indicate
to consumers that they would need to scroll and to avoid formats that discourage
scrolling. Traders can also include links that lead to important information. In this
situation, they should make clear that the link is related to a claim and indicate the
kind of information that consumers will find by clicking through.35
is that although they are required, there are no rules for clarity or conciseness. Some
standards were formulated in France where the use of footnotes in advertising is
accepted by Bureau de Verification de la Publicité41 under two cumulative
conditions: to clarify the information contained in an advertisement and to be
presented in the same font size as the size of the main statement.
6.3.3 Whether other elements of the ad distract attention from the disclosure
The asymmetries of information can result from elements like graphics, sound, text
or even hyperlinks that lead to other pages or sites which could mean that the
disclosure of information will not be noticed, read or understood it. So, if the visual
is dynamic (like video), traders should be sure the disclosure appears for a sufficient
duration for a consumer to notice, read and understand it.42 Furthermore, it is
possible that consumers may not have speakers, appropriate software, or appliances
with audio capabilities, so they will not hear the claim or the disclosure. That is why
disclosures triggered by a claim or other information on web pages should not be
placed solely in an audio clip.
Consumer access to web pages can be made through the homepage or by linking to
that page via a search engine or another website. As consumers usually will not read
all the words on a website, it might be useful to repeat information in order to ensure
that consumers will notice and understand it. As US FTC Guidelines outline, the
disclosure need not be repeated so often that consumers would ignore it and that it
would clutter the ad.
The positive impact of disclosures depends on the fact that disclosures are made in
a clear language that is understood by consumers. In order to avoid the risk of
information asymmetries, traders and advertisers should use clear language and
syntax and avoid legal or technical jargon. Also, incorporating extraneous material
into the disclosure also may diminish the message that must be conveyed to
consumers.
Compliance with the criteria described above are not influenced by the
defendant’s intent of detrimental effect on the consumer’s behaviour, it depends on
how a consumer actually understands disclosures within the context of the entire
advertisement. To enhance credibility, traders and advertisers need to focus not only
on highly visual and colourful information but also on disclosure of information
containing adequate explanatory text or important terms and conditions. This is
because a judge when considering the misleading or deceptive advertisement will
take into account the impression left by advertising on a consumer and not
necessarily the material appearance of the offending advertising.
Disclosure of Online Information 127
When consumers cannot perfectly assess the quality of a product or a service, the
consumers’ choice over the quality to purchase – at any given price – may not be
appropriate for their real needs. As remarked by Larabie-LeSieur: ‘[w]here
incomplete or false information in relation to a product or service is fed into the
market, market performance is adversely affected. Distortion of the marketplace
harms both consumers and honest competitors. Consumers are precluded from
making informed purchasing decisions and firms are denied the ability to compete
on a level playing field.’43
Asymmetry of information is based on the economic models set up in 1970s by
George Akerlof, Michael Spence and Joseph E. Stiglitz who in 2001 received the
Nobel Prize for their analyses of markets with asymmetric information. George
Akerlof44 demonstrated when a seller has more information than buyers about the
product quality they can contract into an adverse selection of low-quality products.
Michael Spence identified the auto-regulation of the market when the better
informed take costly actions in an attempt to improve on their market outcome by
credibly transmitting information to the poorly informed.45 Joseph Stiglitz
explained that poorly informed agents extract information from the better informed,
‘such as the screening performed by insurance companies dividing customers into
risk classes by offering a menu of contracts where higher deductibles can be
exchanged for significantly lower premiums.’ 46
Application of the asymmetry of information in the traditional market focuses
also on the model of ‘price dispersion’ process. According to ‘price dispersion’
models formulated by Salop and Stiglitz47 and Varian,48 some consumers will be
informed of all prices and other consumers will know only one price and they will
not look for other prices. In accordance with these models, assuming that the price
is the main determining factor: ‘the informed consumers purchase from the retailer
with the lowest price whilst, the uninformed consumers will purchase if the price
they are aware of is lower than their reservation value. The main consequence is that
some stores charge low prices in an attempt to attract informed consumers while
other stores charge high prices to sell to uninformed consumers.’49
It is difficult to measure the impact of these theories on consumer protection
since significant consumer protection legislation started to be enacted in 1960. If
these theories did not set up a basis for the first rationales for consumer protection,
it is supposed that they explained and opened up the path for a better consumer
protection. It is also difficult to assess the value of these models in the electronic
market where factors which play essential roles in consumer decisions are not only
quality and prices, but also information about the legal terms and conditions,
information about the company.
In the case of asymmetry of information generated by the disparity of
information between consumer and trader with regard to the legal terms and
conditions, traders will hold back that information until after payment so as not to
drive away customers.50
Since a large quantity of information is accessible in a short time in the electronic
market, the asymmetry of information is related to the quality of information about
the company. In the electronic market it is difficult for a consumer to determine in
128 Cyber Consumer Law and Unfair Trading Practices
According to the Oxford Dictionary, ‘dominance’ means ‘power and influence over
others.’ The usual concept of ‘dominance’ has military connotations. According to
an article displayed on the Information Warfare55 website, the ‘dominance’
represents ‘the degree of information superiority that allows the possessor to use
information systems and capabilities to achieve an operational advantage in a
conflict or to control the situation in operations other than war while denying those
capabilities to the adversary.’56
In the electronic market, a possible definition of the ‘dominance of technological
information’ is relating to the behaviour of those traders that influence the structure
of the market by using technological methods different from those which are
employed for a normal competition and which control the consumers’ behaviours
and thus impair the fair competition in the electronic market.
Undoubtedly, the analysis of ‘dominance’ would require a study in detail of the
economic aspects of the electronic marketplace. Approaching ‘dominance’ from an
economic perspective goes beyond of the purpose of our study. Our aim is to set up
a basis for a future theory of dominance of technological information, to provide
some clarification for the above definition, to explain the role and the manner in
which this theory supplements the theory of the asymmetry of information.
Disclosure of Online Information 129
It can be inferred from the above definition that the ‘dominance of technological
information’ is relating to (1) the behaviours of the traders; (2) the use of
technological methods different from those used for a normal competition; and (3)
the detrimental impact for the normal process of competition in the electronic
marketplace.
CONCLUSIONS
In this chapter, we have discussed the disclosure of information from the perspective
of its content and its placement. It was noticed that in the EU electronic market, the
disclosure of online information is mandatory and that the EU Directives containing
Disclosure of Online Information 131
provisions on the disclosure of information are now designed under the model of
‘maximum harmonisation’ not allowing the Member States the possibility of
adopting provisions other than those already laid down in the Directive. At the
European Union level, there are no regulatory bodies which have enforcement
responsibility for action taken in the EU electronic market in respect of either type
of infringement, including the responsibility for the coordination of action of all
national enforcers. There is a lack of coherence in coordination between varying
national regulatory or self-regulatory bodies and regulations.
In the US electronic market, the FTC guidelines prescribing clear and conspicuous
information represents a one-size fits all solution for all type of online disclosure of
information which encompass online disclosure, hyperlinks and online banner ads.
In the global electronic market, despite the EU mandatory law and the US
effectiveness in enforcing federal rules, there is still need for improvement in
disclosing information to consumers on websites. The key for clear and conspicuous
information is not depending on the length or the detailed character of the
information prescribed by the law but rather on what type of information should be
provided into an easy-to-access and user-friendly layout. Clear and conspicuous
information shall respond not only to the special legal requirements but also to the
professional standards which require that the information provided be readily
understood – in an area where public understanding is different from that of the
telecommunications industry.
The chapter also approached the disclosure of information from the perspective
of the asymmetry of information and of the ‘dominance of technological
information.’ Despite the current regulatory system composed of a patchwork of EU
legislations, national laws and self-regulatory guidelines developed by international
organisations, the asymmetry of information still remains in online consumer
transactions. Furthermore, we insist on exacerbating the asymmetry of information,
coupled with a ‘dominance of the technological information.’ Based on the
imbalance of technological information between traders and consumers in the
electronic market, this new theory raises new issues for consumer protection.
NOTES
also, the OECD Report ‘Consumers in the Online Marketplace: The OECD Guidelines
Three Years Later’, Report by the Committee on Consumer Policy on the Guidelines for
Consumer Protection in the Context of Electronic Commerce, 3 February 2003. The
report summarises the results of implementation activities in OECD countries and
includes in an Appendix a table with selected activities organised on a country-by-
country basis.
23 OECD Recommendation concerning the guidelines governing the protection of
consumers in the context of electronic commerce, available at: http://www.oecd.org. See
also, the OECD Report ‘Consumers in the Online Marketplace: The OECD Guidelines
Three Years Later’, Report by the Committee on Consumer Policy on the Guidelines for
Consumer Protection in the Context of Electronic Commerce, 3 February 2003. The
report summarises the results of implementation activities in OECD countries and
includes in an Appendix a table with selected activities organised on a country-by-
country basis.
24 The Guidelines and the Australian E-commerce Best Practice Model are both promoted
through a new website. (http://www.ecommerce.treasury.gov.au).
25 OECD, ‘Consumers in the Online Marketplace: The OECD Guidelines Three Years
Later’, Report by the Committee on Consumer Policy on the Guidelines for Consumer
Protection in the Context of Electronic Commerce, 3 February 2003, available at
www.oecd.org.
26 FTC Rules and Guides Online ‘Dot Com Disclosures: Information about Online
Advertising’, May 3, 2000, available at http://www.ftc.gov.
27 OECD, ‘Consumers in the Online Marketplace: The OECD Guidelines Three Years
Later’, Report by the Committee on Consumer Policy on the Guidelines for Consumer
Protection in the Context of Electronic Commerce, 3 February 2003, available at
www.oecd.org.
28 See the US Federal Trade Commission Staff Issues Guidelines on Internet Advertising,
available at: www.keylaw.com/FTC/Rules/ftc0005001.htm.
29 See the adjudication of the Advertising Standard Authority from 12 December 2001
available at: http://www.asa.org.
30 Medical Benefits Fund of Australia Limited v. Cassidy; John Bevins Pty Limited v.
Cassidy [2003] FCAFC 289 (16 December 2003) available at: http://www.austlii.edu.au/
au/cases/cth/FCAFC/toc-M.html.
31 Medical Benefits Fund of Australia Limited v. Cassidy; John Bevins Pty Limited v.
Cassidy [2003] FCAFC 289 (16 December 2003) available at: http://www.austlii.edu.au/
au/cases/cth/FCAFC/toc-M.html.
32 Promotional text message stated ‘Orange have been trying to contact you to give you 1
free month of wap, 10 free text and 20 photo messages. Reply YES to accept. Terms
apply’: www.orange.co.uk/ow.
33 See the US Federal Trade Commission Staff Issues ‘Guidelines on Internet Advertising’,
available at: www.keylaw.com/FTC/Rules/ftc0005001.htm. In addition to the rules on
the disclosure of information, the US FTC established Guidelines For Proximity and
Placement of Online Disclosures – Hyperlinking and Guidelines for Proximity and
Placement of Online Banner Ads. The US FTC mention that hyperlinks may be useful
to tell consumers about less critical terms and conditions of an offer, especially when the
information may be extensive, to direct the consumer to the cancellation terms and
additional Internet connection costs of many Internet rebate offers. When using a
hyperlinked disclosure, advertisers should clearly label the hyperlink so it shows the
importance, nature and relevance of the information to which it links (for example,
‘Early cancellation of Internet Service may result in substantial penalties. Click Here’).
34 See the US Federal Trade Commission Staff Issues Guidelines on Internet Advertising,
available at: www.keylaw.com/FTC/Rules/ftc0005001.htm.
134 Cyber Consumer Law and Unfair Trading Practices
35 S.P. Tapia, ‘Advertising and consumer protection under FTC guidelines’, Practising Law
Institute Patents, Copyrights, Trademarks, and Literary Property Course Handbook
Series, 712 PLI/Pat 297, July, 2002.
36 Value America, Inc., C-3976, http://www.ftc.gov/opa/2000/06/comp629.htm.
37 Office Depot, Inc., C-3977, available at: http://www.ftc.gov/opa/2000/06/comp629.htm.
38 BUY.Com, Inc, C-3978, available at: http://www.ftc.gov/opa/2000/06/comp629.htm.
39 Hewlett-Packard Co, File No. 002-3220, available at: http://www.ftc.gov/os/
2001/04/index.htm#3.
40 Microsoft Corp. File No. 002-3331, available at: http://www.ftc.gov/os/
2001/04/index.htm#3.
41 BVP, Advertising Verification Bureau (Bureau de Vérification de la Publicité), is an
advertising self-regulation organisation in France. For more information see:
http://www.bvp.org.
42 S.P. Tapia, ‘Advertising and consumer protection under FTC guidelines’, Practising Law
Institute Patents, Copyrights, Trademarks, and Literary Property Course Handbook
Series, 712 PLI/Pat 297, July, 2002.
43 R. Larabie-LeSieur, Deputy Director of Investigation and Research Competition Bureau,
Industry Canada, ‘Misleading Advertising on the Internet: Competition Law
Enforcement in the Electronic Marketplace’, Remarks to the Canadian Corporate
Shareholder Services Association, September 19, 1996.
44 ‘Markets with Asymmetric Information’, October 10, 2001, Information Report
available at: http://nobelprize.org/index.html; see also G. Akerlof, ‘The Market for
Lemons: Quality Uncertainty and the Market Mechanism’, Quarterly Journal of
Economics 84, 1970, pp. 488–500.
45 M. Spence, ‘Job Market Signaling’, Quarterly Journal of Economics 87, 1973, pp.
355–74.
46 ‘Markets with Asymmetric Information’, October 10, 2001, Information Report
available at: http://nobelprize.org/index.html, See also Rothschild M.J. Stiglitz,
‘Equilibrium in Competitive Insurance Markets: An Essay on the Economics of
Imperfect Information’, Quarterly Journal of Economics 90, 1976, 629–49. Stiglitz, J.,
‘Economics’, 2nd edition, 1997, W.W. Norton (New York).
47 S. Salop, J.E. Stiglitz, ‘The Theory of Sales: A Simple Model of Equilibrium Price
Dispersion with Identical Agents’, 1982, The American Economic Review. 72:5
(December), pp. 1121–30.
48 H.R. Varian, ‘A Model of Sales’, The American Economic Review, Vol. 70, Issue 4
(September) 1980, pp. 651–9.
49 E. Brynjolfsson, M.D. Smith, ‘Frictionless Commerce? A Comparison of Internet and
Conventional Retailers’, May 1999, available at http://ecommerce.mit.edu/papers/
friction, p. 1.
50 J. Braucher, ‘Delayed Disclosure in consumer e-commerce as an unfair and deceptive
practice’, 46 Wayne Law Review, 1805, 2000.
51 H.H. Perritt, ‘Dispute Resolution in Cyberspace: Demand for New Forms of ADR’, 15
Ohio St. J. on Dis. Res. 675, 684, 2000.
52 P.P. Swire, ‘Markets, Self-Regulation, and Government Enforcement in the Protection of
Personal Information’, available at http://www.osu.edu/units/law/swire.htm, 1996.
53 J. Rothchild, ‘Protecting the Digital Consumer: the Limits of Cyberspace Utopianism’,
74 INLJ 893, Indiana Law Journal, Summer, 1999.
54 J. Rothchild, ‘Protecting the Digital Consumer: the Limits of Cyberspace Utopianism’,
74 INLJ 893, Indiana Law Journal, Summer, 1999. Furthermore, as the Australian
Competition and Consumer Commission judiciously remarked that ‘[a]symmetry of
information is likely to be a greater problem for transactions that do not involve face to
face transactions because consumers cannot see the products they are purchasing or the
Disclosure of Online Information 135
set-up of the retailer or service provider, or check for features like dispute resolution
mechanisms, money back guarantees and privacy safeguards. (See ‘Australian
Competition & Consumer Commission, The Global Enforcement Challenge’, 5–6
(1997).)
55 The Information Warfare Site is an online resource that aims to stimulate debate on a
variety of issues involving information security, information operations, computer
network operations, homeland security and more, information available at:
http://www.iwar.org.uk/index.htm.
56 ‘Information dominance vs Information superiority’, 1 April 1997, available at:
http://www.iwar.org.uk/iwar/resources/info-dominance/issue-paper.htm.
57 CA Versailles, 14th chamber, 14 mars 2001, TGI Nanterre, Ordonnance of 20 February
2001, Register Number: 01/00381, minute: REF/2001/466, available at:
http://www.juritel.com. UFC Que Choisir v. SNC AOL Bertelsman Online France. See
also Christine Riefa, Spotlight on French Cyberlaw: ISP headaches and evolving IP
rights, EBL September 2001, Vol. 3, No. 8, pp. 9-12.
58 Timers allow modulating the length of sessions insuring a rotation amongst users at busy
periods.
59 CA Versailles, 21 November 2001, SNC AOL Bertelsman Online France v. SA Liberty
Surf and SA TOnline, EBL April 2002, Vol. 4, No. 3, p. 15.
60 TGI Nanterre, Ordonnance of 20 February 2001, Register Number: 01/00381, minute:
REF/2001/466, available at: http://www.juritel.com.
61 Andrew Odlyzko, ‘Privacy, Economics, and Price Discrimination on the Internet’, article
available at: http://www.dtc.umn.edu/»odlyzko, Revised version, July 27, 2003.
62 R. Anderson, ‘Cryptology and competition policy – Issues with “trusted computing”’,
2003, available at: http://www.cpppe.umd.edu/rhsmith3/agenda.html.
63 J. Braucher, ‘Delayed Disclosure in consumer e-commerce as an unfair and deceptive
practice’, 46 Wayne Law Review, 1805, 2000.
64 See UK ASA adjudication of 10th May 2000 in Lineone; also Freemoney Ltd, 14th
March 2001.
65 See adjudication of 9th January 2002, 888 Casino.
66 Consumers Against Supermarket Privacy Invasion and Numbering (CASPIAN), ‘Online
newspaper registrations can lead to more than articles’, available at:
http://www.nocards.org/news/index.shtml#registration.
Chapter 7
INTRODUCTION
In the traditional market, the advertising of products and services entail on the one
side, the dissemination of information through different traditional media – TV
advertising, magazine advertising or other advertising media and on the other side,
the sale stage involves office infrastructure and personnel. In comparison with
traditional advertising, Internet advertising reduces the different transaction stages
consisting in search of information, contact with the company and the selling
process by immediate contact with consumers. The efficiency of this medium is
reflected by a recent study of the New Media Group of PricewaterhouseCoopers
showing that Internet advertising surpassed a couple of traditional media sectors and
follows magazines, by a considerable margin.1 Furthermore, a forecast by Jupiter
Research predicts that online advertising will more than double over the next five
years and it will grow from $6.6 billion in 2003 to $16.1 billion in 2009.2 Several
reasons are given for the effectiveness of the online market: the consumers exercise
their choice of products and services almost instantly, spend less time making their
buying decisions and expect efficient customer service.3 This can be translated in
pressure on Internet advertising pricing by sliding down the cost of the traditional
mass market advertising.4 In this case, the respect of similar rules by all the
participants in the electronic market represents a need for allowing the electronic
market to develop into a fair market. If some businesses would make use of
misleading or aggressive commercial practices in order to gain profits or retain
market share, the impact of misleading advertising would have important adverse
economic consequences on both consumers and businesses. When the advertising
channel is used by the companies to provide useful, complete and accurate
information, advertising allows consumers to take advantage of the low prices and
high quality products and services. Contrary, when businesses would display (1)
misleading advertising on the websites; and (2) send unsolicited e-mail advertising
(that can be deceptive or that do not include opt-out provision for future messages
or which come from false ‘from’ addresses), there is a clear infringement of the fair
competitive market.
In this context, the question that arises is about the ability of an internal
regulation to regulate the advertising market. Some commentators joined the
inability of State regulation with the progress of information technology. Such
considerations are expressed by Bradley who observes that ‘[r]ules that are designed
to reflect current market practices may not adapt well to future developments in
business or in technology, even if they are designed to be flexible.’5 There are also
some views considering that the State fails as a regulator because it cannot know
regulatory circumstances in sufficient detail to regulate well.6 Yet others argue that
138 Cyber Consumer Law and Unfair Trading Practices
devolving regulation from the State may be appropriate when the context is
technical, novel and still developing.7 In my view, the real question is about the
inappropriateness and the controversial legitimacy of a national regulation to control
conflicting situations in territories which fall under the control of another State. The
validation of this assumption requires providing answers to the following questions:
Which are the obstacles to truthful online advertising, and how can they be
overcome? Could the law really deal with the ineffectiveness of the electronic
market resulting from misleading advertising? Is the present legal framework
sufficient clear and simple for businesses? Would the current legal framework for
consumer protection be an effective solution in cross-border situations? Why is so
difficult to enforce legislation in the electronic market place?
In order to provide solutions to the issue of misleading advertising and of spam,
the chapter examines the level of coherence and efficiency of the current legal
framework for protecting consumers against misleading advertising as well as the
manner in which the provisions on online misleading adverting are enforced in the
electronic market. Section 7.1 discusses the issue of the asymmetry of information
arising from online misleading advertising and unsolicited commercial
communications. It examines the new ways through which misleading advertising
increases the asymmetry of information and the particularities of online misleading
advertising. On the basis of this analysis, section 7.2 provides a systematised picture
on the legal rules in the area of misleading advertising and of unsolicited
commercial communications at the EU and US level. Section 7.3 outlines the most
relevant institutional aspects of the enforcement of the online misleading advertising
and its interrelation with the self-regulation and globalisation of the electronic
market.
informational content available on the Internet is the same as that available offline.8
The Internet is also a useful medium for the provision of timely information about
breaking financial news. Bradley noticed that investors can read analyses of the
market, of trading strategies, and of individual issuers and investments online. In
addition, investors can now access online information about trading prices for
securities without paying for that information.9 In comparison with the prolific
environment which empower ordinary consumers, the capacity for consumers to
make informed decisions is predominantly worse than in the traditional
marketplace. This capacity is affected by the lessened possibility for a consumer to
check an advertisement placed online. The classical imbalance of information
between advertiser and consumer is enhanced by (1) the technological and cross-
border electronic market and (2) by the use of unsolicited commercial
communications.
Whilst the Internet may provide consumers with access to up-to-date, easily
searchable information about companies’ performance history,12 the information
about a company may often not be accurate. For example, I recently contacted a
company specialising in translation services located not very far from my office.
The company, which had opened its doors several months earlier, was very small,
managed by two young persons. Wanting to obtain further information on the
company’s performance, I looked for information via the Internet. To my surprise,
the company website, in its desire to attract foreign clients, mentioned having over
30 years’ experience and being located in over 20 countries with more than 300
experts worldwide. Certainly someone might consider that the fact that the branch
(office) is small does not necessarily mean that the claims made on the website are
untrue or misleading. However, a company which states that ‘it is located in over 20
countries with more than 300 experts world-wide,’ would certainly exercise a
considerable influence on the consumer in making his decision. This is why it is
very important for this company to substantiate its statement by providing contact
information for each alleged country. Otherwise, the company risks being accused
of misleading commercial practices.
These examples demonstrate that the electronic marketplace creates a favourable
environment for online misleading advertising. Furthermore, as suggested by
Dethloff: ‘[w]hereas in traditional media, such as print or broadcasting, the design
of advertisements is merely aimed at keeping consumers switched on, advertising in
data networks generally has to be designed in such a way that it is actively sought
after by users. This constitutes a new challenge for advertisers: they have to provide
special incentives for Internet users to make them download an advertising page.’13
Due to the fact that there is no control of advertising, these special incentives may
mislead consumers. Although the advertising will contain an address and telephone
number, it is probable that the company will disappear before even a law
enforcement agency will have time to investigate the misleading character of the
respective communication.
Asymmetries of information have increased effects in cross-border electronic
transactions where the consumer lacks access to counterbalancing information and
where there are new and complex products or technological services. The Internet
increases the usual difficulties that law enforcers face in cross-border marketing.
Fraudulent marketers can set up shop cheaply and easily and can readily
communicate with their victims in foreign countries. A marketer in one country
might use a service provider in another to put up a home page on which false
claims are made about the safety of its product. Consumers around the world can
access the page, and the law violations might differ depending upon the country in
which the consumer accesses the information.14 In addition to this uncertainty, the
combined aspects of online advertising create the risk for the promotion of
techniques through which offers relating to the goods or services are not clearly
identifiable as such by the consumer.15 These techniques may use ‘metatags,’16
‘mouseover text,’17 and hyperlinks,18 in placing labels certifying the respect of
codes or false trust marks and can easily mislead consumers, in banner
advertising19 etc.
Online Misleading Advertising 141
The use of e-mail represents a new form of direct marketing which allows marketers
to send promotional literature to a large number of recipients at a low cost. This
form of direct marketing is particularly effective because consumers can be targeted
much more precisely according to particular criteria.20 When marketing e-mails are
sent without the consent of a consumer, we can talk about unsolicited commercial
communications (UCC).
UCC can be defined as the e-mail sent without the consent of the addressee and
without any attempt at targeting on recipients who are likely to be interested in its
contents. UCC has as a result annoyance for consumers, wasted time and resources,
bulk volume handling problems for Internet Service Providers and is highly
offensive to consumers. UCC is a source of extreme frustration for the majority of
consumers, they receive financial offers most closely followed by product sales
from unknown sellers, pornographic emails, quick schemes and prescription drug
offers. The receipt of unsolicited commercial electronic mail continues to place a
heavy burden on consumers since they cannot refuse to accept such mail or incur
costs for the its storage, spend time accessing, reviewing, and discarding such mail
etc. As noticed by TACD, the growth in unsolicited commercial electronic mail
imposes significant monetary costs on providers of Internet access services,
businesses, and educational and nonprofit institutions that carry and receive such
mail, as there is a finite volume of mail that such providers, businesses, and
institutions can handle without further investment in infrastructure. Unsolicited
commercial electronic mail includes misleading information in the messages’
subject lines in order to induce the recipients to view the messages. Moreover, while
some senders of commercial electronic mail messages provide simple and reliable
ways for recipients to reject (or ‘opt-out’ of) receipt of commercial electronic mail
from such senders in the future, other senders provide no such ‘opt-out’ mechanism,
or refuse to honour the requests of recipients not to receive electronic mail from
such senders in the future, or both.21
The risk of UCC for consumers consists in the increased possibility for a contract
to be formed through e-mail contacts. That is also because consumers have varying
degrees of reaction to unsolicited commercial communications which are deceptive
and coming from unknown advertisers.22 It is questionable if the rapid growth and
abuse of unsolicited commercial electronic mail will be solved by legislation.
However, while the development of technological filtering methods is not expected
to be a magical solution, it will complement the need for effective legislation.
7.2.1.2 US Rules
There are many similarities between the content of the legislation on misleading
advertising in EU and the US. The main differences relate to the system of
enforcement of this legislation. Before approaching this issue, it is useful to outline
the main provisions in the area of misleading advertising. The FTC Act’s prohibition
on ‘unfair or deceptive acts or practices’ includes advertising claims, marketing and
promotional activities, and sales practices in general.
Under Section 5 of the FTC Act, the Federal Trade Commission is allowed to act
in the interest of all consumers to prevent deceptive and unfair acts or practices. The
Commission has determined that a representation, omission or practice is deceptive
if it is likely to ‘mislead the consumer acting reasonably in the circumstances, to the
consumer’s detriment.’28 According to the Commission, the information material is
an essential element in the formation of the consumer’s decision whether to buy or
use a product. This information may refer to the cost of the product or service, to its
purpose, safety, efficiency, durability, performance, warranties or quality.29
Furthermore, in considering the deceptive characteristic of an advertisement, which
targets vulnerable consumers (children, the elderly, or the terminally ill), the
Commission evaluates the effect of the practice on a reasonable member of that
group rather than the effect on consumers as a whole.30
The FTC Act, 15 U.S.C. §45(n) and the FTC Policy Statement on Unfairness
provides that an advertisement or business practice is unfair if it causes or is likely
to cause ‘substantial injury to consumers’ (such as monetary loss or unwarranted
health or safety risks), which is ‘not reasonably avoidable by consumers
themselves’ and not ‘outweighed by countervailing benefits to consumers or to
competition.’31 The Commission is authorised to act through civil actions filed by
its own attorneys in federal district court, as well as through administrative cease
and desist actions.32
144 Cyber Consumer Law and Unfair Trading Practices
According to the FTC policy statement, online advertising claims must also be
substantiated.33 An advertisement is deceptive and unfair if not substantiated.34
Traders are responsible for unsubstantiated advertising, especially when they
concern health and safety, slimming products, financial services or the performance
of products and services. Furthermore, advertising agencies or website designers
and catalogue marketers may be liable ‘for making or disseminating deceptive
representations if they participate in the preparation or distribution of the
advertising, or know about the deceptive claims.’35 On the basis of legal cases36 and
of the FTC policy statements37 in the area of misleading advertising, Hertz argues
that all express or implied objective claims within it must have at least the advertised
level of substantiation (e.g., nine out of ten doctors recommend, studies show, etc.).
Absent an express or implied level of support, all claims must have at least a
‘reasonable level of support.’ (…) ‘The type of evidence necessary to provide a
“reasonable level of support” depends upon several factors including: the type of
claim [e.g., safety or health related], the product [e.g., food, drug or potentially
hazardous product], the consequences of a false claim [e.g., injury to person or
property], the benefits of a truthful claim, the cost of developing substantiation for
the claim, and the amount of substantiation experts in the field believe is
reasonable.’38
Another federal provision related to the misleading advertising is included in
Section 43(a) of the Lanham Act39 which prohibits ‘any false or misleading
description...or representation of fact, which is likely to cause confusion ... as to the
origin, sponsorship or approval of ... [one person’s] goods, services or commercial
activities by another person.’40 Furthermore, it prohibits ‘any false or misleading
description ... or representation of fact ... in commercial advertising or promotion
[which] misrepresents the nature, characteristics, qualities or geographic origin of
his or her or another person’s goods, services or commercial activities.’41 According
to these dispositions and different from Section 5 of the FTC Act, ‘enforcement is
not restricted to the Commission; a claim can be brought by any person who
believes that he or she is likely to be damaged.’42
However, the drawback of the EU legislation consists in the lack of concerted
effort among EU members and countries worldwide to ensure that the Internet
remains an effective means by which legitimate advertising can be communicated.
In this sense, the International Chamber of Commerce (ICC) formulated several
codes of practice, including the International Code of Advertising Practice,43 the
International Code of Sales Promotion, and the ICC International Code of Practice
on Direct Marketing. Despite their international vocation and their prescribing
character, these Codes remain at the good willing of traders and advertisers without
a means of effective enforcement.
7.2.2.2 US Rules
According to the Can-Spam Act45 which went into effect in January 2004, an
advertiser who sends commercial communications must notify that these
communications are commercial in nature; it should allow an opt-out mechanism by
which a recipient can choose not to receive other commercial communications and
a valid postal address. By contrast with the EU legislation, Can-Spam Act advances
an opt-out approach to unsolicited commercial electronic mail, allowing it to be sent
and shifting the burden to addressees to object to future messages.
The respect of legislation is generally enforced through state agencies. Can-Spam
legislation is an exception to this general rule. The most interesting aspect of the
Can-Spam legislation is relating to its enforcement which allows the Internet service
providers (ISP) to take legal action in place of those who directly receive unsolicited
commercial communications.
Since the private right of action is particularly difficult to exercise by the consumers
for injuries such as unsolicited commercial communications, the legislator preferred
that enforcement is done by the ISP who exercises the technologic control power and
146 Cyber Consumer Law and Unfair Trading Practices
who are the biggest sufferers of spam in terms of economic costs. ISP protects
themselves from the voluminous unsolicited commercial communications by alleging
breach of contract and statutory violations. For example, in America Online, Inc v Nat.
Health Care Discount, Inc, 121 F. Supp.2d 1255 (N.D. Iowa 2000),46 the National
Health Care Discount’s contract e-mailers were liable to ISP America Online under
the Computer Fraud and Abuse Act and the theory of trespass of chattels for sending
unsolicited commercial communications.
According to the Directive on Unfair Commercial Practices, a claim for unfair
commercial practices for unsolicited commercial communications should not
increase the plaintiff’s burden of proof. The burden of proof is reversed in the case
of a trader who makes a factual claim about a product, which he is unable to
substantiate. The purpose of the reversal of the burden of proof and of legal
presumptions ought also to extend to any arbitration proceedings that may be laid
down in a code of conduct, in order to make the code genuinely competitive with
the court and administrative proceedings laid down as the normal means of recourse.
By contrast, in the US, the philosophy behind the Can-Spam legislation is guided
not by the concern for the exercise of a private statutory right of action for
consumers but rather by practical aspects such as the disparity between the costs of
litigations and unquantifiable measures of the UCC. Levelling the balance of power
between the main enforcer FTC and the ISP should help to maintain accurate
monitoring that protect their interests along with those of consumers.
The US and EU laws on spam differ significantly in other respects. For example,
whilst in Europe according to the proposed Directive on Unfair Commercial
Practices, an advertiser will be able to base a defence on professional diligence, in
the US, it is not possible to act under a diligence standard. Many questions still
require answering in practice with regard to how the legal relationship between
online service providers and advertisers should be characterised? What are the
liabilities and responsibilities of each party? Under which circumstances, if at all,
should online service providers be held liable for advertisers’ deceptive practices?
In this section, we will approach the enforcement of the legislation from two
perspectives. First, from an institutional perspective of the national consumer
enforcement bodies and consumer associations that seek injunctions actions before
the Court.
According to the Injunctions Directive,47 the entities able to stop the infringement
of European consumer law are interpreted as including any body or organisation
which, being properly constituted according to the law of a Member State, has a
legitimate interest in ensuring that the protection of the consumer is respected.
In practice, most member countries enforce consumer protection legislation via
self-regulatory bodies. For example, in the UK, the British Codes of Advertising and
Sales Promotion Codes are written and enforced by the Committee of Advertising
Online Misleading Advertising 147
The two factors that influence the enforcement of the legislation in the electronic
market and on which we are focusing in this section are self-regulation and
148 Cyber Consumer Law and Unfair Trading Practices
globalisation of the electronic market. The focus on enforcement arises from the
need to ensure the effectiveness for consumer protection legislation in the electronic
market. However, the enforcement might be difficult in the context of self-
regulation framework which dominates the Internet. K. Smith notices that self-
regulation is a form of decentring movement from state centric ‘command and
control’ to other non-state actors.55 Preventing such a decentring movement to
diminish the effectiveness of law requires strengthening international cooperation
through networking. Polarisation of networking legal cooperation is a form of
counteracting the globalisation. For example, in 2004, the UK Department of Trade
and Industry, the US Office of Fair Trading (OFT) and the Information
Commissioner (ICO) signed a Memorandum of Understanding with the Federal
Trade Commission (FTC) in the United States, the Australian Communications
Authority (ACA) and the Australian Competition and Consumer Commission
(ACCC) for mutual assistance in the enforcement of spam laws. This cooperation
would allow the possibility of consumers enforcing their rights against misleading
advertising arising beyond the national borders of their countries. Other forms of
international cooperation can be identified in the course of legal actions procedures.
Thus, in the FTC v. TLD Network Ltd and Quantum Management,56 the Federal
Trade Commission obtained a temporary restraining order from the court against the
TLD Network Ltd and Quantum Management companies. That restraining order
obtained by the US FTC was followed by the intervention of the UK OFT which on
the basis of the ‘Control of Misleading Advertisements Regulations 1988’ has been
‘stopped from publishing misleading advertisements for website domain names that
are difficult to view on the world wide web.’57 In this case, the defendants located
in London were selling false domain names such as .sex, .bet, .brit and .scot
domains for $59. As these domain names were not approved domains by the Internet
Corporation for Assigned Names and Numbers (ICANN),58 the consumers did not
know what they were buying and how accessible the domain names were.
In order to ensure the effectiveness of the legislation in cross-border transactions,
both businesses and consumers from one country or another need a reliable, clear,
simplified legal framework that allow rules to be regularly enforced in the electronic
market. That involves not only informal mechanisms for consumers but equally
coordination amongst global organisations. Colin Scott argued that ‘[a] stunning
innovation in international cooperation is the annual international Internet sweep
organized by the International Consumer Protection and Enforcement Network
(ICPEN). Established in 1997, the 2003 sweep involved eighty-seven enforcement
agencies in twenty-four countries simultaneously surfing the Internet proactively in
search of misleading claims. (…)’59 At first sight when looking on the website of
this international network, there is no reference of a practical case of enforcement.
The only documents available for the public are composed of a collection of links
to the main pieces of legislation, to self-regulatory texts or reports or to the national
bodies in charge of misleading advertising existing in different countries. Colin
Scott added that the organisation in 2003 targeted travel websites, and found many
infractions of applicable laws in the various jurisdictions. As travelling worldwide
has become a very widespread practice among consumers, it would have been very
useful to inform consumers via the ICPEN website about different misleading
traders or enforcement cases. Sharing information between the various agencies is
Online Misleading Advertising 149
not the only solution to reinforce the protection of the consumer on the Internet.
Global enforcement is based on communicating information in-out and it should not
be reduced to the internal aspect of coordination between the network members. As
this type of organisation does not have regulatory enforcement powers, its role
should be strength by providing useful information that contributes to consumers,
and traders, education.
The basic principle of enforcement in the global electronic market requires the
recognition of legal actions of consumers in cross-border cases, specification of
documentary evidence that should support a claim, details on the possibility of the
contestation of a defendant, the extension of the enforceability of a judgement
delivered in a foreign country and the improvement and simplification of the
Exequatur process. In Europe, in order to improve the circulation of judgements and
public documents, the member states (with the exception of Denmark) have namely
passed the Council Regulation (EC) No. 44/2001 of 22 December 2000, which
replaces the Brussels Convention on jurisdiction and the recognition and
enforcement of judgements in civil and commercial matters of 1968. According to
Article 57 of the Regulation, public documents which are formally drawn up and
enforceable in one member country will, on application, be declared enforceable in
another Member State in accordance with the procedures for judgements of the
courts. However, these rules do not exclude cooperation with a foreign country.
These issues would be of high importance on the agenda of the European
Commission after the adoption of the Regulation on Consumer Protection
Cooperation.60 The aim of the Regulation is to remove existing barriers to
information between national enforcement authorities and enable them to take co-
ordinated action against rogue traders who abuse the freedom of the Internal Market
in order to deceive consumers. The regulation was formally adopted by the Council
on 7 October 2004. The new EU-wide enforcement network will start work in 2006.
Still the network shall expand by the cooperation with third countries and with the
competent international organisations in order. The arrangements for cooperation,
including the establishment of mutual assistance arrangements, may be the subject
of agreements between the Community and the third parties concerned.
The emergence of the regional polarisation of ‘networking’ cooperation to which
we assist today should reduce the problematic of national jurisdiction and applicable
law which is so critical in a cross-border electronic market. As the Internet is not
endowed with a supranational authority to control flow of information, the
networking cooperation might enable the detection and apprehension of offenders
to online advertising.
The following two considerations result from the current legal and self-regulatory
misleading advertising online framework. First, the cross-border nature of the
Internet reduces consumer protection against online misleading advertising.
National jurisdictions apply consumer laws that protect consumers against
misleading advertising on a national basis. National self-regulatory bodies deal with
consumer complaints in accordance with their own national guidelines. National
laws and advertising self-regulatory systems do vary from country to country.61
Whilst national agencies scrutinise online advertising claims, there is no
international organisation or co-operation that specifically monitors the soundness
of advertising in the global electronic marketplace.
150 Cyber Consumer Law and Unfair Trading Practices
CONCLUSIONS
Hence, we may conclude that online misleading advertising increases the risk of
asymmetry of information between consumer and marketer in the electronic
marketplace. Consumers are unable to assess the reliability of online advertising at
the time of ordering online products or services. They cannot be expected to identify
the risks or the potential consequences of a transaction concluded as a result of
particular advertising placed in a changing and instantaneous environment. The
ability to send misleading information without any cost, to an enormous number of
people and in a short period of time also increases the risk of the asymmetry of
information. There is an imbalance of ‘evidence-based’ approach between
advertisers and consumers which means that a consumer cannot in practice have
sufficient evidence to establish the validity of online advertising.
Online marketing is an important channel of communication for business
worldwide. However, we conclude that the efficiency of the current legal framework
is questionable since the Internet is not regulated by a unique authority and the
control of enacting legislation is fragmentised between different national
organisations. On the one side, the enforcement might be difficult in the context of
self-regulation framework characterised by decentring rules. On the other side,
polarisation of networking legal cooperation is a form of counteracting the negative
impact of globalisation on an effective enforcement of the legislation in the area of
online misleading advertising. In this context, national governments should clarify
that the basic principle of enforcement in the global electronic market requires the
recognition of legal actions of consumers in cross-border cases, specification of
documentary evidence that should support a claim, details on the possibility of the
contestation of a defendant, the extension of the enforceability of a judgement
delivered in a foreign country and the improvement and simplification of the
exequatur process.
NOTES
1 ‘The Internet Advertising Revenue Report’, conducted by the New Media Group of
PricewaterhouseCoopers LLP, April 2004.
2 ‘Online Advertising Through 2009: Pricing Growth Drives a Balanced Market’,
Lead Analysts: Nate Elliott, Niki Scevak, Contributing Analysts: Zia Daniell Wigder,
Eric T. Peterson, Gary Stein, available at: http://www.jupiterdirect.com/bin/
report.pl/95467/937.
Online Misleading Advertising 151
18 See for example, FTC v. Lane Labs – USA Inc, (D.N.J. filed June 28, 2000), CMO
Distribution Centers of America, Inc File No. 982 3180 (April 2000), EHP Products, Inc.
File No. 982 3181 (April 2000), Michael D. Miller d/b/a Natural Heritage Enterprises,
File No. 992 3225 (April 2000).
19 The banner advertising allows the user to click on the ad and be transported directly to
the home page of the advertiser, or to other relevant content regarding an offer. (K.M.
Saunders, ‘Confusion is the Key: A Trademark Law Analysis of Keyword Banner
Advertising’, Fordham Law Review, 1 FDMLR 543, November, 2002.)
20 N. Dethloff, ‘Marketing on the Internet and international competition law’, in Neue
Juristic Wochenschrift, Number 22, 2000.
21 Resolution on Unsolicited Commercial Electronic Mail, January 2004, available at:
http://www.tacd.org/db_files/files/files-293-filetag.doc.
22 Double Click AOL Survey-Spam: The Consumer (July 2003), available at:
http://www.doubleclick.com/us/knowledge_central/documents/research/dc_aol_spam_0
307.pdf.
23 L.M. Hertz, ‘Advertising Regulation on the Internet’, Patents, Copyrights, Trademarks,
and Literary Property Course Handbook Series PLI Order No. G0-00V9, January, 2002.
24 Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on
certain legal aspects of information society services, in particular electronic commerce,
in the Internal Market (‘Directive on Electronic Commerce’) (OJ L 171, 17.7.2000, p. 1).
The following do not in themselves constitute commercial communications:
– information allowing direct access to the activity of the company, organisation or
person, in particular a domain name or an electronic-mail address,
– communications relating to the goods, services or image of the company, organisation
or person compiled in an independent manner, particularly when this is without
financial consideration.
25 See Green Paper on Commercial Communications in the Internal Market, COM (96) 192
final.
26 Section 2: Commercial communications, Article 6 on Information to be provided in
Directive on electronic commerce.
27 According to Article 7 of the Directive on electronic commerce, Member States have the
option of controlling the use of unsolicited e-mails in their territory. (Directive
2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain
legal aspects of information society services, in particular electronic commerce, in the
Internal Market, OJ L 171, 17.7.2000, p. 1.)
28 See FTC Policy Statement on Deception, available at: http://www.ftc.gov/
bcp/policystmt/ad-decept.htm.
29 L.M. Hertz, ‘Advertising Regulation on the Internet’, Patents, Copyrights, Trademarks,
and Literary Property Course Handbook Series PLI Order No. G0-00V9, January, 2002.
30 See FTC Policy Statement on Deception, available at: http://www.ftc.gov/
bcp/policystmt/ad-decept.htm. See also L.M. Hertz, ‘Advertising Regulation on the
Internet’, Patents, Copyrights, Trademarks, and Literary Property Course Handbook
Series PLI Order No. G0-00V9, January, 2002.
31 15 U.S.C. § 45(a)(1)(2001). See also FTC Policy Statement on Unfairness, appended to
International Harvester Co., 104 F.T.C. 949, 1070 (1984).
32 15 U.S.C. §§ 45(a) and 53(b).
33 For example, in the Miller, CMO Distribution and EHP, the US Federal Trade alleged
that these companies made unsubstantiated claims for their respective products and for
any food, drug, dietary supplement or program and misrepresented the results of any
tests, study or research, available at http://www.ftc.gov/opa/2000/04/cure-all2.htm.
34 See FTC Policy Statement on Advertising Substantiation, see also Thompson Medical
Co., 104 F.T.C. 648, 839 (1984).
Online Misleading Advertising 153
35 FTC ‘Advertising and Marketing on the Internet: Rules of the Road’, available at
www.ftc.gov.
36 Pfizer, Inc., FTC Dkt. 8819 Trade Reg. Rep. 20,056 (July 11, 1972). Thompson Medical
Co., 104 F.T.C. 648, 839 (1984).
37 See FTC Policy Statement on Advertising Substantiation, available at:
http://www.ftc.gov/bcp/guides/ad3subst.htm.
38 L.M. Hertz, ‘Advertising Regulation on the Internet’, Patents, Copyrights, Trademarks,
and Literary Property Course Handbook Series PLI Order No. G0-00V9, January, 2002.
39 15 U.S.C. § 1125 (a), 2001.
40 15 U.S.C. § 1125 (a)(1), 2001.
41 15 U.S.C. § 1125 (a)(2), 2001.
42 15 U.S.C. § 1125 (a)(2), 2001 For an overview on Federal Regulation, see the article of
L.M. Hertz, ‘Advertising Regulation on the Internet’, Patents, Copyrights, Trademarks,
and Literary Property Course Handbook Series PLI Order No. G0-00V9, January, 2002.
43 ICC International Code of Advertising Practice art. 10 (1997), available at:
http://www.iccwbo.org/home/statements_rules/rules/1997/advercod.asp.
44 Directive 2002/58/EC on data protection and privacy, Official Journal, OJ L 201,
31.07.2002.
45 CAN-SPAM ACT – Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003.
46 Am. Online Inc. v. Nat’l Health Care Discount Inc., 121 F. Supp.2d 1272 (N.D. Iowa
2000) (5 ECLR 1203, 12/13/00.
47 Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on
injunctions for the protection of consumers’ interests, Official Journal of the European
Communities L 166/51, 11.6.98.
48 CAP is also responsible for ensuring that advertisements and sales promotions conform
to the Codes, and it does so by co-ordinating the activities of its members to ensure the
highest degree of compliance with the Codes.
49 The Control of Misleading Advertisements (Amendment) Regulations 2000 (SI
2000/914) amend the Control of Misleading Advertisements Regulations 1988 in line
with a European Directive on comparative advertising, available at:
http://www.gnn.gov.uk/gnn/national.nsf.
50 The role of the Trading Standards Departments is to enforce the Trade Descriptions Act
and other consumer law. The departments are to be found in the county and borough
councils of England, Scotland and Wales. The Trade Descriptions Act 1968 provides that
it is a criminal offence for a trader to make false statements about goods offered for sale.
In addition, this principle also applies to services. However, in the case of services, an
offence is committed only if the trader knows, or does not care, that statements are
misleading.
51 BBB Code of Advertising, available at: http://www.bbb.org/advertising/adcode.asp.
52 BBB regroups business organizations that promote ethical business practices through
voluntary self-regulation and consumer and business education.
53 M. Cendali, Dale, V.B. Ellner Brian, ‘Advertising and consumer protection on the
Internet: How to ensure that your site complies with consumer protection laws’, 712
PLI/Pat 261 Practising Law Institute, July 2002; L.A. Goldstein, ‘Update on Internet
Advertising and Promotions’, Practising Law Institute, Patents, Copyrights,
Trademarks, and Literary Property Course Handbook Series, PLI Order No. G0-00VJ,
February–March, 2002.
54 Reich N., ‘FTC – A Model for Effective Consumer Protection in a Unifying European
Market?’, in a study produced by Institut für Europaisches Wirtschafts und
Verbraucherrecht e.V for Health & Consumer Protection DG, 2001, available at:
www.europa.eu.int.
154 Cyber Consumer Law and Unfair Trading Practices
55 K. Smith, ‘Beyond the Rule of Law? Decentred Regulation in Online Investing’, in Law
and Policy, July–October 2004, p. 446.
56 FTC v. TLD Network Ltd., Quantum Management (GB) Ltd., TBS Industries Ltd.,
Thomas Goolnik, and Edward Harris Goolnik (Northern District of Illinois, Eastern
Division), No. 020-1475(N.D.Ill., 3/11/02) FTC File No. 012 3237 available at
http://www.ftc.gov/opa/2002/03/tld.htm.
57 UK OFT Press Releases: ‘Misleading domain name ads stopped, First UK/US joint
action’, available at http://www.oft.gov.uk/News/Press+releases/2002.
58 Internet Corporation for Assigned Names and Numbers.
59 C. Scott, ‘Regulatory Innovation and the Online Consumer’, Law and Policy, Vol. 26,
Nos. 3 & 4, July and October 2004, p. 497.
60 Proposal for a Regulation of the European Parliament and of the Council on cooperation
between national authorities responsible for the enforcement of consumer protection
laws (‘the regulation on consumer protection cooperation’), Brussels, 18.7.2003,
COM(2003) 443 final, 2003/0162 (COD).
61 C.R. Michelotti, Response to the Department of Commerce (DOC) and the Federal
Trade Commission (FTC) on Alternate Dispute Resolution Mechanisms for Consumer
Transactions in a Borderless Online Marketplace. March 2000.
Chapter 8
INTRODUCTION
vast areas of what might be termed the ‘modern’ law of obligations, such as consumer
protection (…) as well as an increasingly large part of private international law (…) are
all affected by the move to harmonise and unify the individual legal systems. It is here that
the whole issue of ‘Europeanisation’ becomes extremely sensitive, insofar as one may call
into doubt the legitimacy of a deliberate filing down of those cultural differences which
are characteristic of the various legal traditions represented within the European Union.1
[d]ivergent rules in our view still leave the internal market badly fragmented with
companies unable to compete as efficiently abroad as they do at home. And that is why, in
a nutshell, if companies were able to operate the same business model on a larger scale in
the Union they could pass the corresponding economies to consumers, who would benefit
from lower prices, whilst they themselves were able to develop their businesses more
successfully.2
156 Cyber Consumer Law and Unfair Trading Practices
The application of the general principle of fair trading may reconcile the
aforementioned clash.
The purpose of this chapter is to provide a legal framework for the analysis of the
fair trading principle whilst establishing its legal multiples and socio-legal
interpretations in online consumer transactions. Furthermore, the chapter explores
fundamental questions faced by the fair trading principle in the area of consumer
protection in the electronic marketplace. Does fair trading resolve the fundamental
problems of the consumer when shopping in cyberspace? How would fair trading
enable the confidence of EU consumers buying products or services from foreign
business? If fair trading were already recognised as a general principle existing in
all national legal systems, why would we need to support it by additional
legislation? In order to answer these questions, the chapter analyses different
regulatory models of unfair trading practices at the light of the UK and US legal
systems.
The fair trading principle is an essential element in different legal systems but it
does not exist as a separate or uniform concept. Most Member States have
developed a regulatory environment that integrates a fair trading principle but their
approaches in formulating this principle diverge in the case of online cross-border
consumer transactions. Furthermore, divergence is increased by the emergence of
new commercial practices peculiar to the electronic market, such as website
sponsorship, affiliation, remunerated search tools, use of meta-data and links,
referrals and reviews, cookies, ‘spidering,’ co-shopping and power shopping.3
Several of these potentially unfair practices are not caught by the national rules. This
situation calls for the need for the formulation of common legal minimum standards
for establishing a fair trading principle in business with regard to consumer
commercial practices. Before approaching the issue of the minimum requirements
for fair trading principle, this section analyses the twofold aspects of the fair trading
principle: as legal norm, and the regulator principle.
The fair trading principle in online consumer transactions refers to a legal norm, the
aim of which is to protect consumers against unfair pre-contractual, contractual and
after-sales commercial practices. Furthermore, the principle of fair trading is a
flexible and open legal norm, the aim of which being not only to protect consumers
but also to offer economic efficiency for online traders.
The fair trading principle is an open concept. That means that the application of this
principle is dependent on the factual circumstances surrounding the pre-contractual,
contractual and post-contractual aspects of commercial practices and is a
consequence of its high level of abstraction. A high level of abstraction could be
appreciated positively in the lawmaking process. However, a just application of the
fair trading principle in online consumer transactions requires specific indications
about the circumstances such as the elements of causation, causal link and burden
of proof.
The open character of the fair trading principle is also determined by the
peculiarities of various legal cultures. Whilst certain legal systems focus on the
precautionary aspect of fair trading,11 others concentrate on its remedial aspect.12
As will be observed later in this chapter, the diversity of different legal cultures has
a direct impact on the allocation of risks between consumer and traders and
consequently on the role of fair trading in protecting consumers who buy via the
Internet.
The application of the fair trading principle also depends on the abilities of
consumers to exercise a real control over the technological aspects of unfair
commercial practices. Designing a well – structured fair trading principle requires
the protection of consumers against technological risks such as unauthorized use of
verification procedures in online contracting or unauthorised or fraudulent use of
credit cards. Prevailing the alibi of the technical aspects of certain commercial
practices over the legitimate consumers’ interests might lead to a restrictive
approach to consumer protection. Applying Kaufman Winn and Ellison’s analysis of
the moral hazard13 in connection with technological risks to the context of
commercial practices might lead to a new view of the fair trading principle, which
158 Cyber Consumer Law and Unfair Trading Practices
imposes on consumers the obligation to accept technological risks which they are
reasonably able to control.
The systematisation of unfair commercial practices under one single legal
framework challenges the abilities of the States to address unfair commercial
practices adequately beyond their borders. It is not that these views would lead to
an autonomous fair trading principle separate from the traditional market, but
rather that it would lead to the convergence of different accepted fair commercial
practices.
As a regulator principle, the aim of the fair trading principle is to cover the legal
gaps created by disparate interpretations of fair commercial practices in different
legal systems. Furthermore, the fair trading principle should be articulated around
different commercial practices arising before, during and after the sale. However,
the European Commission proposal for regulating unfair trading practices14
develops a different approach. Its proposal is based on the view that the future
Framework Directive15 will not cover contract law and contractual remedies. Even
if most aspects of the pre-contractual, contractual or post contractual stages are
already covered by the European directives, as argued by Schlechtriem:
these directives are not being coordinated by an overall design, their implementation into
the multifarious domestic laws seems to make matter worse. The diversity of languages
and concepts would do less harm if the European domestic systems of private law
themselves would follow a common plan, or would at least have strong common roots, so
that the implementation of European law could be fitted into a common pattern.16
A unified approach across the different transactional stages might diminish the
significant semantic variations in the application of the fair trading principle at
different stages of the B2C commercial relationships. An opposite approach lessens
the fair application of this principle to online consumer transactions. For example,
it can lead to the conclusion that the respect of adequate information practices at the
pre-contractual stage (information about products and services) has legally become
more important than the obligation to provide information at the post contractual
stage of the B2C commercial relationship (information about the means of
enforcing warranties and correcting errors, providing notice on terms for ongoing
services and the opportunity to cancel). Therefore, the variation in the interpretation
of the obligation of information within the different transactional stages does not
facilitate the role of this principle in ensuring a high standard of consumer
protection in all the stages of online consumer transactions. For the sake of
coherence, a proposal for a fair trading principle should cover the totality of these
stages in online consumer transactions. As suggested by Murray, ‘the least efficient
way to do this [dealing with commercial practices] would be on a piecemeal basis,
trying to deal with one practice or one sector after another and struggling to adapt
to changes in the marketplace.’17
Fair Trading Legal Models in Commercial Practices 159
The fair trading principle should be a matter of interpretation for consumers and
traders in both online and off-line transactions. For consumers, the fair trading
principle has the role of protecting their legitimate expectations against deceptive and
wrongful business practices. For traders, the fair trading principle should be seen
from the perspective of ‘economic efficiency,’ as a form of protection against unfair
competition. However, fair trading is not only about protecting consumers or
ensuring economic efficiency. Within the framework of national law, this principle
has a wider scope than just consumer protection. For the purpose of this study, the
following sections explore the fair trading principle from the perspective of consumer
protection in relation to the ‘economic efficiency’ aspect of unfair competition.
Certainly, the level of fairness, which a person is entitled to expect, should be the
same as one which simply presents such risks as acceptable and consistent with a
160 Cyber Consumer Law and Unfair Trading Practices
high standard of protection. The ECJ assessed fairness in the field of misleading
advertising by reference to the ‘legitimate expectations of the consumer.’ In the case
Gut Springenheide and Rudolf Tusky v. Amt für Lebensmittelüberwachung, the ECJ
considered that: ‘In order to determine whether a statement (…) is liable to mislead
the purchaser, the national Court must take into account the presumed expectations
which it evokes in an average consumer (…).’21
Finally, from the consumers’ perspective, the fair trading principle draws
attention to a multitude of matters which range from raising trading standards to
removing errant traders from the marketplace and improving consumer redress.22
Apart from unfair trading practices, consumers are affected by unfair competition.
For consumers, from an economic point of view, unfair competition results in fewer
products and services being offered and in charging more than would be the case
where there is effective competition. The consequence is that consumers pay more
than it costs to produce the products or services and end up by switching to goods
which are more expensive to produce.23 Finally, the consumer is not only protected
by a general body of law but also by specific legislation which prohibits business
practices which deprive the consumer of the offsetting benefits of competition,
resulting in a higher quality and better prices and in a greater choice of products and
services.24 A consumer, who is seeking injunctive relief under competition law,
should prove that the business practices complained of are characterised by anti-
competitive behaviour. From a legal perspective, these practices are difficult to
detect and to prove.25 As Ramsay remarks the diffuse nature of economic losses
from unfair or deceptive practices make consumer action unlikely. Furthermore, the
fact that the consumer may not have received a completely worthless product, the
well-documented phenomenon of ‘cognitive resonance’ (the rationalising of the
benefits of a bad transaction) and the view of many consumers that selling is a
‘game’ may all create further barriers to individuals’ taking action.26 Meanwhile,
the discrete nature of unfair competition practices makes the ability of the
competition or consumer authorities to monitor such behaviour difficult.
Just like consumers, traders may have a common interest to trade fairly. Under this
aspect, the principle of fair trading is strictly related to the concept of ‘unfair
competition’ which refers to those traders who attract consumers by counteracting
the pressure of fair competition through anti-competitive methods of trade.
National laws and European anti-competition rules regulate unfair competition.
Article 81(1) of the EU Treaty27 prohibits agreements which impede on fair
competition. Article 81(3) provides that Article 81(1) may be declared inapplicable
when improving the production or distribution of goods or promoting technical and
economic progress, while allowing consumers a fair share of the resulting benefit,
and which does not impose on the undertakings concerted restrictions which are not
indispensable to the attainment of these objectives nor afford such undertakings the
possibility of eliminating competition in respect of a substantial part of the products
in question.
Anticompetitive practices are specific for those companies which have a certain
market power. Traders react against unfair competition practices especially when a
Fair Trading Legal Models in Commercial Practices 161
part of their market is threatened. Furthermore, both at the European and at national
level, competition authorities supervise by ensuring that a merger does not result in
excessive market power and that consumers can benefit from a competitive
environment in terms of quality, price, choice and innovation. For example, the
European Commission fined several Austrian banks for fixing the interest rate for
deposits to the detriment of consumers.28 In SAS and Maersk Air, the European
Commission fined these airline companies for operating a market-share agreement
on airline tariffs between Copenhagen and Stockholm that was detrimental to
consumers.29
By its nature, the electronic marketplace targeting consumers is expected in
the future to increase unfair competition. 30 For example, in electronic
commerce, business can easily change products and services prices seen by
consumers over the Internet. It is expected that the number of competition cases
with consumer implications would increase in the area of price discrimination31
and predatory behaviour.32 Weiss and Mehrotra commenting on traditional
unfair competition notes that in the past, many businesses segmented their
consumer markets in the hope of charging different prices. However, the
transactions were prohibitive due to the costs of gathering personal information
and monitoring purchasing habits so as to measure a consumer’s willingness to
pay. Now, with the advent of the electronic marketplace, businesses are able to
obtain all sorts of information provided by Internet users – and some
information not explicitly provided – at a minimal cost. Similarly, new
technology allows e-commerce companies to change prices with only a minimal
amount of delay and effort.33 The uncertainty around these unfair commercial
practices is today debateable. For example, customers of Amazon.com were
deceived when learning that the online mega-store was charging different
customers different prices for the same DVD movies.34 The justification of the
unfairness of this commercial practice can be found in that most legal systems
require traders to treat all consumers on the same basis.35 These practices affect
not only consumers but might create risks of unfair competition between
different competing companies.
Fair trading principle depends upon ‘the circumstances of time, dominating legal
theory, the different value patterns which prevail, and the political attitudes which
take precedence.’36 It is questionable whether a principle dominated by national
legal patterns would redress the balance of power between consumers and traders
within the context of an electronic market already characterised by the clash of
national rules.
Looking for a fair trading model at international level requires the analysis of the
current fair trading trends in the UK and in the US. The chapter encompasses the
institutional aspects of controlling and monitoring fairness in commercial
transactions. It analyses some aspects of UK and US models of protecting
consumers against unfair commercial practices.
162 Cyber Consumer Law and Unfair Trading Practices
The UK fairness model based on Part 8 of the Enterprise Act37 replaced Part III of the
Fair Trading Act 1973 and the Stop Now Orders (EC Directive) Regulations 2001 in
relation to the UK. Part 8 applies to a wide range of UK consumer protection
legislation and also applies to the legislation of the European Member States
implementing those European Directives specified in the Injunctions Directive. Part
8 of the Enterprise Act entered into force on 1 April and 20 June 2003. This piece of
legislation should be understood in relation to the necessity of developing new
measures for enforcing consumer protection at local and European level.
Part 8 classifies breach of legislation in two categories of infringements:
domestic and/or Community infringement. Domestic infringements concern a wide
range of UK laws incorporated in the Statutory Instrument made under Part 8.
Community infringements relate acts or omissions that breach the European
Member States legislation and other provisions implementing the European
Directives listed in Schedule 13 to the Act. Through this legislation, the
‘Community infringement’ is recognised at the same level of enforcement as the
‘domestic infringement.’ This similarity demonstrates the need to ensure the local
consumer the largest European area of consumer protection.
The supervising authority of consumer policy is the Office of Fair Trading
(OFT), which monitors the market with the aim of identifying potential issues which
could pose problems for consumers. Most of the OFT’s responsibilities under the
Fair Trading Act (FTA) were repealed with the commencement of the Enterprise
Act. The Office of Fair Trading would have enforcement responsibility for action
taken in the UK in respect of either type of infringement, including the
responsibility for the coordination of action by all enforcers. The OFT has the
obligation to publish advice and guidelines on how the consumer protection
provisions of the Act will work.
The enforcement process is based on the following categories of enforcers: general
enforcers, namely the OFT, the Trading Standards Service in Great Britain and the
Department of Enterprise, Trade and Investment in Northern Ireland (DETI) together
with enforcers designated by the Secretary of State, and Community enforcers.38
Under Part 8, Section 214, the enforcer must not make an application for an
enforcement order unless he has engaged in appropriate consultation with the
business infringing consumer protection legislation, with a view to getting the
infringement stopped without the need to go to court. The enforcer may decide to
accept undertakings from the business that it will stop the infringing conduct. The
enforcer can apply for an Enforcement Order to the High Court or County Court (or
Court of Session or Sheriff in Scotland) if, after a period of two weeks the business
will not give undertakings.
In the cross-border consumer transactions, Section 243 of Part 8 of the Enterprise
Act enables the OFT to disclose information to overseas public authorities which
will allow civil proceedings and the investigation of crime. Besides, Part 8 provides
the general enforcers and designated enforcers which are public bodies, the power
to introduce action against European traders that infringe European consumer
protection legislation. An important aspect of the enforcement which requires the
proactive action of the OFT, is for example, the case where no Community enforcer
Fair Trading Legal Models in Commercial Practices 163
exists, or none is willing to take action. In this situation, the OFT can consider
initiating proceedings in another Member State by following the legislative and
judicial procedures of the host state.
According to the provisions of the UK White Paper, the OFT should promote the
core principles39 and encourage good practice by keeping them up to date, approve
or reject codes of conduct and publicise these decisions; publish the benefits of the
overall scheme to consumers and the benefits of dealing with businesses that
comply with approved codes; provide and market a seal of approval for approved
codes so that consumers can see whether a trader is committed to code standards;
and remove the seal from codes that fail to deliver. Indeed, under Part 8 of the
Enterprise Act, one of the key functions of the OFT is to promote good practice by
giving its approval to (or withdrawing approval from) consumer codes of practice.40
A code of practice is eligible for approval by the OFT if it is intended to regulate the
conduct of businesses that supply goods or services to consumers, with a view to
safeguarding or promoting the interests of consumers.
The UK regulatory model at both institutional and substantive level circumscribes
‘fair trade’ as a process in continuing evolution. Under the pressure of this evolution,
there are a large number of organisations coping with the new needs of a fair deal for
consumers. Among these organisations, the Financial Services Authority (FSA)41 tries
to identify areas where unfairness may arise for retail customers and which may
require specific attention. The FSA approach42 is aimed at maintaining efficient,
orderly and clean financial markets and helping retail consumers to achieve a fair
deal.43 The FSA has decided to promote the use of plain language and discourage
unnecessary jargon in retail financial services consumer material (…); to consider
whether in addition to existing regulatory requirements relating to the sale of products
to retail customers, there are products which, because of their inherent complexity or
opacity, are unsuitable for sale to mass market retail customers; (…) to review what
mandatory information should be provided to retail customers after the point of sale
and what the relevant costs and benefits might be, with a view to further consultation
on any rules and guidance (…); (…) promoting consumers’ understanding of the
choices available to them through: use of comparative information tables; other
consumer education (…); to reinforce the introduction of the new regulatory regime
relating to complaints with focused action on compliance with the new rules etc. (...).44
The entire set of factors mentioned above is based on the consideration of fundamental
rationales for consumer protection such as the asymmetry of information between
consumers and traders as well as on the risk of unequal bargaining power between
consumers and traders. It represents a revisited map for fair trading adapted to the
complexity of the financial electronic market today.
Finally, despite the doctrinal discussion regarding the acceptance of general
principals such as ‘fair trading’ or ‘good faith,’ the English legal system reveals first
of all the need for a pragmatic way of enforcement against the unfair commercial or
contractual practices.
(‘FTC Act’), which prohibits both unfair and deceptive acts or commercial
practices.46 Under this Section, unfairness has been defined as follows:
[whether] the act or practice causes or is likely to cause substantial injury to consumers
which is not reasonably avoidable by consumers themselves and not outweighed by
countervailing benefits to consumers or to competition (…). [T]he Commission may
consider established public policies as evidence (…) [but] public policy considerations
may not serve as a primary basis for such determination.47
Can we infer from these provisions, that substantial injury can be established by the
fact that consumers are not in a position to negotiate the standardised terms and
condition and that they do not have real choice when dealing with the traders? A
definite reply to this question is difficult as many practices can be regarded as unfair
according to the particularities of each contextual consumer transaction.
Nevertheless, it should be noted that substantial consumer injury that causes
distortion of consumer choice could result not only from ‘positive actions’
(misrepresentation, misleading actions) but also from ‘negative actions,’ consisting
of the omission of the information to which a consumer is entitled. This omission
creates a distorted and inaccurate image of the risks in which consumers might be
involved. For example, not disclosing the safety risks of ‘fuel geysering’ could be
considered as an omission, which may be found unfair even though it is not
deceptive;48 or, the renting of cars without informing consumers about prior recall
actions could also constitute a case of unfairness.49
The FTC has approached ‘fairness’ for the first time in the Pfizer case.50 This
case was relating to the advertising of the product ‘UN-BURN’ which had not been
tested scientifically. According to the doctrine established by this case, advertisers
must have a ‘reasonable basis’51 for believing the claims are true. Claims for which
the advertiser can provide no reasonable basis risk being considered as deceptive
and unfair under Section 5 of the FTC Act:
[G]iven this imbalance of knowledge and resources between a business enterprise and
each of its consumers, economically it is more rational, and imposes far fewer costs on
society, to require a manufacturer to confirm his affirmative product claims rather than
impose a burden upon each individual consumer to test, investigate or experiment for
himself. The manufacturer has the ability, the time and the resources to undertake such
information by testing or otherwise – the consumer usually does not…52
In the case of F.T.C. v. Rapp,53 the theory of potential injury was justified on the
bases of the misuse of the information. In this case, an information broker had
impersonated customers of financial institutions in order to obtain and sell their
financial information.54 The information broker’s actions were based on deception
but finally it was considered that consumers who were the bank’s customers
suffered the primary injury. In addition to the deception aspect involved by the
information broker, the FTC considered that the disclosure of private financial
information obtained through the deception was unfair. An interesting question
posed by this case is whether the invasion of privacy causes substantial injury. In
this case, the invasion of privacy did not involve monetary harm or safety or health
risks. The FTC views on this point were divergent. Commissioner Orson Swindle
Fair Trading Legal Models in Commercial Practices 165
dissented, arguing that due to the additional evidence of injury, the requirements of
the 1994 Amendments to the statute55 were not fulfilled. ‘Merely to “posit” that
substantial consumer injury “could” flow from the disclosure of private financial
information does not satisfy the statute’s requirement that the challenged practice
“cause” or be likely to cause substantial injury to consumers.’56
The majority of the FTC’s views argued ‘disclosure of private financial
information obtained through such dubious methods could easily result in
significant harm to consumers.’57
In F.T.C. v. Pereira,58 the defendants located in Portugal and Australia allegedly
made unauthorised copies of various websites, including those of Paine Webber and
the Harvard Law Review. The defendants used Internet technology frauds such as
‘pagejacking’ (directing the browser to an unwanted web site) and ‘mouse trapping’
(keeping the browser there against the user’s will). The FTC alleged that defendants
had violated Section 5 of the FTC Act by deceiving and misleading consumers when
pagejacking websites and misleading consumers. The FTC also alleged that
defendants had engaged in illegal and unfair practices when the mouse trapped
consumers and preventing them from leaving defendants’ sites.
All the cases demonstrate that ‘unfairness’ can never be defined with precision.59
There are only some patterns of unfairness that can be discerned from the legal cases
mentioned above. These patterns are based first on the identification of the
substantial consumer injury that causes distortion of consumer choice. Usually, the
FTC grounds substantial injury on the basis of monetary harm, health or safety
risks. Second, the identification of unfairness supposes the analysis of the manner
in which a commercial practice provides benefits that offset the substantial
consumer injury or to competition that offset the harm. According to Azcuenaga,
FTC Commissioner, most business practices provide a mixture of costs and benefits
for consumers. In considering whether a practice generates substantial consumer
injury, the FTC considers not only costs of the consumers but also the
procompetitive aspects of a particular practice, which is a benefit that would be lost
if the government takes regulatory action.60 Finally, determining the unfairness of a
commercial practice requires the analysis of whether consumers could reasonably
avoid the injury. That means on the one side, that consumers should be able to make
informed purchasing decisions and on the other side, that consumers in the market
can switch to another product without incurring substantial cost.61
From an institutional perspective, it should be noted that the US FTC in charge
of monitoring unfair commercial practices contributes significantly to the protection
of consumers against these types of commercial practices. Thus, the FTC is
endowed with a rulemaking power aimed to ‘define with specificity acts or practices
which are unfair or deceptive.’62 The FTC promulgated rules will have the force and
effect of law. Their violation would lead to unfair or deceptive practice. In enforcing
fairness, the FTC could make use of its rulemaking power, take administrative
action, or seek equitable relief.63 However, it seems that the FTC is placing more
emphasis on administrative action. As remarked by Reich, ‘the US experience
shows that, even though the concept of an independent regulatory agency is well
established, substantial limitations on its powers through congressional oversight
and judicial review are unavoidable.’64 Furthermore, Reich suggests that ‘if the EU
wants to enact a duty to trade fairly or a general fairness standard for – commercial
166 Cyber Consumer Law and Unfair Trading Practices
practices affecting the internal market, the taking into account of US experiences,
including a closer look at FTC practice may be useful.’65
CONCLUSIONS
NOTES
would confer an unrivalled, and unbeatable, competitive advantage. In the event that the
EMI/TW joint venture were approved that competitive advantage will be multiplied. 2.
The data protection and privacy issue is relevant even on strict competition criteria. In
assessing the proposed merger, the Commission is of course required to consider the
potential impact on consumers. We argue that the combination of data-bases implied in
the merger(s) together with new possibilities of data processing and cross-processing
would in this case a) Significantly infringe on the privacy of millions of consumers and
b) Shift the balance of power in the seller-consumer relationship towards the seller,
because of the huge disparity in information between the two parties.’ (BEUC/281/2000
The European Consumers’ Organisation 11/9/2000.)
26 I. Ramsay, Consumer Protection, Text and Materials, Law in context, Weidenfeld and
Nicolson, London, 1989, p. 167.
27 Article 81(1) EU Treaty, ‘The following shall be prohibited as incompatible with the
common market; all agreements between undertakings, decisions by associations of
undertakings and concerted practices which may affect trade between Member States
and which have as their object or effect the prevention, restriction or distortion of
competition within the common market, and in particular those which: (a) directly or
indirectly fix purchase or selling prices or any other trading conditions; (b) limit or
control production, market, technical development, or investment; (c) share markets or
sources of supply; (d) apply dissimilar conditions to equivalent transactions with other
trading parties, thereby placing them at a competitive disadvantage; (e) make the
conclusion of contracts subject to acceptance by the other parties of supplementary
obligations which, by their nature or according to commercial usage have no connection
with the subject of such contracts. 1. Any agreements or decisions prohibited pursuant
to this Article shall be automatically void.’
28 Commission Decision in case COMP/36.571 – PO/Österreichische Banken (‘Lombard’)
(Avabank AG, Bank Austria AG, BAWAG, CA-BV, Erste Österreichisch, FPÖ, Giro
Credit Bank AG, OeKB, Postsparkasse, Raiffeisenbank), not published. See Press
release IP/02/844, Commission fines eight Austrian banks in ‘Lombard Club’ cartel case,
11 June 2002, available on the RAPID database, http://europa.eu.int/rapid.
29 Commission Decision of 18 July 2001, case COMP.D.2 37.444 – SAS and Maersk Air
COMP.D.2 37.386 – Sun-Air v. SAS and Maersk Air, OJ L265/15 dd.5.10.2001.
30 ‘E-Commerce and its implications for competition policy’, UK OFT 308, Discussion
Paper 1, August 2000.
31 ‘Price discrimination’ is when a seller is charging consumers ‘with different prices for
the same commodity or discriminating in the provision of allowances – compensation for
advertising and other services – may be violating the competition rules. This kind of
price discrimination may hurt competition by giving favoured customers an edge in the
market that has nothing to do with the superior efficiency of those customers.’
(‘Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust
Laws’), http://www.ftc.gov/bc/compguide/index.htm.
32 ‘Predation is the strategic behaviour where an undertaking deliberately incurs short term
losses in order to eliminate a competitor so as to be able to charge excessive prices in the
future.’ UK Competition Act 1998 (CA98) guideline Market Definition, UK OFT 403.
33 R.M. Weiss and A.K. Mehrotra, ‘Online Dynamic Pricing: Efficiency, Equity and the
Future of E-commerce’, available at: http://www.vjolt.net/vol6/issue2/v6i2-a11-
Weiss.html.
34 ‘Amazon.com Varies Prices of Identical Items for Test’, Wall St. J., Sept. 7, 2000, at B19.
35 For example, as suggested by Balto taking into account the US law, the Robinson-
Patman Act ‘requires that sellers treat all competing customers on the same basis, unless
there is some recognized legal justification for different treatment.’ (D.A. Balto,
Fair Trading Legal Models in Commercial Practices 169
INTRODUCTION
[e]verybody will agree that commercial practices should be ‘fair’ towards the consumer
(and the competitor), but what exactly does ‘fairness’ mean in a specific setting? Are
unsolicited Tele- or internet-marketing activities (spams) fair only if the consumer has
consented beforehand (so-called ‘opt-in’ approach), or does ‘fairness’ merely require an
effective procedure to oppose this type of marketing (so-called ‘opt-out’ approach), or
should there be no state regulation at all, leaving the standard setting to self-regulation and
the broad principles of civil and criminal law?1
on its common position on the basis of a presidency compromise text. The text
issued after the Council’s common position proposes the removal of the principle of
country of origin. The Irish Presidency considered that since the proposal
harmonised member states rules on unfair commercial practices, there was no need
for the principle of country of origin.
The proposed Directive outlines a general clause in order to determine whether a
commercial practice is unfair. Outside the lists of misleading and aggressive
practices, the unfairness of a practice can be determined by performing a simple
assessment, determining firstly whether a trader has acted with professional
diligence, and then whether the practice materially distorted or was likely to
materially distort the economic behaviour of an average consumer. The proposed
text lists unfair practices which it categorises as being either misleading or
aggressive. A positive list of ‘best practices’ would have been appropriate for
encouraging positive action to promote a fair business environment and to establish
a high level of harmonisation.
The aim of this chapter is to provide a brief overview of the evolutionary aspects
of the fair trading principle within the context of the international and global
European context. This overview is necessary for exploring whether the European
concept of ‘fair trading’ as imagined by the European Commission can apply to the
global electronic market. In comparison with the traditional market, the application
of fair trading to the electronic marketplace poses many new challenges regarding
its philosophy, its classical conceptual basis and its enforcement.
9.1 General Overview of the Fair Trading Principle in the International and
Global European Context
In order to provide a general overview of the fair trading principle, the chapter
outlines some of its evolutionary aspects in the international context. The chapter
starts first by identifying the origin of fair trading at the international level. Second,
it continues by analysing how European law have borrowed from the area of
international law, the rationale of the fair trading principle.
At the origin, the principle of fair trading was related to the requirement of
competition laws that firms can compete on a level playing field. As the study by the
Institut für Europaisches Wirtschafts und Verbraucherrecht e.V7 suggests, the
common concepts of Fair Trading – usually symbolised by the notion of ‘unfair
competition’ – are much more oriented to protect competitors from each other rather
than to secure the autonomy of the decision-making of private consumers and the
workability of competition as a whole. The role of fair competition is to keep
markets open and competitive in order to achieve lower prices, increase choice, and
improve product quality for the benefit of the consumer. For example, it can be
inferred from European competition rules8 that the consumer is assumed to receive
a fair share of those benefits that flow from the particular type of agreement that
may obtain an exemption under Article 81(3). In a general context, this means that
Fair Trading Principle 173
the consumer should obtain a fair share of the market’s benefits so long as the
market remains competitive.
The history of fair trading in the European Union has its origins in European
national laws. The principle of fair trading can be found in most European Member
States’ laws.9 It can be perceived under different types of wording10 which range
from bonos mores (Austria, Germany, Greece and Portugal), fair commercial
practices (Belgium, Italy, Luxembourg and Spain), good marketing practices
(Denmark, Finland and Sweden), unlawfulness (Netherlands) and fault (France). All
these considerations demonstrate that fairness is certainly not a uniform concept.
At international level, the fair trading principle dates from 1883. The principle is
mentioned for the first time in Article 10 of the Paris Convention on the protection
of intellectual property rights. It refers to an obligation on the signatory States to
take appropriate measures to ensure fair trading as well as to the definition of what
might be understood by fair trading.
At the international self-regulatory level, another method for regulating unfair
practices is by applying the principle of fair trading to the area of advertising and
marketing rules. The International Chamber of Commerce11 (ICC) International
Code of Advertising Practice which was first issued in 1937, and revised in 1949,
1955, 1966, 1973 and 1987, provide that advertisements should not contain any
statement or visual presentation which directly or by implication, omission,
ambiguity or exaggerated claim is likely to mislead the consumer, in particular with
regard to characteristics such as: nature, composition, method and date of
manufacture, range of use, efficiency and performance, quantity, commercial or
geographical origin or environmental impact; the value of the product and the total
price actually to be paid; delivery, exchange, return, repair and maintenance; terms
of guarantee; copyright and industrial property rights such as patents, trade marks,
designs and models and trade names; official recognition or approval, awards of
medals, prizes and diplomas; the extent of benefits for charitable causes.
Advertisements should not misuse research results or quotations from technical and
scientific publications. Statistics should not be so presented as to exaggerate the
validity of advertising claims. Scientific terms should not be used to falsely ascribe
scientific validity to advertising claims.12
Furthermore, according to Article 2 of ICC International Code of Direct
Marketing, ‘[A]ll direct marketing activities should deal fairly with consumers.
Activities should be so designed and conducted to avoid giving ground for
reasonable complaint. (…) The fulfilment of any obligation arising from a direct
marketing activity should be equitable, prompt and efficient.’13
It follows from this brief overview, that the origin of the principle of fair trading
is related both to areas of competition law and to misleading advertising practices.
9.1.2 The evolution of the principle of fair trading in the European Union
Mapping out the evolutionary aspects of the fair trading principle in the European
Union demonstrates that the principle of fair trading is not the result of a doctrinal
consideration14 but rather of a social and economic reality oscillating between the
lack of political impetus and the difficulties of the lawmaking process at European
Union level.
174 Cyber Consumer Law and Unfair Trading Practices
Delays in the recognition of the principle of fair trade by its incorporation into an
EU Directive are also due to the particularities of the European Union’s lawmaking
process. This process has been generally criticised as being a source of
disharmonisation. Thus, it was considered that since Directives are not based on a
common and general structure of private law, but are instead issued in order to
remedy certain unsatisfactory conditions impairing the functioning of the current
market, or are designed to improve the protection of consumers in certain areas, they
are regarded by academic lawyers, at best, as mere – and often unwanted – alien
supplements to the existing domestic laws and, at worst, better to be ignored.20
Certainly, in a Europe characterised by a multicultural environment, achieving
uniformity in an area dominated essentially by political views is much more difficult
that we might imagine. Controversial European policy files that lie forgotten in the
bottom of a drawer, could later be brought out at a moment of diminished national
pressure and opposition. The European Commission’s proposal to set up a
framework based on the duty of fair trade, can be seen from this dithering political
perspective. That does not mean that the European lawmaking process has reached
its level of perfection but rather that there is an urgent need to find a suitable
solution to the lack of consumers’ confidence in the Internal Market.
This imperative need to find new solutions for consumer protection has not
escaped critics of the technique of the lawmaking process at the EU level which are
handled by different Directorates-General of the European Commission. The
consequence of this fragmented lawmaking process might risk creating inconsistent
legal rules, which later will simply not fit in with the structures of national rules. The
launching of the EC Communication on European Contracts21 followed by the
Fair Trading Principle 175
With the Amsterdam Treaty, EU consumer protection has achieved the right to be
taken into account when other Community policies are considered.22 However, the
current consumer protection landscape is characterised by significant disparities.
Each EU Member State has adopted consumer protection rules in order to comply
with European Union Directives as well as with OECD and WTO guidelines,
UNCITRAL and the Council of Europe’s principles. These disparities are translated
in inconsistent definitions and in a heterogeneous approach on a large number of
issues. Due to the lack of space, the analysis of the development of the European
Union Consumer Policy goes beyond the purpose of this study.23 This subsection is
confined to explaining the fair trading model from the perspective of the existing
approach as projected by the proposal for a Directive of the European Parliament
and of the Council concerning unfair business-to-consumer commercial practices in
the Internal Market.24
In order to enforce consumer protection in the European Union, the Green Paper on
Consumer Protection advances the idea of developing a Framework Directive on fair
commercial practices and the development of a legal instrument for co-operation
between enforcement authorities. Following to the consultation process25 on the
Green Paper and based on ‘Extended Impact Assessment,’26 the European
Commission concluded that a Directive harmonising EU Member States’ rules on
unfair commercial practices was the best policy option.
The philosophy behind the proposed Directive27 lies in the fact that the trader
might take undue advantage of the weak bargaining position of the consumer and
his level of knowledge. The emergence of electronic commerce in today’s society
has changed the methods of doing business by the lack of territoriality presence and
intermediary’s business relationships, by the existence of ‘virtual shops’ and the
possibility of advertising products without any costs. Unfair commercial practices
are much easier to commit in the electronic marketplace due to the new
technologies. ‘Eliminate viruses on your computer today for FREE,’ ‘Debt Got you
down? Free aid,’ ‘Are you anxious about your debt?,’ ‘Get a Cell Phone with
Accessories at No Cost,’ are some of the typical message used to draw consumers
in to pretended fair commercial practices. The proposed directive covers the
electronic market context. It also covers direct selling, publishing activities,
consumer sales, property sales, financial consumer services, advertising, package
176 Cyber Consumer Law and Unfair Trading Practices
travel, timeshare and transport. Within this large context, the proposed Directive
aims to introduce a high common level of consumer protection by establishing a
single, common, general prohibition of unfair commercial practices distorting
consumers’ economic behaviour.
The proposed Directive explains that it will apply where there are no specific
provisions regulating unfair commercial practices in sectoral legislation. Where
such specific provisions do exist, they will take precedence over the framework
directive.28 This section confines itself to a brief analysis of the main functional
principles at the origin of the proposed Directive as well as of the evolution of these
principles after the political agreement reached by the Competitive Council29
providing for full harmonisation. It also examines some aspects of its impact in the
context of electronic market.
allow Member States to introduce rules that are stricter than agreed upon by the
Directives.32 For example, whilst the Misleading Advertising Directive includes an
extended definition of the notion of ‘misleading advertising,’ the Directive allows
Member States to retain or adopt additional consumer protection measures and this
means that barriers to cross-border trade still persist.
According to the principle of country of origin, as originally proposed traders
have to comply only with the requirements of the country of origin. The application
of principle of the ‘country of origin’ allows businesses to sell and advertise in all
Europe in the same way as to their national consumers. For example, companies
based in Belgium must respect the Belgium legal framework in the area of unfair
commercial practices. However, a company offering services in Belgium but based
in a foreign country would not be obliged to respect the Belgian legislation. In cases
of litigation, which often will be written in a foreign language, the Belgian judge
should consider the legislation of the ‘country of origin’ where the company is
based.
The principle of ‘country of origin’ also prevents other Member States from
imposing additional requirements on traders operating on the basis of free
movement of goods and freedom to provide services.33 In this sense, the application
of the principle of ‘country of origin’ might constitute a disadvantage for those
companies located in countries where the national marketing rules are much stricter
in comparison with the national legal framework of other European countries.
In its new version, after the political agreement reached by the Competitiveness
Council, the text of the directive has received a fundamental amendment by removing
the ‘country of origin’ principle and so by providing for full harmonisation. That
means that traders complying with the provisions of the directive do so not just in
their own national context but on EU-level. Consequently, there is no need for mutual
recognition; the same rules apply in all EU Member States. The wording of Article 4
on the ‘Internal Market’ also changed: ‘Member States shall neither restrict the
freedom to provide services nor restrict the free movement of goods for reasons
falling within the field approximated by this Directive.’34
In the context of ‘full harmonisation,’ Member States will have a duty to ensure
the rules on unfair commercial practices are enforced and that traders in their
jurisdiction who infringe them are punished. The duty to pursue ‘rogue traders’
would apply equally to all consumers regardless their domicile in a EU Member
State. Certain industries criticised the removal of the ‘principle of country of origin’
on the grounds that to provide in order cross-border services traders will be obliged
to understand the national rules of each EU Member State. The Directive will go
now back to the European Parliament for a second reading in autumn 2004.
While it is expected that business organisations will plead for the inclusion of the
principle of the country of origin, it is doubtful that the European Parliament will
accept it since the proposed directive includes a new paragraph in Article 3 which
states a six year derogation to full harmonisation with the possibility of extension
for a limited period.35
these unfair commercial practices generate a market failure by impairing the consumer’s
ability to make choices which are informed and therefore efficient. This distortion of
consumers’ preferences is detrimental to the collective interests of consumers even if a
specific consumer affected by the practice does not suffer a financial loss.36
9.2.1.1.3 Commercial practices before and after sale The proposal applies the
provisions of the Directive to commercial practices both before and after sale. The
trader will consequently need to ensure that commercial practices after sale meet the
same fairness standards as commercial practices before sale. The Explanatory
Memorandum states that the absence of after-sale services would not be considered
in itself considered unfair unless the trader’s conduct would lead the average
consumer to have materially different expectations about the after-sale service
available. The proposed directive exemplifies that there is no obligation for a trader
to offer a dedicated technical support online. However, if the trader makes claims
that he will provide such a facility and then does not do so, the practice is misleading
and thus unfair.
According to Article 3, the directive shall apply to unfair commercial practices,
before and after a commercial transaction in relation to any product. That does not
exclude actions against unfair commercial practices arising in connection with a
contract. For example, an unfair contractual clause inserted into a contract may
provide grounds for alleging an unfair business practice, although the plaintiff’s
claim can be justified on the basis of the regulatory framework with regard to the
Unfair Terms in Consumer Contracts.37
‘Commercial practices’ are defined as ‘any act, omission, course of conduct or
representation, commercial communication including advertising and marketing, by
a trader, directly connected with the promotion, sale or supply of a product to
consumers.’38 It can be inferred from this definition that a consumer must not show
that a practice has a repetitive character. A ‘practice’ may be established by one
single conduct.
The expression ‘directly connected’ is susceptible to many interpretations in
electronic commerce where the Internet provider (IP) can perform a wide range of
Fair Trading Principle 179
In some Member States there is a tradition of using codes of conduct to define norms or
standards of behaviour for traders which are not prescribed in legislation. These can be
used either to show in greater detail how to apply legislative requirements (e.g. how to
explain complex concepts in ways that consumers can understand) or in areas where there
are no specific legal requirements (e.g. aspects of after-sales care).40
might be an argument for online traders who defend the plaintiff’s claim and attempt
to prove a good faith conduct.
Until now, consumer protection enforcement was mainly directed to misleading
practices in respect of the traditional obligation of ‘good faith’ purchase.
Nevertheless, there are many other practices which for the time being are not caught
by professional diligence rules. Despite the existence of complete legal frameworks,
the lack of disclosure of information continues to be the rule on the Internet. The
lack of disclosure of information, the existence of incomprehensible or changed
terms and conditions, the distribution of information (that should help the consumer
make a reasoned transaction decision) after the consumer has paid, the defects in
computer programs which ironically are resolved by ‘sending reports’ (which
appears on the computer screen) are some of the most obvious unfair practices in
the electronic marketplace. Instead of constituting causes of actions, these practices
turn out to be progressively unnoticeable for an average consumer who might
believe that they are accepted industry practice.
Furthermore, the proposed directive leaves open the question of the infringement
of the professional diligence in its connection with a certain type of liability. We can
wonder for example, if an allegation of professional negligence would be sufficient
to make a claim for unfair trading practice. In addition to the infringement of
professional negligence, the consumer should prove that the offended commercial
practice materially distorted his economic behaviour.
In order to prevent significant imbalances in the rights and obligations of
consumers on the one hand and sellers and suppliers on the other hand, the
European Parliament in its co-decision procedure (first reading), amended the text
of Article 2 by including the term of ‘good faith’ as required by Council Directive
93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.41 Thus, the
amendment proposed extends the contractual principal of good faith to pre-
contractual and post-contractual transactions. Within the context of Article 2 on
‘professional diligence,’ the principle of good faith goes beyond its traditional
interpretation of bona fide42 of the purchaser. In relation to professional diligence
applied to unfair commercial practices, the principle of ‘good faith’ means the
observance of commercial standards of fair dealing. The similarity between good
faith and fair dealing is outlined in the common law system by Lord Bingham in
Interfoto Library Ltd v. Stiletto Ltd for whom good faith is ‘in essence a principle of
fair and open dealing.’ Lord Bingman remarks that:
In many civil law systems, and perhaps in most legal systems outside the common law
world, the law of obligations recognises and enforces an overriding principle that in
making and carrying out contracts parties should act in good faith. This does not simply
mean that they should not deceive each other, a principle which any legal system must
recognise; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms
as ‘playing fair,’ ‘coming clean’ or ‘putting one’s cards face upwards on the table’. It is in
essence a principle of fair and open dealing (…).43
9.2.1.2.2 Average consumer With respect to the notion of ‘consumer,’ the Council
proposed the removal of the definition ‘average consumer’ from its Article 2. The
notion of consumer returns however to the notion of ‘average consumer’ as codified
by the European Court of Justice.44 The Directive takes as a benchmark the average
consumer as interpreted by the European Court of Justice but makes provision to
prevent the exploitation of consumers whose characteristics make them particularly
vulnerable to unfair commercial practices. In Recital 13 of the proposed directive,
it is stated: ‘Where a commercial practice is specifically aimed at a particular group
of consumers, such as children, it is desirable that the impact of the commercial
practice is assessed from the perspective of the average member of that group. The
average consumer test is not a statistical test. National courts and authorities will
have to exercise their own faculty of judgement, having regard to the case law of the
European Court of Justice, to determine the typical reaction of the average
consumer in a given case.’45 Considering the average consumer benchmark,
Commissioner David Byrne said: ‘It is essential to codify clearly in the Directive
what is already Community law established by the European Court of Justice in
several judgements in the fields of misleading advertising and intellectual property.
This Directive is now bringing about harmonisation. We therefore need to codify the
average consumer benchmark. It is the only way to ensure that the same criteria are
used EU-wide by courts and enforcers to consider, for example, whether an
advertisement is misleading. The Directive will give guidance as to how to do so,
while retaining flexibility based on social, cultural or linguistic factors, as already
set out by the Court.’46
According to the European Court of Justice and national courts, the average
consumer should be reasonably well informed and reasonably observant and
circumspect, rather than the vulnerable or atypical consumer. When a commercial
practice is specifically targeted at a particular group of consumers, the judge
should evaluate the effect of this practice on the average member of that group
rather than the effect on consumers as a whole. At the same time, the judge should
apply this term only in relation with the circumstances peculiar to every case and
by taking into account relevant social, cultural or linguistic characteristics of
targeted groups.
Whether or not a commercial practice distorts the consumer economic behaviour
depends on the views of an ‘average consumer.’ The consumer’s view on products
is naturally a very subjective one. The consumer’s view varies in function with
education, experience and age. If an unfair commercial practice targets children or
other vulnerable groups, the unfairness would be difficult to avoid. In their concern
to protect vulnerable purchasers, the European Parliament proposed an amendment
to target special categories of consumers. The amendment stated that ‘especial
account shall be taken of particularly vulnerable individual circumstances
connected with motherhood, childhood, disability and advanced age.’47
The Council in its common position preferred to express concern towards the
vulnerable by adding an new paragraph to Article 3 which states that commercial
Fair Trading Principle 183
practices which reach the generality of consumers, but are likely to materially
distort the economic behaviour of only a group of consumers who are particularly
vulnerable to the practice or the underlying product because of their mental or
physical infirmity, age or credulity in a way which the trader could reasonably be
expected to foresee, shall be assessed from the perspective of the average member
of that group. This is without prejudice to the common and legitimate advertising
practice of making exaggerated statements or statements which are not meant to be
taken literally.
The definition of ‘average consumer,’ as established by the European Court of
Justice, reasonably well informed and reasonably observant and circumspect,
requires a proactive attitude of the consumer determined to identify the misleading
character of an advertisement. When considering the concept of ‘reasonably
circumspect consumer,’ national courts apply a similar approach. For example, in
‘Scanner Advertisement’48 the German Supreme Court (BGH) considered that a
reasonably circumspect consumer should have realised that the picture included in
the advertisement ‘Mustek Scanner Color,’ which represented a more expensive
scanner, did not correspond in reality to the product advertised. In Krombacher,49
the court held that the advertisement where a brewer promised to pay for the
safekeeping of one square metre of African rainforest per beer crate sold, could
influence the consumer’s decision to buy the product. As the advertisement did not
make any mention of the manner in which the brewer would preserve the rainforest,
the advertisement was considered misleading. It follows from these cases that an
ordinary consumer as decided by a German Court is a person relatively well-
educated and trained.
Would this definition prevail in cyberspace? In online consumer transactions,
consumers should be experienced in using and sorting the information. Would
consumers have the right to be ignorant in this fast-moving environment? Whilst it
is true that the use of information technology requires certain abilities, the goal of
consumer protection law should not be confined to the protection of well-informed
and reasonably observant consumers.
It can be inferred from these practical and legal considerations as well as from
the arguments developed in the first part of this study,50 that the notion of ‘average
consumer’ raises many questions both in the online and off-line marketplace.
the procedural instruments of the reversal of the burden of proof and of legal presumptions
ought also to extend to any arbitration proceedings that may be laid down in a code of
conduct, in order to make the code genuinely competitive with the court and
administrative proceedings laid down as the normal means of recourse.55
The proposed directive refers to two specific types of unfair commercial practice:
misleading and aggressive practice.
his freedom of choice of another product than the ‘tied product.’ ‘Significantly’
means that the average consumer has no alternative other than that of buying the
‘tied product.’
Harassment in commercial practices might be defined as the conduct of a
trader directed at a consumer that causes substantial emotional distress and serves
no legitimate purpose. Harassment may occur for example when a consumer
receives harassing e-mail while having difficulties in tracking its origin.
Sometimes, the harassment conduct would be perpetrated by using public access
e-mail address. In this case, the consumer would have no alternative but to sue
the Internet Service Provider.
According to the provisions of Article 6(2) of the proposed Directive, ‘A
commercial practice shall also be regarded as misleading where […] non
compliance by the trader with commitments contained in codes of conduct by
which the trader has undertaken to be bound.’62 One might consider that this
provision could be a disincentive for traders to join codes of conduct. The main
arguments supporting this view rely on the fact that ‘the Directive’s manner of
incorporating codes of conduct within a legal enforcement structure63 may lead
to double standards between signatories and non-signatories with respect to legal
exposure.’64 This argument is controversial if we consider that in general the
national codes are designed to comply with national legislation and that self-
regulatory codes are used to bring added value by supporting traders to apply
legislative principles on a day to day basis. However, the assumption of ‘double
standards’ of protection can be argued when the development of codes rather than
laying down minimum compliance requirements, go beyond the provisions of the
national legislation by providing a higher level of consumer protection.
The proposed Directive regulates the impression that a commercial practice might
convey to the consumer. That means for example, that a judge should take into
account the impression left by advertising on a consumer and not necessarily the
material appearance of the offended advertising. Furthermore, in order to assess
how the offended commercial advertising is likely to materially distort consumers’
economic behaviour, the judge should have recourse to statistics, scientific reports,
consumer surveys etc. However, a commercial practice will not be considered as
unfair if it will be misunderstood by a consumer or if it can have many different
interpretations.
The European Parliament considers it important to ensure that the list of practices
is regularly updated in view of the fact that the market evolves and new unfair
practices are continually arising. This will favour consumers in particular, by
lightening the burden of proof applicable under the general clause of prohibition
contained in Article 5.67 The list could be amended through the normal legislative
process in the same way as any other part of the Directive.
Member States shall ensure that adequate and effective means exist to combat unfair
commercial practices and for the compliance with the provisions of this Directive in the
interest of consumers. Such means shall include legal provisions under which persons or
organisations regarded under national law as having a legitimate interest in combating
unfair commercial practices may: take legal action against such unfair commercial
practices; and/or bring such unfair commercial practices before an administrative
authority competent either to decide on complaints or to initiate appropriate legal
proceedings.
That provision would allow class actions which are legal proceedings under which
one party, or a group of parties, may sue as representatives of a larger class.
While allowing flexibility, Article 11 provides that Member States shall confer
upon the courts or administrative authorities powers enabling them to order the
cessation or the prohibition of unfair commercial practices. The decisions of courts
or administrative organisations are independent of proving actual loss or damage of
intention or negligence on the part of the trader. The enforcement requires that
Fair Trading Principle 191
9.2.1.8 Sanctions
Article 13 provides that ‘Member States shall lay down penalties for infringements
of national provisions adopted in application of this Directive and shall take all
necessary measures to ensure that these are enforced. These sanctions must be
effective, proportionate and constitute a deterrent.’ The Explanatory
Memorandum70 specifies that the provisions of Article 13 require Member States to
ensure the Directive’s effect in accordance with the ruling of the Court in case C-
68/88 (Commission v. Greece). In this case, the European Court of Justice71
establishes minimum conditions for ensuring the effectiveness of sanctions in case
of infringements of Community law. According to the ECJ, whilst the choice of
sanctions remains within the Member States’ discretion, they must ensure in
particular that infringements of Community law are penalised under conditions,
both procedural and substantive, which are analogous to those applicable to
infringements of national law. In any event, sanctions should be effective,
proportionate and dissuasive. Moreover, the national authorities must proceed, with
respect to infringements of Community law, with the same diligence as that which
they bring to bear in implementing corresponding national laws.72
While the provisions of Article 13 compel Member States to take effective
measures that require effective, proportionate and deterrent sanctions, it would not
lead to the adoption by the Member States of varying enforcement measures. This
Directive is without prejudice to the determination of the types of damage which
may be caused by an unfair commercial practice and their quantification.73 Some
192 Cyber Consumer Law and Unfair Trading Practices
Member States would allow the possibility of obtaining equitable relief consisting
of an injunction against the offending commercial practice while other Member
States would allow monetary damages. Varying rules may risk encouraging rogue
traders to become established in countries endowed with feeble enforcement legal
systems. The European Parliament in its co-decision procedure (first reading),
proposed that provision should also be made to ensure that compensation may be
obtained for losses caused by an unfair commercial practice in such a way as to
guarantee the widest possible protection for consumers in the internal market.74
The acceptance of fairness in the European law through the proposal for Unfair
Commercial Practices Directive represents a likely stage of the normal development
of the fair trading principle. The following section provides some complementary
basis for the development of this model in the context of the electronic market.
fair trading would help to set the basis for a high level of fairness that protects the
information which is stolen in cyberspace just as when the information is stolen off-
line.
From a practical perspective, a Code of Deontology of Fair Trading would first
clarify the debateable trader definition. The definition of a trader is subject to many
interpretations. In general, the trader is supposed to have specialised knowledge of
business practices. Even if the traders were not necessarily great experts, they would
still be responsible for a certain minimum of duties with regard to their conduct in
commercial practices. There will be some difficulties in determining a trader’s
definition. From this perspective, a Code of Deontology on Fair Trading might bring
some clarification on the question of whether a trader is acting in a personal or
‘mercantile’ capacity/meaning.
Secondly, a Code of Deontology on Fair Trading would bestow on traders
knowledge and responsibility for their profession. It would enable traders to
establish a common basis for their profession, leading ineluctably to the
improvement of the traders’ profession profile. It would provide guidance to the
traders’ conduct that would foster high consumer protection standards. Certainly,
establishing such a Code would not be an easy task. In general, a Code of Conduct
supports a variety of purposes and it targets varied audiences, it covers professions
that by their nature are not so heterogeneous as the trader’s profession. However,
whilst one may argue on the limited regulatory function of a code, at the simplest
level, a Code of Fair Trade will step forward the deontology of fairness by
embodying a moral commitment of service towards the consumer.
The electronic marketplace brings new dimensions to the duty of trading fairly
that goes beyond the traditional model practised by a local merchant. Coping with
the new cyberspace risks, it requires drawing a basis for a new deontology of fair
trading which involves a new professionalisation of the business-to-consumer
commercial relationship. The following section of this chapter shows that regulatory
elements supporting a deontology of fairness are already in place. In order to step
forward to a common fair trading principle, a code or international convention
should set uniform interpretations of fairness principle on an ethical universal basis.
It should be based on the following twofold aspects of the fair trading principle: the
precautionary and remedial aspect of fair trading principle.
The precautionary aspect of the fair trading principle requires traders to take action
in order to avoid the risk of unfair commercial practices. It is about the prevention
of traders that limit the probability of occurrence of unfair online practices that can
be detrimental to consumers? The precautionary aspect requires the approach of
fundamental questions such as: to what extent would traders be prepared to cope
with the risk of seeing their practices invalidated with effect ab initio; to what extent
would they take the risk of claims for damages?
Perhaps the best way to illustrate the precautionary aspect of fair trading
principle in the electronic marketplace is to refer to the following self-regulatory
legal models.
[a]dvertising and marketing on the Internet, World Wide Web, and online services should
reflect the highest standards of ethical conduct … Responsible advertisers and markets
should recognize that it is in their own interest to observe self-disciplinary guidelines
specifically adapted to electronic or interactive advertising and marketing.81
According to the ICC guidelines, the advertisers and marketers should disclose
the reason for collecting personal information on users, and confine their use of the
information to their stated purpose. The guidelines also recommend that marketers
should take reasonable precautions to safeguard the security of their data files; the
users should have the opportunity to refuse transfer of their personal data to other
advertisers except when required by law. Advertisers are also encouraged to post
their privacy policy statements clearly on their on-line sites. Unsolicited commercial
messages should not be sent to those users who request not to receive them.
Advertisers and marketers should respect the role of particular electronic news
groups, forums or bulletin boards as public meeting places which may have rules
and standards as to acceptable commercial behaviour.
The ICC guidelines, in its Article 6, provide that advertisers and marketers
offering goods or services to children online should not exploit the natural credulity
of children or the lack of experience of young people and should not strain their sense
of loyalty; not contain any content which might result in harm to children; identify
material intended only for adults; encourage parents and/or guardians to participate
in and/or supervise their children’s online activities; encourage young children to
obtain their parent’s and/or guardian’s permission before the children provide
information online, and make reasonable efforts to ensure that parental consent is
given; provide information to parents and/or guardians about ways to protect their
children’s privacy online. Furthermore, given the global reach of electronic networks,
and the variety and diversity of possible recipients of electronic messages, advertisers
and marketers should be especially sensitive regarding the possibility that a particular
message might be perceived as pornographic, violent, racist or sexist.
Fair Trading Principle 195
The fair trading principle does not apply in pre-contractual and contractual stages of
online consumers transactions only. Whilst these stages can be approached from a
precautionary perspective, the remedial aspect of the fair trading principle arises in
the after sale stage of online consumers’ transactions. In its report on ‘Consumer
detriment,’84 the UK Office of Fair Trading remarks that when consumers do take
their concerns or complaints directly to businesses only just over a third are clearly
satisfied with the results. The remedial aspect of the fair trading principle relates to
the litigation context between consumer and trader in online consumer transactions
and it concerns the duty of traders to offer consumer satisfaction in the post-
contractual stage of online consumers’ transactions. The ability of technology to
create a major ‘selling point’ to anyone, the capacity to conduct business activities
in a jurisdiction with no physical location or participation in the economic life might
deny the right of foreign consumers through obstructive behaviour. Foreigner
consumers will have difficulties in pursuing complaints, whilst rogue traders might
take advantage of this situation by simply not responding to consumers’ complaints
and therefore avoiding any possibility of providing compensation to consumers.
Unfair commercial practices arising in the post-contractual stage may increase
the level of stress of consumers when traders do not react to their complaints.
Sometimes, the rogue traders prefer to exploit consumers, calculating that the risk
of prosecution or civil action and the level of any punishment will be lower than the
benefits of their activity.85
The remedial side of the fair trading principle should allow the authorities in
charge of ensuring consumer protection to take action against unfair commercial
practices directed towards consumers. It requires approaching questions such as:
Would fair trading require a real test and evidence of the causation issues? How can
196 Cyber Consumer Law and Unfair Trading Practices
CONCLUSIONS
The role of the proposed Directive on Unfair Commercial Practices is to bring about
‘full harmonisation’ with a high level of consumer protection simplification; and,
where possible, deregulation of existing provisions should be prioritised; removal of
the principle of mutual recognition and control by the country of origin (Internal
Market principles); and a balance between legal certainty and adaptability to market
circumstances. This means that the legislation would provide a sufficient level of
detail both to genuinely harmonise consumer protection, and to provide certainty for
business and consumers. The proposed Directive is phrased in terms of actions that
are unfair – in other words an obligation not to trade unfairly, rather than a duty to
trade fairly.86 The Follow-up Communication to the Green Paper on EU Consumer
Protection87 was proposing a framework Directive on the basis of a general clause
composed of two core elements: the ‘unfairness of the practice;’ and a ‘consumer
detriment test.’ The proposed directive has improved its configuration. Its main
structure is now based on a general prohibition clause, on two specific examples of
unfair commercial practices – misleading and aggressive practices – and an
indicative and non-exhaustive list in the annex of unfair commercial practices.
With the advent of the electronic marketplace, the traditional view about the role
of the principle of fair trading in completing legal systems changes. Within the
current legal context characterised by the chaotic nature of rules and the clash of
competing national sovereignties, there is a need to establish a clear international
framework for the fair trading principle that provides certainty and amounts to a
safety net for online consumer transactions.
If the proposed directive were to be based on the principle of the country of origin
in the context of the international electronic market it would have little relevance. In
the international electronic marketplace characterised by unpredictability of local
law and by cultural differences, the proposed directive remains a ‘local’ legal
framework. The directive ‘will require a wholesale appraisal and reformulation of
national trade practice law of both a horizontal and vertical character.’88 There is no
doubt that the directive will constitute a catalyst allowing interaction between
Fair Trading Principle 197
different European legal systems. While this process would contribute to interpret
national concepts according to European standards of consumer protection, it will
probably not cover the need of unified image and predictability of the electronic
market in its entirety. The electronic marketplace involves many practical
extraterritorial issues which from a legal perspective, require unified interpretation
and predictability in judicial enforcement. The law remains a primary mechanism
for the regulation of unfair commercial practices. Nevertheless, the adoption of legal
solutions at the local area will be only a new layer of burden on the honest traders
rather than impeding on the unfair rogue commercial practices. Enforcement
initiatives that achieve mutual benefit from the present legal framework in the area
of electronic commerce would require setting up an independent consumer agency
endowed with the necessary expertise to monitor and restrict cyber consumer unfair
practices.
NOTES
other and against unfair marketing practices, in this way constructing the legal order of
the (national) markets as a level playing field for enterprises. A by-product of this was a
kind of consumer protection, e.g. as a result of the prohibition of misleading advertising,
in other words a mere “reflex” accepted by the lawmaker but not intended’ p. 57.
10 For example, in Austria (Article 1 of the Bundesgesetz gegen den unlauteren
Wettbewerb), Greece (Article 1 of the Act on Unfair Competition) Portugal (Article
260, para 1 Codigo da Propriedade Industrial), Germany (§1 Gesetz gegen unlautern
Wettbewerb), Belgium (Article 93 and 94, Loi sur les pratiques du commerce et sur
l’information et la protection du consommateur), Italy (Article 2598 Codice Civile),
Luxembourg (Article 16 Loi du 27 Novembre 1986 réglementant certaines pratiques
commerciales et sanctionant la concurrance déloyale), Spain (Article 5 Ley
Competencia Desleal and Article 6(b) Ley General de Publicidad), France (Art. 1382-
1384 Code Civil), Netherlands (Article 6:162 of the ‘Burgerlijk Wetboek’), Denmark
(§1 Marketing Practices Act), Finland (Consumer Protection Act, part 2 §1), Sweden
(Article 4, para 1 of the Marketing Act). In UK law, fairness is known under the
‘unconscionability’ and ‘equity’ terms as a means of ensuring balance and fairness in
commercial transactions. The Green Paper on European Union Consumer Protection
refers to a recent report by the UK Financial Services Authority, ‘Treating Customers
fairly after the point of sale’ (June 2001) which examined the concept of ‘fairness’ in
English law and broke it down into a number of identifiable elements which go to
make up ‘fair’, and types of conduct which are indicative of acting fairly. In US law,
the FTC Act specifies that an unfair act or practice is one that causes or is likely to
cause substantial injury to consumers that is not reasonably avoidable and is not
outweighed by countervailing benefits to consumers or competition. 15 U.S.C.
§45(n).
11 ICC was founded in 1919. ICC brings together thousands of member companies and
associations from over 140 countries. The headquarters are located in Paris.
12 Article 5, ICC International Code of Advertising Practice (1997 Edition). The ICC rules
are considerable important in the marketing practice rules of the Scandinavian countries.
See ‘The Feasibility of a General Legislative Framework on Fair Trading’, 2000. The
study was produced by Institut für Europaisches Wirtschafts und Verbraucherrecht e.V
for Health & Consumer Protection DG. It cites Anne-Dorte Bruun Nielsen, ‘Analysis of
the possibility of introducing a general clause on good market behaviour into
Community law’, – Report prepared for the Nordic Council of Ministers, Manuscript
February 2000 who underlined that greater emphasis on ICC rules is placed in Sweden
than has been the practice in Denmark.
13 Revised ICC International Code of Direct Marketing, 2001.
14 In the studies commissioned by the European Commission to the Europaisches
Wirtschafts und Verbraucherrecht, available on the website of the European
Commission, the history of the fair trading in European Union is related to the name of
Eugen Ulmer: ‘In 1965s, Eugen Ulmer proposed the application of the fair trade
principle to the field of competition law.’ The study cites another study commissioned
by the European Commission to E. Ulmer (Das Recht des unlauteren Wettbewerbs in den
Mitgliedstaaten der EWG, vol 1.Vergleichende Darstellung mit Vorschlägen zur
Rechtsangleichung, 1965) – in English ‘Study on the harmonisation of competition law
commissioned by the European Commission’. For an updated analysis of national
models of fairness, please see the study commissioned by the European Commission to
Reiner Schulze and Hans Schulte-Nölke, ‘Analysis of National Fairness Laws Aimed at
Protecting Consumers in Relation to Precontractual Commercial Practices and the
Handling of Consumer Complaints by Business’.
15 ‘The Feasibility of a General Legislative Framework on Fair Trading’ Study was
Fair Trading Principle 199
produced by Institut für Europaisches Wirtschafts und Verbraucherrecht e.V for Health
& Consumer Protection DG., 2001.
16 Directive 84/450/EEC of 10.9.84 relating to the approximation of the laws, regulations
and administrative provisions of the Member States concerning misleading advertising.
OJ L 250, 1984.
17 Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, OJ L 95/29,
1993.
18 Directive 97/55/EC of the European Parliament and of the Council of 6 October 1997
amending Directive 84/450/EEC concerning misleading advertising so as to include
comparative advertising, OJ L290 of 23.10.97.
19 Directive 2001/95/EC of the European Parliament and of the Council 3 December 2001
on general product safety. Official Journal of the European Communities 15.1.2002 L
11/4, Council Directive 92/59/EEC of 29 June 1992 on general product safety, OJ L 228,
11.8.1992, p. 24.
20 P. Schlechtriem, ‘The Growing Importance of European Law and How it Affects
Teaching and Research in the Field of the Private Law of Obligations (Torts, Contracts
and Restitution)’, Texas International Law Journal, vol. 36: 531.
21 COM(2001) 398 final, Communication from the Commission to the Council and the
European Parliament on European Contract, Brussels, 11.07.2001, This Communication
was launched by the DG Internal Market.
22 EU Treaty, Article 153 §1 provides that the Community ‘in order to promote the interests
of consumers and to ensure a high level of consumer protection, shall contribute to
protecting the health, safety and economic interests of consumers, as well as to
promoting their right to information ... in order to safeguard their interests’. Following
§2 ‘consumer protection requirements shall be taken into account in defining and
implementing other Community policies and activities’.
23 For an analysis of the European Union Consumer Policy (including the harmonisation
issues and the ‘rule of reason’), please see Consumer Protection Law, by G. Howells
and S. Weatherill, Dartmouth, 1995; EC law, by S. Weatherill and P. Beaumont,
Penguins Books, 2000; ‘Private international law – electronic commerce – country of
destination principle’, Study by G. Howells, Dr R. Lane, J.D. McClean, P. Torremans
and Charlotte Waelde, European Parliament Study 2000, available at:
www.europa.eu.int; T. Wilhelmsson, ‘Is There a European Consumer Law – and Should
There be One?’ Centro di Studi e ricerche di dritto comparato e straniero, Rome 2000;
M. Van Huffel, ‘Consumer Protection in Electronic Commerce: A General Overview’,
Article presented at the occasion of the 4th ECLIP workshop in Palma de Mallorca on
March 1999 etc.
24 Proposal for a Directive of the European Parliament and of the Council concerning
unfair business-to-consumer commercial practices in the Internal Market and amending
directives 84/450/EEC, 97/7/EC and 98/27/EC (the Unfair Commercial Practices
Directive) Brussels, 18.6.2003, COM (2003) 356 final, 2003/0134 (COD).
25 Green Paper on Consumer Protection, adopted in October 2001, COM (2001) 531,
Follow-up Communication to the Green Paper on EU Consumer Protection, European
Commission, Brussels, 11.6.2002, COM(2002) 289 final.
26 See ‘Extended Impact Assessment for a discussion of the sources of evidence used’,
GFA study available at: http://europa.eu.int/comm/consumers/cons_int/safe_shop/
fair_bus_pract/index_en.htm.
27 Proposal for a Directive of the European Parliament and of the Council concerning
unfair business-to-consumer commercial practices in the Internal Market and amending
directives 84/450/EEC, 97/7/EC and 98/27/EC (the Unfair Commercial Practices
Directive), Brussels, 18.6.2003, COM (2003) 356 final, 2003/0134 (COD).
200 Cyber Consumer Law and Unfair Trading Practices
28 Commercial practices which are regulated by the Distance Selling Directive, Consumer
Credit Directive, Directive on contracts negotiated away from business premises,
Timeshare Directive, Package Travel Directive, Price Indications Directive are some of
the directives which regulate commercial practices and which can take precedence over
the framework directive.
29 Proposal for a Directive of the European Parliament and of the Council concerning
unfair business-to-consumer practices in the Internal Market and amending Directives
84/450/EEC, 97/7/EC and 98/27/EC (the Unfair Commercial Practices Directive),
Outcome of proceedings of Council, Interinstitutional File:2003/0134 (COD), 25 May
2004.
30 D. Byrne, European Commissioner for Health and Consumer Protection, ‘From National
Legislation to a Framework Directive on Fair Commercial Practices’, Workshop on
Unfair Commercial Practices, Brussels, 22 January 2003, p. 4.
31 D. Byrne, European Commissioner for Health and Consumer Protection, ‘From National
Legislation to a Framework Directive on Fair Commercial Practices’, Workshop on
Unfair Commercial Practices, Brussels, 22 January 2003, p. 3.
32 Directive 85/577/EEC on Contracts negotiated away from Business Premises (Art.8),
Directive 87/102/EEC on Consumer Credit (Art.15), Directive 90/314/EEC on Package
Travel (Art.8), Directive 94/47/EC on Timesharing (Art.11), Directive 97/7/EC on
Distance Contracts (Art.14), 99/44/EC on Sales of Consumer Goods (Art.8) and
Directive 93/13/EC on Unfair Terms (Art.8)).
33 According to the principle of freedom to provide services, a trader may carry on an
economic activity in a stable and continuous way in one or more Member States without
being subject to any discriminatory or restrictive measures which could not be justified
by reasons of general interest. See Keck and Mithouard, joined cases C-267/91 & C-
268/91 [1993] ECR 1-6097.
34 Article 4 of the Directive on Unfair Commercial Practices.
35 See Article 5.a ‘For a period of six years from the date referred to in Article 18, first
subparagraph, Member States shall be able to apply national provisions within the field
approximated by this Directive which are more restrictive or prescriptive than this
Directive and which implement directives containing minimum harmonisation clauses.
These measures must be essential to ensure that consumers are adequately protected
against unfair commercial practices and must be proportionate to the attainment of this
objective. The review referred to in Article 17a may, if considered appropriate, include a
proposal to prolong this derogation for a further limited period’ (Proposal of Directive
on Unfair Commercial Practices, after the Council agreement, 25 May 2004).
36 Proposal for a Directive of the European Parliament and of the Council concerning
unfair business-to-consumer commercial practices in the Internal Market and amending
directives 84/450/EEC, 97/7/EC and 98/27/EC (the Unfair Commercial Practices
Directive) Brussels, 18.6.2003, COM (2003) 356 final, 2003/0134 (COD).
37 Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, Official
Journal L 95, 21.04.1993.
38 Article 2(j).
39 Article 5(2).
40 Recital 72.
41 Draft Report on the proposal for a European Parliament and Council directive
concerning unfair business-to-consumer commercial practices in the Internal Market and
amending Directives 84/450/EEC, 97/7/EC and 98/27/EC (the Unfair Commercial
Practices Directive) (COM(2003) 356 – C5-0288/2003 – 2003/0134(COD)) Committee
on Legal Affairs and the Internal Market, Rapporteur: Fiorella Ghilardotti, 19 November
2003, p. 8.
Fair Trading Principle 201
59 Recital 69.
60 Recital 57.
61 Article 9.
62 Article 6(2), p. 25.
63 Article 6(2).
64 Directive concerning unfair business-to-consumer commercial practices, Position Paper
of the European Association of Communication Agencies (EACA), 15 November 2003.
65 UK DTI, ‘The Unfair Commercial Practices Directice’, Consultation on a draft EU
Directive COM (2003) 356, July 2003, p. 19 available at: http://www.dti.gov.uk/ccp/
consultpdf/unfaircon.pdf.
66 Green Paper on European Union Consumer Protection, European Commission, Brussels,
2.10.2001, 531 final COM(2001) 398, pp. 11 and 15.
67 Draft Report on the proposal for a European Parliament and Council directive
concerning unfair business-to-consumer commercial practices in the Internal Market and
amending Directives 84/450/EEC, 97/7/EC and 98/27/EC (the Unfair Commercial
Practices Directive) (COM(2003) 356 – C5-0288/2003 – 2003/0134(COD)) Committee
on Legal Affairs and the Internal Market, Rapporteur: Fiorella Ghilardotti, 19 November
2003, p. 8.
68 Article 2(g).
69 Proposal for a Regulation of the European Parliament and of the Council on cooperation
between national authorities responsible for the enforcement of consumer protection
laws (‘the regulation on consumer protection cooperation’), Brussels, 18.7.2003,
COM(2003) 443 final, 2003/0162 (COD).
70 Note 78, p. 16.
71 Judgment of 21/09/1989, Commission/Greece (Rec.1989, p. 2965).
72 Judgment of 21/09/1989, Commission/Greece (Rec.1989, p. 2965).
73 Article 3.
74 Draft Report on the proposal for a European Parliament and Council directive
concerning unfair business-to-consumer commercial practices in the Internal Market and
amending Directives 84/450/EEC, 97/7/EC and 98/27/EC (the Unfair Commercial
Practices Directive) (COM(2003) 356 – C5-0288/2003 – 2003/0134(COD)) Committee
on Legal Affairs and the Internal Market, Rapporteur: Fiorella Ghilardotti, 19 November
2003, p. 7.
75 W. Page Keeton et al., Prosser and Keeton on The Law of Torts 189 (5th ed. 1984).
76 Code of Conduct for Lawyers in the European Union, available at: www.ccbe.org.
77 M. Bayles, Professional Ethics, Belmont, CA.: Wadsworth, 1981.
78 ‘Treating customers fairly after the point of sale’, Financial Services Authority,
Discussion paper, June 2001, available at: http://www.fsa.gov.uk.
79 I. Trotter Hardy, ‘The Proper Legal Regime For Cyberspace’, University of Pittsburgh
Law Review, 1994.
80 ‘Treating customers fairly after the point of sale’, Financial Services Authority,
Discussion paper, June 2001, p.13, available at: http://www.fsa.gov.uk.
81 ICC Guidelines on Advertising and Marketing on the Internet (1998).
82 The Guidelines and the Australian ‘E-commerce Best Practice Model’ available at:
http://www.ecommerce.treasury.gov.au.
83 ‘Building Consumer Sovereignty in Electronic Commerce. A Best Practice Model for
Business’, Minister for Financial Services & Regulation, May 2000, p. 4, available at:
http://www.treasury.gov.au.
84 ‘Consumer Detriment’. OFT Report 296, Office of Fair Trading, 2000.
85 Modern markets: confident consumers, Report of the UK Department of Trade and
Industry, available at http://www.dti.gov.uk/consumer/whitepaper.
Fair Trading Principle 203
General Conclusion
An adequate cyber consumer law could not exist properly without taking into
account the real international dimension of consumers’ commercial relationships.
On the basis of the analysis of the main electronic market failures drawn-up above,
it can be concluded that the architecture of cyber consumer law such as it can be
observed today remains incomplete and fragmentised, and that there is a tremendous
lack of unified and comprehensive legal infrastructure surrounding consumers. The
failures of the electronic market are translated into a fragmentation of national rules
on consumer protection. The existence of these failures demonstrates that the
electronic market does not work properly with reference to online consumer
transactions.
As was argued in this study, the existence of electronic market failures as well as
the peculiarities of the electronic marketplace requires coordinated governmental
intervention in the field of consumer protection law at international level. From this
perspective, one of the objectives of this study was to look at the issue of adopting
similar solutions and interconnecting similar principles at international level. The
study concludes that a workable cyber consumer law requires common rules that
allow the global electronic marketplace to function effectively as a single large
system. One might doubt the possibility of adopting similar solutions at the level of
the electronic marketplace, since this area involves a high consideration of the
national legal diversity, which requires forgetting our traditional conceptions based
on traditional legal systems arising from the territorial marketplace. Looking for
similar solutions is also quite contradictory with those views that advocate that
consumers should be protected by similar legislation and principles to those existing
in the traditional market. Similar legal frameworks for both electronic and
traditional markets do not mean that consumers would take advantage of a similar
standard of protection. As cyberspace is a medium that continually produces new
electronic market failures, its functioning needs to be regulated through a specific
legal framework. The reliability of this legal framework should be tested through its
ability to deal with this new range of failures linked directly to the virtual aspect of
the electronic marketplace: to its interactivity and high speed of information flow
confronting consumers over the Internet.
Formulating viable proposals able to cope with a paradoxical coexistence
between the diversity of legal national rules and a proclaimed common legal
framework is no doubt a daunting task. My proposals are limited in scope based on
several assumptions such as the fact that the fair trading principle might be an issue
responsive to consumer protection in the electronic marketplace. At national level,
this assumption is largely embraced by different legal systems. The adoption of a
fair trading principle might be the final long-term solution for consumers’ problems.
Undoubtedly, this proposal cannot be expected to solve related problems, such as
206 Cyber Consumer Law and Unfair Trading Practices
of information arising from the fact that they should deal with companies which
provide vague or misleading information or when the quality does not correspond
with the description provided on the web pages.
In addition to disclosure of information, online misleading advertising is another
aspect of the asymmetry of information between consumer and marketer (or trader)
in the electronic marketplace. This type of asymmetry, which is exacerbated by the
particularities of online misleading advertising, leads to the conclusion that
consumer interests are highly vulnerable. The following conclusion can be inferred
from the analysis of the current EU and US legal and self-regulatory misleading
advertising online: there is a need for international cooperation between self-
regulatory and governmental institutional structures in order to resolve consumers’
problems relating to misleading advertising and ensure fair competition between
cross-border companies. This would allow the possibility for consumers to enforce
their rights against misleading advertising arising beyond the national borders of
their countries.
The second part of my conclusion lies in the proposal of counteracting divergent
failures arising in the borderless environment of the electronic marketplace through
a unified global legal framework. With the advent of the electronic marketplace, the
traditional view about the role of the principle of fair trading in completing legal
systems changes. Within the current legal context of electronic commerce
characterised by the chaotic nature of rules and the clash of competing national
sovereignties, a proposal for an Unfair Commercial Practice Directive based on the
principle of country of origin would have little relevance for consumers worldwide.
In the context of the international electronic market, characterised by
unpredictability of local law and by cultural differences, the proposed Directive
remains a ‘local’ legal framework. Whilst it can be considered that the fair trading
principle might be an adequate principle for regulating consumer protection in its
relation with the Internal Market, within the electronic marketplace, its effectiveness
encounters difficulties. Problems may arise relating to the unified interpretation of
concepts in the effective application of this principle, such as: ‘unfair commercial
practices,’ ‘distort economic behaviour,’ ‘reasonable expectations of average
consumer,’ ‘vulnerable consumers’ etc. A unified approach at international level
would help to lessen the significant semantic differences in the application of the
fair trading principle in different stages of the B2C commercial relationships.
Furthermore, the electronic marketplace brings new dimensions to the duty of
trading fairly that goes beyond the traditional model practised by a local merchant.
A unified approach of fair trading requires drawing a basis for a new deontology of
fair trading which involves a new professionalisation of the business-to-consumer
commercial relationship. The study demonstrates that regulatory elements of
national or self-regulatory models that support a deontology of fairness are already
in place.
The third part of my conclusion relates to the technological characteristics of the
electronic marketplace and lies in the proposition of counteracting divergent failures
through a separation of cyber consumer law from business technological regulation1
of the electronic marketplace and its approach as a separate branch of law. These
issues are not of mere academic interest. Providing precise and clear answers to
these questions would have a real impact on the development of cyber consumer
General Conclusion 209
legislation and legal principles. The systematisation of off-line and online protection
law under one legal framework limits the possibility of a specific approach to
consumer needs in cyberspace. It creates the impression that the consumer is
confronted with the same type of risks either in the physical world or in cyberspace.
Consequently, under a common legal framework, the parties would be allowed to
allocate risks in the same way as in the tangible environment despite the fact that the
consumer is not controlling such risks in the same way as in the physical world. It
seems that whilst consumer protection in the 1960s was fashioned by its external
environment, cyber consumer protection today is challenged by internal conditions
linked to the technological nature of the Internet. Given the current underdeveloped
state of technology now available to consumers, it is impossible for them to exercise
real control over the technological aspects of the electronic marketplace.
The peculiarities of the electronic marketplace and their impact on consumer
protection require continuity in the formulation of a law adapted to suit the new
needs of consumer protection. Meanwhile, determining the rationales of cyber
consumer law, identifying new areas of unfairness in the B2C commercial
relationship and exploring the need to provide solutions for the inadequacy of cyber
consumer law, represent some of the major issues which would determine the way
in which the legal community will design the future architecture of consumer law.
NOTE
1 In the off-line consumer context, T. Wilhelmsson suggests ‘there is an obvious need for
some separation of consumer relations from pure business relations.’ (T. Wilhelmsson,
‘Is There a European Consumer Law – and Should There be One?’ Centro di Studi e
ricerche di dritto comparato e straniero, Rome 2000, p. 3.)
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2 EU LEGISLATION
1980 Rome Convention on the law applicable to contractual obligations (OJ C 027,
26/01/1998 pp. 034-46).
Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the
recognition and enforcement of judgments in civil and commercial matters (OJ L
12, 16.1.2001).
Directive 2002/65/EC of the European Parliament and of the Council of 23
September 2002 concerning the distance marketing of consumer financial
services and amending Council Directive 90/619/EEC and Directives 97/7/EC
and 98/ 27/EC, (OJ L 271, 09/10/2002).
Directive 2002/58/EC of the European Parliament and of the Council of 12 July
2002 concerning the processing of personal data and the protection of privacy in
the electronic communications sector (Directive on privacy and electronic
communications) in (OJ L 201, 31/07/2002 p. 37).
Directive 2001/95/EC of the European Parliament and of the Council 3 December
2001 on general product safety (O J L 11/4, 15.1.2002).
222 Cyber Consumer Law and Unfair Trading Practices
Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000
on certain legal aspects of information society services, in particular electronic
commerce, in the Internal Market (Directive on electronic commerce) (OJ L 171,
17.7.2000, p. 1).
Directive 1999/44/EC of the European Parliament and of the Council of 25 May
1999 on certain aspects of the sale of consumer goods and associated guarantees
(OJ L 171, 7.7.1999, p. 12).
Directive 1999/250 Legal Protection of Computer Programs (O.J. L 122, 1999,
pp. 42-46).
Directive 97/67/EC of the European Parliament and the Council of 15.12.97 on
common rules for the development of the internal market of Community postal
services and improvement of quality of service (OJ L015 of 21.01.98, p. 25,
corrigendum: OJ L023 of 30.01.98, p. 39).
Directive 97/55/EC of the European Parliament and of the Council of 6 October
1997 amending Directive 84/450/EEC concerning misleading advertising so as to
include comparative advertising (OJ L290 of 23.10.97).
Directive 97/7/EC of the European Parliament and the Council on the protection of
consumer interests in respect of distance contracts (OJ L144 of 04.06.97, p. 19-
23 COM (97) 353 final).
Directive 95/46 on the protection of individuals with regard to the processing of
personal data and on the free movement of such data, (OJ No L 281, 23.11.1995)
Directive 93/13/EEC on unfair terms in consumer contracts (OJ L 95/29,
21.04.1993).
Directive 92/59/EEC on general product safety (OJ L 228, 11.8.1992, p. 24).
Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of
contracts negotiated away from business premises (OJ L 137, 31/12/1985).
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administrative provisions of the Member States concerning misleading
advertising (OJ L 250, 1984).
Proposal for a Directive of the European Parliament and of the Council concerning
unfair business-to-consumer commercial practices in the Internal Market and
amending directives 84/450/EEC, 97/7/EC and 98/27/EC (the Unfair
Commercial Practices Directive) Brussels, 18.6.2003, COM (2003) 356 final,
2003/0134 (COD).
Study of the Institut für Europaisches Wirtschafts und Verbraucherrecht e.V, Study
for Health & Consumer Protection DG, 2000, vol II. Dr. Fritz A. Bultmann
(Vorstand Verbraucherschutzverein e. V. Berlin); Prof. Geraint Howells
(University of Sheffield); Prof. Dr. Jürgen Keßler (Fachhochschule für Technik
und Wirtschaft Berlin); Prof. Dr. Hans-W. Micklitz (Universität Bamberg, Head
of VIEW); Malek Radeideh (Researcher at VIEW); Prof. Dr. Norbert Reich
(Universität Bremen); Prof. Jules Stuyck (Katholieke Universiteit Leuven);
Dennis Voigt (Researcher at VIEW), 2000, Berlin.
Study on Consumer Protection, Marc de Vries, PricewaterhouseCoopers N.V.,
Professor Corien Prins (with the cooperation of Simone van der Hof and Miriam
van Dellen), Tilburg University Professor Ewoud Hondius, Professor Jan Kabel,
Madeleine de Cock Buning, Utrecht University, Final Report Study on Consumer
Law and the Information Society, 17 August 2000.
Study of the Lexi Fori identifies best practice in the use of soft law and analyses how
this best practice can be made to work for consumers in the European Union,
available at: www.europa.int.
Study of the EC on ‘The Unfair Terms Directive, Five Years on Evaluation and
future perspectives’, 1999, available at: www.europa.int.
4.1.2. US Legislation
Australia
France
United Kingdom
OFT Guidelines, ‘Overview of the Enterprise Act, the competition and consumer
protection’, Published by the Office of Fair Trading, 2003.
OFT Guidelines, ‘Enforcement of consumer protection legislation’, 2003.
OFT’s ‘Consumer codes of practice regime’, OFT 631, February 2003.
OFT, ‘Core criteria for consumer codes of practice – guidance for those drawing up
codes of practice’, OFT 352, May 2002.
OFT Discussion Paper, ‘E-Commerce and its implications for competition policy’,
August 2000.
OFT Report, ‘Consumer Detriment’, OFT Report 296, Office of Fair Trading, 2000.
OFT’s Report on Consumer Detriment, outlining A Model for Total Consumer
Detriment, February 2000.
OFT Discussion Paper, ‘E-Commerce and its implications for competition policy’,
UK OFT 308, August 2000.
OFT White Paper, ‘Modern markets: confident consumers’, 1999.
OFT Research, ‘Consumer Affairs: the way forward’, September 1998.
OFT Research, ‘Competition Act – guideline Market Definition’, OFT 403, 1998.
OFT Report, ‘Consumer Detriment under Conditions of Imperfect Information’,
August 1997.
OFT Research, ‘Predatory Behaviour’ in UK Competition Policy, Paper 5, 1994.
OFT Research, ‘Market definition in UK competition policy’, February 1992.
OFT Research, ‘Assessment of Individual Agreements and Conduct’, OFT 414.
OFT Research, ‘Guideline on Vertical Agreements and restraints’, OFT 419.
OFT Discussion Paper, ‘A General Duty to Trade Fairly’, UK OFT Discussion
Paper, 1986.
OFT 1993, Revision of Part III, Fair Trading Act 1973.
UK Code of Practices (BSI BIP 0008:2004) available at: http://www.bsi-
global.com.
United States
FTC Jewellery Guides, ‘Guides for the Jewellery, Precious Metals, and Pewter
Industries’ available at www.ftc.gov.
FTC Report on ‘Privacy Online: Fair Information Practices in the Electronic
Marketplace’, Report to Congress, May 2000.
FTC Report on ‘Promoting Competition, Protecting Consumers: A Plain English
Guide to Antitrust Laws’, available at: http://www.ftc.gov/bc/compguide/
index.htm.
FTC Report on ‘Enforcement Actions Involving the Internet and Online Services’,
available at: www.ftc.gov, October 2001.
Beta Computers (Europe) Ltd v. Adobe Systems (Europe) Ltd, 1996 SLT 604; 1996
SCLR 587.
Davies v. Sumner [1984] 3 All ER 831.
Devlin v. Hall [1990] RTR 320.
DSG Retail Ltd v. Oxfordshire County Council, No. CO 4793/00, Neutral Citation
Number: [2001] EWHC Admin 253, High Court of Justice Queen’s Bench
Division (Divisional Court) Dixon.
Kensington and Chelsea Borough Council v. Riley [1973] RTR 122, Crim LR 133.
R&B Customs Brokers v. United Dominion Trust [1988] 1 All ER 847.
UK ASA adjudication of 10th May 2000 in Lineone.
UK ASA adjudication Freemoney Ltd, 14th of March 2001.
UK ASA adjudication of 9th January 2002, 888 Casino.
UK OFT v. TLD Network Ltd., Quantum Management (GB) Ltd. (www.oft.gov)
http://www.oft.gov.uk/News/Press+releases/2002.
Alliance for Global Business, Discussion Paper of the Alliance for Global Business,
‘On Trade-Related Aspects of Electronic Commerce In Response to The WTO’s
E-Commerce Work Programme’, April 1999, p. 41.
BEUC Submission from BEUC in the Competition Cases: COMP/M.1852 – Time
Warner/EMI; COMP/M.1485 – America Online Inc/Time Warner Inc.
(BEUC/281/2000 The European Consumers’ Organisation 11/9/2000).
BEUC, J. Murray, Director BEUC, ‘Communication to the European Commission
Workshop on Unfair Commercial Practices’, January 2003 available at:
www.europa.eu.int.
Chartered Institute of Arbitrators, Arbitration rules (2000 Edition)
http://www.arbitrators.org/Materials/Arb/rules.htm.
Consumers’Association, Response to the Commission’s Follow-up Communication
to the Green Paper on EU Consumer Protection [COM (2002) 289 final,
11.6.2002].
Consumers International Organization, ‘Disputes in Cyberspace in 2001: Update of
ODR for consumers in cross-border disputes’, available at:
http://www.ombuds.org/cyberweek2002/library/cireport.pdf.
EEA EFTA, Response to the Commission’s Follow-up Communication to the Green
Paper on EU Consumer Protection [COM (2002) 289 final, 11.6.2002].
ERICA (European Research in Consumers Affairs), Response to the Commission’s
Follow-up Communication to the Green Paper on EU Consumer Protection [COM
(2002) 289 final, 11.6.2002] http://www.net-consumers.org/erica/ index.htm.
Eurochambres Position Paper On the Commission’s Follow-Up Communication to
the Green Paper on EU Consumer Protection [COM (2002) 289 final, 11.6.2002].
European Advertising Standards Alliance (EASA) submission on the Follow-up
Communication to the Green Paper on EU Consumer Protection [COM (2002)
289 final, 11.6.2002].
European Consumer Law Group, ECLG’s first paper on the EU Green Paper on
Consumer Protection (COM (2001) 531 final, 2-10-2001.
European Mail Order and Distance Selling Trade Association, Position Paper 15
January 2002, Follow-up Communication to the Green Paper on EU Consumer
Protection, [COM (2002) 289 final, 11.6.2002].
Federation of European Direct Marketing (FEDMA) comments on the
Commission’s follow-up Communication to the Green Paper on Consumer
Protection [COM (2002) 289 final, 11.6.2002].
ICC response to the European Commission ‘Follow-up Communication to the
Green Paper on Consumer Protection’ [COM (2002) 289 final, 11.6.2002].
Law Society of Scotland, Memorandum of Comments by the Law Society of
Scotland on the Follow-up Communication to the Green paper on EU Consumer
Protection, [COM (2002) 289 final, 11.6.2002].
The Mediation Information & Resource Center (MIRC) – Alternative Dispute
Resolution or Consumer Transactions in the Borderless Online Marketplace,
Submission by The Mediation Information & Resource Center (MIRC) to the US
FTC, 2000.
References 235
Advertising Standards Authority (UK) 147 Article 4, Distance Selling Directive 14, 35, 118,
Advertising ix, x, 137 200
Bait 142 Article 6, Distance Selling Directive 65
BBB Code of Advertising 153 Article 7, Directive on Electronic Commerce xvi,
Children 169, 192, 189, 190, 194 82, 107, 11, 132, 152, 222
Directive on Misleading Advertising 174, 179, Article 2, ICC International Code of Direct
180-183 Marketing, 173, 198, 232
Economic behaviour 176, 177 Article 5, ICC International Code of Advertising
Enforcement viii, 6, 21, 24, 29, 38-40, 59, 88, Practice 173, 198, 232
91, 101-103, 118, 123, 131, 134, 135, 138, Article 5, Rome Convention 14, 111, 221
140, 143-148 Article 81 of the EU Treaty 168
European Advertising Standards Alliance 234 Article 153 §1 of the EU Treaty 199
FTC Report on ‘Guidelines on Internet Article 38, paragraph 1, of the Statute of the
Advertising 40, 228, 229 International Court of Justice 109
ICC Guidelines on Advertising and Marketing Association of Australian Competition and
on the Internet 194, 202 Consumer Commission 134, 135, 148
ICC International code of advertising practice Asymmetry of information xi, xii, 115, 116,
232, 234 127-129, 150, 163, 206, 208
ITC Advertising Standards Code 227 Australian code on ‘Building Consumer Sovereignty
Jewellery products xii in Electronic Commerce’ 195
Misleading xii, xiv, xv, 1, 6,17, 19, 22, 38, 40, Authoritarian process of designing terms and
102, 123, 124, 126, 130, 132, 134, 137, conditions xi, 47
138-145, 147-151, 153, 160, 164, 165, 169, Automated Settlement Systems 92, 93, 111
172, 174, 177, 178, 181, 183-186, 195-199, Average consumer 17, 105, 120, 160, 172, 178-187,
201, 206, 208, 222 201, 208
ODR xi, 87-89, 91-100, 111, 207, 218, 233, 234
Unsolicited commercial communication 13, 118, Bargaining power (unequal, equal) vii, ix, xi, 3, 7, 9,
138, 139, 141, 142, 145, 146 18, 45, 46, 49, 53, 54, 62, 63, 64, 69, 70-72,
Agency (theory of) 20, 26, 27, 72, 80, 81, 85, 47, 97 75-81, 87, 88, 90, 92, 94-98, 101-104, 106,
Aggressive practices 172, 185, 186, 196 116, 130, 163, 206, 207
Alternative Dispute Resolution 87, 88, 89, 102, 102, From a traditional to a technological model of
108, 109, 111, 112, 225, 234, 235 unequal bargaining power vii, ix, xi, 206, 207
Ambiguous presentation of terms and conditions xi, Proposals for alleviating unequal bargaining
48, 49 power 79-81
Arbitration 51, 54, 57-60, 62, 88, 89, 1-93, 107, BBB Code of Advertising 231, 153
112, 113, 146, 185, 216, 219, 225, 233, 234 BBOnLine 121
American Arbitration Association (AAA) 102, Blacklist of Commercial Practices 187
103 Bona fide 181
Arbitration Rules for the Resolution of British Codes of Advertising and Sales Promotion
Consumer Related Disputes 102, 112, 225 146
Binding arbitration procedures 113 Browse-wrap agreement xi, 49, 55, 56
Chartered Institute of Arbitrators, Arbitration Burden of proof 7, 9, 97, 98, 146, 157, 184, 185,
rules 233, 234 190, 196
Fair arbitration hearing 102, 104 Business-to-business 7, 9, 13
ICC Court of Arbitration 102 Business-to-consumer xv, xvi, 90, 92, 109, 11, 192,
Mandatory arbitration clauses 102 193, 197, 199, 200-202, 208, 216, 222, 235
Online Arbitration 92, 98, 109, 112, 233 Business-to-government 7, 13
‘Which? Consumer Association’ 92, 109, 233
Virtual Magistrate project 109 Click-wrap agreement 54, 55, 100
Article 13 Brussels Convention 14 Code of Conduct 36, 142, 146, 185, 188, 190, 193,
Article 6:162 ‘Burgerlijk Wetboek’ 166, 198, 226 102, 231, 232
238 Cyber Consumer Law and Unfair Trading Practices
Fair trading principle Jurisdiction xiii, xvi, 7, 25, 26, 48, 62, 91, 100, 101,
Fair Trading Principle – as legal norm 156 149, 195, 221, 228
Fair Trading – as regulator principle xv, 158
Fair Trading – From the consumer’s perspective Labelling websites 180
159 Laissez-faire views 18
Fair Trading – From the trader’s perspective 160 Legitimate expectations 159, 160
Fair Trading National Models 161 Levelling the balance of unequal bargaining power
Fair Trading – precautionary aspect 193 in online consumer transactions concluded
Fair Trading – remedial aspect 195 via electronic agents 75
Fairness (Unfairness) xv, 46-48, 50, 81, 87, 97, 100, Listserv 4-5
102-106, 143, 152, 157, 159, 160-166, 170,
171, 178-180, 182, 183, 184, 185, 192, 193, Mandatory ODR clauses xi, 88, 94, 95, 99, 100, 101
195, 196,198, 206, 208, 209, 218, 220 Mediation (online) 88, 89, 92, 93, 96, 107, 110, 112,
Fairness in ODR procedures 103 213, 216, 233, 234
False domain names 148 Metatags 140
Federal Trade Commission FTC US Minimum harmonisation 176, 200
FTC Report on ‘Advertising and Marketing of Misleading advertised prices 21
Dial-Around and Other Long-Distance Misleading domain names xii
Services to Consumers’ 228 Misrepresentation 164
FTC Report on ‘Advertising and Marketing on Mouseover 140
the Internet: Rules of the Road’ 40, 153, 228
FTC Report on ‘Guidelines on Internet National Advertising Division 147
Advertising’ 125, 132, 133, 228 Netiquette x
FTC Rules and Guides Online, ‘Dot Com Netizens x
Disclosures: Information about Online Non–negotiability of terms and conditions 55
Advertising’ 123, 133, 228
FIN-NET Financial Services Complaints Network Objective test 177, 178
108 OECD – Guidelines for Consumer Protection in the
Full harmonisation 142, 143, 176, 177, 196 Context of Electronic Commerce 109, 123,
133, 223, 225
General prohibition of unfair commercial practices Online arbitration 92, 98, 109, 233
176, 179 Online dispute resolution – ODR v, x, xi, 1, 53, 87,
GBDe (Global Business Dialogue on e-commerce) 88, 91, 93, 95, 97, 99, 101, 103, 105-113,
91, 109, 233 139, 159, 206, 211, 214, 215-218
Good faith 100, 101, 118, 156, 163, 166, 180, 181, One-way ODR clauses 102
201, 207, 214, 220 Uncertain or unreasonably ODR fees 102
Green Paper on Consumer Protection xiv, 167, Online mediation 93, 6, 110, 216
175-188, 199 Online misleading advertising xii, xv, 38, 40,
Green Paper on Alternative Dispute Resolution in 137-147, 149-151, 153, 208
Civil and Commercial Law 88, 107, Online subscriptions without delivering the specified
109-111, 223 products or services xii
‘Opt-out’ ‘Opt-in’ 13, 21, 40, 37, 141, 145, 171
Harassment (commercial practices) 186, 187
Hyperlinks 68, 103, 117, 123, 125, 126, 131, 138, Paris Convention on the protection of intellectual
140 property rights 173
Payment security system 117
Infrastructure of cyber consumer law 1 Power shopping xvi, 156, 166
Internal Market 43, 82, 89, 107, 111, 113, 131, 132, Precautionary aspect of the fair trading principle
142, 149, 152, 155, 166, 171, 173-177, 192, 157, 166, 193-195
196, 199, 200, 201, 208, 222, 223 Price discrimination 168, 217, 129
International Chamber of Commerce (ICC) Price dispersion xii, 127, 134, 218,
ICC Guidelines on Advertising and Marketing Principle of country of origin 171, 172, 176, 177,
on the Internet 194, 202, 225 208, 172, 176, 177, 208
ICC International Code of Advertising Practice Privacy x, 1, 5-7, 17-21, 24, 34-36, 38-40, 48, 54,
144, 153, 173, 198, 232 60, 67, 84, 87, 90, 95, 109, 111, 128, 140,
International Code of Practice on Direct Marketing 135, 142, 143, 145, 153, 164, 168, 170, 175,
144 194, 211, 216, 217, 219-221, 225, 229, 230,
Internet Services 1, 4 232, 235
ITC Advertising Standards Code 227 Case study: privacy 20
Directive on privacy and electronic
Japan Fair Trade Commission 123 communications 221
Jewellery products xii Federal Trade Commission report on ‘Privacy
240 Cyber Consumer Law and Unfair Trading Practices
Online: Fair Information Practices in the Unfair standardised terms and conditions xiii,
Electronic Marketplace’ 19, 20, 39, 143 71, 71
Internet Industry Privacy Code of Practice – A Transatlantic Business Dialogue 91, 109, 113, 233
Code for Industry Co-Regulation in the Area Transatlantic Consumer Dialogue 91, 109, 113, 233
of Privacy 232
OECD Report on ‘Legal Provisions related to UNCITRAL 46, 88, 107, 175, 225
Business-to-Consumer Alternative Dispute UNCITRAL Conciliation Rules 88, 225
Resolution in relation to Privacy and Uncertain or unreasonably ODR fees 102
Consumer Protection’ 92, 109 Unconscionability 54, 60, 100, 167, 198
OECD – Guidelines on the Protection of Privacy Undue influence 186
and Transborder Flows of Personal Data 225 Unequal bargaining power when concluding
Procedural unfairness 104, 106 contracts via electronic agents 206
Professional diligence 146, 172, 178, 179-182, 186 Unfair commercial practices x, xii, xiii, xiv, xv, xvi,
Prominence 125 6, 38, 115, 118, 142, 143, 146, 157, 158,
Proximity and placement 133 161, 167, 171, 172, 174-179, 182, 184, 187,
188, 190, 192, 194-203, 206, 212, 222, 238
Rationales for cyber consumer protection x, xii, 1, Unfair competition xiv, 159, 161, 169, 197, 198, 226
17, 39, 45, 62, 64, 98, 127, 201 Unfair Contracts Terms Directive 14
Real time remote computer utilization (such as Unlawfulness 157, 173, 214
‘Internet Relay Chat’) 4 Uniform Commercial Code (UCC) 10, 13-15, 66,
Real time remote computer utilization (such as 212
‘telnet’) 4 Uniform Computer Information Transactions Act
Redress costs 94, 98, 99 (UCITA) 8-10, 14, 15, 68, 71, 72, 75, 82, 83,
Reliability of electronic records 24, 29, 30, 31, 84, 218, 226
Remedial aspect of the fair trading principle 166, Uniform Electronic Transactions Act (UETA) 29,
195 41, 42, 73, 78, 82, 93, 226
United Kingdom xv, 8, 92, 223, 226, 227
Sanctions 147, 191 Proposal of Directive on Unfair Commercial
Self-regulation 24, 39, 40, 41, 121, 134, 138, 143, Practices, 200
147, 150, 153, 157, 171, 219, 227 UK arbitration 233
Self-regulatory Proprieties of the Electronic UK Chartered Institute of Arbitrators 92, 107,
Marketplace 79 233, 234
Seller 1, 7, 10-12, 39, 51, 54, 57, 62, 98, 100, 117, UK credit law 8
127, 168 Usenet newsgroups and chat rooms 5
Selling misleading domain names xii United States xv
Service provider 54, 117, 118, 135, 140, 187 US ADR or ODR 88
Shrink-wrap Agreements 49-51, 52, 66, 102, 214 US Section 101(15) of the Uniform Computer
SquareTrade 93, 110, 216, 233 Information Transactions Act (UCITA) 10
Standardisation of online contracts v, xi, 45, 206 US Section 202(a) of the Uniform Computer
Definition, particularities, functions 45-47, 49, Information Transactions Act (UCITA) 71
51, 53, 55, 62-67 US Section 112(b) of the Uniform Computer
Substantial injury 143, 164, 165 Information Transactions Act (the UCITA) 75
Substantiated 23, 35, 144 US Uniform Electronic Transaction Act (UETA)
78, 82, 83, 226
Technological assent 206, 63 U.S. Federal Trade Commission
Technological interface of the electronic FTC Report on ‘Advertising and Marketing of
marketplace 64, 206 Dial-Around and Other Long-Distance
Technological defectiveness and reduced technical Services to Consumers’ 228
capacities of electronic agents 69, 74, 77, FTC Report on ‘Advertising and Marketing on
78 the Internet: Rules of the Road’ 140, 153,
Terms and conditions xi, xii, xiii, 27, 29, 35, 45-49, 228
51-53, 55, 56, 63, 69-72, 74-78, 80, 81, 83, FTC Report on ‘Guidelines on Internet
87, 94, 97, 100, 101, 195, 112, 115, 117, Advertising’ 125, 132, 133, 228
119, 120, 122, 124, 126, 127, 133, 80, 181, FTC Rules and Guides Online, ‘Dot Com
206, 207, 212 Disclosures: Information about Online
Ambiguous presentation of terms and conditions Advertising’, 123, 133, 228
xi, 48, 49
Non–negotiability of terms and conditions 55 Virtual Magistrate project 109
Standardised terms and conditions xi, xiii, 47, Virtual organisation of companies 17, 25, 38
48, 56, 63, 65, 71, 72, 206
Terms or conditions different from those WIPO Meditation and Arbitration Rules 88, 225
specified by the consumer 71, 75 Which? Consumer Association 92, 109, 233