March 26, 1999
Secretary of the Commission, Donald S. Clark
Re: U.S. Perspectives on Consumer Protection in the Global Electronic Marketplace - Comment P994312
Dear Mister Secretary:
This letter is submitted by America Online ("AOL") in response to the Federal Trade Commission's ("FTC" or "Commission") Request for Academic Papers and Public Comments noticed in the Federal Register on December 16, 1998 (63 Fed. Reg. 69289) ("Request for Comments"). AOL welcomes the FTC's plans to hold a public workshop in June 1999 to examine U.S. perspectives on consumer protection in the global electronic marketplace. AOL submits this letter to aid the Commission in shaping the consideration of the issues identified in the Request for Comments.
AOL is committed to the development of a global electronic marketplace that offers safety, transparency and legal certainty for both consumers and the online businesses. With over 16 million subscribers to its America Online service and over 2 million subscribers to its CompuServe service, AOL is the world's leader in branded interactive services, and, as such, wants an efficient, effective global electronic marketplace. AOL believes that government regulation should not and cannot be the preferred means of developing the requisite consumer confidence and commercial certainty. Rather, governments should encourage participants in the global electronic marketplace to adopt best practices and provide consumer education. Such steps, combined with the abundant information, consumer choices, and resulting competition that are characteristic of electronic commerce, can play a substantial role in empowering and protecting online consumers while creating stability and predictability for all market participants.
The growing electronic marketplace provides unparalleled opportunities for economic growth worldwide. During this period of explosive growth, consumers are discovering the opportunities and risks of participating in a truly global market. Online consumers expect traditional concepts of consumer protection to apply in cyberspace. At the same time, although basic prohibitions against fraud and deception are nearly universal consumer protection concepts, laws regulating specific standards of general commercial practice can vary substantially by country.
Governments should resist the urge to regulate electronic commerce. The variety of consumer protections extended worldwide could lead to a chaotic global marketplace as sovereigns attempt to enforce local rules on all merchants while confusing consumers as to their rights and risks. An international regime requiring simultaneous adherence to the variety of often conflicting national regulations and conventions of every jurisdiction will slow commerce, force sellers from the market, reduce consumers' confidence in the market, and create an environment in which only the largest sellers are able to comply with the myriad of different consumer protection standards.
Governments also must be diligent in not allowing trade barriers to be erected under the guise of protecting consumers. As in the industrial age, governments in the information age will not always be impervious to the pleas of those in particular industries or regions that may be vulnerable to the increased competitive potential inherent in a market-driven global economy. We must be certain that if any consumer protection regulation emerges, it will be technology neutral and keep the barriers to entry in the global economic marketplace low.
At the outset it is important to distinguish between two attributes of consumer protection regimes. First, consumer protection regimes provide clarity and certainty of obligations, responsibilities and rights for buyers and sellers engaged in a commercial transaction. Second, consumer protection statutes and regulation provide law enforcement with the necessary authority to prosecute those engaged in fraud, deceit, and trickery, as well as providing recourse to those victims who fall prey to such illegal activity.
As policy makers strive to create an environment that fosters e-commerce, they must take care to distinguish between which set of behaviors they are addressing. Extending the first prong of consumer protection -- providing legal rights, responsibilities and recourse to legitimate buyers and sellers, in the international electronic marketplace -- should be explored through encouraging industry best practices, adopting self regulatory codes, and using the medium itself for claims, remedies and dispute resolution.
Consumer protection on the Internet is complex and could have consequences well beyond the traditional protections afforded consumers in commercial transactions. The Internet will allow the delivery of services that previously have been available only in a person-to-person context. For example, the Internet offers the possibility of bringing advanced medical care to millions of people that were previously limited to medical assistance within a narrow geographic radius. The expansion of telemedicine and other online health care services could be severely limited by licensing bodies seeking in the name of consumer protection to protect local service providers from distant providers. Examples of other imaginable inadvertent, but nonetheless undesirable, consequences of attempts to "protect" consumers can be thought of in education, real estate, and legal services.
The ability of this marketplace to extend the availability of goods and services worldwide is not without peril. In this marketplace, as with any other, the business of some will be to defraud, to deceive and to cheat. Such bad actors usually operate in the shadows of the marketplace. The challenge in the global Internet marketplace is to encourage the development of rules, norms, and practices that foster consumer trust, while using the existing prosecutorial power to protect consumers against bad actors. Policy makers and regulators must exercise extreme caution in balancing these interests as no other marketplace may be as easily destroyed through regulatory attempts to eliminate bad actors, because of the fledgling nature of the marketplace.
AOL is a unique company in many respects. It is an example of a company with multiple and dynamic online brands that offer services to consumers in countries across the globe. As such, we have a clear interest in working with the FTC and other segments of our government to ensure a predictable and clear approach to consumer protection online, both here in the United States and around the world. AOL, Inc. is struggling with these issues and opportunities in shaping its offerings. The flagship AOL service, with a membership of over 16 million members worldwide, is the leading interactive online community in the world. AOL offers numerous interactive features and products, including e-mail, chat, and fully integrated Internet access as well as 19 content channels covering everything from news to finance to entertainment. For example, AOL's Health Channel provides members with the best selection of resources covering a wide range of health issues, from leading a healthy lifestyle to coping with an illness. Medical references and assistance from support groups and experts are available 24 hours a day. Our real estate area offers a full range of information and services for those looking to buy, rent or sell real estate, including mortgage applications and calculators as well as virtual tours of potential new homes.
AOL also owns CompuServe's worldwide consumer online services, geared specifically to adult professionals who need quick, easy access to serious business information and CompuServe itself has approximately 2 million members worldwide. CompuServe offers online communities known as Forums to enable business professionals to interact with each other and find information related to a Forum's topic. CompuServe provides extensive access to business and professional databases for research.(1) Users are charged an additional cost to access these databases.
Through AOL International, AOL offers local services in Canada, the United Kingdom, France, Germany, Japan, and Australia. AOL also provides service in Austria, Switzerland, and Sweden. AOL has announced new services in Latin America this year and in Hong Kong next year. CompuServe has been a pioneer in global interactive services since launching its first non-U.S. service in Japan in 1985. CompuServe offers localized services in Canada, the United Kingdom, France, Germany, the Netherlands, and Switzerland. CompuServe also has an extensive affiliate network serving members in 68 countries, including relationships in Argentina, Australia/New Zealand, Hong Kong, Israel, Japan, Mexico, South Africa, and Venezuela.
AOL also offers ICQ instant communications and chat technology. ICQ, one of the Internet's largest and fastest growing Web communities with a loyal, international member base of 28 million members, has evolved into a new kind of communications portal built around the ability to seek and instantly find your friends, family and colleagues online. The nucleus of ICQ is its unique and very popular free software, which installs right on a member's desktop and is loaded with critically acclaimed communications tools for live chat and instant messaging.
ICQ has 13 million "Active" users (those who've connected to the software in the past 30 days) from literally around the world -- nearly 180 countries. With only 35% of active users from the United States, ICQ is a truly global portal. Twenty-one percent of active users are from Asia, 18% from Europe, and 11% from both Canada and Latin America. We have thousands of users each from Cambodia, Ethiopia, Greenland, Swaziland, Saudi Arabia, Azerbaijan, Vatican City and Kuwait. In September of 1998, ICQ had nearly 200,000 active users in China.
Just last week, AOL completed its acquisition of Netscape. One of Netscape's products, Netscape's Netcenter (www.netscape.com), is one of the Internet's fastest growing portals worldwide in registrations, traffic and software downloads. Netcenter offers free WebMail, My Netscape Network (custom designed homepages for web publishers), other leading-edge services, as well as eighteen content channels. Netscape Netcenter now has more than 10 million registered members. We estimate that approximately 35% of these registered members are non-United States registrants. Netscape has localized Netcenter sites for twelve different countries or regions (United States, France, Germany, Spain, United Kingdom, Australia, Brazil, Taiwan, China, Canada, Japan and Latin America).
What all of this means for AOL is that the resolution of the issues related to consumer protection currently in front of the Commission is important to the continued success of AOL and its multiple brands and to the Internet marketplace in general. Because of its global reach, AOL wears a number of hats when it comes to consumer protection. It must ensure that its members are comfortable engaging in global electronic commerce. The company must be able to offer its own products and services around the world with certainty as to which consumer protection laws apply. It must also be able to ensure that its advertising and commerce partners can promote their goods and services with similar confidence concerning which legal regime applies to the specific transaction.
Because of its large stake in the Internet marketplace, AOL is committed to fostering best practices in the online environment and believes that the Commission should encourage and support such activities. AOL strives to protect its members and offer the best possible consumer transaction experience through our "Certified Merchant" program. AOL carefully selects the merchants AOL allows in this program; it currently has 152 participants. All AOL Certified Merchants must adhere to rigorous consumer protection standards. Prominently displayed in the AOL shopping site is the following guarantee:
Such responsive and clearly stated principles for all online merchants will help bolster consumer confidence and encourage the development of the global electronic marketplace. By posting these notices in our shopping areas, we are ensuring that both consumers and merchants have notice of the rules involved and details of the enforcement mechanisms, which help foster consumer trust and merchant responsiveness.
Besides posting the Certified Merchant standards, AOL also recognizes that we must facilitate our members' efforts to reach their merchants when they have inquiries or problems. To that end, AOL has created a monitored email box where members can mail their comments, questions and issues. When necessary, AOL will work directly with the merchants to ensure that inquiries are responded to and resolved. And, this past December, AOL initiated Live Shopping Support by establishing a toll-free phone number to assist members while shopping on the Service. We enhanced this service in January 1999 when we added Live Online Support, a private online chat with a live customer care consultant ready to assist the customer online. We are working on making this feature available to our merchants through AOL.
We also encourage our merchants to solicit feedback from their customers' online experiences. To help facilitate this important source of consumer information for our merchants, AOL has entered into a relationship with an independent online customer satisfaction survey company, BizRate.com, that enables our merchants to offer satisfaction surveys (available to merchants at no cost) to our members. AOL's Shopping Customer Service area provides a link to BizRate.com's web site (www.BizRate.com), where members can find merchant ratings based upon actual consumer input. AOL members are able to view consumer-generated information about any store currently offering the surveys.
AOL's commitment to its members doesn't stop there. Our Certified Merchant program not only puts our partners on the line in terms of ensuring that our members have a positive shopping experience, but we have also made our own set of confidence-building commitments to our members interested in shopping through AOL. Borrowing from the models developed by more traditional shopping intermediaries, credit card companies like American Express, AOL has developed a guarantee program associated with the Certified Merchant program that puts our brand behind a member's purchases through the program. Just as credit card companies will assist a member in resolving a dispute about a product purchased with a credit card, so too will AOL assist a member in resolving a dispute regarding a purchase made from a Certified Merchant through the AOL service. While we require our Certified Merchants to offer return policies, if necessary we will intervene to assist in the resolution of a dispute relating to an online purchase made through AOL with one of our Certified Merchants. We have also outlined this commitment to our members:
And finally, to ensure that all who want to buy online feel comfortable doing so, we have also developed a money-back guarantee program to dispel consumer concerns about shopping online and increase consumer trust in this powerful new medium. We've also made this information easy to find:
This Certified Merchant program is constantly reviewed, and the standards are revised at least annually, to ensure that the practices and obligations for merchants reflect best practices for online merchants based on the most current experience.
The kind of program that AOL has developed raises important questions for governments relating to the role of intermediaries between merchants and customers to develop not only best practices, but also dispute resolution. Intermediaries, such as ISPs, portals, web site hosts, credit card companies and other participants who are in some way involved in the consumer's purchase but are not the vendor or the purchaser, have vested interests in fostering consumer trust and protection on the Internet and expanding the reach of e-commerce.
Even though the intermediary might be firmly rooted in the customer's locality, has deep pockets, and is subject to the jurisdiction and enforcement actions, it would be unwise from a policy standpoint for countries to enforce such a third party liability policy. Rather, governments should support a system in which intermediaries continue to have the incentives to encourage good merchant behavior while not being responsible for that merchant's behavior. This means that intermediaries should not be liable for any fraud, deception or dispute resolution of a third party merely because the intermediary is subject to the consumer's jurisdiction. If intermediaries such as interactive service providers or portal web sites are found to be liable for an online merchant's representation, there will be less incentive to respond to the needs of consumers, and the free market where intermediary services provide consumer protections may be restricted.(2)
The combination of the easy availability of tremendous amounts of information and the irrelevance of geographic markets should mean greater competition and more efficient markets. Comparison-shopping is literally a click away. A consumer wishing to purchase a particular product can quickly compare the price (as well as other terms) of the product at several different online retail sites and then make the purchase at the site with the most attractive terms. Such term comparison is far easier than actually going to several stores to compare terms or even calling various stores during the times when they are open and an employee has the time to provide the requested information to the consumer.
This greater array of consumer choices and information makes a merchant's reputation absolutely critical to its ability to capture consumer business and succeed in online commerce and makes that merchant dedicated to ensuring his customers' comfort and protection on the Internet. An online merchant that treats consumers unfairly or provides low quality goods will quickly develop an online reputation on forums such as message boards and newsgroups that will drive away customers to the merchant's numerous online competitors.
With all of these market incentives to protect consumers, governments should encourage industry to take the leadership in solving many, if not most, of the problems in consumer transactions. While many companies are there today, governments should encourage industry to take the lead in developing and implementing "best practices" for consumer protection. Best practices should include fraud prevention practices and a clear articulation of the rights and responsibilities of both buyers and sellers online. The unique nature of the Internet allows more innovative solutions to traditional consumer concerns such as charge-backs and cooling off periods. The Internet also allows dissatisfied consumers immediately and publicly to voice their complaints, giving businesses every incentive to resolve disputes quickly.
In addition, existing and future technologies provide consumers with tools that can aid them in finding reliable merchants that provide the types of protection and policies that particular consumers desire. Filtering technologies will permit users to select only those sites that meet certain pre-set criteria (such as being approved by a consumer protection certification organization). Automatic protocols could allow Internet users to negotiate desired levels of protection or to avoid altogether those sites that do not follow particular consumer protection policies. These and other tools can provide online consumers with the ability to exert some control in choosing reputable merchants. Conversely, widespread use of such technologies will create pressure on merchants to adopt more consumer-protective policies so that they are not automatically excluded by these various types of screening tools -- a result that will redound to the benefit of all consumers, whether or not they utilize these technological tools. Together, the technological tools and other unique characteristics of electronic commerce create an environment where private sector leadership is the most effective.
While AOL believes that industry leadership in the online environment can address the vast majority of consumer complaints and needs without government intervention, there will always be bad actors leaving an important role for governments to play in protecting consumers. Governments should continue to enforce existing laws, including conflict of laws and choice of law standards, as well as sanctions for fraud and deceptive practices. As the FTC begins its dialogue on consumer protection in the digital age, it should pay particular attention to the issues related not only to the best standards to be enforced online, but also, and perhaps more importantly, to the correct choices of law and forum to apply in consumer protection disputes. Country-of-origin of the e-commerce merchant could be the default jurisdiction, provided that jurisdiction has adequate consumer protection. The approach of enforcing the laws of the seller's jurisdiction, or the laws specified in contract, would create the requisite legal certainty for consumers.
It is important to note that, in selecting an online vendor, consumers have more choice and bargaining power than in traditional transactions, and, in many ways, more power than the seller. When the seller goes online with products, the seller's web site is equally accessible for anyone with Internet access. The seller can state ex ante what the terms of the contract are, and if the consumer does not want to agree to those terms, the consumer is free to go to any other web site selling such products. However, the seller is not going to know the consumer's country and what consumer protection laws apply until the end of the sale, or, in some cases such as downloading software, at any time. Thus, the seller's stated choice of law and forum is the most certain, and most direct, way to create rights and responsibilities.
Clearly, many countries view their own consumer protection regimes and procedures in protecting their citizens as critical. Therefore while a global standard allowing merchants and consumers to "negotiate" both choice and law and choice of forum is preferable, U.S. policy makers should also explore the application of comity principles in international consumer disputes. Allowing consumers to seek redress through local courts applying the law of the contract, provided it is reasonable, would satisfy a sovereign's need to provide convenient fair adjudication of commercial disputes for its citizens; however, the attraction of such an approach must be weighed against the burdens it would impose on business, particularly small and medium size businesses.
Another important issue that AOL believes the Commission should address during the June workshop relates to services offered online that fall outside of the traditional category of the sale of goods. There are many services offered online for which standards and rules differ around the globe and the FTC should endeavor to find certainty in those areas as well. In addition, and perhaps most importantly, one of the reasons businesses have been able to grow online has been the growth of a vibrant online advertising market. While the Commission is engaged in a separate inquiry with respect to advertising standards online, the same jurisdictional questions are evident there as with the sale of goods and the resolution of those jurisdictional issues is critical if advertisers are going to continue to see the online environment as an important and viable marketplace. See Comments of America Online, Inc., Interpretation of Rules and Guides for Electronic Media, P974012.
AOL welcomes the FTC's June's workshop as the first step in what must ultimately be an international dialogue with governments, businesses and consumers on the first attribute of consumer protection, clarity and certainty of the obligations, rights, and responsibilities for buyers and sellers. AOL provides these recommendations herein that we hope will guide the FTC's work as it considers the global dimensions of consumer protection.
George Vradenberg, III
cc: The Honorable Robert Pitofsky, Chairman
1. These databases include the Dow Jones Publications Library, historical stock quotes, IQuest, Trademarkscan and the Lexis-Nexis Service. CompuServe also provides the Executive News Service, which is a news clipping service tailored to the needs of each user.
2. The FTC can find a useful analogy to this intermediary liability construct in the protections Congress afforded interactive computer service providers in Section 230 of the Communications Decency Act of 1996. See 47 U.S.C. § 230. Section 230 established that providers of interactive computer services are generally immune from liability for harms resulting from the dissemination of defamatory or other otherwise harmful information that other persons or entities create and make available through such services. The broad immunity conferred by the statute has been confirmed by every court that has construed the statute. In Zeran v. American Online, Inc., for example, the United States Court of Appeals for the Fourth Circuit held that "Section 230 . . . plainly immunizes computer service providers like AOL from liability for information that originates with third parties." 129 F.3d 327 (4th Cir. 1997), cert. denied, 118 S. Ct. 2341 (1998). Congress's decision to confer immunity was the product of a considered judgment that such immunity was necessary to effectuate significant public policies including promoting the vigorous development of the online medium and eliminating disincentives to self-regulation of content on the part of service providers themselves.