Jurisdictional Disputes in the Internet
Carl M. Ellison
June 18, 1999
During the workshop held at the Federal Trade Commission on June 8 and 9, 1999, a major topic of discussion was the issue of legal jurisdiction during a global e-commerce transaction, both for taxation and for conflict resolution. The examples that were presented showed enough complexity to make the problem seem intractable. However, what occurred to me was that the examples presented were too simple. It is the purpose of this submission to present a few examples that are true to current reality and also to suggest a theoretical set of examples beyond current reality that are even more complex.
Sally Gustafson of the Washington State Attorney General's Office suggested during the final panel of the workshop that there might be solutions to the various problems raised by Internet commerce that could take advantage of the Internet itself, rather than rely solely on pre-Internet structures and technology. It is my hope in this white paper to present examples complex enough to drive the reader from older visions of the world and force thinking in terms of the Internet.
Current Mobile User Examples
Imagine a user, Gustav, from Stockholm, visiting Washington DC. He stops in a consumer electronics shop and finds a cellular phone for sale that has a built-in palmtop computer. The built-in palmtop provides web-browsing capability. There are a number of products on the market today that offer this service, but for the sake of this example, let us assume that this device is from a Finnish company. Gustav pays Washington DC sales tax when he buys his device.
Imagine a second user, Jane, from Washington DC, visiting Stockholm. She stops in a consumer electronics shop and finds the same cellular phone Gustav found and buys it. She pays V.A.T. However, when she gets to the airport to return home, she shows her sales slip and gets a refund of the V.A.T.
Imagine Gustav, with his new cellular palmtop, walking down a road in South Africa, browsing the web. His wireless connection is through the air of South Africa. He is connected to a base station operated by a South African cellular telephone company. This connection is sent directly to Finland, where the cellular phone manufacturer operates a host computer that runs the actual web browser that Gustav is using. Gustav's palmtop inside his cellular phone is merely showing a small window of the actual web page while the whole web page had been fetched by the browser running in Finland. [I assume here the palmtop web browsing design implemented by a Canadian citizen, Ian Goldberg, while a student at UC Berkeley.]
Gustav connects to the web page of a computer utility store in Washington DC, but the web server is not in Washington. It is in Mexico, because an ISP there offered an especially good rate for web page hosting.
Gustav buys a product and has it shipped by an express shipping service to a hotel in India, where he plans to be the next day.
This is a transaction between a Swede and a store in Washington DC, but from the point of view of the network itself, it is a transaction between a web browser in Finland and a web server in Mexico. The web server may or may not know the jurisdiction of a given web page offering goods. Today it would have no reason to know this. It might assume that Mexican law applies. The web browser does not know the jurisdiction of the user. When Gustav bought the phone, in DC, he did not have to show a passport. The cellular phone supplier might assume that the browser is in Finland so that Finnish law applies. If the phone making the connection authenticates itself to the browser computer, and if the supplier had recorded where each of its phones was sold, it might assume that the user of that phone is a US citizen. However, such record keeping and authentication runs the risk of violating privacy laws, so it is unlikely that such records would be kept.
There is nothing illegal intended in this arrangement. It is a natural side effect of the nature of the Internet.
What jurisdiction applies? What tax laws apply?
Now imagine Jane doing the same shopping, at the same on-line store, from the same model phone from the same supplier. Her shopping experience will show the same apparent jurisdiction. If records had been kept, the cellular company might assume she was Swedish, because the phone was purchased in Stockholm.
However, assume Jane is in her bedroom, at home in Washington DC, when she makes this purchase through Finland and Mexico, to get a product from the store down the street. The components in the network do not recognize such physical locations. To them, there is no difference between Jane's purchase and Gustav's.
Let us assume that Gustav and Jane each have a problem develop with their phones. Should Gustav return to Washington and take his phone to the store where he bought it, and should Jane return to Stockholm? Most likely, each would go to his or her local store carrying that phone and expect service. This service arrangement is made by the company itself, not by any local laws.
What about a dispute over the item purchased on the web? Jane can walk down the street to get the dispute resolved? What can Gustav do?
An Advanced Example
The example above, although more complex than those cited during the workshop, still deals with existing jurisdictions and the intermingled web of laws might make this seem subject to solution by application of those laws, if only the right ones could be selected. For an advanced example, let us postulate a network not involving citizens of nations on Earth.
Imagine that we discover a new world, populated by intelligent beings, with which we can communicate but with which we can never have a physical connection. For example, the connection might be through a wormhole in space that passes only electromagnetic signals, but not matter.
We can establish communication between the two population centers. Since knowledge can become intellectual property, we have the potential of transferring items of value between the two worlds. That means that we could set up a system of barter. If we have barter, we can have currency conversions. We can have full electronic commerce. If we can have commerce, we might have disputes. We also might have to address the concept of taxation.
Now we can extend this example, to a network of thousands of such planets, all connected only by communication, and all engaged in trade with one another. How will disputes be resolved? How will tax law be decided?
I am not a lawyer. I do not know how to predict these next stages of development. However, I suspect that it would be fruitful for a lawyer to consider this Science Fiction scenario. If there is a rational solution to this example, it might guide us in solutions to our more mundane examples.