Before the Federal Trade Commission
U.S. Perspectives on Consumer Protection
March 26, 1999
WILEY, REIN & FIELDING
As six companies on the leading edge of the electronic commerce industry, we welcome the opportunity to participate in the Federal Trade Commission's exploration of consumer protection in the global electronic marketplace.(2)
The past few years have seen an explosion in electronic commerce, as consumers and businesses have grown to understand the vast communications and commercial potential of the Internet as a medium of commerce. The Internet-based economy has flourished to date in an entrepreneurial, self-regulating environment that benefits consumers around the world, large and small businesses, and innovative entrepreneurs. The electronic commerce industry continues to move forward in protecting user privacy and advancing numerous consumer concerns, and has tremendous interest in the timely issues addressed by the Commission's request for public comment.
These comments present background information on the growth of electronic commerce, and offer preliminary views on some of the many complex issues identified in the Federal Register notice.(3)
In brief, our companies believe that:
The U.S. government must continue to support industry self-regulation and encourage industry participation in consumer education in order to avoid stifling the growth and expansion of this dynamic medium;
In certain areas, the government does have a limited but important role in developing an appropriate legal framework; and
The government should work actively to discourage foreign nations from adopting a patchwork of inconsistent or burdensome regulations that harm U.S. competitiveness or impede global commerce.
Consistent with these comments, our companies would appreciate the opportunity to play a significant role in the development and conduct of the FTC's June 8-9, 1999, workshop on "U.S. Perspectives on Consumer Protection in the Global Electronic Marketplace."
Our companies represent leaders in a broad range of electronic commerce innovations. They include Internet portals, online communities, software developers, content providers, advertising promoters, online trading centers, and electronic merchants; some of these companies serve several of these functions.
While competitors, our companies are united in the conviction that the online medium has unlimited promise for facilitating commerce, transforming business models, and fostering new communities. These six companies are today playing a crucial role in advancing a fast-paced, rapidly-changing industry that provides consumers around the world unprecedented access to information, personal communications, and global commerce a revolution still in its earliest stages of development.
All branches of the United States government have recognized the dramatic effect of the Internet on our society and economy. As the Administration emphasized two years ago in its Framework for Global Electronic Commerce:
As the Internet empowers citizens and democratizes societies, it is also changing classic business and economic paradigms. New models of commercial interaction are developing as businesses and consumers participate in the electronic marketplace and reap the resultant benefits.(4)
Other branches of government have joined in recognizing the importance of affording freedom and flexibility to this dynamic, emerging medium. The 105th Congress enacted significant legislation advancing electronic transactions including the Internet Tax Freedom Act and the Government Paperwork Elimination Act and the 106th Congress shows every sign of continuing to pay increasing attention to public policy ramifications of the online revolution.(5)
In its first case presenting Internet issues, the Supreme Court declared the Internet "a unique and wholly new medium of world wide human communication" that has "experienced extraordinary growth."(6)
State and local governments are also taking increasing interest in Internet policy issues.
Indeed, the explosion of Internet commerce has outpaced the ability of conventional metrics to provide reliable measures of online commercial activity.(7)
Nonetheless, the Department of Commerce estimated in late 1998 that 140 million people worldwide use the Internet, and that more than one-third of the real growth of the U.S. economy is attributable to information technology industries.(8)
A study by the France-based Organization for Economic Co-operation and Development (OECD) found that e-commerce presently totals $26 billion a year, and could reach a trillion dollars by 2003-2005, explaining, "electronic commerce is in an embryonic stage, and technology and market dynamics are still casting its basic shape."(9)
Private sector analysts agree that 1998 was a testing year for consumers to make use of e-commerce, and the next year will prove how online merchants might succeed.(10)
The Internet will fulfill its promise, however, only if governments domestically and around the world adhere to policies that establish a sound framework for e-commerce. Our companies believe that such policies must include a commitment to responsible industry self-regulation, to preserving flexibility in the face of dynamic change, and to creating and preserving a simple and consistent legal framework as the best means of encouraging Internet commerce and promoting U.S. competitiveness.
Advancing Core Principles
Our companies support the FTC's stated goals of increasing consumer confidence in e-commerce and developing "a global marketplace that offers safety, transparency, and legal certainty."(11)
Electronic transactions should be at least as easy as non-electronic transactions, and enjoy comparable consumer confidence through the guarantee of security and enforceability. It is important that governmental policies to achieve these objectives fully consider and reflect the unique characteristics of the Internet: global interconnectedness; rapid change; entrepreneurial dynamism; and constant flexibility. This means that government should act with a light hand, and should strive for international consistency.
In particular, we have an immense stake in successful industry self-regulation in areas of consumer protection and privacy. Put simply, if consumers do not trust the Internet, these companies will fail. Responsible online companies have every reason to want to promote consumer protection in the electronic world. It is in our own interest to do so.
It is useful to remember that the White House's Framework outlines a promising and sound framework for objectives and progress in promoting global electronic commerce. The Framework recognized that, for e-commerce to achieve its potential, "governments must adopt a non-regulatory, market-oriented approach to electronic commerce, one that facilitates the emergence of a transparent and predictable legal environment to support global business and commerce."(12)
The five main principles articulated by the Framework are:
These broad principles received widespread endorsement from Congress when announced. Although two years can be an eternity in Internet time, these principles continue to represent a sound approach today.
Indeed, notable policy advances regarding the Internet have occurred since the release of the Framework in 1997. Congress has passed several measures, including the Internet Tax Freedom Act(14) and the Government Paperwork Elimination Act(15) , which will further encourage electronic commerce by broadening use of cyberspace. The Executive Branch's First Annual Report of the U.S. Government Working Group on Electronic Commerce(16) contains a lengthy listing of steps taken to implement the Framework, including the formation of a number of international agreements to reduce or eliminate obstacles to electronic commerce.
The time has now come to take the next step by applying these principles to particular issues affecting electronic commerce such as consumer privacy, consistency and enforcement of domestic and international legal frameworks, and taxation. That much remains to be done is in no way to minimize the significant accomplishments to date which merit strong commendation in their own right but merely demonstrates the need for continuing to battle efforts by governments here and abroad to impose burdensome regulations on electronic commerce, or to erect obstacles to the smooth, transparent flow of commerce across geographic boundaries. The topics listed in the current Notice ranging from basic jurisdictional issues to electronic contracting to law enforcement and consumer protection stand among the largest issues facing Internet commerce today.(17)
These companies are in the forefront of industry efforts on these issues.
Industry Initiatives in Consumer Protection
Like the Commission,(18) the electronic commerce industry has worked actively to promote policies and develop technologies to protect consumer privacy. Fostering confidence in the security of personal and financial information benefits consumers and businesses alike; a 1998 Business Week survey showed that disclosure of website privacy practices would make 78% of online consumers more likely to increase their use of the Internet, and encourage 61% of non-users to join the online community.(19)
As Chairman Pitofsky and Secretary Daley recently stated, electronic commerce cannot reach its full potential if consumers do not believe that the Internet is safe and secure, or that their privacy is protected.(20)
And companies dedicated to providing commercial services in the virtual world have a direct and compelling stake in successfully addressing consumer protection and privacy issues.
The U.S. government expressed desire for self-regulation,(21) and industry has responded to the call. The private sector has also taken its own initiatives to protect consumer privacy, such as the TRUSTe privacy program(22) and the recently launched BBBOnLine service.(23)
The industry is also pursuing technological solutions.
The United States' preference for responsible industry self-regulation reflects a sound approach to promoting commerce without unduly burdening industry. Without minimizing the need for appropriate government action to enable industry self-regulatory efforts, and to take enforcement action against bad actors, self-regulation should provide the primary means of addressing consumer confidence.
A Global Economy
The Internet is a global medium. It allows virtually instantaneous communication and knows no geographic boundaries. As the Notice suggests, these attributes carry a unique risk that regulatory regimes in other parts of the world could interfere with companies' abilities to do business on the Internet either in the U.S. or abroad. Furthermore, inconsistent legal provisions can discourage users by failing to provide the security and comfort in the medium that they prefer.
Continuing international issues of concern include taxation, content regulation, jurisdictional authority, authentication rules, and consumer privacy. While the U.S. has worked to keep domestic government intervention at a minimum, it must also continue to work for bilateral and multilateral international agreements that avoid interference and inconsistency.(24)
Responsible foreign governments appear to be hearing the message. As the OECD advises, "Given the embryonic state of electronic commerce, policies should be crafted with care and with due recognition of its fragile and evolving nature."(25)
However, foreign governments have not always acted with a light touch.
A current example of a foreign regulatory policy that could greatly hinder electronic commerce is the European Union's 1998 Privacy Directive. While this is not the time and place to debate that Directive, the fact remains that the EU's position could jeopardize the utility of the Internet as a commercial medium to a very significant degree. The U.S. government's ongoing discussions with the EU regarding that directive provides an example of appropriate governmental action to promote electronic commerce on a global basis.
Similarly, efforts to craft model laws for electronic commerce such as the UNCITRAL Model Law or the UCC Article 2B drafting effort must remain mindful of the need to preserve a common basic framework for contracting. Online retailers would face an enormous burden if they were obligated to comply with a dizzying array of laws and policies governing online commerce. The U.S. Government has a proper role in working to establish a sensible, consistent legal framework internationally to govern electronic commerce. In this vein, the United States will need to monitor closely the evolution of the European Union's proposed directive for electronic commerce to identify areas of potential conflict with U.S. policies. Differences in rules of contracting, jurisdiction, or liability between American and European law could give rise to serious business problems in the future.
Fulfilling the Potential of E-Commerce
The experiences of our companies demonstrate the great unpredictability of the electronic medium, and its uniquely low barriers to entry for a new idea. As the introduction to the Working Group on Electronic Commerce status report explains, the emerging digital marketplace "promises to unleash a revolution in entrepreneurship and innovation a cascade of new products and services that today we can scarcely imagine."(26)
It is essential that policymakers understand this dynamic nature of the Internet in general, and electronic commerce in particular. Our companies stand ready to assist the Commission in understanding the realities of the electronic market. For example, each of our companies has needed to innovate, to respond quickly to dynamic market changes, and to adjust to rapidly changing technologies. They could not possibly have done so in a regulatory regime that sought to control, for example, the operations of search engines, to impose content regulation on Internet service providers, or to impose "one size fits all" privacy duties.
The Framework observed that the "explosive success of the Internet can be attributed in part to its decentralized nature and to its tradition of bottom-up governance."(27)
Deregulatory policies with an emphasis on self-regulation has fostered the growth of the Internet, as is well attested by the rapid growth of our companies.
This dynamism has led industry groups to address legitimate concerns, such as consumer protection and privacy, through adaptable industry initiatives. As the Working Group on Electronic Commerce observes, "Self-regulation in the digital age will require the private sector to engage in much greater collective action to set and enforce rules than was characteristic of the Industrial Age."(28)
Our companies seek to further that goal by working cooperatively towards solutions that will advance the development of the Internet and electronic commerce. Burdensome or inflexible governmental mandates fail to reflect the realities of this medium, and would prove either ineffectual or severely disruptive.
We commend the Commission for raising, at this time, issues of great importance to the future course of development of electronic commerce. Policymakers must understand the dynamic and fast-changing nature of the Internet and electronic commerce, and these companies stand ready to help. Our companies would appreciate an opportunity to participate in the workshop.
WILEY, REIN & FIELDING
on behalf of:
r Admitted in Kentucky, D.C. application pending (practicing under supervision).
1 Public Workshop: U.S. Perspectives on Consumer Protection in the Global Electronic Marketplace, 63 Fed. Reg. 69,289 (Dec. 16, 1998) (Initial Notice Requesting Academic Papers and Public Comment and Announcing Workshop) ("Notice").
3 The White House, A Framework for Global Electronic Commerce (July 1, 1997) <http://www.whitehouse.gov/ WH/New/Commerce/read.html.> ("Framework").
4 Indicative of this interest is the bi-partisan and bicameral Congressional Internet Forum, whose membership has grown rapidly since its creation three years ago.
5 Reno v. ACLU, 117 S.Ct. 2329, 2334 (1997) (internal quotations omitted).
6 U.S. Government Working Group on Electronic Commerce, First Annual Report (Nov. 30, 1998) 29 ("First Annual Report"). The President has directed the National Economic Council to lead other federal agencies in developing more complete and precise data, and a workshop on the Digital Economy will convene in May 1999.
7 Id. at iii.
8 Organization for Economic Co-operation and Development, The Economic and Social Impacts of Electronic Commerce: Preliminary Findings and Research Agenda (Feb. 1999) 12.
9 Bob Tedeschi, '99 A Year to Make Good on Electronic Commerce (Dec. 29, 1998) <http://nytimes.com/library/ tech/98/12/cyber/commerce/29commerce.html>.
10 Notice at 69,290.
13 Pub. L. No. 105-277, Title XI (1998).
14 Pub. L. No. 105-277, Title XVII (1998).
15 First Annual Report.
16 Other issues include domestic and international taxation, electronic payment systems, and content regulation.
18. 17 Only two years ago, this Commission conducted a workshop on Internet privacy issues, culminating in a Report to Congress on Individual Reference Services (Dec. 1997). Last year, this Commission last year solicited comments on the applicability of its regulations to electronic media. Interpretation of Rules and Guides for Electronic Media, 63 Fed. Reg. 24,996 (May 6, 1998) (Notice and Request for Comment).
18 Cited at <https://www.truste.org/webpublishers/pub_bottom.html>.
19 BNA Electronic Commerce & Law, Vol. 4, No. 6 (Feb. 10, 1999).
20 We note that on February 5, 1999, Commission Chairman Robert Pitofsky and Commerce Secretary William Daley reiterated their belief that industry self-regulation is the best approach to online consumer protection. BNA Electronic Commerce & Law, Vol. 4, No. 6 (Feb. 10, 1999).
21 Pursuant to this program, TRUSTe reviews the privacy policies of its approved websites, mandates certain disclosures of how user information is gathered and stored, and has a process for evaluating user complaints. <http://www.truste.org>.
22 Recently, the Better Business Bureau, another non-government organization, launched a similar authentication service to promote consumer privacy. <http://www.BBBOnLine.org>.
23 Various U.S. government entities have commenced discussions with individual foreign governments and in multilateral settings to advance consistency and self-regulation in the global electronic marketplace. See First Annual Report.
24 Organization for Economic Co-operation and Development, The Economic and Social Impacts of Electronic Commerce: Preliminary Findings and Research Agenda, Feb. 1999 at 12.
25 Introduction by Vice President Al Gore, First Annual Report at i.
27 First Annual Report at 8.
r Admitted in Kentucky, D.C. application pending (practicing under supervision).