July 15, 1998
Ladies and Gentlemen:
I am writing regarding the FTC proposal regarding electronic media ("Proposal"). I am a partner with Abrahams Kaslow & Cassman and have practiced law for over 13 years. I focus on the representation of information technology clients in the areas of Internet and electronic commerce, including Electronic Data Interchange, financial EDI, web-hosting agreements, web content agreements, web linking agreements and electronic sales of products and services. For four years, I chaired the Subcommittee on Electronic Commercial Practices of the Committee on the Law of Commerce in Cyberspace of the Section of Business Law of the American Bar Association. I have also been actively involved in the development of proposed Article 2B to the Uniform Commercial Code, which deals with software and informational licensing, which is a joint project by the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute, as well as the draft Electronic Transactions Act, which is a drafting project of NCCUSL. The comments in this letter are personal, and should not be considered as formal comments of any of the foregoing organizations.
I am writing in opposition to the Proposal. I particular, I find many provisions of the proposal to be completely at odds with current commercial practices (electronic or otherwise). Further, it appears that the drafters of the Proposal are unfamiliar with the operations of the World Wide Web and electronic distribution practices in general, in that may aspects of the Proposal cannot be effectively complied with given the current limitations of the Internet. It is my opinion that implementation of the Proposal in the current form will cause commercial parties desiring to use electronic means to distribute their products (Sellers) to incur significant costs and assume significant new liabilities, while providing consumers with little or no corresponding benefits.
The most disturbing portion of the Proposal is set forth on page 25002, which provides in relevant part:
This rule will take all efficiency and practical use out of the Internet. It also bears no relationship to existing law. For example, in the area of advertising, the rules use a flexible approach, which take into consideration the nature of the media and at what point the proposed purchaser is in the purchase decision, to govern the level of required disclosure. For example, currently in print advertising, other than for pharmaceutical products (where you have those silly one page FDA supplemental disclosures which follow the advertisement), there is no requirement that all of the required disclosure items be contained in the advertisement itself. Only certain disclosures need to be included in the ad, and even those disclosures do not need to be at the top of the ad. Likewise, in radio and television advertising, there is no requirement that the "fast talking salesperson" give his or her disclosure speech at the beginning of the advertisement or that all terms of sale be disclosed as part of the ad. In each case, the rules only require that a minimal disclosure be included as a part of the advertisement (such as the annual fee/annual percentage rate box disclosures in print advertisements for credit cards), but if the consumer elects to undertake the transaction, additional materials may need to be disclosed in a certain format prior to completion of the transaction (such as providing the Truth in Lending and Federal Fair Credit disclosures in my credit card example). Even then, not every piece of paper which is used in the purchase and sale transaction needs to contain all of the required disclosures. The disclosures (if any) are usually contained in a separate document, which may run several pages.
Further, in the "paper" world, there are certain disclosures which the purchaser never sees until he or she opens the box, such as electric shock and other safety/safe use disclosures which may accompany an electronics product. If it is acceptable for such disclosures to be given post-purchase in the paper world, it makes no sense to require that an Internet seller include such disclosures in an "unavoidable" manner on its web site. Such a requirement will only frustrate and confuse consumers.
Certain facets of the Internet make it difficult, if not impossible, for the Seller to police at what "page" a potential customer accesses the Seller's information contained at the site. Third party search engines and third party page "links" allow a potential customer to enter a web site at any public page on the Seller's server, not only at the Seller's "home" page. For example, if you are interested in purchasing a computer printer, you may go to one of a dozen of the third party sites which provide reviews of hardware and software (such as CNET.com) or run a query using one of the web search engines (such as the search engines on Yahoo!). Invariably, these reviewer sites and results pages of the web search will contain URL links to additional product descriptions on the Seller's web site. If the potential purchaser clicks on a link at the third party site, they are taken directly to the pages on the Seller's server which describe the product which the potential purchaser is interested in. If the rule requires that disclosures be "unavoidable" as defined above, the only way the Seller can protect itself is to place the disclosures on each web page, which will (1) drive up Seller costs, (2) confuse the potential purchaser by making them think that the link was to an incorrect page, and (3) completely frustrate users who are only looking for technical information about the product and who have not yet made a decision to purchase. It is appropriate that the Seller give relevant disclosures once a purchaser has decided to make a purchase but prior to the time the purchaser commits to the purchase, not at the time the purchaser is simply "window-shopping."
Another technical problem with the foregoing rule is the "no-scroll" requirement. Once someone launches their Netscape or Microsoft Internet Explorer browser and all the normal navigation tool bars appear, on a standard thirteen inch monitor, you can only display approximately 15 lines of text in a normal 10 to 12 point font, and that is on a page which does not contain any logo or banner advertising. Given the number and length of required disclosures, the font size would have to be smaller than 5 point to get it on the screen. Further, as potential purchasers start using smaller access devices to query the Internet, such as Palm Pilots, the useable screen size is even smaller. It is technically impossible to comply with this aspect of the rule.
The economic impact of the rule will also drive many small Sellers off of the web. Only a small percentage of commercial web sites make any money. Even a smaller percentage make a profit from the revenue they derive from the sale of goods and services on their web sites. Most of these web sites only survive because of the advertising revenues the Seller makes from offering banner ad space for sale on their web site. This aspect of the rule would require that the Seller give up their most valuable "real estate" in an attempt to meet the requirements of the rule and only the large companies will be able to afford to run a web site.
The Internet is both an advertising tool and a sales tool, and the rules need to be flexible to recognize this fact. Requiring that disclosures be given in the foregoing fashion is wholly impractical.
Other aspects of the proposed rule which cause me concern include:
While well-intentioned, the Proposal is unworkable and reflects little understanding of electronic commerce. Therefore, I would request that the Commission withdraw the Proposal and undertake further study.
I would commend the Commission staff to evaluate the approach suggested in the current draft of proposed Article 2B to the Uniform Commercial Code. Professor Raymond T. Nimmer, the reporter for the project, and the drafting committee have each spent an extensive amount of time researching and debating the issue and have come up with the following proposal to deal with "conspicuousness" issues:
I appreciate the opportunity to comment on the Proposal.
Very truly yours,
Terrence P. Maher