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E-Business(Updated on Thursdays)


Buyers will be wary until laws locate E-commerce


Thursday, September 16, 1999

If I purchase a book from, does the transaction take place in Ontario (where I reside) or in Washington state (where is headquartered)? More importantly, in the event of a dispute -- the book never arrives or is missing pages -- which law applies?

Should an association of the world's largest companies have its way, the law of the seller will govern.

The rule-of-origin approach provides that the seller's local law will be the one that applies. Unfortunately, this approach raises substantial concerns for consumers, who could be left without effective recourse when E-commerce transactions go bad.

The applicable law for most traditional consumer transactions is relatively easy to determine. If I purchase a book at my local bookstore, few would question the applicability of Ontario law. Similarly, if I travel to Seattle and buy a book there, Washington law applies.

On-line, the matter becomes considerably more complex. Here a transaction might be construed as taking place at the home of the seller, the home of the buyer, or perhaps in cyberspace.

Legal scholars no longer seriously dispute that traditional laws apply to the Internet -- the more difficult question is determining which law applies.

Earlier this week, the Global Business Dialogue on Electronic Commerce (GBDe), an association of the world's largest firms met in Paris and concluded that the growth of E-commerce depends upon the adoption of both freedom of contract and a rule-of-origin approach.

The GBDe's first choice is for a freedom of contract approach that would enable parties to hash out which law applies within their own contracts. Experience shows that this works well in business-to-business relationships where large transactions are typical.

Consumer-to-business relationships, however, tend to involve smaller transactions, rendering it inefficient to negotiate specific legal terms (hence the popularity of the standard form contract).

The GBDe suggests that in such cases, the rule-of-origin approach should be adopted. Any other alternative, it argues, would increase legal uncertainty, force companies to familiarize themselves with multiple legal systems worldwide, and impede the growth of E-commerce.

At the very heart of this debate is the question of risk. Who should bear the risk of an E-commerce dispute -- the company or the consumer?

From the business perspective, the answer is obvious. Operating in multiple jurisdictions would require companies to develop country-specific Web sites and to adjust their policies to reflect the local law of the land. Although some large firms already do this, smaller and medium-sized companies can ill afford to develop worldwide compliance programs.

For consumers, the stakes become very high as a rule-of-origin approach might mean the loss of any effective recourse. Since the value of most consumer E-commerce transactions is relatively small, few consumers would go to the trouble of launching a lawsuit in the seller's jurisdiction. Instead, most consumers would be forced to bear the risk of E-commerce and face of the prospect of having no effective protection for on-line transactions.

The GBDe's approach is not only dangerous to consumers, it is also shortsighted. Many consumers remain wary of E-commerce, citing privacy, security, and general uncertainty concerns.

In fact, consumer acceptance of E-commerce may prove elusive unless businesses convince consumers that they enjoy the same legal protections from on-line merchants that they have come to expect from the store around the corner.
Michael Geist is a law professor at the University of Ottawa School of Law specializing in Internet and electronic commerce law. He can be reached at and on the Web at

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