9004143831

Dispute Resolution in Electronic Commerce
Studies and Materials on the Settlement of

International Disputes
volume 9
Dispute Resolution in
Electronic Commerce
by
Yun Zhao
MARTINUS NIJHOFF PUBLISHERS

LEIDEN / BOSTON
Library of Congress Cataloging-in-Publication Data
Zhao, Yun
Dispute resolution in electronic commerce / by Yun Zhao.
p. cm. — (Studies and materials on the settlement of international disputes ; v. 9)
Includes bibliographical references and index.
ISBN 90-04-14383-1
1. Electronic commerce—Law and legislation. 2. Dispute resolution (Law) I. Title. II.
Series.
K1005.Z47 2005
343.09’944—dc22
2005041687
Printed on acid-free paper.
ISBN 90-04-14383-1
© 2005 by Koninklijke Brill NV, Leiden, The Netherlands
Koninklijke Brill NV incorporates the imprints Brill Academic Publishers,

Martinus Nijhoff Publishers and VSP.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
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Printed and bound in The Netherlands.

CONTENTS
Abbreviations .............................................................................. xi
Chapter One Introduction .................................................... 1

1. The Setting ...................................................................... 1
2. The Problem .................................................................... 5
3. Approach and Scope ........................................................ 8
4. Outline .............................................................................. 9
Chapter Two Electronic Commerce and Dispute

Resolution .............................................................................. 13
1. An Overview of Electronic Commerce .......................... 13
2. Business through the Internet .......................................... 14
2.1. The Internet as a Medium .................................... 14
2.2. Cyberspace for Electronic Commerce .................... 17
2.3. Character of Electronic Commerce ........................ 19
2.4. Preparation and General Procedures for
Electronic Commerce .............................................. 20
2.5. Types of Electronic Commerce .............................. 23
2.5.1. Business-to-Business ...................................... 23
2.5.2. Business-to-Consumer (Consumer
Transaction) .................................................... 24
3. Disputes in Electronic Commerce .................................. 25
3.1. Disputes in the General Sense ................................ 26
3.2. Disputes in Electronic Commerce .......................... 26
3.2.1. Contractual Disputes .................................... 27
3.2.2. Non-contractual Disputes .............................. 30
4. Dispute Resolution Mechanisms ...................................... 30
4.1. Litigation .................................................................. 31
4.2. Alternative Dispute Resolution (ADR) Mechanisms 33
4.2.1. Advantages of ADR Mechanisms ................ 33
4.2.2. Commonly Used ADR Mechanisms .......... 35
4.3. The Necessity of a New Mechanism for
vi contents
Chapter Three Policy Choice .............................................. 41

1. Self-Regulation .................................................................. 42
1.1. Basic Understanding of Self-Regulation ................ 42
1.1.1. The Meaning of “Self ” ................................ 43
1.1.2. Evaluation of Self-Regulation ...................... 45
1.1.3. Best Practice of Self-Regulation .................. 47
1.2. Self-Regulation of Dispute Resolution in
1.2.1. General Remarks .......................................... 49
1.2.2. Evaluation ...................................................... 55
2. International Orientation ................................................ 56
2.1. An International Policy ............................................ 57
2.1.1. Justification for the Policy ............................ 57
2.1.2. An International Policy and Self-Regulation 59
2.1.3. Means to Implement an International
Policy .............................................................. 60
2.2. International Attempts .............................................. 61
2.2.1. General Remarks .......................................... 61
2.2.2. European Union (EU) .................................. 61
2.2.3. World Trade Organization (WTO) ............ 62
2.2.4. International Chamber of Commerce (ICC) 63
2.2.5. Organization for Economic Cooperation
and Development (OECD) .......................... 65
2.2.6. World Intellectual Property Organization
(WIPO) .......................................................... 65
2.2.7. Analysis .......................................................... 67
3. The Policy of Consumer Protection .............................. 68
3.1. General Understanding of Consumer Protection
in Electronic Commerce .......................................... 69
3.2. Consumer Protection in Dispute Resolution with
the Internet as a Medium ...................................... 73
3.3. Consumer Protection in Electronic Commerce
Dispute Resolution .................................................. 75
3.3.1. The US Practice ............................................ 75
3.3.2. The EU Practice .......................................... 80
3.3.3. Analysis .......................................................... 84
4. Conclusion ........................................................................ 87
contents vii
Chapter Four Development of Litigation for Electronic

Commerce .............................................................................. 89
1. Introduction ...................................................................... 89
2. Adjudicative Jurisdiction .................................................. 91
2.1. Basic Understanding of Jurisdiction in the Era of
Technology ................................................................ 91
2.2. US Case Law in Adjudicative Jurisdiction ............ 92
2.2.1. Basic Theory in Adjudicative Jurisdiction .... 92
2.2.2. In Rem Jurisdiction ........................................ 93
2.2.3. Personal Jurisdiction ...................................... 95
2.2.3.1. General Jurisdiction ........................ 96
2.2.3.2. Specific Jurisdiction ........................ 98
2.2.3.3. Tag Jurisdiction .............................. 105
2.2.4. Comments ...................................................... 106
2.3. European Attitudes towards Adjudicative
Jurisdiction ................................................................ 110
2.3.1. General Introduction to European Practice 110
2.3.2. The Brussels Convention and the Lugano
Convention .................................................... 112
2.3.3. The Brussels I Regulation ............................ 113
2.4. Observations .............................................................. 116
2.4.1. Self-Regulation in Adjudicative Jurisdiction 116
2.4.2. Free Choice by Parties and Consumer
Protection ...................................................... 118
2.5. International Efforts in Regulating Adjudicative
Jurisdiction ................................................................ 119
2.5.1. International Regulation of Jurisdiction ...... 119
2.5.2. Draft Hague Convention .............................. 120
2.5.3. Comments ...................................................... 122
3. Choice of Law .................................................................. 124
3.1. Basic Understanding of Choice of Law in
3.2. Choice of Law in Contractual Disputes ................ 127
3.2.1. International Practice .................................... 128
3.2.1.1. The US ............................................ 128
3.2.1.2. The EU ............................................ 133
3.2.1.3. The 1985 Hague Convention ........ 136
viii contents
3.2.2. Analysis of the Present Applicable Law

Regime and Suggestions .............................. 137
3.2.2.1. Party Autonomy .............................. 138
3.2.2.2. Applicable Law in Absence of
Party Autonomy .............................. 140
3.3. Choice of Law in Tort ............................................ 141
3.3.1. International Practice .................................... 142
3.3.1.1. The US ............................................ 142
3.3.1.2. The EU ............................................ 145
3.3.2. Analysis of the Possible Applicable Law .... 147
3.4. General Observations .............................................. 149
4. Conclusion ........................................................................ 151
Chapter Five Attempts at Formulating a New

Mechanism ............................................................................ 153
1. Projects Arising out of Self-Regulation Initiatives ........ 153
1.1. Virtual Magistrate Project ...................................... 153
1.2. The University of Massachusetts Online Ombuds
Office ........................................................................ 161
1.3. eBay’s Escrow Arrangement and Dispute
Resolution Services .................................................. 163
1.4. Credit Card Chargeback ........................................ 164
1.5. CyberTribunal .......................................................... 166
1.5.1. CyberTribunal Mediation ............................ 167
1.5.2. CyberTribunal Arbitration ............................ 167
1.6. Miscellaneous Projects .............................................. 168
1.7. Analysis ...................................................................... 169
1.7.1. Internal Mechanisms .................................... 169
1.7.2. External Mechanisms .................................... 170
2. World Intellectual Property Organization (WIPO) ........ 172
2.1. Background .............................................................. 173
2.2. Combating Cybersquatting ...................................... 175
2.3. Procedures for the Mechanism .............................. 180
2.4. Character of the Mechanism .................................. 183
2.5. Analysis ...................................................................... 188
Chapter Six A New Mechanism for Electronic

Commerce .............................................................................. 195
1. Introduction ...................................................................... 195
2. Online Mechanism for Electronic Commerce .............. 196
contents ix
2.1.
The Requirements of the New Mechanism .......... 196
2.2.
The Form of the New Mechanism ........................ 199
2.3.
The Conception of the New Mechanism .............. 201
2.4.
How to Realize the “Online Mechanism” ............ 204
2.5.
The Ensuing Arrangement for the Online
Mechanism ................................................................ 208
2.5.1. Committee of the Center ............................ 208
2.5.2. Location .......................................................... 209
2.5.3. Language ........................................................ 209
2.5.4. Administrative Fees and Other Relevant
Expenses ........................................................ 210
2.5.5. Selection of Decision-makers ........................ 211
2.5.6. Possible Remedies .......................................... 213
2.5.7. Technical Support ........................................ 214
2.5.8. Arbitration Agreements ................................ 214
2.5.9. Discovery ........................................................ 215
2.5.10. Formulation of Final Decision .................. 216
2.5.11. Enforcement of Decisions .......................... 216
3. The Law for Electronic Commerce in the New
Mechanism ........................................................................ 222
3.1. Cyberspace as an “International Space”? .............. 222
3.1.1. Cyberspace as a Space ................................ 222
3.1.2. Cyberspace as an International Space ........ 224
3.2. The Law for Electronic Commerce ...................... 229
3.2.1. The Necessity of “New” Law for
Electronic Commerce .................................... 229
3.2.2. Lex Informatica ................................................ 234
3.2.3. Lex Informatica and Dispute Resolution ........ 240
3.3. Comments ................................................................ 243
4. Epilogue ............................................................................ 245
Chapter Seven Conclusion .................................................... 249
Bibliography .............................................................................. 257
Index .......................................................................................... 287

ABBREVIATIONS
AAA American Arbitration Association

ABA American Bar Association
ACH Automated Clearing House
ADR Alternative Dispute Resolution
AJIL American Journal of International Law
AOL American Online
ARPANET Advanced Research Project Agency Network
ASP Application Service Provider
B2B Business to Business
B2C Business to Consumer
BBB Best Business Bureau
CDA Communications and Decency Act
CHM Common Heritage of Mankind
CI Consumer International
CIC Computer Integration Courtroom
CLI Cyberspace Law Institute
CRDP Center de Recherche an Driot Public
DART Dispute Avoidance and Resolution Team
DISH Data Interchange on Shipping
DNS Domain Name System
ECU European Currency Unit
EDI Electronic Data Interchange
EEC European Economic Community
EEF Electronic Frontier Foundation
EFTA European Free Trade Association
EJIL European Journal of International Law
EU European Union
EuroISPA European Internet Services Providers Association
FAQ Frequently Asked Questions
FEDMA Federation of European Direct Marketing
FNC Federal Networking Council
FTC Federal Trade Commission
GATS General Agreement on Trade in Services
GBDe Global Business Dialogue for Electronic commerce
xii abbreviations
GII-GIS Global Information Infrastructure—Global Information

Society
GUIDEC General Usage for International Digitally Ensured
Commerce
IAB Internet Architecture Board
IAHC Ad Hoc Committee
IANA Internet Assigned Numbers Authority
ICANN Internet Corporation for Assigned Names and Numbers
ICC International Chamber of Commerce
ILPF Internet Law and Policy Forum
INTA International Trademark Association
IP Internet Protocol
IPWG Internet Privacy Working Group
ISOC Internet Society
ISP Internet Service Provider
ITU International Telecommunications Union
JWT Journal of World Trade
MUD Multi-User Dimension
NAF National Arbitration Forum
NCAIR National Center for Automated Information Research
NCCUSL National Conference of Commissioners on Uniform
State Laws
NSI Network Solutions, Inc.
NTIA National Telecommunications and Information Admin-
istration
OECD Organization for Electronic Cooperation and Devel-
opment
SLD Second Level Domain
TACD Trans Atlantic Consumer Dialogue
TOS Terms of Service
TRIPs Trade Related Aspects of Intellectual Property
TLD Top Level Domain
UCITA Uniform Computer Information Transactions Act
UDRP Uniform Domain Name Dispute Resolution Policy
UETA Uniform Electronic Transactions Act
UNCITRAL United Nations Commission on International Trade
Law
UPS United Parcel Services
US United States
USAA United States Arbitration Act
abbreviations xiii
USCIB United States Council for International Business

WELL Whole Earth ’Lectronic Link
WIPO World Intellectual Property Organization
WTO World Trade Organization
WWW World Wide Web
CHAPTER ONE
INTRODUCTION
1. The Setting
One of the most spectacular events approaching the end of the last
century was the wide acceptance and use of electronic commerce.1
Never before had people imagined obtaining all sorts of information
without stepping out of home or doing business in an invisible world.
But with the result of several innovations that came together in the
1980’s involving computerization, telecommunications, miniaturiza-
tion, compression technology, and digitalization, these fantasies became
truths and signaled an irreversible trend for the future. By sitting in
front of a computer and surfing through the Internet, you can accom-
plish a lot of tasks, which still sounds amazing to some people.
Actually, forms of electronic commerce emerged much earlier than
what we call electric commerce today. When we use telephones, fax
machines, or other familiar electronic communication tools, we are
involved in electronic commerce in the broadest sense of the word.2
However, people only realized the possibilities of electronic commerce
after the Internet came into the arena. It is the open, multifunc-
tional and international nature of the Internet, in particular, which
has galvanized the potential for electronic commerce, revealing the
revolutionary effect the Internet can exert on modern business.3 It
is changing the way businesses of all sizes interact with their cus-
tomers and suppliers; it is also affecting individuals who will increas-
ingly communicate with businesses and other individuals through
computers. One leading authority has described the change as being
“so startling in its economic implications that it may reasonably be
1
A. Goldstein & D. O’Connor, E-Commerce for Development: Prospects and Policy Issues,
OECD Development Center, at <http://www.oecd.org/dev>; R. Perez-Esteve &
L. Schuknecht, A Quantitative Assessment of Electronic Commerce, Economic Research and
Analysis Division, WTO, Staff Working Paper ERAD-99–01, September, 1999, at 2.
2
K.W. Grewlich, Governance in ‘Cyberspace’: Access and Public Interest in Global
Communications, 47, 383 (Kluwer, 1999).
3
See Electronic Commerce, OECD Policy Brief No. 1–1997, at 1–3.
2 chapter one
considered a watershed in the way we do business . . . an abrupt and

irrevocable turning point, one that signals a shift in historical direc-
tion by obliterating an established set of business practices and replac-
ing them with a new commercial paradigm.”4 It is because of this
consideration that electronic commerce based on the Internet is the
topic for the present study.
Doing business through the Internet, which was a rather exotic
fantasy until recently, has been undergoing exponential development.5
Everyday we are confronted with additional statistics that reflect the
rapid expansion of electronic commerce. The electronic trading boom
is in full swing and the Internet offers unlimited opportunities to
transform the way business is conducted.6
While there were only some 4.5 million Internet users in 19917
and commercial use of the Internet was even invisible at that time,
new means of exchanging information have since transformed many
aspects of social and economic structures.8 When extended to the
commercial world, the strong influence of the Internet was soon obvi-
ous to the public. Businesses, organizations, institutions, governments,
and individuals can use computer networks to sell products, share
information, converse, and develop communities across borders of
space and time to deal with virtually every subject.9 Within only sev-
eral years, electronic commerce has developed dramatically. It is esti-
mated that by now there are as many as 300 million or more Internet
users,10 and business through the Internet captured from virtually
4
T.M. Siebel & P. House, Cyber Rules, Strategies for Excelling at E-Business, 1 (1999).
5
M.M. Waldrop, Culture Shock on the Networks, 265 Science 879–880 (12
August 1994).
6
T. Melville-Ross, The Changing Face of Business, in T. Nash (Ed.), Electronic
Commerce: Directors and Opportunities for Electronic Business, 5 (1998).
7
On the dramatic growth of the Internet, see K.S. Byford, Privacy in Cyberspace:
Constructing a Model of Privacy for the Electronic Communications Environment,
24 Rutgers Computer & Tech. L.J. 1–38 (1998). The Internet is conservatively esti-
mated to connect well over twenty million people in 1994. See G.P. Long, III,
Comment, Who are You?: Identity and Anonymity in Cyberspace, 55 U. Pitt L.
Rev. 1177–1178 (1994).
8
For further discussion, see generally R. Wiley & R. Butler, National Information
Infrastructure: Preserving Personal Space in Cyberspace, 12 Communications Lawyer,
No. 3, 1 (Fall 1994).
9
See G. Friedman & R. Gellman, An Information Superhighway “On Ramp”
for Alternative Dispute Resolution, 68 N.Y. St. Bus. J., 38–39 (May–June 1996).
10
The Internet is growing at the rate of five to eight percent per month. J. Clark,
The Online Universe: Find Out Why Some 30 Million People Count Themselves
as Citizens of this Mysterious World, Toronto Star, October 20, 1994, at J1; Internet
Crimes Soars, Information Week, October 10, 1994, at 20.
introduction 3
zero to a predicted US$300 billion in the ten years up to the turn

of the 20th century.11 Another study predicts that the number of
users making transactions over the Internet will jump to over 183
million in 2003 and the amount of commerce through the Internet
will top a staggering US$1 trillion.12 Internet-based business might
still be a minor player compared with the traditional business, but
considering that the paper-based businesses have been in existence
for hundreds of years, the results of electronic commerce have been
rather fantastic and, more importantly, electronic commerce is presently
developing at an even more rapid pace. It is expected that Internet-
based business will account for 2 percent of all commercial trans-
actions in industrialized countries by the year of 2003,13 and by 2004
it should account for 8.6 percent of worldwide goods and services.14
As the leader in information technology, The United States (US)
has been even more active in Internet-based business and is show-
ing the way for other regions. About 70 percent of Internet web
sites are located in the US, and in 1996/1997 over 85 percent of
the world revenue in Internet-based electronic commerce was gen-
erated there.15 By the year of 2003, the value of business-to-business
electronic commerce16 is expected to amount to US$1300 billion in
the US alone.17
11
See M. Bachetta, P. Low, A. Matto, L. Schuknecht, H. Wager & M. Wehrens,
Electronic Commerce and the Role of the WTO, 1 (1998). According to another resource,
the number shall be US$200 billion. See Opening remarks by B. Munder on Customer
Privacy on the Web—Self-Regulation or Government? March 4, 1998, at <http://mcgraw-
hill.govservices.com/speech/forum1.html>. The number of Internet users is still
growing at an exponential rate every day. See Web News & Views: Internet Marketing
101, Basics, at <http://www.cincymart.com/webnews/market.html>. Currently,
traffic on the Internet is doubling every 100 days. See R.I.R. Abeyratne, Auctions
on the Internet of Airline Tickets, Communications Lawyer, No. 1, 22 (1999).
12
The Global Market Forecast for Internet Usage and Commerce, International
Data Corporation, June 1999. Similarly, Forrester’s Research estimates that e-com-
merce just among businesses for all types of goods and services will reach US$1.33
trillion world-wide by 2003. See R. Holleyman, The Impact on Intellectual Property:
Jurisdiction, Enforcement and Dispute Resolution, International Conference on Electronic
Commerce and Intellectual Property, Geneva, September 14 to 16, 1999, WIPO/EC/
CONF/99/SPK/6–C
13
See further Bachetta, supra note 11, at 23.
14
Forrester, supra note 12.
15
See further Bachetta, supra note 11, at 25.
16
Electronic commerce can be divided into several types. Business-to-business
transaction is an important one that shall be described further in Chapter Two.
17
Financial Times, 12 April 1999.
4 chapter one
Having realized the advantages of electronic commerce, other

regions are trying to catch up with the US. The European Commission
agreed on an ambitious agenda to push through all remaining elec-
tronic commerce legislation by the end of year 2000 in an effort to
help the European Union (EU) improve its Internet-based economy.18
Meanwhile, Africa, Asia, and Latin America reported the highest
growth rates in Internet hosts for the period between 1993 and 1996,
and even more rapid developments are expected out of those regions
later on.19
Looking forward, the potential for electronic commerce to gain a
sizeable share of consumer and business purchases appears to be
large, although it is difficult to quantify.20 The developments in com-
munications infrastructure, digital networks, and graphic-based Internet
applications have made and will continue to make transmission of
information much faster, cheaper, and simpler. With further tech-
nological improvements, communication shall become much more
reliable and thus more applicants shall be attracted to this splendid
field. This shall inevitably increase productivity and efficiency in a
number of industries and businesses. Increased productivity will the-
oretically yield higher profit margins and a more stable economic
system.21 Accordingly, commercial use of the Internet, more specifically,
electronic commerce, should have a magnificent future.
Emerging numbers of online consumer transactions foreshadow
this bright future for electronic commerce. The Internet encourages
the entry of consumers into electronic commerce by way of facili-
tating direct interaction between consumers and merchants. Although
the volume of business-to-business electronic commerce currently far
exceeds that of consumer transactions,22 the large-scale entry of con-
18
Financial Times, 26 June 2000. Commissioners wanted to pass seven remaining
directives and pieces of legislation, which include directives on copyright, distance
selling of financial services, electronic money, etc.
19
ITU, World Telecommunications Indicators Database, 1997 b.
20
J. Coppel, E-commerce: Impacts and Policy Challenges, Economics Department
Working Papers No. 252, OECD, ECO/WKP (2000) 25. Electronic commerce is
harder to measure than the industry itself. Tracking the exchange of goods and
information across electronic networks and between businesses is impossible. How
many Internet users there are and for what purpose they use the Internet are also
mysteries.
21
See further USA Today, December 8, 1995.
22
See Measuring Electronic Commerce, Committee for Information, Computer and Communications
Policy, OECD/GD (97) 185, at 13, which is available at <http://www.oecd.org/dsti/
sti/it/ec/prod/e_97–85.htm>.
introduction 5
sumers into electronic commerce is believed to be a simple matter

of time.23 Business transactions shall be made between merchants
and users while they simply sit before computers connected to the
Internet, which could fundamentally change the normal commercial
world. The potential profitability entailed in such transactions has
already enticed merchants.
2. The Problem
Recognising the efficiency and convenience brought by the Internet,

the business world is trying to modify traditional business to accom-
modate new forms of communication. To be successful, businesses
must develop integrated strategies addressing their commercial, tech-
nical, security and legal requirements to better serve their customers
and avoid potential liabilities. Thus, this new phenomenon has brought
with it new challenges in various areas, which demand fast and
efficient responses.24
The need to address legal issues is urgent.25 Controversy has arisen
over whether or not existing law offers clear enough guidelines to
promote the development of Internet business;26 whether or not cer-
tain barriers must be removed; how contractual requirements, such
as those for a “writing,” a “signature,” and an “original” shall be
reconsidered in the context of electronic commerce; and so forth.
Actually, much work has been done to fill in the possible loop-
holes.27 For example, the United Nations Commission on International
23
The Emerging Digital Economy, U.S. Department of Commerce report, April
1998, at 5–6, at <http://www.ecommerce.gov/whatsnew.htm>.
24
See, for example, M.I. Meyerson, Virtual Constitutions: The Creation of Rules
for Governing Private Networks, 8 Harvard Journal of Law and Technology, 129 (1994);
see also I.K. Gotts & A.D. Rutenberg, Navigating the Global Information Super-
highway: A Bumpy Road Lies Ahead, 8 Harvard Journal of Law and Technology 275
(1995).
25
See, for example, P.H. Schuck, Legal Complexity: Some Causes, Consequences,
and Cures, 42 Duke L.J. 1, 18 (1992).
26
See, for example J.K. Winn, Open Systems, Free Markets and Regulation of
Internet Commerce, 72 Tul. L. Rev., 1177(1998); R.J. Robertson, Electronic Commerce
on the Internet and the Statute of Frauds, 49 S.C. L. Rev. 787(1998); H.K. Towle,
Electronic Transactions and Contracting, 520 PLI/Pat, 515 (1998); K.S. Haw,
E-Commerce: Technology Can Bypass the Legal Pitfalls, Bus. Times (Singapore),
October 14, 1996, at 16.
27
For example, the International Chamber of Commerce (ICC) formulated Gen-
eral Usage for International Digitally Ensured Commerce (GUIDEC); this document
6 chapter one
Trade Law (UNCITRAL) took the initiative to draft Model Law on

Electronic Commerce, which was adopted on December 16, 1996.28
Other legislation is also well underway at international and national
levels.29
However, attention has only recently been paid to the area of dis-
pute resolution.30 With more and more electronic commerce taking
place on a daily basis, disputes arising from misunderstanding,
conflicting interests, or malicious actions are inevitable.31 For example,
can be found at <http://www.iccwbo.org/guidec2.htm>. For general discussion, see

Survey of International Electronic and Digital Signature Initiatives, Internet Law &
Policy Forum at <http://www.ilpf.org/digsig/survey.htm>.
28
United Nations, UNCITRAL Model Law on Electronic Commerce, 36 I.L.M.
197 (1997); see also the Report of UNCITRAL on the work of its 29th Session,
UN General Assembly Official Records Supplement No. 17 (A/51/17), Annex I;
A.H. Boss & J.K. Winn, The Emerging Law of Electronic Commerce, 52 Bus. Law.
1469 (1997); J.Y. Gliniecki & C.G. Ogada, The Legal Acceptance of Electronic
Documents, Writings, Signatures, and Notices in International Transportation
Conventions: A Challenge in the Age of Global Electronic Commerce, 13 Nw. J.
Int’l. L. & Bus. 117 (1992); D.J. Greenwood & R.A. Campbell, Electronic Commerce
Legislation: From Written on Paper and Signed in Ink to Electronic Records and
Online Authentication, 53 Bus. Law., No. 1, 307–309 (1997); J. Clift, Electronic
Commerce: the UNCITRAL Model Law and Electronic Equivalents to Traditional
Bills of Lading, 27 International Business Lawyer, No. 7, 311–316 ( July/August 1999);
R. Hill & I. Walden, The Draft UNCITRAL Model Law for Electronic Commerce:
Issues and Solutions, The Computer Lawyer (March 1996), at <http://www.batnet.com/
oikoumene/arbunc.html>.
29
For example, the federal and six of the ten provincial legislatures of Canada
are formulating laws on electronic commerce. See L. Guibault, Canada: New
Legislation on E-Commerce Underway, Computer Und Recht International, No. 1, at
25–26 (2001). In the US, revisions to Article 2 of the Uniform Commercial Code,
as well as inclusion of computer information transactions in a new Article 2B were
done for this purpose. See further R.T. Nimmer, Article 2B: An Introduction, 16
J. Marshall J. Computer & Info. L. 211, 227–237 (1997); R.T. Nimmer, Electronic
Contracting: Legal Issues, 14 J. Marshall J. Computer & Info. L. 211–212 (1996); A.H.
Boss, Electronic Commerce and the Symbiotic Relationship Between International
and Domestic Law Reform, 72 Tulane L. Rev. 1931, 1956–1963 (1998). The Draft
Code of Conduct for Electronic Commerce proposed by the Electronic Commerce
Platform Netherlands (a joint undertaking started by the Dutch business sector and
the Ministry of Economic Affairs to foster electronic commerce) offers a non-legal
approach to resolving a variety of pressing e-commerce issues. See Draft Code of
Conduct For Electronic Commerce, 7 Willamette J. Int’l L. & Dispute Resolution 173
(2000).
30
See, for example, Symposium, Doing Deals in Cyberspace: Negotiation, ADR
and the Electronic Revolution, 11 Negotiation J. 91 (1995); I. MacDuff, Flames on
the Wires: Mediating from an Electronic Cottage, 10 Negotiation J. 5 (1994).
31
See R.H. Mnookin, Why Negotiations Fail: An Exploration of Barriers to the
Resolution of Conflict, 8 Ohio St. J. on Disp. Resol., No. 2, 235 (1993); see also W.L.
Ury, J.M. Brett & S.B. Goldberg, Getting Disputes Resolved: Designing Systems to Cut the
Costs of Conflict, at xii ( Jossey-Bass, Inc., 1988).
introduction 7
if a product or service purchased through the Internet is not received,

or gives rise to hidden costs, or is judged by a consumer to be unsat-
isfactory in some way, the difficulty of obtaining satisfactory redress
may render recourse illusory. The distance between the two parties,
the different political legal frameworks behind the parties, the pos-
sible costs and complexity of legal actions have brought enormous
challenges to traditional conceptions. The ensuing disputes are broad
in scale, both in quantity and complexity.
Suppose a US merchant sets up a web site with a German server
and a Dutch consumer makes a transaction with this merchant
through the Internet. During this process, the consumer may have
disputes with the merchant. Meanwhile, other disputes could develop:
the merchant could have problems with the server concerning the
connecting services; the merchant’s web site could cause intellectual
damage to another company; etc. Ostensibly, this business will occa-
sion a lot of problematic issues, many involving international interests.
How well disputes are resolved shall largely influence the attitudes
of Internet merchants and consumers alike. Their attitudes shall in
turn determine the fate of electronic commerce. Of course, judging
from the present situation, electronic commerce will continue to
develop no matter how problematic the business is: so long as there
are foreseeable profits, merchants will set up web sites for their busi-
nesses; curious consumers eager for convenience will support these
businesses. But this is a short-term truth. If disputes pile up and
appropriate legal measures to resolve these disputes remain unavail-
able, the enthusiasm of merchants and consumers, who find their
own interests in danger, will no doubt dissipate. Thus, effective dis-
pute resolution measures are needed to guarantee the long-term
benefits of electronic commerce.
Dispute resolution is a means of guaranteeing the minimal order
and stability necessary for viable social organization.32 For this end,
dispute resolution has been in existence since the emergence of
human society. It is not surprising that when looking into historical
US files, one discovers a wealth of litigation records, proof that it is
as much natural as it is popular for disputing parties to go to court
for resolution.
32
T.E. Carbonneau, Alternative Dispute Resolution: Melting the Lances and Dismounting
the Steeds, 5 (University of Illinois Press, 1989).
8 chapter one
Yet while records provide a good basis for handling dispute res-
olution in electronic commerce cases, electronic commerce, as a new
means of transaction, is different in many aspects from traditional
business and therefore requires a new legal approach. Its transna-
tional nature, in particular, has called into question the traditional
jurisdictional theory for litigation. Furthermore, the high fees and
time required largely deter the disputing parties from bringing elec-
tronic commerce cases to court, especially when most consumer trans-
actions are for sum of US$100 or less.
Besides litigation, there exist other means for resolving disputes,
which are actually being used rather frequently for the time being.
Efficient and low-cost options are most popular. Among them, arbi-
tration is now widely recognized in commercial disputes.
Although it is still possible to use present mechanisms to resolve
disputes regarding electronic commerce, doing so should not curtail
the possible application of modern technology and thereby limit the
meaningfulness of the Internet further. The emergence of electronic
commerce requires the development of new dispute resolution tools
that will accommodate it. The main problem for the time being is
to determine the juncture where the use of the Internet can be well
welded to existing dispute resolution mechanisms. While preserving
the traditional function of resolving disputes, new technology should
be made available to those mechanisms.
It is the primary purpose of this study to explore the rules and
principles used in resolving disputes arising out of electronic com-
merce. The question to be addressed in this study may be formu-
lated as follows: since traditional dispute resolution mechanisms cannot
well suit the present situation, what rules and measures should be
formulated to procure the peaceful resolution of the disputes therein?
3. Approach and Scope
As discussed above, disputes shall arise during the process of elec-

tronic commerce. It is not at all a new idea to resolve disputes of
this kind with traditional mechanisms. The court has necessarily done
so in the absence of other options and, in so doing, modified tra-
ditional theories to meet the new demands, for example, setting forth
new justifications for its power to hear cases.
But the new characteristics of the new electronic commerce busi-
ness have called for the further development of the dispute resolu-
introduction 9
tion system. While litigation may serve a purpose, alternatives to lit-

igation shall be explored for dealing with electronic commerce. The
concept of Alternative Dispute Resolution (ADR) actually includes
all other dispute resolution mechanisms except litigation, offering
great flexibility to those exploring feasible adaptations of traditional
theory to modern practice.
This study does not intend to suggest that ADR should take prece-
dence over traditional litigation or vice versa. Rather, it tries to take
a complete view of the possible mechanisms for dispute resolution
in electronic commerce. While analyzing the problems presented in
national litigation, it attempts to formulate alternative ways to fill in
the gaps. The author’s idea is that litigation shall remain an impor-
tant mechanism for resolving disputes and, more importantly, as a
last valve to secure final justice. However, the use of modern tech-
nology has asked for other, more efficient ways to resolve the conflicts.
As new technology is widely used in the economy, it should likewise
be made use of by mechanisms formulated to supervise this econ-
omy; not being used in this way would constitute a waste of extant
resources. An examination of how to implement modern technology
into the present mechanisms or, more precisely, how to reformulate
the mechanism through the use of the Internet itself is required.
The feasibility of the application of Internet technology to dispute
resolution is uncertain. Several institutions have been experimenting
with making use of the online facilities to deal with disputes in specific
areas, but these experiments have not treated electronic commerce
in general. In the absence of widespread applications of online mech-
anisms, the opinions of experts, as well as the existing online prac-
tice become more relevant. Since electronic commerce is still a new
phenomenon for many people and its potential capability is enormous,
the scope of the present study with respect to the possible use of
online facilities in dispute resolution is broad and very likely debatable.
4. Outline
The present study consists of seven parts. After a brief introduction,

Chapter Two gives a general description of the development of elec-
tronic commerce, potential disputes related to electronic commerce,
and the possible mechanisms for dealing with such disputes. First
introduced as a general term for doing business through the Internet,
the discussion of electronic commerce shall be further divided into
10 chapter one
several specific types of electronic commerce, followed by an expla-

nation of the general procedures for doing such business. A general
overview of potential contractual and non-contractual disputes as well
as present dispute resolution mechanisms shall be offered. Importantly,
the shortcomings of the existing mechanisms shall be analyzed and
necessary improvements to the present mechanisms will be suggested.
The use of the Internet has fundamentally changed social life and
the legal field should follow suit and change through adopting new
policies concerning dispute resolution. Several policy issues are sin-
gled out for consideration in Chapter Three. Section One examines
self-regulation, an ideal way of regulating the Internet, and Section
Two treats international cooperation, with all its implications for dis-
pute resolution in electronic commerce across territorial borders.
Section Three revisits traditional policies concerning the protection
of both consumer and merchant in the wake of what is a new bal-
ance of power between transacting parties fueled by the accessibil-
ity of information on the internet. Examples are presented to elucidate
the process of implementation and the relationship between the three
policies.
Bearing the general policies in mind, traditionally mechanized lit-
igation shall be dealt with in Chapter Four. No matter what hap-
pens, traditional litigation, representing the power of the States, shall
always remain important to dispute resolution. However, develop-
ments should be made to accommodate technological improvements,
or else outdated theories shall obstruct the further smooth function-
ing of litigation. For the purpose of this study, two related aspects
are singled out for detailed discussion. Section One addresses adju-
dicative jurisdiction, the assignment of power to hear cases to specific
courts, and Section Two deals with the choice of laws in electronic
commerce. These are closely related steps in litigation. The courts
should justify their position in entertaining a case and further vali-
date their position by applying the right law.
As Chapter Four reveals that litigation is actually not the best
choice for dealing with disputes in electronic commerce, Chapter Five
goes on to offer several examples of a general trend in formulating
a new mechanism. These include the Virtual Magistrate Project, the
University of Massachusetts Online Ombuds Office, eBay’s Escrow
Arrangement, and the World Intellectual Property Organization’s
(WIPO) treatment of domain name disputes and formulation of Appli-
cation Service Provider dispute avoidance and resolution practices.
introduction 11
Based on the practices described in Chapter Five but not a sim-

ple transplantation of present arbitration, the design of a new gen-
eral mechanism for electronic commerce is laid out in Chapter Six.
The first section sets forth a blueprint for this mechanism, elabo-
rates on its guiding principles and details the particulars of its imple-
mentation. Section Two discusses the law for electronic commerce
and proposes lex informatica for the field in its present state.
Chapter Seven is comprised of a summary of this study’s obser-
vations and findings as well as closing remarks.
CHAPTER TWO
ELECTRONIC COMMERCE AND DISPUTE RESOLUTION
1. An Overview of Electronic Commerce
Electronic commerce is a “buzzword,” which has no clear meaning

but does have a strong capability to associate itself with a subject
area of current interest.1 Since electronic commerce and its partici-
pants are so numerous and their intricate relationships are evolving
so rapidly, different parties have a different understanding of what
electronic commerce means.2
It is not the purpose of this study to give a precise definition of
this word, as doing so would be nearly impossible. Rather, the aim
is to offer a general description of both the practice and implications
of electronic commerce in the modern, Internet-based economy.3
Nowadays, electronic commerce most commonly refers to Internet
and other network-based commerce. Arguably, this reference is flawed,
or at least too narrow.4 Electronic commerce was not created by or
for the emergence of the Internet. The telephone, the fax machine,
the television, electronic payment and money transfer systems, and
1
See further M.B. Andersen, Electronic Commerce: A Challenge to Private Law?, Centro
di Studi e Ricerchedi Diritto Comparato e Straniero, Saggi Conferenze e Seminari
4 Rome, 1998.
2
For a more elaborate discussion of definitions, see <http://www.oecd.org/dsti/
sti/it/ec/act/sacher.html>; see also H.K. Towle, Electronic Transactions and Contracting,
520 Prac. L. Inst.: Patents, Copyrights, Trademarks, and Literary Property Course
Handbook Series 515, 517 ( June 8, 1998); J. Coppel, E-Commerce: Impacts and
Policy Challenges, Economics Department Working Papers No. 252, June 2000,
OECD, ECO/WKP(2000)25, at 4; Measuring Electronic Commerce, OECD Working
Papers Vol. V., No. 97, Paris, at 6, 9.
3
See for example, S.S. Wu, Incorporation by Reference and Public Key
Infrastructures: Moving the Law Beyond the Paper-Based World, 38 Jurimetrics J.,
No. 3, 317 (1998); D.J. Greenwood & R.A. Campbell, Electronic Commerce
Legislation: From Written on Paper and Signed in Ink to Electronic Records and
Online Authentication, 53 Bus. Law 307–308 (1997); A. Urbaczewski et al., A
Manager’s Primer in Electronic Commerce, Bus. Horizons 5 (September 1, 1998).
4
See further C. Hsu & S. Pant, Innovative Planning for Electronic Commerce and
Enterprises: A Reference Model, 7–8 (Kluwer, 2000).
14 chapter two
Electronic Data Interchange (EDI) all make it possible to do busi-

ness in one or more respects electronically.5 Automated Clearing
House (ACH) and electronic fund transfers, for example, are respon-
sible for many international financial transactions and at the heart
of the restructuring of consumer banking and payment systems of
many countries.
Notwithstanding, it was only after the emergence of the Internet
that the notion of electronic commerce became understandable to
the public. The reasons are simple. As entire transactions can take
place via the Internet, individuals could all of a sudden conduct busi-
ness without knowing either their client or business associate outside
of an electronic reality. Moreover, the Internet is a more convenient
tool than the aforementioned instruments, as it offers a more efficient
and cheaper way to conduct business, extending benefits to both
potential merchants and consumers. While the other instruments offer
cheap and efficient services, each exists as a minor modification of
traditional business and not as something new—not as what one
would like to think of as electronic commerce.
That said, it should be noted that the five instruments are still
widely used. In fact, the use of the Internet itself can sometimes be
combined with the use of a telephone, a fax machine, or even with
traditional non-electronic methods of transaction, like the shipping.
However, this only shows that the existence of the Internet offers
more choices for consumers. As the Internet is the main instrument
for the evolving electronic commerce, it is thus the purpose of the
present study to focus on commerce conducted through the Internet.
2. Business through the Internet
2.1. The Internet as a Medium

The Internet refers to the world of computer-based electronic com-
munication.6 It is formally defined as the global information system
that is logically linked together by a globally unique address space
5
See further M. Bachetta, P. Low, A. Matto, L. Schuknecht, H. Wager & M.
Wedrens, Electronic Commerce and the Role of the WTO, 5 (1998).
6
For a description of the Internet, see N.J. Boddie, II, et al., A Review of Copy-
right and the Internet, 20 Campbell Law Review, 193–206 (1998); see also G. Basque,
electronic commerce and dispute resolution 15
based on the Internet Protocol or its subsequent extensions/follow-

ons.7 The Internet acts as a vast web of telecommunication links—
a worldwide web—connecting computers all over the world.8
The Internet began as a research project by the US Defense
Department in the late 1960s,9 the Advanced Research Project Agency
Network (ARPANET), to explore a technology called packet switch-
ing, intended to permit robust communications.10 This technology
was first considered for military use as a method for securing safe
communication among military units in case of fatal disturbances in
communication in times of nuclear war.11 In 1981, a military com-
munication network linking 300 computers was set up for this pur-
pose.12 However, this original purpose was later broadened.13 The
Introduction to the Internet, in E. Mackaay et al. (Eds.), The Electronic Superhighway,

7–15 (1995); J. Matthews, A Million Subscribers a Month Can’t Be Wrong, Sunday
Times, June 26, 1994; L.J. Gibbons, No Regulation, Government Regulation, or
Self-Regulation: Social Enforcement or Social Contracting For Governance in
Cyberspace, 6 Cornell J.L. & Pub. Pol’y 475, 487–489 (1997); C.P. Gaumer, Conflicts,
the Constitution, and the Internet, 86 Ill. B.J. 502–503 (1998).
7
Fed. Networking Comm’n, Definition of the Internet (October 24, 1995), at
<http://www.fnc.gov/Internet_res.html>.
8
A. Knoll, Comment, Any Which Way But Loose: Nations Regulate the Internet,
4 Tul. J. Int’l & Comp. L. 275, 277 (1996); see also G. Bovenzi, Liabilities of System
Operators on the Internet, 11 Berkeley Tech. L.J., No. 1, 93, 97 (1996).
9
L. Lessig, Code and Other Laws of Cyberspace 4 (1999); see also K. Cheatham,
Negotiating a Domain Name Dispute: Problem Solving v. Competitive Approaches,
7 Willamette J. Int’l L. & Dispute Resolution 35, 38 (2000).
10
D.H. Crocker, An Unaffiliated View of Internet Commerce, in R. Kalakota
& A.B. Whinston (Eds.), Readings in Electronic Commerce, 4 (1997); see also J.M. Adams,
Controlling Cyberspace: Applying the Computer Fraud and Abuse Act to the
Internet, 12 Santa Clara Computer & High Tech. L.J. 403, 405 (1996). The ARPANET
allowed communication between users through the “Network Control Protocol,”
which converts messages into streams of packets at the source and then reassem-
bled them back into messages at the destination.
11
See for example G.B. Allison, The Lawyer’s Guide to the Internet, 31 (1995);
J.R. Levine & C. Baroudi, The Internet for Dummies, 12 (2nd Ed., 1994); see also
J. Reno, Attorney General of the United States et al. v. American Civil Liberties Union, Supreme
Court No. 96–511, 20 n. 3 ( June 26, 1997), at <http://www.ciec.org/SC_appeal/
opinion.html>.
12
K.M. Fitzmaurice & R.N. Mody, International Shoe Meets the World Wide
Web: Whither Personal Jurisdiction in Florida in the Age of the Internet?, 71 Fla.
B.J. 22 (1997).
13
For thorough description of the Internet’s history and origins, see T. Berners-
Lee & M. Fischetti, Weaving the Web: The Original Design and Ultimate Destiny of the
World Wide Web by Its Inventor (1999); A.M. Froomkin, Wrong Turn in Cyberspace:
Using ICANN to Route Around the APA and the Constitution, 50 Duke L.J. 17
(2000); J. Weinberg, ICANN and the Problem of Legitimacy, 50 Duke L.J. 187
(2000); B.M. Leiner et al., A Brief History of the Internet (authored by the Director of
16 chapter two
Internet would serve as a means to disperse information not exclu-

sively reserved for military purposes, but for other purposes as well.14
Since its emergence, the Internet has indeed had the most significant
impact on communications in the last century and, in consequence,
drastically changed daily life for many.15 Unlike other media, the
Internet allows systematic, large-scale, online, interactive communi-
cation between distant parties.16 Certain tools like E-mail execute
specific functions, which are not to be equated with the Internet
itself; the Internet is the general name for this new instrument of
communication. But the World Wide Web (WWW),17 invented in
Europe, is often equated with the Internet.18 As the WWW tran-
scends national borders, people all over the world with the neces-
sary facilities, a computer with Internet access, can reach information
pasted in relevant web sites at any time.19
The Internet has distinct advantages over other communication
tools. Regular mail takes a long time, the telephone limits users to
oral communication, and the fax machine replaces oral communi-
cation. Neither the telephone nor the fax facilitates mass communi-
cation and while radio and television are well designed for mass
communication, they do not facilitate dialogue between individual
the Research Institute for Advanced Computer Science, Senior Vice President of
Internet Architecture and Technology at MCI WorldCom, Senior Research Scientist
at the MIT Laboratory for Computer Science, President of the Corporation for
National Research Initiatives, Professor of Computer Science at UCLA, among oth-
ers), at <http://www.isoc.org/internet/history/brief.html>.
14
The network (ARPANET) came to include many university networks. See
K. Hafner & M. Lyon, Where Wizards Stay up Late: the Origins of the Internet, 249
(1996).
15
See A.L. Shapiro, The Control Revolution: How the Internet is Putting Individuals in
Charge and Changing the World We Know (1999).
16
H.M. White, Jr. & R. Lavria, The Impact of New Communication Technologies
on International Telecommunication Law and Policy: Cyberspace and the Restructuring
of the International Telecommunication Union, 32 Cal. W. L. Rev. 1–2 (1995).
17
For general description of basic terms and concepts associated with the Internet
and the WWW, see ACLU v. Reno, 929 F.Supp. 824 (E.D. Penn. 1996); T. Laquey,
The Internet Companion: A Beginner’s Guide to Global Networking (2nd Ed. 1994).
18
D. Bicknell, Bigger, Better, Faster, More (where the Internet revolution could
take us over the next five years), Computer Weekly, November 18, 1999, at 44. The
Web was begun by T. Berners-Lee while working at the European Laboratory for
Parties Physics. He started the WWW project with the purpose of building a dis-
tributed hypermedia system. See further Thomas Boutell and Boutell. Com, Inc.,
World Wide Web FAQ, 1997, at <http://www.boutell.com.faq>. In 1992 Mark
Andreessen and others at the University of Illinois pioneered the first graphical WWW
browser, Mosaic, from which they spawned the company of Netscape in 1994.
19
See further L. Tien, Who’s Afraid of Anonymous Speech? McIntyre and the
Internet, 75 Or. L. Rev. 182 (1996).
persons. Only the Internet integrates sounds, text, interpersonal com-

munication and mass advertising.20
This transparent communication, according to enthusiastic Internet
commentators, will foster tolerance, promote democracy, redistribute
wealth, improve writing and reading skills, destroy trade barriers,
and bring world peace.21 It has indeed given rise to innovation among
merchants, who make use of the Internet to advertise.22 Potential
consumers can respond to these merchants directly, which makes the
exchange of information and goods cheap and efficient.
2.2. Cyberspace for Electronic Commerce

The term “cyberspace”23 came into being with the introduction of
the Internet.24 It refers to the space where all Internet activities take
20
B. Robin, E. Keeler & R. Miller, Educator’s Guide to the Web 1–2 (1997).
21
See for example, F. Cairncross, The Death of Distance: How the Communications
Revolution Will Change Our Lives 119–120, 155, 209–210, 233–234 (1997); M.L.
Dertouzos, What Will Be: How the New World of Information Will Change Our Lives 82–85
(1997); E. Dyson, Release 2.0: A Design for Living in the Digital Age 83–86, 125 (1997);
B. Gates, The Road Ahead 135–136, 157–158, 184–185 (1995); N.P. Negroponte,
Being Digital 55–59 (1995); H. Rheingold, Why Censoring Cyberspace is Dangerous and
Futile, at <http://www.well.com/user/hlr/tomorrow/tomorrowcensor.html>.
22
The development of browsers in the 1990s were impetus to the emergence of
electronic commerce. Browsers, like Netscape, Internet Explorer, can enable users
to search for what they want. See P.L. Spector, The Internet and Intellectual
Property: Toward a New Model for the Economics of Content, 4 Telecommunications
and Space Journal 157–158 (1997).
23
The term “cyberspace” was first coined by W. Gibson, a science fiction writer
and founding author of the “Cyberpunk” literary genre, in his 1984 novel Neuromancer.
On page 51 he defines cyberspace as “a consensual hallucination experienced daily
by billions of legitimate operators, in every nation; a graphic representation of data
abstracted from the banks of every computer in the human system; unthinkable
complexity.” It was used to describe a computer generated “virtual” space that
looked and felt like physical space. According to computer scientist D. Gelernter,
cyberspace should be viewed as a mirror world, a place where institutions of the
physical world are represented in digital form and where we can interact with these
digital representations as if we were in the physical space. See generally D.H.
Gelernter, Mirror Worlds, or, the Day Software Puts the Universe in a Shoebox . . . How It
Will Happen and What It Will Mean (1991). See also T.H. Flaming, The Rules of
Cyberspace: Informal Law in a New Jurisdiction, 85 Illinois Bar Journal 174 (1997).
R.T. Muth, Old Doctrines on a New Frontier: Defamation and Jurisdiction in
Cyberspace, 68 Wis. Law. 11 (September 1995); E.A. Cavazos & G. Morin, Cyberspace
and the Law: Your Rights and Duties in the On-Line World 1–11 (1994); A.M. Fulton,
Cyberspace and the Internet: Who Will be the Privacy Police?, 3 Commlaw Conspectus
63 (1995); S.C. Jacques, Comment, Reno v. ACLU: Insulating the Internet, the First
Amendment, and the Marketplace of Ideas, 46 Am. U.L. Rev. 1945, 1948 n. 8 (1997).
24
Sometimes the Internet is more colorfully referred to as cyberspace or Global
18 chapter two
place25 and differs from real space in that it is invisible and untouch-
able. The essence of cyberspace today is the search engine: a tool
with which one can cross an infinite space to locate and go to the
stuff one wants.26 It is in this space that electronic commerce takes
place.
Geographical and time limits faced in real space are not obstacles
in cyberspace. While geographical boundaries define our legal juris-
dictions in real space, there are no such boundaries in cyberspace,
which is everywhere and nowhere in particular.27 Internet architec-
ture is designed to overcome any possible blockage and avoid the
centralization of control on information circulation through the net.28
It allows large numbers of people around the world to communicate
in real time, transmitting information to each other instantaneously
and over any distance. Thus, cyberspace creates a virtual commu-
nity for millions of people in all corners of the world.29 Sitting in
front of screens, people can do almost everything they can do in
real life, like exchange ideas and knowledge, engage in intellectual
discourse, develop business, play games, or gossip.30
Information Infrastructure. See for example, J.C. Ginsburg, Global Use/Territorial

Rights: Private International Law Questions of the Global Information Infrastructure,
42 J. Copyright Society U.S.A. 318–319 (1995); A.P. Reindl, Choosing Law in Cyberspace:
Copyright Conflicts on Global Networks, 19 Mich. J. Int’l L. 799–800 (1998); S.
Fraser, The Copyright Battle: Emerging International Rules and Roadblocks on the
Global Information Infrastructure, 15 J. Marshall J. Computer & Info. L. 759, 760
(1997).
25
See further J. Zanghi, “Community Standards” in Cyberspace, 21 U. Dayton
L. Rev. 95, 106 (1995).
26
L. Lessig, Surveying Law and Borders: The Zones of Cyberspace, 48 Stan. L.
Rev. 1408 (May 1996).
27
See further R.C. Bordone, Electronic Online Dispute Resolution: A Systems
Approach—Potential, Problems, and a Proposal, 3 Harv. Negotiation L. Rev. 181
(Spring 1998).
28
A. Lazzaretti, Internet Regulation and On-Line Gambling: A Brief Study of
the US and EU Legal Systems, 31 Law/Technology, World Jurist Association, No. 4,
6 (1998).
29
The Internet is truly global and pervasive in nature. See Vice President
A. Gore, Bringing Information to the World: The Global Information Infrastructure,
9 Harv. J.L. & Tech. 1 (1996).
30
See further H. Rheingold, The Virtual Community: Homesteading on the Electronic
Frontier 3 (1994).
2.3. Character of Electronic Commerce

Electronic commerce based on the Internet is novel in most respects.
Novel digital technology has been vital to the emergence of elec-
tronic commerce in its present form, as nearly all communication
during transactions makes use of this technology. Electronic com-
merce is also not just about putting a catalogue on the web; it fun-
damentally changes the way a company does business, uses systems,
and communicates with its customers, suppliers, and partners. An
online business is an entire business, not just a web site! One notable
emerging characteristic of electronic commerce is the transitory nature
of the relationships between parties, which is largely enabled by the
use of web-based facilities.31
With the use of the Internet, many business procedures can be
omitted or quickened, which largely simplifies commercial processes.
For instance, electronic commerce both requires lower recycle times
and lower inventory than traditional commerce and can afford more
efficient and effective customer service. Such advantages suit the pre-
sent pace of society and commerce, which are in rapid change and
thus require swift responses. The efficiency brought by the Internet
is vital to modern commerce.
Electronic commerce also requires low transaction fees, which has
afforded various merchants, especially small and medium ones, new
commercial opportunities.32 As several thousand dollars is enough to
set up an Internet business, the Internet does not discriminate between
merchants. A message posted on an Internet server reaches con-
sumers located all over the globe at the same price and in the same
time. Lower overhead, lower purchasing costs, lower sales and mar-
keting costs, new sales opportunities, and a global consumer base
can be very attractive.
Consumers are also treated equally. Anyone with the necessary
facilities can communicate with merchants instantly and with mini-
mal expense. Large numbers of people who do not and cannot know
the physical location of the other party are able to make transactions.
31
A.H. Boss, The Internet and the Law: Searching for Security in the Law of
Electronic Commerce, 23 Nova L. Rev. 586 (Winter 1999).
32
Joint EU-US Statement on Electronic Commerce, December 5, 1997, at
<http://www.qlinks.net/comdocs/eu-us.htm>; see also The First Annual Report,
US Government’s Working Group on Electronic Commerce, November 1998, at
<http://www.ecommerce.gov/whatsnew.htm>.
20 chapter two
2.4. Preparation and General Procedures for Electronic Commerce

As indicated above, electronic commerce is doing business through
the Internet. While various approaches can be taken towards elec-
tronic commerce, there are still threads shared by competing par-
ties. This section shall set out to identify these common threads, or
general procedures for electronic commerce.
An important step in facilitating electronic commerce is to set up
a web site. But before a merchant pastes his information on a web
site, he needs to do some preparatory work.
The primary step in initiating electronic commerce is to set up a
telecommunications infrastructure, the basic carrier of information.
Telecommunications services are undergoing rapid development.
International Telecommunications Union (ITU) has undertaken the
supervisory task of coordinating and improving the development of
telecommunications in different regions. Since the Uruguay Round
negotiations of World Trade Organization (WTO), the economic
side of telecommunications services has been protected by General
Agreement on Trade in Services (GATS), which ensures full liber-
alization. This agreement recognizes telecommunications as the basic
instrument in electronic commerce and all other areas of services.33
It gives telecommunication providers access to local facilities, enabling
interconnection essential for launching other activities and affording
market access to information transferred among computers.
With access guaranteed, the merchant needs an address in the
Internet at which he may create a web site to publicize products or
services and carry on transactions. Each web site on the Internet has
been given one unique numerical address called an Internet Protocol
(IP) number, which is comparable to a telephone number.34 The set
of numbers is not special at all and means nothing to users.35 Domain
Names are widely regarded as web addresses in user-friendly form.36
33
This achievement lays a solid foundation for global electronic commerce.
See S.Y. Choi & A.B. Whinston, The Future of the Digital Economy, in M. Shaw,
R. Blanning, T. Strader & A. Whinston (Eds.), Handbook on Electronic Commerce, 50
(Springwe-Verlag, 2000).
34
See F.L. Street, Law of the Internet, at xxx (1997); D. Diamond, Whose Internet
Is It Anyway?, Wired, April 1998, at <http://www.wired.com/wired/archive/6.04/
kashpureff.html?topic=internet_law&topic_set=newpolicy>.
35
This explains the development of the domain name system. See further D.J.
Loundy, A Primer on Trademark Law and Internet Addresses, 15 J. Marshall J.
Computer & Info. L. 465, 468 (1997).
36
See Interim Report of the WIPO Internet Domain Name Process, December
The domain name system operates in a hierarchical manner.37

The Top Level Domains (TLDs) are the bases for registration. They
provide the least specific component of the address.38 There are two
types: generic and country-code TLDs (gTLDs and ccTLDs). The
first type includes seven domain names, each of which is reserved
for a different purpose: “.com” is used for commercial entities; “.net”
is used for computer sites or networks; “.org” is used for interna-
tional organizations; etc.39 Each ccTLD is indicated by a two-letter
abbreviation for the country of registration.40 For example, “.us” rep-
resents a TLD under the supervision of the USA. At present, there
are around 250 ccTLDs, each representing registration under the
name of a specific country. There is not necessarily a close rela-
tionship between country and registering party. They are only admin-
istratively associated.
After TLDs come the Second Level Domains (SLDs), which iden-
tify the registrant of the domain name.41 A registrant can choose
one TLD in one Internet Service Provider (ISP), which is usually a
.com, to register his business. The SLD precedes the TLD and only
this part has specific meaning. The SLD usually consists of the name
of the business or entity seeking registration, and thus often includes
a trademark of the business. While trademark law permits use of the
same trademark for different types of goods or services, replication
is not possible in the domain name system. Thus, it is very impor-
tant to choose the right name for a web site.
23, 1998, Chapter 1, para. 2(iv), at <http://wipo2.wipo.int/process/eng/rfc3/

interim2_ch1.html>; see also D. Davidowicz & P. Vixie, Securing the Domain Name
System, Network Magazine, January 2000, at 92.
37
Panavision Int’l, L.P. v. Toeppen, 945 F. Supp. 1296, 1299 (C.D. Cal. 1996).
38
See Brookfield Communications, Inc. v. West Coast Ent. Corp., 174 F.3d 1036, 1044
(9th Cir. 1999).
39
To be exact, gTLDs can be further divided into two types. Open gTLDs, like
.com, .net, .org, impose no restriction on the person or entity that seeks to regis-
ter a name within one of these domains. Restricted gTLDs allow only certain types
of entities to register within the domain. For example, .int, .edu, .gov, .mil are
restricted to international organizations, colleges and universities, government agen-
cies and the US military, respectively.
40
See further O.M. Baratta & D.L. Hanaman, A Global Update on the Domain
Name System and the Law: Alternative Dispute Resolution for Increasing Internet
Competition—Oh, the Times They Are a-Changin’!, 8 Tul. J. Int’l & Comp. L.
332–333 (Spring 2000).
41
G. Weiswasser, Domain Names, the Internet, and Trademarks: Infringement
in Cyberspace, 13 Santa Clara Computer & High Tech. L.J. 146 (1997).
22 chapter two
With this system, each IP number corresponds to an alphanumeric

string that is registered under one of the TLDs.42 The computer then
converts the string to the IP number and transmits the data over
the Internet.43 For example, the domain name www.amazon.com locates
the web site for Amazon.com, Inc. at IP address 208.216.182.15 and
a particular host server named “www”. At this stage, information
pasted in the web site is freely transmitted in the invisible space.44
With the preparatory work accomplished, a merchant can do busi-
ness in the Internet. He can start by posting an advertisement on
his web site for consumers to read or simply look at; three-dimensional
pictures of goods offered may be used to give consumers tactual sen-
sations. Consumers can surf through the Internet for particular infor-
mation using Web browsers (such as Netscape Navigator or Microsoft
Explorer) or search engines (such as Google, Alta Vista or Excite).
Potential sites satisfying the requests shall be listed for consumers
who can then go on and read relevant information. Merchants often
attach purchasing facilities to their web sites that take the form of
an “accept” or “I agree” button (the so-called adhesion contract),
but consumers can also use email or other electronic means to con-
tact the merchants for more information.
Delivering goods or services and securing payments are the next
important steps. Goods can be digitized and delivered through the
Internet at negligible cost and with negligible difficulty. Consumers
can download software from web sites onto their own computers
with a simple mouse click.45 As distribution technology improves,
more and more data-intensive goods, like audio-visual files, can be
distributed over the Internet. For those products that cannot be dig-
itized, traditional delivery shall still be arranged. Payment can also
be made electronically with credit cards.
42
See Lockheed Martin, Corp. v. Network Solutions, Inc., 985 F. Supp. 949, 952 (C.D.
Cal. 1997).
43
R.S. Vermut, File Caching on the Internet: Technical Infringement or Safeguard
for Efficient Network Operation, 4 J. Intell. Prop. L. 273, 287 (1997); R. Raysman
& P. Brown, Dangerous Liasons: The Legal Risks of Linking Web Sites, N.Y.L.J.
April 8, 1997, at 3.
44
For further description, see A. Grosso, The National Information Infrastructure,
41 Fed. B. News & J. 481 (1994).
45
See further M.S. Donahey, Dispute Resolution in Cyberspace, 15 Journal of
International Arbitration 4, 129–130 (1998).
The whole transaction is completed without the two parties’ meet-

ing. This accounts for reduced transaction time and energy spent
making appointments and negotiations. The Internet also reduces
transaction costs, which benefits both parties.
2.5. Types of Electronic Commerce

As an interested party can use various methods to participate in elec-
tronic commerce, electronic commerce could be further classified into
different types based on different classifying standards. In practice,
it is accepted that there are two types of electronic commerce, namely
business-to-business (B2B), and business-to-consumer (B2C). This dis-
tinction is based on the nature of the corresponding contracting par-
ties. There is also a third type, business-to-administration, which is
important for intra-organizational applications. It enables managers
to use the Internet to communicate with employees, distribute rele-
vant documents online to make itself known to public, and realize
better coordination of the whole business from production to after-
sale services. As it has something to do with regulating transactions
but not business in the strict sense of the word, this study shall not
treat this type further.
2.5.1. Business-to-Business
This type emerged with the help of EDI. Since the emergence of
the Internet, Intranet or closed networks have been widely used.46
With the so-called “Intranet”, business information can be exchanged
within a closed network between several merchants. EDI has become
the typical way of doing business between merchants, facilitating the
ordering, shipment, and storage of goods electronically with purchase
orders, invoices, shipping notices and remittance advice.47
46
A.H. Boss, Electronic Data Interchange Agreements: Private Contracting Toward
a Global Environment, 13 Nw. J. Int’l & Bus. 31, 38 (1992); see also generally A.H.
Boss & J.B. Ritter, Electronic Data Interchange Agreements: A Guide and Sourcebook (1993);
The Electronic Messaging Services Task Force, The Commercial Use of Electronic
Data Interchange—A Report and Model Trading Partner Agreement, 45 Bus. Law.
1645 (1990).
47
J.C. Yates, Recent Legal Issues in Electronic Commerce and Electronic Data Interchange,
at 271 (PLI/Pat. Copyrights Trademarks & Literary Prop. Course Handbook Series
No. 430, 1996); The Commercial Use of Electronic Data Interchange—A Report
and Model Trading Partner Agreement, the Electronic Messaging Services Task
Force.
24 chapter two
One of the most immediate promises of EDI is increased efficiency

of procurement and sourcing functions.48 The Internet streamlines
the supply chain, creating an up-to-date trading post. It promises
more efficient and direct price and quality comparisons, which makes
it possible for the relatively transparent market to rationalize pur-
chasing and selling decisions. This is seen as a fundamental change
to traditional business.
Generally speaking, the transacting parties in this type are not the
end consumers, but commercial parties linked in a whole chain of
transactions. They have known each other in former connections
and have basic knowledge about each other. As the so-called “buyer”
in B2B is not the actual consumer, but an actual middle man or
agent, the value of transactions is usually very large and various sys-
tems have been relatively sufficient for this type of transaction.
2.5.2. Business-to-Consumer (Consumer Transaction)

The commercial world fundamentally changed only after the intro-
duction of WWW, or open networks. At present, a large part of the
profits from electronic commerce goes to B2B. However, consumer
transactions are in the process of rapid development and should
mean big business in the near future. This business should take sev-
eral forms, such as electronic shopping, customer support, and prod-
uct delivery,49 and the volume of transactions should multiply.
Consumer transaction and not B2B is the actual revolution against
traditional commerce. This method involves merchants setting up
their own web sites, which introduce goods or services inviting poten-
tial consumers, and consumers purchasing goods or services without
needing to go outside. The only thing a consumer needs to do is to
search the Internet for information and hit relevant buttons. Through
this form of electronic commerce, merchants can reach consumers
directly.
48
F.P. Philips, The CPR B2B E-Commerce Initiative, International Conference on Dispute
Resolution in Electronic Commerce, November, 2000, WIPO, ARB/ECOM/00/31.
49
One form is illustrated by the United Parcel Services (UPS) providing Internet-
based interactive services to consumers. Another form is illustrated by the ISPs
offering free access to the Internet or the on-line superstore. See further M.S.
Raisinghani, Electronic Commerce at the Dawn of the Third Millennium, in S.M.
Rahman & M.S. Raisinghani (Eds.), Electronic Commerce: Opportunity and Challenges, 6
(IDEA Group Publishing, 2000).
There are two sub-types of consumer transaction. The first is a

detached retail relationship, with consumers interactively making pur-
chases online. The second involves the contractual relationships of
individual users and specialized online institutions, such as banks
facilitating the use of digital cash.50
Both ways have overturned the traditional concept of business: the
traditional mid-agents or intermediaries can be omitted, which simplifies
the chain of transactions. However, new agents come out to accom-
modate new demand. For example, ISP is there to provide neces-
sary Internet support.
In electronic consumer transactions, many traditional business pro-
cedures are abandoned. Consumers do not need to know the mer-
chants; the only impression customers have of the merchants comes
from the merchants’ web sites. The simple action of button hitting
can constitute a commercial acceptance. As is not the case in tra-
ditional commerce, there are few mechanisms available to guarantee
transactions in cyberspace, and much work needs to be done to safe-
guard transacting parties, especially from a legal point of view.
3. Disputes in Electronic Commerce
Actually, electronic commerce does not change the basic purpose of

business transactions, which is to gain profits; the difference lies in
the new mode of communication. When it comes to making profits,
different parties have divergent objectives, which can easily lead to
disputes. Primary commercial considerations existing in traditional
business remain constant, though the disputes arising out of elec-
tronic commerce can take different appearance than disputes arising
out of traditional business. Every dispute arises in a setting or con-
text, and the setting in which it arises may shape the expectations
of the parties, the time of settlement, the perceived urgency of res-
olution, the consequences of and available alternatives to failure, the
role of the third party, and even the form of dispute resolution.51 It
50
See further E.C. Lide, Note & Comment, ADR and Cyberspace: The Role
of Alternative Dispute Resolution in Online Commerce, Intellectual Property and
Defamation, 12 Ohio St. J. on Disp. Resol. 195 (1996).
51
E. Katsh, The Online Ombuds Office: Adapting Dispute Resolution to Cyberspace, at
<http://www.umass.edu/dispute/ncair/katsh.htm>.
26 chapter two
is important to assess different types of disputes in electronic com-

merce before analyzing mechanisms to resolve them.
3.1. Disputes in the General Sense

Broadly conceived, disputes represent disagreements between two or
more parties in political, economic or cultural arenas. It is the pur-
pose of the present study to focus on economic disputes.
There are different ways of classifying disputes according to different
standards. For example, disputes can be classified as interest disputes
and rights disputes depending on the existence of norms.52 Most com-
monly, disputes are labeled as either contractual or non-contractual
disputes. Contractual disputes arise from contractual relationships;
non-contractual disputes usually include torts, libels, infringement of
intellectual property rights, etc. Insofar as electronic commerce is
related to traditional commerce, his traditional classification is rele-
vant to disputes in electronic commerce.
3.2. Disputes in Electronic Commerce

While much has been said about electronic commerce and the poten-
tial advantages of the digital era, little has been said about disputes
arising out of electronic commerce. Potentially, disputes could occur
at every stage of electronic commerce, from the initial stage of set-
ting up the necessary infrastructure to the latter stage of consum-
mating business.53
Disputes in electronic commerce exhibit no difference in essence
from those in traditional business. If a definition for disputes in elec-
tronic commerce is needed, then it can be disagreements between
or among parties involved in electronic commerce. Electronic com-
merce provides us with a new marketplace of ideas and also with a
52
Resolution of interest disputes requires the exercise of a rulemaking function
by adopting and articulating norms of conduct that have not theretofore existed.
Rights disputes involve claims under existing norms and usually require the exer-
cise of adjudicatory power to resolve them. See further H.H. Perritt, Jr., Electronic
Dispute Resolution: An NCAIR Conference, Washington, DC, May 22, 1996, at <http://man-
tle.sbs.umass.edu/vmag/PERRITT.HTM>.
53
However, there have not been any known disputes of any significance con-
cerning EDI. See R. Hill, Electronic Commerce, The World-Wide Web, Minitel,
and EDI, 13 The Information Society, No. 1 ( January–March 1997), at <http://www.bat-
net.com/oikoumene/arbecom.html>.
new marketplace for disputes. Context shall affect not only the per-
sons involved in the disputes, but also the kinds of disputes likely to
surface. While containing and reflecting many aspects of the real
world, electronic commerce is creating an environment that will con-
front us with a broad variety of disputing behaviors and attitudes,
some of which may be familiar and some of which may not.54
As suggested before, it is important to look into the possible dis-
putes arising out of electronic commerce. Notable are classifications
based on different standards. For example, classification can be made
based on the topic of dispute: there are interconnection disputes,
sales disputes, payment disputes, delivery disputes, infringement dis-
putes, disputes concerning the use of trademarks belonging to third
parties, etc. One can also differentiate between traditional commer-
cial disputes, like disputes over the quality of goods purchased online,
failure to deliver, errors in order taking, and failure to pay; and
Internet-specific disputes over problems like posting on the Internet
or issues with domain names.55 The nature and qualifications of the
disputing parties constitute another standard of comparison: for exam-
ple, there are disputes involving consumers, companies, and public
authorities. Moreover, one can differentiate between disputes to which
can be applied relevant rules and disputes for which new rules must
be developed. However, none of these classifications is particularly
useful for a discussion of dispute resolution. The contractual and
non-contractual classification mentioned earlier, however, is particu-
larly relevant to the present discussion, and will be discussed in more
detail below.
3.2.1. Contractual Disputes

Contractual relationships take up an important role in regulating
mutual performance in Internet business. Most online participants
already have some form of contractual relationship with access
providers or cyber-domiciliaries.56 In the first stage of electronic com-
merce, necessary infrastructure shall be made to undertake future
54
See further M.E. Katsh, Dispute Resolution in Cyberspace, 28 Conn. L. Rev.
955 (Summer, 1996).
55
See further A. Williams, Dispute Resolution and Arbitration for Electronic
Commerce, Deeth Williams Wall, at <http://www.dww.com/articles/ec_adr.htm>.
56
See generally M.R. Burnstein, Conflicts on the Net: Choice of Law in
Transnational Cyberspace, 29 Vand. J. Transnat’l L. 75 (1996).
28 chapter two
operations. Thus contracts shall be made firstly between enterprises

that operate the infrastructure and those that make use of the infra-
structure (generally these refer to ISPs) to offer further business
services to consumers. Generally, this type of contract, which lays
the foundation for digital business, is called an “interconnection”
contract.57
“Interconnection” contract disputes are rather sensitive since the
telecommunications services have long been under the monopolized
supervision of national states. Only after the 1995 WTO Uruguay
Round negotiations did they become targets for liberalization with
international support. Time shall be needed to realize full liberal-
ization and national states will be highly sensitive to disputes at the
present stage, which can be deduced from the cautious attitude
towards liberalization shown by the Member States of WTO.
Furthermore, this type of contract usually lasts for a long period of
time, but the reality is that the contractual context can change rather
drastically and might be largely influenced by further contracts. This
could cause more disputes concerning interpretation and reasonable
application of the relevant provisions of the initial contract, which
could occasion technical difficulties.58 But for the sake of sensitive
national interests, national regulatory bodies reserve the power to
intervene and dispute resolution mechanisms are provided both at
national and international levels.59 This type of dispute is thus not
the target for the present study.
At the second stage, contracts are made between the Internet
Service Providers (ISPs) and their customers regarding issues of
telecommunications services, more specifically, the services provided
by ISPs that grant access to communication networks. Alongside the
57
Interconnection contracts typically concern use by a new entrant of the last
mile infrastructure of the incumbent former monopoly telecommunications opera-
tor, and the commercial stakes are more related to voice and other traditional ser-
vices than to electronic commerce. See R. Hill, The Internet, Electronic Commerce
and Dispute Resolution: Comments, 14 Journal of International Arbitration 4, 105 (1997).
58
But according to R. Hill, disputes arising out of the interconnection contracts
to date have revolved around a single issue: the price at which the former monop-
oly should rent its infrastructure to new entrants. Other disputes are speculative.
The modification of such contracts does not happen frequently since they are dic-
tated by the incumbent monopoly under the control of national telecommunica-
tions regulatory body. See further Hill, id., at 105.
59
See for example Swiss Telecommunications Act (1998); the ONP Leased Line
Directive (Directive 92/44/EEC of 5 June 1992).
growth of their businesses, the ISPs have formed a model contract

for negotiations, which sets out the general conditions of contracts.60
Disputes may arise concerning the price and quality of service and
everything from attempts to connect to denial of access and the
exclusion of messages can arise.61 Further disputes could concern the
liability of the ISPs versus the responsibilities of the customers for
information transmitted. However, such disputes are largely placed
under the category of non-contractual disputes.
With the preparatory work accomplished, electronic commerce in
the real commercial sense starts and in this phase contracts are con-
cluded between transacting parties. It is at this stage that the special
characteristics of electronic commerce and the variety of relation-
ships to which it gives rise become particularly apparent.62 Contracts
at this stage can be further divided into two sub-types of contracts
corresponding to the two types of electronic commerce: commercial
contracts and consumer contracts.
Commercial contracts have been in existence far longer than the
latter. EDI has been the main form for commercial contracts.
Transacting parties are likely to have known each other before and
continue to maintain good relationships, making use of communi-
cation networks to facilitate the ordering, shipment, storage of goods,
and electronic payment. No doubt commercial contracts shall con-
tinue to exist and further expand.
Meanwhile, consumer contracts are developing in the 21st cen-
tury and are thought to typify “electronic commerce” in the general
sense. In electronic commerce, the end users of goods or services
can surf through web advertisements, discriminate between and pur-
chase products. This form of direct transaction brings many struc-
tural and conceptional changes to modern commercial theory. With
60
See further J.S. Gale, Note, Service Over the “Net”: Principles of Contract
Law in Conflict, 49 Case W. Res. L. Rev. 567 (1999).
61
This could further involve three sub-types of disputes: disputes between the
people not yet on the network and those already on the network who refuse con-
nection; disputes between those asking for the cessation of certain traffic moving
on the network and those continuing such traffic; disputes between those on the
network who believe that someone else on the network has not lived up to his or
her commitments and the defendants. These three subtypes could potentially overlap
with each other, as they are based on commitments between the affected parties.
62
M.E. Schneider & C. Kuner, Dispute Resolution in International Electronic
Commerce, 14 Journal of International Arbitration, No. 3, at 7 (1997).
30 chapter two
a better framework for procuring consumer security and trust, con-

sumer contracts are sure to become the main form of future trans-
actions. As mentioned above, the popularity of these contracts is
growing at an explosive rate with online software companies already
selling and transmitting their products and online bookstore selling
books in far-flung parts of the world.63
3.2.2. Non-contractual Disputes

Non-contractual disputes have become an important issue since the
introduction of the Internet. All disputes not based on contractual
relationships can be included in this type, a hodgepodge of many
different kinds of disputes in electronic commerce.
Among the most important of non-contractual disputes are infringe-
ments on intellectual property. Copyright infringement, trademark
infringement, data protection, and defamation disputes are frequent.
One notable phenomenon is the emergence of domain name dis-
putes; another is the debate over whether or not ISPs should be
held liable for the actions of a third party. These issues have raised
problems with the traditional structure of intellectual property pro-
tections. Besides issues concerning intellectual property, there are fur-
ther possible disputes concerning freedom of expression, transmission
of materials forbidden in some States, competition law, etc.
The parties involved therein are miscellaneous. Depending on the
specific situation, individuals, commercial entities, States, or interna-
tional organizations can be involved in an electronic commerce non-
contractual dispute. Care must be taken to evaluate the position of
all relevant parties in a dispute. While disputes involving individu-
als or commercial entities are not so problematic, disputes involving
public authorities may require special consideration and unique solu-
tions. Thus, various levels of mechanisms should be utilized for dis-
putes involving different parties.
4. Dispute Resolution Mechanisms
As disputes are unavoidable in daily communications, specific mech-

anisms have arisen to resolve such disputes. Generally speaking, the
process of dispute resolution involves three stages: a problem arises
63
See for example Amazon.com.
between parties; this problem develops into a dispute and the par-
ties seek to resolve the dispute; the dispute is resolved through a cer-
tain channel.64 It is the third stage that we are going to deal with
in the present study. Historically, dispute resolution channels have
taken various forms, from the extreme and violent feuds and duels
of the Middle Ages to the moderator of later times, who was sent
to peacefully resolve conflicts between parties. Today, various mech-
anisms are in play but the very complicated, yet critical search for
more efficient mechanisms goes on. An effective means to dispute
resolution in electronic commerce is vital to the smooth functioning
of such business.
4.1. Litigation
Litigation is the orthodox mechanism for resolving disputes. Supported
by national power, it is the formal, public process for resolving dis-
putes before national courts. It thus considered indispensable to the
whole system of dispute resolution.
However, there is a trend of not employing litigation in the first
stage of dispute resolution, often for considerations also applicable
to the situation of electronic commerce. First of all, the length of
time needed for the whole process of litigation does not suite the
present pace of business. For verdicts to have any meaning in the
business world, they must come rapidly alongside the development
of economic activities.
Secondly, the high cost of litigation is an obstacle. Sometimes the
costs of litigation can equal or even exceed the damages sought. The
use of litigation for electronic commercial transactions may soon
seem ridiculous considering the small amount involved in the dis-
putes: the cost of travel to the Forum State, let alone litigation, could
be higher than the value of the transaction in dispute. This shall
prevent people from applying litigation to protect their own rights.
If a cheaper mechanism were available, why would anyone litigate?
Thirdly, the issues of jurisdiction and choice of laws become par-
ticularly complicated at an international level. A problem specific to
64
See further F. Schwank, Before the Battle Commences, in D. Campbell &
P. Summerfield (Eds.) Effective Dispute Resolution for the International Commercial Lawyer,
9 (1989).
32 chapter two
electronic commerce is lack of information about the transacting par-

ties. When an injured party wants to raise a suit, he has to know
location of the other party, but in cyberspace, everyone is every-
where and nowhere. Traditional theories for deciding jurisdiction
and appropriate laws must be reevaluated in the wake of a digital
world.
Fourthly, the atmosphere of litigation could be destructive to the
future relationship of transacting parties and, in consequence, adversely
effect further transactions between such parties. With that in mind,
the winning party in court may not get what he wants or needs out
of electronic commerce in the long run.
Besides the shortcomings mentioned above, there are other draw-
backs to litigation. For instance, the congested court system is often
an unsatisfactory avenue for dispute resolution.65 Congestion length-
ens the whole court procedure and imposes unnecessary expenses
upon litigants and taxpayers alike.66 There is also the matter of rec-
ognizing and reinforcing judgements once passed at an international
level.
Thus, litigation has been challenged as a means of dispute reso-
lution.67 An efficient and affordable alternative is needed in order to
address current disputes in electronic commerce as well as to plan
for the future as the cyber community68 continues to grow. Litigation
can never be abandoned entirely, but it can be modified to suit its
role as part of a whole system of dispute resolution. The efforts of
the international community bear testament to this fact.
65
See further C.L. Mudd, Jr., Cybercourt: A Virtual Resolution of Differences or An Alter-
native Proposal for Law and Order in Cyberspace, at <http://www.mudd.org/professional/
articlesclm/cybercourt.htm>.
66
J.O. Newman, “Rethinking Fairness”: Perspectives on the Litigation Process,
94 Yale L.J., 1643–1644 (1985).
67
T.D. Rowe, Jr., American Law Institute Study on Paths to a “Better way”:
Litigation, Alternatives, and Accommodations: Background Paper, 38 Duke L.J., 824
(1989).
68
In this research, cyber community, Internet society, etc. are used interchangeably
and are all defined as social aggregations of a critical mass of people on the Internet
who engage in public discussions, interactions in chat rooms, and information
exchanges with sufficient human feeling on matters of common interest to form
webs of personal relationships. See P.K. Kannan, A.M. Chang & A.B. Whinston, The
Internet Information Market: The Emerging Role of Intermediaries, in M. Shaw
et al. (Eds.), Handbook on Electronic Commerce, 583–584 (Springer-Verlag, 2000).
4.2. Alternative Dispute Resolution (ADR) Mechanisms

Considering the limitations of litigation, alternative means have been
suggested and formulated to complement the dispute resolution sys-
tem.69 ADR is a general term to distinguish between litigation in
courts and other methods designed to assist parties in resolving
differences. Though there is no consensus in the academic or business
fields on the exact meaning of ADR, most experts view ADR as a
range of approaches that fits within the broader spectrum of dispute
resolution, which includes corporate consumer complaint services,
ADR, and litigation.70 These methods are not intended to supplant
litigation, but rather to supplement it.
ADR encompasses a wide range of mechanisms for resolving dis-
putes between two or more parties outside formal court procedures.
Its emergence can be dated to the intellectually appealing ‘multi-
door courthouse’ advanced by Professor Frank Sander in the late
1970s.71 ADR does not, for most part, involve the endless motions,
voluminous proceedings, procedural wrangling, and years of arguing
and waiting for a judgment that characterize the “old” litigation sys-
tem for most modern business people and consumers.72 Thus, it is
rather welcomed by the commercial society.
4.2.1. Advantages of ADR Mechanisms

In view of the disadvantages entailed in litigation, ADR has indeed
made many improvements. First of all, the ADR process can help
disputing parties to reach a speedy and cost-effective resolution. As
69
E.U. Petersmann & G. Jaenike, Adjudication of International Trade Disputes in
International and National Economic Law, 3 (University Press Fribourg, Switzerland, 1992).
70
Building Trust in the Online Environment: Business to Consumer Dispute
Resolution, Joint Conference of the OECD, HCOPIL, ICC, The Hague, 11–12
December 2000, Orientation Document, DSTI/ICCP/REG/CP(2000)1–UPDATED
as of 7 December 2000, at 4.
71
See further R. Smith, Access to Justice: Innovation in North America, in
R. Smith (Ed.), Achieving Civil Justice: Appropriate Dispute Resolution for the 1990s, 42
(1996). Professor Sander expected that by the year 2000, the courthouse would be
not simply a courthouse, but a Dispute Resolution Center, where the dispute would
first be channeled through a screening clerk who would then direct the disputing
party to the process (or sequence of processes) most appropriate to the type of case.
The room directory of such a center was suggested as follows: screening clerk—
room 1; mediation—room 2; arbitration—room 3; fact-finding—room 4; malprac-
tice screening panel—room 5; superior court—room 6; and ombudsman—room 7.
72
Williams, supra note 55.
34 chapter two
disputes over commercial matters may involve technical issues difficult

for laymen to comprehend, experts may be asked to step in and
cooperate with legal members to deal with those issues and reach
objective decisions regarding the disputing parties. ADR mechanisms
also require cooperation between disputing parties, who affect the
formulation and implementation of final decisions. Ideally, early
resolution in an easy-going atmosphere helps to preserve business
relationships.
Secondly, issues regarding jurisdiction shall be resolved once for
all by ADR mechanisms. With more and more transnational cases
involved in disputes, the annoying issues of determining adjudicative
forum and applicable law have been under severe scrutiny. Even
with the updated theory of conflict of laws, no satisfactory resolu-
tion to jurisdictional issues can be found. As a private process based
on party agreement, ADR eliminates the need for a claiming party
to prosecute its claims in a potential multitude of jurisdictions impli-
cated by the underlying commercial relationship giving rise to the
dispute. This benefit cuts down the time and cost needed for the
dispute resolution.
Thirdly, ADR can lead to creative business-driven solutions. Avoiding
litigation is important to disputing parties in a mature and mutually
beneficial supply chain relationship not only to save costs but also
to reduce commercial uncertainty and preserve valuable long-term
relationships that might be jeopardized by short-term hostilities and
belligerence. The amicable resolution atmosphere should work as a
catalyst for more participation in electronic commerce. Cooperative
parties may ultimately find a win-win solution to their problem and
thus renew their faith in legal guarantees. Additionally, resolution
attained via an expert in the area instead of a judge or a lawyer
could not only be time effective, but it could also help parties look
beyond the particular dispute to broader concerns. This looking
ahead should aid in the improvement of future business practices.
As a private procedure, ADR also helps to protect privacy and
confidentiality. In most businesses, it might be of vital importance
that the dispute between the parties remains private so as not to
occasion adverse effects on future commercial activities. This is par-
ticularly important in electronic commerce when the disputes arise
out of a failure of major security systems to function or as a result
of a technical problem with a major system. Involved corporations
would not wish to risk bad publicity damaging their reputations.
ADR is also flexible in terms of both procedures and substance.

The involved parties are free to choose any procedure or set of rules
they like, or they can agree to make a relevant modification of pre-
scribed rules to fit their case. Furthermore, they can agree in advance
to the substantive part of the case. For example, they can define the
factual and legal issues at hand. In a binding adjudicative process
such as arbitration, the parties agree to waive their right to litiga-
tion. In other circumstances, they can still go to litigation if they
like. Even after a binding process, they can still go to court for the
purpose of obtaining interim relief or aid in the arbitration process.
There are even cases when the court can declare arbitration deci-
sions void.
Actually, there are still further features to ADR, all of which share
the aim of resolving disputes in a speedy and cost-efficient way. It
is not surprising then that ADR is generally considered the best suc-
cedaneum for formal litigation, especially in the area of electronic
commerce. It is a tailor-made solution that is better adapted to the
particulars of the network than traditional procedures.73
4.2.2. Commonly Used ADR Mechanisms

Various processes have been employed in formulating proper ADR
mechanisms. From the most formal to the least formal, nine types
can be listed as follows: arbitration, dispute review board, ombuds-
man, neutral fact-finding expert, early neutral evaluation, mini-trial,
mediation, settlement counsel, and negotiation.
To a certain extent, the processes commingle. For example, when
arbitration is used, fact-finding expert or other techniques might also
be needed to make a reasonable decision. Meanwhile, with a view
towards integration, only arbitration or mediation represents the best
candidate for resolving disputes, as each provides a complete set of
methods for resolving disputes. All other techniques only touch on
a small area of disputes, like clarifying disputing facts or providing
objective opinions. They can help dispute resolution in certain detailed
aspects, but they cannot be a dispute resolution “mechanism” in the
strict legal sense. The much too informal, unbinding character of
73
See further A. Salaun, E-Commerce: Consumer Protection—Proposals for
Improving the Protection of Online Consumers, 15 Computer Law & Security Report
3, 165 (1999).
36 chapter two
some techniques has further limited their validity and applicability.

In this study, arbitration and mediation are most important.
Mediation is a private, voluntary, informal, non-binding, confidential,
and flexible procedure in which a neutral intermediary endeavors at
the request of the parties in a dispute to assist them in reaching a
mutually satisfactory settlement. Or if requested, he provides a neu-
tral evaluation of the parties’ respective positions and the final out-
come. Though the procedure is thought to be singular in form, there
are in fact often many different models and applications of this form
of dispute resolution.74 This mechanism, as an adjunct to negotia-
tion, is only an intermediate step towards final resolution. A medi-
ator has no power to decide, but only power to assist the disputing
parties to negotiate a resolution.75 The only compulsory feature of
mediation is the mutually negotiated settlement agreement that usu-
ally results in. The provision of an evaluation of the final outcome
also has great influence on the ultimate results.
Arbitration is a private, voluntary, and confidential procedure
involving the adjudication of rights in accordance with the applica-
ble law by a tribunal of one or more arbitrators that has the power
to render a decision that is final and binding on the parties. Arbitration
can also be non-binding in limited situations. Arbitration is the most
widely used ADR mechanism for resolving disputes in commercial
matters.76 The advantages entailed in arbitration are obvious. Besides
the advantages discussed above, arbitration is more or less legal-
oriented. Arbitration proceeds according to relevant legal rules, though
it needs not stubbornly stick to them; the final decision has legal
power and the corresponding mechanism for enforcement is pro-
vided. The flexibility of arbitration under the legal framework has
won much interest from business and legal practitioners. While elec-
tronic commerce develops with the basic character of business, it is
expected that arbitration shall continue to occupy a vital position in
dispute resolution.
74
See J. Conley & W. O’Barr, Just Words: Law, Language, and Power, 40 (1998).
75
See generally S. Cobb & J. Rifkin, Practice and Paradox: Deconstructing
Neutrality in Mediation, 16 Law & Social Inquiry, No. 1, 35 (1991).
76
S.L. Hayford, Commercial Arbitration in the Supreme Court 1983–1995: A
Sea Change, 31 Wake Forest L. Rev., 1 (1996).
4.3. The Necessity of a New Mechanism for Electronic Commerce

Various mechanisms applying the ADR techniques have been con-
structed to resolve disputes and have been working fairly well up to
the present. But as electronic commerce disputes enter the arena,
doubt arises concerning whether the present mechanisms are sufficient
to resolve them. What are the implications of a global economy dri-
ven by new technologies for dispute resolution processes?
Electronic commerce differs drastically from other means of trans-
actions. Different contexts are important in determining approaches
to dispute resolution. Which approach shall be most appropriate for
resolving disputes in a new context? What is the nature of the rela-
tionship between the two parties in the new context? Is there a need
for a public standard setting, or would private resolution be desir-
able?77 The answers to these questions should elicit policy changes
for dispute resolution.
Ostensibly, the application of modern technology to dispute reso-
lution mechanisms has been made urgent by the introduction of the
Internet and the development of electronic commerce. Traditional
mechanisms are lagging behind technologically. Indeed, important
economic and business interests are at stake.
It has been generally recognized that consumers should have access
to fair, timely, effective and affordable means for resolving problems
with any transaction.78 While litigation occupies an important part
in dispute resolution, new principles should be found to meet the
demands of electronic commerce. ADR offers a way to rapidly,
cheaply, and efficiently resolve disputes, which is seen to complement
judicial procedures.79 As a mechanism to solve disputes arising on
77
See further Katsh, supra note 54, 963.
78
See for example, Principles of Consumer Protection for Electronic Commerce:
A Canadian Framework, Working Group on Electronic Commerce and Consumers,
<http://strategis.ic.gc.ca/oca>. Principle 5 reads: Vendors should provide adequate
resources to handle consumer complaints efficiently and effectively. When internal
mechanisms have failed to resolve a dispute, vendors should make use of accessi-
ble, available, affordable and impartial third-party processes for resolving disputes
with consumers. However, vendors should not require consumers to submit to such
processes. Governments, businesses and consumer groups should work together to
develop appropriate standards for dispute resolution mechanisms. So that consumers
are not disadvantaged, governments should cooperate in the development of clear
rules regarding applicable law and forum, as well as in the mutual enforcement of
judgements in the event of cross-border disputes.
79
However, there are situations when ADR is forbidden in consumer contracts,
for example, French legislation forbids clause compromissoire in consumer contracts.
38 chapter two
the network, it satisfies consumers’ expectations80 and thus fosters

consumer confidence in online purchasing and other services, which
has enormous benefits for merchants. The application of ADR should
also benefit governments by mitigating the need to involve more for-
mal systems of adjudication. Some scholars have suggested that elec-
tronic commerce is particularly likely to adopt non-court methods of
dispute resolution.81
The present legal remedies in the context of online transactions
are not the most effective means of redress because of the nature of
long-distance transactions and jurisdiction problems. Moreover, as
consumer transactions generally involve a small amount of money,
it is unrealistic to oblige disputing parties to submit large filing fees
for arbitration.82 With the present mechanisms, a case could be pro-
longed for a year or longer, a ridiculous stretch of time for a dis-
pute over several dollars. Thus, only when it is demonstrated that
disputes can be heard more quickly and disposed of more effectively
with the use of the Internet that the net effect will achieve consumer
trust in real consumer protection.83
Without other choices at hand, disputing parties today must rely
on mechanisms for resolution that emerged long before the Internet
age. So long as no mechanism targeting disputes concerning elec-
80
See further Salaun, supra note 73, at 165.
81
See for example, M.C. Karamon, Note, ADR on the Internet, 11 Ohio St. J.
on Disp. Resol. 537 (1996); M.E. Katsh, The New Frontier: Online ADR Becoming
a Global Priority, Disp. Resol. Mag., 6, 8 (Winter 2000); Lide, supra note 50, at 193,
216–222.
82
For example, the present filing fee for an ICC Arbitration is US$2500.
83
See for example, Consumer Protection Principles in Electronic Commerce, at
<http://www.accc.gov.au/acomm/principles.htm>. The Part entitled Consumer
Complaints and Dispute Resolution reads as follows: fair and effective policies and
internal mechanisms shall be in place to address and respond to consumer com-
plaints and difficulties within a reasonable time, in a reasonable manner, without
undue cost of burden to the consumer, and without prejudice to judicial redress;
Such procedures might include, but need not be limited to: providing online infor-
mation about the existence of consumer complaints services and relevant dispute
resolution mechanisms; the timely receipt, acknowledgement, and handling of con-
sumer complaints; dealing with complaints fairly, thoroughly and in manner which
would assist any further examination which may be necessary such as referral to a
dispute resolution mechanism; and providing a notice to consumers regarding any
third party dispute resolution mechanisms available through the business; and
promptly informing the consumer of the outcome.
tronic commerce is in play, the interests of those involved in Internet-

based business cannot be fully realized or protected. Reserving their
confidence, consumers will waver at the gate of cyberspace, looking
ahead for the green light: a specialized mechanism for dispute res-
olution in electronic commerce.
CHAPTER THREE
POLICY CHOICE
The Internet has fundamentally changed the commercial world. This

“information revolution” has altered basic principles of how people
interact with each other.1 It has created complex economic, cultural,
social, and educational challenges which governments, in even the
most industrially advanced nations, are only beginning to under-
stand.2 These socio-economic changes should directly impact con-
ceptions of how to deal with disputes in electronic commerce.
Traditional regulations are too static and cannot effectively govern
the inconstant and infinite cyberspace.3 As no media other than the
Internet has ever been so efficient in transmitting information across
borders, there is no appropriate framework for regulating Internet
activities. Without identifying anyone to undertake the task of reg-
ulation, the old regulatory structure is applied as an expedient mea-
sure and also as a last resort. Yet with more and more commercial
activities taking place through the Internet on a daily basis, seeds
for a more harmonious and feasible regulatory framework are now
being planted to deal with electronic commerce as a whole, and
these can certainly be applied to dispute resolution. In broad scope,
socio-economic, legal and technological elements shall be taken into
account to offer guidance on formulating a fair and effective ADR
for electronic commerce and fostering its future implementation.
1
See N. Mandela, Address at the Telecom 95, October 3, 1995, quoted in
V. Montviloff, Some Legal and Ethical Issues of the Access to Electronic Information, John
F. Kennedy School of Government Symposium on Information, National Policies,
and International Infrastructure ( Jan. 28, 1996), at 1, <http://ksgwww.harvard.edu/iip/
montpap.html>.
2
Id.
3
Cyberspace blurs the boundaries between once distinct types of media and thus
demands evolutionary and even revolutionary approaches in formulating new legal
doctrine. Lawmakers should recognize, empower, and learn from the multitude of
self-regulating structures that have already been developed by the users and admin-
istrators of cyberspace. See M. Johns, Comment, the First Amendment and Cyberspace:
Trying to Teach Old Doctrines New Tricks, 64 U. Cin. L. Rev., 1437 (1996); see
also A.M. Fulton, Comment, Cyberspace and the Internet: Who Will be the Privacy
Police?, 3 COMMLAW Conspectus 64 (1995).
42 chapter three
1. Self-Regulation
Originally a governmental project, the Internet’s purpose was diverted

to suit the commercial world. This fact may suggest the govern-
ment’s attempt to regulate any aspect of the Internet might be unwar-
ranted. From its application in electronic commerce, the Internet has
been regulating itself in a much more productive way than any broad
attempts the legislature may take.4 Against this background, the pol-
icy of self-regulation is featured.
1.1. Basic Understanding of Self-Regulation

Self-regulation is not a new phenomenon in the commercial world.
It can be dated back to medieval times when guilds maintained stan-
dards among those in the trade of a particular geographic location
and protected their interests against outside competitors.5 In its later
development, self-regulation has become more diverse and multi-
leveled.
Self-regulation has different meanings for different groups of peo-
ple. Generally speaking, self-regulation involves businesses agreeing
to regulate their own behavior, adopting principles, either individu-
ally or collectively, which bind them in their daily commercial deal-
ings.6 In other words, self-regulation means that a regulatory body,
distinct from a technical body, undertakes the task of regulating the
activities carried out by a group to which it belongs. This group can
be large enough to include an industry as a whole; it can also be
as small as a single company.
Assistant Secretary of Commerce Larry Irving said, “the term ‘self-
regulation’ itself has a range of definitions. At one end of the spec-
trum, the term is used quite narrowly, to refer only to those instances
4
See further E.A. Cavazos & G. Morin, Cyberspace and the Law: Your Rights and
Duties in the Online World, xiii (1994); see also ACLU v Reno, 929 F. Supp 824, 858–859
(E.D. Pa. 1996).
5
D.I. Baker & W.T. Miller, Privacy, Antitrust and the National Information
Infrastructure: Is Self-regulation of Telecommunications-related Personal Information
a Workable Tool? in Privacy and Self-Regulation in the Information Age, U.S. Department
of Commerce, NTIA 1997, <http://www.ntia.doc.gov/reports/privacy/privacy_
rpt.htm>.
6
See further An Analysis of the Bertelsmann Foundation Memorandum on Self-
Regulation of Internet Content: Concerns from a User Empowerment Perspective,
October 1999, <http://www.cdt.org/speech/991021bertelsmannmemo.shtml>.
policy choice 43
where the government has formally delegated the power to regulate,

as in the delegation of securities industry, oversight to the stock
exchanges. At the other end of the spectrum, the term is used when
the private sector perceives the need to regulate itself for whatever
reason—to respond to consumer demand, to carry out its ethical
beliefs, to enhance industry reputation, or to level the market play-
ing field—and does so.”7
Regulators can be understood to perform three tasks: legislation—
the self-regulator formulates standards or rules to be implemented
in daily activities; enforcement—the self-regulator acts to help realize
the purpose and aims of relevant rules or regulations; and adjudi-
cation—the self-regulator decides upon the violation of its own mem-
bers and imposes relevant sanction to procure the justified interests.8
This forms the complete list of tasks for self-regulation.9 However,
in normal performance, self-regulation may be undertaken to per-
form only one or two tasks.10
The job of regulation can be undertaken by various actors: industry,11
as a whole; the private commercial actors, which are components of
the industry; social bodies; etc. Thus, it is necessary to examine the
meaning of “self.”
1.1.1. The Meaning of “Self”

“Self ” can refer to an industry, or a group of companies acting col-
lectively in the form of a trade association or other organizations
representing the interest of the industry, just like medieval guilds.
The Internet has given rise to numerous regulatory organizations:
Internet Watch Foundation, Internet Local Advertising and Commerce
7
L. Irving, Introduction to Privacy and Self-regulation in the Information Age,
in Privacy and Self-regulation in the Information Age, supra note 5.
8
See further P.P. Swire, Markets, Self-Regulation, and Government Enforcement
in the Protection of Personal Information, in Privacy and Self-Regulation in the Information
Age, supra note 5, at 9.
9
Some scholars define self-regulatory activities more broadly. See for example,
E.E. Dennis, Internal Examination: Self-Regulation and the American Media, 13
Cardozo Arts & Entertainment Law Journal, 697 (1995).
10
See further F. Kuitenbrouwer, Self-regulation: Some Dutch Experiences, in
Privacy and Self-Regulation in the Information Age, supra note 5, at 113.
11
“Industry” can have a broad as well as a narrow meaning. Narrowly under-
stood, industry refers to groups of companies directly involved in producing, func-
tioning, and processing certain goods or services; broadly understood, it could refer
to those involved in or influenced by certain goods or services. For the present
paper, the narrow meaning is taken.
44 chapter three
Association, Internet Services Association, Better Business Bureau,

Consumer Bankers Association, Direct Marketing Association, the
Internet Privacy Working Group (IPWG),12 TRUSTe’s,13 etc. Each
treats a different aspect of electronic commerce and strives to pro-
vide a basis for protecting and balancing the interests of the parties
they represent.
“Self ” can also be a single company. Companies can set up a
special department which specifically takes up the task of regulating
their own operations. If a company is strong enough, its own methods
of regulation can be extended to or accepted by other companies.
“Self ” can also refer to social bodies. They are not the directors
of industry, but they are important applicants and customers of indus-
try. Their actions can have vital effects on the future industry.
The three types of “self ” are all important to regulation. A lone
self might carry out the task of self-regulation, but on most occasions,
different groups of selves operate together in order to realize maxi-
mum benefits. Each has its own interests, but none can act without
taking into account the interests of the others and the industry as a
whole. As they represent the different aspects of electronic commerce,
missing one self may lead to a failure in appropriate regulation.
For the present discussion, a distinction should be drawn between
user empowerment and self-regulation. User empowerment empha-
sizes the user’s capability to exercise control over relevant activities—
in the case of the Internet, those activities enabled by the technologies
developed and made available by the private sector.14 Self-regulation
arises out of the industry or profession’s own initiative, not from user
empowerment. The users’ opinions might be considered in self-reg-
ulation, but the regulation itself does not depend on the user empow-
erment. Empowerment is not the same as mandate. There are indeed
situations when government mandates that an industry adopt and
enforce a code of self-regulation.15 Self-regulators can regulate based
on the suggestions or mandates, but they do so of their own accord.
12
IPWG’s work is one component of the World Wide Web Consortium’s Platform
for Privacy Preferences, which will enable consumers to exercise control over the
flow of personal information by giving them notice of the information. See further
<http://www.cdt.org/privacy/ipwg>.
13
TRUSTe, the leading privacy seal program, is an independent non-profit orga-
nization dedicated to building consumer trust and confidence in the Internet. See
further <http://www.truste.org>.
14
See An Analysis of the Bertelsmann Foundation Memorandum, supra note 6.
15
According to Australian Broadcasting Services Act (1992) 123, broadcasting
policy choice 45
1.1.2. Evaluation of Self-Regulation

For many scholars and practitioners, the advantages of self-regulation
are obvious. Self-regulators are generally experts in the industry capa-
ble of producing appropriate, objective decisions.16 Experts are par-
ticularly valuable when technical knowledge is needed to develop
appropriate rules and determine whether they have been violated.17
Respectful followers ensure compliance in the enforcement of said
decisions.18 This willingness to follow rules made by the experts rather
than those passed by administrators19 could directly affect the expense
of governmental regulation. The cost of regulation is shifted to the
industry and less enforcement is required.
The private nature of self-regulation also makes industry policy
more flexible.20 Technology is developing rapidly and the situations
based on modern technology are following suit. The rules made
today could become outdated with the development of a new situ-
ation. Self-regulation allows the regulators to follow the situation
closely and make timely adjustments.21 Furthermore, once practice
proves a decision faulty the regulators can immediately obtain resources
and take measures to avoid further damage.
Self-regulation also serves as a testing bed for official government
regulations.22 The measures taken can act as a forerunner to gov-
ernment regulation. The period between the implementation of the
industry groups should develop codes of practice, in consultation with the regula-
tory authority, concerning such topics as preventing the broadcast of unsuitable pro-
grams, promoting accuracy and fairness in news and current affairs, and protecting
children from harmful program materials. See further I. Ayres & J. Braithwaite,
Responsive Regulation: Transcending the Deregulation Debate 103 (1992).
16
See further D.C. Michael, Federal Agency Use of Audited Self-Regulation as
a Regulatory Technique, 47 Administrative Law Review, 171, 181–182 (1995).
17
A.J. Campbell, Self-Regulation and the Media, 51 Federal Communications Law
Journal, 715–716 (1999).
18
The basic position is that they know their own best interests and that respect
for preferences, as expressed in market transactions, is the best way to promote
aggregate social welfare. See further M.A. Utton, The Economics of Regulating Industry,
1 (1986); C.R. Sunstein, Disrupting Voluntary Transactions, in J.W. Chapman &
J.P. Pennock (Eds.), Markets and Justice, 279, 281 (1989).
19
See further Michael, supra note 16, at 181, 183–184; Ayres, supra note 15, at
115–116; Swire, supra note 8, at 4.
20
See further Michael, supra note 16, at 181–182; Ayres, supra note 15, at 110–112.
21
This is one advantage over governmental regulation. Governmental agencies
have to follow formal procedures provided in the national legislation, which pro-
longs the period for adoption of new rules. They must also do a lot of work to
obtain the political support and consensus needed to act.
22
It is claimed that self-regulatory measures can avoid constitutional issues. See
further D.A. MacDonald, Privacy, Self-Regulation, and the Contractual Model: A
46 chapter three
two types of regulatory mechanisms can serve as both a feedback

stage and a transitional period. This arrangement shall on the one
hand help a smooth adjustment of commercial strategy and, on the
other hand, strengthen the validity of governmental rules.
Nevertheless, self-regulation faces some criticism. For one, self-reg-
ulators may confuse self-regulation with self-service.23 There are also
concerns over anti-competitiveness.24 Competing parties may, while
carrying out a regulatory job together, agree on certain issues, which
could raise antitrust problems. Additionally, the private nature of
self-regulation may fail to give adequate attention to the needs of
the public or the views of affected parties outside the industry.25 In
part because of its private nature, the issue of enforcement may be
a problem. Voluntary compliance cannot always be taken for granted.26
Moreover, when enforcement actions are taken, concerns are raised
about the exercise of unreviewable discretion.27 Without a strong
commitment to ensuring adherence to policies, self-regulation is
doomed to squelch needed regulatory activities.28 Determining how
to ensure the enforcement of the regulation is a severe challenge to
private self-regulation.29
While there is criticism, self-regulation is well accepted in the com-
mercial world. The problem lies not in the mechanism itself, but in
its implementation. Structuring self-regulation to best realize its benefits
is the task at hand.
Report from Citicorp Credit Services, Inc., in Privacy and Self-Regulation in the Information
Age, supra note 5, at 133–134.
23
See further Baker, supra note 5, at 93–94.
24
See further J. Kattan & C. Shapiro, Privacy, Self-Regulation, and Antitrust,
in Privacy and Self-Regulation in the Information Age, supra note 5, at 99.
25
Campbell, supra note 17, at 718.
26
See further S. Balkam, Content Ratings for the Internet and Recreational
Software, in Privacy and Self-Regulation in the Information Age, supra note 5, at 145.
27
Michael, supra note 16, at 190; Ayres, supra note 15, at 124–125.
28
D.K. Mulligan, & J. Goldman, The Limits and the Necessity of Self-Regulation:
The Case for Both, in Privacy and Self-Regulation in the Information Age, supra note 5,
at 67–68.
29
There are several enforcement measures. For example, a trade association may
punish non-compliance with expulsion or denial of the right to display a seal.
However, the effectiveness of those sanctions shall depend on whether the benefits
are important. Thus, the validity of those sanctions shall still depend on whether a
company can make greater profits by ignoring self-regulation than it can by com-
plying. See further H.H. Perritt, Jr., Regulatory Models for Protecting Privacy in
the Internet, in Privacy and Self-Regulation in the Information Age, supra note 5, at 110.
policy choice 47
1.1.3. Best Practice of Self-Regulation

For self-regulation to run smoothly, several things must be ensured.
First of all, the quality of self-regulators is vital to the actual per-
formance of self-regulation. They must be experts in the regulated
industry. They should have a broad understanding of the industry
and its relationships with other relevant industries. The self-regulators
should be objective. They should work quite independently of normal
operational departments. Furthermore, they should be motivated to
regulate and creative in dealing with complicated situations in the
industry.
The regulators involved in regulation determine the success of the
process. There are several types of self-regulators, who may be
arranged to handle different aspects of regulation and to check and
balance each other. An institution within which different sectors exist
to undertake different but related tasks could be established to stan-
dardize self-regulation.
Although some scholars have argued that government can be left
out of the process of regulation,30 actually, this is not feasible. Some
have suggested audited self-regulation.31 While delegating the power
of regulation to a non-governmental entity, the government should
verify the soundness of rules, check compliance, and spot-check the
30
See further J.P. Barlow, A Declaration of the Independence of Cyberspace, <http:
//www.eff.org/pub/Publications/John_Perry_Barlow/barlow_0296.declaration>; see
also J. Kay, Sexuality, Live Without a Net: Regulating Obscenity and Indecency
On the Global Network, 4 S. Cal. Interdisciplinary L.J. 355, 387 (1995); K.J. Epstein
& B. Tancer, Enforcement of Use Limitations By Internet Services Providers: “How
to Stop that Hacker, Cracker, Spammer, Spoofer, Flamer, Bomber”, 9 Hastings
Comm/Ent. L.J., 661, 664 (1997); R. Corn-Revere, Self-Regulation and the Public
Interest, in C.M. Firestone & A.K. Garmer (Eds.), Digital Broadcasting and the Public
Interest: Reports and Papers of the Aspen Institute Communications and Society program 63
(1998), at <http://www.aspeninst.org/dir/polpro/CSP/DBPI/dbpi14.html>. Corn-
Revere argued that self-regulation is best promoted by ending all direct and indi-
rect government content control and that efforts to promote government policies
by means of threat, indirect pressure, or suggested industry codes are not true self-
regulation.
31
See, for example, Michael, supra note 16, at 171, 181–182, 192. He assumes
audited self-regulation will work best if these conditions are met: firstly, the private
entity to which self-regulatory authority is granted has both the expertise and moti-
vation to perform the delegated task; secondly, the agency staff possesses the exper-
tise to audit the self-regulatory activity, which includes independent plenary authority
to enforce rules or to review decisions of the delegated authority; thirdly, the statute
consists of relatively narrow rules related to output-based standards; and finally, the
agency’s and delegated authority’s decision observes the rules for notice, hearing,
impartiality, and written records of proceedings and decisions.
48 chapter three
accuracy of information supplied to it.32 The government must serve

a function in ensuring that violations do not occur.33
Self-regulation cannot be single-handed self-regulated.34 Successful
instances of self-regulation involve governmental regulation.35 It has
to be complemented and backed up by governmental law and enforce-
ment, a hybrid framework combining industry and state authority.36
The government strengthens the credibility of self-regulation and pro-
motes compliance. When self-regulation is not complied with, relief
can be sought in government. To have at once freedom and account-
ability, self-regulation must adopt certain constraints.37
Furthermore, there should arise some channels through which feed-
back on self-regulation can be dealt with. Self-regulation should
engage in its rulemaking on the record, with notice and opportunity
for comments or feedback given to all affected groups to the extent
possible, with particular emphasis on notice to nonmembers who
might be adversely affected by proposed rules, and responses to all
significant comments logged in the rulemaking record.38 Without feed-
back, self-regulation functions blindly and possibly strays from indus-
try demands.
32
Campbell, supra note 17, at 719.
33
J.E. Gaylord, State Regulatory Jurisdiction and the Internet: Letting the Dormant
Commerce Clause Lie, 52 Vand. L. Rev. 1103 (May 1999).
34
To a certain extent, self-regulation is involuntary. It usually occurs only under
the threat of state regulation, and it can therefore be considered a variant of direct
regulation. See E.M. Noam, Privacy and Self-Regulation: Markets for Electronic
Privacy, in Privacy and Self-Regulation in the Information Age, supra note 5, at 21, 25.
35
For further discussion of government regulation in protecting consumers, see
P. Asch & R. Seneca, Government and the Marketplace 397–420 (1985); C.R. Sunstein,
Legal Interference with Private Preferences, 53 U. Chi. L. Rev. 1129, 1132 (1986).
36
See An Analysis of the Bertelsmann Foundation Memorandum, supra note 6;
see also E. Harrington, Consumer Protection in Cyberspace: Combating Fraud on the Internet
( June 25, 1998) (Federal Trade Commission Report to the Telecommunications,
Trade, and Consumer Protection Subcommittee of the House (Committee on
Commerce)).
37
See further Dennis, supra note 9, at 703–704. In America, self-regulation always
lies somewhere between market forces on the one hand and government regulation
on the other.
38
See further Campbell, supra note 17, at 761.
policy choice 49
1.2. Self-Regulation of Dispute Resolution in Electronic Commerce
1.2.1. General Remarks

The current mantra is that the Internet should not be regulated by
the government,39 and should be self-regulated instead.40 Ideological
hostility to government intervention shared by early Internet enthu-
siasts has now been bolstered by the free market vision of the com-
mercial users.41 Privatization is all the rage42 in commercial law and
it is perhaps nowhere as popular as on the Internet.43
This attitude is held not only by the Internet society, but also by
the governments.44 Self-regulation has been called for in the US to
address various features of the Internet.45 On July 1, 1997, President
39
The Internet should remain a “regulation-free” zone. See further D.R. Johnson
& D.G. Post, And How Shall the Net Be Governed?: A Mediation on the Relative
Virtues of Decentralized, Emergent Law, in B. Kahin & J.H. Keller (Eds.), Coordinating
the Internet 62–91 (1997); D.G. Post, Governing Cyberspace, 43 Wayne L. Rev.,
155, 157 (1996); R.E. Litan & W. Niskanen, Going Digital! 67–81 (1998).
40
M.J. McCloskey, Bibliography of Internet Self-Regulation, <http://www.ilpf.org/
selfreg/bis4_15.htm>.
41
E.G. Thornburg, Going Private: Technology, Due Process, and Internet Dispute
Resolution, 34 U.C. Davis L. Rev. 156 (Fall 2000).
42
S.J. Ware, Default Rules from Mandatory Rules: Privatizing Law Through
Arbitration, 83 Minn. L. Rev. 703–704 (1999); L.S. Mullenix, Resolving Aggregate
Mass Tort Litigation: The New Private Law Dispute Resolution Paradigm, 33 Val.
U. L. Rev. 413 (1999).
43
M.A. Lemley, The Law & Economics of Internet Norms, 73 Chi.-Kent L. Rev.
1257 (1998).
44
J.H. Birnbaum, Getting to Know the Hill, Time, August 14, 2000, at B12,
B15, at <http://www.time.com/time/magazine/articles/0,3266,52104,00.html>.
Some scholars still think that the large and diverse nature of the Internet commu-
nity makes self-regulation extremely unlikely. See, for example, J.I. Edelstein,
Anonymity and International Law Enforcement in Cyberspace, 7 Fordham Intell. Prop.
Media & Ent. L.J. 231, 284–286 (1996).
45
President Clinton’s call for industry self-regulation to address consumer pri-
vacy concerns on the Internet has been echoed by the Department of Commerce’s
National Telecommunications and Information Administration (NTIA) and the
Federal Trade Commission (FTC). See Elements of Effective Self-Regulation for
the Protection of Privacy and Questions Related to Online Privacy, Notice and
Request for Public Comment, 63 Federal Register 30, 729 (NTIA 1998); FTC, Privacy
Online: A Report to Congress i–ii (1998). On September 10, 1999, the Bertelsmann
Foundation released a Memorandum entitled Self-regulation of Internet Content at
its Internet Content Summit in Munich, Germany, which endorses a vision of self-
regulation widely shared by the US government, industry, and civil libertarians.
In the US, advocacy organizations and the Internet industry have supported self-
regulation as an alternative to government or Internet Service Provider (ISP) lim-
its on content. See An Analysis of the Bertelsmann Foundation Memorandum, supra
note 6.
50 chapter three
Clinton issued a report entitled A Framework for Global Electronic

Commerce, more commonly called the “Magaziner Report,” which
explicitly calls for self-regulation in the Internet.46 Five principles are
presented intending to guide the development of the new digital
economy.47 Its tenets are these: the private sector should lead; gov-
ernments should avoid undue restrictions on electronic commerce;
where government involvement is needed, its aim should be to sup-
port and enforce a predictable, minimalist, consistent, and simple
legal environment for commerce; governments should recognize the
unique qualities of the Internet; electronic commerce over the Internet
should be facilitated on a global basis.48
Since it first addressed Internet issues in 1991, the EU has changed
its Internet regulation policy to support self-regulation.49 In September
1997, the European Internet Services Providers Association (EuroISPA)
46
See further W.J. Clinton & A. Gore, Jr., A Framework for Global Electronic Commerce,
<http://www.iitf.nist.gov/eleccomm/ecomm.html>; see also N.W. Allard & D.A.
Kass, Law and Order in Cyberspace: Washington Report, 19 Hastings Comm. &
Ent. L.J. 563, 596–601 (1997); L. Kehoe, Clinton Takes Hands-Off Over Internet,
Financial Times, July 2, 1997. The report states: “[ T ]hough government played
a role in financing the initial development of the Internet, its expansion has been
driven primarily by the private sector. For electronic commerce to flourish, the pri-
vate sector must continue to lead. Innovation, expanded services, broader partici-
pation, and lower prices will arise in a market-driven arena, not in an environment
that operates as a regulated industry. Accordingly, governments should encourage
industry self-regulation wherever appropriate and support the efforts of private sec-
tor organizations to develop mechanisms to facilitate the successful operation of the
Internet. Even where collective agreements or standards are necessary, private enti-
ties should, where possible, take the lead in organizing them. Where government
action or intergovernmental agreements are necessary, on taxation for example, pri-
vate sector participation should be a formal part of the policy making process.” For
analysis, see also W. Kleinwaechter, ICANN Governance: From Self-Governance
to Public-Private Partnership: The Changing Role of Governments in the Management
of the Internet’s Core Resources, 36 Loyola of Los Angeles Law Review 1109–1111
(Spring 2003).
47
K. Lui-Kwan & K. Opsahl, The Legal and Policy Framework for Global
Electronic Commerce: A Progress Report, 14 Berkeley Tech. L.J. 504 (Spring 1999).
48
See Clinton, supra note 46.
49
See further M.J. Feeley, EU Internet Regulation Policy: The Rise of Self-
Regulation, 22 Boston College International and Comparative Law Review, 161, 164–169
(1999). The document entitled Europe’s Way to the Information Society: An Action
Plan issued by the European Commission on July 19, 1994 proposes a broad reg-
ulatory framework package. The Opinion issued by the Economic and Social
Committee advocates a high level of regulation. The resolution issued by the
European Parliament in 1996 calls for a strong regulatory framework. But none of
the above mentioned self-regulation. From 1991 till 1997, the EU focused on a
high level of broad governmental regulation.
policy choice 51
was established, thus marking transformation in EU policy.50 The

EU provided funding to this Association and encouraged industry
self-regulation of the Internet.51 This transformation can be viewed
as a reaction to the US stance,52 which recognizes the need to facil-
itate and expedite European commercial entry and positioning in
the Internet market.53
Self-regulation appears to be a viable option for regulating the
Internet and Internet-based commerce.54 Some commentators have
suggested that self-regulation is the key to success for electronic com-
merce.55 The existing governmental regulation on the Internet has
faced various criticisms.56 It is incumbent upon the Internet com-
munity to create its own commercially reasonable code of behavior
by which electronic commerce will be formed and executed.
50
See European Internet Services Providers Association: EuroISPA established
in Brussels, M@PRESSWIRE, September 15, 1997.
51
The EU made up to seven million ECU available to EuroISPA as part of a
European Action Plan for Information Society initiatives. See id.
52
On July 9, 1997, subsequent to the release of the Report, US and EU officials
met in Brussels to discuss the Internet with the aim of fostering industry self-regu-
lation of the Internet. See further Press Release Re EU-US Meeting to Discuss
Internet, SPICERS CENTER FOR EUROPE, July 8, 1997; see also Press Release:
European Union and United States Meet to Discuss Internet, RAPID, July 8, 1997.
53
See further Feeley, supra note 49, at 170–172.
54
See further J.T. Delacourt, The International Impact of Internet Regulation,
38 Harvard International Law Journal, 235 (1997). See for example, K.L. Macintosh,
The New Money, 14 Berkeley Tech. L.J. 665 (1999); M. Lemley, Standardizing
Government Standard-Setting Policy for Electronic Commerce, 14 Berkeley Tech. L.J.
748 (1999); L. Lessig, The Limits in Open Code: Regulatory Standards and the
Future of the Net, 14 Berkeley Tech. L.J. 761 (1999); V. Mayer-Schonberger, The
Shape of Governance: Analysing the World of Internet Regulation, 43 Va.J.Int’l L.
620–626 (Spring 2003).
55
See further D. Spar & J. Bussgang, Ruling Commerce in the Network, 2 Journal
of Computer-Mediated Communication, No. 1, <http://www.usc.edu/dept/annenberg/vol2/
issue1/commerce.html>. The author writes that “before commerce can flourish
online some trusted intermediary must create the basic rules of the game. If gov-
ernments are not well-positioned to make and enforce these rules, then business
entities are likely to fill the vacuum. In this process, they will shift the delicate bal-
ance between business and government and also stand to reap tremendous profits,
which lies squarely with the rules, or standards, of electronic commerce. Accordingly,
the generation of profit will occur largely in the cybercommunities that establish
and support these rules.” See also D.G. Post & D.R. Johnson, “Chaos Prevailing
on Every Continent”: Towards A New Theory of Decentralized Decision-Making
in Complex Systems, 73 Chi.-Kent. L. Rev. 1055 (1998); J.R. Reidenberg, Governing
Networks and Rule-Making in Cyberspace, 45 Emory L.J. 911–913 (1996); L.J.
Gibbons, No Regulation, Government Regulation, or Self-Regulation: Social Enforce-
ment or Social Contracting for Governance in Cyberspace, 6 Cornell J.L. & Pub.
Pol’y 475 (1997).
56
For example, complaints have been made about the adverse consequences
52 chapter three
Regulatory mechanisms for the Internet are in the testing stage.

Noted for its fluidity and ambiguity,57 the Internet demands flexible
self-regulation to pave the way for more formal regulation. A period
of self-regulation on the Internet can at once afford the government
time to familiarize itself with the new issue and also fill in the gap
left where the government’s capacity to regulate falls short. Only
after the government learns from mechanisms of self-regulation can
it develop a credible regulatory system. Trying to transplant a non-
virtual world system of law that is fundamentally grounded in phys-
ical space and geography in a virtual world that transcends time,
space, and borders will prove difficult, if not impossible.58 Just as the
EU Internal Market Commissioner, Mario Monti, stated in April
1997, “We definitely want to avoid, like in other sectors, having
too much legislation too early”.59 This statement justified the need
to use creative and flexible regulatory regimes in the face of the
novel situation.
Any individual governmental regulation will have difficulties con-
trolling cross-border digital transactions60 and its implementation will
have spillover effects on other nations. Efforts to rigorously control
the flow of electronic information across physical borders are likely
caused by the European Directive on Data Protection (Council Directive 95/46 of

October 24 1995 on the Protection of Individuals with regard to the Processing of
Personal Data and on the Free Movement of Such Data, 1995 O.J. (L281) 31.)
The Federal Communications Decency Act of 1006 (CDA) was declared unconsti-
tutional by the court because its vagueness and sweeping breadth shall impermis-
sibly chill protected speech. See further Reno v. ACLU, 117 S. Ct. 2350 (1997).
57
See, for example, J. Mnookin, Virtual Law; The Emergence of Law in
LambdaMOO, in Symposium, Law on the Electronic Frontier, 2 Journal of Computer-
Mediated Communication, 1 (1996), <http://www.usc.edu/dept/annenberg/vol2/issue1>.
58
See J. Goldring, Netting the Cybershark: Consumer Protection, Cyberspace,
the Nation-State, and Democracy, in B. Kahin & C. Nesson (Eds.), Borders in
Cyberspace: Information Policy and Global Information Infrastructure, 321, 345 (the MIT
Press 1997).
59
S. Perry, EU to Propose Electronic Commerce Regulation, THR REUTER
EUR. COMMUNITY REP., April 16, 1997.
60
Controlling flowing digital transactions shall be costly; however, there is pos-
sibility of such extraordinary control. See further D.L. Burk, Virtual Exit in the
Global Information Economy, 73 Chi.-Kent L. Rev. 960–961, 992–993 (1998); T.S.
Wu, Cyberspace Sovereignty?—The Internet and the International System, 10 Harv.
J.L. & Tech. 647, 651 (1997); M. Stefik, Shifting the Possible: How Trusted Systems
and Digital Property Rights Challenge Us to Rethink Digital Publishing, 12 Berkeley
Tech. L.J., No. 1, 137, 139–144 (1997); S.D. Krasner, Global Communications and
National Power: Life on the Pareto Frontier, 43 World Politics, No. 3, 336, 344–349
(April, 1991); J. Boyle, Foucault in Cyberspace: Surveillance, Sovereignty, and Hard-
wired Censors, 66 U. Cin. L. Rev. 177, 202–204 (1997); L. Lessig, Reading the
Constitution in Cyberspace, 45 Emory L.J. 869, 893–895 (1996).
policy choice 53
to prove futile.61 Thus, regulation shall require a coordinated policy

among nations with differing political, economic, religious, and cul-
tural ideas and values. To achieve such a harmony on the govern-
mental level shall require time and effort. Unlike governmental
regulation, self-regulation facilitates the speedy coordination of poli-
cies needed in the quickly developing Internet world. With experts
at hand and in the absence of excessive bureaucracy, the quick adap-
tation of coordinated regulatory rules, flexible enforcement proce-
dures, and internalized costs are possible.62
We can do away with neither self-regulation nor governmental
regulation.63 Of course, we can imagine that even when the gov-
ernment has set rules for regulation, self-regulation shall be needed
to make immediate adjustments as the Internet situation requires.64
The Internet is a rapidly changing marketplace. The flexibility of
self-regulation allows industry to respond quickly to technological
changes and employ new technologies to deal with digital issues.
The appropriate regulatory mechanism for dispute resolution should
be a mixture of self and governmental regulation, with self-regula-
tion playing a major role.65 In the long-term, market-based responses
to disputes should dominate political ones and either render a policy
reaction unnecessary or induce the policy to move in a particular
direction.66 The 1997 White Paper on Internet policy rightly argues
that the private sector shall take the lead on Internet issues, though
some modest role for government is still envisioned (primarily to
help close the so-called “digital divide”).67
61
See further D.R. Johnson & D.G. Post, Law and Borders: The Rise of Law
in Cyberspace, 48 Stanford Law Review, 1367 (1996).
62
See further G. Majone, Regulating Europe, in J. Richardson (Ed.), European
Union Power and Policy-Making 23–26 (London and New York, Routledge, 1996).
63
See further Boyle, supra note 60, at 177.
64
Cyberspace is partly a model and partly a metaphor for a fundamental restruc-
turing of our political institutions. See further N.W. Netanel, Cyberspace Self-
Governance: A Skeptical View from Liberal Democratic Theory, 88 Cal. L. Rev.
395, 401 (2000).
65
See, for example, M.A. O’Rourke, Progressing Towards a Uniform Commercial
Code for Electronic Commerce or Racing Towards Nonuniformity?, 14 Berkeley Tech.
L.J. 635 (1999); K. Werbach, Digital Tornado: The Internet and Telecommunications Policy
(FCC, Office of Plans and Policy, Working Paper No. 29, 1997), at <http://www.
fcc.gov/opp/workingp.html>.
66
R.E. Litan, Law and Policy in the Age of the Internet, 50 Duke L.J., 1057
(February, 2001).
67
Management of Internet Names and Addresses, 63 Fed. Reg. 31, 741 (1998),
54 chapter three
Dispute resolution is important to electronic commerce and should

be subject to self-regulation, whose work involves adjudication;68 this
has been recognized by most practitioners.69 Any self-regulatory mech-
anism that is accepted by the Internet community will promote dis-
pute resolution; or rather, dispute resolution principles will drive the
effort to self-regulate, obviating the need for governments to inter-
vene and legislate along geopolitical lines.70
Indeed, self-regulation has been widely implemented in dispute
resolution in electronic commerce, and the position of governments
is to provide minimum acceptable standards.71 Case examples include
the Virtual Magistrate Project, the University of Massachusetts Online
Ombuds Office, and eBay’s Escrow and Insurance Arrangement.72
The position of litigation in dispute resolution has been limited with
the continuation of such projects. Cybersettle.com, Inc., the world’s
first Internet-based dispute resolution company, has successfully set-
tled claims of over 20 million dollars online.73 This example could
serve well as the basis for wider applications in the future. Chapter
Five shall examine these projects and make further analysis.
at <http://www.ntia.doc.gov/ntiahome/domainname/6_5_98dns.htm>. When gov-

ernmental involvement is needed, its aim should be to support and enforce a predict-
able, minimalist, consistent, and simple legal environment for electronic commerce.
And this legal environment should be based on a decentralized, contractual model
of law rather than one based on top-down regulation.
68
A Global Action Plan for Electronic Commerce, Prepared by business with
Recommendations for Governments, at <http://www.uscib.org/policy/actplan.htm>.
69
See further Internet Self-Regulation: Comments on How the Internet can
Arrange Its Own Regulation, <http://www.endispute.co.uk/isr/cirb.htm>. One rea-
son is that the Internet knows no boundaries and a state court system may be eas-
ily evaded by moving off-shore. See also A Global Action Plan for Electronic
Commerce, Prepared by Business with Recommendations for Governments, 2nd
Edition, October 1999, at 33.
70
A.E. Almaguer & R.W. Baggott III, Shaping New Legal Frontiers: Dispute
Resolution for the Internet, 13 Ohio State Journal on Dispute Resolution, 714 (1998).
71
L.J. Gibbons, Rusticum Judicium? Private “Courts” Enforcing Private Law and
Rights: Regulating Virtual Arbitration in Cyberspace, 24 Ohio N.U. L. Rev. 775
(1998); C. Menkel-Meadow, Do the “Haves” Come Out Ahead in Alternative
Judicial Systems?: Repeat Players in ADR, 15 Ohio St. J. on Disp. Resol. 60 (1999);
M.J. Radin & R.P. Wagner, The Myth of Private Ordering: Rediscovering Legal
Realism in Cyberspace, 73 Chi.-Kent L. Rev. 1317 (1998).
72
Some other existing initiatives and projects could be mentioned here: e-Resolution
(Canada), BBB-Online (USA and Canada), IRIS mediation (France), Eurochambres
(Association of European Chambers of Commerce), FEDMA (Federation of European
Direct Marketing Associations) and EASA (European Advertising Standards Alliance),
Visa International, Barclays Bank PLC, WebTrader (EU), etc.
73
Over 20,000,000 Dollars in Claims Settled Online: Insurance Companies,
policy choice 55
1.2.2. Evaluation
Self-policing and regulation is now standard for Internet practices.74
Insofar as objectives like avoiding intrusive government regulation
or restricting competition have been met, self-regulation has been
successful.75
Different forms of voluntary self-regulation have emerged, some
from comparative research and long theoretical considerations. For
example, a variety of contracts provide a type of advisory board or
management committee to settle disputes.76 The Virtual Magistrate
Project came out with the assistance of American Arbitration Asso-
ciation (AAA), a private organization. Some procedural rules of the
AAA have been adopted and well applied in real dispute resolution.
Some others, like market research-oriented credibility and public atti-
tude studies, are associated with profit motives, the bottom line, and
corporate public relations.77 This has been best represented by the
eBay’s practice and the activities of Cybersettle.com, which acts out
of consideration of its own commercial interests. As so-called exper-
iments, these project examples have developed a protective shield
against the kind of legal and quasi-legal accountability commonly
imposed.78
Lawyers Go Online to Settle Disputes, <http://www.udiweb.com/udi1020b.htm>.

Cybersettle.com offers confidential claims settlement by matching offers and demands
via a patent-pending, secure web site. Insurance companies, corporations, govern-
ment agencies, attorneys and claimants can resolve disputes instantly, 24-hours a
day, 7-days a week using the Cybersettle system.
74
J. Krasovec, Comment: Cyberspace: the Final Frontier, for Regulation?, 31
Akron Law Review, 143 (1997). Recent legislative attempts at regulating some aspects
of the Internet have so far proven to be ineffective and undesirable. A good exam-
ple is the Communications and Decency Act (CDA) of 1996, which restricted cer-
tain indecent communication over computer networks. The CDA was struck down
by the Supreme Court in Reno v. ACLU, 117 S. Ct 2329, 2331–2332 (1992). The
court held that, as key provisions of the CDA were overbroad and vague, the statute
would effectively keep indecent material from adults who have a right to see such
materials.
75
See further Campell, supra note 17, at 757.
76
Such arrangements usually exist in business-to-business electronic commerce
when both parties would like to maintain good relations. For example, British Data
Interchange on Shipping (DISH) program and its Pilot Project Interchange Agreement
provided for a preliminary procedure before the DISH Management Committee.
77
See Dennnis, supra note 9, at 704.
78
For example, the Virtual Magistrate Project requires parties agree to exempt
the magistrate, project administrators, and other relevant parties from possible lia-
bility arising out of the activities associated with the project.
56 chapter three
At this stage, the main function of those examples is to prove that

it is technically possible to resolve disputes in electronic commerce.79
Meanwhile, they provide a nice testing laboratory for developing
online systems for non-cyberspatial disputes. This self-regulatory frame-
work shall definitely give way to online courtrooms for future dis-
putes, whether arising out of online or non-online activities. As this
occurs, we may see processes of dispute resolution that are not only
attuned to the online environment but may also encourage change
in how we work out problems in the physical world.80
2. International Orientation
The whole world has become smaller with the help of the Internet,
which allows people around the world to instantaneously interact
with each other. National borders are just speedbumps on the infor-
mation superhighway.81 New strategies are required to accommodate
new phenomena. A global problem requires an international solu-
tion. In September 1996, the European Parliament issued a resolu-
tion82 indicating that the European Parliament was interested in
effectuating broad legislation in order to produce a structured and
equitable environment.83 This document, while never mentioning
industry self-regulation, stressed the need for an international regu-
latory regime.84
79
See further Cyberspace Law Institute, the Virtual Magistrate Pilot Project, at
<http://www.11.georgetown.edu/lc/cli.html#VM TOP>.
80
Online Dispute Resolution, Cyberspace Law for Non-Lawyers, <http://www.
ssrn.com/update/isn/cyberspace/lessons/disput04.html>.
81
See further H.M. White, Jr. & R. Lavria, The Impact of New Communication
Technologies on International Telecommunication Law and Policy: Cyberspace and
the Restructuring of the International Telecommunication Union, 32 Cal. W.L. Rev.,
1–2 (1995).
82
European Parliament Comm. Econ. and Monetary Affairs and Industrial Policy
Report on Resolution on “Europe and the Global Information Society-Recom-
mendations to the European Council” and on a communication from the Commission
of the European communities: “Europe’s Way to the Information Society: An Action
Plan” 1996 O.J.C 320.
83
Id., paragraph 1.
84
Id., paragraph 32. The resolution emphasises the need for an appropriate and
well-timed regulatory and legal framework to provide a simultaneous accompani-
ment to the prospect of an information society, which if it is to have a positive
impact, also needs to be guided and governed at a supranational level.
policy choice 57
2.1. An International Policy
2.1.1. Justification for the Policy

Regulating the Internet has become a priority for various reasons,
among which commercial potentiality has been one of the most
important. Many nations have spontaneously adapted old rules to
regulate the new issues as a temporary measure. Self-regulation has
been identified as the best policy in regulating Internet issues. However,
earlier than the official declaration of this policy, an international
policy had been adopted and widely recognized.
This policy came into the arena free from suspicion. The nature
of the Internet and the globalization of the world economy have
meant that regulation of electronic commerce should be addressed
on an international level. Physical frontiers have lost their meaning
which, with the speed and efficiency brought by the Internet, has
presented a severe challenge to Internet regulation.
Theoretically speaking, each nation shall have no problem in leg-
islating and enforcing certain rules within national borders to gov-
ern the activities of the Internet. According to national sovereignty,
one state should have the exclusive power to apply its laws to the
local effects of a transborder transaction.85 However, it does not fol-
low that every nation where an Internet information flow appears
can regulate that information flow.86 In modern society, a nation
cannot use arbitrary measures to prohibit information flow. There
is no big “off ” switch for the Internet. While a country may gain
control over computers within its borders, one has no leverage against
the whole system.87 Moreover, electronic commerce may be stifled
by conflicting national rules, with the potential for overlapping and
contradictory approaches likely to increase as electronic commerce
takes hold.88
85
M.N. Shaw, International Law 277–314 (3rd Ed. 1991); see also L. Brilmayer,
Consent, Contract, and Territory, 74 Minn. L. Rev. 1, 11–12 (1989).
86
See further J. Goldsmith, Unilateral Regulation of the Internet: A Modest
Defense, 11 EJIL, No. 1, 139 (2000).
87
S. Selin, Governing Cyberspace: The Need for an International Solution, 32
Gonz. L. Rev. 368–369 (1996/1997).
88
A broad principle of co-operation among nations, requiring each nation to
account for the constraints it would impose on the citizens of other nations, would
entail a breathtaking degree of co-operation and consideration among nations. CUT
See Y. Benkler, Internet Regulation: A Case Study in the Problem of Unilateralism,
11 EJIL, No. 1, 171 (2000).
58 chapter three
Furthermore, national regulation cannot always limit the Internet’s

effects. It is almost impossible for a state to regulate the Internet
without causing a rippling effect in other states.89 Consider the case
of New York v. Vacco. Golden Chips Casino, a subsidiary of a New
York corporation, is an Antiguan corporation licensed to operate
gambling facilities in Antigua. Golden Chips operated web sites from
Antigua, which were accessible to Internet users in New York. The
New York Supreme Court ruled that Golden Chips violated New
York’s anti-gambling laws.90 This ruling was able to be enforced suc-
cessfully as Golden Chips’ directors and employees were in the US.
Also, this ruling further prohibits Golden Chips from operating
Internet gambling on a worldwide scale.
In another example, one of the EU regulations, the European
Data Protection Directive, prohibits transfer of personal information
from the EU to countries lacking adequate privacy protection.91 This
directive could be enforced against non-European companies with a
presence in the EU. However, this shall constitute impermissible
extraterritorial regulation to those with less restrictive privacy laws
since it threatens to cut off their computers from European data.92
From the examples above, we can see that individual Internet reg-
ulation shall cause conflicts across borders. A lack of a coherent
international system has forced countries to enact inconsistent regu-
latory schemes that focus on different parties in Internet transac-
tions,93 thus creating a potentially hazardous business environment94
and spillover effects that adversely affect freedom of expression.95
Successful implementation of policy requires the cooperation of diver-
gent international players.96
89
J.S. Bauchner, State Sovereignty and the Globalization Effects of the Internet:
A Case Study of the Privacy Debate, 26 Brooklyn J. Int’l L. 695–696 (2000).
90
New York v. Vacco, No. 404428/98, Supreme Court, 22 July 1999.
91
Directive 95/46/EC of the European Parliament and the Council, 24 October
1995.
92
See further P. Swire & R. Litan, None of Your Business: World Data Flows, Electronic
Commerce, and the European Privacy Directive, 3–4 (1998).
93
I. Brownlie, Principles of Public International Law 314 (5th Ed. 1998).
94
C. Gregoire, Law Enforcement Challenges in Cyberspace, 34 Prosecutor 29
(September–October 2000)
95
See A Proposal for Removing Road Blocks from the Information Superhighway
by Using an Integrated International Approach to Internet Jurisdiction, 10 Minn.
J. Global Trade 397 (Summer, 2001); J.L. Goldsmith, The Internet and the Abiding
Significance of Territorial Sovereignty, 5 Ind. J. Global Legal Stud. 488–489 (1998).
96
S.M. Hanley, International Internet Regulation: A Multinational Approach, 16
policy choice 59
2.1.2. An International Policy and Self-Regulation

For its appropriateness for Internet regulation and also for its novel
application, self-regulation holds the most popular position on the
stage of dispute resolution. On the other hand, the simple interna-
tional policy lacks the attention of the academic and practical world,
even though people are actually applying it in one way or another.
These two policies are different in many aspects, but in the end,
they are closely related.
Compared with the policy of self-regulation, international policy
requires much more preparatory work and thus more difficulties exist
in its application. International cooperation and coordination involve
a lot of pre-regulation activities, which give way to complicated con-
siderations. In contrast, self-regulation is initiated by a private party
with relatively clear objectives. Nevertheless, these two policies are
generally carried out in unison. Emphasizing an international policy,
regulatory efforts can be made by industry at a global scale; the same
industry in different nations could get together to discuss possible
regulation for the whole industry. In most situations, self-regulation
in the Internet shall naturally be carried out before an international
background. National regulatory mechanisms could be sufficient in
some cases, but most Internet regulations shall have spillover effects.
Importantly, an international policy could be carried out in different
levels, not only by the industry, but also by the governments, gov-
ernmental organizations, etc., which adds authority to enforcement.
Furthermore, for those advocating governmental regulation on elec-
tronic commerce, an increasing degree of centralization of control
can be achieved by means of increasing international coordination
among existing sovereigns, through multi-lateral treaties and/or the
creation of new international governing bodies.97
Working in unison and in their own arenas, both policies are fun-
damental to the regulation of electronic commerce. While placing
Journal of Computer & Information Law 1011 (1998); S.K. Thomas, The Protection and
Promotion of E-Commerce: Should There be a Global Regulatory Scheme For
Digital Signatures?, 22 Fordham Int’l L.J. 1063 (March 1999); S. Tavakol, Digital
Value Units, Electronic Commerce and International Trade: An Obituary for State
Sovereignty over National Markets, 17 Journal of Computer & Information Law 1229–1232
(1999).
97
See generally G.S. Wood, The Radicalism of the American Revolution 262 (1992);
G. Stourzh, Alexander Hamilton and the Idea of Republican Government (1970); C. McManis,
Taking TRIPs on the Information Superhighway: International Intellectual Property
Protection and Emerging Computer Technology, 41 Vill. L. Rev. 207 (1996).
60 chapter three
importance on allowing the private sector to take the lead in the

economic and commercial development and implementation of Global
Information Infrastructure, Global Information Society (GII-GIS),
there is need for all social partners to become involved.98
2.1.3. Means to Implement an International Policy

There are two basic ways of enforcing international cooperation in
electronic commerce. Either there should exist a series of treaties
between international players, or they should create a supranational
body like WTO to deal with the electronic commerce. Governments
could enter into bilateral and multilateral cooperation agreements on
specific areas like recognition of foreign decisions and cross-border
investigations.99 Creating treaties on the Internet could help unify
the international practice and cut down the conflicts arising out of
different national provisions. Many scholars have discussed on the
possibility of law for the Internet aimed at avoiding disputes and
also facilitating dispute resolution. UNCITRAL has taken the ini-
tiative to formulate a model law for electronic commerce. A com-
plete international law for the Internet shall basically resolve the
question of applicable law in dispute resolution processes. This law
shall be discussed further later in this work.
It is the limited purpose of this section to discuss the second means
of enforcing international cooperation: the creation or empowerment
of an international body to regulate electronic commerce and under-
take the resolution of disputes. Indeed, several international organi-
zations have already launched efforts to pursue appropriate means
to resolve disputes in electronic commerce. Such steps to promote
an international environment are conducive to the growth of elec-
tronic commerce. Universal acceptance of common principles and
policies to underpin national and international actions is warranted.
98
See further OECD (1997b), Global Information Infrastructure—Global Infor-
mation Society, working paper 81.
99
For example, countries can share confidential information relating to the enforce-
ment of competition laws. See further N. Hachigian, Essential Mutual Assistance
in International Antitrust Enforcement, 29 Int’l Law., 117 (1995).
policy choice 61
2.2. International Attempts
2.2.1. General Remarks

Several international organizations have already launched efforts to
regulate electronic commerce within their jurisdiction. Some have
experimented with more formal dispute resolution procedures, which
serve as models for future practices. But as a result of their influence
on international society, their activities have achieved much more
publicity than self-regulation.
2.2.2. European Union (EU)

The EU is unique amongst international organizations in that it is
able to create norms that are legally binding on its members or
which confer rights and obligations directly onto its citizens. It has
long recognized the need to address the Internet questions and to
develop and implement a sound solution.100 Various EU regulations
have related to technological aspects of Europe’s economic integra-
tion.101 The first attempts to regulate computers occurred in 1991.102
On July 19, 1994, the European Commission presented a document
entitled Europe’s Way to the Information Society: An Action Plan,
which advocates a regulatory role for the EU.103 In April 1997, the
European Commission issued “A European Initiative in Electronic
Commerce,” which aims at encouraging the vigorous growth of
e-commerce in Europe by providing a coherent policy framework for
future community action and establishing a common European posi-
tion to achieve global consensus through international negotiations.104
100
S. Murray & R.L. Hudson, A Fair Deal and Real Choice, Wall St. J. Eur.,
March 14, 1996.
101
F.C. Mayer, Europe and the Internet: The Old World and the New Medium,
11 EJIL, No. 1, 156 (2000); J. Dickie, Internet and Electronic Commerce Law in the
European Union 3 (1999). Besides measures within the organization, the EU has
reached a Joint Statement with the US. See Joint E.U.—U.S. Statement on Electronic
Commerce, 5 December 1997, at <http://www.qlinks.net/comdocs/eu-us.htm>.
102
See J. Rosener, Cyberlaw: The Law of the Internet, 271 (1997). The EU issued
the Privacy Directive, which was later formally adopted by the European Council
of Ministers in 1995 as the Directive on the Protection of Personal Data.
103
See further Commission of the European Communities, Europe’s Way to the
Information Society: An Action Plan, (COM (94) 347 final, at Intro.), <http://
www.echo.lu/eudocs/en/com-asc.html>.
104
See further Commission Communication “A European Initiative in Electronic
Commerce”, COM (97) 157 of April 15, 1997, at 12–14, <http://www.ispo.cec.be/
ecommerce/answers/what.html>.
62 chapter three
The EU has done much to implement online dispute resolution.

In end of 1999, the European Commission launched a new initia-
tive entitled “eEurope-An Information Society for All”, which estab-
lishes goals for bringing the benefits of the Information Society within
the reach of all Europeans.105 One such goal is to encourage “on-
line dispute settlement” and alternative consumer redress procedures.
This goal was reformulated in the Directive on Electronic Commerce
issued in 2000,106 which set forth several key principles for deter-
mining an appropriate dispute resolution mechanism for electronic
commerce. The directive encourages inter alia, the drawing-up of
codes of conduct at community level by trade, professional, and con-
sumer associations and requires member states to provide in their
legislation for possibilities such as (electronic) out-of-court dispute res-
olutions.107 Additionally, the directive requires member states to ensure
that appropriate court actions are available and examine the need
to provide access to judicial procedures by appropriate electronic
means.108
2.2.3. World Trade Organization (WTO)

It was as late as 1998 that the WTO became involved with issues
of electronic commerce.109 On September 25, 1998, ministers adopted
the WTO Declaration on Global Electronic Commerce, which urges
the general council to establish a comprehensive work program to
examine all trade-related issues pertaining to global electronic com-
merce. While the electronic world poses certain challenges to the
present trade policy framework, traditional WTO principles of nondis-
crimination, transparency, and market openness remain valid for
105
See the European Commission’s Communications of December 8, 1999,
eEurope—An Information Society for All, (p. 9), European Commission Press Release
of December 8, 1999, IP/99/953, <http://europa.eu.int/comm/information_society/
eeurope/index_en.htm>.
106
See further Directive 2000/31/EC of the European Parliament and of the
Council of 8 June 2000 on certain legal aspects of information society services, in
particular electronic commerce, in the internal market, Official journal of the
European Communities, 17 July 2000, L 178/1.
107
See further Article 16 and 17 of the Directive on Electronic Commerce.
108
See further Article 18 of the Directive on Electronic Commerce.
109
See generally C.L. Mann & S.C. Knight, Electronic Commerce in the World
Trade Organization, in J. Schott (Ed.), The WTO after Seattle (Institute for International
Economics, July 2000); E-Commerce in the World Trade Organization: The Need
for a Horizontal Approach, International Communications Round Table, 12 July
2000.
policy choice 63
electronic commerce. The present framework only roughly provides

for those forms of electronic commerce changing the global economy.110
Much effort has been dedicated to involve them into the next round
of trade negotiations.111
As far as dispute resolution is concerned, WTO has a new mech-
anism for resolving disputes.112 Generally considered to be a major
improvement on the former WTO mechanism, this mechanism came
into being after the Uruguay Round of negotiations and has been
welcomed by most member states. Importantly, all trade disputes
arising out of the WTO framework shall be submitted to this mech-
anism for resolution.113 The WTO Dispute Settlement Understanding
establishes an integrated dispute settlement system for all multilat-
eral and plurilateral agreements under the WTO umbrella.
The problem with this mechanism for electronic commerce is its
exclusive availability to member states. This mechanism is not the
one to resolve a private dispute unless, of course, that dispute was
supported by a member state.
2.2.4. International Chamber of Commerce (ICC)

ICC is another organization dealing with international business. It
offers dispute resolution services through the ICC International Court
of Arbitration (the ICC Court) located in Paris, France. Demand for
arbitration under ICC rules continues to rise after their first revision
in 20 years came into force at the beginning of 1998. The updated
110
For a detailed discussion of the present WTO framework for electronic com-
merce, see H. Hauser & S. Wunsch-Vincent, A Call for a WTO E-Commerce
Initiative, 6 Int’l J. Comm. L. & Pol’y 1–30 (Winter, 2000/2001).
111
According to suggestions by the EU, the future WTO work program on elec-
tronic commerce should be subjected to the General Council rather than frag-
mented throughout the WTO, or put under the Services Council.
112
For discussion on the WTO mechanism, see L. Wang, Some Observations
on the Dispute Settlement System in the World Trade Organization, 29 JWT, No.
2, 173–178 (1995); G. Horlick, Dispute Resolution Mechanism: Will the United
States Play by the Rules?, 29 JWT, No. 2, 163–171 (1995); E. Vermulst & B.
Drissen, An Overview of the WTO Dispute Settlement System and its Relationship
with the Uruguay Round Agreements: Nice on Paper but Too Much Stress for the
System?, 29 JWT, No. 2, 131–161 (1995); N. Komuro, The WTO Dispute Settlement
Mechanism: Coverage and Procedures of the WTO Understanding, 29 JWT, No.
4, 5–95 (1995); P.T.B. Kohona, Dispute Resolution under the World Trade
Organization: An Overview, 28 JWT, No. 2, 23–47 (1994).
113
EU Committee Position Paper on the Millennium Round, September 1999,
at <http://www.eucommittee.be/pop/pop1999/Tra/trade%2023.htm>.
64 chapter three
rules make the system more flexible and user-friendly.114 Based on

its traditionally commercial nature, this center is one of the most
welcomed participants in the commercial world. While most arbi-
tration institutions are regional or national in scope, the ICC Court
is truly international. Composed of members from some 60 coun-
tries and every continent, the ICC Court is the world’s most widely
represented dispute resolution institution.115
In the era of electronic commerce, ICC initiatives include policy
making, e-commerce projects, instruments, and services.116 The ICC
Information Security Working Party drafted General Usage for
International Digitally Ensured Commerce (GUIDEC) under the aus-
pices of the ICC Electronic Commerce Project.117 This document
intends to draw together the key elements involved in electronic com-
merce and provide an indicator of terms and an exposition of the
general background of the issue. Though it has no direct relation-
ship with dispute resolution, it suggests a so-called digital signature
or authentication, which does provide a solid basis for carrying out
online business and facilitating dispute resolution.
The ICC also led the way in drawing up a Global Business Action
Plan for Electronic Commerce that has been submitted to OECD
ministers. This plan advocates the development of a tailor-made,
speedy, and expert-oriented mechanism for resolving disputes in elec-
tronic commerce. In the meantime, it suggests governments to encour-
age the use of self-regulatory dispute resolution mechanisms as an
effective way of resolving disputes; courts, in particular, should develop
electronic expertise.118 As regards jurisdiction, the plan recognizes the
validity of alternative dispute resolution mechanisms, which are being
developed by existing dispute resolution institutions and require coop-
erative efforts by the legal profession at an international level.
114
Business Consultancy—Overseas and Local, <http://www.firmholdings.com.au/
bus-consultancy.html>.
115
The ICC International Court of Arbitration: Introduction to Arbitration,
<http://www.iccwbo.org/court/english/arbitration/introduction.asp>.
116
Dawn C. Valdivia, Panel Report: Panel I: Report on the E-Commerce Activities
of the OAS, ICC, ABA, and Unicitral, 17 Ariz. J. Int’l & Comp. Law 113 (Winter 2000).
117
General Usage for International Digitally Ensured Commerce, <http://www.
iccwbo.org/home/guidec.asp>.
118
A Global Action Plan for Electronic Commerce, supra note 68.
policy choice 65
2.2.5. Organization for Economic Cooperation and Development (OECD)

The OECD has been rather active in the field of electronic com-
merce. It provides a forum for public-private dialogue and analysis
to deal with the technological realities of the global economy. In the
autumn of 1998, Consumer International (CI) called for the imple-
mentation of guidelines drafted in Guidelines for Consumer Protection
in the Context of Electronic Commerce, which include consumer
redress measures. Although not binding, they help direct govern-
ments to provide consumers with basic protection, educate consumers
and businesses of their rights and responsibilities, and facilitate ADR
mechanisms.119 They acknowledge a need for mechanisms to resolve
international disputes and suggest that existing international com-
mercial bodies should be encouraged to take on this role.120
2.2.6. World Intellectual Property Organization (WIPO)

WIPO deals with the issue of intellectual property. Its connection to
electronic commerce results from the fact that many disputes aris-
ing out of electronic commerce have been closely related to the pro-
tection of intellectual property. Furthermore, the WIPO Mediation
and Arbitration Center (the WIPO Center) have already been suc-
cessful in carrying out dispute resolution services. Based in Geneva,
Switzerland, the WIPO Center was established in 1994 to offer arbi-
tration and mediation services for the resolution of international com-
mercial disputes between private parties. The center has since focused
significant resources on establishing an operational and legal frame-
work for the administration of disputes relating to the Internet and
electronic commerce.
Accommodating the trend of liberalization in the Internet sphere,
a not-for-profit corporation entitled the Internet Corporation for
Assigned Names and Numbers (ICANN) was developed in the US
119
C.L. Mann, S.E. Eckert & S.C. Knight, A Policy Primer: Global Electronic
Commerce, 136 (Institute for International Economics, 2000); see also K. Alboukrek,
Adapting to a New World of E-commerce: The Need for Uniform Consumer
Protection in the International Electronic Marketplace, 35 George Washington International
Law Review 444–446 (2003).
120
See Cryptography Policy Guidelines and the Report on Background Issues of
Cryptography Policy, OECD Privacy Guidelines in the Electronic Environment: Focus
on the Internet, 1997, at <http://oecd.org/dsti/sti/it/secur/pro/GD97–204.htm>.
See also C. Swindells & K. Henderson, Legal Regulation of Electronic Commerce,
3 The Journal of Information, Law and Technology ( JILT), (1998), at <http://elj.war-
wick.ac.uk/jilt/98–3/swindells.html>.
66 chapter three
to take over the management of the domain name system (DNS).121

The WIPO was the designated dispute resolution provider for dis-
putes involving this system. The mechanisms it has employed in deal-
ing with such cases will be addressed in Chapter Five.
Its role in assisting the Application Service Provider Industry
Consortium to develop a set of guidelines and best practices for
cross-border dispute avoidance and settlement has further strength-
ened WIPO’s pioneering position in the pursuit of a best practice
for dispute resolution in electronic commerce. Based in Wakefield,
Massachusetts, the consortium is an international advocacy group
consisting of more than 650 companies. It was formed in May 1999
to promote the application service provider industry by sponsoring
research, promoting best practices, and articulating the measurable
benefits of this evolving delivery model. With demands for ASP
market growing and the number of disputes rising as a result of the
failure of providers to meet service-level commitments to end-user
satisfaction, the consortium requested the WIPO to do research on
dispute avoidance and settlement for the Industry. A white paper
entitled ASPresolve: Dispute Avoidance and Resolution Best Practices
for the ASP Supply Chain contains a summary of the recommen-
dations and guidelines WIPO offered.
The white paper identifies characteristics of ASP supply chain dis-
putes: one-to-many, multi-jurisdictional, problem-sourcing complexi-
ties, cutting-edge legal and business issues, symbiotic relationships,
unique characteristics of the parties and wide value range.122 Unfor-
tunately, their complex nature suggests that even with the most com-
prehensive and well-conceived risk management and dispute avoidance
measures in place, there will be always situations when disputes arise
to the level where settlement is required. Litigation is not done away
121
The formation of a not-for-profit corporation presents a unique challenge and
opportunity for the Internet community. For information on the development of
the ICANN, see further Domain Name Resolutions: CPSR Proposals for the New
Corporation, <http://www.cpsr.vacia.is.tohoku.ac.jp>. For analysis of the ICANN, see
K. Perine, Throwing Rocks at ICANN, <http://www.thestandard.net/article/
display>, viewed on 27 March 2000.
122
For further description of the characteristics, see A.H. Ali & N. Shah, Executive
Summary: Dispute Avoidance and Resolution Best Practices, Dispute Avoidance
and Resolution Team (DART), Best Practice Committee, International Conference
on Dispute Resolution in Electronic Commerce, WIPO, November, 2000, ARB/
ECOM/00/25a.
policy choice 67
with. Alternative dispute resolution mechanisms are merely being

experimented with and recommended for resolving disputes between
ASPs and their vendors, partners, and customers.
The white paper lists ADR techniques in order of their formality.
The least formal technique is negotiation, the most formal one is lit-
igation, and in-between from least formal to most formal are settle-
ment counsel, mediation, mini-trial, early neutral evaluation, neutral
fact-finding expert, ombudsperson, dispute review board and arbi-
tration. The following important features of these techniques are
identified to assist disputing parties in choosing an appropriate model
for their case: the underlying business model, the contractual rela-
tionship, the amount in controversy, and the identity of the parties
involved.
The white paper further advises a dispute resolution clause be
included in their initial commercial agreement, which could provide
both parties with a degree of certainty regarding dispute resolution.
Model clauses are based on a DART review of numerous clauses
provided by the ASP Industry Consortium members, a wide range
of resources at the WIPO Center and views expressed by a group
of leading experts in the field of dispute resolution. Dispute resolu-
tion can be conducted ad hoc depending on the particular arrange-
ments of the parties, or processed according to set of rules made
available by an institutional dispute resolution service provider.
2.2.7. Analysis
The nature of the Internet has required international efforts in resolv-
ing disputes arising out of its application. In the quest for appro-
priate dispute resolution mechanisms, international organizations are
apparently the right bodies to represent the international commu-
nity as a whole.
The WTO’s dispute resolution mechanism cannot access private
parties. However, the ICC International Court of Arbitration has no
problem in dealing with disputes in electronic commerce. Though
its arbitration rules are not tailor-made for disputes arising out of the
Internet, the ICC has been actively involved in electronic commerce.
The success of the WIPO in conjunction with ICANN in facili-
tating arbitration domain name disputes reveals possibilities for inter-
national organizations. Not only is international cooperation useful,
but it is requisite. Only through international cooperation can the
heavy demands of the digital society be satisfied.
68 chapter three
3. The Policy of Consumer Protection
Recent heated discussion regarding consumer protection has led to

advances in legislation.123 Generally speaking, there are two categories
of guarantees for consumers: legal guarantees, which create reme-
dies for consumer goods or services that do not conform to the con-
tract; and commercial guarantees, which create remedies for consumer
goods or services that do not conform to the seller’s express promises
about the transaction.124 A popular catch-phrase in media and pol-
itics nowadays, consumer protection proposes protection for the real
bearer of goods or services, which includes laws that mandate an
increase in the amount of information available to them and laws
that may expose commercial actors to increased liability.
Considering the important role the consumers maintain, together
with the reality that consumers are usually individuals and thus in
a weak position, it is more than necessary to provide them with ade-
quate protection. This standpoint is acceptable to merchants as well
as consumers, as without consumers, their original purpose for trans-
acting is moot. Consumer protection policies will urge consumer
confidence and thus further their participation in transactions and
improve business.
Are consumers equally protected when transacting on the Internet
and when transacting in a traditional environment, and is their pro-
tection always adequate? Consumers would expect to see their inter-
ests being protected on the Internet, but the increasing cross-border
nature of electronic commerce makes it difficult to protect consumers
from fraud and other damaging activities.125 Attempts by consumers
to enforce their rights through private law suits naming foreign defen-
dants are subject to all of the difficulties experienced by government
agencies attempting to enforce law across borders. The costs of main-
123
For a general background of consumer protection law, see J.A. Spanogle et al.,
Consumer Law (1991); D.J. Whaley, Problems and Materials on Consumer Law (1991).
124
This is shown in Article 2 and 3 of the Amended Proposal for a Directive
of the European Parliament and of the Council on the Sale of Consumer Goods
and Associated Guarantees in April 1998. For further analysis, see G.T. Brady,
Consumer Protection in the European Community: Hope for the Consumer or
Unfulfilled Promises?, 23 North Carolina Journal of International Law & Commercial
Regulation, 166–172 (Fall, 1997).
125
J. Rothchild, Protecting the Digital Consumer: The Limits of Cyberspace
Utopianism, 74 Indiana Law Journal, 925 (Summer 1999).
policy choice 69
taining an action against a defendant located outside national juris-

diction are likely to deter all but the most seriously injured consumers
from pursuing this option.126 Traditional consumer protection policies
are unsuitable for the Internet age and require timely adjustment.
3.1. General Understanding of Consumer Protection in Electronic Commerce

As early as 1998, OECD recommended that the “same level of pro-
tection provided by the laws and practices that apply to other forms
of commerce should be afforded to consumers participating in com-
mercial activities through the use of global networks”.127 Consumer
protection is not only important to parties in normal transactions,
but is also vital to electronic commerce.
Consumer protection faces a severe challenge from the revolution
brought by the Internet with regard, inter alia, to commercial commu-
nications and contracts concluded at a distance. The applicability
and effectiveness of traditional rules of consumer protection in the
online environment is limited. Traditionally, consumers were those
within the national borders over which the state and its policy were
sovereign. Traditional policy is not easily applied to everyday con-
sumers who are players on the global market, even when that mar-
ket exists in the real world.128 With the development of an invisible
world, in which consumers from all corners of the globe do busi-
ness, difficulties in implementing traditional law are exacerbated.
126
See G. Rosenberg, Legal Uncertainty Clouds Status of Contracts on Internet,
N.Y. Times, July 7, 1997, at D3.
127
OECD, DSTI/CP(98)4, April 1998, Section 27. This draft has been revised
twice: DSTI/CP(98)4/REV1; DSTI/CP(98)4/REV2. This statement could be seen
as a minimum basis since better protection could be provided answering the specific
needs of consumers participating in electronic commerce.
128
International transactions are problematic for the consumers due to issues con-
cerning the applicable law, differences between national laws, and difficulties involved
in actually invoking the commercial guarantee. The impact of these problems is
significant since consumers who have had trouble with cross-border transactions will
be reluctant to repeat the experience. It is thus necessary for guarantees concern-
ing products purchased by consumers in another country to be honoured without
discrimination in the consumers’ country of residence. See for example, Commission
Proposal for a European Parliament and Council Directive on the Sale of Consumer
Goods and Associated Guarantees, COM (95) 520 final at 3–4; Commission Green
Paper on Guarantees for Consumer Goods and After-Sales Services, COM (93) 509
final at 8–9; see also T.C. Hartley, The Foundations of European Community Law 11
(1994).
70 chapter three
The current legal system protects consumers in a variety of ways.

Specific legislation has been passed and institutions have been cre-
ated to implement policy.129 But these measures cannot sufficiently
provide one-for-all protection to consumers. Consumers today still
face lots of difficulties or unfair treatment in transactions. They are
pressured by strongly organized production and distribution groups,130
who exert more control than consumers do over market conditions.131
For better or worse, electronic commerce is modifying the way
consumers transact. With the help of the Internet, business is pierc-
ing borders and offering consumers greater access to goods and ser-
vices at lower prices. Online companies are trying their best to attract
and retain consumers.132 Consumers are in a comparatively better
position than companies.133 According to the media, stiff merchant
competition has offered consumers the upper hand in on-line trans-
actions, especially in the area of sales and services.134 They are cer-
tainly being provided with more opportunities to participate in
economic decision-making and implementation through which they
can protect themselves. Some suggest consumer self-help as an avenue
for consumer protection.135 This is understandable since Internet users
129
See further Interim Report on New Approaches to Consumer Law in Canada,
Industry Canada, October 1996.
130
See further the Council Resolution on a Preliminary Program of the European
Economic Community for a Consumer Protection and Information Policy, 1975
O. J. (C 92), at 3, paragraph 6.
131
See further F.E. Zollers, S.N. Hurd & P. Shears, Consumer Protection in the
European Union: An Analysis of the Directive on the Sale of Consumer Goods
and Associated Guarantees, 20 U. Pa. J. Int’l Econ. L., 99 (Spring 1999).
132
The online companies take various measures, which include giving away fre-
quent flyer miles and points towards product purchases, increasing site speed, improv-
ing customer services, and even giving away cash. See further S.C. Miller, Anybody
in There? Sites Strain to Build in Customer Service, N.Y. Times, September 22,
1999, at D51.
133
See further D.T. Rice, Jurisdiction in Cyberspace: Which Law and Forum
Apply to Securities Transactions on the Internet? Appendix, 21 U. Pa. J. Int’l Econ.
L., 589 (Fall 2000).
134
See further S. Hansell, A Feeding Frenzy Made for Consumers, N.Y. Times,
September 22, 1999, at D1; E. Goode, The Online Consumer? Tough, Impatient and
Gone in a Blink, N.Y. Times, September 22, 1999, at D22; T. Golsberg, Online Shop-
ping Gets Sticky, October 18, 1999, at <http://www.msnbc.com/news/302106.asp>;
B. Sullivan, Surfing —and Recruiting —for Cash, October 6, 1999, at <http://
www.msnbc.com/news/319148.asp>.
135
See further D. Pridgen, Wyoming Division: Speech: How Will Consumers be
Protected on the Information Superhighway?, 32 Land & Water Law Review, 253–255
(1997); R. Frieden, Does a Hierarchical Internet Necessitate Multilateral Intervention?,
26 N.C.J. Int’l Law & Com. Reg. 400 (Spring 2001).
policy choice 71
label themselves as “netizens” or citizens of the Internet world and

agree to abide by their own self-imposed rules of “netiquette”.136
Is it necessary to emphasize consumer protection in electronic
commerce since consumers are better protected now? The answer is
yes.137 Consumer protection policy is needed in the world of elec-
tronic commerce for main reasons: to facilitate consumer transactions;138
to respond to the increased ambiguity and risk in online transac-
tions;139 to deal with market failure; to protect consumer interests in
the formulation of legislation regarding Internet transactions.140, 141
136
M.A. O’Rourke, Fencing in Cyberspace: Drawing Borders in a Virtual World,
82 Minn. L. Rev. 609, 641 (1998).
137
The EU tries to utilize consumer protection laws to address the imbalance of
economic power between e-business and consumers. On the other hand, the US
feels that the Internet’s rapid changing technology would quickly outstrip and out-
date any consumer protection laws and that government can do little to effect con-
sumer protection except when fighting cybercrime. See further G. Miller, Clinton Pushes
Initiatives for Electronic Commerce, L.A. Times, December 1, 1998, at C3, P10.
138
The lack of regulation shall hinder sales and cause consumers anxiety. See
further J. Covitz, A Framework for Global Electronic Commerce, 1075 PLI/Corp.
11 at 22, 25; C.E. Dubuc, Cyberspace: The Advertising Super Highway—Some
Bumps Need Repair, 790 PLI/Comm 165 (April 1999); A. Boss, The Internet and
the Law: Searching for Security in the Law of Electronic Commerce, 23 NOVA
Law Review, 583, 590–596 (Winter 1999); J.K. Winn, Open Systems, Free Markets,
and Regulation of Internet Commerce, 72 Tulane Law Review, 1177, 1190 (March
1998).
139
The lack of physical communication between contracting parties can cause
each to become sceptical about the others. See B. Wright & J.K. Winn, The Law
of Electronic Commerce (1999), at 13.03, 14.02; A. Boss & J.K. Winn, The Emerging
Law of Electronic Commerce, 52 Bus. Law. 1469 (August 1997); R. Nimmer, Selling
Products Online: Issues in Electronic Commerce, 467 PLI/Pat 823 ( January 1997).
140
See, for example, Uniform Computer Information Transactions Act (UCITA);
Uniform Electronic Transactions Act (UETA), both available at <http://www.law/
upenn.edu/bll/ulc_frame.htm>; United Nations Commission on International Trade
Law (UNCITRAL) Model Law on Electronic Commerce, at <http://www.unci-
tral.org/english/texts/electcom/ml-ec.htm>; Proposal for a European Parliament
and Council Directive on Certain Legal Aspects of Electronic Commerce in the
Internal Market, COM (1998) 586 final-98/0325 (COD); Directive 97/7/EC of the
European Parliament and of the Council of 20 May 1997 on the Protection of
Consumers in respect of Distance Contracts, 1997 O.J. L 144, at <http://europa.eu.int/
eur-lex/en/lif/1997/en_397L0007.html>; Canada’s Personal Information Protection
and Electronic Documents Act (Bill C-6), at <http://www.parl.gc.ca/36/2/parlbus/
chambus/house/bills/government/C-6/C-6_3/C-6_cover-E.html>; International
Chamber of Commerce General Usage for International Digitally Ensured Commerce
(GUIDEC), at <http://www.iccwbo.org/home/guidec/guide.asp>; OECD Guidelines
for the Security of Information Systems (1992), at <http://www.oecd.org//dsti/
sti/it/secur/prod/e_secur.htm>.
141
For a detailed explanation, see further S. Zain, Regulation of E-Commerce
by Contract: Is It fair to Consumers?, 31 University of West Los Angeles Law Review,
166–170 (2000).
72 chapter three
Acknowledging the important role electronic commerce shall play

in the coming economic world and the necessity of consumer pro-
tection in electronic commerce, many countries have set up com-
missions to study possible ways of realizing such policy. On December
14, 1998, the Federal Trade Commission (FTC) announced that it
would organize a workshop on consumer protection in the global
electronic marketplace.142 Its work in protecting consumers online
was highlighted in the First Annual Report of the US Government
Working Group on Electronic Commerce.143 The European Com-
mission has also attempted to harmonize EU mechanisms for dealing
with consumer protection in the field of electronic commerce. The
newly drafted Directive on Electronic Commerce, for instance, con-
tains a kind of emergency brake for the protection of consumers and
investors.144
Nevertheless, the inherently international nature of digital networks
and computer technologies that comprise the electronic marketplace
necessitates a global approach to consumer protection. Policies for
consumer protection should be developed as part of a transparent
and predictable legal and self-regulatory framework for electronic
commerce.145 OECD has rightly undertaken this initiative. In April
1998, the OECD Committee on Consumer Policy began to develop
a set of general guidelines to protect consumers participating in elec-
tronic commerce without erecting barriers to trade. These guidelines
are likewise important to harmonizing standards of consumer pro-
tection among various countries.
Such guidelines address consumer protection in electronic com-
merce as a whole, not specifically in dispute resolution. Determining
how to realize consumer protection in resolving disputes related to
the Internet is another matter.
142
FTC to Study Consumer Protection in International Electronic Commerce,
Tech Law Journal, <http://www.techlawjournal.com/internet/81215.htm>. The work-
shop explores various issues that consumers confront as they buy goods or services
from foreign businesses; these issues concern questions of what laws apply to direct,
international business-to-consumer transactions, where disputes are heard, and which
governments have authority to protect consumers.
143
FTC to explore International Consumer Protection Concerns in the Electronic
Marketplace: Spring Workshop to Examine How to Protect Online Consumers
When They Do Business with Foreign Firms, <http://www.techlawjournal.com/inter-
net/81215.htm>.
144
See further Article 3 (4) (a) of the Directive on Electronic Commerce.
145
Recommendation of the OECD Council Concerning Guidelines for Consumer
Protection in the Context of Electronic Commerce, <http://www.ftc.gov/opa/1999/
9912/oecdguide.htm>.
policy choice 73
3.2. Consumer Protection in Dispute Resolution with the Internet as a

Medium
There are various legal systems in place to protect consumers.146
However, consumers still face a variety of problems. For example,
they do not have enough choices in the markets and often have
difficulties in understanding contract terms. More importantly, con-
sumers still do not always have effective methods for asserting their
rights and resolving disputes.147
Businesses have long acknowledged that information distribution
is very important to their survival because without relevant knowl-
edge at hand, consumers may choose not to spend money on par-
ticular products or services. In consequence, they struggle to make
themselves and their products known to consumers using all avail-
able forms of communication: radio, television, newspapers, maga-
zines and billboards.
However, the relatively high cost of advertising through the media
mentioned above has largely limited the scope of information pre-
sented. Most of the time, only a small amount of information can
be conveyed. This issue is less important for those researching sim-
ple products or products about which consumers generally have a
fair amount of knowledge. But when it comes to more complicated
products or services, the lack of information available has adverse
effects on consumer confidence. With doubts in mind, customers may
fail to make a transaction. Or worse, they do purchase some dubi-
ous product over which disputes then immediately arise.
Often when important or expensive products are exchanged, a
formal contract stipulates the rights and duties of each party. The
general practice is that a standard contract shall be deemed to have
been agreed upon by both parties once consumers accept the prod-
uct. As a consumer, you rarely need to negotiate the detailed pro-
visions in the final contract because most of such contacts are
pre-prepared, even put in the boxes containing products you pur-
chase. Reviewing contract details after receiving a purchase may
seem counterintuitive, but there is no better realistic alternative.148
146
For example, the common law of contracts and the Uniform Commercial
Code afford traditional safeguards to consumers.
147
See further G.E. Maggs, Internet Solutions to Consumer Protection Problems,
49 South Carolina Law Review, 889 (Summer 1998).
148
See, for example, Hill v. Gateway 2000, Inc., 105 F.3d, 1147–1151 (7th Cir.
1997).
74 chapter three
Various scholars debate the appropriateness of standard contracts,149

but the fact is that these contracts are widely used in modern com-
merce and the burden of risk is undertaken by consumers no mat-
ter how unfair doing so may appear. When disputes arise, courts
give preference to businesses concerning such contracts.
Apparently, how well consumers are protected before disputes and
during dispute resolution shall to a certain extent depend on early
disclosure of contract provisions. Yet when provisions are available
to consumers, the diction of these provisions may pose a problem.
Their legal wording, for instance, is difficult for laymen to under-
stand.150 In resolving this dilemma, general legal practice has again
nudged consumers between a rock and a hard place. Consumers are
expected to thoroughly read and live up to contractual provisions,
except in exceptional cases when the wording of the provision is
regarded as incomprehensible. In such cases, it can be argued that
businesses could take a more active role in communicating contract
information, whether by phone, fax, or verbal communication. But
the cost of doing so may then add to transaction costs, which are
always shifted back to the consumer.
The Internet can provide technological solutions to such problems.
Accessible to people all over the world, the Internet can transfer
detailed information to innumerable consumers both cheaply and
efficiently.151 Businesses can post basic contract information as well
as explanatory information, including audio resources, for their con-
sumers in cyberspace. In this way, businesses save on advertising
costs and consumers have full and transparent access to their contracts.
The Internet also offers an alternative to the courtroom. Historic-
ally, informal consumer complaints have been of no consequence.
Consumers have had to rely on bodies of law to persuade businesses
149
See M.I. Meyerson, Efficient Consumer Form Contracts: Law and Economics
Meet the Real World, 24 Ga. L. Rev. 597–600 (1990); T. Rakoff, Contracts of
Adhesion: An Essay in Reconstruction, 96 Harv. L. Rev. 1173, 1226 (1983).
150
The attendant cost of attempting to understand such legal wording would out-
weigh the perceived benefits as far as time, effort, and money were concerned. See
further R. Barnett, The Sounds of Silence: Default Rules and Contractual Consent,
78 Va. L. Rev. 821, 886 (1992).
151
A potential user only has to pay an Internet hosting provider a small monthly
fee for space on a computer accessible through the Internet. Many of the providers
allow a user to obtain space online in a matter of hours simply by transmitting
credit card information. A list of Internet hosting providers can be found at <http://
www.nerdworld.com/nw500.html>.
policy choice 75
to cooperate once disputes arise. But the cyber-world gives weight

to consumer commentary. The Internet provides consumers with a
forum in which to complain to businesses as well other potential
consumers.152 Many businesses monitor consumer opinions web sites
carefully to ensure that no public relations problems emerge.153 In
fear of losing business, merchants eagerly and quickly work to resolve
disputes.
Obviously, the Internet can impact both consumers and businesses
alike in terms of dispute resolution. But the evidence presented thus
far leaves aside important legal issues for which this document must
account.
3.3. Consumer Protection in Electronic Commerce Dispute Resolution

The most effective way of protecting consumers in dispute resolu-
tion is to provide them with access to redress.154 And presumably,
with the rise in the use of the Internet for exchanging ideas and
complaints, consumer protection can be improved. But this is not
consumer protection in the legal sense. In former legal regimes, many
national consumer protection laws even prohibited arbitration in dis-
putes arising out of consumer transactions.155 Whether or not such
law is still applicable is the issue at hand, and can be best dealt with
by examining the representative legal efforts of two regions, the US
and the EU.
3.3.1. The US Practice

The US has relatively few consumer protection laws.156 However, an
agency called the FTC157 has been protecting consumers online since
152
Consumers have already established more than one hundred web sites to air
their complaints about major businesses. See, for example, the web site of Wal-
Mart Sucks, <http://www.walmartsucks.com>.
153
See J. Tanaka, Foiling the Rogues: “Anti” Web Sites are Great for Angry
Customers, but Now Companies Are Trying to Fight Back, Newsweek, October 27,
1997, at 80.
154
As Professor T. Fukuhara says, the application of damage recovery is an
important aspect of consumer protection. OECD Proceedings: Gateways to the
Global Market: Consumers and Electronic Commerce, 119 (1998).
155
For example, Article 1d of Chapter 11 of the Finnish Consumer Protection
Act of 1978 ( January 20, 1978/38) provides disputes in consumer transactions are
non-arbitrable.
156
Maggs, supra note 147, at 887–889.
157
The FTC is the only US agency at the national level with a broad consumer
76 chapter three
1995.158 One of its core missions has been to promote the efficient
functioning of the marketplace by protecting consumers from unfair or
deceptive acts or practices and increasing consumer choice by pro-
moting vigorous competition.159 As stated in the FTC Act section 5,
this mission does not distinguish between online and offline com-
merce.160 Other rules and statutes enforced by the FTC do specifically
concern online commerce.161 It is aggressive with its approach to the
Internet world, and it needs to be, lest the Internet deteriorate into
“the Wild West”.162
The FTC has proposed a 4-part strategy for consumer protection.
Firstly, it emphasizes the importance of consumer and business edu-
cation. Realizing that educating those who are new to the Internet
or unfamiliar with the general requirements of advertisement, the
FTC’s Office of Consumer and Business Education, sometimes in
cooperation with private businesses or consumer organizations, pro-
duces publications targeted at particular consumer problems and
compliance requirements.163 Making use of its own home page and
other cooperative web sites,164 it alerts consumers to the latest scams
and offers channels for reporting possible violations. It distributes
protection law enforcement mandate. It also enforces a variety of antitrust laws as

part of its mission to maintain competition.
158
See further FTC, Anticipating the 21st Century: Consumer Protection Policy
in the New High-Tech, Global Marketplace, Volume II (last modified November
6, 1996), <http://www.ftc.gov/opp/global/report/global2.htm>.
159
FTC Act 5(a), 15 U.S.C. 45 (a) (1994).
160
See further R.B. Starek, III & L.M. Rozell, A Cyberspace Perspective: The
Federal Trade Commission’s Commitment to On-Line Consumer Protection, 15
J. Marshall J. of Computer & Info. L. 683–684 (Summer, 1997).
161
For example, the Mail or Telephone Order Merchandise Rule, 16 C.F.R.
435 (1997) applies not only to goods ordered by mail or telephone but also to goods
ordered by fax or computer. Note the Fair Credit Billing Act, 15 U.S.C 1666–1666j
(1994); the Electronic Fund Transfer Act, 15 U.S.C. 1693–1693r (1994) and its
implementing regulation E, 12 C.F.R. 205 (1997).
162
The FTC has entered into consent agreements with nine online advertisers
who allegedly engaged in unfair and deceptive trade practices as early as 14 March
1996. See further FTC Tackles Fraud on the Information Superhighway, Charges
Nine On-Line Scammers, at <http://www.ftc.gov/opa/9603/netsc.htm>; Internet
Advertisers are Targets in Nine FTC Cases; Eight Firms Settle, 70 Antitrust & Trade
Reg. Rep. (BNA) 320 (21 March 1996).
163
Most of the publications are available at the FTC Home Page, <http://
www.ftc.gov>.
164
This could include the web site of the Council of Better Business Bureau
<http://www.bbb.org> and the National Fraud Information Center <http://www.
fraud.org> of the National Consumer League.
policy choice 77
informative brochures165 and organizes various workshops to advance

study on legitimate practice.166
Secondly, the FTC supports law enforcement as an effective means
to protect consumer interests. It often attempts to prevent future
damage to consumers through the issuance of court or commission
orders prohibiting misleading practices167 and seeks redress or dis-
gorgement of illicitly obtained funds.168 Section 5 of the FTC Act
primarily addresses the prohibition of fraudulent online marketing.169
A highly publicized technique called Sweep has been developed to
attack similar law violations, such as fraudulent prize promotions or
advance fee loan scams.170 Complaints can be sent through FTC’s
web complaint form. Moreover, Implementing Regulation E of the
Electronic Fund Act171 provides methods for collecting errors and
resolving disputes.172
Thirdly, the FTC encourages self-regulation by the industry.
Fourthly, the FTC upholds an inclusive approach to policy making.
The FTC takes seriously the issue of consumer protection in the
global electronic marketplace.173 It has made policy recommendations
to realize consumer protection in dispute resolution.174
165
The FTC has already published a consumer bulletin entitled Online Scams:
Road Hazards on the Information Superhighway, at <http://www.ftc.gov/bcp/
scamso1.htm>.
166
For example, the June 1999 workshop on global issues and later ADR work-
shop, etc.
167
See 15 U.S.C. 53 (b) (1994).
168
See 15 U.S.C. 57 (b) (1994).
169
See further Starek, supra note 160, at 686–694. So far, these have targeted
credit repair schemes, business opportunities, pyramid scams and deceptive billing
practices.
170
See further Starek, supra note 160, at 687. This technique makes efficient use
of information that is shared among different law enforcement authorities and results
in greater publicity for law enforcement actions that, in turn, increases consumer
awareness of fraud and deters fraudulent marketers.
171
Electronic Fund Transfer Act, 15 U.S.C. 1693–1693r (1994); Electronic Fund
Transfers (Regulation E), 12 C.F.R. 205 (1997).
172
15 U.S.C. 1693f; 12 C.F.R. 205.11.
173
See, for example, FTC to Study Consumer Protection in International Electronic
Commerce, Tech Law Journal, <http://www.techlawjournal.com/internet/81215.htm>.
When considering the industry’s difficulty in adopting self-regulatory techniques,
quick enforcement of self-regulatory policies seems less than realistic. For the time
being, US policies leave consumers with little recourse for electronic commerce
disputes.
174
The following discussion is based on the Public Workshop, June 6–7, 2000
by Department of Commerce of FTC, a summary of which can be found at
<http://www.ftc.gov/bcp/altdisresolution/summary.htm>.
78 chapter three
Firstly, a workable framework for jurisdiction shall be developed.

Litigation has been traditionally regarded as the one main way of
realizing legal justice. In the field of electronic commerce, some schol-
ars have advocated the doctrine of country of origin. The FTC,
however, does not support this suggestion. There are multiple dis-
advantages to the application of a doctrine so biased to a seller that
it allows him to choose possible forums and applicable law. It not
only obligates consumers to understand the laws of other countries
but also, in most cases, deprives them of redress; the complexities
entailed by redress are too intense. Additionally, it deprives govern-
ments of their ability to protect their consumers. The strict use of
such a doctrine could be detrimental to the further development of
electronic commerce. An alternative, sustainable framework of juris-
diction, will be discussed later.
Secondly, legal convergence shall be pursued. Appropriately con-
verged consumer protection laws should provide a basic structure for
protecting consumers no matter which country they reside in. They
shall in turn make less burdensome the fabrication of jurisdictional
structure.
Thirdly, the FTC encourages private sector initiatives. As we dis-
cussed, self-regulation shall be an appropriate choice for dispute res-
olution in electronic commerce.175 Private sector initiatives shall better
inform consumers and prevent disputes.
Fourthly, cross-border consumer redress and enforcement are
emphasized. The FTC insists possible ways for realizing justice should
be made available to international consumers. Moreover, it believes
coordinating the legal activities among different countries and sup-
porting their valuable judgements to be important to both legal and
commercial aspects of the new electronic world.
The aforementioned recommendations support the use of the cheap
and efficient ADR for dispute resolution. Litigation and the enforce-
ment of judgments are expensive and require the additional invest-
ment of time. Formal procedures are particularly expensive for parties
disputing over small amounts.
175
W.J. Clinton, Memorandum for the Heads of Executive Departments and
Agencies, at PP 10, 12 (1) ( July 1, 1997), at <http://www.ecommerce.gov/presi-
den.htm>; Info. Society: Common Launches Debate on Virtual World, European
Report, February 4, 1998, at No. 2288, at P3; Miller, supra note 137, at C3, at PP
1–5; W.M. Daley, U.S. Secretary of Commerce, The Administration’s Position on
Electronic Commerce: Let Markets, Not Regulations, Define How Electronic Com-
merce Matures, at <http://www.ecommerce.gov/16.htm>.
policy choice 79
To realize an appropriate framework for the use of ADR in elec-

tronic commerce, international cooperation is needed. Globally com-
patible dispute resolution systems for electronic commerce require
cooperation among governments.176
Technological innovation should also positively effect the use of
ADR in electronic commerce. Information technology can help con-
sumers protect themselves by encouraging compliance on the part
of businesses. Potential advances in technology used for transferring
relevant documents and downloading evidence and improvements in
audio or video communication could additionally help to facilitate
dispute resolution by reducing outside interference and procuring
objectivity.
Within the new ADR framework, law enforcement is needed. At
the moment, the FTC still has law enforcement power over fraud-
ulent and deceptive ADR practices. Discussions are also underway
with companies involving complaint procedures. It is particularly
important to preserving consumer confidence that impartial dispute
resolution practices are developed. They should be free or of low
cost to consumers, easily accessible, and speedy. Additionally, con-
sumers should have enough information to make informed decisions.
The new ADR shall involve the cooperation of domestic and inter-
national stakeholders in consumer and business education, guideline
development, and a combination of public and private law enforce-
ment. One size does not fit all. Rules concerning procedures and
disclosure requirements could be different in different states as well
as nations.
The transparency of results, rules of decision, and the validity of
final decisions (binding or non-binding compared with the judgment)
may present further problems for policy makers, who need to bal-
ance the interests of different stakeholders.
Consumer and business education is vital. Stakeholders should
work together to promote education about seal programs, codes of
conduct, and ADR.177 The FTC has carried out various activities to
familiarize consumers with new proposals.178 It has found publicity
176
See further H.K. Towle, On-Line: Selected Issues in Contracts, 557 PLI/Pat
242–245 (April 29–30, 1999).
177
Summary of Public Workshop, June 6–7, 2000, Federal Trade Commission,
Department of Commerce, November 2000, <http://www.ftc.gov/bcp/altdisresolu-
tion/summary.htm>.
178
The FTC has hosted several conferences and participated in several federal
80 chapter three
to be the best way of realizing the goal of educating the largest

group of people, but it has also attempted to educate through var-
ious workshops and the publication of various materials both off and
online; many publications are available on the FTC’s home page.
Both the ease with which government and consumer protection groups
can post educational materials on the Internet and the ease with
which consumers can access those materials make consumer and
business education on the Internet particularly efficient and effective.
Brochures containing key information sources are also distributed to
various persons and groups across the US, including state and local
government offices, national consumers and business organizations,
Better Business Bureaus (BBBs),179 and universities.180 Such materials
have helped many consumers to understand how they can better
protect themselves.
3.3.2. The EU Practice

EU policies value consumer protection.181 It is an important concern
of the European Economic Community (EEC),182 which enacted the
first consumer program in 1975.183 This policy was further boosted
by the introduction of the 1986 Council Resolution recognizing the
difficulties encountered by consumers invoking guarantees on products
government agency working groups treating topics such as electronic money and
privacy, etc. Perhaps the most notable was the public workshop held on June 8–9,
1999 concerning Consumer Protection in the Global Electronic Marketplace, Bureau
of Consumer Protection of FTC, a summary of which can be found at <http://
www.ftc.gov/bcp/icpw/lookingahead/electroniicmkpl.pdf>. Other workshop docu-
ments can be found at the FTC web site, <http://www.ftc.gov>.
179
The Better Business Bureau Web Server for the US and Canada can be found
at <http://www.bbb.org>.
180
Starek, supra note 160, at 695.
181
In the early years after the establishment of the EEC, consumer protection
was not seen as vital. Information about consumer rights was often non-existent
and applicable national laws were complex. But the situation has changed since
then. See for example, R. Evans, Time for Action: EU Consumer Policy, 4 Consumer
Policy Review, 18 (1994); H.W. Micklitz & S. Weatherill, Consumer Policy in the
European Community, 16 Journal of Consumer Policy, 285–292 (1993).
182
See further the Council Resolution on a Preliminary Program of the European
Economic Community for a Consumer Protection and Information Policy, 1975
O.J. (C 92), at 12, 13. This resolution includes a compilation of actions of interest
to consumers prepared by the Community and Council Directives of Interest to
Consumers.
183
See Three Year Action Plan of Consumer Policy in the EEC (1990–1992),
COM (90) 98 final 1, 1.
policy choice 81
purchased in other member states184 and the Single European Act

of the mid-1980s, which proposed significant legislative procedures
that have paved the way for improved consumer protection.185
At the moment, numerous consumer protection laws exist in the
EU. On the one hand, all member states have their own set of rules
related to consumer protection.186 For example, Germany has some
120 laws concerning consumer protection on the federal level alone.
Of course, laws in the EU may differ considerably at the national
level.187 On the other hand, the EU itself has some 80 laws and by-
laws concerning consumer protection.188 There are not enough laws
in place, nor are the laws in place sufficiently broad in scope to
assist consumers during disputes.189 Arguably, consumers are more
frustrated than they are helped by this puzzling, multi-layered abun-
dance of laws. The dilution of the protections offered by even the
most protective national regulatory regimes may be unfavorably
received by residents of such jurisdictions.190
Combating complexity, the principle of subsidiarity is generally
applied to harmonize relevant provisions within the EU.191 That is,
the EU chooses partial harmonization.192 Member states’ laws control
184
Council Resolution Concerning the Future Orientation of the Policy of the
European Economic Community for the Protection and Promotion of Consumer
Interest, 1986 O.J. (C 167) 1.
185
Article 100A of the Single European Act declares that future measures would
only require the approval of the majority of member states, rather than a unani-
mous approval, in order to be adopted. This provision was seen as necessary to
ensure the adoption of the controversial legislation needed to remove internal bor-
ders. See further Micklitz, supra note 181, at 295.
186
See further Opinion on Consumer Protection and Completion of the Internal
Market, 1991 O.J. (C 339); see also Three Year Action Plan of Consumer Policy
in the EEC (1990–1992), COM (90) 98 final 1.
187
See further A.R. Young, Towards a More Vigorous European Consumer
Policy?, 7 European Business Journal, No. 4, 34 (1995).
188
Out-of-Court Dispute Settlement Trans-Border Electronic Commerce, Joint
Research Center, European Commission, <http://dsa-isis.jrc.it/ADR/consumer.htm>.
189
See further Commission Green Paper on Guarantees for Consumer Goods
and After-Sales Services, COM (93) 509 final at 53.
190
See Consumer Protection: An Essential Priority for Cross-Border Commercial
Communications, Com. Comm., June 1997, at 6.
191
For a further description of subsidiarity, see G.A. Bermann, Taking Subsidiarity
Seriously: Federalism in the European Community and the United States, 94 Columbia
Law Review, 403 (1994).
192
Harmonization is a technical term of European Community law that refers
to formal attempts to increase the similarity of legal measures in member states.
See further P.M. Schwartz, European Data Protection Law and Restrictions on
82 chapter three
distinct areas; the EU is restrained from resolving issues that appear

to be appropriately in the hands of a member state.193 The EU shall
take action in areas falling outside the exclusive competence only if
and insofar as the objectives of the proposed action cannot be
sufficiently achieved by member states.
But this principle is not appropriate for consumer protection leg-
islation.194 It gives rise to the situation wherein all powers other than
that of exclusive competence remain vested in the member states
while the community can exercise these powers only in limited situa-
tions.195 In view of this problem, the commission has proposed direc-
tives calling for minimal harmonization of existing national laws.196
Bearing this background in mind, we come back to electronic
commerce. Supposing member states were to be in the awkward sit-
uation of trying to deal with a business that rejects national borders
and protect consuming residents of their state, and keeping in mind
that different states have different laws, the EU must step in to reg-
ulate. The application of a unitary set of rules concerning consumer
protection in electronic commerce would be desirable. The EU may
also establish a set of rules containing basic principles of consumer
protection laws applicable within all member states. To minimize
dissenting opinions, it should first formulate those laws member states
consider mandatory for the protection of their consumers. The basic
EU policy protects consumers197 from overzealous electronic com-
merce that by way of cutting a few legal contractual corners to gain
advantages over competitors unintentionally harm consumers.198
EU measures address the consumer’s need for easily accessible
legal remedies by adopting a high level of consumer protection and
International Data Flows, 80 Iowa L. Rev. 481 (1995); G.A. Bermann et al., Cases
and Materials on European Community Law 430 (1993).
193
H. McGregor, Law on a Boundless Frontier: The Internet and International
Law, 88 Ky. L.J. 980 (Summer, 1999/Summer, 2000).
194
It is regarded as a thorn in the side of attempts at consumer policy legisla-
tion. See further Evans, supra note 181, at 19.
195
A.G. Toth, The Principle of Subsidiarity in the Maastricht Treaty, 29 Common
Market Law Review, 1079, 1103 (1992).
196
See further S. Prechal, Directives in European Community Law 3 (1995).
197
European Council Resolution of 28 June 1999 on Community Consumer
Policy 1999 to 2001, 1999 O.J. (C 206) at 1, section II (4).
198
See further J.R. Aguilar, Over the Rainbow European and American Consumer
Protection Policy and Remedy Conflicts on the Internet and a Possible Solution, 4
International Journal of Communications Law and Policy, 15–16 (Winter, 1999/2000).
policy choice 83
incorporating pro-consumer minimal directives within EU policy.199

Two notable conventions have focused on the issue of dispute res-
olution at the EU level: the 1980 Rome Convention on the Law
Applicable to Contractual Obligations (Rome Convention) and the
1968 Brussels Convention on Jurisdiction and the Enforcement of
Judgments in Civil and Commercial Matters (Brussels Convention).
The next chapter shall address how these conventions suggest con-
fronting dispute issues arising out of electronic commerce.
Most regulations have singled out consumer issues. The directive
on the protection of consumers in respect to distance contracts covers
all consumer contracts concerning goods or services, which could
include electronic commerce.200 The newly passed Directive on Elec-
tronic Commerce advocates this state-of-origin principle: an infor-
mation society shall comply with the national provisions applicable
in the member state where it is established.201 But according to the
Annex to the Directive, this provision is not applicable to consumer
contracts. This exemption of consumer contracts from the applica-
bility of the state-of-origin principle returns consumers to the law of
the state wherein he resides. This may sound ridiculous,202 but if the
state-of-origin principle were to be used in such cases, consumers could
have difficulties assessing their rights according to the law of the
state where the service is received. Neither principle is problem-free.
199
Opinion of the Economic and Social Comm. On the ‘Communication from
the Comm’n to the Council, the European Parliament, the Economic and Social
Comm. and the Comm. of the Regions: A European Initiative in Electronic Com-
merce, 1998 O.J. (c 019) at 72, P21.4(1); the Fed. Republic of Germany and the
Eur. Comm’n Have jointly Organized the Eur. Ministerial Conference Entitled
“Global Info. Networks: Realizing the Potential”, Bonn, 6–8 July 1997, at P22, at
<http://www2.echo.lu/bonn/final.html>; Opinion of the Economic and Social
Comm. on the ‘Single Market and Consumer Protection: Opportunities and Obstacles,
1995 O.J. (C 039) at 55, section 2.2.2.2.
200
For further discussion, see P. Stoll & B. Goller, Electronic Commerce and
the Internet, 41 German Yearbook of International Law 163 (1998).
201
See Article 3(1) of the directive. This principle is supported by Article 3(3) in
conjunction with the appendix for this directive for copyrights, related rights, topog-
raphy and database protection, in particular, and for all other industrial property
rights, e.g., trademarks, to the extent that the traditional principle of territoriality
applies to these rights. See also the Berne Convention and Trade Related Aspects
of Intellectual Property (TRIPs) as well as the WIPO Copyright Treaty.
202
See further M. Lehmann, Electronic Commerce and Consumer Protection in
Europe, 17 Santa Clara Computer & High Technology Law Journal, 106–107 (December,
2000).
84 chapter three
Nevertheless, the directive provides assurance for court actions,

which is important to the protection of consumers.203 Member states
should ensure that appropriate court actions are available and examine
the need to provide access to judicial procedures by appropriate elec-
tronic means.
In light of the problems existing in dispute resolution for elec-
tronic commerce, the EU has also recommended out-of-court dis-
pute settlement mechanisms. Opening the door to ADR mechanisms,
this suggestion is made in the directive on electronic commerce.
According to Article 17, each member state shall be required to
amend legislation liable to hamper the use of schemes for the out-
of-court settlement of disputes through electronic channels.204 The
amendment promises to ensure that the out-of-court scheme shall
function genuinely and effectively in law and in practice, even across
borders.205
3.3.3. Analysis
New threats to consumer protection call for new protective rules and
measures. We should recognize the fact that better consumer pro-
tection in online environments shall have a positive impact on the
further development of electronic commerce and thereby on merchants.
Generally speaking, if electronic commerce is to thrive, consumers
must be provided with at least the same guarantees they would be
provided with in the more traditional marketplace.206
The US and the EU have affirmed the importance of protecting
a new breed of consumers. With the rise of electronic commerce, the
role of consumers has changed dramatically. While consumers were
formerly an inactive body, today they have power in transactions.207
203
Article 18(1) of the directive suggests member states ensure that effective court
actions can be brought against information society services by allowing the rapid
adoption of interim measures designed to remedy any alleged infringement and to
prevent any further impairment of the interests involved.
204
See further Article 17 of the directive, which provides for the possible use of
out-of-court dispute settlement and the relevant applicant principles for settling dis-
putes: community law, the principle of independence and transparency, adversarial
techniques, procedural efficacy, legality of the decision and freedom of the parties
and of representation.
205
Legislative Acts and Other Instruments, Council of the European Union,
14263/1/99 REV1, Brussels, 28 February 2000 (OR.en).
206
See S. Baker & M. France, Taming the Wild, Wild Web: With-out Strong
Laws, the Net’s Growth Will be Stunted, Bus. Wk., October 4, 1999, at 154.
207
The consumer is king, commanding in virtue of the way he uses his money.
policy choice 85
Sellers are now in a relatively passive position. Their job is to sim-

ply to paste that product information it becomes the responsibility
of consumers to evaluate and make active decisions upon.
Where the specific field of dispute resolution is concerned, both
the US and the EU realize the best way to protect consumers could
be to provide them with appropriate measures for redress. Consumer
protection groups have created forums where consumers can both
submit e-mail-based complaints when dissatisfied with advertisements,
goods or services, and accuse violators of self-regulatory codes of
ethics.208
While consumer protection can take on different forms, dispute
resolution mechanisms are its final insurance. Standards for dispute
management are ultimately more attractive to regulators than less
formal voluntary arrangements since they can encourage more con-
sistent treatment of consumer interests.209 In light of government
experience, protection offered by state power is trusted. Some con-
sumers even seek sanctuary in the court. In order to accommodate
the special character of modern business without straying too far
from tradition, ADR mechanisms for dispute resolution very wisely
entail state enforcement support.210
Policy for consumer protection in electronic commerce dispute res-
olution must extend beyond national limits. Individual states lack the
ability and initiative to adequately address issues related to consumer
protection in the context of electronic commerce. Many of the issues
that arise from cross-border disputes are exacerbated by the fact that
deceptive marketing practice laws vary from one jurisdiction to
another. Possible baseline electronic consumer policies should be
See further P. Smith & D. Swann, Protecting the Consumer 8 (1979); see also G.P.
Penz, Consumer Sovereignty and Human Interests (1986).
208
For example, web portals such as Yahoo! and new technology by a California-
based software producer provide a space for consumer complaints. See further
A. Endeshaw, The Law Vis-á-Vis Electronic Commerce, in S.M. Rahman & M.S.
Raisinghani (Eds.), Electronic Commerce: Opportunity and Challenge, 371 (IDEA Group
Publishing, 2000). For description of the new software, see Start-Up is Unveiling
Software to Let Users Annotate Web Sites, The Wall Street Journal April 17, 1999, B13.
209
A. McChesney, Feasibility Studies for New Standards Relating to Consumers
and Electronic Commerce, 14 February, 2000, <http://strategis.ic.gc.ca/SSG/ca01275e.
html>.
210
The ISA believes that the most effective solution will ultimately be found
through technology and organisation, and its members are committed to help in
finding such a solution. See further Internet Alliance, ISA Addresses Unsolicited
Bulk E-Mail, June 24, 1997, <http://www.isa.net/news/970624.html>.
86 chapter three
applicable to cross-border transactions to which all or most coun-

tries can subscribe.211
OECD Member States have recognized the necessity of an inter-
national coordinated approach to deal with the issue of dispute res-
olution in electronic commerce. In one important document formulated
by the OECD, Guidelines for Consumer Protection in the Context
of Electronic Commerce, guidelines for consumer protection in dis-
pute resolution and redress aim to protect consumers participating
in electronic commerce without erecting barriers to trade.
The guidelines serve as a recommendation to governments, busi-
nesses, consumers, and their representatives of the characteristics of
effective consumer protection for electronic commerce.212 The think-
ing behind them is similar to that of the US and EU. Firstly, applic-
able law and jurisdiction are singled out for possible modification.
No detailed formulation of the new applicable law or principle of
jurisdiction is pointed out, but the guidelines do describe features of
appropriate modifications. Fairness, they suggest, is one of the most
important factors in realizing consumer protection. The purpose of
the fairness is to offer consumers a level of protection not less than
that afforded in other forms of commerce and to provide consumers
with meaningful access to fair and timely dispute resolution and
redress without undue cost or burden.213 To accomplish fairness, one
must provide a framework for rectifying unfairness.
As said in the guidelines, businesses, consumer representatives, and
governments should work together to continue to use and develop
fair, effective, and transparent self-regulatory and other procedures,
which provide consumers with the option of mechanisms to resolve
their disputes arising out of consumer transactions.214 Moreover, these
efforts should be pursued at an international level. To achieve the
maximum benefits of the new arrangements, modern technology
211
Rothchild, supra note 125, at 972.
212
Protection in the Context of Electronic Commerce, <http://www.ftc.gov/opa/1999/
9912/oecdguide.htm>. Nothing contained shall restrict any party from exceeding
these guidelines nor preclude member states from retaining or adopting more strin-
gent provisions to protect consumers online.
213
Protection in the Context of Electronic Commerce, Annex, Part Two (VI) (A), para-
graph 3, <http://www.ftc.gov/opa/1999/9912/oecdguide.htm>.
214
See further id., Part Two (VI) (B).
policy choice 87
should be used to enhance consumer awareness and freedom of

choice.
From the analysis above, we can conclude that the international
community has reached a consensus on the general attitude toward
consumer protection. While making improvements on court proce-
dures and the application of principles, new means should be found
out to accommodate the new needs of electronic commerce. The
means should enable the development of new shops operating in a
responsible manner and resolving disputes conveniently online and,
along with them, greater choices and more competition.215 With new
facilities in place, consumers shall certainly be protected from unnec-
essary costs of compliance with duplicative or inconsistent regulations.
4. Conclusion
Approaching the end of the twentieth century, people witnessed the

rapid development of a digital economy, which overturned normal
commercial transactions. To fully appreciate the legal complexities of
regulating this economy, one must first understand the magnitude and
nature of the Internet, which justify the policy of self-regulation and
international orientation.216 These two policies are closely related
and can never be separately discussed. They can, on the other hand,
be easily distinguished from the policy of consumer protection. The
first two policies define the procedural aspects of the new mecha-
nism; the latter one concerns the substantial side.
Consumer protection policy is indispensable in building consumer
confidence and establishing a balanced relationship between busi-
nesses and consumer in transactions.217 Electronic commerce, still at
a fledging stage, urgently needs consumer participation. The first step
215
The Electronic Commerce and Consumer Protection Group, a coalition of
leading companies in the Internet, online, and electronic commerce industries, devel-
oped the guidelines for business-to-consumer transactions as a first step toward estab-
lishing a global jurisdictional framework for electronic commerce. See <http://
www.ecommercegroup.org/statement.htm>.
216
G. Anthes, The History of the Future: As the ARPNET Turns 25, Its Founders
Reunite to Talk About the Network That Became the Internet, Computer World,
October 3, 1994, at 101.
217
Responsible businesses often find it advantageous to take steps both to build
consumer confidence in their industries and to protect consumers from being lured
away by deceptive practices. See further Starek, supra note 160, at 697, 695.
88 chapter three
to activate consumers shall be to provide a complete, trustable struc-

ture for transacting procedures. As the OECD says, the same level
of protection provided by the laws and practices that apply to other
forms of commerce should be afforded to consumers participating
in commercial activities through the use of global networks.218
By way of information transfer, the Internet has advanced con-
sumer protection in modern business. However, complete consumer
protection shall need measures from structural and substantial side
as well. Acknowledging the importance of consumer protection in
electronic commerce, various countries and international organisa-
tions have while making wide use of the Internet simultaneously
established projects to deal with providing protection to consumers.
How can we ensure consumer protection in dispute resolution?
How, in other words, can we protect consumers as well as the pos-
sibility of their procuring benefits? It is this important question that
links the main three policies. The value of the present remedies for
electronic commerce has been largely limited by difficulties faced in
enforcing redress mechanisms. Only when these three policies are
upheld shall we achieve success in dispute resolution cases and observe
the most impressive developments of electronic commerce.
218
OECD Recommendation Consumer Protection, supra note 213, DSTI/CP (98)
4, point 27. This statement should be seen as the minimum basis for offering pro-
tection to consumers.
CHAPTER FOUR
DEVELOPMENT OF LITIGATION FOR

ELECTRONIC COMMERCE
1. Introduction
Computer technology has changed the administration of litigation.

It has sped up the writing of court records, notes of proceedings and
judgments, and alongside presenting new means for disseminating
and recording evidence it has offered new forms of evidence like
videoconferences and emails. Using the Internet, judges can also
more efficiently retrieve necessary documents and consult experts.
That said, the impact of the Internet on litigation goes beyond such
methodological improvements.1 Legal principles are also affected.
Developments in electronic commerce require a new perspective on
contract law and the law of evidence, for example, the validity of
electronic signature; meanwhile, new dimensions shall arise requir-
ing the courts to protect participants’ rights as regards technological
inventions. In view of all those changes, litigation should still be able
to make decisions yielding maximum fairness to all involved parties
and also society at large.
The Internet poses certain challenges to legislation. The trans-
jurisdictional, or more exactly a-jurisdictional character of the Internet
has become the focal point for most legal issues. Legal applications
based on geographical locations are under threat. The emergence of
business-to-consumer commerce, in particular, has necessitated alter-
ing not only the traditional conception of consumers, which is that
they are weak parties in transactions, but also the conception of
international transactions in general. Because of the general ambi-
guity of legal structures to deal with electronic commerce, it has
been proven to be especially difficult to justify mechanisms for dis-
pute resolution in such cases.
1
P.D. Carrington, Virtual Civil Litigation: A Visit to John Bunyan’s Celestial
City, 98 Colum. L. Rev. 1516 (1998).
90 chapter four
The last few years have seen the beginnings of cyberspace litigation
with disputes involving copyright,2 obscenity,3 libel,4 and free expres-
sion5 resulting in judicial decisions. Though other forms of resolution
should be developed to complement litigation, litigation will remain the
guarantor of final justice. Access to a judge ( juge d’appui)6 in the course
of the ADR, for example, may be helpful to solve an unexpected
problem7 and facilitate a smooth and successful process. It is very
important in the first place to provide a complete structure for liti-
gation in light of which other mechanisms will be successfully devised.
It is vital to establish a waterproof framework for jurisdiction in
litigation. There are three issues at hand: adjudicative jurisdiction,
choice of law, and jurisdiction of enforcement.8 Though separate
and unique, these are also interdependent and often involve similar
considerations.
When litigation is called upon, the decision regarding which court
shall have the jurisdiction to make judgment is the first important
problem encountered. If the wrong court makes a judgment, proce-
dural injustice will be cited as a reason for refusing enforcement.
Once adjudicative jurisdiction is confirmed, the next important
decision regards the choosing applicable law.9 Appropriate judgments
are made according to the facts and rules selected.10
2
For example, Religious Tech. Ctr. V. Netcom On-line Com. Serv., 907 F.Supp. 1361
(N.D. Cal. 1995).
3
For example, United States v. Thomas, 74 F. 3d 701 (6th Cir. 1996).
4
For example, Stratton Oakmont, Inc. v. Prodigy Serv. Co., No. 31063/94, 1995 N.Y.
Misc. LEXIS 229 (N.Y. Sup. Ct. May 24, 1995).
5
For example, ACLU v. Reno, 929 F.Supp. 824 (1996).
6
While facing difficulties in organizing, implementing, and enforcing the arbi-
tration procedure, the parties or the court of arbitration can refer to a juge d’appui,
who is complementary to and co-operates in the arbitration procedure. He may be
asked to intervene in the constitution of the court of arbitration (either ab initio or
during the course of arbitration, if the tribunal is truncated and the remaining par-
ties or arbitrators cannot reach agreement to rectify the situation). He can also be
called upon in cases of urgency, (although all national laws do not provide for this
role), in cases of difficulty in obtaining proof (more rarely), and to compel the
enforcement of measures ordered by the court of arbitration. His exact role depends
on the law applicable to the arbitration, which is different to that applicable to the
root of the dispute, and to that applicable to the arbitration procedure itself.
7
For example, the service provider disappears during the arbitration procedure,
or there is a serious violation of the principles of independence and impartiality.
8
See L. Henkin et al., International Law 1046 (3rd Eds. 1993).
9
See for example M.S. Yeo & M. Berliri, Conflict Looms Over Choice of Law
in Internet Transactions, 4 Electronic Commerce & Law Report, 85 (1998).
10
Restatement (3rd) of Foreign Relations Law of the United States, section 401
(1987).
development of litigation for electronic commerce 91
Electronic commerce poses challenges for the first two issues. The
existing rules and agreements concerning enforcement of judgments
shall still to a large extent apply in the case of electronic commerce.
Thus, it is the purpose of this chapter to treat the first two major
problems with a view to possibilities for the use of technology in
litigation.
2. Adjudicative Jurisdiction
2.1. Basic Understanding of Jurisdiction in the Era of Technology

Adjudicative jurisdiction is defined as a state’s authority to subject
persons or things to the process of its courts or administrative tri-
bunals.11 The process generally involves one’s selecting one court out
of many before bringing a case to court and courts using discre-
tionary power to decide whether they can handle the case before
taking it. It is sometimes considered to be the gateway to the suc-
cess of litigation.
The Internet is not a physical entity, and yet the existing legal
precedent for adjudicative jurisdiction is limited by a complex system
of physical borders on the local, state, national, and international
level.12 Adjudicative jurisdiction has traditionally been based on ter-
ritorial connection, with courts being allocated indisputable power
over acts within their administrative territory. In traditional inter-
national trade, territorial connections are identifiable because the
players exist in the visible world. But this is not the case for elec-
tronic commerce, which happens in virtual space and whose players,
indifferent to geographic location, are everywhere and nowhere.13
There is no framework for the objective allocation of adjudicative
jurisdiction.14
Considering the new face of commerce, some lawyers have called
11
See Restatement (3rd) of Foreign Relations 402 (1986).
12
C.N. Davis, Personal Jurisdiction in Online Expression Cases: Rejecting Minimum
Contacts in Favor of Affirmative Acts, 14 International Review of Law, Computer &
Technology, 44 (2000).
13
The trouble with cyberspace is that there is no “there” there. See further
R. Resnick, Cybertort: The New Era, National Law Journal, July 18, 1994, at A1.
14
V. Heiskanen, Dispute Resolution in International Electronic Commerce, 16
(3) Journal of International Arbitration, 36 (1999).
92 chapter four
for a new jurisdictional system to accommodate electronic commerce.15

As territorial connecting factors have been made indeterminate, they
suggest the invention of a new connecting factor. However, this idea
has not received much support.
In principle, electronic commerce still belongs to the known world
of international trade. For one, basic international commercial inter-
ests remain constant. Moreover, although electronic commerce can
accomplish entire transactions online, many Internet-based businesses
use additional, traditional communicative means. Systems of com-
munication always change, but they should not entail the develop-
ment of specific laws. Based on traditional commercial theory, electronic
commerce does not require an individual system of law to deal with
the problems occasioned by the Internet.16
Furthermore, the mere possibility that individuals might be able to
escape the jurisdiction of one nation by relocating computer-mediated
information and services to another nation is an insufficient reason
to formally create a separate jurisdiction for electronic commerce.17
It is more advisable to explore resolution based on present jurisdic-
tional theory.18 New features to suit the special character of elec-
tronic commerce can be imposed on existing law.
The US and the EU have been at the forefront of dealings with elec-
tronic commerce, and it is thus useful to examine their practices here.
2.2. US Case Law in Adjudicative Jurisdiction
2.2.1. Basic Theory in Adjudicative Jurisdiction

Generally, the jurisdiction of the courts of a state to adjudicate a
person or thing is based on some link between the forum and the
person or thing over which jurisdiction is to be exercised.19 The US
15
D.R. Johnson & D. Post, Law and Borders—The Rise of Law in Cyberspace,
48 Stanford Law Review, 1357, 1367 (1996).
16
Just as E.M. Katsh mentioned in Cybertime, Cyberspace and Cyberlaw, Journal
of Online Law (1995), article 1, paragraph 36, when the law changes with every new
event, then there is no law. See also L. Fuller, The Morality of Law 37 (1964).
17
J.M. Oberding & T. Norderhaug, A Separate Jurisdiction for Cyberspace? <http://
www.ascusc.org/jcmc/vol1/issue1/juris.html>.
18
Whether or not there should be separate jurisdiction for the Internet is under
discussion. Most believe that forming appropriate jurisdictional principles for the
Internet will require mixing existing concepts with innovative, new technological
solutions and industry self-regulatory initiatives.
19
Prospectus: Transnational Issues in Cyberspace: A Project on the Law Relating
to Jurisdiction, <http://www.abanet.org/buslaw/cyber/initiatives/prospect.html>.
has developed two types of adjudicative jurisdiction: personal juris-

diction and in rem jurisdiction (and a third type, quasi in rem juris-
diction).20 The former concerns personal contact: when a person has
connections with a certain state, the state shall have the jurisdiction.
The relationship of a person to a state determines the existence of
jurisdiction.21 Where the person resides is determined on the basis
of criteria regarding assets such as their physical presence.22
Jurisdiction has historically depended upon control held over a
certain person or object. Late in the 19th century, for example, an
American citizen or company was only subject to the jurisdiction of
the courts that presided over fora in which the citizen or company
had a physical presence.23 But principles concerning jurisdiction must
always be developed to meet new demands. With the rapid increase
of international trade in the second part of 20th century, in large
part a reaction to developments in communication, new and neces-
sary principles developed.
Today, with improved communication and Internet-based busi-
ness, it is difficult to determine the location of relevant property and
to establish a relevant connection between transactions and the forum
states. The real challenge for courts is to establish this connection.24
2.2.2. In Rem Jurisdiction

An in rem proceeding involves the exercise of control over property
found within the forum state.25 Two types of in rem jurisdiction can
be identified: true in rem proceedings and quasi in rem proceedings.
20
This was established in the landmark Pennoyer v. Neff decision, 95 U.S. (1877).
21
Such a relationship test is the starting point of any personal jurisdiction analy-
sis according to most US international civil procedure laws. See further S. Wilske
& T. Schiller, International Jurisdiction in Cyberspace: Which States may Regulate
the Internet?, 50 Fed. Comm. L.J. 117, 146 (1997).
22
See Restatement (Second) Conflicts of Laws, Chapter 3, Introductory Note
(1971); and Shaffer v. Heitner, 433 U.S. 186, 199 (1977). If a court’s jurisdiction is
based on its authority over the defendant’s person, the action and judgment are
denominated ‘in personam.’ If jurisdiction is based on the court’s power over prop-
erty within its territory, the action is called ‘in rem’ or ‘quasi in rem’. See also Black’s
Law Dictionary 854 (6th Ed. 1990).
23
See Pennoyer v. Neff, 95 U.S. (5 Otto) 714 (1877).
24
Courts face multiple procedural as well as substantive problems in dealing with
Internet suits. See further S.R. Salbu, Who Should Govern the Internet? Monitoring
and Supporting a New Frontier, 11 Harv. J.L. & Tech. 429, 435 (1998).
25
For a detailed description of in rem jurisdiction, see T.R. Lee, In Rem Jurisdiction
in Cyberspace, 75 Washington Law Review, 111–112 (2000).
94 chapter four
A true in rem proceeding is one in which the plaintiff asks the

court to determine the identity of those who have title to the prop-
erty or thing in question, whether they are named in the action or
not.26 There are two types of quasi in rem jurisdiction. The first type
differs from true in rem jurisdiction in that the plaintiff asserts an
interest in the property as against specifically identified individuals
and the judgment affects the rights of those individuals.27 The sec-
ond type seeks to establish an interest in the defendant’s property
as a basis for exercising jurisdiction over the defendant when per-
sonal jurisdiction is not available.28
In rem jurisdiction is based on the location of certain property.
Thus, it is important to tackle the difficult tasks of first determining
what should be regarded as property in electronic commerce and
then locating that property. In normal situations, goods or real estate
would easily be identified. But as participants in electronic commerce
are unknown in consumer transactions, it is impossible, or takes
efforts to ascertain the location of relevant property.
Steps can be taken to resolve these issues. It has been suggested
that in the case of domain disputes, for example, the address of
domain can serve as property and the location of the related server
can be regarded as the relevant environment for in rem jurisdiction.29
Pursuant to the Anticybersquatting Consumer Protection Act,30 in
rem jurisdiction may exist in disputes regarding forfeiture and can-
cellation of domain names or in cases that involve transferring a
name to its rightful owner.31 Occasionally domain name registrants
misrepresent themselves, trafficking in, or using names in bad faith
with intentions to profit.
In Porsche Cars N. Am., Inc. v. PORSCH.COM, the court refused
assertion of in rem jurisdiction on account of the possibility of its
being inconsistent with the language of the Lanham Act, its possi-
bly violating due process, and the technical problem of location.32
26
Restatement (second) of Judgments, section 6 cmt. a (1982).
27
16 J.Wm. Moore et al., Moore’s Federal Practice, 108.70 [1] (3rd Ed. 1999).
28
Restatement (Second) of Conflict of Laws, section 66 cmt. a (1971); Restatement
(Second) of Judgments, section 6 cmt. a (1982).
29
Another view is that personal jurisdiction over property, asserted by attach-
ment, is a form of in rem jurisdiction. See further H.H. Perritt, Jr., Note on Personal
Jurisdiction, <http://mantle.sbs.umass.edu/vmag/PJ2.HTM>.
30
This Act took effect on November 29, 1999.
31
See 15 U.S.C. section 1125 (d)(2)(D)(I).
32
51 F.Supp. 2d 707, 711–712 (E.D. Va. 1999).
This did not constitute obstruction33 because the issue of located rel-
evant property was out of the court’s hands. For purposes of an in
rem action, the domain name must be deemed to be situated in the
judicial district where the domain name register, registry, or other
domain name authority that registered or assigned the domain name
is located or where “documents sufficient to establish control and
authority regarding the disposition of the registration and use of the
domain name are deposited with the court.”34
Notably, it is now only theoretically possible to sue a domain name
itself (in rem) rather than suing a person or corporation (in personam
jurisdiction) and the reality is that in rem proceedings are adjusted
under the International Shoe standard, which will be examined later.
Presently, it makes no difference for purposes of domain name analy-
sis whether the suit is in personam or in rem.35
Domain name disputes are only a small area of in rem jurisdic-
tion. Further analysis is needed to determine in rem jurisdiction in a
broader sense.
2.2.3. Personal Jurisdiction

Personal jurisdiction or so-called in personam jurisdiction refers to the
power of a court or similar tribunal over an individual or property.36
Since plaintiffs choose a court in which to file a lawsuit, the per-
sonal jurisdiction doctrine acts as a constitutional standard that lim-
its a court’s power by protecting an individual’s interest in not being
subject to the binding judgments of a forum with which he has estab-
lished no meaningful contacts, ties, or relations.37
In cases where the defendant is frequently outside the jurisdiction
of the state where the damage occurred and thus is the one com-
monly asserted in the case of electronic commerce, the applicability
33
This has been elaborated by T.R. Lee, supra note 25.
34
15 U.S.C. section 1125 (d)(2)(C).
35
See further Shaffer v. Heitner, 433 U.S. 212 (1977).
36
Perritt, supra note 29.
37
International Shoe Co. v. Washington, 326 U.S. 310, 319 (1945). International Shoe
Co. (defendant), a Delaware Corporation headquartered in Missouri, has places of
business in several states, but not the State of Washington, where the corporation
manufactures and distributes its products. But 12 agents were employed in Washington
to display merchandise and accept orders. A suit was brought against the corpo-
ration in a Washington court. The court ruled that defendant’s business activities
in Washington rendered it amenable to suit in that state.
96 chapter four
of personal jurisdiction becomes especially important. The Pennoyer38

and International Shoe Courts have faced difficulties similar to those
concerning the applicability of personal jurisdiction in electronic com-
merce today.39 As the US hosts the largest number of Internet users
in the world and has the most complete network for electronic com-
merce, it is not surprising that lots of cases have been brought to
court for resolution there, and the American court proved to be
rather creative in dealing with the jurisdictional issue.40 It recognized
two types of personal jurisdiction: general and specific jurisdiction.
2.2.3.1. General Jurisdiction

General jurisdiction is based on continuous and systematic or sub-
stantial connections between the person and the court.41 Once gen-
eral jurisdiction is obtained over a defendant, the court shall have
jurisdiction in any lawsuit, even one which has no relation to the
forum state. Generally, if an office is established carrying out busi-
ness in a forum state, general jurisdiction can be inferred. The qual-
ity and quantity of the business’ commercial interactions with residents
shall determine whether it qualifies as continuous and systematic,
subjecting the participants in electronic commerce to the state’s gen-
eral jurisdiction.42
38
Pennoyer v. Neff, 95 U.S. 714 (1877). Mitchell, an Oregon resident, sued Neff
for unpaid legal fees. At the time, Neff was a non-resident who was not personally
served with process, and did not appear. Default was entered after constructive
notice by publication. Neff had acquired 300 acres of land and Michell had the
sheriff seize and sell theland. Pennoyer bought the land and Neff brought an action
forward to recover possession of the land. The US Supreme Court affirmed the
Circuit Court judgment by finding the Oregon state court judgment was invalid
because (1) Neff was never personally served the summons and (2) the court did
not have jurisdiction over his real property at the time the judgment was entered.
39
I.S. Nathenson, Showdown at the Domain Name Corral: Property Rights and
Personal Jurisdiction Over Squatters, Poachers and Other Parasites, 58 U. Pitts. L.
Rev., 991 (1997), <http://www.pitt.edu/~lawrev/58–4/articles/domain.htm>; see
also M.N. Breen, Personal Jurisdiction and the Internet: “Shoehorning” Cyberspace
into International Shoe, 8 Seton Hall Const. L.J. 779 (1998).
40
For a complete description of the cases concerning personal jurisdiction and the
Internet, see further M. D’Amico, A Survey of the Current Cases of Personal Jurisdiction and
the Internet, <http://www.madcapps.com/~Writings/asurvey.htm>; see also D. Bender,
Emerging Personal Jurisdictional Issues on the Internet, in PLI’s Second Annual Institute for
Intellectual Property Law, at 7, 10 (PLI Pat., Trademarks, and Literary Prop. Course
Handbook Series No. 453, 1996); R.S. Zembek, Comment, Jurisdiction and the
Internet: Fundamental Fairness in the Networked World of Cyberspace, 6 Alb. L.J.
Sci. & Tech. 339, 367 (1996).
41
See further J.W. Glannon, Civil Procedure Examples and Explanation 5 (2nd Ed.
1992); see also Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 414 (1984).
42
T.P. Vartanian, The Confluence of International, Federal, and State Jurisdiction
Considering the nature of electronic commerce, the assertion of

general jurisdiction is not popular.43 There are not many model
cases,44 and more importantly, no general jurisdiction has thus far
been asserted purely based on contacts through the Internet in the
case of electronic commerce.
In California Software, Inc. v. Reliability Research, Inc., the court held
that the use of nationally-disseminated, computer-based information
services and regular communications with forum residents through
that service did not establish the minimum contacts necessary to sup-
port general jurisdiction.45 And in one other recent case, McDonough
v. Fallon McElligott, Inc., the court held that the use of the agency’s
web site by the residents of the forum state could not by itself estab-
lish jurisdiction and the purchase of advertisements, which was unre-
lated to the cause of the action, was insufficient to support an assertion
of general jurisdiction. Examination revealed that no residents of the
forum state actually purchased this agency’s products.46 Perhaps if
sufficient contact is established with the residents of the forum state
and this agency, general jurisdiction will stand a chance.
General jurisdiction may be asserted based on a combination of
non-Internet and Internet contacts. In Mieczkowski v. Masco Corp.,47
the court held that the Internet connections alone were insufficient
for the assertion of general jurisdiction. Though customers could
shop, place orders, pay, track orders, and even communicate with
personnel electronically on the defendant’s web site, such were all
deemed passive acts and not determinative of significant contact. But
when combined with its non-Internet interactions, including mail
order transactions between suppliers and customers, these Internet
connections earned the defendant’s general jurisdiction.48 Whether
over E-commerce (Part II), Journal of Internet Law, <http://www.gcwf.com/arti-

cles/journal/jil_dec98_2.html>.
43
As the developing standard for general jurisdiction is very high, it will likely
only be applicable to large corporations that carry on significant, continuous busi-
ness in a visible manner. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S.
408, 414–416, n. 9 (1984).
44
Three other cases could also be noted here: Millennium Enterprises, Inc. v. Millennium
Music, LP, No. 98–1058, 1999 WL 27060 (D. Or. January 4, 1999); Grutkowski v.
Steamboat Lake Guides & Outfitters, Inc., 1998 WL 962042 (E.D. Pa. December 28,
1998); ESAB Group, Inc. v. Centricut, LLC, 1999 WL 27514 (D.S.C. Jan. 15, 1999).
45
631 F.Supp. 1356 (C.D. Cal. 1986).
46
No. 95–4037, 1996 U.S. Dist. LEXIS 15139 (S.D. Cal. Aug. 5, 1996).
47
997 F. Supp. 782 (E.D. Texas 1998).
48
See further J.L. Gedid, U.S. Judicial Decisions on E Commerce Jurisdiction, <http://
www.ilpf.org/confer/present99/gedidpr.htm>.
98 chapter four
or not Internet contacts are enough to support general jurisdiction

is still to be seen.
2.2.3.2. Specific Jurisdiction

Specific jurisdiction is based on the relationship of a specific action
and the forum state. When business occurred in certain areas such
jurisdiction was easy to determine, as each state possesses exclusive
jurisdiction within its territory. However, as interstate business and
travel increased during the Industrial Revolution, territorialism proved
insufficient for asserting jurisdiction. Thus, the court made develop-
ments for persons outside certain territory, as evidenced in International
Shoe v. Washington,49 which laid the foundation for the modern the-
ory of personal jurisdiction.
To assert specific jurisdiction, long-arm statute50 and due process
requirement conditions, which heighten scrutiny of assertions of judi-
cial jurisdiction over foreign entities,51 must be met. The long-arm
statute concerns going out-of-state and bringing a nonresident defen-
dant into the state to defend a lawsuit.52 The court must initially
determine whether the forum state’s long-arm statute applies to the
defendant.53 When this purpose is met, then due process require-
ments under the constitution must be satisfied.54
49
326 U.S. 310 (1945).
50
Long-arm statutes are state legislative acts which provide for personal juris-
diction, via substituted service of process, over persons or corporations which are
non-residents of the state, and which voluntarily go into the state, directly or by
agent, or communicate with persons in the state, for limited purposes, in actions
which concern claims relating to the performance or execution of those purposes.
See Black’s Law Dictionary 942 (West, 6th Ed. 1990).
51
See further G.B. Born, Reflections on Judicial Jurisdiction in International
Cases, 17 Ga. J. Int’l & Comp. L. 1, 33 (1987).
52
Glannon, supra note 41, at 26. See for example, N.Y.C.P.L.R., section 302 (a):
New York Long-arm Statute; Calif. Code Civ. Pro., section 410.10: California Long-
arm Statute; Conn. Gen. Stat. Ann., section 33–411 (c) (West 1997): Connecticut
Long-arm Statute; Mass. Gen. Laws Ann., ch. 223A, 3 (West 1985): Massachusetts
Long-arm Statute; Mo. Ann. Stat., 506.500 (West 1986): Missouri Long-arm Statute;
Ohio Rev. Code Ann., 2307.382 (A) (Anderson 1995): Ohio Long-arm Statute.
53
S.D. Jones, Internet Use and Personal Jurisdiction: Have Mouse, Will Travel? <http://
www.ralaw.com/frame8118.html>.
54
Reynolds v International Amateur Athletic Federation, 23 F. 3d, 1115 (6th Cir. 1994).
The Due Process Clause demands that no State shall make or enforce any law
which shall abridge the privileges or immunities of citizens of the United States;
nor shall any State deprive any person of life, liberty, or property, without due
process of law; nor deny to any person within its jurisdiction the equal protection
of the law. See further U.S. Constitution Amend. XIV.
Due process requires that the defendant has only limited contacts
within the forum state,55 so as to preserve the sovereignty of the
states in the federal system and to grant the right to a defendant to
affiliate himself with one or another of those sovereigns.56 The appro-
priate level of contact between defendant and forum state is judged
as follows. Firstly, the defendant must have purposefully availed him-
self to the forum state.57 In other words, the defendant must have
purposefully directed action towards the forum state and revealed a
substantial connection to the forum state.58 In Bensusan Restaurant Corp.
v. King case, the court ruled that the defendant’s simple creation of
a web site, that was available to any user who could find it on the
Internet, was not an act of purposeful support.59 Secondly, the con-
tact of the defendant with the forum state must be sufficient to confer
jurisdiction based on the relatedness of the contact to the cause of
action.60 It is important that the claim arises out of the defendant’s
contacts. Thirdly, the exercise of jurisdiction must be reasonable.61
The defendant should reasonably expect to be brought to court,62
particularly if most of the records of transaction exist within the
state.
Due process further requires that maintenance of the suit in the
forum state not offend traditional notions of fair play and substan-
tial justice.63 The court shall look into the extent of pre-litigation
connections of the defendant with the forum state and then evalu-
ate the fairness of asserting jurisdiction.64 The Supreme Court has
55
M.J. Raisch & R.I. Shaffer, Introduction to Transnational Legal Transactions 42 (New
York 1995).
56
See D.L. Burk, Jurisdiction in a World Without Borders, 1 Va. J.L. & Tech.
3, 26 (1997).
57
This was refined in Hansen v. Denckla, 357 U.S. (1958).
58
Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985). See also D.L. Stott,
Personal Jurisdiction in Cyberspace: the Constitutional Boundary of Minimum
Contacts Limited to a Web Site, 15 J. Marshall J. of Computer & Info. L., 824–825
(1997).
59
Bensusan Restaurant Corp. v. King, 937 F.Supp. 310 (S.D.N.Y. 1996). Similar hold-
ings can be found in McDonough v. Fallon McElligott, Inc., 1996 U.S. Dist. LEXIS
15139, No. 95–4037, slip op. (S.D.Cal. Aug. 6, 1996).
60
J.C. Henry, Establishing Personal Jurisdiction for Internet Transactions, <http://
www.law.stetson.edu/courses/computerlaw/papers/jhenryf97.htm>.
61
A.F. Lowenfeld, International Litigation and the Quest for Reasonableness 19 (1996).
62
World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 [1000 S.Ct. 559,
567, 62 L.Ed.2d 490] (1980).
63
International Shoe, 326 U.S. 310, 316 [66 S.Ct. 154, 158, 90 L.Ed. 95] (1945).
64
See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980); see also Burger
100 chapter four
identified five items for analysis: the burden on the defendant; the
forum state’s interest in adjudicating the dispute; the plaintiff ’s inter-
est in obtaining convenient and effective relief; the interstate judicial
system’s interest in obtaining the most efficient resolution of con-
troversies; and shared state interest in furthering fundamental sub-
stantive social policies.65 In general practice, these items prove
complementary. Once the first requirement is reached, the second
one shall also be satisfied.66
As online interactivity between business partners becomes com-
monplace, the need for physical presence in a state is slowly disap-
pearing.67 In line with these developments, traditional jurisprudence
is evolving as the courts grapple with the new medium for business.68
Regarding purposeful availment, the stream of commerce theory
was developed in Asahi v. Superior Court of California Case. Traditionally,
the theory dealt with product liability lawsuits where manufacturers
and distributors and products were across state and international
borders.69 When a defendant placed its product in a nationwide
stream of commerce, he was subject to the jurisdiction of the forum
where his product caused harm, even though he neither directly sold
the product in the forum nor was he aware that the product was
sold there.70 However, Judge O’Connor explained in the Asahi Case
that the awareness of a defendant that its product has entered a
forum state by the stream of commerce does not equate to an act
purposefully offering oneself to a forum state.71 Additional activities
King, 471 U.S. 462 (1985). See also G.L. Gassman, Internet Defamation: Jurisdiction
in Cyberspace and the Public Figure Doctrine, 14 J. Marshall J. of Computer & Info.
L., 572 (1996).
65
Burger King, 471 U.S. at 477.
66
This could be explained, as the first requirement includes reasonableness, and
thus has to a certain extent considers the issue of fairness as well.
67
R.H. Trangsrud, The Federal Common Law of Personal Jurisdiction, 57 Geo.
Wash. L. Rev. 849, 892 (1989).
68
S. Cohen, Jurisdiction Over Cross Border Internet Infringements, 20 European
Intellectual Property Review, 296 (1998).
69
See for example, Gray v. American radiator & Standard Sanitary Corp., 176 N.E.2d
761 (Ill. 1961); Asahi Metal industry Co. v. Superior Court of Cal., 480 U.S. 102 (1987).
See also M.F. Noonan, Civil Procedure—Personal Jurisdiction: Evolution and Current
Interpretation of the Stream of Commerce Test in the Third Circuit, 40 Villanova
Law Review 779 (1995).
70
M.H. Redish, Of New Wine and Old Bottles: Personal Jurisdiction, The
Internet, and the Nature of Constitutional Evolution, 38 Jurimetrics Journal, 584
(1998).
71
Asahi, 480 U.S. at 112.
by the defendant towards the forum state are required to satisfy min-
imum contact.72 This approach might be appropriately characterized
as a type of “stream-of-commerce plus” standard.73 It has been widely
supported by scholars and since become the main guiding theory for
jurisdiction in electronic commerce cases, with CompuServe v. Paterson
serving as a primary example.74
The remaining problem is determining what type of Internet activ-
ities could sufficiently justify jurisdiction by a court. American courts
have grouped cases into three categories of activities along a “slid-
ing scale,”75 the basis for which is the level of interactivity and com-
mercial activity involved in the case. The first case to make a
distinction between a passive and an interactive web site was Zippo
Manufacturing Co. v. Zippo Dot Com, Inc.76
The first category is clearly interactive in nature. It may involve
repeated transmission of files or even contracts with consumers in
the forum state, which constitutes doing business in the forum state
and is thus indisputably under its jurisdiction.77 Most cases that fall
into this type concern the defendants receipt of a direct economic
benefit from the Internet communications. The second category is
the so-called case of the passive web site. The defendant merely posts
advertisement or information online. He has no intention or rea-
sonable expectation of being haled into the forum state, so no juris-
diction shall be asserted. The most problematic category of activities
rests in the middle of these two sorts.78 Players range from sites that
72
The “additional conduct” required in Judge O’Connor’s view is actively indi-
cating an intent or purpose to serve the market in the forum state, thus putting
the defendant on notice that he may be susceptible to a particular forum’s laws.
See further Asahi, 480 U.S. at 112.
73
Redish, supra note 70, at 585.
74
CompuServe, Inc. v. Paterson, 89 F.3d 1257 (6th Cir. 1996).
75
R.L. Hoegle & C.P. Boam, The Internet and Jurisdiction: International Principles
Emerge but Confrontation Looms, 3 Journal of World Intellectual Property, No. 1, 33
(2000). See also W.E. Agin, Jurisdiction over Web Sites, or “Where Will I be Sued Next?”,
<http://www.agin.com/aigc/tic84.html>.
76
952 F.Supp. (W.D. Pa. 1997).
77
If a merchant knowingly conducts business with foreign residents, a court
located in a foreign venue may exercise jurisdiction. Further elaboration of this
point can be found in Burger King, 471 U.S. 475 (1985).
78
The general division line can be found in CompuServe, 89 F. 3d 1257, 1264–1265
(6th Cir. 1996). The “interactive” web site differs substantially from a “passive” web
site in that it can engage in communications with potential consumers who are sit-
uated in a particular geographic location and can establish a pattern of geograph-
ically-specific activity through its contacts with those persons.
102 chapter four
allow a user to send email to the company to sites that allow users
to order products via an Internet transaction.79 They are not pas-
sive since they involve information exchange, but cannot be categ-
orized as businesses because the level of interaction is not high
enough.80 The condition for minimum contact requires that the defen-
dants conduct business in the forum state. Accordingly, it is vital to
understand what constitutes “conduct of business”. We can know
more from the following discussions.
The defendant in Bensusan restaurant Corporation v. Richard B. King
owned a small bar in Missouri with the name of “The Blue Note”
and set up a website under that name. The plaintiffs owned the
famous New York Jazz Club called the Blue Note, a federally reg-
istered trademark. The defendant applied to dismiss the case for lack
of personal jurisdiction. In dismissing the case, the court held that
the defendant did not conduct his Internet activity with the inten-
tion of attracting the plaintiff ’s customers. Furthermore, the court
held that although the web site was globally accessible, it was the
intention of the defendant to attract local consumers. The court has
no personal jurisdiction over non-residents when they do not intend
to purposefully support the facilities of the forum state.81 This case
reveals court processes for evaluating interactivity and the meaning
of conducting business.82
The choice between asserting jurisdiction or not asserting juris-
diction is not sufficient for dealing with cases involving the third type
of activities. Realizing this problem, the court has further listed this
hierarchy of activity types: (a) actual financial transaction over the
Internet; (b) purchase and downloading of software via the Internet;
(c) purchase information in the form of web pages; (d) sites that
79
G.R. Cummins, Esq. & C.M. Cerasale, Jurisdiction in Cyberspace: User Beware,
<http:/./www.gcwf.com/articles/interest/interest_23.html>.
80
Zippo, 952 F. Supp. 1124 (W.D. Pa. 1997).
81
Bensusan, 937 F.Supp. (S.D.N.Y.), confirmed by the U.S. Court of Appeals
(2nd. Cir.) on Sept. 10, 1997. See also O. Renault, Jurisdiction and the Internet: Are
Traditional Rules Enough? <http://www.law.ualberta.ca/alri/ulc/current/ejurisd.htm>.
82
See also a recent case American Information Corporation v. American Infometrics, Inc.,
Memorandum Opinion delivered on April 12, 2001, by Motz, District Judge;
F.R.Civ.P.Sec. 12 (b)(2). It concludes that maintenance of a web site that permits
basic inquiries through a form and accepts job applications does not establish min-
imum contacts sufficient for personal jurisdiction in the absence of any evidence
that any resident of the forum state has ever contracted with or even contacted the
company. For discussion, see further U.S. District Court for Maryland: Targeting
Approach to Internet Jurisdiction, Computer Und Recht International, No. 3, 79–81
(2001).
solicit and obtain user information; (e) sites through which the viewer
can browse; (f ) static home pages.83 As regards interactivity and com-
mercial nature, the court shall have jurisdiction based on either of
the first three types of activities, while no jurisdiction for the next
three types.
Even with a standardized list of activities, the courts shall have to
look at the extent of interaction possible at each web site individu-
ally to decide upon appropriate jurisdiction. In practice, the court
may consider the following factors in evaluating the nature of a web
site:84 (a) whether the web site is commercial in nature;85 (2) whether
the defendant has entered contracts with residents of the forum;86
(3) whether the web site allows users to register online for a com-
mercial mailing list;87 (4) whether the defendant gains profits out of
its contacts with the forum residents;88 (5) whether the web site attracts
a high number of actual hits from forum residents;89 (6) whether the
defendant has contacted the forum through several different means;90
(7) whether the defendant advertises elsewhere on the Internet;91 and
(8) whether the web site provides a toll-free telephone number.92
These factors have been considered in different cases focusing on
the web site operator’s intent and conduct,93 the goal of which has
83
This was another approach to evaluating whether a party has sufficient
minimum contacts with a forum State. This six-tier hierarchy was proposed by
E. Schneiderman & R. Kornreich in their article Personal Jurisdiction and Internet
Commerce, New York Law Journal, ( June 4th, 1997). See also The Law of Internet
Jurisdiction, <http://www.unc.edu/~deweyma/law.html>.
84
See further E.G. Gunnells & A.G. Mersereau, Personal Jurisdiction Issues in
Conducting Business Over the Internet, <http://www.hicksmaloof.com/ln7.html>.
85
International Star Registry of Illinois, No. 98-C-6823, 1999 WL 300285; ESAB
Group, Inc. v. Centricut, LLC, 34F. Supp. 2d323, 330–331 (D.S.C. 1999); Mieczkowski
v. Masco Corp., 997 F.Supp. 782, 786 (E.D. Tex. 1998); Gary Scott International,
Inc. v. Baroudi, 981 F.Supp. 714, 717 (D. Mass. 1997); Superguide Corp. v. Kegan, 987
F. Supp. 481, 485–486 (W.D.N.C. 1997).
86
Digital Equip. Corp. v. Altavista Tech., Inc., 960 F.Supp. 456, 464 (D. Mass. 1997).
87
Maritz, Inc. v. Cybergold, Inc., 947 F. Supp. 1328, 1333 (E.D. Mo. 1996).
88
Bluementhal v. Drudge, 992 F.Supp. 44, 55 (D.D.C. 1998); Scherr v. Abrahama, No.
97-C-5453, 1998 WL 299678, 4–5 (N.D. Ill. 1998).
89
Plus System, Inc. v. New England Network, inc., 804 F.Supp. 111, 118–119 (D. Col.
1992).
90
Superguide Corp., 987 F.Supp. 487 (D.N. Cal. 1997).
91
Cody v. Ward, 954 F.Supp. 43, 47 (D. Conn. 1997); Edias Software International,
L.L.C. v. Basis International, Ltd., 947 F.Supp. 413, 419–420 (D. Ariz. 1996).
92
Telco communications v. An Apple a Day, 977 F.Supp. 404, 406–407 (E.D. Va.
1997).
93
E.S. Freibrun, Esq., Out-of-State Jurisdiction Over Web Site Operators and Junk
E-Mail: Legal Developments on the Internet, <http://www.cl.ais.net/lawmsf/artic125.htm>.
104 chapter four
been to determine whether or not, per the stream of commerce plus

approach, the defendant has minimum contacts.
While a large part of this section has been spent dealing with con-
tractual disputes, some words should be said about international tort
arising out of electronic commerce. Some scholars have suggested
that “effects test” shall take the place of “minimum contact tests,”94
and the practice of courts gives further credence to this suggestion.
In Calder v. Jones,95 for example, the court decided jurisdiction based
on finding that the defendant performed an intentional act which
was aimed at the forum and which caused foreseeable harm in the
forum.96 In the case of international tort, affirmative acts are not a
decisive factor for the court in determining jurisdiction; the mere
action of allowing a viewer to contact a site host shall be sufficient.
To take another case, the New York-based defendant in The People
in the State of New York v. Kevin Jay Lipsitz, ran an online magazine
subscription service and routinely distribute false and misleading email
advertisements to other users across the US. The plaintiffs were
Internet users or consumers in several states who became angry at
the defendant’s abuse of their rights and filed action in a New York
court. The court held that the facts that the defendant was a resi-
dent of New York and his Internet activities were conducted there
were enough to assert jurisdiction.97 This analysis has implications
for cases concerning torts where a defendant may have no other
contacts with a forum but has targeted a resident with the knowl-
edge that the extent of the injury will be incurred in that forum.98
In such situations, the point is to determine whether passive post-
ings alone qualify as tortuous acts.
In Yahoo! Inc. v. La Ligue Contre Le Racisme Et L’Antisemitisme et al.,99
Yahoo Inc. operates a number of web sites, including an auction
94
S. Tita & G. Scamby, The “Effects Test”: Unifying Personal Jurisdiction Case
Law in Internet Defamation Cases, 33 Law/Technology, World Jurist Association
No. 1 at 1–30 (2000).
95
465 U.S. 783 (1984).
96
Calder v. Jones, 465 U.S. 788–789 (1984). See also D.L. Kidd, Jr., Note, Casting
the Net: Another Confusing Analysis of Personal Jurisdiction and Internet Contacts
in Telco Communications v. An Apple a Day, 32 University of Richmond Law Review,
505, 517 (1998).
97
<http://www.oag.sate.ny.us/press/june/lebedeff.html>.
98
Naxos Resources Ltd. V. Southam Inc., No. CV 96–2134 WJR, 1996 WL 66241
(C.D. Cal. August 16 1996).
99
The order was issued on June 7, 2001 by Fogel, District Judge, Fed.R.Civ.P.
Sec. 12 (b)(2).
site and search engine directory at Yahoo.com and a regional site

at Yahoo.fr. The site operated at Yahoo.fr is written in French.
Various third parties posted for sale on Yahoo’s auction site Nazi-
related propaganda and third Reich related memorabilia. The French
court ordered Yahoo! Inc. to re-engineer its site located in the United
States to comply with French criminal law forbidding the display
and sale of Nazi objects under Penal Code Article R645–1. Subse-
quently, Yahoo! Inc. brought an action in the federal district court
of California. As to the issue of jurisdiction, the court decided that
Yahoo! has made a sufficient prima facie showing of purposeful avail-
ment alleging that defendants knowingly engaged in actions inten-
tionally targeted at its headquarters for the express purpose of ensuring
California would feel the consequences of such actions. And the bal-
ance of factors determining reasonableness weighs in favor of this
court’s exercise of personal jurisdiction over defendants who have
failed to make a compelling case necessary to refute the presump-
tion that jurisdiction is reasonable.100
2.2.3.3. Tag Jurisdiction

Tag Jurisdiction is based on purported service of process on a per-
son only transitorily present in the territory of the state or the United
States. Is “tag” jurisdiction appropriate in electronic commerce? Is
jurisdiction proper when an Internet communication is “tagged” while
passing through a particular state en route to its final destination?101
Under traditional tag jurisdiction, the served party has at least some
tangible connection with the forum state. This is not the case in sit-
uations involving electronic commerce. Ultimately, this means there is
little hope of support for such jurisdiction. If this view were to prove
incorrect, the adoption of tag jurisdiction in electronic commerce
would fundamentally change the whole concept of jurisdiction.102
100
For further discussion of this case, see M.H. Wittow, U.S. District Court for
the Northern District of California: Personal Jurisdiction over Nonresidents, Computer
Und Recht International, No. 4, 111–117 (2001); M. Love, International Jurisdiction
over the Internet: A Case Analysis of Yahoo!, Inc. v. La Ligue Contre le Racisme
et L’antisemitisme, 17 Temple International and Comparative Law Journal 261–275 (Spring
2003).
101
Internet Jurisdiction: Policy Issues, <http://www.unc.edu/~deweyma/policy.html>.
102
If this were to happen, tag jurisdiction would extend to telephone and mail
communications, which is unrealistic.
106 chapter four
2.2.4. Comments
The nature of cyberspace is at odds with standards for jurisdiction.
Though the Internet by definition lacks a location, the court, in con-
sidering its jurisdiction, will be moved to decide the “location of the
act or omission.”103 Determining whether an act or contact is strong
enough to assert jurisdiction in electronic commerce is a difficult task
and, as they face new phenomena, courts can make contradictions
in judgments.104 The Supreme Court has acknowledged that a per-
sonal jurisdiction analysis is an imprecise inquiry, and that the “min-
imum contacts” test is not susceptible to “mechanical application”.105
The court has been successful at adapting the traditional com-
mercial theory to accommodate electronic commerce. The scaling
approach is rather creative in explaining the essence of different
activities in the Internet, whose different levels of activity can cause
different results. US case law suggests that the interactive nature of
activities within a particular forum can be determinative in assert-
ing adjudicative jurisdiction; accessibility to web sites cannot. The
risk of liability in a remote jurisdiction can be reduced by limiting
interaction on the site (by way of avoiding the inclusion of ordering
functionality, 800 telephone numbers, or other means by which users
can make direct contact with the site operators).106
103
A.H. Ravia, Local and International Jurisdiction on the Internet (Part I), <http://
www.law.co.il/articles/juris1.htm>. It would not be unfair to subject a person to
jurisdiction because that person’s actions gave rise to jurisdiction. See also Asahi,
480 U.S. 117 (1987); N.Y. C.P.L.R. 302 (Consol. 1978).
104
The Internet’s ubiquitous, yet intangible, reach has led courts to inconsistent
conclusions about the Internet’s role in the traditional personal jurisdiction frame-
work. These disparate decisions hinder efforts to predict the precise legal conse-
quences a company faces when doing business on the Internet. See P.J. Whalen,
Internet Jurisdiction, <http://www.spencerfane.com/publica . . . Commerce/internet-
jurisdiction.html>; as asserted by Ponte, personal jurisdiction is a thorny issue in
international commercial transaction. See further L.M. Ponte, Boosting Consumer
Confidence in E-Business: Recommendations for Establishing Fair and Effective
Dispute Resolution Programs for B2C Online Transactions, 12 Albany Law Journal
of Science & Technology 482 (2002).
105
Kulko v. Superior Court, 436 U.S. 84, 92 (1978).
106
See further Electronic Commerce: An International Overview, <http://www.inter-
leges.com/Archive/1999/1/18–1066.html>. See also G.M. Perry, Personal Jurisdiction
in Cyberspace: Where can You be Sued, and Whose Laws Apply? December 1998, <http://
www.llgm.com/FIRM/article14.htm>. See also M.K. Dyer, Omnipresence “Persona”-
Fied: A Review of Personal Jurisdiction Principles and Their Application to Cyberspace,
<http://www.emitech.com/dyer/persjur.html> Remote jurisdiction can be avoided
by including in the contract a clause which nominates the jurisdiction to which the
parties will submit or a disclaimer which states that the web site operator is not
However, there are problems with putting the scaling approach

into practice. First of all, not all courts give meaningful attention to
the difference between “passive” and “interactive” web sites and their
differing capacities to “contact” persons in a particular forum.107 This
causes inconsistent and sometimes flawed court rulings.
Secondly, the scaling approach is rather flexible and the court’s
discretion may greatly influence final results. Justice Marshall noted
in Kulko v. Superior Court that the “minimum contacts test” is “one in
which few answers will be written in black and white. The greys are
dominant and even among them the shades are innumerable.”108
Minor changes in focus can drastically alter decisions regarding the
nature of interactivity.109 Not surprisingly, various courts have dis-
agreed on what activity will be necessary to provide a court with
personal jurisdiction.110 Some courts have declared that the site alone
provides enough contact with the state to establish jurisdiction,111
while several district courts have refused jurisdiction over defendants
whose only contact is the web site.112
Lawyers have criticized these declarations.113 But more time shall
be had for adjustment. Likely, though the scaling approach has been
quite influential to date, it is ultimately an interim framework that
soliciting trade anywhere other than certain countries. However, there is discussion
on the validity of such declaration.
107
Y.A. Tamayo, Who? What? When? Where? Personal Jurisdiction and the
World Wide Web, 4 Richmond Journal of Law & Technology, 7 (Spring 1998),
<http://www.richmond.edu/~jolt/v4i3/tamayo.html>.
108
436 U.S. 84, 92 (1978); see also Estin v. Estin, 334 U.S. 541, 545 (1948).
109
For example, in Blumenthal v. Drudge, No. 97–1968, 1998 U.S. Dist. LEXIS
5606 (D.D.C. Apr. 22, 1998), the defendant’s web site was considered interactive
since users who access the web site may request subscriptions to the report by
emailing their requests and it sent each new report to those listed in its mailing
list. If no reports were sent, the judgement may have been different.
110
For the analysis of contradiction of decisions, see further Stott, supra note 58,
at 843–852.
111
See for example Maritz, Inc. v. Cybergold, Inc., 947 F.Supp. 1328 (E.D. Mo.
1996); Digital Equip. Corp. v. Altavista Tech., Inc., 960 F.Supp. (D. Mass. 1997).
112
See for example Esab Group, Inc. v. centricut, LLC, 34 F.Supp. (D.S.C. 1999);
Desktop Technologies, Inc. v. Reprod. & Design, Inc., 1999 WL 98572 (E.D. Pa. Feb. 25,
1999); Origin Instruments Corp. v. Adaptive Computer Systems, inc. 1999 WL 76794 (N.D.
Tex. Jan. 4, 1999); Millennium Enterprises, Inc. v. Millennium Music, LP, 33 F.Supp. (D.
Ore. 1999).
113
Much criticism arose out of United States v. Thomas, 74 F.3d 701 (6th Cir.
1996), cert. denied, 117 S. Ct. 74 (1996). For analysis, see further A.G. Mirzaian,
Y2K . . . Who Cares? We Have Bigger Problems: Choice of Law in Electronic
Commerce, 6 Richmond Journal of Law & Technology, 20 (Winter 1999–2000), <http://
www.richmond.edu/jolt/v6i4/article3.html>.
108 chapter four
should be abandoned as the commercial use of the Internet evolves

and judicial understanding becomes clearer.114
The need to adapt and evolve the doctrine of personal jurisdic-
tion consistent with technological advances has been widely recog-
nized in the US. However, the US courts have continued to rely
on the notion of “minimum contacts” to establish personal jurisdiction.
By creating concrete guidelines like the scaling approach, the courts
tried to justify the use of minimum contacts. Nevertheless, imple-
menting these guidelines has resulted in inconsistent consequences.
The Internet does not exist in a vacuum, but exists as a product of
human volition. The courts should also treat it as such. An indi-
vidual should not be subjected to all existing jurisdictions when enter-
ing cyberspace, but should be assured that he or she will receive the
benefits of constitutional due process.115
Another issue that concerns us is the limited nature of US case
law, which deals with cases within the US borders. Determining how
to extend established principles to international practice presents a
two-part problem.
Firstly, how should American courts implement principles used in
international cases? Considering the complexity of international cases,
courts shall act with great care when adjudicating cases involving
foreigners.116 They shall have to take into consideration the proce-
dural and substantive policies of other countries whose interests are
affected by the court’s assertion of jurisdiction.117
Asserting jurisdiction in international cases shall pose problems.
Even though minimum contacts can be found in the international
cases, the assertion of jurisdiction can still be called unreasonable
and unfair.118 Generally speaking, seven items must be balanced to
assure fair play and substantial justice: the extent of the defendant’s
purposeful injection into the forum state’s affairs; the burden on the
114
M.A. Willard, Personal Jurisdiction and the Internet, <wysiwyg://358/http://
www.escm.com/new/art/JURISDICTION.html>.
115
R.T. Krueger, Traditional Notions of Fair Play and Substantial Justice Lost
in Cyberspace: Personal Jurisdiction and On-Line Defamatory Statements, 51 Cath.
U.L. Rev. 334 (Fall 2001).
116
Asahi, 480 U.S. 102 (1987).
117
G. Zeviar-Geese, The State of the Law on Cyberjurisdiction and Cybercrime on the
Internet, <http://www.law.gonzaga.edu/borders/documents/cyberlaw.htm>.
118
Core-Vent Corp. v. Nobel Industries, AB, 11 F.3d 1482, 1490 (9th Cir. 1993). See
also E.M. Maltz, Unraveling the Conundrum of the Law of Personal Jurisdiction:
A Comment on Asahi Metal Industry Co. v. Superior Court of California, Duke
Law Journal 669, 689–690 (1987).
defendants of defending in the forum; the extent of conflict with the

sovereignty of the defendant’s state; the forum state’s interest in adju-
dicating the dispute; the most efficient judicial resolution of the con-
troversy; the importance of the forum to the plaintiff ’s interest in
convenient and effective relief; and the existence of an alternative
forum.119 Balancing these items will be the challenge.
Secondly, how should US principles be implemented at an inter-
national level? This depends on the attitudes of the international
actors. Considering the pioneering position of the U.S. in the field
of the Internet and its strong economic influence, other countries
may adopt the principles and use them in their judicial systems.
Canada, for one, has already done so.120
The implementation of US principles in international cases still
has many issues to be resolved. For example, whether any Web activ-
ity by anyone without commercial intent, absent the potentially fore-
seeable harm of trademark infringement, would be sufficient to assert
personal jurisdiction over a foreign defendant?121 Whether a user at
one website creating a document with a hyperlink into another per-
son’s website would be sufficient to create jurisdiction over the owner
of the linked site?122
To sum up, the American case law indicates that for personal
jurisdiction to be asserted in electronic commerce the defendants
shall have done more than post advertisements. Web activity by itself
shall not subject a party to jurisdiction.123 This seems reasonable in
light of the alternative. If the mere posting of a web site created
more than minimum contacts in every forum in which it can be
accessed, every court in America would gain nationwide (indeed,
worldwide) jurisdiction over almost everyone.124 Advertising can only
119
Core-Vent Corp. v. Nobel Industries, AB, 11 F.3d 1488–1490.
120
To date, Canadian courts have had few occasions to consider the issue of
jurisdiction in electronic commerce, but there is consensus among e-commerce
lawyers that evolving U.S. principles will be applied in Canada. See further D.
Young, Jurisdiction Remains a Work in Progress, eBusiness Journal, October 1999,
<http://news.globetechnology.com/site/ebusiness/102799_01.html>.
121
Digital Equipment Corporation v. Altavista Technology, Inc., Civ. Action 96–12192
NG (D. Mass. March 12, 1997).
122
Playboy Enterprises, Inc. v. Frene, 839 F.Supp. 1552 (M.D. Fla. 1993).
123
See further Kelly & Hieber, Untangling a Web of Minimum Contacts: The
Internet and Personal Jurisdiction in Trademark and Unfair Competition Cases, 18
The Trademark Reporter, No. 5, at 576 (1997).
124
See Hearst Corp. v. Goldberger, No. 96 Civ. 3620, 1997 WL 97097, at 1 (S.D.N.Y.
Feb. 26, 1997). Defendant, a New Jersey resident, created a web site in New Jersey
110 chapter four
be considered as one component of a bundle of means of contact

for consideration when related to the cause of action directed to per-
sons in the forum state.125 Because of sovereignty concerns, there is
a higher jurisdictional barrier when litigating against a foreign
national.126 As a result, when adjudicating cases involving foreign
nationals, the court must act with great care, balancing several fac-
tors on a case by case basis.
2.3. European Attitudes towards Adjudicative Jurisdiction
2.3.1. General Introduction to European Practice

Though it has decided no case concerning jurisdiction in electronic
commerce so far, the EU takes a more formal and rigorous approach
to the issue of adjudicative jurisdiction than its US counterpart.127
To understand European philosophy we need look at the Brussels
(1968)128 and Lugano (1988)129 conventions on Jurisdiction and Enforce-
ment of Judgments in Civil and Commercial Matters (the Brussels
Convention and the Lugano Convention). The two conventions pre-
sent similar views concerning jurisdiction, but each deals with a
different area of application. The Brussels convention explores issues
of jurisdiction between and among the EU States; the Lugano Conven-
at “esqwire.com” which was accessible to and had been accessed by New York res-
idents. While the site featured a description of legal support services, the defendant
had not performed such services to anyone by the commencement of the suit.
Plaintiff commenced suit in New York charging that the defendant’s use of “esqwire”
infringed its mark in “esquire”. The court held that it lacked personal jurisdiction
over the defendant, saying that: “Where, as here, defendant has not contracted to
sell or actually sold any goods or services to New Yorkers, a finding of personal
jurisdiction in New York based on [the mere availability of ] an Internet web site
would mean that there would be nationwide (indeed, worldwide) personal jurisdic-
tion over anyone and everyone who establishes an Internet web site. Such nation-
wide jurisdiction is not consistent with traditional personal jurisdiction case law nor
acceptable to the Court as a matter of policy.”
125
See, for example, Digital Equipment Corp. v. AltaVista Technology, Inc., Civil Action
No. 96–12192NG, BNA’s Electronic Information Policy & Law Report, 21 March
1997, at 343.
126
Sinatra v. National Enquirer, 854 F.2d, at 1199.
127
See H.L. Korn, Development of Judicial Jurisdiction in the United States, 65
Brooklyn L. Rev. 935 (1999).
128
It has been amended several times. The 1996 version is currently in force.
See [1998] OJEC 37, at 1.
129
This convention joins Switzerland, Norway and Iceland with the countries
included in the Brussels Convention. See [1998] OJEC L319, at 9.
tion concerned jurisdiction in the European Free Trade Association

(EFTA) states as well as between those states and the EU states.
Due to the fact that the conventions were held much earlier than
electronic commerce appeared in the European market, neither
specifically treated such commerce. They do not suit today’s com-
mercial world well. For example, the conventions pay special atten-
tion to consumer contracts and afford consumers the right to sue in
their own state of residence: a right that may be inappropriate in a
case concerning electronic commerce. Furthermore, while the con-
ventions’ principles aim to unify jurisdictional procedures in the EU,
national rules still play an all-to-important important role in imple-
menting those principles.
Recently, attention has focused on electronic commerce. This has
been evidenced by the adoption of the Directive on Electronic
Commerce to regulate Internet transactions, which upholds the coun-
try of origin principle.130 According to this directive, a company oper-
ating in any member state is able to operate anywhere within the
union’s territory as long as it complies with the regulations of the
country in which it is based.131 While this directive does not deal
with the specific application of the Brussels convention principles, it
does influence interpretations of Article 5 (5) on disputes arising out
of establishment. It establishes the basis for jurisdiction as the forum
where the consumer pursues an activity through a “fixed establish-
ment” (a web site).132
At its meeting held 4 and 5 December 1997, the European Council
made seemingly unsatisfactory revisions to the Brussels Conventions.133
A regulation (later named “Brussels I Regulation”)134 by the European
130
Electronic commerce: Commission Welcomes Final Adoption of Legal Framework Directive,
Brussels, 4 May 2000, <http://europa.eu.int/rapid/start/c . . . txt=gt&doc=IP/00/
442I0IRAPID&Ig=EN>.
131
M. Frendo, Legal Aspects of E-commerce, 32 Law/Technology, World Jurist
Association 12 (1999).
132
See Articles 7–9, Amended Proposal for a European Parliament and Council
Directive, in Certain Legal Aspects of Electronic Commerce in the Internal Market,
98–0325, COM (17 August 1999), 427 final. <http://europa.eu.int/comm/dg15/
en/media/eleccomm/com_427en.pdf>.
133
Article 15 (c) together with Recital 13 of the Regulation completely under-
mines the freedom to provide services based on the principle of the country of ori-
gin control and mutual recognition.
134
Draft Regulation on Jurisdiction, Recognition and Enforcement of Judgments
in Civil and Commercial Matters, ref IP/99/510. The Regulation will not apply
to the United Kingdom, Ireland, and Denmark. However, the United Kingdom
112 chapter four
Commission was submitted and successfully replaced the Brussels

Convention as of March 1, 2002 with a view inter alia to new forms
of commerce that did not exist in 1968. Nevertheless, the Brussels
Convention will continue to apply to Member States bound by the
Convention that are excluded from the new Regulation. In addition,
the Regulation will not affect rules governing jurisdiction and recog-
nition of judgments contained in specific Community instruments
and rules contained in conventions relating to specific matters to
which Member States are party.135
2.3.2. The Brussels Convention and the Lugano Convention

The primary rule on jurisdiction laid down by the Brussels and
Lugano Conventions is Article 2, which refers to a defendant’s domi-
cile. Persons domiciled in a contracting state shall, whatever their
nationality, be sued in the courts of that state.136 In order to deter-
mine whether a party is domiciled in a contracting state, a court
shall apply its internal rules.137
There are several exceptions to this rule. According to Article 5
to 18, persons domiciled in a contracting state may be sued in the
courts of another contracting state. The state of performance can be
supplementary rule for contractual disputes. In matters relating to a
contract, a person domiciled in a contracting state may be sued in
the state where the stipulations of the contract should be met.138 In
matters relating to tort, delict or quasi-delict, the case can be brought
to courts of the state wherein the harmful events occurred.139 Disputes
arising out of the operations of a branch, agency or other estab-
lishment can be taken to court where the branch, agency or other
establishment is situated.140 Article 6 further provides this opportu-
nity for a case being heard in another contracting state: a person
domiciled in a contracting state may be sued in another state in
and Ireland seem prepared to opt into the regulation. See further S. Dutson,
Transnational E-Commerce, Computers and Law, 25 (February/March 2000).
135
See further Jurisdiction, Recognition and Enforcement of Judgments in Civil and Commercial
Matters, available at <http://europa.eu.int> (viewed on October 23, 2003).
136
Article 2 of the two Conventions.
137
A. Lindberg, Jurisdiction on the Internet—The European Perspective: An Analysis of
Conventions, Statutes and Case Law, American Bar Association, 20 July 1997, <http://
www.abanet.org/buslaw/cyber/initiatives/eujuris.html>.
138
Article 5 (1) of the Conventions
139
Article 5 (2) of the Conventions.
140
multi-party disputes, on a counterclaim, and where a contractual dis-

pute relates to rights over immovable property.
The conventions involve concerned parties in determining juris-
diction. The parties to a contract have the right to make an agree-
ment on the issue of adjudicative jurisdiction.141 To agree in advance
as to which state shall have jurisdiction, they must first satisfy cer-
tain formal conditions.142 Additionally, Article 17 demands real con-
sent on the choice of court on the part of the persons concerned so
as to protect the weaker party.143
There are limitations to the parties’ choice of jurisdiction.144 Based
on the principle of consumer protection, the conventions provide
that a consumer may choose between filing an action either in the
country where he is domiciled or the seller’s state of domicile.145 For
the seller, only the consumer’s state of domicile can be sued.146
2.3.3. The Brussels I Regulation

The basic principle of the Regulation is that jurisdiction is exercised
by the Member State in which the defendant is domiciled, regard-
less of his or her nationality. Domicile is determined in accordance
with the domestic law of the Member State where the court has
been seized.147 In particular, Article 15 (1) (c) of the Brussels Convention
is replaced by the prerequisite that the contract be concluded by a
person who pursues commercial or professional activities in the coun-
try where the consumer is domiciled, or who by some means has
directed such activities to that country or to several states including
that country, and the contract falls within the scope of such activi-
ties.148 This provision clearly covers electronic commerce.
The Regulation covers jurisdiction over all consumer contracts and
outlines a new section on individual contracts of employment; a new
141
Article 17 of the Conventions.
142
There are three conditions: (a) the agreement is in writing or evidenced in
writing; (b) the agreement is in a form which accords with practices established
between the parties; or (c) in international trade or commerce, the agreement is in
a form which accords with a usage of certain dignity.
143
See further L. Katz, Jurisdiction and E-Commerce Disputes, 3 (2) Journal of
World Intellectual Property, 292 (2000).
144
References can be made to Article 15 (3) of the two Conventions.
145
Article 2 (1), 5 No. 5, 13 (1), 14 (1) of the Conventions.
146
147
Article 2, 3, 4 of the Regulation.
148
M. Lubitz, Jurisdiction and Choice of Law for Electronic Contracts: An English
Perspective, Computer Und Recht International No. 2, at 42 (2001).
114 chapter four
general rule indicates when “lis pendance”149 takes place.150 In cases

concerning the sale of goods or provision of services, the place of
performance shall be where goods or services were or should have
been delivered or provided. Accordingly, the place of performance
for downloaded software shall be the place where the software was
downloaded. It further states that in cases of international contract
disputes concerning online practices, customers can seek justice in
their country of residence, as long as the merchant actively solicited
the consumers business in the consumer’s home country.151
The Brussels I Regulation has been met with various criticisms.
First, suggested regulations pose problems for online merchants.
Online advertisements are viewable anywhere in the world the Internet
can be accessed. The so-called country of destination principle means
that merchants will have to make sure that they comply with up to
15 national laws on consumer protection in order to avoid problems
in the EU alone.152 The fact is that they cannot be expected to be
knowledgeable about the plethora of consumer protection regulations
and laws in 15 member states, much less the state and local regulations
that also govern consumer transactions.153 Nevertheless, the consumer
groups had argued that anything other than what the Commission
had proposed would lead to a denial of justice as consumers cannot
149
It is meant to determine which jurisdiction is competent when a case is pend-
ing in two or more courts.
150
See further Commission Adopts Draft Regulation on Jurisdiction, Recognition
and Enforcement of Judgments in Civil and Commercial Matters, Brussels, 14 July
1999, IP/99/510.
151
Article 15 (c) of the Brussels Regulation when a contract has been concluded
by a person who pursues commercial or professional activities in the state of the
consumer’s habitual residence or, by any means, directs such activities to that state
or to several states including that state the contract falls within the scope of such
activities. See also Electronic Commerce: Legal Jurisdiction and Applicable Law, at 3, in
Details of Questions to be Addressed, Secretariat-General of the European Commission,
8 October 1999, <http://europa.eu.int/comm/sg/tfjai/events/index_en.htm>; EU
Initiatives on Electronic Commerce, Coudert Brothers, May 5, 2000, at <http://
www.coudert.com/practice/euinitiatives.htm>.
152
As reported by the European Consumers’ Organization, after more than one
year of struggle between industry and consumer interests, the country of destina-
tion principle was confirmed in September 2000. All the “bad” amendments were
rejected, including the amendments which would have permitted businesses to use
choice of jurisdiction clauses in consumer contracts. See further Brussels Regulation
on Jurisdiction, available at <http://lists, essential.org> (viewed on October 22, 2003);
see also E. de Bony, EU Tackles Jurisdiction in E-commerce Disputes, 14 July 1999, <http://
www.idg.net/ec?external=1&c . . . 3DWW%26oq%3Ddispute%257Celectronic>.
153
Jurisdiction in Cyberspace, September 1999, <http://www.gip.org/gipjuris.htm>.
be expected to sue abroad.154 While the perspective of the consumer

groups prevailed at last, it is necessary to further study other views
presented during the discussions to better accommodate the demands
from both merchants and the consumers. Secondly, a recent report
holds that court procedures only have positive economic effects for
consumers when the value of the litigation is above 2000 ECU. The
fact that the majority of online transactions involve small amounts
means the Brussels I Regulation will not offer effective protection to
online consumers.155 This may have a negative effect on electronic
commerce generally. Furthermore, the regulation runs counter to
Mr. Blair’s hope that electronic commerce shall be “lightly regu-
lated,” the European Commission’s initiative to create a single mar-
ket, and the Directive on Electronic Commerce.156 Therefore, further
consideration of its programs is requisite.157
On the one hand, the EU has taken care to advance European
initiatives in electronic commerce cases.158 On the other hand, it has
taken particular care to avoid incompatibility and inconsistency with
legal developments in other parts of the world so as to avoid obsta-
cles to global electronic commerce. Their efforts in reaching agree-
ment on the Directive on Electronic Commerce and the Brussels I
Regulation might serve as a model for international players and thus
154
See further European Parliament: The Answer is Yes!, available at <http://www.
eurofinals.org> (viewed on October 23, 2003).
155
See further M. Pullen, On the Proposal to Adopt the Amended Brussels Convention and
the Draft Rome II Convention as EU Regulations Pursuant to Article 65 of the Amsterdam
Treaty, EU version, Position Paper Prepared for the Advertising Association, <http://
www.ilpf.org/confer/present99/pullen_posit.htm>.
156
J. Warchus, E-commerce: A Choice of Laws? <http://www.wiredsussex.org.uk/ecom-
merce/ecomm11.htm>.
157
Two issues have identified for further discussion: whether electronic commerce
is better fostered by the existing Brussels Convention rules on jurisdiction or whether
additional safeguards in favor of consumers are necessary; whether it is reasonable
to take the view that commercial activities are directed at a particular state merely
because a web site can be accessed from that state.
158
Four key objectives are emphasized by the European Commission. Firstly,
widespread, affordable access to the infrastructure, products and services needed for
electronic commerce must be provided through secure and easy-to-use technologies
and services and reliable, high-capacity telecommunications networks. Secondly, a
coherent regulatory structure within the EU, based on single market principles, must
be ensured. Thirdly, a favorable business environment must be fostered by pro-
moting relevant skills and raising awareness. And fourthly, there must be a com-
patible and coherent regulatory framework at the global level. See further Electronic
Commerce: Commission Presents Framework for Future Action, <http://europa.eu.int/comm/
internal_market/en/media/infso/313.htm>.
116 chapter four
reinforce Europe’s influence on the development of international legal

framework.159
2.4. Observations
2.4.1. Self-Regulation in Adjudicative Jurisdiction

Liberalization is well underway. Market force shall play a funda-
mental role in promoting the healthy development of the commer-
cial world. But while stressing the importance of market force and
competition to realize maximum economic gains, governments shall
not lose their role in guaranteeing and balancing interests in society.
Experience shows us that the community of online users and service
providers is up to the task of developing a self-governing system.160
While the Internet may not have borders and is invisible, it does
have users located in many physical locations that may be able to
decide for themselves which regulatory systems they wish to utilize.161
Indeed, Internet users have established many enforcement weapons
to persuade wrongdoers to comply and service providers do their
part by imposing conditions for access. In the area of online dispute
resolution, self-regulation seems certain to prosper.
Online parties will do better to self-regulate than to leave regulation
to national governments. However, just as one scholar commented,
governments will inevitably impose additional restrictions on online
activities, as governments, frustrated and embarrassed162 by their
159
Electronic Commerce: Commission Welcomes Final Adoption of Legal Framework Directive,
<http://europa.eu.int/comm/internal_market/en/media/eleccomm/2k-442.htm>.
160
When speaking of self-regulation, the “self ” generally refers to the business
sector alone, which fails to recognize individual users of Internet services and par-
ticipants in electronic commerce as independent Internet stakeholders and possible
administrators in a larger self-regulatory regime.
161
M. Geist, Internet Jurisdiction: The SEC “Opts Out”, <http://lawschool.mtcibs.com/
lawtech/archive/199705.htm>.
162
Alarmed by the apparent prevalence of various forms of objectionable on-line
content, as well as by the Internet’s enormous potential for misuse, several gov-
ernments have already responded by implementing restrictions. For example, Chinese
government envisions a system oriented entirely towards business to serve as a tool
to spur China’s economic development. On-line communications beyond this scope
are not granted any special protection. The restrictions on expression which gov-
ern in other contacts continue to apply. However, this regime is not technologi-
cally feasible. The Internet is far too large for any monitoring efforts to be even
vaguely comprehensive. This fact is confirmed by the Chinese government’s own
efforts to limit access to a manageable number of users, which include limiting
access to certain professions and keeping the cost of local Internet service artificially
inability to enforce existing limitations on online communication, are

forced to resort to more repressive measures.163 In the end, they shall
cause damage to relevant parties. The basic premise of self-regulation
is continuous improvement to meet the needs of the particular busi-
ness in the most efficient manner.164 The market can meet the needs
of the market better than governmental regulation can. Only the
market shall decide which court shall be more reasonable for dis-
puting players.
Standards concerning self-regulation and jurisdiction in the cyber-
community may soon be adopted. While bearing in mind the benefits
of the groups they represent, some organizations are already trying
to formulate appropriate rules for general Internet society. Their
research and ongoing practice may serve as models for future practice.
Freedom of contract serves to facilitate self-regulation in the com-
mercial world, with particularly positive implications for dispute res-
olution and jurisdiction. Parties should be free to express their will
in establishing guarantees that represent the real interests of relevant
parties. Potential resolutions that take into account party preferences
will likely gain the support of the Internet world.
Self-regulation and litigation in electronic commerce reach an ami-
cable compromise: a consensual regime of user self-regulation with
backup from state-run litigation. Market performance may provide
the principles for adjudicative jurisdiction; the state shall adopt the
rules.165 The only question regards determining under what circum-
stance self-regulation suffices and when regulation by governments
is necessary. Relevant governments will need time to react.166
high. Such efforts are also counter-productive since any economic development
attributable to the Internet is correspondingly minimized. See further Great Firewall
of China?: Beijing Slaps Restrictions on Internet Access, available at <http://www.asia-
week.com> (viewed on October 23, 2003).
163
J.T. Delacourt, The International Impact of Internet Regulation, 38 Harvard
International Law Journal, 234 (1997).
164
Observations on the State of Self-Regulation of Internet, Prepared for the
Ministerial Conference of the Organization for Economic Cooperation and Develop-
ment (OECD): A Borderless World: Realizing the Potential for Global Electronic
Commerce, Ottawa, Canada, October 7–9, 1998. <http://www.ilpf.org/selfreg/
whitepaper.htm>.
165
It is the position of Alliance for Global Business in its Global Action Plan for
Electronic Commerce that any premature regulation could inhibit the growth of
electronic commerce and that government should rely on voluntary business self-
regulatory practices and market pressures to develop more flexible and balanced
solutions.
166
European telecommunications ministers backed a combination of self-regulation
118 chapter four
2.4.2. Free Choice by Parties and Consumer Protection

In civil and commercial matters, free will is highly respected. In a
freely negotiated agreement, the selection of a forum may become
the most important term of the contract.167 Both parties are in the
position to freely express their views on which court shall govern
their dispute and which law shall be applicable. In electronic com-
merce, which transcends national borders and exacerbates the already
complicated issue of choosing appropriate jurisdiction, this freedom
cannot be underestimated. Only when concerned parties fail to make
a choice should the court decide the jurisdiction based on rules or
case laws.
The idea of free will of the parties originated in Europe and
different ways can realize this idea. However, one way is subjected
to controversy: the so-called “adhesion contracts”. Such are enforce-
able under US law, although some have argued they are “unfair”
or “unconscionable.” The terms “unfair” and “unconscionable” have
flexible meanings.168 This has caused much concern about the issue
of consumer protection.
Jurisdictional rules (particularly regulatory applications of consumer
protection laws) sometimes reflect presumed power imbalances between
buyers and sellers. But some presumptions may need to be reeval-
uated given the manner in which the Internet empowers consumers
vis-à-vis merchants.169 Historically, consumers have been considered
the weaker party in business transactions and special rules and reg-
ulations have thus been passed to protect consumer interests. For
example, consumer transaction disputes have traditionally been tried
within the exclusive jurisdiction of the state wherein the consumer
resides.
When disputes arise over online consumer transactions, is it appro-
priate for two parties to reach agreements to bring the case to other
and government controls for the development of electronic commerce in the EU,
but remained divided about whether regulation or voluntary codes of conduct should
take precedence. See further E. de Bony, EU Differs on E-commerce Regulation,
<http://www.idg.net/ec?external=1&c . . . earchbox%26sv%3DIS%26ik%3Dnoframes>.
167
G. Born & D. Westin, International Civil Litigation in the United States Courts,
223–224 (Deventer, 1993); N. Guthrie, A Good Place to Shop: Choice of Forum
and the Conflict of Laws, 27 Ottawa Law Review, 216–223, 231–232 (1995).
168
See further Achieving Legal and Business Order in Cyberspace: A Report on
Global Jurisdiction Issues Created by the Internet, London Meeting Draft, Report
of the American Bar Association Jurisdiction in Cyberspace Project.
169
T.P. Vartanian, A Global Approach to the Laws of Jurisdiction in Cyberspace,
<http://www.kentlaw.edu/cyberlaw/housetestimony.html>.
courts? Most scholars advance a positive answer. In electronic com-

merce, consumers have the freedom to actively discriminate between
products and merchants, whose more passive job is to disseminate
information. In this environment, they have cast off their former pas-
sive role. On the other hand, merchants facing stricter competition
than ever before must offer more favorable conditions for their cus-
tomers, often transparent product information, and thus give up their
power to them. As a result, the consumer protection principle needs
further restructuring in this new business environment, balancing the
interests of both parties.170
The process of realizing the free will of both parties in electronic
commerce is simple. Generally speaking, merchants offer information
related to forum choice on their web site. Consumers who read this
information either accept available forums by clicking on an Accept
Button or continue to search the web for further information. Electronic
commerce both justifies free will and makes it realistic.
2.5. International Efforts in Regulating Adjudicative Jurisdiction
2.5.1. International Regulation of Jurisdiction

With the emergence of the Internet, nations cannot truly hide behind
the international scene. One unique feature of the Internet is that
a computer in one region of the world can access a computer in
another part of the world in an instant.171 National borders are easily
bypassed and interconnection is becoming closer than ever before.
In consequence, any regulation from an individual state can influence
other states.
The Internet represents a network of networks, not a single system
as the term may connote.172 A state cannot make its own business
without taking into account the interoperation of states.173 Similarly,
170
Consumers are much more empowered. See further J. Schack, Cost Contain-
ment, 33 Institutional Investor 43 (1999); see also infra notes 152–157 and accompany-
ing text.
171
B. Robin, E. Keeler & R. Miller, Educator’s Guide to the Web 1–2 (1997).
172
S.M. Hanley, International Internet Regulation: A Multinational Approach,
16 J. Marshall J. of Computer & Info. L., 1010 (1998).
173
This can be seen from the European attitude. The European Commission
acknowledges that new national legislation in diverse areas can create trade barriers
that will hamper the development of electronic commerce at a global level. The
community should work through appropriate international forum and bilaterally
120 chapter four
a state cannot develop its own regulatory policy for electronic com-
merce and cut itself off from the rest of the world. International
cooperation is urgent. Regulation of the Internet should provide
global coverage within a secure framework fostering the growth of
electronic commerce in the world market.174
This is also true for adjudicative jurisdiction in electronic com-
merce. To avoid conflicts in jurisdiction in the international scene,
international bodies must cooperate in developing a policy. Some
organizations have already taken the initiative. The American Bar
Association (ABA) has launched one project on transnational juris-
diction and published research results.175 ICC, OECD and other
international organizations176 have also put effort into this issue.
The current problem is determining who can act as the appropri-
ate regulatory body for adjudicative jurisdiction. The Hague Conference
on Private International Law rightly appeals to the self-regulatory
nature of jurisdiction and is garnering industry support.
2.5.2. Draft Hague Convention177

Long before the international community was considering the impact
of the Internet on jurisdiction, a project to work on the future of
the Hague Convention on Jurisdiction and Foreign Judgments in
Civil and Commercial matters was first proposed in 1992.178 Formal
with its major trading partners to establish a coherent global regulatory framework.
5 December 1997, <http://www.qlinks.net/comdocs/eu-us.htm>.
174
Frendo, supra note 131, at 30.
175
The Cyber Law Committee of the ABA compiled an inventory of how different
national rules and requirements deal with jurisdiction in cyberspace.
176
For example, the Global Business Dialogue for Electronic commerce (GBDe),
an international group of leading online businesses, outlined the emerging industry
consensus in a paper on jurisdiction; the Internet Law and Policy Forum (ILPF),
a forum of legal and policy experts, has recently held an important conference on
jurisdiction and the Internet and is developing a work program to address legal
and policy issues related to jurisdiction on the Internet; the ICC has put together
a cross-functional task force on jurisdiction and electronic commerce. For analysis
of international regulation of jurisdiction, see further R. Wai, Transnational Liftoff
and Juridical Touchdown: The Regulatory Function of Private International law in
an Era of Globalization, 40 Columbia Journal of Transnational Law 219–220 (2002).
177
The Preliminary Draft Convention on Jurisdiction and Foreign Judgments in
Civil and Commercial Matters was adopted by the Special Commission on 30
October 1999. The text could be obtained in <http://www.hcch.net/e/conven-
tions/draft36e.html>. For a general discussion, see further R.A. Brand, Intellectual
Property, Electronic Commerce and the Preliminary Draft Hague Jurisdiction and
Judgments Convention, 62 U. Pitts. L. Rev. Issue 4, 581–603 (2001).
178
In May 1992, Edwin Williamson, Legal Advisor at the US Department of
negotiations started in 1996 and since then, the committee has paid
much attention to the electronic commerce provisions.179 One pre-
liminary draft specifically attends to electronic commerce.
According to Article 4 (1), parties can agree on any court. The
agreement can be reached by any means and take any form so long
as it is usable for subsequent reference.180 The agreement shall take
the priority in determining adjudicative jurisdiction. When no choice
is made, the defendant’s habitual residence shall be the relevant con-
necting factor; legal persons can be sued in the state of statutory
seat, the state of incorporation, the state of central management, or
the state of the corporation’s principal place of business.181
The Draft Hague Convention gives electronic commerce a spe-
cial position within its framework. Concerning business-to-business
transactions, a plaintiff may bring an action to the courts of a state
in which the goods or services were provided in whole or in part.
In matters relating both to the supply of goods and the provision of
services, the forum state shall be the one where performance of the
principal obligation took place in whole or in part.182
The position of electronic commerce becomes complicated when
contracts are concluded and performed online.183 Traditional juris-
dictional theories can be used in situations where contracts are con-
cluded online, but performed offline. The performance of the contract
remains the primary factor in deciding jurisdiction. When it comes
to contracts both concluded and performed online, it is difficult to
identify the contracting place and the place of performance. In such
cases, a presumption has to suffice for the place of performance or
more precisely, the place of delivery of the information.184
State, wrote to Georges Dorz, Secretary General of the Hague Conference on

Private International Law, proposing that the organization take up the negotiation
of a multilateral convention on the recognition and enforcement of judgments.
179
Meeting in Ottawa on the Hague Convention on Jurisdiction and Foreign
Judgments in Civil and Commercial matters, <http://www.cptech.org/ecom/hague-
march-2000.html>.
180
Article 4 of the Draft Hague Convention.
181
182
183
Goods and services are blurred in cyberspace, but the distinction has become
increasingly important. See further Doing Business On-line in the Digital Millennium: the
Law Looks Ahead, <http://www.chapmantripp.co.nz/publish/c040500.htm>.
184
Electronic Commerce and International Jurisdiction, Ottawa, 28 February to
1 March 2000, summary of discussions prepared by C. Kessedjian with the coop-
eration of the Private International Law team of the Ministry of Justice of Canada,
<C:\WINDOWS\TEMP\jdgmpd12.doc>.
122 chapter four
In consumer contracts, the consumer shall be able to take pro-

ceedings to the courts of his habitual residence once (a) the conclu-
sion of the consumer contract is linked to the activities of the business
in the state of the consumer’s residence, or directed at that state in
particular by soliciting business through means of publicity; and (b)
the consumer has taken the necessary steps to conclude the contract
in his state of residence.185 These two conditions serve to balance
the interests of merchants and consumers. Again, free will of parties
is advocated in a cautious way.186 The problem is determining whether
there shall be some limitation for choice, which shall deserve fur-
ther consideration.187
The last type refers to torts in electronic commerce. Two types
of courts can satisfy jurisdiction in such cases. The courts of the
place where the tortuous act arises shall have jurisdiction unless it
can be shown that the perpetrator could not reasonably foresee the
tortuous act or a similar consequence. The courts of the place where
the injury occurs will be competent to rule on all the injury suffered
anywhere by the injured party, as long as the injured party is a
habitual resident of the state in which the court is situated. If the
latter condition cannot be met, then the jurisdiction of the courts of
the place where the injury occurs is limited to dealing with that
specific injury.188
2.5.3. Comments
The Draft Convention is the most ambitious project undertaken by
the Hague Conference so far. However, the negotiations were sus-
pended when the drafters reached an impasse in June 2001. A new
drafting committee was set up to prepare a new proposal in April
185
Article 7 of the Draft Hague Convention. For analysis, see T.P. Lester,
Globalized Automatic Choice of Forum: Where Do Internet Consumers Sue?:
Proposed Article 7 of the Hague Convention on International Jurisdiction and
Foreign Judgments in Civil and Commercial Matters and its Possible Effects on
e-Commerce, 9 New England Journal of International and Comparative Law 431–488 (2003).
186
Article 7 (3) of the Draft Hague Convention.
187
Disagreements concerning consumer protection involve issues like whether or
not and under what circumstances to allow adhesion contracts. See further J. Love,
Views of the Consumer Project on Technology, March 1, 2000, <http://www.cptech.org/ecom/
hague-march-2000.html>.
188
See further Article 10 of the Draft Hague Convention. See further Electronic
Commerce and International Jurisdiction, Ottawa, 28 February to 1 March 2000,
Summary of discussion prepared by C. Kessedjian, preliminary Document No. 12
of August 2000, at 8, <H:\RB_DOC\DPU\00011271.DOC>.
2002. Many controversial issues are left for further negotiations. Two
of the most important issues involve jurisdiction to hear e-commerce
and other Internet-related disputes, and disputes involving intellec-
tual property rights. A new draft was addressed in April 2003, await-
ing the official views from governments.189
The road to the adoption of the Convention has been bumpy.
Nevertheless, the Draft Hague Convention has meanwhile provided
an arena in which the international community can work to coor-
dinate rules for adjudicative jurisdiction. It has taken into consider-
ation some of the various situations that shall be confronted in
electronic commerce and, importantly, distinguished between con-
tracts concluded online but performed offline and those concluded
and performed totally online. With further technological develop-
ment, the latter distinction shall become even more important.
Theoretically, party identification and localization to the contract
could substitute for territorial connections. Identification would dis-
rupt the traditional allowance that persons can remain anonymous
in the transaction.190 The localization of the parties is more impor-
tant in that it could substitute for the location of performance. Because
parties can act in any location where connection to the Internet can
be accessed, their offering information about their residence and
place of business shall be helpful. These issues will become more
important after the Draft Hague Convention takes effect.
Clear conditions have been provided in the Draft Hague Convention
for the courts to assert jurisdiction legally. Application is another
matter and more work needs to be done. Electronic commerce is
increasingly complicated and it requires time to form a complete
picture of the possible framework for jurisdiction. One issue to be
treated later is that of online employment contracts. Determining
how to accommodate the rules191 to this online situation can be vital
189
The new draft has been technically narrowed to “choice of forum” clauses in
B2B contracts; it also seeks to exclude patents and trademarks from the treaty. See
further CPTech’s Page on the Hague Conference on Private International Law’s
Proposed Convention on Jurisdiction and Foreign Judgments in Civil and Commercial
Matters, available at <http://www.cptech.org> (view on 22 October, 2003).
190
But some kind of transparency or control should remain. Thus, the use of
certification methods proposed by private entities is encouraged.
191
Rules concerning individual contracts of employment are provided in Article 8
of the Draft Convention. Some experts claim the rules shall cause a fragmentation
of the jurisdiction.
124 chapter four
to electronic commerce’s further development. Can the choice of

court provision be applied here?
Some have argued for the convention’s abandoning the issue of
jurisdiction in electronic commerce altogether. But we understand
the importance of jurisdiction in electronic commerce. Though the
issue is complicated, there is no excuse for deleting electronic com-
merce from the basic framework of jurisdiction law. The convention
must not shirk from the task of addressing, as it is set out to do,
“civil and commercial matters” in which the role of jurisdiction for
electronic commerce is vital.
3. Choice of Law
3.1. Basic Understanding of Choice of Law in Electronic Commerce

After the court has justified its power to hear one case, the sub-
stantive part of the litigation shall start. When the case involves for-
eign (or international) factors, applicable law must be determined.
The adequacy of this determination is vital to the successful out-
come of the case. Presently, different countries have regulations of
their own based on particular national interests.192 These different
national laws can occasion different judgments for the same case.
Choice-of-law issues are notoriously difficult to resolve, even in
relatively simple contexts.193 The character of internationalization in
electronic commerce cases is much more complicated than in nor-
mal international transactions, which in turn makes the issue of choice
of law in such cases a huge task for judges and lawyers alike.194
Traditionally, applicable law depends on physical location. But
cyberspace is indifferent to the physical world and there is no nec-
essary connection between an Internet address and a physical juris-
192
National laws are developed which do not well consider the transnational
dimensions of global computer networks and thus are ineffective to deal with multi-
national issues. See further M. Kirby, Legal Aspects of Transborder Data Flows, 9
Computer L.J. 233 (1991).
193
S.F. Kreimer, The Source of Law in Civil Rights Actions: Some Old Light
on Section 1988, 133 U. Pa. L. Rev. 601 (1985).
194
See further A.H. Boss, The Jurisdiction of Commercial Law: Party Autonomy
in Choosing Applicable Law and Forum Under Proposed Revisions to the Uniform
Commercial Code, 32 Int’l Law. 1067–1068 (1998).
diction.195 You can find Internet users everywhere,196 but at the same
time nowhere.197 No one can really determine where a specific act
takes place.198 Not surprisingly, then, applying strictly territorial choice
of law rules to global digital networks creates formidable problems.199
Having acknowledged such problems, some scholars have suggested
ways to totally block the issue of choice of law from the arena of
electronic commerce. One suggestion is the formation of a new law
for cyberspace, the so-called lex cyberalty or cyberlaw.200 With cyber-
jargon developing to the point of quasi-language, cyberspace has
obviously developed a distinct culture.201 Supporters believe that since
195
Johnson, supra note 15, at 1367, 1371; T. Puurunen, The Legislative Jurisdiction
of States Over Transactions in International Electronic Commerce, 18 J. Marshall
J. Computer & Info. L. 689–690 (2000).
196
A person logging onto the Internet has a presence on it, which can be observed
by any computer linked to the Internet. See D.L. Burk, Transborder Intellectual
Property Issues on the Electronic Frontier, 6 Stan. L. & Pol’y Rev. 9–10 (1994).
197
Encryption may be used to conceal the identity of the user. See R.F. Pollack,
Creating the Standards of a Global Community: Regulating Pornography on the
Internet—An International Concern, 10 Temp. Int’l & Comp. L.J. 467, 480 (1996);
M.A. Pike, Using the Internet 49 (2nd Ed. 1995).
198
One can talk of the location of events and transactions in cyberspace, but
only in reference to a virtual space consisting of the “address” of the machines
between which messages and information are routed; this machine addressing sys-
tem is entirely independent of the physical address or location of those machines.
See further D.L. Burk, Trademarks Along the Infobahn: A First Look at the Emerging
Law of Cybermarks, 1 U. Rich. J.L. & Tech. 1, 12–14 (1995), at <http://www.
urich.edu/jolt/vlil/burk.html>.
199
Many commentators argue that the old choice-of-law doctrines fail to provide
any meaningful guidance in the virtual world because these doctrines depend on
notions of physical locations. The issues created by the growth of the Internet are
sui generis and must ultimately be addressed by legislative action recognizing the
unique attributes of cyberspace. See R.T. Muth, Old Doctrines on a New Frontier:
Defamation and Jurisdiction in Cyberspace, 68 Wisconsin Lawyer, 11 (1995).
200
See for example, Legal Advisory Board (LAB), reply to the Green Paper on
Copyright and Related Rights in the Information Society, <http://www2.echo.lu/legal/
en/ipr/reply/reply.html>; see also P. Samuelson, Legally Speaking, the NII Intellectual
Property Report, Communications of the ACM, Dec. 1994, at 21. Lex informatica is also
suggested corresponding to Lex Mercatoria, see generally J.R. Reidenberg, Lex Informatica:
The Formulation of Information Policy Rules Through Technology, 76 Texas Law
Review 553 (1998); A. Mefford, Lex Informatica: Foundations of Law on the Internet,
5 Indiana Journal of Global Legal Studies, 211 (Fall 1997); W.H. van Boom & J.H.M.
van Erp, Electronic Highways: On the Road to Liability, in V. Bekkers et al. (Eds.),
Emerging Electronic Highways: New Challenges for Politics and Law, 153, 156 (1996).
201
See further R.L. Dunne, Deterring Unauthorized Access to Computers:
Controlling Behavior in Cyberspace through a Contract Law Paradigm, 35 Jurimet.
Journal, 8–10 (Fall 1994).
126 chapter four
lex merchant exists specifically for a commercial world so should a

specific law exist for a unique cyberspace.202 Uniform law should
resolve conflict regarding choice of law totally and ultimately. This
suggestion shall be more fully explored in Chapter Six.
Other ambitious ideas include a separate cyberlaw, which would
harmonize different national laws to best serve Internet society.203
The suggestion of a cyber law seems reasonable, but harmonization
should probably be a gradual process. Considering the uncertainties
produced by rapidly changing technologies and industrial structures,
it would be inappropriate to quickly adopt broad new legal rules. A
gradual adjustment is more desirable in light of the potentially con-
tentious questions arising in connection with the new technology.204
Lex merchant came out of a special arrangement for settling com-
mercial disputes.205 In electronic commerce, there have also arisen
202
Id.
203
See for example, R.T. Nimmer, Licensing on the Global Information Infra-
structure: Disharmony in Cyberspace, 16 Nw. J. Int’l L. Bus. 224, 246–247 (1995);
J. Goldring, Netting the Cybershark: Consumer Protection, Cyberspace, the Nation-
State, and Democracy, in B. Kahin & C. Nesson (Eds.), Borders in Cyberspace: Information
Policy and the Global Information Infrastructure 322, 340–344 (Cambridge, MA: MIT
Press, 1996); L.A. Herscha, Is There a Doctor in the House? Licensing and Mal-
practice Issues Involved in Telemedicine, 2 B.U.J. Sci. & Tech. L. 8 (1996); M. Rustad
& L. Eisenschmidt, The Commercial Law of Internet Security, 10 High Tech. L.J.
213, 300 (1995); J. Ritter & J. Gliniecki, International Electronic Commerce and
Administrative Law: The Need for Harmonized National Reforms, 6 Harv. J.L. &
Tech. 263 (1993); L. Solomon & L. Corso, The Impact of Technology on the Trading
of Securities: The Emerging Global Market and the Implications for Regulation,
24 J. Marshall L. Rev. 299, 330 (1991); D. Wilson, Viewing Computer Crime: Where
Does the Systems Error Really Exist?, 11 Computer/L.J. 265 (1991); J. Grundfest,
Internationalization of the World’s Securities Markets: Economic Causes and
Regulatory Consequences, 4 J. Fin. Svcs. Res. 349 (1990).
204
See further Denver Area Educ. Telecomm. Consortium, Inc. v. FCC, 116 S. Ct.
2374, 2385 (1996). This has been evidenced by practice on the EU side. The fore-
most purpose of the European Communities Green Paper, “Copyright and Related
Rights in the Information Society,” appears to be the solicitation of comments from
interested parties regarding how copyright law should be extended to the Internet
in the EU. See further S. Fraser, The Copyright Battle: Emerging International
Rules and Roadblocks on the Global Information Infrastructure, 15 J. Marshall J.
of Computer & Info. L., 759, 783 (1997); see also A.A. Caviedes, International Copyright
Law: Should the European Union Dictate Its Development? 16 B.U. International
Law Journal, 165, 228 (1998).
205
However, there is doubt concerning whether there are such norms of inter-
national business transactions that are independent of national laws. See further
G. Delaume, Comparative Analysis as a Basis of Law in State Contracts: The Myth
of the Lex Mercatoria, 63 Tulane Law Review, 575 (1989); see also K. Highet, The
Enigma of the Lex Mercatoria, 63 Tulane Law Review, 613 (1989).
such arrangements, for example, Cybercourt and Virtual Magistrate.206

Their activities can have some gradual influence on the further devel-
opment of Lex cyberalty.
The policy of self-regulation in cyberspace has been advocated,
but time is needed for Internet society to reach certain agreements.
As an open-ended group with an exponential growth rate, the “cyber-
community” is too large and heterogeneous to achieve commonly
accepted rules in a short period of time.207
While encouraging the development of lex cyberalty by the Internet
society, we should further improve the choice of law system to accom-
modate the present situation. While there is no easy way to decide
upon the location of relevant activities in electronic commerce, peo-
ple are certainly manipulating electronic processes in the physical
world. The task at hand is to involve physical contexts in the choice
of law. This study will take up the issue and suggest an appropriate
system for national states, which may gain acceptance in the inter-
national community. Two types of disputes arising out of electronic
commerce shall be further dealt with in the following two sections:
contractual disputes and torts.208
3.2. Choice of Law in Contractual Disputes

As electronic commerce deals with international transactions in the
digital era, contractual relationships in electronic commerce are far
more complicated than in traditional international commerce. Dealing
with electronic commerce contract disputes is likewise problematic.
To elucidate the nature of such dealings, this study will address US
and EU cases. With them as its models, it should then analyze the
206
For information on Virtual Magistrate Project, see <http://vmag.law.vill.edu:
8080/>. For further discussion, see M.E. Staib & M. Yablonski, “Virtual Magistrate”
Offers Alternative Dispute Resolution for Internet Disputes: Project Offers Parties
a Chance to Avoid the Uncharted Terrain of “Cyber” Law, Litigation News, September
1996, at 6.
207
See further R. Mergers, Intellectual Property and Digital Content: Notes on
a Scorecard, Cyberspace Lawyer, June 1996, at 15.
208
See further D.R. Johnson & K.A. Marks, Mapping Electronic Data Commu-
nications onto Existing Legal Metaphors: Should We Let Our Conscience (and Our
Contracts) Be Our Guide?, 38 Vill. Law Review, 487, 490–491 (1993). Possible legal
disputes in cyberspace are listed in this article. It reveals the difficulty of charac-
terizing a case as either tort or contract. See further E.F. Scoles & P. Hay, Conflict
of Laws 3.8, 42 (2nd Ed. 1992).
128 chapter four
feasibility of an international system and finally suggest a reasonable

system for contractual disputes.
3.2.1. International Practice
3.2.1.1. The US
The US provides the most complete system for choice of law in con-
tractual issues. When developing this system, American scholars advo-
cated different theories, which were later applied in practice.
Forum selection clauses contained in contracts are generally rec-
ognized in the US. For such clauses to be valid, the choice of law
should be reasonable.209 For contracts reached through the Internet,
there are two determinants of reasonableness: the requirement of
“connecting factors” to the forum selected, which holds that there must
be some connection between the chosen law and the parties or the
transaction;210 and the requirement of the lack of a gross inequality
of bargaining power.211
When there are no forum selection clauses present, two roads are
generally followed. These are suggested in the First and Second
Restatement of Conflict of Laws.212
According to the First Restatement, the law where the contract
was made governs the validity of the contract; the law of the place
where performance occurs governs the contractual performance.213
These are clear provisions for applicable law214 and once represented
the universal American approach to the issue of choice of law.215
But with the development of new means of communication, loca-
tion and along with it these provisions have lost their relevance.
209
See for example, Carnival Cruise Lines v. Shute, 499 U.S. 585, 593–594 (1991).
210
See G.B. Born, International Civil Litigation in United States Courts, 655 (3rd Ed.
1996).
211
See further Section 187 of Restatement (Second) of Conflict of Laws.
212
See further J.P. Donohue, Litigation in Cyberspace: Jurisdiction and Choice of Law,
A United States Perspective, <http://www.abanet.org/buslaw/cyber/initiatives/usjuris.html>.
213
Restatement (First) of Conflict of Laws, 495 U.S., section 377–397 (1990); see
also J. Story, Commentaries on Conflict of Laws, 242 (2nd Ed. 1841).
214
It has been claimed that application of a law other than that dictated by the
First Restatement would impose a criterion that would not have been foreseen by
at least one of the two parties to the suit. See further H.F. Goodrich, Handbook of
the Conflict of Laws 92, at 261–262 (3rd Ed. 1949).
215
See L. Brilmayer, Conflict of Laws: Cases and Materials, at 1 (4th Ed. 1995).
Even in normal international transactions, they have been discarded

in most states.216
As a reaction to the rigidity of the rules in the First Restatement,217
governmental interest analysis was introduced in the legal practice
in the 1950s.218 Professor Currie intended to use this analysis to
ensure the realization of the essential purpose of the law chosen.
One of its greatest virtues is its ability to reveal false conflicts of
laws219 and thereby facilitate the selection of law that has substantial
connection.
Of course, there are instances of real conflict. According to the
theory of governmental interest analysis, in case of a real conflict, a
court must apply the forum’s law, determine whether “a more mod-
erate and restrained interpretation” of the forum law reveals that its
application does not accord with the purposes underlying it, apply
the law with the most significant interest, or to apply a myriad of
other choice of law principles.220
In most situations, the forum law is given favorable consideration.221
The court is not in an objective position to interpret underlying pol-
icy in other laws.222 The theory of governmental interest analysis has
216
In the years after the Babcock decision, courts have become increasingly reluc-
tant to apply the First Restatement when looking at choice of law issues. See fur-
ther Born, supra note 210, 674. For criticism against the First Restatement, see
further W.W. Cook, The Logical and Legal Bases of the Conflict of Laws (1942); F.V.
Harper, Policy Bases of the Conflict of Laws: Reflections on Rereading Professor
Lorenzen’s Essays, 56 Yale L.J. 1155 (1947); R.J. Traynor, Law and Social Change
in a Democratic Society, U. Ill. L. Rev. 230 (1956); P. Dane, Vested Rights,
“Vestedness,” and Choice of Laws, 96 Yale L.J. 1191, 1197 (1987).
217
B. Currie, On the Displacement of the Law of the Forum, 58 Columbia Law
Review, 964, 967 (1958).
218
See generally B. Currie, The Constitution and the Choice of Law: Governmental
Interests and the Judicial Function, in B. Currie, Selected Essays on the Conflict of Laws,
183–184 (1963).
219
False conflict exists when only one state has a policy interest in the applica-
tion of its law and all others have no interests. See W.L.M. Reese et al., Cases and
Materials on Conflict of Laws, 488 (9th Ed. 1990); see also Babcock v. Jackson, 191 N.E.
2d 279 (N.Y. 1963); L. Brilmayer, Conflict of Laws: Foundations and Future Directions,
145–189 (1991); L. Kramer, Rethinking Choice of Law, 90 Colum. L. Rev. 277,
315–344 (1990); J.P. Trachtman, Conflict of Laws and Accuracy in the Allocation
of Government Responsibility, 26 Vand. J. Transnational L. 975, 1017–1022 (1994).
220
See further Mirzaian, supra note 113, at 20.
221
Thus, it can often lead to unjust results and the law of other states shall be
in an inferior position.
222
See further L. Brilmayer, Interest Analysis and the Myth of Legislative Intent,
78 Michigan Law Review, 392 (1980); see also J. Hill & J.E. Brazier, Constraining
130 chapter four
proven to be an unreliable school of thought in the conflict of laws.223

The theory of comparative impairment224 suffers the same defects
and is thus ill suited to electronic commerce.225
The Second Restatement later adopted the most significant rela-
tionship theory, according to which the court shall examine several
factors to see whether the chosen law has a most significant rela-
tionship with the case in point. These include the place of con-
tracting; the place of negotiation of the contract; the place of
performance; the location of the subject matter of the contract; and
the domicile, residence, nationality, place of incorporation, and place
of business of the parties.226 In carrying out this exam, the court
shall give relevant weight to the following issues: the needs of inter-
state and international systems; the relevant policies of the forum;
the relevant policies of other interested states and their interests in
the issue; protection of justified expectation; basic policies of the field
of law; certainty, predictability, and uniformity of result; and ease in
the determination and application of the law to be applied.227
This theory is the favorite of scholars and judges who delight in
the large measure of judicial discretion that results when judges are
asked to catalog and weigh a number of usually incommensurable
Administrative Decisions: A Critical Examination of the Structure and Process Hypo-

thesis, 7 Journal of Law, Economics & Organization, No. 2, 373, 398 (1991); P.S. Berman,
The Globalization of Jurisdiction, 151 U.Pa. L. Rev. 422–423 (December 2002).
223
F.K. Juenger, Conflict of Laws: A Critique of Interest Analysis, 32 American
Journal of Comparative Law, 48 (1984).
224
See generally W.F. Baxter, Choice of Law and the Federal System, 16 Stanford
Law Review, 1 (1963). Under this theory, the court applies the substantive rule of
the state whose policy goals would suffer most if the court used another state’s law.
225
See F.K. Juenger, Mass Disaster and the Conflict of Laws, University of Illinois
Law Review, No. 1, 105, 113 (1989).
226
Restatement (Second) of Conflict of Laws 188 (2), (1971). For further discus-
sion on the factors in the context of the global information infrastructure, see H.H.
Perritt, Jr., Law and the Information Superhighway 527–533 (1996).
227
Restatement (Second) of Conflict of Laws 6, 145 (1971). Professor Leflar listed
another five factors for consideration in making choice of law, namely: predictability
of results; maintenance of interstate and international order; simplification of the
judicial task; advancement of the forum’s governmental interest; and application of
the better rule of law. This offers little guidance. Furthermore, this theory tends to
favor application of the forum law, which shall unfairly damage non-forum litigants,
exhibit disrespect to non-forum governments and undermine principles of order and
uniformity in choice of law. See further R.A. Leflar, American Conflict of Law, 193–195
(3rd Ed. 1977); see also G.R. Shreve, Choice of Law and the Forgiving Constitution,
71 Indiana Law Review, No. 2, 271 (1996).
factors.228 Discarding the mechanic use of the applicable law, this

flexible theory seriously attempts to find out the real law with the
most significant connection with the case.
Yet what some see as its merits, others see as its shortcomings. It
has been claimed that the criteria offer too little direction. With so
much flexibility afforded to the court, no one can guess at which
law will be applied: judges with different interests can achieve different
results. Furthermore, when two laws have the same strength, it is
impossible to make a legitimate decision between them.
Notable, too, are the rules adopted in the Uniform Computer
Information Transactions Act (UCITA),229 which reflects the updated
trend for dealing with transactions in cyberspace. This commercial
statute provides rules for contracting in furtherance of the contract law
values of contract freedom and facilitation of commercial practice.230
It deals with typical online transactions that involve the complete
delivery of goods online. Rather than adopting a particular approach
to choice of law, its provisions combine various choice-of-law rules
to obtain a more particularized balance of relevant interests.231
First, party autonomy is encouraged. Both parties are to agree on
the laws applied in their particular case,232 and no limitations are
228
W.H. Allen & E.A. O’Hara, Second Generation Law and Economics of
Conflict of Laws: Baxter’s Comparative Impairment and Beyond, 51 Stanford Law
Review, 1019 (1999).
229
This document can be found in <http://www.law.upenn.edu/bll/ulc_frame.htm>.
It was drafted by the National Conference of Commissioners on Uniform State
Laws (NCCUSL) and approved at its annual conference meeting in its one-hundred-
and-ninth year in St. Augustine, Florida in 2000. In 2003, NCCUSL submitted res-
olution to the ABA House of Delegates for “approval” of UCITA. None of the six
ABA sections and two committees charged with considering the resolution voted to
approve it. Seven of the nine members of the ABA UCITA Working Group advised
the House of Delegates that UCITA should not be approved. Accordingly, NCCUSL
withdrew the UCITA resolution from consideration at the ABA House of Delegates.
For controversies concerning the UCITA, see further C.L. Mann. The Uniform
Computer Information Transactions Act and Electronic Commerce: Balancing Issues
and Overlapping Jurisdiction in the Global Electronic Marketplace: The UCITA
Example, 8 Washington University Journal of Law & Policy 218–220 (2002).
230
See further R.T. Nimmer, UCITA: Modern Contract Law for a Modern Information
Economy, in Patents, Copyrights, Trademarks, and Literary Property Course Handbook
Series, 232–233 (1999).
231
See further K. Patchel, Choice of Law and Software Licenses: A Framework
for Discussion, 26 Brooklyn Journal of International Law, 160 (2000).
232
Subsection 109 (a) of the UCITA provides that the parties in their agree-
ments may choose the applicable law.
132 chapter four
placed on the laws chosen. Comment 2 indicates that any limits on

the autonomy of parties with a reasonable relationship to the juris-
diction whose law is selected were inappropriate, especially in cyber-
space transactions where physical locations are often irrelevant or
unknown.233 However, in consumer transactions, relevant consumer
protection provisions should not be omitted. Mandatory rules of the
forum state should be respected. Two limits are listed in Comment
2: general limitations such as the doctrine of unconscionability and
the public policy exception of UCITA section 105.234
If no choice of law has been made, three types of law are rele-
vant. Firstly, an access contract or a contract providing for electronic
delivery of a copy is governed by the law of the jurisdiction where
the licensor was located when the agreement was entered into.235 The
location of the licensor is the connecting point; depending on the
circumstances, this can be the licensor’s place of business, chief exec-
utive office, place of incorporation or primary registration, or pri-
mary residence.236
Secondly, a consumer contract that requires delivery of a copy on
a tangible medium is governed by the law of the jurisdiction where
the copy is or should have been delivered to the consumer.237 This
provision relates to the transactions reached through the Internet but
consummated in the physical world.
The principle of the most significant relationship is applied for all
other cases.238 Comment 4 states both that this rule is similar to the
rule of the Second Restatement and that interpretations of the restate-
ment are applicable.239 The main achievement of the UCITA is that
233
See further Section 109 of the UCITA. Comment 2 states that the informa-
tion economy accentuates the importance of contractual choice of law provisions
because it allows remote parties to enter and perform contracts spanning multiple
jurisdictions and operating in circumstances that do not depend on physical loca-
tion of either party or the information. Subsection (a) enables small companies to
actively engage in multinational business; if the agreement could not designate applic-
able law, even the smallest business could be subject to the law of all fifty States
and all countries in the world. That would impose large costs and uncertainty on
an otherwise efficient system of commerce; it would raise barriers to entry.
234
UCITA d109 cmt.2b.
235
Subsection 109 (b) (1) of the UCITA.
236
Subsection 109 (d) of the UCITA.
237
238
239
Comment 4 of UCITA b 109 (b).
it clarifies the connecting factors for electronic commerce by apply-

ing the most significant relationship test.
3.2.1.2. The EU
Dealing with “contractual obligations in any situation involving a
choice between the laws of different countries,”240 the Rome Convention
on the Law Applicable to Contractual Obligations (Rome Con-
vention)241 provides the best guide for understanding the attitude of
the EU.242 With the harmony of member states of the EU in mind,
it works to eliminate differences between national conflict rules that
impede the free movement of persons, services and capital.243 In
practice, there are important limitations on their general applicabil-
ity,244 but the convention’s rules should serve as a model for han-
dling contractual relationships within the EU.
First of all, it highly advocates the principle of party autonomy.245
The law chosen by the parties shall govern the contract, and the
parties are free to choose whatever law they like, even the law of a
country not party to the convention.246 The choice does not have to
be made in writing, but it must be expressed or demonstrated with
reasonable certainty by the terms of the contract or the circumstances
of the case.247 One limitation lies in the public policy requirement.248
240
Rome Convention, Article 1 (1).
241
80/934/EEC. This Convention, entered into force on April 1, 1991, is set
up by the EU and applied to members of the Union. As it takes the form of an
international agreement rather than a Community instrument proper, the European
Court of Justice has no jurisdiction to interpret it. On January 14, 2003, the
European Commission presented a Green Paper on the question of whether it
should be converted into a Community instrument proper and modernized on the
substance.
242
See further Lindberg, supra note 137.
243
C. Saf, A Study of the Interplay between the Conventions Governing International Contracts
of Sale, September 1999, <http://www.cisg.law.pace.edu/cisg/text/saf1.html>.
244
Firstly, the convention does not take precedence over rules included in the
EU legislation; secondly, it does not apply where a member state has joined an
international convention on a certain topic; thirdly, the convention exempts from
coverage certain substantial areas, including wills and succession, domestic relations,
commercial paper, corporate law, and trust.
245
Rome Convention, Article 3 (1).
246
Rome Convention, Article 2, Article 3 (1).
247
Rome Convention, Article 2.
248
The parties cannot choose to avoid the mandatory rules of a country if all
parts of the contract are closely connected to that country. See Rome Convention,
Article 3 (3).
134 chapter four
In the absence of party autonomy, the court shall look to see

whether the parties’ implied choice has been demonstrated with rea-
sonable certainty.249 If no implied choice can be deduced, the con-
vention provides that the law of the state with which the contract
is most closely connected shall govern the contract.250 The convention
assumes that the contract is most closely connected with the state
where at the time of the conclusion of the contract, the party who
effects the performance characteristic of the contract habitually resides,
or, in the case of a corporate body, is centrally administered.251
Characteristic performance refers to the performance for which
the payment is due. Depending on the type of the contract, this
could include the delivery of goods, the granting of the right to make
use of an item of property, the provision of a service, transport,
insurance, banking operations, security, etc., which usually constitutes
the center of gravity252 and the socio-economic function of the con-
tractual transaction.253
In the EU, consumers are highly protected254 and a special part
of the convention is reserved for consumer contracts.255 Party auton-
omy is still upheld, but autonomous arrangements are not to deprive
the consumer of the protection provided by mandatory rules of the
state where he habitually resides.256 Exemptions are applicable if,
firstly, the consumer is subject to special invitation or advertising in
the state of his habitual residence before concluding the contract;
and secondly, if he has taken all necessary steps for the conclusion
of the contract in that state.257 Where the parties have not agreed
on the applicable law in advance, the law of the consumers’ habit-
ual residence will apply.
249
Article 3 (1).
250
Article 4 (1).
251
Article 4 (2) of Rome Convention.
252
Instead of establishing clear choice-of-law rules that dictate a priori the law
that will apply to a particular category of transactions based on the occurrence of
a particular event or the location of one of the parties within the chosen jurisdic-
tion, the center of gravity approach directs the forum to apply the law of the juris-
diction that has the closest connection with the particular transaction or, in some
cases, the particular issue before it.
253
See further M. Giuliano & P. Lagarde, Report on the Convention on the Law
Applicable to Contractual Obligations, 1980 O.J. (C 282) 1, 20.
254
See further V. Kendall, EC Consumer Law (1995).
255
According to Article 5 (1), this refers to where the consumer is acting outside
of his or her “trade or profession”, that is, acting as a private person.
256
Article 5 (2).
257
Id.
The appropriateness of the consumer protection rules in the light

of the development of electronic commerce were further evaluated
in the Green Paper on the conversion of the Rome Convention of
1980 on the law applicable to contractual obligations into a Community
instrument and its modernization.258 With the development of new
distance selling techniques, Article 5 of the Rome Convention is crit-
icized for the criteria of distinguishing consumers eligible for specific
protection from those subject to the general system. Guidelines are
provided for the debate, bearing in mind the general concerns for
the protection for the consumer and the need to preserve balance
in the interests of the parties.259
While there are no special rules contained in the Rome Convention
for electronic commerce, the EU has adopted several directives to
deal with specific issues arising out of digital communications. The
EU Data Protection Directive260 was adopted in 1995 and took effect
on October 25, 1998. It applies to all processing of personal data,
with only limited exceptions.261 Though harmonization is far from
complete, its initial intention was to harmonize the data protection
laws.262
With a view to areas lacking harmonization, Article 4 of the direc-
tive lays out the rules for choice of law. The principle rule is that
each member state shall apply its own data protection laws where
the processing is carried out in the context of the activities of an
establishment of the controller on the territory of the member state.263
The location of the controller determines choice of law. As far as
the directive is concerned, a controller is the person who alone or
jointly with others determines the purposes and means of the pro-
cessing of personal data.264 In electronic commerce, this can mean the
seller who is doing business. The seller is the person who is making
258
Green Paper, presented by the Commission of the European Communities,
Brussels, January 14, 2003, COM (2002) 654 final.
259
Id.
260
Directive 95/46/EC of the European Parliament and the Council, October
24, 1995, Official Journal of the European Community, L1281 (November 23, 1995),
at 31, <http://europa.eu.int/comm/dg15/en>.
261
See Article 2, 3; and P.P. Swire & R.E. Litan, None of Your Business: World
Data Flows, Electronic Commerce, and European Privacy Directive, Chapter 2 (1998).
262
See further P.P. Swire, Of Elephants, Mice, and Privacy: International Choice of Law
and the Internet, <http://www.acs.ohio-state.edu/units/law/swire1/elephants.htm>.
263
Directive, Article 4 (1) (a).
264
Directive, Article 2 (d).
136 chapter four
use of the digital information and thus the law of the seller should
be applied in such cases.
The EU Distance Selling Directive is another representative of
EU policy. The choice of law rules contained in the directive concern
the policy of consumer protection.265 This directive is applicable to
organized sales efforts that use a means of distance communication,
including telephones, the mail, or the Internet.266 The directive requires
member states to take measures to ensure consumers do not lose the
protection granted by this directive in virtue of the choice of law of
a non-member country as the law applicable to the contract if this
contract has a close connection with the territory of one or more of
the member states.267 No matter what law is chosen for the contract,
the consumers shall still be protected by their home-country law.268
3.2.1.3. The 1985 Hague Convention

The Hague Convention on the Law Applicable to Contracts of
International Sales of Movable Goods269 is an important international
agreement on uniform conflict-of-laws rules in contracts.270 The pur-
pose of the convention is to mitigate that legal unpredictability suffered
due to differing national rules by unifying law in international sales.
To date, it has not entered into force; only five states have ratified
the convention,271 which largely limits its meaningfulness in practice.
Furthermore, its scope excludes its application to several sales con-
tracts. Still, it serves as a useful model.
265
It grants the consumer the right to withdraw from a distant contract for at
least seven working days, without giving any reason and without penalty except for
the cost of returning the goods. See further Article 6 (1) of the Distance Selling
Directive.
266
See further Article 2 (1) & (4) and Annex I of the Directive concerning the
covered means of communications.
267
Distance Selling Directive, Article 12 (2).
268
See further P. Meller, Online Buyers Gain Ability to Sue, N.Y. Times,
December 1, 2000, at <http://www.nytimes.com/2000/12/01/technology/01NET.
html>; and M.A. O’Rourke, Progressing Towards a Uniform Commercial Code
for Electronic Commerce or Racing Towards Nonuniformity?, 14 Berkeley Tech. L.J.
635, 654–655 (1999).
269
The convention can be found in <http://www.hcch.net/e/conventions/text31e.
html>. It concluded on December 22, 1986.
270
The Hague Convention is a permanent multinational group charged with
preparing texts that unify choice of law rules. See further P. Winship, Private
International Law and the U.N. Sales Convention, 21 Cornell International Law Review,
No. 3, 487–488 (1988).
271
Argentina, Czech Republic, Moldova, the Netherlands, and Slovakia.
The convention acknowledges the law chosen by the parties.272 It

further provides several external conditions for this chosen law.273
Importantly, the parties should choose a law applicable to part of
the contract.274 But there is no limitation in essence when it comes
to defining contractual connections. Parties are free to choose applic-
able law as long as connection is expressed or clearly demonstrated
by the terms of the contract and the conduct of the parties, viewed
in their entirety.275
Where no choice of law is made, the law of the state where the
seller has his place of business at the time of conclusion of the con-
tract shall govern.276 In certain situations, the law of the state of the
buyer also has power.277 The appropriate law shall ultimately be
determined by the principle of the law with closest connection.278
The Hague Convention occurred well before the wide use of the
Internet and no consideration was at that time paid to electronic
commerce. However, its principles for international practice repre-
sent an overview of conditions acceptable to most states.
3.2.2. Analysis of the Present Applicable Law Regime and Suggestions

To sum up, the descriptions above reveal present legal attitudes in
the EU. The Second Restatement sets out a list of factors to guide
the forum’s decision and, further, lists items to be taken into account
in applying those factors to contracts.279 According to the Second
Restatement, the forum shall have a broad discretion. The EU takes
a different position. The Rome Convention sets more limits for the
forum in choosing the applicable law. It has a bright line rule, which
sets out rebuttable presumptions regarding the country that has the
closet connection.280 We will discuss in the following part whether
and how such principles will fit into the digital world.
272
Article 7 (1) of the Hague Convention.
273
Id.
274
Id. Article 7 (2).
275
Id. Article 7 (1).
276
Id. Article 8 (1).
277
See further Id. Article 8 (2).
278
Id. Article 8 (3).
279
See further Section 6 and 188 of the Second Restatement. For example, it
provides that when the place of negotiating the contract and the place of perfor-
mance are in the same state, the law of that state usually will apply.
280
It is claimed that the Rome Convention is more state-selective and less
approach-oriented, than the Second Restatement. See further E.F. Scoles & P. Hay,
Conflict of Laws, 2.18, supra note 208, at 47.
138 chapter four
3.2.2.1. Party Autonomy

Reflecting democratic values, all the legal regimes recognize the
importance of party autonomy: parties should have the right to choose
the law regulating their contractual relationship. Granting party auton-
omy is also the easiest way of settling the issues of applicable law.281
The court can easily determine applicable law. And when involved
in the process of determination, parties gain a clearer perspective on
the present business and take a more serious attitude towards pos-
sible actions.282 Party autonomy shall be even more strongly encour-
aged in the case of electronic commerce because of these two key
factors: the possibility of doing business on the Internet without know-
ing the other party’s physical location; and the simultaneous pre-
sentation of information on the Internet to all jurisdictions.283
Should parties be free to choose any law they wish, even a law
with no clear relationship to the contract? Apparently, the parties
can choose any law they wish, provided their choice reflects their
real intentions. When a law is not well adaptable to a case, another,
more advanced law should govern.284 The freedom of law is particularly
important in electronic commerce cases, as many states lag behind
in making updated legislation to accommodate the new situation.
Choice of law in consumer transactions is another important issue.
Most legislation gives consumers special protection because they have
traditionally been in a weak position in transacting relationships. But
traditional circumstances have changed with the emergence of elec-
tronic commerce. That the Internet is both limiting the ability of a
seller to confine its market and dramatically widening the options
available to consumers invalidates the presumption of inequality in
consumer transactions. As power to decide rests in the hands of the
consumer, policy reasons for refusing to enforce party autonomy in
281
See further L.O. Smiddy, Choosing the Law and Forum for the Litigation of
Disputes, in A.W. Branscomb (Ed.), Toward a Law of Global Communications Networks,
303 (1986).
282
Party autonomy that recognizes the ability of the parties to choose for them-
selves the law that will apply to their transaction values most highly the parties’
planning-related interests, and, in particular, their interest in certainty and pre-
dictability. See further Restatement (Second) of Conflict of Laws, r187cmt. e (1971).
283
This is in accordance with the idea of self-governance in cyberspace. One
view of cyberspace is that sovereigns should refrain from regulation of the Internet
and the Internet society should take up this job so that distinct law and legal insti-
tutions are well designed.
284
Restatement (Second) of Conflict of Laws, 187, cmt. f (1971).
such commercial contexts are weakened.285 The characteristics of

electronic commerce and the needs of Internet entrepreneurs justify
party autonomy.286 Reality justifies party autonomy. Contractual choice
of law clauses in the sale agreements set out by the merchants are
generally enforced, even when a clause looks like, acts like, and is
part of an adhesive consumer contract.287
To avoid any possible adverse result, it is also advisable to add
the provision that party autonomy not conflict with the public policy
of relevant states. Strong public policies must be taken into account,
or else enforcement be called into question.
Historically, courts have viewed the choice of law in adhesion con-
tracts288 suspiciously.289 But with the emergence of electronic com-
merce, views are changing. The way to reach agreements in electronic
commerce is of course different from the way to reach agreements
in traditional transactions. Advertisements including choice of law
provisions may be put on the web. Consumers can look through the
advertisements and if they agree with the provisions, they can click
on an Agree Button.290 In such cases, consumers should know what
they are getting into. Those who are dissatisfied with choice-of-law
provision may simply “vote with his or her mouse” and seek a new
party.291 The definition of what constitutes an appropriate contract
is changing. Recent cases292 suggest that standardized forms or even
285
Vartanian, supra note 169.
286
Although this rationale focuses primarily on the needs of electronic commerce,
the present trend and ongoing practice show that the broad contractual choice-of-
law provision applies to all transactions, not just those conducted electronically.
287
L.S. Mullenix, Another Easy Case, Some More Bad Law: Carnival Cruise
Lines and Contractual Personal Jurisdiction, 27 Tex. Int’l L.J. 323, 325 (1992); P.D.
Carrington, Regulating Dispute Resolution Provisions in Adhesion Contracts, 35
Harv. J. on Legis. 225–226 (1998).
288
An adhesive contract is a standardized contract offered exclusively on a “take
it or leave it” basis without giving the consumer an opportunity to bargain. Black’s
Law Dictionary 40 (6th Ed. 1990).
289
The forum shall scrutinize adhesive contracts with care and will refuse to
apply any choice-of-law provision they may contain if to do so would result in sub-
stantial injustice to the adherent. See further Restatement (Second) of Conflict of
Laws 187 cmt. b (1971); see also Scoles, supra note 208, at 671–672.
290
See further M. Burnstein, A Global Network in a Compartmentalized Legal
Environment, in K. Boele-Woelki & C. Kessedjian (Eds.), Internet: Which Court Decides?
Which Law Applies? 31–32 (Kluwer Law International, 1998).
291
Id.
292
See for example, Carnival Cruise Lines v. Shute, 499 U.S. 585, 593–594 (1991).
The U.S. Supreme Court upheld the choice-of-law provision even though bargaining
parity between the two parties was lacking. Justice Brennan acknowledged that a
140 chapter four
simple visual notices on log-on screens are acceptable contracts. It

is very likely that further development of electronic commerce will
give rise to generally accepted practice concerning applicable law,
which shall best balance the interests of and be well accepted by the
public.293
3.2.2.2. Applicable Law in Absence of Party Autonomy

In electronic commerce cases where parties fail to choose applicable
law, we must settle on appropriate connecting factors for determining
applicable law.
As transborder transactions have become commonplace, the former
stringent physicality requirement has been abandoned in general
practice,294 and the principle of the most significant relationship has
been adopted by most states. This controversial principle is applic-
able to transactions through the Internet as well as to normal trans-
actions. The present author believes it offers good general guidelines
for determining the final applicable law, but holds that its flexibility
necessitates an element of certainty. When it comes to electronic
commerce, the real problem resides in the choice of connecting fac-
tors for deciding applicable law.
Electronic commerce can be further divided into two types of
transactions based on methods of distribution: dealings reached through
the Internet with physical delivery and dealings totally done through
the Internet.295
There cannot be much disagreement as regards the first type.
Though it may be difficult to determine the location of contractual
dealings, the place of the delivery of goods should be an effective
territorial link. Practices for dealing with traditional transactions are
thus still relevant.
Transactions completed in cyberspace pose a bigger problem. If
a product is downloaded, the merchant lacks even a delivery address.
complaining party, by satisfying a “heavy burden of proof ”, could show that a

forum selection clause should not stand because it would be grossly onerous to that
party.
293
See further H.H. Perritt, Jr., Dispute Resolution in Electronic Network
Communities, 38 Vill. L. Rev. 391 (1993); see also E. Katsh, Law in a Digital World:
Computer Networks and Cyberspace, 38 Vill. L. Rev. 403 (1993).
294
See generally W.M. Richman & W.L. Reynolds, Understanding Conflict of Laws
(1984).
295
This delivery can take the form of actual downloading of a copy of the soft-
ware product, or merely the provision of access to the software for its use online.
The intangible nature of exchanged property renders certain con-

necting factors, such as location of contracting and performance,
meaningless in determining the jurisdiction of whose law should apply
to the contract.296
A connecting factor can be personal or of a particular action.
Traditionally, when the location of a particular action has lost its
meaning, we can still rely on the location of relevant parties. To
protect consumers, the law of the state where the consumers reside
is usually applied.297 But electronic commerce demands a change in
such practice. It would be unfair to request an online merchant,
whose customer base could easily span the globe, to face so many
disparate international laws.298 Particularly in light of the changing
power dynamic within electronic commerce today, it is advisable to
apply the law of the state of the merchant’s residence or place of
business. This has been testified by the position of the US and the
EU discussed above.
3.3. Choice of Law in Tort

Torts arise in electronic commerce in the form of intellectual prop-
erty rights infringement, defamation, etc. As the Internet has made
information on the web easily viewable to a large number of peo-
ple around the world, torts can result in even more adverse conse-
quence than ever before.299 Plaintiffs are often left without a clear
forum or effective law since many cyber-torts occur without prior
contractual relations that would settle issues of jurisdiction and applic-
able law.300 Thus, the issue of torts is likely to be much more significant
in cyberspace than it has been to date in real space.301 Many cases
296
See further E. Ulmer, Intellectual Property Rights and the Conflict of Laws, 7 (1976).
297
See, for example, Rome Convention, Article 5 (2).
298
For example, when a UK company conducting lawful business activities under
English law could face the risk of prosecution in a country as a result of a com-
plaint by a consumer or by a competitor in that country merely because the web
site is accessed in that country. What the company can do is to take measures to
restrict its trading activities in certain countries or simply take the risk of needing
to comply with various national laws.
299
Digital networks make possible multinational infringements that are simulta-
neous and pervasive. See further J.C. Ginsburg, Copyright Without Borders? Choice
of Forum and Choice of Law for Copyright Infringement in Cyberspace, 15 Cardozo
Arts & Entertainment Law Journal, 155 (1997).
300
Resnick, supra note 13, at A21.
301
T. Hardy, The Proper Legal Regime for “Cyberspace”, 55 U. Pitts. L. Rev.,
1053 (1994).
142 chapter four
have already arisen with regard to torts on the Internet.302 It is

expected that even more cases will arise with the increasingly wider
application of electronic commerce.
Not surprisingly, the issue of choice of law arises with respect to
torts committed via the Internet.303 As different applicable laws can
result in dramatically different results, choosing the right law is impor-
tant to ensuring a justified judicial decision.
3.3.1. International Practice
3.3.1.1. The US
In general, two major doctrines exist for resolving choice of law.
The First Restatement uses the simple rule of lex loci delicti, or the
law of the place of the wrong,304 i.e., the place where the last event
necessary to make an actor liable arises.305 In most situations, this
place is where the injury occurs.306
This simple way of deciding applicable law is often lauded for
providing certainty, uniformity and predictability of the outcome.307
Indeed, it is obvious to us that the law of place is appropriate for
real space on account of its certainty and ease of application.308 But
its implications for cyberspace are problematic. Since information on
the Internet can be reached from any location and torts arising in
302
See for example, Daniel v. Dow Jones & Co., 137 Misc. 2d 94 (N.Y. Sup. Ct.
1987); Cubby, Inc. v. CompuServe, Inc., 776 F.Supp. 135 (S.D.N.Y. 1991).
303
C.P. Beall, The Scientological Defenestration of Choice-of-law Doctrines for
Publication Torts on the Internet, 15 J. Marshall J. of Computer & Info. L., 365 (1997).
304
Black’s Law Dictionary 911 (West, 6th Ed. 1990).
305
See further J.D. Lee & B.A. Lindahl, Modern Tort Law: Liability & Litigation
13.03 (Rev. Ed. 1994).
306
When a person shoots another one in State A, A shall be the place of wrong
since this is where the force infringed upon his body. See further Restatement (First)
of the Conflict of Laws, section 377, illustration 1 and 4. To conflict scholars, this
rule seemed largely arbitrary, indeed counterintuitive. See for example, B. Currie,
Survival of Actions: Adjudication versus Automation in the Conflict of Laws, reprinted
in Currie, supra note 218, at 128, 158; B. Currie, Married Woman’s Contracts: A
Study in Conflict-of-Laws Method, reprinted in Currie, supra note 218, at 77, 116
(1963).
307
Boudreau v. Baughman, 322 NC 331, 368 SE2d 849, 854 (1988). It was once
widely accepted among the States. See H.H. Kay, Theory into Practice: Choice of
Law in the Courts, 34 Mercer Law Review, 521, 586 (1983); see also D.F. Cavers,
The Choice-of-Law Process 6 (1965).
308
M.R. Burnstein, Conflicts on the Net: Choice of Law in Transnational Cyber-
space, 29 Vanderbit Journal of Transnational Law, 94 (1996).
cyberspace can be felt in almost every state, this law would justify
the use of the law of any state connected to the Internet. Ironically,
this would mean no lex loci delicti at all.309 The law of place flounders
on the Internet where there are no boundaries to demarcate the site
of harm.310 A judge using the First Restatement rule would end up
no closer to a decision than before applying the choice-of-law rule.311
To an extent, the expectation of internet players may suffer as they
often are unaware of the physical locations of the Internet addresses
they visit and may know even less about the residency of their fel-
low sojourners in cyberspace.312 Or, the Internet could offer the
plaintiff in the case the opportunity to forum-shop by securing the
choice of law through skillful use of allegations at the pleading stage,313
which would directly result in injustice.
In response to changes in modes of communication and trans-
portation, the emphasis of the choice of law has shifted away from
territoriality presumptions towards a more flexible legal theory.314
The Second Restatement initially directs the court to consider where
the injury occurred, but when another state has a more significant
relationship, the court should look to it.315 The court has to exam-
ine several contacts to find out the place with the most significant
relationship:316 the place where the conduct causing the injury occurred;
309
See further H. DeSaussure & P.P.C. Haanappel, A Unified Multinational
Approach to the Application of Tort and Contract Principles to Outer Space, 6
Syracuse J. International L. & Com. No. 1, 12 (1978).
310
F.K. Juenger, Choice of Law and Multistate Justice, 51 (1993).
311
J.D. Faucher, Let the Chips Fall Where They May: Choice of Law in Computer
Bulletin Board Defamation Cases, 26 U.C. Davis Law Review, 1056–1057 (1993).
312
See further R.H. Acker, Choice-of-Law Questions in Cyberfraud, The University
of Chicago Legal Forum, 446 (1996).
313
See further Keeton v. Hustler Magazine, Inc., 465 U.S. 770 (1984).
314
This can be demonstrated by statistics: in 1983, 21 States applied this rule;
since 1994, only 13 States followed it. See further Kay, supra note 307, at 591–592;
see also S.C. Symeonides, Choice of Law in the American Courts in 1993 (and in
the Six Previous Years), 42 American Journal of Comparative Law, 599, 606 (1994); S.C.
Symeonides, Choice of Law in the American Courts in 1994: A View “From the
Trenches”, 43 American Journal of Comparative Law, 1 (1995); P.J. Borchers, The Choice-
of-Law Revolution: An Empirical Study, 49 Wash. & Lee L. Rev. 357, 373–374
(1992).
315
Restatement (Second) of Conflict of Laws, 145 (2) (a) (1971). The court is not
idly choosing a law, but resolving a controversy. See G.R. Shreve (Ed.), A Conflict-
of-Laws Anthology 55 (Cincinnati: Anderson Publishing Co., 1997); D.F. Cavers, A
Critique of the Choice of Law Problem, 47 Harv. L. Rev. 173, 189 (1933).
316
Id. 145.
144 chapter four
the place of the domicile or residence of the parties; and the place
where the parties’ relationship is centered.317 The analysis shall also
consider the factors relevant to contractual issues.318 These factors
are intended to help courts answer the question of whether or not
justice is furthered by the application of one state’s law to events
that occurred in a different state.319 Applicable law results from a
careful balancing of all relevant considerations regarding fairness,
efficiency, conflicting needs, and appropriate legal principles.320
Having acknowledged that a defendant risks becoming subject to
another state’s laws when his conduct causes effects in the other
state, the earlier territorial emphasis has been broken, and a new
flexible approach to choice of law is put in place.321 However, it
sacrifices simplicity and certainty expected by the involved parties,322
which are important considerations for choice of law.323
With the flexible elaboration, the Second Restatement offers little
substantive guidance concerning detailed choice-of-law decisions,324
especially when the factors relied upon are geared towards a real-
space world of easily drawn political boundaries. Per these guide-
lines, the choice-of-law process is administered on a case-by-case,
ad-hoc basis with no clear-cut rules. Balancing the various factors
in cyberspace and determining relevant locations in the digital world
is daunting.325
Equally as daunting is implementing other US conflict-of-law
approaches, which include center of gravity approach, interest analy-
sis approach, and the Leflar better law approach.326
317
Id. 145 (2).
318
Id. 6, 145.
319
Id. 6 cmt. c.
320
See further Acker, supra note 312, 456–457.
321
P. Stone, The Conflict of Laws, 2–3 (1995).
322
Restatement (Second) of Conflict of Laws, 6 cmt. g.
323
Id. 6 cmt. g & cmt. I; see also L. Brilmayer, The Role of Substantive and
Choice of Law Policies in the Formation and Applicable of Choice of Law Rules,
in 252 Recueil des Cours 9, 57 (Hague Academy of International Law, Ed. 1995).
324
As judge has wide discretion in choosing a law with the most significant rela-
tionship, this principle means nothing except, perhaps, that the answer is not ready
at hand. See for example, W.L.M. Reese, The Law Governing Airplane Accidents,
39 Washington & Lee Law Review, 1303–1304 (1982); see also R. David, The International
Unification of Private Law, 2 International Encyclopedia of Comparative Law, 8 (1969).
325
For further criticisms, see F.K. Juenger, Choice of Law in Interstate Torts,
118 U. Pa. L. Rev. 202, 212 (1969).
326
For further discussions, see S. Wilske, Conflict of Laws in Cyber Torts, Computer
Und Recht International, No. 3, 70–71 (2001).
Nevertheless, at the present stage, no other principles or approaches

can be found to accommodate the new demands of choice of law
in cyberspace. State courts usually apply lex fori whenever they feel
that interests of residents in their jurisdiction are at stake, in par-
ticular when activities in cyberspace result in a certain negative effect
in their state.327 Actually, significant advances in mobility have led
to more cases involving interests of several states, and the flexible
approach contained in this principle can better meet the demands
of the complexity entailed therein. The chosen applicable law should
ultimately be justified by its close relationship with the case. Accordingly,
while further work shall be done to add clarity to the choice-of-law,
this principle shall not be abandoned.
3.3.1.2. The EU
No conventions have harmonized this area in the EU, and the mem-
ber states are free to adopt their own rules. Most states follow the
same rule: lex loci delicti, or the law of the place where the tort was
committed.328 However, there are still disagreements when the action
causing the tort and the harm occur in different places. Since no
unified rules exist at the EU level, choice of law is up to the national
rule where the suit is brought.329
That said, recent legislation at the EU level suggests a trend with
implications for choice of law. Looking at such legislation is impor-
tant because it applies directly to the member states and takes prece-
dence over pre-existing national laws. Such legislation is flexible and
specifically tailored to meet new situations.
In September 1993, the European Council adopted a Directive
on Copyright and related Rights as they pertain to satellite and cable
broadcasts.330 This proposal was based on the EU’s Satellite Broad-
casting Council Directive,331 which applies the broadcasting country
327
Beall, supra note 303, at 361, III; J.H. Ely, Choice of Law and the State’s
Interest in Protecting Its Own, 23 Wm. & Mary L. Rev. 173 (1981); M.E. Solimine,
An Economic and Empirical Analysis of Choice of Law, 24 Ga. L. Rev. 49–50
(1989).
328
See M. Reimann, Conflict of Laws in Western Europe: A Guide Through the Jungle,
135 (1995); see also Black’s Law Dictionary 923 (7th Ed. 1999).
329
See further Swire, supra note 262.
330
Council Directive No. 93/83/EEC on the Coordination of Certain Rules
Concerning Copyright and Rights Related to Copyright Applicable to Satellite
Broadcasting and Cable Retransmission, 1993 O.J. (L 248) 15.
331
See Official Gazette of the EU No. L 248/15 (October 6th, 1993).
146 chapter four
theory332 and is seen as a divergence from the traditional principle

of territoriality. This directive provides that if a satellite transmission
infringed a copyrighted work, the law of the nation where the phys-
ical uplink occurred would determine the legal penalty for infringe-
ment.333 This is a demonstration of the rule of origin, which better
serves the goal of predictability and ease of determination of the
applicable law than do choice of law rules that rely predominantly
or exclusively on the economic impact of an act of exploitation.334
When applied to the Internet, this approach could mean the law of
the state where the Internet server is located would be applied.335
However, this is only a deduction from the extant EU legislation.
The EU is now considering expanding the Rome Convention to
deal with the applicable law with respect to non-contractual obliga-
tions.336 Draft Council Convention on the Law Applicable to Non-
Contractual Obligations (Rome II Convention)337 establishes the
principle of the closest connection,338 which is usually the place where
the action caused the damage.339 However, the debate has not led
to a definite consensus regarding whether the law of the country of
domicile of the defendant or the plaintiff, or the law of the coun-
try where damage is actually suffered, or some other law should be
adopted. Justifying a position will take time.340
332
Article 1 (2) (b) of the Broadcasting Council Directive provides that the author-
itative country for acquiring broadcasting rights is the country from where the
broadcast is being conducted.
333
See Id. P 15.
334
See further L.G.C. Kaplan & J.R. Bankoff, Of Satellites and Copyrights:
Problems of Overspill and Choice of Law, 7 Emory International Law Review, 727, 741
(1993).
335
See further J.M. Driscoll, It’s a Small World After All: Conflict of Laws and
Copyright Infringement on the Information Superhighway, 20 U. Pa. J. Int’l Econ.
L., 978–979 (1999).
336
Warchus, supra note 156.
337
H.C. Dethloff, European Conflict-of-Law Provisions Governing Unfair Com-
petition, Commercial Communications, December 1999, at 2.
338
Article 3 (1) of the Rome II Convention.
339
Article 3 (6) of the Convention.
340
This provision has aroused attention from advertisers, publishers and online
commerce companies, in particular in the US, and is still in discussion with the
European Commission, who also prepared a green paper (COM 18 January 2001)
to promote discussion. See further P. Meller, Proposed Law Stirs Concern on Europe
E-Commerce, N.Y. Times, February 8, 2001.
3.3.2. Analysis of the Possible Applicable Law

According to traditional theory, the applicable law can be either that
of the country where the tort originated or that of the residence of
the defendant.341 When it comes to tort in cyberspace, this can cause
problems.
Determining territorial connection is vital to traditional theory.
But when it comes to torts in cyberspace, we lack physical infor-
mation. It is difficult not only to specify the location of those who
take actions to originate the tort, but also to identify those defen-
dants. Anyone can initiate a tort in electronic commerce from any
location.
How can we determine location and best balance the interests of
both parties? The present author believes the EU Directive discussed
above takes the lead in answering this question. The US has not
elaborated such a position, but the judgments of Religious Tech. Ctr.
V. Lerma342 and Religious Tech. Ctr. V. F.A.C.T.Net, Inc.343 suggest sup-
port for a law of origin. Officially, they chose the law of the defen-
dants’ residence, which was the exact place where the Internet
transmissions originated.
The location of the server is important to the initiation of the tort
and easy to determine, which is relevant to the choice of law.
Moreover, Internet servers are in themselves vital to the origination
and existence of tort in cyberspace. Thus, the law of the state where
the Internet server is located can best suit the case of tort in elec-
tronic commerce.
The law of the server equates to the country of origin rule in
electronic commerce jargon.344 At first, determining the origin of the
tort seems difficult. Presumably, the action of tort in electronic com-
merce arises firstly in the place where the information is made pub-
lic.345 But as determining the location of the user or the computer
341
See further Restatement (First) of the Conflict of Laws, section 377, illustra-
tion 1 and 4.
342
897 F.Supp. 260 (E.D. Va. 1995).
343
901 F.Supp. 1519 (D. Colo. 1995).
344
This rule is officially adopted by the EU in its Ecommerce Directive, which
frees trades from the needs to comply with the national laws of 15 Member States.
See further European Parliament Passes the Ecommerce Directive, 4th May 1000, <http://
www.silicon.com/bin/bladeru . . . EVENT=&REQINT1=37294&REQAUTH=21046>.
345
See R.T. Nimmer & P.A. Krauthaus, The Global Information Superhighway
Challenges Virtually all of the Premises of Copyright Law, 6 Stanford Law & Policy
148 chapter four
can be difficult, the location of the server is the best mark. The law
of the location of the server fulfils the requirement of foreseeability:
the parties shall be able to foresee the law that shall be applied in
their particular case.346 In consequence, it supports the notion of fair-
ness and protection of individual rights.347 The law of the country
of the server has the added benefit of helping to hold Internet Service
Providers, with the knowledge of relevant activities performed by
users, liable for misdeeds concerning third-party activities.348
Various questions have been raised concerning the application of
the rule of origin.349 As might be expected, no one approach is likely
Review, 25, 32–39 (1994); N. Elkin-koren, Copyright Law and Social Dialogue on
the Information Superhighway: The Case Against Copyright Liability of Bulletin
Board Operators, 13 Cardozo Arts & Ent. L. J., 345, 387 (1995); T. Dreier, Copyright
Digitized: Philosophical Impacts and Practical Implications for Information Exchanges
in Digital Networks, in WIPO Worldwide Symposium on the Impact of Digital Technology
on Copyright and Neighboring Rights, 187, 198 (1993).
346
This can be illustrated by the example of product liability. Foreseeability safe-
guards the interest of a manufacturer by ensuring he will avoid liability under the
law of countries if he demonstrates that he could not have foreseen that product
would be marketed or used there. See further P.J. Kozyris, Values and Methods
in Choice of Law for Products Liability: A Comparative Comment on Statutory
Solutions, 38 American Journal of Comparative Law, 475, 501–507 (1990); R.J. Weintraub,
Methods for Resolving Conflict-of-Laws Problems in Mass Tort Litigation, U. Ill.L.Rev.
129, 148 (1989); Hague Conference on Private International Law: Convention on
the Law Applicable to Products Liability, October 12, 1972, Article 7, 11 I.L.M.
1283. This article provides that the place of injury or the plaintiff ’s residence is
inapplicable if the manufacturer could not reasonably foresee that the injury caus-
ing product would be available in those places through ordinary commerce.
347
Foreseeability is closely related to fairness and protection of individual rights.
See further L. Brilmayer, Conflict of Laws, 210–230 (1991); and Brilmayer, supra note
323, at 60.
348
See for example, M. Racicot et al., The Cyberspace is not a “No Law Land”,
<http://www.strategis.ic.gc.ca/SSG/it03315e.html>; see also Gershwin Publ’g Corp. v.
Columbia Artists Management, 443 F.2d 1159 (2d Cir. 1971); Screen Gems-Columbia Music,
Inc. v. Mark-Fi Records, Inc., 256 F.Supp. 399 (S.D.N.Y. 1996); J. I. Rojas, Liability
of ISPs, Content Providers and End-Users on the Internet, in 18th Annual Institute
on Computer Law, at 1009, 1029 (PLI Pats., Copyrights, Trademarks, and Literary
Prop. Course Handbook Series No. 507, 1998); J.P. Cunard & A.L. Wells, The
Evolving Standard of Copyright Liability Online, in Litigating Copyright, Trademark and
Unfair Competition Cases for the Experienced Practitioner 1997, at 365, 394 (PLI Pats.,
Copyrights, Trademarks, and Literary prop. Course Handbook Series No. 497,
1997).
349
It is claimed that the application of this rule could be problematic in digi-
tally generated networks where transmitting and receiving computers, scattered and
even moving among myriad countries, can interactively change roles with ease;
with this rule, pirates shall seek the least protective country to act; and lastly, there
is the problem of recognition and enforcement of the judgments. See further
R. Fentiman, Conflict of Laws in Cyberspace, paper submitted to the Symposium: Multi-
media and the Internet: Global Challenges for Law, organized by International
to introduce absolute stability and secure the protection of legitimate

rights.350 But a territorial connecting point should be formulated to
decide upon applicable law and at present it appears that location
of origin is the most appropriate. Notably, while we admit the law
of the state where the server is located, the principle of the most
significant relationship still prevails as the guiding theory.
3.4. General Observations

The issue of choice of law is one of the most challenging aspects of
law, both in theory and practice. It is not new, nor so long as there
are different rules in different states will it ever go away.
The advent of electronic commerce has raised new issues for choice
of law, which have become the foci of many recent discussions.351
The Internet is particularly problematic for the traditional territorial
choice of law regime because a single online action might lead to
effects in a number of different countries.352 Indeed, cyberspace has
been aptly described as a “world unto itself,”353 so dramatically
redefining conceptions of community that the geographic locus of its
members becomes largely irrelevant.354 Choice of law is particularly
difficult in the case of international computer networks where, because
of dispersed location and rapid movement of data, and geographically
dispersed data processing activities, several connecting factors could
Federation of Computer Law Associations, the Computer Law Association, Inc.,

and Belgian Association for Computer & Law, held in Brussels: June 27–28, 1996,
at 3, 9; see also J.C. Ginsburg, Global Use, Territorial Rights, Private International Law
Questions of the Global Information Infrastructure, paper submitted to WIPO Worldwide
Symposium on Copyright in the Global Information Infrastructure, organized by
WIPO, held in Mexico City, May 22–24, 1995, at 386, 396, 398, 401.
350
K. Ishiguro, International Copyright Infringements in Cyberspace: A Conflict-of-laws
Analysis, paper submitted to Session F-1 of the SOFTIC Symposium on a Balance
between Protection and Exploitation of Digital Content, held in Tokyo: November
13–14, 1997, <http://www.ilpf.org/confer/present99/ishiguro_a1.htm>.
351
See for example, J.L. Goldsmith, Against Cyberanarchy, 65 University of Chicago
Law Review, 1199 (1998); J.C. Ginsburg, The Cyberian Captivity of Copyright:
Territoriality and Authors’ Rights in a Networked World, 15 Santa Clara Computer
& High Technology Law Journal, 347 (1999); Ginsburg, supra note 299, at 153.
352
K. Burmeister, Jurisdiction, Choice of Law, Copyright, and the Internet:
Protection against Framing in an International Setting, 9 Fordham Intellectual Property,
Media & Entertainment Law Journal, 658–659 (Winter, 1999).
353
Modern communication has reduced the world’s vastness into mere geo-
graphical lines, crossed over millions of times each second, without either a sover-
eign’s or traveler’s awareness. See Zembek, supra note 40, at 339, 343.
354
See further Salbu, supra note 24, at 454; see also UCITA 109 cmt. 2 (2000).
150 chapter four
occur in a complex manner, involving elements of legal novelty.355

How can we choose a single governing law for activities having multi-
jurisdictional connections, and how can we best deal with problems of
situs in determining how to choose governing law when the locus of
activity cannot easily be pinpointed in geographical space?356 Choice
of law must respond to the inherent features of the Global Information
Infrastructure (GII) and most importantly, to the possibility of mak-
ing documents simultaneously and instantaneously available through-
out the world.357
Above all, the choice of law regime for electronic commerce should
serve the twin goals of conflict of laws: certainty and fairness.358 While
recognizing the importance of flexibility in deciding applicable law,
some element of determinacy should be imposed. In contractual dis-
putes and tort, the significant relationship principle is the standard
in resolving choice of law.
While cyberspace is intangible, it exists in the smallest bursts of
matter and energy called forth by the presence of man in a partic-
ular location through an Internet provider.359 It is not self-contained:
cyberspace infractions that are disconnected from particularized phys-
ical space nonetheless entail injuries to people in the real space.360
Thus, physical connections can still be loosely found and they can
serve as connections for deciding applicable law. In particular, the
location of the Internet server, a typical physical connection to cyber-
space, could be most helpful in deciding applicable law not only in
tort, but also in other possible issues.
355
D.L. Burk, Patents in Cyberspace: Territoriality and Infringement on Global
Computer Networks, 68 Tulane Law Review 5 (1993); see also OECD, explanatory
memorandum, in Guidelines on the Protection of Privacy and Transborder Data Flows of
Personal Data, 13, 36 (1980).
356
See further Boss, supra note 194, at 1234.
357
A.P. Reindl, Choosing Law in Cyberspace: Copyright Conflicts on Global
Networks, 19 Michigan Journal of International Law, 870 (1998).
358
G.A. Zaphiriou, Basis of the Conflict of Laws: Fairness and Effectiveness, 10
Geo. Mason U. L. Rev. 302–303 (1988). The parties themselves shall value primary
predictability, which also promotes social utility. If the parties have clearly estab-
lished legal rights, then presumably they are much better able to bargain privately
and reach more efficient outcomes. See further R.H. Coase, The Problem of Social
Cost, 3 Journal of Law & Economics 1, 19 (1960); see also C.L. Ingrim, Choice-of-
Law Clauses: Their Effect on Extraterritorial Analysis—A Scholar’s Dream, A
Practitioner’s Nightmare, 28 Creighton Law Review, 663, 677 (1995).
359
D. Menthe, Jurisdiction in Cyberspace: A Theory of International Spaces, 4
Michigan Telecommunications Technology Law Review, 69 (1998), <http://www.mttlr.org/
volfour/menthe.html>.
360
See further Zembek, supra note 40, at 341, 347, 367.
In addition to principles for choice of law, uniform rules for deal-

ing with disputes in electronic commerce are requisite. A model law
made by experts in cyberspace shall be welcomed by states at large
trying to advocate electronic commerce or in the process of initiating
electronic commerce. The efforts of the UNCITRAL361 and the EU
are exemplary.362
4. Conclusion
Nothing that has such fundamental influence on the society has ever
developed at such a rapid pace and was accepted in such a short
period of time as electronic commerce. Alongside its speedy devel-
opment, attention has been paid to its implications for legal pro-
ceedings. Litigation is the traditional tool for deciding legal results
once there are conflicts. With the explosion of computer technology,
national courts have taken advantage of its benefits; there is even a
Computer Integrated Courtroom (CIC).363 But as using modern tech-
nology to facilitate litigation is one issue, resolving disputes smoothly
is another. Two problem areas for litigation are adjudicative juris-
diction and choice of law.
Both are actually old topics with new faces. The fundamental char-
acteristics of the Internet that support its seemingly limitless use as a
361
UNCITRAL Model Law on Electronic Commerce <http://www.infojus.com.br/
leiuncitral.htm>. adopted in December 1996 provides a nice basis for initiating busi-
ness and harmonizes the rules in this field. However, it has yet to be adopted by
the states and possible loopholes are to be dealt with on other occasions. The goal
of the law was two-fold. It sought to offer national legislators a set of internation-
ally acceptable rules that would remove statutory obstacles from the free flow of
legally significant electronic data across international borders. It also sought to facil-
itate harmonious international economic relations by fulfilling the purposes and func-
tions of traditional paper-based requirements via a “functionally equivalent approach,”
which made use of electronic commerce techniques. See further K. Gautier, Electronic
Commerce: Confronting the Legal Challenge of Building E-Dentities in Cyberspace,
20 Miss. C. L. Rev. 128 (Fall, 1999); T.D. Casey & J. Magenau, A Hybrid Model
of Self-Regulation and Governmental Regulation of Electronic Commerce, 19 Santa
Clara Computer & High Technology Law Journal 25 (December 2002); J. Hughes, The
Internet and the Persistence of Law, 44 B.C.L. Rev. 376 (March 2003).
362
The European Parliament and Council Directive on Certain Legal Aspects of
Electronic Commerce in the Internal Market was adopted in 2000; see further
Official Journal of the European Communities, 17 July 2000, L 178/1. It intends
to unify the rules within the market of the EU, but has implications for other
markets, too.
363
For further discussion, see R.F. Madden, Developments in the Electronic
Courtroom, 6 International Yearbook of Law Computers and Technology, 203–208 (1992).
152 chapter four
tool for commerce present significant new challenges to the application

of traditional legal concepts.364 The Internet is multi-jurisdictional in
the sense that messages can travel among networks anywhere on the
globe where there are computers with access to it.365 On the other hand,
it is nearly a-jurisdictional: physical location and physical boundaries
are irrelevant in this networked environment.366 It thus makes adju-
dicative jurisdiction and choice of law new again to the world of
business and law.
When considering how to modify the existing legal framework for
dealing with commercial issues, governments shall seek to ensure that
the framework provides fairness to consumers and business, facilitates
electronic commerce, results in consumers having a level of protection
not less than that afforded in other forms of commerce, and provides
consumers with meaningful access to fair and timely dispute resolution
and redress without undue cost or burden.367 The framework must
take into account international character of the tool of electronic
commerce, the Internet, which is so insensitive to geography that it
is often impossible to determine the physical location of a user and
whose scope is so pervasive that impacts of activities performed in
one state are automatically felt in others. While no simple solu-
tion to the issues of adjudicative jurisdiction and choice of law can
be reached, support from the Internet industry and cooperation
among international society shall work to improve the legal frame-
work of which they are apart, providing so far as possible certainty
and predictability.368
364
Hoegle, supra note 75, at 48.
365
See further Henry, supra note 60.
366
See further D.G. Post, Anarchy, State, and the Internet: An Essay on Law-
Making in Cyberspace, 1995 Journal of Online Law, article 3, paragraph 36, <http://
www.law.cornell.edu/jol/post.html>.
367
This could be found in the OECD Guideline for Consumer Protection in the
Context of electronic Commerce. <http://www.uscib.org/policy/jurrdfin.htm>.
368
Predictability requires a legal infrastructure that allows the participants to an
electronic transaction to consummate it without undue concern over the risk of
repudiation, the means of enforcement or the rules of dispute resolution. See further
a presentation by T.P. Vartanian, Whose Internet is it Anyway? The Law of Jurisdiction
in Cyberspace: Achieving Legal Order Among the World’s Nations, 2000 Global Internet
Summit, Vienna, Virginia, March 13–14, 2000, <http://www.ffhsj.com/bancmail/
bancpage.htm>.
CHAPTER FIVE
ATTEMPTS AT FORMULATING A NEW MECHANISM
Realizing the necessity of formulating a new mechanism specifically

for electronic commerce, many are in pursuit of one.1 According to
recent surveys and inventories, the OECD, ICC and CI have identified
more than 40 online ADR mechanisms for electronic commerce.
These mechanisms vary in terms of procedural and technical aspects.
Among those, 26 offer informal, non-binding types of dispute reso-
lution, such as assisted negotiation, mediation, or ombuds-type ser-
vices; 14 offer more formal, binding arbitration procedures; 11 feature
automated dispute resolution; and 14 offer multiple ADR methods.2
This chapter shall examine these projects and determine their appro-
priateness for disputes in electronic commerce.
1. Projects Arising out of Self-Regulation Initiatives
1.1. Virtual Magistrate Project

The idea for Virtual Magistrate originated in a meeting held on
October 25, 1995, in Washington, DC, sponsored by the National
Center for Automated Information Research (NCAIR) and the Cyber-
space Law Institute (CLI).3 Initially, the designers of the project
1
For example, DG INFSO presented the IST R&D Program for collaborative
research and the TEN-Telecom program for demonstrations of innovative services
as possible routes for co-financing projects to deploy cross-border on-line dispute
settlement systems. See <http://europa.eu.int/comm/information_society/ist/
index_en.htm>; <http://www.ispo.cec.be/tentelecom>. The US Department of
Commerce/Federal Trade Commission announced the workshop on the issue of
“Alternative Dispute Resolution for Consumer Transactions in the Borderless Online
Marketplace” held on June 6–7, 2000. See <http://www.ita.doc.gov/ita_home/adr-
frn.htm>.
2
See further Building Trust in the Online Environment: Business to Consumer
Dispute Resolution, Joint Conference of the OECD, HCOPIL, ICC, the Hague,
11–12 December 2000, Orientation Document, DSTI/ICCP/REG/CP(2000)1–
UPDATED as of 7 December 2000, at 4.
3
These were the participants in the working group discussion: T.C. Lexiner
154 chapter five
sought to fabricate a mechanism to determine whether or not mate-

rials accused of copyright infringement should be removed immedi-
ately from the host site.4 In such cases, “one party (the complainant)
asserts that a second party has posted a message or a file on a sys-
tem under the control of another party (system operators, or sysops)
containing ‘wrongful content’ of some kind, e.g., material that infringes
complainant’s copyright or trademark rights, misappropriates trade
secrets belonging to complainant, is defamatory or fraudulent or
inappropriate (obscene, lewd, or otherwise violative of system rules),
and demands that the offending posting be removed from the sys-
tem under sysop’s control”.5 The project’s larger intention, deter-
mined after delicate deliberation, is to provide an online arbitration
system resolving disputes on the Internet in a fast and efficient man-
ner. After obtaining consensus on the role, jurisdiction, and proce-
dures of the project, it was made publicly known on March 4, 1996
and implemented in the fall of the same year.
Several bodies are involved in the Virtual Magistrate Project.
NCAIR committed the first donation to finance a pilot project. The
American Arbitration Association (AAA)6 serves as administrative
clerk to the project, undertaking the task of receiving cases, review-
ing them for suitability, and assigning them to the magistrate.
Additionally, it shall defend and indemnify those involved in the pro-
ject in case of litigation over their activities for the project. CLI and
the AAA jointly select magistrates, who must be familiar with law
and online systems. The Villanova Center for Information Law and
Practice operates the home page for the project, maintaining the dis-
cussion groups for cases.
The project aims to resolve disputes involving users of online sys-
tems, or those who claim to be harmed by wrongful messages, post-
ings or files, or system operators (to the extent that complaints or
(NCAIR); A. Sloane (NCAIR); E. Kirsh (America Online); W. Marmon (MCI);

D.R. Johnson (CLI/Lexis Counsel Connect); D. Post (CLI/Georgetown Law School);
R. Gellman (CLI Fellow); J.B. Buur (CLI Fellow/Federal Trade Commission); and
G.H. Friedman (AAA).
4
The participants were concerned about the controversial issue of liability for
online service providers accused of allowing access to illegal material, such as post-
ings or e-mail messages that infringe copyright, invade privacy, constitute consumer
fraud, or are defamatory. Dealing with liability and the legality of materials in these
cases is urgent.
5
D. Post, Dispute Resolution in Cyberspace: Engineering a Virtual Magistrate System (May
1996), <http://www.law.vill.edu/ncair/disres/DGP2.HTM>.
6
<http://adr.com>.
attempts at formulating a new mechanism 155
demands for remedies are directed at system operators).7 Bearing this

in mind, accepted cases involve complaints about messages, postings,
and files claiming copyright or trademark infringement, misappro-
priation of trade secrets, defamation, fraud, deceptive trade practices,
inappropriate materials, invasion of privacy and other wrongful con-
tent.8 The issue of infringement of intellectual property rights is of
particular significance.9 The project might receive cases concerning
the disclosure of the identity of an individual to non-governmental
persons or the appropriateness of refusing access to online systems
by the system operator.10 However, problems about billing or financial
obligations between users and system operators will not be addressed.11
Eight basic goals have been singled out for the online arbitration
project: to establish the feasibility of using online dispute resolution
for disputes that originate online; to provide system operators with
informed and neutral responses to complaints about allegedly wrong-
ful postings; to provide users and others with a rapid, low-cost, and
readily accessible remedy for complaints about online postings; to
lay the groundwork for a self-sustaining, online dispute resolution
system as a feature of contracts between system operators and users
and content suppliers (and others concerned about wrongful post-
ings); to help to define the reasonable duties of a system operator
confronted with a complaint; to explore the possibility of using the
Virtual Magistrate Project to resolve disputes related to computer
networks; to develop a formal governing structure for an ongoing
Virtual Magistrate operation;12 and to make the project easy to under-
stand and accessible to all.13 It is understood that the project’s goals
are subject to timely change in order to well serve the demands of
the Internet society.14
7
See The Virtual Magistrate Project: Concept Paper, paragraph 4 (last modified on
July 24, 1996), <http://vmag.vclip.org/docs/vmpaper.html>.
8
Id. Concept paper, paragraph 10.
9
This is closely connected with the heated discussion concerning online service
provider liability. See further Y. Zhao, Internet Service Providers and Their Liability,
34 Law/Technology, World Jurist Association, No. 1, at 1–19 (2001).
10
See supra note 7, concept paper, paragraph 10.
11
See id.
12
The Virtual Magistrate Project: Pilot Project Goals, paragraph 1 (last modified on
February 26, 1996), <http://vmag.vclip.org/docs/vmaggoals.html>.
13
R. Gellman, A Brief History of the Virtual Magistrate Project: The Early Months, para-
graph 23 (last modified on May 22, 1996), <http://www.law.vill.edu/ncair/disres/
GELLMAN.HTM>.
14
Supra note 7, concept paper, paragraph 11.
156 chapter five
The Virtual Magistrate Project makes full use of modern tech-

nology. Most communication among the participants takes the shape
of electronic mailings and telephone calls.15 This is further charac-
terized by the dispute resolution procedures.16 Available to any com-
puter network worldwide,17 the project receives complaints via regular
electronic mail.18 An AAA staff member first screens complaints and
decides whether they are within the project’s jurisdiction19 and then
waits agreement by the parties.20 Once a positive decision is made,
the AAA staff member shall select one magistrate from a roster main-
tained by the AAA and forward the complaint to the defendant and
any possibly affected third parties, such as an online service provider
or the originator of the accused materials.21 Most proceedings are
held online. No procedures involve paper submissions or face-to-face
contact. The parties do not need to travel to meet personally, nor even
have to speak to each other on the telephone. A listserv/newsgroup
(grist) is created for each case, where the parties can post their views
or ideas. The magistrate is supposed to receive and resolve complaints
within seventy-two hours (three business days) after acceptance.22
Confidentiality is highly advocated, which comports with accepted
arbitral practice and procedures. Upon request and at the discretion
of the magistrate, any party to a case could proceed without reveal-
ing his name, address, or affiliation.23 The grist shall only be acces-
15
The October, 1995 meeting was the only face-to-face meeting. The project
was implemented through the World Wide Web, with electronic mail as a backup.
16
See Chicago-Kent College of Law, Illinois Institute of Technology, The Virtual Magistrate
Project: Basic Rules, <http://www.vmag.org/docs/rules.html>.
17
See supra note 7, concept Paper, paragraph 4.
18
The general practice is to click on an e-mail button on the project’s web site
to post a complaint. See further Chicago-Kent College of Law, Illinois Institute of Technology,
VMAG: Online Dispute Resolution, <http://www.vmag.org>.
19
Supra note 16, Basic Rules, paragraph 10. The staff of the AAA shall care-
fully review the complaint and requests additional information from the complainant
when necessary.
20
Id. The complaint shall be accepted only when all the parties have agreed to
participate and hold harmless from liability the Virtual Magistrate Project, the AAA,
the Magistrate, and all other persons connected with the Virtual Magistrate Project
for any act of commission or omission in connection with the Virtual Magistrate
Project.
21
Supra note 7.
22
It was originally expected to make decisions within forty-eight hours. However,
more time than this has been needed for the exchange of messages. Three busi-
ness days is the usual time period for making a decision, but even more time than
this could be needed to ensure a fair result. The magistrate may need more time
to collect all points of view. See further supra note 16, Basic Rules, paragraph 10.
23
See supra note 16, Basic Rules, paragraph 4.
sible by password and only the participants shall be able to read the
posted messages during the proceedings.24 The record of the pro-
ceedings is not open to the public until a decision is made.25
Reasonableness is the legal standard for the magistrate while making
decisions. This flexible standard offers the magistrate a wide discretion.
Considering the present lack of specific rules on the Internet and
the character of arbitration, this flexible approach is understandable.
Decisions made shall not have any binding effect for future decisions,
but may serve as a guide for future legislation or dispute resolution.26
While making a decision, several factors shall be considered to
ensure reasonableness: network etiquette; applicable contracts; appro-
priate substantive laws; and whether a system operator would be act-
ing reasonably if it withheld messages, files, or postings from public
access pending resolution of claims between the parties.27 Before
applying a specific law, the magistrate should also consider the cir-
cumstance of each complaint, the views of the parties about applic-
able legal principles and remedies, and the likely outcome in any
ultimate litigation or traditional dispute resolution mechanism.28
The Virtual Magistrate Project is creative in making full use of
the Internet and the web for dispute resolution and was originally
welcomed by the Internet world. However, since its establishment,
Tierney and Email America29 is the only case that has been decided.30
24
See further supra note 16, Basic Rules, paragraph 15.
25
Supra note 16, Basic Rules, paragraph 6,7; See also supra note 7, Concept
Paper, paragraph 26. Although the public can access the Virtual Magistrate Project
Home Page and see the pending cases listed on the docket, they will not be able
to access case information until the time of a final decision. After the decision is
made, the complaint, the response, the decision, and any other pertinent materials
will automatically be made public. However, upon the request of any party and at
the discretion of the magistrate, information pertaining to the complaint, such as
names, addresses, and affiliations may be kept confidential.
26
See supra note 7, Concept Paper, paragraph 28.
27
28
29
The AAA identifies cases by the name of the principal parties, using “and”
rather than “vs.”; the Virtual Magistrate Project adopted this practice. This par-
ticular case was resolved without the participation of Email America, which did not
recognize the authority of the project. See Virtual Magistrate Handbook for Magistrates,
paragraph 27 (last updated Feb. 26, 1996), <http://vmag.vclip.org/magis/vmhd-
book.html>. For further discussion of Email America’s absence, see further Tierney
and Email America: Case Information (last modified May 8, 1996), paragraph 1, at
<http://vmag.vclip.org/doksys/96–0001>. See further A “Good” Case, Not An “Ideal”
Case: Virtual Justice: The No-Show Case Showcases: Promise and Peril of the Virtual Magistrate
Project, Voorhees Report, June 3, 1996, at *3, available in 1996 WL 8913605.
30
See Chicago-Kent College of Law, Illinois Institute of Technology, The Virtual Magistrate:
158 chapter five
Problems involved in this case cast doubt on the credibility and

efficacy of the project.
Firstly, the sole defendant, Email America, was absent from the
proceedings. Only the third party, America Online (AOL), responded
to the case. As arbitration needs the agreement of both parties, or
else the decision be given default-like qualities, the defendant’s absence
called the decision into question.
Secondly, AOL, a strong original proponent of the project later
found out that its own internal terms-of-service (TOS) complaint
mechanisms31 were enough to resolve most disputes successfully.32
AOL could also have taken actions in the same case without the
magistrate’s direction.
Thirdly, the decision reached in this case cannot be executed. The
fact that the message turned out to be direct email means that there
was nothing to enforce it against.33 This problem results from the
magistrate’s rushing too quickly to judgment.
The last problem with the case could be the identity of the com-
plainant, who serves as an advisor to the project on consumer fraud
issues34 and a forum moderator on Counsel Connect.35 The com-
plexity of his role raised high suspicion concerning the trustworthi-
ness of the proceedings.
Sample Opinion, <http://www.vmag.org/sample.html>. The complainant, J.E. Tierney

requested an advertisement posted by Email America be removed from the system
of America Online. See further Docket No. 96–0001 (May 8, 1996), <http://vmag.
vclip.org/doksys/96–0001>; see also Tierney and Email America: Case Information, supra
note 29; see also Tierney and Email America: Final Decision, (last modified May 21,
1996), <http://vmag.clip.org/doksys/96–0001/index.html?6>.
31
Paragraph 4 (a) of AOL’s TOS specifically reserves the right to remove con-
tent which is deemed harmful, offensive, or otherwise in violation of the TOS. See
Response & Affidavit of America Online, paragraph 32 (last modified May 15,
1996), <http://vmag.vclip.org/doksys/96–0001/index.html>.
32
See further H.H. Perritt, Jr., Dispute Resolution in Cyberspace: Demand for
New Forms of ADR, 15 Ohio State Journal on Dispute Resolution, 687 (2000).
33
See A.E. Almaguer & R.W. Baggott III, Shaping New Legal Frontiers: Dispute
Resolution for the Internet, 13 Ohio St. J. on Disp. Resol. 732–733 (1998). The mag-
istrate thought he was dealing with a posting in AOL’s classified section; this assump-
tion was proved erroneous only after the decision was rendered.
34
See D.J. Loundy, Virtual Magistrate Becomes a Reality, Sort of, Chi. Daily L.
Bull., June 16, 1996, at 5; see also Gellman, supra note 13, paragraph 7.
35
Counsel Connect is not directly affiliated with the Virtual Magistrate Project,
but its co-director did help to develop the project. See further D. Post, Virtual
Magistrates, Virtual Law, Am. Law., July/August, 1996, at 104; see also D. Thom,
E-Mail Arbitration System takes ADR to Cyberspace, N.J.L.J., April 15, 1996, at 22.
Several other complaints were submitted, but have been determined

to be outside the jurisdiction of the project, or the responding party
has refused to participate.36 In some occasions, discussions between
the parties and the magistrate led to a satisfactory resolution of the
disputes without further direct action by the magistrate.
The issue of enforcement of the decisions is problematic. The New
York Convention37 covers normal arbitral decisions, but it is of no
use here.38 The enforcement shall totally depend upon the willingness
of the parties. Ideally, enforcement shall run smoothly as a voluntary
process. When a problem arises, the winning party can go to court
to start a formal procedure. The decision does not have to be a sub-
stitute for traditional judicial remedies as the parties can choose to
make the arbitration decision nonbinding, leaving open the possi-
bility of traditional litigation.39 However, the decision above could
still exert some weight on the court and facilitate the whole proce-
dure in deciding upon the merits of both parties.
From this experience, we can draw at least three conclusions
regarding the Virtual Magistrate’s future success. Firstly, online pro-
cedures must be made known as widely as possible. Until now many
disputes have been resolved through the internal mechanism40 of
online service providers, whose web sites are much easier to identify
36
In the first six weeks of operation, three complaints were submitted. The fist
one concerned a retail transaction involving a computer purchase, but did not
involve any computer network activities. The other two submissions received no
support from the other parties. According to R. Gellman, the cases were rejected
because considerable effort would be required to contact all parties and convince
them to submit to the jurisdiction of the Virtual Magistrate. See further Gellman,
supra note 13, paragraph 32.
37
See Convention on the Recognition and Enforcement of Foreign Arbitral
Awards, June 10, 1958, 21 U.S.T., at 2517, 330 U.N.T.S., at 38.
38
The Virtual Magistrate arbitrator expects system operators to support and
enforce decisions. Third parties (copyright owners) will be asked to comply with a
decision in return for use of the Virtual Magistrate services. Decisions may be recon-
sidered, but will not be subject to appeal. See further The Virtual Magistrate Project:
Concept Paper, July 24, 1996, available at <http://www.vmag.org> (viewed on October
23, 2003). Meanwhile, suggestions have been made to make decisions binding. One
suggestion is to modify the New York Convention to serve the project. It would
require modification of the writing requirement and certain geographical require-
ments in a manner similar to national laws. See further J. Goldsmith & L. Lessig,
Grounding the Virtual Magistrate, available at <http://www.lessig.org> (viewed on
October 23, 2003).
39
See further The Virtual Magistrate Project: Basic Rules, paragraph 1 (last modified
July 24, 1996), <http://vmag.vclip.org/docs/vmrules.html>.
40
See infra notes 96–98 and accompanying text.
160 chapter five
and are known to the users.41 Parties will only involve a project in
their agenda when it is well known to the public and its web site is
easy to access.
Secondly, the scope of the project’s jurisdiction should not be too
limited. Too many limitations would prove disastrous to the project,
particularly at the initial stage. Of course, the project should not
expect to resolve all legal disputes between parties, and certainly
could not do so within a short timeframe. Based on several consid-
erations, disputes involving relatively simple facts and several other
types of cases should be excluded from the project’s mission. The
basic question for most disputes will concern whether a message, file,
or posting should remain publicly available on the Internet. But at
the same time jurisdiction should not be so narrow that chances of
cases being brought to the project are limited. Fortunately, Professor
Kentra at Chicago-Kent has recently revised the rules to make the
project available for a wider range of disputes.
Publicity and expanded jurisdiction alone will not ensure success.
The fact is that while the Virtual Magistrate Project has received
extensive publicity, service providers still neglect to add actual links
on their own sites to the project. After the recent expansion of juris-
diction to include a wider range of cases, few complaints have been
filed and no additional disputes have been decided.42 With these
points in mind, the third conclusion we can draw is that the pub-
lic’s confidence in the project should be built up. Its refusal to par-
ticipate in the project reveals that a party still has doubts. Improving
confidence shall involve both legal issues and technical issues, from
the security of email services to the accessibility of relevant web sites.
Exploiting modern technology shall be especially important. Only
with necessary facilities in place can the disputing parties trust the
project and its results.
41
Another reason could be that there are not enough real online disputes.
According to Assistant General Counsel for AOL, W. Burrington, AOL only han-
dles a few on-line disputes each month. See further D. Thom, ADR in Cyberspace,
Am. Law., May 1996, at supp. 19.
42
See further Perritt, supra note 32, at 686–687.
1.2. The University of Massachusetts Online Ombuds Office

The Online Ombuds Office43 was established in June 1996 with the
financial support of NCAIR.44 In 1997, the office became part of
the Center for Information Technology and Dispute Resolution at
the University of Massachusetts, which was established with the help
of Hewlett Foundation, the NCAIR, and the Department of Legal
Studies of the University of Massachusetts.45
Ombudsman has its origin in Sweden in the early eighteenth cen-
tury, where it was meant to fight against abuses of governmental
and bureaucratic authority and administration and to make further
corrections.46 Historically, ombudsmen have been independent officials,
who receive complaints, conduct investigations, and make recom-
mendations.47 Occasionally they adjudicate disputes, or write a reflective
column for a newspaper’s editorial page.48 The new Online Ombuds
Office has the same objective of offering information and expertise.
But it exists on the World Wide Web and attempts to bring the
resources of the office to resolve disputes arising out of online activities.
The Online Ombuds Office provides mediation to parties involved
in conflict and has indeed carried out several successful online medi-
ations.49 Its informal and user-friendly nature has attracted a lot of
43
Located at <http://www.ombuds.org>.
44
See Center for Information Technology and Dispute Resolution, University of Massachusetts,
Online Ombuds Office, <http://aaron.sbs.umass.edu/center/ombuds/default.htm>.
45
Center for Information Technology and Dispute Resolution, University of Massachusetts,
<http://aaron.sbs.umass.edu/center/Default.htm>.
46
The Ombudsman concept was originated in Sweden by Charles XII in 1713.
King Charles, concerned that his monarchy was lethargic and unresponsive to the
concerns of the citizenry, appointed a trusted advisor and established the concept,
making that advisor the history’s first Ombudsman. The independent Ombudsman
concept was established by the Swedish Parliament in 1809 and continues today in
this independent form. See further The City of Detroit Ombudsman Quick Facts, <http://
www3.ci.detroit.mi.us> (viewed on October 22, 2003).
47
See further M.P. Roew, Options, Functions, and Skills: What an Organizational
Ombudsperson Might Want to Know, 11 Negotiation Journal, 103–114 (1995). The
ombudsperson’s role is a varied one, but generally includes responsive listening, pro-
viding and receiving information, reframing issues and developing options, making
referrals, and assisting persons to help themselves. An ombudsperson is not an
authoritative or final decision maker, but is a confidential and informal informa-
tion resource, communications channel, complaint-handler and dispute-resolver.
48
See further L. Brown, The Reluctant Reformation: On Criticizing the Press in America
66 (1974).
49
During March of 1999, the office worked with the online auction sites eBay
and Up4Sale to mediate disputes arising out of online auctions. Later it mediated
162 chapter five
public attention. Online and as well as non-online communication

facilitates the exchange of information and thereby the proper func-
tioning of mediation.50 Parties wishing to get assistance from ombuds-
man shall first get access to a project web site that offers both relevant
information and tools for self-help,51 which could in one or another
way help parties resolve disputes early on.52
Technical experts are always on hand to interpret the relevance
of the environment out of which the disputes emerged. While mak-
ing full use of modern technology, such persons assist ombudsman
in speedily reaching quality resolution to disputes. Considering that
the Internet is still a new and complicated matter for many ombuds-
men, these experts are particularly important in electronic commerce
cases.
As a result of several factors, the Online Ombuds Office has been
more successful than the Virtual Magistrate Project. For one, its so-
called Center plays an important role in procuring the workload,
while the former project largely depends on the interest of personnel.53
More important than this is its general informal nature, which gives
parties more freedom and control over of the cases and the results
than is possible in arbitration. This element of control is particularly
attractive to strong economic powers, such as online service providers,
who have often depended upon internal mechanisms to resolve
disputes.
a domain name case involving the site Netique.com, and it is now working with
the World Organization of Webmasters to resolve disputes involving webmasters.
The first case involved a local newspaper’s claim that an Internet user was com-
mitting copyright infringement by posting excerpts from his stories on the Internet.
The case was resolved successfully with little difficulty or acrimony. See further
Transcript of a Dispute: The Web Site Developer and the Newspaper, <http://aaron.sbs.umass.
edu/center/ombuds/narrative1.html>.
50
This could include face-to-face meetings, telephone calls, handwritten notes,
emails, video conferences, etc. As it is important that mediators have appropriate
means of communication once the need for them arises, various communication
tools should be made available to them. See further S.S. Silbey & S.E. Merry,
Mediator Settlement Strategies, 8 Law & Policy, 7, 14 (1986); see also M.C. Aaron,
The Value of Decision Analysis in Mediation Practice, 11 Negotiation Journal, 123,
126 (1995).
51
See further E. Katsh, The Online Ombuds Office: Adapting Dispute Resolution to Cyber-
space, <http://mantle.sbs.umass.edu/vmag/katsh.htm>.
52
The web site contains a data base of online disputes and cases and materials
that might promote resolution of the dispute without formal intervention.
53
The fact is that AAA’s interest in the Project has waned with personnel changes
at AAA.
1.3. eBay’s Escrow Arrangement and Dispute Resolution Services 54

Online auction houses are some of the most successful e-businesses.
eBay is the world’s first, biggest and best person-to-person online
trading community, which provides a Web-based forum in which
individuals and small businesses can auction goods and services.55
The rule of such online auctions is that the site owner, in this instance
eBay, assumes no responsibility for the transaction between bidder
and seller.56 To develop consumer confidence, eBay offers several
built-in safeguards for avoiding or resolving disputes.
An escrow service is typical for an online auction site: the pur-
chaser holds payment until goods or services are accepted, and the
seller is offered the opportunity of inspecting and approving returned
items before making reimbursement.57 This free service helps to avoid
disputes. eBay also provides a feedback and complaint service, which
can help to informally resolve disputes. Without intervention from
third parties, users can contact each other directly through email or
telephone to resolve disputes at the initial stage. The online feed-
back service has the added benefit of ensuring intended customers
have some knowledge about their possible trading partner.
Once a dispute arises, users can refer to SafeHarbor, a compre-
hensive safety resource, which aids in the resolution of issues within
eBay’s internal mechanism. At the same time, an independent dis-
pute resolution service will work to resolve disputes quickly and
fairly.58
SquareTrade is eBay’s preferred dispute resolution provider. Square-
Trade’s Online Dispute Resolution offers a fast and convenient way
of resolving disputes either independently, using SquareTrade’s Web-
based Direct Negotiation tool, or through mediation. To guarantee
users that sellers will respond to their complaints, the SquareTrade
54
Various sites offer online auctions. eBay, one of the most successful sites, suc-
cessfully obtained the trust from consumers by providing various dispute resolution
services. Yahoo closely follows the practice adopted by eBay, its cultural counter-
part in online auctions. See further M.S. Donahey, Online Auctions and Dispute
Resolution, International Conference on Dispute Resolution in Electronic Commerce,
WIPO, November 2000, ARB/ECOM/00/13.
55
See further eBay, <http://www.ebay.com>.
56
See eBay, Inc., User Agreement, at <http://pages.ebay.com/help/community/
png-user.html>.
57
See further eBay, Inc., Services: Escrow Overview, <http://pages.ebay.com/help/com-
munity/escrow.htm>.
58
Why eBay is Safe, <http://pages.ebay.com/help/basics/n-is-ebay-safe.htm>.
164 chapter five
Seal is provided for a seller to show that they are committed to high
selling standards and have had their identity verified by a third party.
The condition for retaining a SquareTrade Seal is that a seller must
agree to participate in SquareTrade’s Dispute resolution should a
problem arise, have their identity verified by SquareTrade, and com-
mit to SquareTrade’s standards for online selling.59 During dispute
resolution, online facilities shall be used. Email, of course, is an
important communicative tool; SquareTrade’s free negotiation tool
on its secure servers is useful for online discussions.
It is notable that Up4Sale, an online auction site purchased by
eBay,60 approached the Center for Information Technology and
Dispute Resolution of University of Massachusetts for services on
dispute resolution61 and mediation was applied.62 A combination of
internal and external resources available for dispute resolution serves
to promote consumer confidence.
1.4. Credit Card Chargeback

Credit Card Chargeback is believed to be the most common form
of ADR for consumer disputes at present.63 According to the Fair
Credit Billing Act,64 credit card issuers, retaining limited authority
to adjudicate the dispute,65 must investigate cardholder claims of
billing errors in writing.66 Bill errors could include those for which
a cardholder requests documentation as to the validity of the charge,67
or a reflection on a statement of goods or services not accepted by
the obligor or his designee or not delivered to the obligor or his
59
SquareTrade: Building Trust in Transactions, <http://www.squaretra . . . tplace_name=
ebay&campaign=EBY_OD_2>.
60
See About Up4Sale, at <http://www.up4sale.com/about1.htm>.
61
For further discussion, see E. Katsh, J. Rifkin & A. Gaitenby, E-Commerce,
E-Disputes, and E-Dispute Resolution: In the Shadow of “eBay Law”, 15 Ohio St.
J. on Disp. Resol. 705–734 (2000).
62
See Up4Sale, at <http://www.up4sale.com>.
63
12 C.F.R. section 226.3(1999); see also 15 U.S.C. section 1666(a)(3)(B) (1994).
Under Regulation Z and the Fair Credit Billing Act, chargebacks extend only to
consumers and not to business transactions.
64
15 U.S.C. section 1666 et seq. (1994).
65
The authority of card issuers is defined by the merchant and cardholder agree-
ments.
66
15 U.S.C. section 1666 (a); see also Himelfarb v. American Express Co., 484 A.2d
1013, 1018–1019 (Md. 1984).
67
12 C.F.R. section 226.13(a)(6) (1999).
designee in accordance with the agreement made at the time of a

transaction.68 The card issuers will not charge cardholders without
determining that such goods are actually delivered, mailed, or oth-
erwise sent to the obligor and providing the obligor with a state-
ment of such determination.69
The service of chargebacks is comparatively cheap and easy for
the cardholder; no dispute resolution fees are involved and the only
obligation for consumers is that they speedily call or write the card
issuer in protest of charges. It offers the customers the opportunity
to protect their own rights, thus balancing to a certain extent the
bargaining power. When many claims are brought against the same
merchant, his membership in the credit card network shall be jeop-
ardized. To avoid this danger, merchants will do their best to con-
duct fair business. When a chargeback does occur, informal negotiations
shall usually ensue directly between the merchant and the consumer,
which provides them with the somewhat independent opportunity to
resolve the dispute. This practice is accepted by most credit card
networks,70 as well as consumers and merchants.71 Major credit card
networks extend chargeback protection internationally and have
adopted special consumer protection chargeback rules for electronic
commerce.72
The OECD has issued a draft recommendation on the question
of chargeback, laying down principles that should be taken into
account by member states to guarantee the chargeback principle for
68
15 U.S.C. section 1666(b)(3) (1994); see also 12 C.F.R. section 226.13(a)(3)
(1999).
69
15 U.S.C. section 1666(a)(3)(B)(ii).
70
As stated by Visa officials, Visa’s chargeback rules do not accommodate all of
the possible consumer protection laws around the world, although some chargeback
rights do correspond with statutory rights granted to consumers in particular coun-
tries, such as the rights granted under federal Reserve Board Regulation Z for dis-
pute certain credit card transactions. The reasons for chargeback being offered
under Visa’s rules for international transactions enable issuers of Visa cards to
address the fundamental consumer concerns of their cardholders, and incidentally
reinforce the reputation of Visa Cards as the best way to pay. See further Latter
from B.W. Peterson, Senior Vice President and Associate General Counsel, Visa
International Service Association, to the Secretary of the Federal Trade Commission,
in Federal Trade Commission, U.S. Perspectives on Consumer Protection in the Global
Electronic Commerce Marketplace, <http://www.ftc.gov/bcp/icpw/comments/visa.htm>.
71
Merchants are in a better position with this practice than they are when pay-
ment is stopped on checks. Merchants in the latter situation can only sue the con-
sumer or cut the consumer off from further check-payment privileges.
72
See further Perritt, supra note 32, at 690.
166 chapter five
consumers.73 This practice is very common in the US, but in some

European countries, chargebacks are not required.74 As the propor-
tion of consumer transactions through debit cards is higher than the
number of transactions through credit cards in such countries, the
availability of chargebacks in debit card agreements is much more
important than it is in credit card agreements.75 Nevertheless, this
practice suggests an important way of thinking about consumer pro-
tection in an ADR mechanism for electronic commerce.76
1.5. CyberTribunal 77
CyberTribunal was developed by the Center de Recherché de Droit
Publique (CRDP) of the University of Montreal to address the needs
of both merchants and consumers and assist parties in both the pre-
vention and resolution of disputes arising in electronic commerce. It
employs mediation and arbitration to resolve the disputes concern-
ing a number of topics, including copyright, freedom of expression,
and privacy. The proceedings are conducted in French or English,
with Spanish to follow.78 And because it is to function as an exper-
iment, all services are offered free of charge. Many believe in the
future of this experiment, but practice shows that increased com-
puter confidence is vital to ensuring its success. Presently, an effort
must be made to advance its popularity.
73
See further OECD Draft Recommendation on Charge-back Mechanisms,
DAFFE/CP(97)13.
74
It is not provided in France. Though chargebacks are required by law in the
United Kingdom, however, this law is inapplicable to certain types of international
transactions. See Organization for Economic Co-operation & Development, Consumer
Redress in the Global Marketplace: Chargebacks (visited April 15, 2000), <http://
www.oecd.org/dsti/sti/it/consumer/prod/e_96–142.htm>.
75
See Organization for Economic Co-operation & Development, Consumer
Redress in the Global Marketplace: Chargebacks (visited April 15, 2000), <http://
www.oecd.org/dsti/sti/it/consumer/prod/e_96–142.htm>.
76
It is seen as a means of enabling consumers to get refunds in dispute cases,
thus avoiding redress mechanisms. However, understood in a broader sense, ADR
is itself a dispute resolution mechanism.
77
Recently renamed as eResolution, this project markets itself as a provider of
conflict resolution services for transactions conducted on the Internet. See Cyber
Tribunal, Cyber Conflict Resolution Center, at <http://www.cybertribunal.org/eng-
lish/defaulting.htm>.
78
CyberTribunal General Arbitration Procedure, Article 10.
1.5.1. CyberTribunal Mediation

The mediators have complete freedom since no rules are provided
for their purpose. The goal behind this omission is to enhance the
flexibility of the procedure and encourage the parties to take full
advantage of the electronic medium.
1.5.2. CyberTribunal Arbitration

Rules adopted for arbitration are based on the UNCITRAL Arbitration
Rules and the ICC Arbitration Rules, with possible modifications
regarding the special nature of electronic commerce.79 The parties
are requested to use standardized forms for communications. Only
in situations when no such forms are provided, shall the parties com-
municate by means of email or any other means.80
CyberTribunal Arbitration is carried out as follows. A party ini-
tiates arbitration by transmitting an application to the secretariat.
The secretariat determines the admissibility of the complaint within
five days of receipt and further transmits acknowledgement of receipt
to the complainant and notification of receipt to the defendant.81 At
this stage, mediation can be suggested. If it is accepted, arbitration
shall be suspended. If no result is reached through mediation, then
the arbitration shall restart by the filing of a new application for
arbitration.82 A web site shall be set up to exchange and store data,
documents, and information related to this case, which shall be acces-
sible only to the parties and the tribunal.83 The tribunal shall con-
sist of one or three arbitrators appointed by the secretariat and
subject to the approval of the parties.84 The tribunal has power to
rule on its own jurisdiction and take provisional measures with respect
to the substance of the dispute.85 If the parties fail to choose applic-
able law, the tribunal shall select the national law with which the
dispute has the closest link, with the exception that the national law
of a consumer shall be applied when a consumer is a party.86 In
79
80
81
82
CyberTribunal General Arbitration Procedure, Article 4 (4).
83
CyberTribunal General Arbitration Procedure, Article 1 (f ), 5 (4), and 15 (2).
84
See further CyberTribunal General Arbitration Procedure, Article 6.
85
CyberTribunal Arbitration Procedure, Article 11 and 14.
86
CyberTribunal Arbitration Procedure, Article 17 (1) and (4).
168 chapter five
choosing applicable law, the tribunal shall take into account the con-
tract and prevailing cyberspace parties.87 The tribunal further decides
upon the appropriateness of testimony and computerized documents
and whether to hear witnesses or experts in person or via other
means.88 It engenders its award within 30 days of the declaration of
closure, unless extended by the secretariat.89 The award, made by a
majority of the arbitrators, contains full explanations and electronic
signatures and is transmitted to the parties by encrypted email and
filed in the site of the case in question.90 This award is final. Unless
opposed by the parties, the award shall be posted on the CyberTribunal
web site 60 days after its rendering.91 In case of opposition, the sec-
retariat shall propose to the parties that the award be redacted of
identifying characteristics and then posted.92
1.6. Miscellaneous Projects

Several other projects have offered dispute resolution services for
specific disputes connected with electronic commerce. Though not
so influential as the projects discussed above, their existence adds to
the richness of our reference for dealing with future disputes.
The services run by the Council of Better Business Bureau (BBB)
benefit from BBB’s widespread reputation and physical presence.
Established to help foster consumer trust and confidence in elec-
tronic commerce, the BBBonline Privacy program offers a compre-
hensive assessment process measuring a company’s ability to stand
behind the promises it makes in its online privacy statement. It fur-
ther provides for a dispute resolution mechanism over privacy issues
for consumers. Complaints shall be handled firstly by the business
and, if this handling is not successful, then transferred to ADR with
a BBB mediator.
TRUSTe is a well-known initiative under which consumers can
resolve issues related to their individual privacy rights and other con-
sumer issues.93 Web site owners wishing to participate in the TRUSTe
87
CyberTribunal Arbitration Procedure, Article 17 (2).
88
See further CyberTribunal Arbitration Procedure, Article 18.
89
CyberTribunal Arbitration Procedure, Article 21.
90
CyberTribunal Arbitration Procedure, Article 22 and 23 (1)–(3).
91
92
93
<http://www.truste.org>.
program shall sign a one-year contract with TRUSTe, which binds

the user to certain privacy principles and provides for escalation pro-
cedures in the event a dispute cannot be resolved. Once a dispute
arises between a consumer and a web site that carries the TRUSTe
seal or trademark, a dispute resolution mechanism shall enable
TRUSTe to review and later escalate procedures, if necessary.
1.7. Analysis
The above projects and others, like dispute resolution services pro-
vided by the Janzen Group94 and Cyberjury,95 concern to some extent
self-regulation and provide some evidence of the advantages and dis-
advantages of this practice. The Internet is largely a privatized world,
and private actors are creating frameworks under which governments
and their courts are increasingly irrelevant.96 Indeed, many business
groups prefer to deal with disputes in electronic commerce through
voluntary regimes designed and controlled by Internet society.
1.7.1. Internal Mechanisms

Internal mechanisms for handling consumer complaints could effectively
prevent and resolve disputes at the earliest stage. Some such existing
mechanisms are required by law, like the chargeback practice; some
are provided voluntarily as a result of commercial considerations,
such as the escrow services offer by eBay. Though such mechanisms
can be regarded as dispute resolution mechanisms in the broadest
sense, we tend to treat them as dispute avoidance techniques.
Internal mechanisms are important. While disputes over low values
are expected to arise more frequently than ever before, resolution
made possible by the internal side of business shall largely cut down
the burden of the outside mechanisms. Outside mechanisms may
refrain from intervening if businesses show the willingness and capacity
94
The Janzen Group sells online ombudsman services to companies which engage
in online business, promising to resolve disputes with these companies’ customers
as they may arise. See The Janzen Group, Business and Workplace Mediation and
Conflict Resolution, at <http://www.janzengroup.com>.
95
Cyberjury, a web site, presents readers with the facets of “real life” cases and
asks them to express their verdict based on the affidavits and facts of the parties.
See R.J. Konray, Cyberjury, at <http://www.cyberjury.com>.
96
P.D. Carrington, Virtual Civil Litigation: A Visit to John Bunyan’s Celestial
City, 98 Colum. L. Rev. 1516 (1998).
170 chapter five
to offer reasonable remedies for consumers, including remedies for

complaints arising from both small and large purchases. Moreover,
by providing consumers with procurement in the first instance, such
mechanisms may successfully promote consumer confidence in mer-
chant reliability. Efficient internal mechanisms, compatible with or
modeled on a recognized standard, can thereby benefit merchants
of any size. Feedback attained from internal complaining mecha-
nisms can additionally help to shape an organization’s marketing
program and future.97
Internal mechanisms should be developed. A business web site
could include clear information on their complaining procedures,
explaining to consumers how to go about making a complaint, detail-
ing the contacting methods and suggesting possible responses. The
internal mechanisms shall have the capacity to determine and imple-
ment remedies. A merchant can decide whether a person has a legal
right to a remedy or not; it is good customer relations practice to
give a customer some redress in defined situations.98 While not all
complaints can be settled amicably, those spilling over the line into
disputes shall resort to external mechanisms.
1.7.2. External Mechanisms

One ostensible benefit of self-regulation is that it can provide a test-
ing forum.99 As dispute resolution in electronic commerce remains a
new program, relevant rules are under construction and will improve
with trial-and-error.
Practice thus far has proven self-regulation to have its merits, all
the more evident in light of outsider’s shortcomings. Though the
projects discussed earlier would not have been possible without the
support, both financial and technical, of experts in the fields of online
commerce and law, their role in these projects did not guarantee
them success. That the first decision by the Virtual Magistrate Project
is not enforceable in large part because of the carelessness of the
97
A. McChesney, Feasibility Studies for New Standards Relating to Consumers
and Electronic Commerce, February 14, 2000, for the Office of Consumer Affairs,
Industry Canada, at <http://strategis.ic.gc.ca/SSG/ca01275e.html>.
98
McChesney, Id.
99
See further D.K. Mulligan & J. Goldman, The Limits and the Necessity of
Self-Regulation: The Case for Both, in Privacy and Self-Regulation in the Information Age,
U.S. Department of Commerce, NTIA 1997, at 67–68; <http://www.ntia.doc.gov/
reports/privacy/privacy_rpt.htm>.
magistrate, for example, may present a case for further party involve-
ment in regulation.
Its practice has also warranted criticisms against self-regulation.
The program casts objectivity in doubt. For instance, in the first case
decided in the Virtual Magistrate Project, the relationship of the
complainant with the project posed a challenge to the final decision.
Compliance from relevant parties is another big issue. In the same
case, the defendant refused to recognize the authority of the pro-
ject, which had direct implications for the later enforcement of the
project’s decision.
The substantial value of the projects described above is determined
by the expertise of those involved in the dispute resolution process
and, most importantly, the speed and convenience with which they
resolve disputes. To be more effective, all the programs make full
use of online facilities and thereby prove the point that an online
mechanism is feasible in dispute resolution. As the Internet does not
readily facilitate the safe dissemination of confidential information,
present concerns involve determining how to complement online facil-
ities with, for example, secure email communications and encryption
techniques.
An assurance of confidentiality, a general feature of alternative
dispute resolution, is particularly important to building consumer
confidence. Currently, the issue of confidentiality is problematic for
those using the online mechanism. Not making documents public
until a final determination has been made is often advocated,100 but
then, too, all email communications delivered through the parties’
Internet Service Providers may be intercepted by a sysop; hopefully,
advances in encryption software will resolve this threat.101 Presently
important to the formulation of an objective view, which would make
possible an appropriate decision in resolving disputes in electronic
commerce, is the use of other means of communication. Involved
parties and the delegated mediator or arbitrator must be presented
alternative ways to communicate with each other and other relevant
100
The Virtual Magistrate Project does not reveal any communications until the
last stage of a case, which reveals its concern over the confidentiality of involved
parties. See further supra note 7, Concept Paper, paragraph 26.
101
One advance could be the use of confidential chat-rooms, which allow Internet
users to communicate through text in real time. See further Virtual Magistrate
Project Providers Dispute Resolution in Cyberspace, World Arbitration & Mediation
Rep., March 1996, at 77.
172 chapter five
persons, as the complexity of the dispute requires, to reach a better

understanding of the interests at stake.
The issue of consumer confidence will also remain troublesome
until consumers have the knowledge necessary to understand elec-
tronic commerce. Web sites, advertisements, educational programs,
and so forth, should be developed in order to educate, lead, and
make the pubic comfortable.
Web sites can be gateways to dispute resolution services. They
can advertise the availability of services on the Internet; contain
information about the procedures for prospective parties; collect con-
tact information from prospective consumers in order to assess their
suitability for participation in the services; contain rules of the ser-
vices and necessary documents to submit; present information about
the backgrounds of the arbitrators or mediators; etc. They could also
be used for other purposes. One web site could provide legal rules
and advice on a particular field, another could offer library services,
another could accomplish long-distance education, and so forth.
eBay’s site serves as a good example. If the site at which a dis-
pute arises is linked to a famous dispute resolution site, complainants
are more likely to make use of the mechanism. The link should serve
at once to improve consumer confidence in the business with the
link and to publicize the dispute resolution site, thus bolstering busi-
ness and online dispute resolution.
Furthermore, to have an array of experts who are familiar with
legal issues and technology shall remain vital to supporting consumer
confidence and the final success of the mechanism. In the Online
Ombuds Project, it was decided that each ombudsman shall be paired
with someone who had some technical expertise and considerable
familiarity with the Internet. This was a temporary measure. In the
long run, the ombudsman should posses such expertise for himself.
Ultimately, experts can help to expedite decisions at a low cost. At
present, internal channels enforce decisions, but in the future a new
framework should be formulated to enforce decisions if necessary.
2. World Intellectual Property Organization (WIPO)

The WIPO Mediation and Arbitration Center (the Center), an impor-
tant provider of dispute resolution services, has been made even
more conspicuous since it developed new services for resolving domain
name disputes. Its practice in this area has implications for disputes
in electronic commerce as a whole.
2.1. Background
After the emergence of the Internet, the Internet Assigned Numbers
Authority (IANA) was established to maintain the root server and
act as the Internet’s central coordination, allocation, and registration
body for addresses, names, and protocol parameters.102 On June 10,
1998, the US government issued a Statement of Policy on Management
of Internet Names and Addresses, known as the White Paper,103 invit-
ing the private sector to form a global consensus entity to take over
the responsibility for Internet Protocols, domain names, IP addresses,
and the Internet root server system.104 Four months later, a new cor-
poration known as ICANN105 was created to perform the adminis-
trative duties like those involved in the assignment of IP addresses,
Autonomous System Numbers, TLDs, and other unique parameters
of the DNS and its protocols.106 ICANN, a nonprofit corporation
supported by the US department of Commerce, is the primary entity
through which Internet policy is established.107 While administrative
in nature, its important goal is to preserve the central coordinating
functions of the global Internet for the public good.108 One of its
first charges was to create a dispute resolution policy to allow cheap
and fast resolution of conflicts regarding rights to domain names.
102
See IANA Press Release, October 19, 1998, at <http://www.postel.org/iana-
pr102098.html>; see also D. Flint, Much Confusion in Cyberspace—A Personal
View of the Proposals for Internet Regulation, 19 Business Law Review, 112–115
(May 1998).
103
Statement of Policy on Management of Internet Names and Addresses, 63
Federal Register, 31741 (1998).
104
Electronic Signatures in Global and National Commerce Act on H.R. 1714
Before the Subcomm. On the Courts and Intellectual Property of the House Comm.
on the Judiciary, 106th Cong. (1999) (Prepared testimony of M.M. Roberts, Interim
President and Chief Executive Officer of the Internet Corporation for Assigned
Names and Numbers).
105
For a full description of the transfer of authority to ICANN, see further
L. Pearlman, Truth, Justice and the Dot-Com Wars, Law News Network, at <http://
www.lawnewsnetwork.com/practice/techlaw/news/A20216–2000Mar31.html>; see
also D.C. Nunziato, Freedom of Expression, Democratic Norms, and Internet
Governance, 52 Emory Law Journal 196–201 (Winter 2003); A.M. Froomkin,
Habermas@Discourse.net: Toward a Critical Theory of Cyberspace, 116 Harvard
Law Review 838–855 ( January 2003).
106
Introduction to the IANA TLD Delegation Practices Document or ICP-1
paper, May 21, 1999, at <http://www.iana.org/icp1.html>.
107
See further ICANN, Approved Agreements among ICANN, the US Department
of Commerce, and Network Solutions, Inc., at <http://www.icann.org/nsi/nsi-agree-
ments.htm>.
108
See further IANA, Frequently Asked Questions (FAQ ) #2, at <http://www.
iana.org/faqs.html>.
174 chapter five
The US government’s White Paper109 charged ICANN with the

selection of five new domain name registrar companies to compete
with Network Solutions, Inc. (NSI), who was the sole agency respon-
sible for the registration of domain names until the spring of 1999.
Domain names themselves are problematic. While numbers and IP
addresses are potentially infinite, there is only a limited pool of mean-
ingful words from which agents can create a domain name. In a
specific line of business, this pool gets even smaller.110 Many seek to
exploit this situation by registering domains with no intention of
using them, but with the idea of negotiating the sale of the name
later on in order to profit.111 This leads to many disputes,112 for
example, those between the registrants and major trademark hold-
ers, somewhat late to the Internet themselves, who find their marks
registered as domain names when they attempt to take up shop
online.113 Though NSI created a procedure114 under which a third
party can challenge the rights of a domain name owner to use a
particular domain name,115 its limited protection116 and the passive
109
The US Green Paper, A Proposal to Improve the Technical Management of
Internet Names and Addresses, issued by the Department of Commerce’s National
Telecommunications and Information Administration (NTIA) on January 30, 1998,
became the White Paper on June 5, 1998. See further NTIA, at <http://www.
ntia.doc.gov/ntiahome/domainname/domainhome.htm#3>.
110
S. Niyogi, The Future of Domain Names, at <http://www.siliconindia.com>.
111
Panavision Int’l, L.P. v. Toeppen, 945 F.Supp. 1296, 1300 (C.D. Cal. 1996);
Intermatic, Inc. v. Toeppen, 947 F. Supp. 1227, 1233 (N.D. Ill. 1996); see also A.M.
Froomkin, Symposium: The Legal and Policy Framework for Global Electronic
Commerce: A Progress Report of Governments and Governance, 14 Berkeley Tech.
L.J., 617, 626 (Spring 1999).
112
For the emergence of disputes, see further C. Oppedahl, Internet Domain
Names that Infringe Trademarks, at <http://www.patents.com>; see also The
Internet is Running out of Addresses, at <http://www.economist.com>.
113
J. Zittrain, ICANN: Between the Public and the Private—Comments Before
Congress, 14 Berkeley Tech. L.J. 1071. 1079 (1999).
114
See further C. Oppedahl, Analysis and Suggestions Regarding NSI Domain
Name Trademark Dispute Policy, 7 Fordham Intell. Prop. Media & Ent. L.J. 73, 77–81
(1996).
115
The most spectacular characteristic is the “on hold” procedure: the owner of
a registered trademark that is identical to a later-registered domain name can apply
to have the domain name placed “on hold” so that no one can use the domain
name until the dispute is resolved, either amicably or judicially. See further the
Network Solutions Domain Name Dispute Resolution Policy, Revision 03 (effective
February 25, 1998), at <http://www.networksolutions.com>.
116
This procedure only works effectively for the owners of federal or national
trademarks. See further C. Clough, The Only Way to Fully Protect your Domain Name
under Our Current “Dispute Policy” is with a Federal Trademark!, at <http://blaze.net/
search/internic.html>; see also C. Oppedahl, Changes in Domain Name Rules could
Result in Ownership Loss, at <http://www.patents.com>.
action of NSI117 has caused rather than curbed cybersquatting.118

Criticisms of NSI and its policies are abundant and have implica-
tions for policy change for the domain name system.119
Following the ICANN request for opinions and suggestions from
interested parties, and from WIPO in particular,120 the ICANN
Uniform Domain Name Dispute Resolution Policy and Rules were
adopted on October 24, 1999. ICANN designated several bodies as
dispute resolution service providers. Based on its experience with
intellectual property rights and dispute resolution, the WIPO was
the first one to be designated.121 A supplemental rule was later imple-
mented by the WIPO Center for the resolution of disputes.
2.2. Combating Cybersquatting

As we all know, a domain name is the name or address of a web
site identifying a computer or network connected to the Internet.122
What constitutes a domain name dispute, however, is not so clear.
117
The trademark owner simply sends a letter of complaint to the domain name
holder and then sends the NSI a copy of that complaint with the evidence of deliv-
ery plus a copy of the trademark registration certificate. NSI shall contact the
domain name holder asking for evidence of federal mark protection that pre-dates
the complaint. If none is provided, NSI will put the domain name on hold until
the dispute is resolved.
118
See, for example, C. Oppedahl, NSI Domain Name Dispute Policy Puts Owners at
Significant Risk, at <http://www.patents.com>; see also G.G. Davis, III, Internet
Domain Names and Trademarks, A Growing Area of Domestic and International
Disputes, 532 PLI/Pat 383, 393 (1998); S. Kouretchian, Revised Rules Govern
Domain-Name Disputes: To Adequately Preserve Their Rights, New Registrants
Should File for Trademark Protection, Nat’l L.J., October 28, 1996, at C20.
119
For further discussion, see D. Lock, Toll-Free Vanity Telephone Numbers:
Structuring a Trademark Registration and Dispute Settlement Regime, 87 Calif. L.
Rev. 408 (March 1999); S.B. Sterling, Comment, New Age Bandits in Cyberspace:
Domain Names Held Hostage on the Internet, 17 Loy. L.A. Ent. L.J., 746–747
(1997).
120
Realizing the need for a new way to hear and decide domain name disputes
that offers a more economical and efficient alternative to the court system, WIPO
conducted studies to draft a Final Report on the Domain Name Process into which
was incorporated a new UDRP as an alternative to litigation.
121
Two others have been approved, namely, the National Arbitration Forum
(Minneapolis, Minnesota) and the Disputes.org/eResolution Consortium (Amherst,
Massachusetts, and Montreal, Canada), which take different approaches to the back-
ground of their panellists. Additional centers might be approved at a later date.
See further Providers Take Different Approaches, 2 World Telecom Law Report, No. 2,
23 (2000); see also E-conflicts Find an eResolution Creation of a Canadian Virtual
Tribunal to Settle Domain Name Disputes, at <http://www.newswire.ca>.
122
See further Your Own Domain Name, <http://www.pharamond.com>.
176 chapter five
Some of the literature on such disputes simplifies domain name dis-

putes into cybersquat disputes or, even worse, simply mistakes domain
name disputes for cybersquats. It is true that cybersquatting is the
most important and most common form of dispute involving domain
names, and most mechanisms dealing with domain name cases deal
exclusively with cybersquats, but domain name disputes are not lim-
ited to cybersquats. This study will address various forms of domain
name disputes.
Generally speaking, cybersquatting refers to the practice of stock-
piling domain names for future resale to the general public.123 It
happens to the SLDs only, as this part shapes the distinct charac-
teristics of a business. According to the WIPO Final Report,124 there
are important three pre-conditions that should be met for a case to
be deemed a cybersquat.
First of all, the domain name is identical or confusingly similar to
a trade or service mark in which the complainant has rights, includ-
ing being confusingly similar to those activities the complainant intends
to pursue. The weight of a domain name is especially significant to
businesses. Like a trade or service mark, a domain name can effectively
represent a business, but it is also more unique than such a mark.
While we can find the same mark representing, for example, different
categories of goods or services, the same domain name can never
refer to different online businesses. This we may consider an exterior
requirement for cybersquatting; the key conditions are to follow.
Secondly, the registrant has no rights or legitimate interests with
respect to the domain name. To prove such interests, the registrant
must be able to show that he/she is commonly known by the name;
or has made prior use of the name in connection with a good faith
offer of goods/services (or made prior demonstrable preparations for
such use of the name); or is making a legitimate non-commercial or
fair use of the domain name without intent for commercial gain or
to otherwise misleadingly divert consumers or tarnish the mark.125
123
D. Cabell, Name Conflicts in Cyberspace, <http://www.mama-tech.com>, viewed
on 3 September 1999.
124
See further, Final Report of the WIPO Internet Domain Name Process: The
Management of Internet Names and Addresses: Intellectual Property Issues (here-
inafter WIPO Final Report), <http://www.ecommerce.wipo.int>, viewed on 30 April
1999.
125
See further Section 4(c) of the UDRP accepted by the ICANN at its Annual
Meeting in Los Angeles on 4 November 1999, <http://www.icann.org>. The
Thirdly, the domain name has been registered and is being used
in bad faith. This is the most substantial factor in determining the
act of cybersquatting; using a domain name in good faith shall not
be deemed as cybersquatting. Thus, it is very important to clarify
what exactly constitutes bad faith. The job of clarification was ini-
tially taken up by the Internet Corporation for Assigned Names and
Numbers Uniform Domain Name Dispute Resolution Policy (the
ICANN UDRP) and later tackled in the first case dealt with by the
WIPO Center.126 Broadly put, determining bad faith requires show-
ing that both the registration and the use of the domain name have
been misdeeds.127
The UDRP gives a list of specific requirements for determining a
bad faith registration: there are circumstances indicating that the
domain name was registered primarily for the purpose of selling,
renting, or otherwise transferring the domain name to the com-
plainant, who is the owner of the trademark or service mark, or to
a competitor of that complainant, for a sum in excess of the costs
related to registering the domain name; the domain name was reg-
istered in order to prevent the complainant from using a mark in a
corresponding domain name, provided that there is a pattern of such
a conduct; the domain name was registered primarily for the pur-
pose of disrupting the business of the complainant; the registrant
intentionally attempted to attract Internet users to his web site or
other online location, with the goal of commercial profit, by creat-
ing in them confusion regarding the complainant’s mark.128 Obviously,
this is not a definitive list. Intensive analysis will still be needed to
clarify what indeed constitutes bad faith.
Network Solution, Inc. (NSI) Policy singles out two possible defenses: domain reg-
istration prior to the effective date of the complainant’s trademark; or the owner-
ship by the domain holder of a federal or national trademark for the identical
name.
126
The first case, World Wrestling Federation Entertainment, Inc. v. Michael Bosman,
was submitted electronically to the WIPO Arbitration and Mediation Center on
2 December 1999. The Administrative Panel Decision has a nice elaboration of
bad faith.
127
D. Cabell, Trademark Disputes Online —ICANN’s New Uniform Dispute Resolution
Policy, <http://www.mama-tech.com>, viewed on 18 November 1999.
128
See further the ICANN UDRP, Section 4 (B), supra note 125. S. 1225, a new
Bill passed by the U.S. Senate, says that bad faith intent could be determined from
a number of factors, including intent to divert customers, offers to sell domain
names for a substantial consideration, and multiple domain registrations using oth-
ers’ trademarks. See further New Bill Would Provide Remedies for Domain Name Hijacking,
<http://www.mbc.com>.
178 chapter five
Section 4(a) of ICANN UDRP states that only when a complainant

proves that the above three conditions are met can the act be defined
as cybersquatting; a registrant who incorporates an unauthorized
trademark into his or her domain name without authorization as
such is correspondingly a cybersquatter.129 Actually, the three con-
ditions are interconnected, each being necessary to reach a fair and
complete judgement of cybersquatting. Just as internal requirements
should be balanced with external requirements, positive requirements
should be complemented by negative requirements. For instance, to
defend himself against the accusation of bad faith, a respondent
should be able to show that he has rights or legitimate interests.
Thus, the second condition is complementary to the third condition.
Furthermore, standards for proof of actual intent are left to the
approved resolution providers.130
Domain name disputes are not to be equated with cybersquatting,
as cybersquatting is only one category of domain name disputes.
There are two other important categories of disputes: parasites, and
twins/poachers. Although all these three categories are closely con-
nected and, to a certain extent, similar to each other, there is a clear
line to be drawn between them.
Like cybersquatters, parasites also expect to gain profits, but the
parasites’ profits are specifically earned through the use of the domain
names, for example, a famous name or a name that connects mul-
tiple businesses. We can easily imagine how domain name disputes
could arise between those in similar lines of business, or between
those who simply wish to trade off a name’s fame. In the case of
twins, where the domain name registrant and the complainant may
have the same name or nearly identical names, the involved parties
may actually both have a legitimate claim to the name.131 Perhaps,
to resolve such difficult disputes, we must add new categories of
gTLDs as is suggested in the Final Report of the WIPO Internet
Domain Name Process. Here, the condition of bad faith is irrele-
vant, which sets these types of domain name disputes apart from
129
A. Baum & M. Epstein, New Dilution Act Used to Evict “Cybersquatters”,
Nat’l L. J., January 27, 1997, at C03.
130
Section 4 (b) of the UDRP, supra note 125.
131
See further I.S. Nathenson, Showdown at the Domain Name Corral: Property
Rights and Personal Jurisdiction over Squatters, Poachers and Other Parasites, 58
University of Pittsburgh Law Review, 991 (1997), <http://www.pitt.edu>.
cybersquatting and points to a need for new methods and guidelines

for dealing with a variety of such disputes.
Why have we neglected these other types of disputes? For one,
cybersquatting cases are more prevalent. Another reason for empha-
sizing cybersquatting might be that labeling the wrongfulness in such
cases is easier than it is in cases of parasites and twins/poachers. A
third reason may be that the characteristic of bad faith means cyber-
squatting demands urgent resolution. Whatever the case, dealings
with each of these three types of domain name disputes has helped
to shed light on the proprietary rights that trademark owners have
in the domain name version of their trademarks. It is to protect
these rights that an efficient mechanism is urgently needed to resolve
domain name disputes in general.
As analyze above, cybersquatting can bring about serious social
disturbances. In resolving cybersquatting disputes, it is necessary to
determine in the first place whether it could be categorized as a
civil offence or a criminal one, and then provide the corresponding
measures.
While it has become commonplace for a cybersquater to be sub-
jected to civil procedures, there is some evidence that cybersquat-
ting should be subject to criminal jurisdiction. The US House Judiciary
Committee unanimously agreed to outlaw cybersquatting.132 Moreover,
it proposed a Bill133 that would make the willful dilution of famous
marks or trade on the owner’s reputation a crime for whomever
knowingly and fraudulently or in bad faith registers or uses the trade-
mark of another. Although the White House has indicated that it
would not pass this legislation,134 the proposal has spurred further
discussion regarding ways to curb cybersquatting. As the proposal
suggests, proving criminality in domain name disputes (more specifically,
the requirement for bad faith) involves more than the three condi-
tions discussed above.135 If the act is serious enough, perhaps it shall
132
On 29 November 1999, President Clinton signed into law the “Intellectual
Property and Communications Omnibus Reform Act of 1999”, which resulted in
the amendment of the Federal Trademark Act. The new provisions of the Trademark
Act target the cybersquat. See further S.D. Littlepage, Anti-Cybersquatting Act: Federal
Protection for Trademarks and Personal Names on the Internet, <http://www.dickinson-
wright.com>.
133
For the draft version of this Bill, see further <http://www.senate.gov>.
134
See further I.J. Kaufman, The Domain Name System: Dispute Resolution
and the Nice Classification System, 28 International Business Lawyer, No. 1, 39, (2000).
135
According to the proposal, the following conditions (requirements of bad faith)
180 chapter five
qualify as criminal in nature. As some states have already passed

legislation on crimes connected with computers, and consideration
of the criminal nature of cybersquatting is likely to underpin further
legislation. At the present time, however, the mechanism in place
to deal with cyersquating disputes does not concern the issue of
criminality.
2.3. Procedures for the Mechanism

The whole procedure shall be initiated by a complaint136 from an
aggrieved mark holder who believes it is the victim of bad faith,
abusive registration of a domain name in one or more TLDs.137 A
request that the complaint be referred to a panel operating under the
Abusive Registration Rules, contact information for the complainant,
the respondent, and the complainant’s representative, if any,138 the
domain name or names at issue, the name of the registrar or regis-
trars involved, an allegation that the registration is abusive and a
description of the grounds for such a contention, any documentary
evidence on which the complaint intends to reply and a schedule of
such documents, and a statement of the determination sought shall
be included in the complaint.139 Meanwhile, the submitted complaint
shall be accompanied by the payment of a nonrefundable adminis-
shall be met to qualify criminality: (a) the defendant registered or used an identifier
to cause confusion or mistake, deceive, or cause dilution of the distinctive quality
of a famous trademark; or with the intention of diverting consumers from the trade-
mark owner to the defendant; (b) the defendant provided false information in its
application to register the identifier or offered to transfer the identifier’s registra-
tion to the trademark owner or other person or entity for something of value; and
(c) the identifier is not the defendant’s legal first name or surname or the defen-
dant had not used the identifier in legitimate commerce prior to either the first use
of the registered trademark or the effective date of the registration.
136
The WIPO web site contains s standard complaint form, which can be sub-
mitted online. The Final Report contains a recommendation that provision be made
in the procedural rules for the secure electronic filing of all pleadings in cases.
However, the WIPO Abusive Registration Rules provide that communications should
be expedited postal or courier service, transmitted by telefax, or sent, where the
provider has the appropriate technical facilities, by electronic transmission through
the Internet.
137
WIPO Policy on Dispute Resolution for Abusive Domain Name Registration,
Article 3 and 6.
138
A party may be represented by any person, irrespective of nationality or pro-
fessional qualifications. Id., Article 4 (a).
139
Id. Article 6.
tration fee.140 If necessary, an advanced deposit for the costs of the

proceedings could also be required.141 For failure to pay the fee
within seven days after a second reminder, the complaint shall be
deemed withdrawn.142
After receiving the complaint, the WIPO Center shall check the
complaint to ensure that it complies with the basic requirements of
the UDRP. If it does, then the center shall transmit the complaint
to the respondent and notify both parties of the date of the com-
mencement of the proceedings, i.e., the date on which the center
initially received the complaint.143 The respondent shall have 10 days
from the date of commencement to submit a statement of defense
including comments on any of the elements of the complaint and
providing any documentary evidence on which the respondent intends
to rely, as well as a schedule of such documents.144 The center shall
transmit the defense to the complainant immediately after receiving
it.145 Failing to submit the defense shall not obstruct the process of
resolution; the panel may proceed with its determination on an ex
parte basis.146
The WIPO Center shall then appoint a three-person panel and
designate a presiding panelist.147 Following the appointment, the cen-
ter shall transmit the file to each member of the panel148 and notify
the disputing parties of the identities of the panel and the presiding
member.149 The parties can challenge a panelist who appears to lack
impartiality or independence, assuming the challenged panelist declines
to withdraw.150 In such a situation, the center shall make the final
140
Id., Article 37 (a)–(c). No action shall be taken on the complaint until the
administration fee has been paid.
141
Id., Article 39.
142
Id., Article 37 (d) and 39.
143
Id., Article 7.
144
Id., Article 8 (a).
145
Id., Article 8 (b).
146
Id., Article 28 (a).
147
Id., Article 9 (a). Unless the parties have the same nationality, the presiding
member, excluding special circumstances, shall be a national of a country other
than the country of either of the parties.
148
Id., Article 20.
149
Id., Article 9 (b).
150
Id., Article 10 (a), (b). Each panelist is required to be impartial and inde-
pendent and must confirm that there are no circumstances that might give rise
to justifiable doubt as to such impartiality or independence or must disclose such
circumstances.
182 chapter five
decision concerning the qualification of the panelist.151 The pro-

ceedings shall be declared closed within 10 days of the delivery of
the response or the establishment of the panel, whichever occurs
later.152
The panel shall have complete discretion during the procedures.153
It can decide on applicable language,154 the production of further
statements and additional documents, and the admissibility, relevance,
materiality, and weight of any evidence submitted.155 It can also
choose to hold a hearing, though the general practice has been to
determine the merits based on the documents alone.156
The panel shall resolve the dispute in accordance with the Abusive
Registration Policy,157 together with the laws that it determines appro-
priate in light of all the relevant circumstances.158 The decision shall
be made within 10 days of the closure of the proceedings by a major-
ity of the panel, or else the presiding member makes the decision
as if acting as a sole panelist.159 The date of decision, the signature
of the panelists,160 the cost of the proceedings161 and, most impor-
tantly, the reasons for giving such a decision shall be included in
the final decision.
The panel shall communicate the decision to the WIPO Center,
who then transfers it to the parties.162 Seven days after the transfer,
the center shall communicate the decision to the registrar, who con-
tinues with detailed implementation measures. The decision shall be
151
Id., Article 12–17.
152
Id., Article 34.
153
Id., Article 21 (a) (b). This is based on the fact that the parties are treated
with equality and that each is given a fair opportunity to present its case.
154
Id., Article 22 (a). Unless otherwise agreed, the language of the proceeding
shall be consistent with the domain name registration agreement, subject to the
panel’s power to determine otherwise. Meanwhile, according to Article 22 (b), the
panel may order translations of documents that are not in the language of the
proceeding.
155
Id., Article 25.
156
157
Id., Article 31.
158
Id., Section 15.
159
160
Id., Article 33 (a)–(c). At minimum, the signature of the majority or of the
presiding member, when acting alone, must appear, and a brief explanation should
be given for the absence of any signature.
161
Id., Article 40. This could include the panel’s fees, expenses of the panel, and
other expenses necessary to the conduct of the proceedings, such as the cost of
hearing facilities.
162
Id., Article 33 (e).
effective and binding as of the date it is communicated to the reg-

istrar.163 Further, the center shall communicate the decision to the
WIPO to publish on a publicly available web site.164 This marks the
end of the whole procedure.
2.4. Character of the Mechanism

Just one day after the UDRP rules took effect the WIPO mechanism
was put to work resolving a case.165 To date, hundreds of cases have
been brought forward for resolution.166 In order to deliver quality
services, the WIPO Center maintains an extensive legal, administrative
and information technology infrastructure. An international team of
legal and paralegal staff spanning six continents has been supported
by a secretariat to ensure the professional administration of the cases.
This network of disparate bodies enables the smooth functioning of
mechanism. The mechanism has several unique characteristics.
Firstly, the nature of the mechanism has been clearly defined as
administrative. The WIPO Center was established to offer arbitra-
tion and mediation services for international commercial disputes
between private parties.167 But though the services provided by the
center are apparently legal or adjudicative in nature, the center is
not a legal authority. Technically, it establishes administrative pan-
els that evaluate domain name issues.168
The administrative function of the WIPO Center is evidenced by
the initiation of the mechanism. As stated in the ICANN UDRP,
disputes over the registration and use of an Internet domain name
must be submitted to an administrative body. In practice, this sub-
mission puts into focus a prior registration agreement and the relevant
163
Id., Article 35 (b).
164
Id., Article 33 (f ).
165
The first case was received on December 2, 1999, and was decided and par-
tially published by January 14, 2000. This case concerned an abusive domain name
registration by a cybersquatter of <http://www.worldwrestlingfederation.com>
accepted by Melbourne IT. See further WIPO Press Release 2000/204, at <http://
www.wipo.org/eng/main.htm>.
166
See further <http://www.arbiter.wipo.int>.
167
See further The WIPO Arbitration and Mediation Center, <http://www.arbiter.
wipo.int>.
168
See further Substantive Guidelines Concerning Administrative Domain Name
Challenge Panels, Interim Policy Oversight Committee, <http://www.gtld-mou.org>,
viewed on 23 May 1997.
184 chapter five
procedures offered therein. The so-called Registration Agreement

entails implicit consent on the part of the registrant regarding arbi-
tration: domain name holders that are deemed to be cybersquatters
are subject to mandatory and binding arbitration, possibly resulting
in loss of the domain name, and a fee to cover the arbitration
expenses. The implementation of this administratively driven mech-
anism thus differs from traditional arbitration, which attains juris-
diction from the agreement to arbitrate by both parties. The passive
role of the registrar in the dispute will be addressed later.
Secondly, litigation is not excluded from the new mechanism. Once
a complaint is filed in the WIPO Center, it will be processed unless
the complaint is settled or withdrawn. Failing to respond, the domain
name holder will almost certainly lose. But though decisions are
reached, they are not legally binding. No decision made by an admin-
istrative body could affect the power of the appropriate national or
regional sovereign court to hear cases interpreting and enforcing
intellectual property rights that fall within its jurisdiction.169 Litigation
can be particularly important when it comes to enforcement, as it
is governed by the mandatory law of a state and its decisions are
enforceable based on the power of a state. Litigation can thus serve
as a safety valve for the administrative procedure. A trademark owner
who believes litigation would be advantageous to him may resort to
this mechanism. Furthermore, it is claimed that under the new mech-
anism, the panels are to apply streamlined, quick and cost-effective
procedures to review multiple claims and eliminate cases of clear
abuse of trademark holders’ rights, leaving the more complex cases
to the courts.170
This does not mean litigation is the rule. For the WIPO Center
to be successful, it is important to limit registrants’ freedom to turn
to litigation. Some registrants would exploit too much freedom in
bad faith, purposefully prolonging the period of resolution and adding
to the indeterminacy of the results by requiring litigation. Considering
the swiftly changing technology and the potential profit-gain entailed
169
Final Report of the International Ad Hoc Committee: Recommendations for
Administration and Management of gTLDs, <http://www.iahc.org>, viewed on
4 February 1997. Likewise, this procedure would not prevent any party from ini-
tiating arbitration or mediation procedures that are otherwise available.
170
WIPO Processes First Case under New Dispute Resolution Procedure, 3 World
Telecom Law Report, No. 1, 23 (2000).
by the use of domain name, it would be most detrimental to the

justified party in keeping the case too long in court. To limit par-
ticipants’ capacity for maliciousness and make more certain juris-
diction in domain name disputes, so-called mutual jurisdiction171 has
been advanced. The domain name applicant shall be required in
the domain name registration agreement to submit without preju-
dice to other potentially applicable jurisdictions,172 to the jurisdiction
of the courts of the country of domicile of the domain name appli-
cant, and the country where the registrant is located.173
Thirdly, this mechanism can be characterized by its extensive use
of online facilities, which may pave the way for future dispute res-
olution mechanisms. The WIPO Center’s case management is sup-
ported by an online filing facility, email communication facilities for
parties and panelists, and systemized documents that include a model
complaint and a model response.174 Once a case is brought to the
WIPO Center, a secure online space in which all relevant commu-
nication will take place shall be created. The complaint and response
and later relevant evidence are exchanged online through secure
channels. Hearings shall be available using an electronic chat room,
if deemed necessary by the panel.175
This mechanism should effectively reduce the time and cost entailed
by traditional dispute resolution mechanisms,176 particularly because of
its time limit and set fee features.177 As indicated, the whole procedure
171
For the definition of Mutual Jurisdiction, see Article 1 of the UDRP Rules,
<http://www.icann.org>.
172
This shall mean that the situs of the tort shall also be included. See further
I.J. Kaufman, The Domain Name System—Act Now or Regret Later, <http://www.ican-
ndomainnames>.
173
See further WIPO Final Report, supra note 124.
174
Domain Name Dispute Resolution Service in 2000, WIPO Arbitration and
Mediation Center, at <http://arbiter.wipo.int/domains>.
175
As provided in Article 27 (a) of the WIPO Rules for Administrative Proce-
dure Concerning Domain Name Registrations (the complete text is available at
<http://www.wipo2.wipo.int>), the hearing can take the form of a physical meet-
ing, a telephone or video conference, or a simultaneous exchange of electronic com-
munications that allows the parties and the panel to exchange information in real
time.
176
The main point of this mechanism is that it is fast and cheap. See further
E.H. Tiller, ICANN’s Uniform Domain Name Dispute Resolution Policy: An
Overview and Critique, 1 Internet L. & Bus. 589, 591–593 (2000).
177
The filing fee ranges from $750 to $6000 or more, depending on the provider,
the number of domain names at issue and the number of panelists. The typical
UDRP proceeding costs less than US $10,000, including the filing fee and attor-
neys’ fees.
186 chapter five
shall be terminated within forty-five days, which is rather fast com-

pared to the period needed for litigation and most arbitrations.
Moreover, because the entire process is conducted by email, litigants
save significant time that would otherwise be spent responding to
documents and requests, sitting for depositions, and preparing for
trial.178 Many people have argued that the low registration fee accounts
for the proliferation of cybersquatting and that the relatively high
fee for combating cybersquatting through litigation and arbitration
has further deterred the effective resolution of potential cybersquat
disputes. The same people would agree that to curb cybersquatting,
a case fee affordable for complainants is necessary.
Unlike traditional mechanisms, the WIPO Center’s mechanism for
resolving domain name disputes calls for a specific breed of expert
analysts and places heavy demands on them. As indicated in the
ICANN rules, the panel shall have very broad powers over the man-
ner in which the proceeding is to be handled.179 Their power is
justified by knowledge and expertise in both the matters of the case
and the procedures of the mechanism, in which any abuse of power
should be frowned upon. They must be reputed not simply for knowl-
edge in their particular field, but also for their impartiality, sound
judgment, experience as decision-makers, and substantive experience
in the areas of intellectual property law, electronic commerce and
the Internet. As they control online communications in the case, with
some administrative support, it is especially important that they have
both knowledge of and are well equipped with relevant technology.
The selected panelists should be able to both communicate with the
parties in an efficient, modern way and also, as circumstances require,
pick up speed. There is a lot to expect from panelists without offering
them educational opportunities. To improve the services offered by
the panelists, an exchange of experiences among the panelists with
regard to the mechanism was facilitated by the center.180
178
D.H. Bernstein, Domain Name Dispute Resolution: A Model for the Future?,
International Conference on Dispute Resolution in Electronic Commerce, WIPO,
November 2000, ARB/ECOM/00/22.
179
Section 10 of the ICANN Rules. For further analysis, see D. Cabell, Domain
Name: World Standard Set for Key Internet Disputes, 6 Dispute Resolution Magazine,
No. 2, 2000, <http://www.mama-tech.com>.
180
The Center successfully organized the first Domain Name Panelist meeting
on November 7, 2000 at the WIPO Headquarters.
The registrar is uniquely characterized by his passivity. With the

introduction of competition into the Internet world, administrating
the registration of domain names is an increasingly important job.
But despite their influence, it is generally acknowledged that regis-
trars shall not bear liability in domain name disputes, and registra-
tion agreements181 invariably provide as such.182 Nor do registrars
have any responsibility to transfer or remove a domain name in dis-
pute; the status quo prevails pending the dispute and the domain
name is not put on hold or otherwise blocked until a decision is
rendered.183 Their most important role in the dispute mechanism is
to implement the decision while providing information, such as
verification of the relevant registration, for the panel when neces-
sary.184 Provided that registrars act responsibly within the ICANN
system and, in particular, carry out their responsibilities under the
UDRP, any question of direct or indirect infringement is of no seri-
ous concern to them.185
Lastly, no damages are awarded. Unlike the remedies available
through litigation, the remedies available under online procedure
shall be limited to either the cancellation or transfer of the domain
name registration or the rejection of the claim. There are no pro-
visions for damages, attorneys’ fees, or other injunctive relief. This
is reasonable. The mechanism is intended to be a simple and efficient
one, and the determination of monetary damages would add uncer-
tainty and complexity to both submissions and the panel’s decision.
It is, after all, administrative in nature and lacks the judicial capac-
ity of traditional methods. Where damages should be determined,
litigation may play its role as a complementary mechanism.
181
See, for example, Network Solutions, Inc. Domain Name Registration Agreement,
Article G, <http://www.quickstart.rccis.com>.
182
See further M. Barry, Is the InterNIC’s Dispute Policy Unconstitutional?,
<http://www.mids.org>, viewed on 1 August 1997.
183
See further Cabell, supra note 123.
184
During the procedure, the registrar shall be required to confirm relevant infor-
mation about the disputed domain name. For typical interactions between WIPO
and a registrar during the administrative procedure, see <http://www.arbiter.wipo.int>.
185
C. Gibson, Digital Dispute Resolution: Internet Domain Names and WIPO’s
Role, Computer Und Recht International, No. 2, 35 (2001).
188 chapter five
2.5. Analysis
While largely based on international initiative, the WIPO mecha-
nism emphasizes self-regulation. Though it serves a public function186
and requires the concurrence of every powerful party with an inter-
est in domain name policy,187 ICANN is a private corporation.
Furthermore, the service provider is a private body with its own
pleading rule, service rule, time limits, and decision-makers.
This mechanism got to its feet on 8 December 1999 and has since
achieved great international success. The service offered allows an
aggrieved trademark owner located anywhere in the world to chal-
lenge a third party’s registration of a domain name that incorpo-
rates or is confusingly similar to its trademark. There are no territorial
limitations for its players; anyone, anywhere can file the suit and the
case may be arbitrated by someone located anywhere on the globe.
There is also no limit to its scope. At the moment, the center is
working to offer services for disputes both for multilingual domain
names188 and in new gTLDs.189 Presumably, with the increasing case-
load and the broadened scope,190 the center’s responsibilities shall
expand further. Its international success is dependent upon two items:
the uniform application of the UDRP to all potential respondents
and the automatic execution of an effective remedy for successful
complainants.191 Just as Francis Gurry, Assistant Director General,
186
Management of Internet Names and Addresses, 63 Fed. Reg. 31, 741 (Department
of Commerce, June 10, 1998), available at 1998 WL 298883.
187
K. McCarthy, Who the Hell Does WIPO Think It Is?, The Register, August
16, 2000, at <http://www.theregister.co.uk/content/5/12638.html>.
188
Registration of multilingual domain names was made possible after testing in
Chinese, Japanese, and Korean.
189
New gTLDs were introduced in 2001, which include .aero, .biz, .coop, .info,
.museum, .name, .pro. This idea has been proposed by the IAHC, see J.B. Lucas,
IAHC Announces New Top-Level Domains: Recommends New Challenge Procedures,
2 BNA’s Elec. Info. Pol’y & L. Rep. 152–153 (February 7, 1997); H.N. Mewes, Note,
Memorandum of Understanding on the Generic Top-Level Domain Name Space
of the Internet Domain Name System, 13 Berkeley Tech. L.J. 235, 245 (1998).
190
The scope encompasses domain name disputes affecting other intellectual prop-
erty-related rights. See further the Second WIPO Internet Domain Name Process,
at <http://wipo2.wipo.int/process2>.
191
A. Christie, The ICANN Domain Name Dispute Resolution System: A Model
for Other Transborder Intellectual Property Disputes on the Internet?, International
Conference on Dispute Resolution in Electronic Commerce, WIPO, November
2000, ARB/ECOM/00/23. As said in the paper, the features derive from the fact
that ICANN has control over the “root zone” file on the “A root” server con-
taining the authoritative list of all TLDs, and has the sole power to decide on the
registrar for these TLDs.
stated, “The aim is to make sure that parties are treated fairly and
equally and that balanced decisions providing practical guidelines are
taken, which shall help bring some clarity in a relatively quick and
cheap manner.”192
The advantages of this online mechanism over traditional mech-
anisms are easily discernable. Many have come to laud the mecha-
nism, which they expect, and which has been shown to be able to
reduce the need for other potentially time-consuming and expensive
means of communications, in-person meetings, and hearings.193 Its
many advantages can be outlined as follows. Firstly, disputes can be
resolved fast, usually within about 45–60 days, which is remarkable
when compared to the time generally involved in litigation. Secondly,
the low fee is a plus. The online nature of the communications
involved and the reduction in document production have contributed
to its low cost. Simplicity is the third advantage this service offers.
Parties can easily access a web site, which provides guiding rules,
model complaints and responses, and other relevant information. The
clearly detailed nature of the rules in play, which set standards for
the relief possible, etc., makes the workings of the process both evi-
dent to involved parties and simple for the arbitrators to accomplish.
Because of its many advantages, some have suggested this mech-
anism should serve as a model for dealing with dispute resolution
in electronic commerce in general. Is this suggestion appropriate?
While facts at hand in abusive domain name registration cases, like
cybersquatting in three gTLDs and a few ccTLDs,194 are generally
cut and dry, it may be that where disputes in electronic commerce
192
P.M. Swamy, WIPO Handling First Cybersquatting Case, Bus. Line, December
15, 1999.
193
See further C. Gibson & J. Fulton, A Legal Technical Framework for the Online
Resolution of Domain Name Disputes, <http://www.ibm.nsysu.edu>.
194
After due consideration of the views expressed on the subject, the WIPO
elected to limit its mandatory general administrative procedure for the resolution
of domain name disputes to instances involving deliberate bad faith and abusive
domain name registration. These limitations were made in light of the weight of
opinion against mandatory submission to such a procedure in respect of disputes
over good faith rights to the use of the name in question. See further M.S. Donahey,
Resolving Certain Domain Name Disputes: The WIPO Recommendations, Journal
of Internet Law, <Http://www.gcwf.com>. The three gTLDs covered are: “.com”,
“.net”, and “.org”; the ccTLDs covered are: “.ac”(Ascension Island), “.io”(British
Indian Ocean Territory), “.nu”(Niue), “.sh”(St. Helena), “.tt”(Trinidad and Tabago),
“.tv”(Tuvalu), “.ws”(Western Samoa). In addition, a number of parties who have
filed proposals with ICANN for new generic TLDs have agreed to adopt the UDRP
for the resolution of domain name disputes in their registries.
190 chapter five
in general are concerned, the disputed facts are complicated. If that

assumption is accurate, then the expansion of the mechanism would
involve financial and time-oriented challenges in terms of adjusting
for, at the minimum, the discovery of facts. That said, the mecha-
nism is still at its beginning stage and its application could be extended
once proven operable. Both its successes and problem areas should
indicate opportunities for a future mechanism. Looking at its short-
comings alone may not only reveal warning signs but also give rise
to ideas for improving the approach taken towards future disputes
in electronic comments.
As with any new procedure, this mechanism has experienced a
few hiccups during its initial period of operations. They mostly con-
cern procedural issues. One point of contention has been the possi-
bility of complainants submitting a reply following initial response of
the domain name registrant, which the ICANN rules do not men-
tion. Most panels shall refuse to consider such replies: on the one
hand, to save time, and on the other hand, to reach balance between
the two parties. Their thinking is that the complainant should have
arranged all documents containing relevant facts and arguments when
initially submitting the case and, moreover, that limiting the time
for respondents has already served to balance party interests. Others
have been more lenient. One of the four service providers,195 National
Arbitration Forum (NAF) based in Minneapolis, Minnesota, revised
its supplemental rules to explicitly permit replies so long as they are
filed within 5 days and accompanied by a $ 150 filing fee. As this
inconsistent application of the UDRP rules may cause forum shop-
ping, UDRP rules should be amended to incorporate guidelines con-
cerning replies. Somewhat brighter guidelines should be promulgated
for ensuring consistent standards to govern domain name disputes.
Another problematic area for this mechanism is the elaboration
and effect of its final decisions. According to UDRP rules, the panel’s
195
For further information on NAF, see further <http://www.arbforum.com/
domains>. The other two providers are Disputes.org/eResolution Consortium
(Amherst, Massachusetts, and Montreal, Canada) and the CPR Institute for Dispute
Resolution. Additional centers might be approved at a later date. It is notable that
the new providers take differing approaches to the background of their panelists.
See further Providers Take Different Approaches, 2 World Telecom Law Report 2, 23
(2000); see also E-Conflicts Find an eResolution! Creation of a Canadian Virtual
Tribunal to Settle Domain Name Disputes, at <http://www.newswire.ca>.
decision shall provide the reasons on which it is based.196 This is

important to the whole mechanism. Although no precedent shall be
followed, the former decisions shall still provide an insight into the
dispute resolution procedures. The disputing parties could have some
guidance from the old cases and act in accordance with them.
Considering time limitations and similarities between the cases, insight
into past cases could help the panelists formulate decisions. Otherwise,
when there have been contradictory decisions made, panelists can
seek to gain a broad understanding of the different decisions made
and form a new attitude with which to make a new decision. Further-
more, consistency among the cases could help to build confidence
in the system.
Some have suggested an appellate panel be made available as part
of this online mechanism. The present author believes the adoption
of such a panel to deal with cybersquatting cases would be inappro-
priate for several reasons. For one, the adoption of appellate panels
would unnecessarily extend the time spent on individual cases and
raise their costs. Secondly, the relatively simple facts involved in such
disputes make the appellate panels unnecessary. Even when injustice
arises, litigation is available as the last resort. With that said, in the
case of the disputes in electronic commerce in general, it could be
beneficial to have such as a backing.
Several other criticisms of the online mechanism have been raised.197
Some are reasonable, some are not. Many criticize ICANN for a
lack of openness, accountability, and membership.198 Of course, the
need to maintain transparency and openness within the governance
of the Internet and associated dispute resolution process is significant,
but it is the view of the present author that the present mechanism
has largely accommodated this need. Its web site makes the process
for dispute resolution self-explanatory for involved parties by pro-
viding complete information including the UDRP procedures and
WIPO’s administrative services, relevant documents, the practical
196
UDRP Rules 15 (d).
197
See, for example, A.M. Froomkin, Major Flaws in the WIPO Domain Name
Proposal—A Quick Guide, <http://www.law.miami.edu>. Also, see Domain Name
System Information and News, at <http://www.isoc.org>.
198
See, for example, K. Coughlin, What a Tangled Web the Federal Government
Wove—ICANN Has the Unwieldy Task of Sorting Out Net Addresses, Start-Ledger,
October 3, 1999.
192 chapter five
flowchart and guide, a FAQ (frequently asked questions) section,

model forms, notice of pending cases, and full texts of published
decisions. It shall further provide multilingual presentations.199 The
fear of anti-trust is not justifiable based what was discussed above
regarding a uniform mechanism. Furthermore, it is claimed that the
mechanism is balanced towards the complainant since he shall have
time to prepare for the case before initiating it, while the respon-
dent will have a very limited time to prepare for the case. However,
as far as cybersquatting is concerned, this should not be a big prob-
lem. When registering the domain name in the first place, the reg-
istrant should have already considered its position.
It is true that basic privacy must be protected on the Internet.
However, the disclosure of the background information of the domain
name registrant is also important for locating the potential infring-
ing party. It is thus advisable to keep the registrant’s file confidential,
except when justified requests arise. Ultimately the registrar will have
to determine what constitutes a valid request, but such requests should
include a request to file a complaint or to determining the validity
of the details of the registrant.
The mechanism is fast and inexpensive compared to litigation, but
it cannot award monetary damages or make discovery. Litigation
could provide all of the discovery and protection of parties’ rights
one would expect in dispute resolution, but at a much higher cost
and in not so nearly an expeditious proceeding.200 Thus, both meth-
ods have their shortcomings. It is up to the complainant to decide
which aspect of the mechanism is most important to them and to
choose a mechanism accordingly.
There has been some concern about the potential favoring of
trademark holders.201 By the end of May 2000, 175 cases had been
resolved. Among these cases, 143 resulted in the transfer of a domain
name to the complainant; only 32 complaints were decided in favor
199
See further Gibson, supra note 185, at 36.
200
See further Information About Trademark and Domain Names, <http://
www.ladas.com>.
201
R. O’Keefe, Alternative Resolution for Domain Name Disputes, <http://infoeagle.
bc.edu>; see also Letter from F. Paul Bland, Jr., Staff Attorney, Trial Lawyers for
Public Justice, to Secretary, Federal Trade Commission, at 6 (March 20, 2000), at
<http://www.ftc.gov/bcp/altdisresolution/comments/blandjr.pdf>; L. Naylor,
Individuals Getting Wiped Out by WIPO, The Standard, September 5, 2000, at
<http://www.thestandard,net/article/display/0,1151,18239.00.html>.
of the respondents.202 Still, whether or not there is a bias has yet to

be proven. Interestingly enough, trademark owners complain that
the UDRP is fatally flawed since it requires complainants to under-
take the heavy burden of showing that the domain name holder’s
primary purpose is to extract money in order to support his own
arguments.203 A mechanism that involved parties would be equally
satisfied with is unlikely. We can only attempt to meet as many
demands as possible.
All in all, the present author wholeheartedly approves of the
progress this mechanism has brought about and also welcomes pos-
sible improvements to it. Particularly imperative to its success is
ensuring the WIPO Center can provide necessary technical support
to the whole mechanism by continually equipping it with the nec-
essary staff and facilities. At present, it is especially important that
the center also concentrate on promoting the clarification of rele-
vant rules for dispute resolution, as there is as yet no complete legal
guide for the processing of the cases. Although the new mechanism
is not legal in nature, as it does not have the power to legislate, it
the WIPO Center is still the leading dispute resolution service provider
for disputes arising out of the registration and use of Internet domain
names. As such, it should be able to exert an important influence
on the formation of new laws in this area.
3. Conclusion
When asked whether or not they would like to resolve disputes in

court or via traditional ADR mechanisms such as offline arbitration,
the users in electronic commerce respond in the negative. They
would prefer to resolve disputes entirely online—to have their com-
plaint filed online, their documents considered online, their hearing
held online, and their decision made online.204
202
See <http://arbiter.wipo.int>.
203
ICANN’s Dispute Policy Seen too Tough on Trademark Holders, Comm. Daily,
November 16, 1999.
204
W.K. Slate II, Challenges and Opportunities for Dispute Resolution in the
Era of Electronic Commerce, International Conference on Dispute Resolution in
Electronic Commerce, WIPO, November 2000, ARB/ECOM/00/7.
194 chapter five
Online facilities offer major opportunities for dispute resolution.

Some people are still in doubt as to whether online communications
can live up to their expectation.205 They may feel, for example, that
the intense chemistry experienced in situations of personal con-
frontation cannot be duplicated through the computer screen. But
those who know the Internet well believe online system can be used
both to assist the rational evaluation of the parties’ positions and
ultimately, to convey emotion, assess credibility, and form newly
enhanced relationships.206 Indeed, as the Internet is used more widely
and persons become more comfortable with it, traditional mecha-
nisms will fall behind online mechanism and ultimately fail to meet
the customers’ demands. New phenomena bring new demands. It is
thus wise to have an online mechanism to accommodate disputes
arising out of online business. Most international organizations have
realized this and are advocating an online environment for dispute
resolution.
Ongoing projects are leading the way ahead for a future mecha-
nism to deal with disputes in general. Although we would not blindly
advocate a complete substitution of the arbitral process by online
procedures in any situation, which would be totally unrealistic, there
are certain elements, at least in the ordinary arbitral process, which
could be conducted with the use of the modern technologies.207
Current projects are the specialized results of certain groups of peo-
ple,208 and there is at present no very coordinated effort among the
ADR community to study, address and respond to disputes in elec-
tronic commerce.209 Without such competition, the present author
can take liberties in conducting further research on governance and
regulation and making suggestions for the design of a new mecha-
nism for electronic commerce.
205
For further discussion of the advantages and disadvantages on online mech-
anisms, see L.Q. Hang, Comments: Online Dispute Resolution Systems: The Future
of Cyberspace Law, 41 Santa Clara L. Rev. 853–863 (2001); R.M. Victorio, Internet
Dispute Resolution (iDR): Bringing ADR into the 21st Century 1 Pepp. Disp. Resol.
L.J. 289–298 (2001).
206
D.R. Johnson, The Promise of Online Dispute Resolution, at <http://www.tool-
box.org/Tvtools/app-onlinedr.html>.
207
F. Gurry, The Dispute Resolution Services of the World Intellectual Property
Organization, 2 Journal of International Economic Law, No. 2, 397, 1999.
208
These efforts do not generally involve substantial input from consumer orga-
nizations.
209
R.C. Bordone, Electronic Online Dispute Resolution: A Systems Approach—
Potential, Problems, and a Proposal, 3 Harv. Negotiation L. Rev. 188 (Spring 1998).
CHAPTER SIX
A NEW MECHANISM FOR ELECTRONIC COMMERCE
1. Introduction
It is without doubt that electronic commerce shall constitute a major

part of future commercial transactions. With more and more trans-
actions consummated through the Internet, disputes shall definitely
arise more often and in a more diversified form than they have in
traditional business. At present, there are various levels of mecha-
nisms to resolve such disputes, the most formal one being litigation.
However, ADR mechanisms have been in existence since the wide-
spread emergence of international transactions. The advantages entailed
by ADR mechanisms are attractive to most transacting parties. While
litigation still takes an important position in dispute resolution, ADR
mechanisms have become more and more frequently employed. This
is explained by the quantity of cases resolved, the amounts entailed,
the frequency of provision of such services in contracts, etc. Further-
more, it is illustrated by a flourishing of projects providing such ser-
vices. In a word, ADR mechanisms are now on the right track.
It is true that many cases concerning electronic commerce have
been resolved in the present dispute resolution mechanisms. However,
the problems entailed in the present mechanisms have adversely
effected the final resolution of disputes in various aspects. Common
weaknesses identified by Consumer International (CI) include lin-
guistic limitations (most were English only); availability to certain
merchants only; consumer fees, which are higher than typical trans-
action values; lack of ability to fit the type of dispute resolution with
the type of dispute; limited incentives for compliance with online
ADR results; lack of transparency in respect of both dispute resolution
results and the credentials of dispute resolution officers; and failure to
include adequate consumer representation on the service’s governing
board.1 With the rapid development of electronic commerce, a new
1
Press Release: Consumer Redress in E-Commerce in Need of Attention: No
196 chapter six
mechanism accommodating the character of the new commerce is

urgently needed to serve the Internet society.
As discussed in former Chapters, various bodies have pursued a
new mechanism for electronic commerce, and some have achieved
great success. All their efforts constitute the basis for the present
study.
2. Online Mechanism for Electronic Commerce
For merchants, internal mechanisms can resolve complaints and pre-

vent disputes to a certain extent. However, when disputes do arise,
an external mechanism shall be necessary. The existence of a mech-
anism to specifically deal with disputes in electronic commerce shall
increase consumer confidence in the merchants’ credibility and thereby
enhance their reputation.
2.1. The Requirements of the New Mechanism

With the wide application of the Internet, transactions can be com-
pleted online much more efficiently, requiring less time and cost,
than transactions completed offline. The rapid development of online
consumer transactions is a result of this fact.
In line with this new development, ADR mechanisms should be
reformulated. Several requirements should be respected in formulat-
ing a new mechanism. Technical criteria should be established and
used as rules, guidelines or definitions of characteristics to ensure
that certain services are fit for their purpose. The mechanism’s com-
pliance with requirements can provide assurance about the reliability
or other characteristics of services. As far as a mechanism for electronic
commerce is concerned, the following requirements should be met.
First of all, the new mechanism should be able to resolve disputes
in a relatively inexpensive way.2 As we know, consumer transactions
Online Dispute Resolution Service Meets All Criteria for Good Practice, 11 December
2000, at <http://www.consumersinternational.org>.
2
Just as suggested in the recitals of Article 17 of the European Commission
Proposal on Certain Legal Aspects of Electronic Commerce in the Internal Market,
out of court dispute resolution should be particularly useful for some disputes on
the Internet because of their low transactional value and the size of the parties,
a new mechanism for electronic commerce 197
shall become an increasingly important form of future commercial

dealings. Generally speaking, the amount of money exchanged in
such transactions is rather low. A mechanism shall be meaningless
if the fee for resolving disputes is higher than the disputing amount,
which would deter consumers from submitting to dispute resolution.
Secondly, disputes shall be resolved in an efficient way. This
efficiency is economic, social, and practical in nature. Economic effi-
ciency concerns the first principle of cost minimization. Social efficiency
refers to the peaceful and quick resolution of disputes through an
environment from which the disputes arise. Practical efficiency con-
cerns speed. This mechanism should be able to handle disputes in
an expeditious manner. An efficient mechanism will facilitate simple
and fast proceedings.
The new mechanism shall be easy for both consumers and busi-
nesses to utilize, in complicity with the requisite procedures for filing
and resolving claims and, most importantly, expeditious in fulfilling
the task of resolution. With the development of modern technology,
the pace of modern society has become faster. Time means money.
When drawn out for too long, the value of a decision in a certain
dispute shall be minimized. Consumers shall also be reluctant to sub-
mit a case if it is expected to last very long. Thus, it is vital to
emphasize efficiency in creating the new mechanism. Reasonable
time limits should be set for considering disputes, submitting docu-
ments, rendering decisions, and complying with decisions.
Thirdly, the principle of fairness shall be applied to formulate rel-
evant procedures. While emphasizing efficiency, procedural fairness
and the protection of the rights of both parties should not be over-
looked. A balance should be reached between fairness and effectiveness.
This mechanism should treat both parties equitably and fairly. Once
deemed necessary, oral hearings, or the examination of witnesses
should not be excluded. But it should also be noted that if too many
procedural rules are added in an attempt to make the mechanism
fair, the mechanism could be too expensive or burdensome to be
effective. It seems that a balance should be struck. Actually, procuring
fairness shall not cause problem in realizing time and cost efficiency.3
who might be deterred from using legal procedures because of their cost. This
article can be found at <http://www.ispo.cec.be/ecommerce/legal.htm>.
3
See, for example, M.E. Schneider, Lean Arbitration, 10 Arbitration International,
No. 2, at 119 (1994).
198 chapter six
The principle of efficiency should be based on procedural fairness;

if fairness cannot be reached, efficiency shall mean nothing.
Fourthly, the principle of enforceability should be upheld. This
point is supported by former efforts to obtain a convention in rec-
ognizing and enforcing foreign decisions. The decision-making process
is important, but this process shall mean nothing if the final deci-
sion is not recognized or cannot be enforced. Rules intended to reg-
ulate decisions in a traditional way are unsuitable for the present
situation. Enforcement should be tailored to the online environment
and integrated into the whole dispute resolution mechanism. Fully
realizing final decisions will require international efforts.
Fifthly, in order to be successful, the new mechanism should also
incorporate the values and concerns of those who actually live in
cyberspace. The Internet has improved the traditionally weak posi-
tion maintained by the consumers. Consequently, while protecting
consumers on the one hand, the mechanism must on the other hand
turn its attention to the protecting the interests of merchants more
than dispute resolution mechanisms have in the past. The balanc-
ing of powers and the underlying interests of participants in the deal-
ings shall be vital to the fate of electronic commerce, which shall be
influential to the final adoption of the mechanism by both parties.
An interest-based approach should be taken. While the “real world”
dispute resolution mechanism remains a rights-and-power-based system,
an interest-based approach would prove more mutually satisfying,
value-creating, and “win-win” than any polarized, zero-sum rights-
based approach.4
Sixthly, the new mechanism should be made easily accessible and
convenient. Businesses participating in the mechanisms should pro-
vide links from their web sites; governments, consumer organizations,
trade associations, and other groups should also provide links to make
it easy for consumers to find help.5 The mechanism shall be view-
able in different ways and barriers to entry to this mechanism shall
not exist. Complainants shall have no problems in locating the mech-
anism and filing suits.
4
See L.R. Singer, Settling Disputes: Conflict Resolution in Business, Families, and the
Legal System, 1–14 (1994).
5
Alternative Dispute Resolution in the Context of Electronic Commerce, Trans
Atlantic Consumer Dialogue (TACD), Doc No. ECOM-12–00, February 2000.
Finally, modern technology shall be applied. The new mechanism

should be responsive to the peculiarities of life in cyberspace and
cognizant of the fact that life in cyberspace is different from life in
real space. It should make use of modern technology to realize the
former principles. The purpose of raising this recommendation to
the level of principle is to emphasize the influential status of tech-
nology in the new mechanism. The new mechanism must exploit
this status, while not invalidating real space.
2.2. The Form of the New Mechanism

Online electronic dispute resolution is intriguing. This process shall
allow for greater flexibility, more creative solutions, and quick deci-
sions. Moreover, its indirect nature will preserve the relationship
between the parties once the dispute is resolved. Efforts to do so will
bring to the forefront ADR options such mediation, arbitration, and
mini-trials.6
There is no doubt that the new mechanism is an interest-based
model of ADR. As the choice of ADR vehicle shall have a strong
bearing on the success of the new mechanism, it is important to
decide whether the initial target for this mechanism should be arbi-
tration, mediation, etc. The choice among those forms shall depend
on what the parties hope to achieve and what they are willing to do
to achieve the desired end. The features of cyberspace and technology
shall have an influence on the choice of a specific ADR vehicle.
To date, arbitration has proven more successful than other vehi-
cles because of its binding nature. Processes producing unbinding or
non-final decisions are not so attractive to either party and could if
parties are acrimonious and not willing to work together prove dan-
gerous. While they can agree to such processes, they can also break
such processes with no detrimental results.7 The evidence or rea-
soning in the decisions of such cases could have some positive effect
on later possible adjudicative procedures, but such processes have
adverse implications for the confidence of their participants.
6
R.J. Poslums, The Trillion Dollar Risk, Best’s Rev., September 1998, at 36,
110. See also H.H. Perritt, Jr., President Clinton’s National Information Infrastructure
Initiative: Community Regained?, 69 Chi.-Kent L. Rev. 1012 (1994).
7
See, for example, W.I. Fagan, Overcoming Impass: Are There Limits to Online
Mediation?, International Conference on Dispute Resolution in Electronic Commerce,
WIPO, November 2000, ARB/ECOM/00/15.
200 chapter six
The legal position of arbitration is representative of the legal posi-

tion of most kinds of contractual dispute resolution procedures.8
However, arbitration also applies to non-contractual issues. Indeed,
arbitrators have been broadly interpreting the parties’ agreement to
arbitrate all disputes arising out of or related to the contract to
include non-contractual issues. And national laws are increasingly
construed to permit the arbitrability of non-contractual issues.9 Thus,
in most situations, once valid agreements requiring arbitration in
case of disputes exist, both parties are obliged to arbitrate.10 The
court shall have no right to adjudicate in the first instance when a
valid agreement is in place. The decisions made afterwards shall be
binding and final.11 Only in limited situations can the court dismiss
such decisions.12
Arbitration has several notable advantages. For one, the applica-
tion of arbitration shall avoid the issue of deciding adjudicative juris-
diction, which simplifies the whole dispute resolution process. Another
point is that arbitration decisions may be more predictably recog-
nized and enforced in the territory of all trading nations on the globe
than judgments made by national courts.13 The neutrality of inter-
national arbitration is generally recognized. Arbitration has devel-
oped a relatively complete set of more or less legally based rules that
offer a better guide than other dispute resolution mechanisms do.
As arbitration is largely a process in which information is obtained
and evaluated, online tools shall provide especially significant oppor-
tunities for online arbitration. Another phenomenon is that courts
are increasingly willing to enforce arbitration agreements, even those
contained in consumer contracts of adhesion.14 For all of these rea-
sons, arbitration is appropriate for the new mechanism.
8
H.H. Perritt, Jr., Dispute Resolution in Electronic Network Communities, 38
Vill. L. Rev. 392 (1993).
9
J. Goldsmith & L. Lessig, Grounding the Virtual Magistrate, at <http://mantle.
sbs.umass.edu/vmag/groundvm.htm>.
10
See, for example, U.S. Arbitration Act 9 U.S.C. 2 (1990); Uniform Arbitration
Act 1, 7 U.L.A. 5 (1985); Restatement (Second) of Judgments 84 (1982).
11
See, for example, U.S. Arbitration Act (USAA), 9 U.S.C. 1–10 (1990); Uniform
Arbitration Act 1, 7 U.L.A. 5 (1985). See further A.W. Shilston, The Evolution of
Modern Commercial Arbitration, 4 Journal of International Arbitration, 45, 55 (1987);
A. Redfern & M. Hunter, Law and Practice of International Commercial Arbitration, 27
(London, 1991); H. Golsong, A Guide to Procedural Issues in International Arbitration,
18 International Lawyer, 633 (1984).
12
See, for example, Uniform Arbitration Act 2, 7 U.L.A. 60–68.
13
See, for example, Scherk v. Alberto-Culver, 417 U.S. 506 (1974).
14
See M.E. Budnitz, Arbitration of Disputes Between Consumers and Financial
While a lot of existing mechanisms take the form of arbitration,

they are not very well suited for the present situation. Criticism has
arisen concerning the high fee and increasingly lengthy processes of
arbitration. The traditional approach to international arbitration must
evolve if it is to be considered useful and applicable for electronic
commerce. As a result, international commercial entities are search-
ing for ways to increase management participation, eliminate pro-
cedural and other ancillary issues, and open up dialogue between
the parties on the business issues in dispute.15
2.3. The Conception of the New Mechanism

The designing of a new mechanism is a systematic project, which
requires cooperation from various related bodies. Many existing mech-
anisms are resolving disputes based on their original objectives. In
designing a new mechanism, it is vital to make it new.
There is no doubt that the new mechanism should be well suited
to disputes arising out of electronic commerce, which requires their
having a low administrative cost and sufficient effectiveness. The pre-
sent author believes this could be realized through the establishment
of an “international” center, like the present arbitration bodies,
offering administrative support for merchants and consumers. This
center shall be private and not-for-profit in nature. The term “inter-
national” should be emphasized here. The mechanism should be
truly effective in the borderless online marketplace, ensuring effective
resolution of disputes between parties in distant locations. Currently,
the ICC is examining its role as an international online ADR ser-
vice provider and plans to submit a proposal to its national com-
mittees in the near future.16 Given that the ICC hosts an international
commercial arbitration court, the new task could fit in the ICC’s
existing functions and profiles. Thus, instead of formulating a com-
plete new body, the ICC could take up this position.
Institutions: A Serious Threat to Consumer Protection, 10 Ohio St. J. on Disp. Resol.

267 (1995); B.G. Garth, Privatization and the New Market for Disputes: A Framework
for Analysis and a Preliminary Assessment, in S.S. Silbey & A. Sarat (Eds.), Studies
in Law, Politics, and Society, No. 12, at 367 (1992); J.R. Sternlight, Panacea or Corporate
Tool?: Debunking the Supreme Court’s Preference for Binding Arbitration, 74 Wash.
U.L.Q. 637 (1996).
15
S.B. Goldberg, E.D. Green & F.E.A. Sander, Dispute Resolution, 445 (Little,
Brown & Company (Canada) Limited, 1985).
16
See further Comments of the USCIB: Online ADR: the Business Community
is Acting Now!, April 17, 2000, at <http://www.uscib.org/policy/adrusgfl.htm>.
202 chapter six
Different from the existing mechanisms, this center shall inten-

sively employ a computerized, online system.17 The information tech-
nology represented by desktop computers, the Internet and other
wide area networking techniques, email,18 electronic discussion groups,
and electronic publishing through the WWW shall be fully applied
in this mechanism. Unlike the ongoing projects discussed in Chapter
Five, this mechanism shall be comprehensive in nature, offering an
array of public online dispute resolution processes. Everything that
was previously done on paper and through slow and complex mech-
anisms could be done in a digital format, through standardized
processes which are easy for users to use and which will be auto-
mated in most stages.19 This idea has been reiterated on various
occasions by different bodies. For example, the United States Council
for International Business (USCIB) applauds the efforts of the US
Government to promote effective online ADR as the appropriate
means to resolve consumer complaints online.20 Furthermore, since
in most cases full-blown proceedings are not in the interests of both
parties in electronic commerce, a “simplified” arbitration process shall
be employed.
This center shall undertake the same administrative tasks as other
arbitration bodies do: the receipt and registration of claims; the
administration of the claims throughout the proceedings;21 the main-
tenance of a list of qualified “arbitrators” and the selection, by apply-
ing agreed criteria, of a sole arbitrator or arbitrators from the list;
the provision of legal, technical, and administrative support to the
arbitrators during the proceedings, etc.22 For the time being, various
17
For general discussion on online mechanism, see E. Katsh, Online Dispute
Resolution: Some Lessons from the E-Commerce Revolution, 28 N. Ky. L. Rev.
816–818 (2001).
18
Email has great potential as a mechanism for intra-organizational dispute res-
olution or group problem solving.
19
Electronic Arbitration Tribunal an Alternative Dispute Resolution for SMEs
(E-Arbitration-T), Technical Annex: Part B, at <http://www.diritto.it/articoli/infor-
matica/arbitration.html>.
20
With a membership of over 300 global corporations, professional firms, and
business associations, USCIB advances the global interests of American business
both at home and abroad. It officially represents US business positions in the
main intergovernmental bodies, and vis-à-vis foreign business communities and their
governments.
21
This could include services such as arranging for spaces for conducting the hear-
ings, obtaining stenographers, and receiving and distributing the arbitrators’ fees.
22
See further V. Heiskanen, Dispute Resolution in International Economic Com-
merce, 16 Journal of International Arbitration, 38–39 (1999).
rules can be chosen to govern procedural issues, for example, the

rule of ICC or AAA international arbitration rules; the center could
also formulate its own rules.
Thus, once a dispute arises, a complainant could, making use of
the filing form in the web site, bring the case to the center. The
center shall review the case first to decide whether this case belongs
to its scope. If it does, then the center shall on the one hand send
a list of arbitrators to the complainant and, on the other hand,
inform the defendant of the suit and the selection of an arbitrator.
The arbitral tribunal shall consist of one or three arbitrators selected
by both parties. In the case where there are three arbitrators, each
party shall choose one and the center shall appoint a chairing arbi-
trator with the consent of both parties. In case of one arbitrator,
the center shall appoint the arbitrator with the consent of the par-
ties. If no agreement can be reached between the disputing parties
concerning the sole arbitrator or the chairing arbitrator, then the
center can make final decisions taking into account the preference
of the parties and relevant circumstances. Depending on the circum-
stances, the parties may challenge the appointment of an arbitrator.23
Once the arbitrators have been chosen, the documents shall be trans-
ferred and a formal procedure shall start. This procedure shall largely
exist in the form of online written documents, but if the situation
requires it, then teleconferencing or electronic forms of communi-
cation shall be used.
The decision shall be made within a few days, whatever the
imposed time-frame demands. However, the proceedings may draw
to a close for different reasons: for example, the two parties reach
an agreement and the complaint is withdrawn. Once a decision is
made, the losing party is obliged to comply with this decision. The
coercive nature of the decision shall be ensured through the rele-
vant national courts.
The decision shall be considered final in effect, but this procedure
shall not take the place of litigation. Theoretically, either party can
choose any method to resolve disputes, but this right is actually
reserved for consumers. Once accepting the service of the mechanism,
merchants shall make this clear on their web sites; only consumers
23
For example, the relationship of the arbitrator with one of the parties, the
neutrality of the arbitrator, etc.
204 chapter six
can then decide which means to apply in their disputes. The validity
of the decision made could be reversed by a court decision at a later
stage based on legal grounds. This is reasonable considering the fun-
damental position maintained by the system of litigation.
2.4. How to Realize the “Online Mechanism”

An online mechanism offers a lot of advantages to traditional mech-
anisms. First of all, so long as they have the necessary facilities, access
to this mechanism shall be provided to every individual in dispute.
Provided transmission is efficient, the process is fast, which ultimately
cuts down on costs: the traditional courtroom is not necessary; trav-
eling shall be significantly minimized;24 the amount of hiring and
retaining of lawyers is reduced. The procedures can be carried out
without the presence of both parties. Passing documents back and
forth through the Internet, parties can reserve time for thinking over
specific issues and formulating rational opinions. The persistence of
a record of every communication shall also make parties think seri-
ously about what they send.25
To design an online mechanism is not a novel or revolutionary
idea, and plenty have developed such mechanisms for limited pur-
poses. Adjudication is no more difficult to implement electronically
than rulemaking. The novelty resides in the extended application of
online facilities to potentially all disputes arising out of electronic
commerce.
Publicity is necessary to ensure a smooth transition to the new
online mechanism. No matter how brilliant the mechanism may be
in theory, if it cannot garner legitimacy from those who will be rec-
ommending it, it will fail in the end. Users should have basic knowl-
edge of the center or this center shall be opted out of the game.
Furthermore, this mechanism should be respected by national sov-
ereigns, which could afford immeasurable support. Accordingly, dis-
24
See I.T. Hardy, Symposium: Electronic Communications and Legal Change:
Electronic Conferences: The Report of an Experiment, 6 Harv. J. Law and Tech.
233 (Spring 1993).
25
An online dispute resolution process shall produce an automatic record and
transcript of the conversations and serve to keep both parties honest. See further
M. Lauritsen, Settling Differences Through Interactive Multimedia Networks, at
<http://www.law.vill.edu/ncair/disres/LAURIT.HTM>.
semination of information concerning the mechanism should go well

before the whole mechanism takes foot. The center should at once
formulate arbitration protocols, covering the nature of the mecha-
nism, participants, procedures, etc., and prepare guidelines and codes
of conduct to make the mechanism understandable for consumers
and merchants. Publicity should involve bulk brochure mailings, pro-
paganda through TV, radio or the Internet, etc.
Along with propaganda, it is important to cultivate a pool of per-
sonnel who have enough legal training and, more importantly, are
equipped with necessary technical knowledge. The fate of this mech-
anism is in the hands of its personnel, from those who provide admin-
istrative services on a daily basis to the arbitrators making decisions.
With preparatory work out of the way, a web site should be devel-
oped to announce the center. Information provided on the site should
include the idea, activities, procedures, costs, manner of decision
making, and other relevant legal information regarding the mecha-
nism.26 Most importantly, it should provide users with knowledge of
how to file a suit as well as subsequent procedures. It should offer
guidance in a transparent way, preventing confusion related to the
eventual proliferation of competing schemes.
Furthermore, relevant arrangements shall be made to ensure this
mechanism has a widespread presence on the web. Some symbol
should be developed to make this mechanism distinct and easily
identifiable. Merchants should be required to post a warning mes-
sage on their own web sites concerning whether they accept this
mechanism or not. The web site of the center shall be connected
to the site of merchants if the merchant’s agree upon it. When con-
sumers click on the button accepting this mechanism, the agreement
to arbitrate is reached. Such an implied agreement shall cause no
problem in legal sense. Furthermore, governments, consumer orga-
nizations, trade associations, and others should also provide links to
make it easy for complainants to locate this web site. Even individ-
uals could be encouraged to place this web site as a link on their
web pages to ensure easy access when dispute arises.27
26
For this purpose, an online library can be created to house documents rele-
vant to the mechanism.
27
This resembles the idea promoted by the Electronic Frontier Foundation (EEF)
which was for producers of web pages to place a little blue ribbon in the corner
of their page serving as a link to the EEF. As a result of this publicity, the EEF
206 chapter six
The methods for the filing, pleading, discovery, etc. shall be for-
mulated. To realize online filing is not difficult. A complete set of
complaining forms, replying forms, forms for selecting arbitrators,
etc., shall be provided on the web site and all of these can be down-
loaded for practical purposes. Pleading is also easy since it simply
involves the exchange of electronic materials providing facts and legal
theories supporting or refuting a claim and the response. Nor should
a problem exist in realizing discovery online, at least in the form of
interrogatories.
The trial function should be easily formulated as well. While mod-
ern litigation is becoming more and more focused on discrete issues
decided largely on paper submissions,28 online trials should step in
to make modern technology when paper cannot do the job. Besides
online graphics, images, charts, heat maps, timelines, decision trees
and graphs, multimedia facilities like multithreaded forum or group
software, document software, Internet relay chat, list servers, web
server hosting, teleconference,29 recorded audio and video testimony
should be made use of in online trials.30 When technical or legal
expert opinions are needed, they can be submitted by E-mails. The
exchange of documents between parties online is the first step towards
the final adoption of this online mechanism. Of course, all of these
tasks will still need to be performed by people in a physical location.
Once a case is submitted, a separate cyber-room is created for all
the cyber-procedures to follow this submission. To ensure security,
several techniques can be used. The web site can be established by
using currently available software. For example, a software environ-
ment called MUDs or Multi-User Dimensions can be created. Each
MUD has a unique Internet address. Procedures can be implemented
became the fourth most linked-to site on the entire World Wide Web by February
1997. See further The Electronic Frontier Foundation, Action Alerts-Local, State, Non-US &
Global, at <http://www.eff.org>.
28
See further R.L. Marcus, Completing Equity’s Conquest? Reflections on the
Future of Trial Under the Federal Rules of Civil Procedure, 50 U. Pitt. L. Rev. 725,
731–735 (1989).
29
Each party shall sit before a computer equipped with sound facilities and a
video camera. On their screen appear frames containing the faces of the other par-
ties, while the audio software receives one party’s spoken words and relays every-
one else’s.
30
Internet applications include e-mail, bulletin boards, file transfer protocol, tel-
net, WWW, etc. For a concise description of each, see further N. Nathanson, The
Laws of the Internet 4–8 (1997).
to prohibit entry to those who are undesirable and allow entry to

those who have met the minimum qualifications. Meanwhile, a sep-
arate place can be created wherein people can give comments.31
More than one space can be organized to deal with particular issues
or to allow particular persons to interact.32 Topics may be organized
by a designated facilitator or be self-selected by participants. Participants
can choose to respond in one or more spaces.33 Access and partic-
ipation can be controlled with several parameters.34 Secure discus-
sion shall possibly help both parties and the arbitrators gain deeper
insight into the case. Furthermore, this space can provide the oppor-
tunity to air and discuss some issues not considered relevant in the
case but important to the parties.35
Since the parties would like to ensure their confidentiality in the
procedures, a neutral description of involved parties, with their names
excluded, could be posted. Anyone interested in the discussion could
have no problem accessing this place. To further secure the discus-
sion, the postings can be edited first or an offline dialogue can be
conducted for clarification. In this space, two specific groups of peo-
ple could be identified. One group is the experts, who can give
advice or decisive opinions for a particular case. Another group could
be the users of similar or the same goods or services, who can share
their experience. The exchange of information among them improves
the understanding of certain goods or services. Once concern over
these services appears serious enough, pressure could be exerted on
behalf of the interests of this group. Individual disputes could thus
be raised to a collective process, which could well protect consumers
31
This could be like a Usenet newsgroup, a discussion area designed to allow
the exchange of ideas. See E.B. Davis, A Look at One of the Most Popular Services
in Cyberspace: Usenet, 42 Fed. Law. 15 ( July 1995).
32
One possible function is to realize collective action. If one consumer has a
problem with the merchant, it might be not wise for him to seek damages of $ 50
through a process that would cost him $1000 or more. But it shall be reasonable
if more consumers are attracted to take collective action against the merchant.
33
W.J. Olmstead, Electronic Dispute Resolution, an NCAIR Conference,
Washington, DC, May 22, 1996, at <http://mantle.sbs.umass.edu/vmag/OLMST.
HTM>.
34
For example, participation in the electronic forum can be limited to a partic-
ular group. The ability to read or write can be controlled. The entire public can
be allowed to see a dialogue, but participation can be limited.
35
See further Alternative Dispute Resolution in the Context of Electronic Commerce,
Trans-Atlantic Consumer Dialogue (TACD), Doc No. ECOM-12–00, issued in
February, 2000.
208 chapter six
at large.36 This could in turn reduce the possibility of similar cases

arising in the future.
2.5. The Ensuing Arrangement for the Online Mechanism

It is very important to make this mechanism acceptable to the Internet
society as a whole. Gaining user confidence is vital. One way of
gaining confidence could involve attaining government certification
of the program. A governmental seal could be displayed on the pro-
gram’s web site to prove it meets government-set accreditation cri-
teria. Of course, as an ADR mechanism, government intervention
shall be limited. In the present case, government works simply to
provide reassurance to users and thereby to promote the mechanism.
Ultimately, however, it is the mechanism itself that will determine
its fate. Making reasonable arrangements for the mechanism is essen-
tial and it is the purpose of this chapter to look further into such
arrangements.
2.5.1. Committee of the Center

This mechanism should be independent. Bearing this in mind, a
problem involves determining who should be represented in the
center and who should be responsible for setting up this mechanism.
A mechanism set up unilaterally by a specific group of participants
in the network may appear to benefit this group. As discussed in the
principles for establishing the new mechanism, interest-balancing shall
be necessary in detailing the procedures.
If the interests of all parties involved in the networks are taken
into account, collective dispute resolution processes will have better
standing and shall in the end be well accepted by the Internet soci-
ety in general. In order to gain concurrence in the new mechanism,
coalitions should be built.37 Two specific groups should be repre-
sented in the mechanism. A consumer protection group is of course
36
See further M.E. Schneider & C. Kuner, Dispute Settlement in International
Electronic Commerce, 14 Journal of International Arbitration, No. 3, at 25–27, (1997).
37
Coalitions could involve cyberspace citizens, to system operators, to national
governments, etc. See further W.L. Ury et al., Getting Disputes Resolved: Designing
Systems to Cut the Costs of Conflict, 69 (1988); see also C.A. Costantino & C.S. Merchant,
Designing Conflict Management Systems: A Guide to Creating Productive and Healthy Organizations,
76 (1996).
an important group; stakeholders of the Internet society shall be

another important group. The latter involves several different types
of sub-groups, which include Internet Service Providers, electronic
commerce companies (credit card companies, telecommunications
companies, airlines, tourism companies, etc). Besides the groups above,
other parties not directly involved in the disputes, like nonprofit orga-
nizations, or for-profit entities could also be represented in the center.
Should representatives from governments be listed? Representatives
from governments shall strengthen the basis of the center. The pri-
vate sector’s voluntary efforts for resolving disputes could lack sufficient
persuasion in generating strong confidence from consumers. The rep-
resentatives from governments are neutral in the center, but could
be a sign showing the support from the governments, which shall
add to the confidence of consumers. This mechanism shall not thrive
in an atmosphere deprived of the threat of state-imposed sanctions.38
2.5.2. Location
Normally, the attitude of the location and the legal atmosphere shall
influence the choice of the parties. In the present case, most proce-
dures are carried out in cyberspace, so location is not so important.
However, the parties shall sometimes still have certain anxieties
regarding location. It is thus sensible to station this center in a neu-
tral state, like Switzerland, while facilitating arbitration anywhere in
the world. Just like the practice of the ICC, such arbitration shall
have no “home base.”
2.5.3. Language
Language shall not cause any problem during this procedure. The
language used in the transaction could be applied in this mechanism
as well. While this could be burdensome for the center, necessary
networks could be formed to undertake some of the translating tasks.
The representatives of a consumer protection group sitting in the
committee of the center shall also provide necessary assistance during
38
As some disputes can be resolved voluntarily only because of the possibility of
judicial remedies, the effectiveness of ADR mechanisms may depend on the prac-
tical availability of more conventional courts as a last resort. See further H.H.
Perritt, Jr., Jurisdiction in Cyberspace: The Role of Intermediaries, in B. Kahin &
C. Nesson (Eds.), Borders in Cyberspace: Information Policy and the Global Information
Infrastructure 164 (Cambridge, MA: MIT Press 1997).
210 chapter six
the whole procedure, which could involve language services. Further-

more, the mechanism could be linked to automatic translation facil-
ities, which with the present technology should not cause any problem.
This is evidenced by the experience of the Federation of European
Direct Marketing (FEDMA).39
2.5.4. Administrative Fees and Other Relevant Expenses

This mechanism shall not be tremendously costly. As almost all the
activities shall be done online, the ensuing fee for processing a case
shall be much lower than the cost of normal procedures. Furthermore,
the traditional secretary stationed in a state could be replaced by
online facilities, which could largely reduce administrative fees.
Expenses shall include the fee paid to arbitrators and administrators
of the center and the fee for training and maintaining the center’s
web page. Other miscellaneous fees could include advertising and
propaganda fees, evaluation fees, etc.
Obtaining the necessary finances for carrying out its online activ-
ities has been important to this mechanism. Of course, service shall
be free to the users at the initial stage to encourage the adoption
of the mechanism. But like most other arbitration centers, this center
should be able to support itself financially. The center must receive
the relatively low fee to maintain normal operation and pay arbitrators.
Levying on service providers and state funding could help to
develop the mechanism. The system operators could be charged some
amount. The national sovereigns could be persuaded to pay a small
price to lessen the burden their national judicial systems feel due to
the service of the center. Additionally, the center should have a well-
organized financial framework, accomplished with the following goals
in mind.
Firstly, the center could charge companies carrying out electronic
commerce certain fees. As the center could provide companies with
a guarantee attractive to their consumers, thus pushing consumers
to transact with these companies, it deserves these companies’ financial
support. For its periodic maintenance and publicity, both important
to related businesses, the center should be supported by the world
of electronic commerce merchants.
39
For information on FEDMA, see <http://www.fedma.org>.
Secondly, consumers should take some responsibility for support-

ing the center. When purchasing a product online, consumers shall
have the right to decide whether or not they will enjoy this service.
The same good or service should be more expensive if this service
is adopted than if it is not. If the service is not chosen and disputes
arise, consumers shall either seek other means of resolution, which
are likely to require high fees, or resort to using the center’s ser-
vices at a raised price. Since in the latter case consumers would need
to undertake the legal risks and costs associated with crossborder lit-
igation, they are likely to initially opt for relevant service by click-
ing on the appropriate button. Companies send the customers’ fees
onto the service at regular basis, forming a pool to cover its expenses.
Once proved successful for disputes in electronic commerce, the
mechanism shall develop further. The private, not-for-profit nature
of the center could change. While above means for obtaining fees
can be maintained, the users could also be obliged to pay a certain
fee when filing a complaint. The fee shall be kept low, commensu-
rate with the value of the disputes. Once the complaint is accepted
for arbitration, fees in addition to those already discussed shall be
requested of all involved parties.
2.5.5. Selection of Decision-makers

As discussed above, decision-makers or so-called arbitrators can be
important in this mechanism. One or three arbitrators shall be
appointed to a case. In case of three, equal representation should
be given to both parties. If one is appointed to the case, both par-
ties should be consulted. Upon appointment, the arbitrators shall
have full power regarding the case and have a final say in the whole
procedure. Arbitrators should obviously be qualified, but what shall
their qualifications be? As disputes in electronic commerce could
involve various states, candidates should represent many countries.
If the parties can choose arbitrators who understand their own lan-
guage and culture, time and money shall be saved and efficiency
can be realized.
The efficiency of the whole mechanism largely depends on the
arbitrators. They should not be too rigid in their approach to the
procedures. While observing the basic principles of due process, they
should be able to make use of other possible solutions. Besides hav-
ing basic professional knowledge, the present arbitrators should be
212 chapter six
familiar with cyberspace and be able to skillfully apply modern tech-

nology. Arbitrators could be lawyers, but it would be preferable for
them to have a significant involvement in business and technical
communities.40 If arbitrators are not familiar with cyberspace, it will
be difficult for them to make rulings reflective of the customs and
practice that has developed there. This, in turn, will undermine the
legitimacy of the mechanism in the same way that traditional terri-
torial law has lost credibility in its attempt to resolve disputes aris-
ing in virtual communities.41 Indeed, with further development of
modern technology and its further impact on everyone’s daily life,
such requirements will become meaningful to all other dispute res-
olution mechanisms.
Another important quality for arbitrators is their neutrality42 and
independence, especially since in the new mechanism parties cannot
personally evaluate the arbitrators. Arbitrators shall have consider-
able discretion with respect to procedural details in the new mech-
anism. To deal with complicated situations in a way that will garner
the trust of the users of this mechanisms, their neutrality is key.
Their independence could be procured by various means, for exam-
ple, by security of tenure through a long-term contract.
One other factor to note is that all the legal traditions and cul-
tures from around the world shall be represented in the list of arbi-
trators. With enough choices available, differences in existing systems
could be reconciled. A specific group of experts experienced in all
manners and forms of disputes shall further ensure fair and com-
plete adjudication.
A training program could be created to develop a pool of qualified
arbitrators. A handbook could be published to give an overview of
training requirements, complaint and decision handling procedures,
and issues of jurisdiction, enforceability, and the like.43
40
U.S. Gen. Accounting Office, Employment Discrimination: How Registered Representatives
Fair in Discrimination Disputes 2 (1994).
41
See M.E. Katsh, The Electronic Media and the Transformation of Law, 53–54 (1989).
42
Goldberg v. Kelly, 397 US 254, 271 (1970); see also R.C. Reuben, Constitutional
Gravity: A Unitary Theory of Alternative Dispute Resolution and Public Civil Justice,
47 UCLA L. Rev. 949, 1058 (2000).
43
See further The Virtual Magistrate Project, Virtual Magistrate Handbook for
Magistrates, at <http://vmag.vcilp.org/magis/vmhdbook.html>.
2.5.6. Possible Remedies

There are no universal rules establishing the remedies for an inter-
national arbitration. The remedies to be included in the award have
to be considered in the light of: (a) the parties’ arbitration agree-
ment, including the rules which they have agreed should apply to
the arbitration; (b) the law applicable to the substance of the dis-
pute; (c) the law applicable to the arbitration proceedings.44 Applicable
law to the dispute is the most important in determining possible
remedies. There are several possibilities for an applicable law regime.
One possibility is to let the arbitrators apply extant national choice-
of-law rules to determine applicable law. This is not a good idea
since it is unclear which country’s choice-of-law rules would apply
to any particular dispute. A different solution is a uniform choice-
of-law regime. This can also cause problems since a choice-of-law
process in cyberspace will invariably be difficult. Rather than estab-
lishing a choice-of-law regime, a third solution seems more feasible
by establishing a uniform law—the so-called “lex informatica”. This
solution shall be further discussed in Part 3.2 of the same Chapter.
Generally speaking, the following remedies could be employed:
removing a post; forbidding a party from sending or posting mes-
sages for a specific amount of time;45 imposing permanent banish-
ment; forcing a disputant to post an apology or a correction of some
specified sort; injunctions; remedial or/and punitive damages; ter-
minating access; publication of improper conduct; antitrust action,46
etc. Arbitrators can choose one or more of these remedies.
44
M. Huleatt-James & N. Gould, International Commercial Arbitration: A Handbook 97
(2nd Ed., LLP Asia, 1999).
45
Expulsion is the ultimate mechanism of compliance where membership in a
trade association is a prerequisite to the right to pursue a trade.
46
This could be caused when a certain act leads others to avoid services. For
example, Microsoft developed a browser, Internet Explorer, incorporated in its
Windows operating system. This led to the now well-known antitrust case that the
government successfully brought against the company. United States v. Microsoft Corp.,
97 F. Supp. 2d 59 (D.D.C. 2000) (order); United States v. Microsoft Corp., 87 F. Supp.
2d 30 (D.D.C. 2000) (conclusions of law); United States v. Microsoft Corp., 84 F. Supp.
2d 9 (D.D.C. 2000) (findings of fact); Microsoft Corp. v. United States, 121 S. Ct. 25,
25 (2000).
214 chapter six
2.5.7. Technical Support

This mechanism is highly technology-oriented. Just as the quality of
a teleconference, for example, depends upon the standard of the
audio and video production equipment connected to the network,
the application of relevant technology shall largely determine this
mechanism’s success. As shown by the existing projects, privacy47
and authentication, confidentiality and security, identification of ori-
gin of problems, and the integrity of the process shall become issues
of great importance while applying this mechanism. With the new
mechanism combining all available technology, the entirety of the
proceedings shall be fully recorded and replayed anywhere at any
time by parties having the ability to decrypt them.48 A secure multi-
agent platform shall be designed for this purpose. Thus, while offering
legal services, the center should be well equipped with technical
experts.
2.5.8. Arbitration Agreements

Arbitration agreements constitute the basis of arbitral procedure.49
In electronic commerce, arbitration agreements are also necessary.
For the present mechanism, merchants in the first place accept the
procedure and declare that they have done so. Consumers are in
the passive position of agreeing with or refusing the merchant’s choice.
They have the right to use this mechanism or any others from the
outset and are not restricted or blocked from resorting to other
recourse available if they are not satisfied with the outcome. However,
once consumers choose this mechanism, merchants shall be obliged
to follow its procedure.
Internet technology makes arbitration agreements extremely easy
to impose. To constitute lawful arbitration agreements merchants
should list the declaration of the mechanism in the “Terms and
Conditions” section of their web sites; include the agreements with
47
For discussion of online privacy issues, see generally A. Bacard, The Computer
Privacy Handbook (1995); J.R. Reidenberg & F.O. Gamet-Pol, The Fundamental Role
of Privacy and Confidence in the Network, 30 Wake Forest L. Rev. 105 (1995);
H. Green et al., A Little Privacy, Please, Bus. Weekly, March 16, 1998, at 98; National
Info. Infrastructure Task Force, Options for Promoting Privacy on the National
Information Infrastructure , April 1997, at <http://www.iitf.nist.gov/ipc/privacy.htm>.
48
See further J. Arsíc, International Commercial Arbitration on the Internet: Has
the Future Come Too Early?, 14 Journal of International Arbitration, 213 (1997).
49
Perritt, supra note 38, at 186.
the product, for example, in the product’s box; and enable “click-
wrap”—a process that involves a consumer clicking an “I agree”
button in a pop-up box on a computer screen before downloading
or installing software.50 The three means above can be used indi-
vidually or collectively in transactions and each means shall be con-
sidered as constituting valid and enforceable arbitration agreements.51
2.5.9. Discovery
Clearly accounting for various aspects of the case shall help in reach-
ing a fair and accurate trial outcome.52 This account appears even
more meaningful in the case when one party is equipped with a
bulk of relevant information, while the other party is lacking such
information.53 Consumer transactions typically give rise to such cases.
Consumers know that goods are in some way or another defective,
but they do not have access to records concerning the design or
manufacturing of the goods, etc. Merchants usually have such records
on hand and can thus easily compile information for their case.
Discovery is necessary for consumers who are in the weak position
in this case. No other mechanisms have permitted the extent of dis-
covery that litigation has, which has called into question the extent
of discovery in ADR mechanisms.
In the present mechanism, necessary discovery should be provided,
but within a limit. However, the approach to discovery differs enor-
mously around the world. The situation becomes even more difficult
when the parties’ legal advisers try to insist on adhering to proce-
dures relating to discovery which are applicable to proceedings in
50
See further R.N. Dreben & J.L. Werbach, Top 10 Things to Consider in
Developing an Electronic Commerce Web Site, 16 Computer Lawyer No. 5, at 19
(1999).
51
Some scholars might argue that some of the means are unenforceable, but
many software licensing lawyers take the opposite attitude. For further discussion,
see M.A. Lemley, Beyond Preemption: The Law and Policy of Intellectual Property
Licensing, 87 Calif. L. Rev. at 120 n. 20 ( January, 1999); see also Klocek v. Gateway,
Inc., 104 F. Supp. 2d 1332 (D. Kan. 2000); B. Kuklin, On the Knowing Inclusion
of Unenforceable Contract and Lease Terms, 56 U. Cin. L. Rev. 845 (1988). Concerning
the issue of compliance with Article II of New York Convention, see infra notes
69–77 and accompanying text.
52
Hickman v. Taylor, 329 US 495 (1947).
53
C.A. Wright & K.W. Graham, Jr., Federal Practice and Procedure: Federal Rules of
Evidence, 5422, at 674 (1980); E.G. Thornburg, Sanctifying Secrecy: The Mythology
of the Corporate Attorney-Client Privilege, 69 Notre Dame L. Rev. 157, 203 (1993).
216 chapter six
courts in their home countries. The practice of NAF could provide

a good example: formulation of rules governing discovery.54 According
to the NAF Code of Procedure, discovery is allowed, but should be
filed within a certain period of time.55 A party may request the dis-
closure of documents, sworn answers to not more than twenty-five
written questions, or one or more depositions or any other discov-
ery before a hearing where (1) the information sought is relevant to
a Claim or Response, reliable, and informative to the arbitrator; (2)
the cost is commensurate with the amount of the Claim; and (3) the
Request is reasonable and not unduly burdensome and expensive.56
2.5.10. Formulation of Final Decision

A final and well-reasoned decision shall be made within a certain
time limit. Arbitrators should present at least some of their reason-
ing in the final decision.57 The AAA Statement of Principles, for
example, suggests that the arbitrator should offer a brief written
explanation of the basis for the decision at the timely request of
either party.58 It is true that written reasoning shall help people
understand the final decision and guide their conduct in the future.
As there are still no generally recognized rules in electronic com-
merce, this reasoning shall be especially helpful in clarifying the rules.
The extent of reasoning shall be at the discretion of the arbitrators.
2.5.11. Enforcement of Decisions

An indispensable element of arbitral culture is the expectation that
arbitral awards are final and will be honored by the parties.59 Though
54
Another example is the IBA Rules on the Taking of Evidence in International
Commercial Arbitration adopted in June 1999. The document is available at
<http://www.ibanet.org>.
55
As identified in the NAF Code of Procedure, the requesting Party shall serve
on all other parties with a copy of the Request no later than thirty days before
the date of a participatory Hearing or for a Document Hearing, ten days from the
date of the notice of the selection of an Arbitrator.
56
See further NAF Code of Procedure, Rule 29 (B), (C).
57
See, for example, Better Business Bureau, Rules of Arbitration, 20 (1998), at
<http://www.bbb.org/complaints/bindarb.asp>; see also the CPR Institute for
Dispute Resolution Rules, which require that the arbitrator shall state the reason-
ing on which the award rests unless the parties agree otherwise.
58
American Arbitration Association, Consumer Due Process Protocol: Statement
of Principles of the National Consumer Disputes Advisory Committee, Principle 15
(1998), at <http://www.adr.org/education/consumer_protocol.html>.
59
H.M. Holtzmann, The Permanent Court of Arbitration and the Evolution of
appeals can be made to the court on grounds of mathematical mis-

takes or other technical problems, decisions made by this mecha-
nism should be binding for both parties. Thus, once a decision is
made, we expect the losing party shall take corresponding actions
to implement the decision voluntarily. Failing to do so could be dam-
aging to his business insofar as negative publicity could call into
question his trustworthiness and his future connections to the site of
the center shall be more expensive. However, we should not always
take volunteerism for granted. Experience has shown that the avail-
ability of mandatory enforcement prompts compliance. Two issues
can arise in enforcement. Firstly, can the arbitration agreement be
enforced if one party seeks litigation? Secondly, once arbitration leads
to an award, will this award be enforced by the courts?
As far as the first issue is concerned, the agreement to arbitrate
depends on certain activities of the parties. As discussed above, the
center’s being linked to the site of the merchant or containing obvi-
ous statements concerning his association with the service shall con-
stitute offers of service in the sense of contract law; consumers’
clicking on a certain button constitutes the acceptance of the offers
in the legal sense.60 Merchant shall be obliged to enter the proce-
dure of arbitration by their prior actions. Thus, such agreements
shall be generally recognized.
The present discussion shall concentrate on the second issue.
According to legal theories, the losing party should pay the expenses
and amount in due. Once a monetary remedy is decided as such,
the center itself could swiftly compensate the winning party in order
to ensure this party’s satisfaction. The center is then entitled reimburse-
ment from the losing party. To function smoothly, a foundation
a Worldwide Arbitration Culture, in The International Bureau of the Permanent

Court of Arbitration (Ed.), International Alternative Dispute Resolution: Past, Present and
Future, 105 (Kluwer Law International, 2000).
60
C. Li, Tentative Discussion on the Challenge of the Internet against Traditional
Conflict of Laws, 11 Legal Science, 53 (1999). For discussion of offer and acceptance
in contract, see R. Craswell, Offer, Acceptance, and Efficient Reliance, 48 Stan. L.
Rev. 481 (1996); M.A. Eisenberg, Expression Rules in Contract Law and Problems
of Offer and Acceptance, 82 Cal. L. Rev. 1127 (1994); A. Katz, The Strategic
Structure of Offer and Acceptance: Game Theory and the Law of Contract Formation,
89 Mich. L. Rev. 215 (1990); P.M. Tiersma, Comment, The Language of Offer and
Acceptance: Speech Acts and the Question of Intent, 74 Cal. L. Rev. 189 (1986);
N.G. Williams, Offer, Acceptance, and Improper Considerations: A Common-Law
Model for the Prohibition of Racial Discrimination in the Contracting Process, 62
Geo. Wash. L. Rev. 183 (1994).
218 chapter six
could be formed to deal with compensation under the control of the

center. The amount to be paid by the company shall be decided by
their annual profits. If the company fails to pay its due, the center
should seek legal recourse; furthermore, it could publish such facts
on the web sites and levy heavy fees for offering services in the
future.
The system operators could also serve as the functional equivalent
of local government enforcement agencies.61 Further, an association
of networks, or networks and system administrators, or system admin-
istrators and users, or simply system administrators, could contrac-
tually establish the validity of the center and its decisions.62 This
contractual approach shall be most beneficial.63 If one party fails to
comply with the award, it shall potentially be cut off from the whole
system—deprived of membership in trade associations or other indus-
try groups and denied services from online auction sites or operators
of billing systems, etc. The self-regulatory effort of the Internet soci-
ety could be realized through cooperation among different sections.
Enforcement of such decisions is occasionally more problematic,
particularly when decisions involve more than monetary remedies or
technical considerations. Though if the defendant has identifiable
assets within the territory of the forum state then enforcement shall
not be a problem, but of course, there are not always such assets.
What should be done in cases where the assets are unavailable?
Enforcement of Foreign Arbitral Awards (1958 New York Convention)64
has proposed guidelines for recognizing and enforcing foreign arbi-
tral decisions.65 It directly focuses on two elements of arbitral pro-
cedure: the validity of the arbitration agreement and the enforcement
of the arbitration award,66 leaving a more comprehensive regulatory
61
See further H.S. Reeves, Property in Cyberspace, 63 U. Chi. L. Rev. 778 (1996).
62
Perritt, supra note 8, at 361 (1993).
63
R.L. Dunne, Deterring Unauthorized Access to Computers: Controlling Behavior
in Cyberspace through a Contract Law Paradigm, 35 Jurimetrics Journal, No. 1, at
2 (Fall 1994).
64
Since 1958, 131 countries (as of March 30, 2003) have become parties to the
New York Convention.
65
For commentary on the New York Convention, see W.W. Park, A User’s
Guide to The New York Arbitration Convention, in B. Barin (Ed.), Carswell’s Handbook
of International Dispute Resolution Rules, 526–538 (Carswell, 1999).
66
T.E. Carbonneau, Arbitral Adjudication: A Comparative Assessment of Its
Remedial and Substantive Status in Transnational Commerce, 19 Tex. Int’l L.J. 33,
39–56 (1984).
scheme to be implied from its express principles. Essentially, this

convention requires member states to recognize and enforce any
arbitral award made in any other country which is a party to the
convention or which is rendered in the country where enforcement
is sought, but which is not considered as a “domestic” award.67 Does
it apply to dispute resolution cases in electronic commerce? This
convention contains many traps for the unwary.68
The feasibility of this convention in the present case must be more
extensively examined. As the present mechanism applies arbitration
as the basic vehicle, the application of this convention shall cause
no contradiction. The wide acceptance of this convention by inter-
national society can also further facilitate its application to mecha-
nism. What should be noted are points related to this mechanisms’
application of awards.
First of all, the New York Convention specifies that arbitration
agreements should be in writing.69 There is no uniform agreement
as to what constitutes “writing.”70 However, the term is later specified
to include agreements contained in an exchange of letters or telegrams.71
In most countries, writing is understood “normally by the reference
to the mode of imposition of the medium rather than by the reference
to the medium itself.”72 In practice, some courts have interpreted
the term “telegram” to include other modern means of telecommu-
nications.73 One important sign in extending the term “writing” to
electronic form is the UNCITRAL Model Law on Electronic Com-
merce. According to the Model Law, “(1) Where the law requires
information to be in writing, that requirement is met by a data mes-
sage if the information contained therein is accessible so as to be
67
Article I (1) of the New York Convention.
68
For problems in applying the New York Convention, see further R.M. Lucash,
Esq., Arbitration in International Computer Contracts, at <http://www.lgu.com/in43.htm>.
69
See Article II of the New York Convention.
70
R.R. Jueneman & R.J. Robertson, Jr., Biometrics and Digital Signatures in
Electronic Commerce, 38 Jurimetrics Journal 434 (1998).
71
Article II (2) of New York Convention.
72
H.B. Thomsen & B.S. Wheble, Trading with EDI—The Legal Issues, IBC Financial
Books, 136 (London, 1989). This could be testified to by some national rules. For
example, the US Uniform Commercial Code provides in Section 1–201 (46) that
“written or writing” includes printing, typewriting, or any other international reduc-
tion to tangible form.
73
See further G. Born, International Commercial Arbitration in the United States, 292
(1994).
220 chapter six
usable for subsequent reference; (2) Paragraph (1) applies whether

the requirement therein is in the form of an obligation or whether
the law simply provides consequences for the information not being
in writing.”74 This broad interpretation, which would also encom-
pass communications by the Internet, could be helpful in applying
the New York Convention.75 We can also expect future conventions
to encompass new means of communications within the scope of
“writing.”76 The underlying objective behind doing so is to facilitate
international trade and improve the possibility of concluding arbi-
tration agreements in international trade.77
Secondly, the New York Convention requires that a party apply-
ing for enforcement of an award must present the duly authenti-
cated original award or a duly certified copy thereof.78 Similarly, in
online cases the decision could be issued on hard copy, or a “trusted
third party” could serve to confirm that the digital signatures on an
electronic decision are those of the arbitrators.79
Thirdly, the New York Convention’s rules apply to foreign arbi-
tral awards, but how does the term “foreign” fit cases involving
Internet players? The convention makes enforcement of an award
dependent on the award having been made in a country party to
the convention, regardless of the home countries of either party to
the arbitration.80 It is difficult to determine a physical location when
procedures are carried out online, so the “foreignness” factor is not
so relevant. Still, one could say that decisions made by the center
should fall within the scope of the convention insofar as they are in
keeping with forms of delocalized and denationalized international
74
See the Report of UNCITRAL on the work of its 29th Session, UN General
Assembly Official Records Supplement No. 17 (A/51/17), Annex I, Article 6.
75
See further R. Hill & I. Walden, The Draft UNCITRAL Model Law for
Electronic Commerce: Issues and Solutions, 13 Computer Lawyers, No. 3, at 18 (1996).
76
See further F.A. Cona, Application of Online Systems in Alternative Dispute
Resolution, 45 Buff. L. Rev. 975, 993 (1997); J. Rosener, Cyberlaw: The Law of the
Internet 237–241 (London 1997).
77
See further A.J. van den Berg, The New York Convention of 1958—Towards a
Uniform Judicial Interpretation, 191 (Asser / Kluwer—The Hague Deventer, 1981);
N. Kaplan, Is the Need for Writing as Expressed in the New York Convention
and the Model Law out of Step with Commercial Practice?, 12 Arbitration International,
27–43 (1996).
78
Article IV of New York Convention.
79
J. Arsíc, International Commercial Arbitration on the Internet: Has the Future
Come Too Early?, 14 Journal of International Arbitration, 217 (1997).
80
Article I(1) of New York Convention.
arbitration that have been in existence for a long time.81 Theoretically,

international arbitration shall float without attachment to the place
of arbitration.82 When applied to the present mechanism, the arbi-
tration shall be delocalized and the awards shall be recognized every-
where and enforceable in accordance with the New York Convention.
There are other problems, for example, the exclusion of consumer
contracts from the convention,83 the validity of online notice,84 and
the issue of compliance with the law of the country where the arbi-
tration took place.85 All these issues are minor, but in order to ensure
the online mechanism is viable, member states should examine and
amend these existing rules to deal with all types of potential prob-
lem areas. The unique character of cyberspace should be kept in
mind when making modifications.
One trend to note is an increase in judicial recognition and enforce-
ment of ADR decisions.86 As long as the procedure is fair, few prob-
lems shall arise. Furthermore, contract law shall play a large role in
this process. General contract law principles fit well with the emer-
gent culture of the Internet, which eschews involuntary obligations,
whether imposed from the state or from tort law.87 Thus, with var-
ious efforts, enforcement of arbitral awards should not be a prob-
lematic issue.
81
See further P. Mayer, the Trend Towards Delocalization in the Last 100 Years,
in M. Hunter, A. Marriot & Veeder (Eds.), The Internationalization of International
Arbitration: The LCIA Centenary Conference, 37–45 (London: Graham & Trotman, 1995).
This idea has been heatedly discussion and various opinions have been presented.
See further J. Paulsson, Delocalization of International Commercial Arbitration:
When and Why It Matters?, 32 Int’l & Comp. L.Q., 53–61 (1983); J. Paulsson,
Arbitration Unbound: Award Detached from the Law of the Country of Origin,
30 Int’l & Comp. L.Q., 358–387 (1981); W.W. Park, The Lex Loci Arbitri and
International Commercial Arbitration, 32 Int’l & Comp. L.Q., 21–52 (1983); W.W.
Park, Judicial Control in the Arbitral Process, 5 Arbitration International No. 3, 230–245
(1989); W.L. Craig, Some Trends and Developments in the Laws and Practice of
International Commercial Arbitration, 30 Tex. Int’l L.J., 1–58 (1995); H. Smit,
A-national Arbitration, 63 Tulane Law Review, 629–645 (1989).
82
See further F. de Ly, The Place of Arbitration in the Conflict of Laws
of International Commercial Arbitration: An Exercise in Arbitration Planning, in
M. Storme & F. de Ly (Eds.), The Place of Arbitration, 113 (Mys & Breesch, Gent, 1993).
83
Article V(1)(a) of New York Convention.
84
Article V(1)(b) of New York Convention.
85
Article V(1)(d) of New York Convention.
86
S.G. Dick, ADR at the Crossroads, Disp. Resol. J., March 1994, at 52–53.
87
M. Rustad & L.E. Eisenscmidt, The Commercial Law of Internet Security, 10
High Tech. L.J. 263 (1995).
222 chapter six
3. The Law for Electronic Commerce in the New Mechanism
The application of the Internet creates the mysterious so-called cyber-

space. Though the space is invisible to all, various activities that take
place in it directly influence modern society in real space. There is
an obvious connection between mysterious online activities and the
real world. While actions are performed in cyberspace, the actors
involved are in the physical world. The necessary facilities initiating
those activities are also in specific real-world locations. But difficulties
incurred in tracing the actors are problematic for the application of
law. As more and more commercial transactions take place through
the Internet, commercial society more urgently needs to answer these
questions: What shall be the result of certain activity? What rule
should be followed when conducting the transaction? Do the nor-
mal transaction rules apply well to electronic commerce? Such ques-
tions show that it is necessary to look further into the legal side of
electronic commerce, especially the legal rules to be applied during
the transactions and the possible ensuing disputes.
3.1. Cyberspace as an “International Space”?
3.1.1. Cyberspace as a Space

The search for the right metaphor for the Internet occupies some
of the best minds.88 Indeed, several metaphors have been used to
describe the Internet, but these metaphors concern how the Internet
functions as a medium of communications89 and not as a space with
implications for law. As stated in the purpose of this study, all the
analysis shall be carried out with respect to the legal framework.90
For a long time, we have taken for granted that geographical bor-
ders are of primary importance in determining legal rights and respon-
88
See further A. Ginsburg, Howl, in A. Ginsburg, Howl and Other Poems (1956);
at <http://www.ginzy.com>.
89
See, for example, C. Kozar & A. Lockhart, Service Provider Liability, April 24,
1997, at <http://www.ashelockhart.com/isp>; see also J. Litman, The Exclusive
Right to Read, 13 Cardozo Arts & Ent. L.J., 29 (1994); as said, Internet communi-
cation is quite simple, a print medium.
90
Many observers have treated cyberspace as a “place” for analytical purposes.
See, for example, L.M. Harasim, Networlds: Networks as Social Space, in L.M.
Harasim (Ed.), Global Networks 15–34 (1993).
sibilities: all law is prima facie territorial.91 That means a space should
be located for the formulation and application of law. However, the
Internet cannot be located. No one can feel or touch cyberspace,92
cyberspace can never be controlled by anyone, and anyone with the
necessary facilities can visit cyberspace without restriction. Lacking
in obvious territorial connections, cyberspace creates difficulties in
employing legal analysis. Obviously, it is outside the sovereignty of
states. Geographic boundaries are not meaningful in defining a legal
regime for cyberspace. However, a more legally significant border
for the “law space” of the Internet could be imposed.
Some scholars have suggested conceiving cyberspace as a distinct
space93 for purposes of legal analysis by recognizing a legally significant
border between cyberspace and the real world.94 Defining cyberspace
as a “place”95 has had the curious consequence of creating a need for
a term that describes every place else.96 Notably, the International Ad
Hoc Committee (IAHC)97 used “public resource”98 to describe the Inter-
net top-level domain space. Some scholars have suggested that cyber-
space shall take a similar legal role to outer space, Antarctica, or the
international sea.99 This suggestion is beneficial to further elaboration
91
American Banana Co. v. United Fruit Co. 213 US 347, 357 (1909).
92
And the reality is that no one lives in cyberspace. See D.L. Burk, Trademark
Doctrines for Global Electronic Commerce, 49 S.C. L. Rev. 733 (1998); A.R. Stein,
The Unexceptional Problem of Jurisdiction in Cyberspace, 32 Int’l Law. 1175 (1998).
93
The Internet, as cyberspace, was introduced as a place where people could go
join a cyber-community and adopt a cyber-identity. However, some scholars con-
sider the metaphor of the Internet as place did not exactly stand the test of time.
See further T. Wu, When Law & the Internet First Met, 3 Green Bag 2d, 171–173
(Winter, 2000).
94
D.R. Johnson & D.G. Post, Law and Borders—The Rise of Law in Cyberspace,
48 Stanford L. Rev. (1996), at <http://www.cli.org/X0025_LBFIN.html>.
95
Some scholars argue that the net is not a separate space. See further J.L.
Goldsmith, Symposium on the Internet and Legal Theory: Regulation of the Internet:
Three Persistent Fallacies, 73 Chi.-Kent. L. Rev. 1121 (1998).
96
See W. Rodger, Read Their Lips: No Net Taxes, Wired, May 1998, at 101.
97
The IAHC was formed in November 1996 by the Internet Society (ISOC),
the Internet Assigned Numbers Authority (IANA), the Internet Architecture Board
(IAB), the Federal Networking Council (FNC), the World Intellectual Property
Organization (WIPO), the International Telecommunications Union (ITU), and the
International Trademark Association (INTA) to deal with the domain name system
on an international level.
98
The IAHC declared that top level Internet domain space is a public resource
and is subject to public trust. See Final Report of the International Ad Hoc Committee:
Recommendations for Administration and Management of gTLD’s, Executive Summary, 19
February 1997. <http://www.iahc.org/draft-iahc-recommend-00.html>.
99
See further D. Menthe, Jurisdiction in Cyberspace: A Theory of International
224 chapter six
of the role of cyberspace for electronic commerce. Along this line,

in July 1997 American President Clinton suggested that the Internet
should be a global-free trade zone.100 The law of this space shall
take into account the special characteristics of the environment it
regulates and the types of persons, places, and things found therein.
First of all, cyberspace is a place101 that divides the tangible and
virtual worlds. As the law for electronic commerce is the area of law
that deals most directly with contacts between the two “worlds,”102
recognizing a legally significant border between cyberspace and the
real world is relevant. You should treat cyberspace as a separate
space because there are places within it where you can access infor-
mation and you know that you are there.103 One vital feature of this
space is that groups and activities found at various online locations
possess their own unique qualities, which shall likely demand their
having unique sets of rules. It is probably easier to determine which
rules should apply to your online activities than to determine which
territorial authority might apply its laws to your conduct.104
3.1.2. Cyberspace as an International Space

Before entering into further discussion about cyberspace and elec-
tronic commerce, it is very important to find out the status of cyber-
space in the legal framework, as this shall provide a basic understanding
of the present position of cyberspace. First of all, it is necessary to
determine whether cyberspace involves national or international legal
systems. We have all known that cyberspace transcends national bor-
Spaces, 4 Michigan Telecommunications and Technology Law Review, 69 (1998), at

<http://www.mttlr.org/volfour/menthe,html>. This paper deals with the issue of
prescriptive jurisdiction. However, this idea could be a hint to the future elabora-
tion of the status of cyberspace on the issue of adjudicative jurisdiction.
100
Remarks by the President of the USA in Announcement of Electronic Commerce
Initiative, White House Press Secretary, 1 July 1997, <http://www.whitehouse.gov>.
101
Some argue that cyberspace is not a place and is instead many places. See
further L. Lessig, Code and Other Laws of Cyberspace, 82 (1999), which the present
author finds to offer wisdom into the nature of cyberspace. While cyberspace is
considered as a space as a whole, it can be further divided into different spaces.
See also D. Hunter, Cyberspace as Place and the Tragedy of the Digital Anticommons,
91 California Law Review 446–452 (March 2003).
102
C.L. Conner, Compuserve v. Patterson: Creating Jurisdiction Through Internet
Contacts, 4 Richmond Journal of Law & Technology, 9 (Spring 1998), <http://www.rich-
mond.edu/~jolt/v4i3/conner.html>.
103
See further Hardy, supra note 24, at 213, 232–234.
104
Johnson, supra note 94, at 1372–1373.
ders and that an action taken in a state could be felt in most states
in the world. A state can make legislation concerning activities in
cyberspace out of its own economic, cultural, and political interests.
However, the effectiveness of such legislation shall be largely lim-
ited, as states will be required to refrain from actions that encroach
on another state’s sovereignty.105 Because the spillover effect of the
Internet106 significantly limits the feasibility of national regulation, we
shall tend to discuss the status of cyberspace in the international
legal framework.107
Before going further, we should note that although international
systems are preferred in cyberspace, national regulation maintains
an important rule. While there are issues beyond government’s reach,
government shall still be able to take steps to affect the regulability
of the Internet.108 Though with legally restricted powers, national
government can perform relevant tasks concerning those within its
reach.
The international system is multi-leveled. A state shall have full
sovereignty over its own territory, including territorial sea; certain
sovereignty over exclusive economic zones in the sea; and no sov-
ereignty over so-called “international space”. The history of inter-
national space begins at sea,109 and law of the high seas remains the
dominating voice in the discussion of this theory.110 Later, the dis-
covery of Antarctica and man’s entrance into outer space has added
105
See I. Brownlie, Principles of Public International Law 301 (5th Ed. 1998).
106
Since copying is essential for the net to function, copyright is one example.
See, for example, M.A. Lemley, Dealing With Overlapping Copyrights on the
Internet, 22 U. Dayton L. Rev. 547 (1997); Litman, supra note 89, at 29; E. Dyson,
Intellectual Value, Wired, July 1995, at 136, 137; J.P. Barlow, The Economy of
Ideas, Wired, March 1994, at 85.
107
Thus, it is said that the Internet shall strengthen international law. See fur-
ther H.H. Perritt, Jr., The Internet is Changing International Law, 73 Chi.-Kent L.
Rev. 997 (1998); B. Cohen, Note, A Proposed Regime for Copyright Protection on
the Internet, 22 Brook. J. Int’l L. 401, 428 (1996); J.B. Ritter & J.Y. Gliniecki,
Electronic Communications and Legal Change: International Electronic Commerce
and Administrative Law: The Need for Harmonized National Reforms, 6 Harv. J.L.
& Tech. 263, 265 (1993); O. Schachter, Philip Jessup’s Life and Ideas, 80 AJIL 878,
894 (1986).
108
See further L. Lessig, The Law of the Horse: What Cyberlaw Might teach,
113 Harvard Law Review, 514–515 (1999).
109
In 1609, Hugo Grotius postulated that no state could legitimately exercise
jurisdiction over the open sea. See further H. Grotius, Mare Liberum; Sive, de Iure
Quod Batavis Competit ad Indicana Commercia Dissertio (1609).
110
See further B. Anderson, Imagined Communities: Reflections on the Origin and Spread
of Nationalism, 14 (1983).
226 chapter six
to the discussion. Along with the discovery of international space,

the theory of “the Common Heritage of Mankind (CHM)” came into
being.111 It asserts that all nations should benefit from the resources
that are recovered from areas in which all nations have an interest112
and that no one nation can claim sovereignty over such areas.113
Today may be the “twilight of sovereignty.”114 When it comes to
cyberspace, states cannot claim sovereignty. Furthermore, even with
the intention of claiming sovereignty they would not be able to con-
trol cyberspace.115 Accordingly, from the angle of international law,
cyberspace should be categorized as international space. What are
the implications of this categorization for the present study?
Traditionally, sovereignty and territory have been the bases of
international law. However, international law is also determined by
the nature of its subjects. The way people communicate and the
nature of the environment or nation in which they communicate
may be more important than territory.116
The theory of international space and CHM begins with one
proposition: nationality, not territory, is the basis for the jurisdiction
to prescribe.117 Three international spaces have been identified: Antarc-
111
G.M. Danilenko, The Concept of the “Common Heritage of Mankind” in
International Law, 13 Annals of Air & Space Law 247–249 (1988).
112
J. Eltman, A Peace Zone on the High Seas: Managing the Commons for
Equitable Use, 5 Int’l Legal Persp. 47, 64 (1993); P.E. Wilson, Jr., Barking Up the
Right Tree: Proposals for Enhancing the Effectiveness of the International Tropical
Timber Agreement, 10 Temp. Int’l & Comp. L.J. 229, 232 (1996).
113
C.C. Joyner, Legal Implications of the Concept of the Common Heritage of
Mankind, 35 Int’l & Comp. L.Q. 190–191 (1986).
114
It is quite possibly the final days of a governance system relying on individ-
ual sovereign states as primary law-making authority. See generally W. Wriston,
The Twilight of Sovereignty (1992).
115
Some scholars argue that sovereignty could still exist in cyberspace. According
to the analysis, cyberspace could be controlled by cyberspace residents and appli-
cation designers. However, the understanding of sovereignty is not the same as the
one used in international law and should, according to the present author, be
refuted. For the argument concerning sovereignty, see further T. Wu, Note, Cyberspace
Sovereignty? The Internet and the International System, 10 Harv. J.L. & Tech. 647
(1997); see also J.H. Saltzer et al., End-to-End Arguments in System Design, 2 ACM
Transactions in Computer Systems 277 (1984).
116
J.M. Rogers, Forward: The Internet and Public International Law: The Internet
and International Law, 88 Ky. L.J. 808 (Summer, 1999/Summer, 2000). Thus, some
scholars argue that traditional notions of sovereignty have been undermined. See
further Symposium, The Decline of the National State and Its Effects on Constitutional
and International Economic Law, 18 Cardozo L. Rev. 903 (1996).
117
Menthe, supra note 99, at 69; B.E. Heim, Note, Exploring the Last Frontiers
for Mineral Resources: A Comparison of International Law Regarding the Deep
Seabed, Outer Space, and Antarctica, 23 Vand. J. Transnat’l L. 819, 827 (1990).
tica,118 outer space119 and the high seas.120 Cyberspace obviously tran-
scends territorial borders, and territoriality loses its meaning in this
space. The theory of international space and CHM rightly fill up
this loophole for cyberspace.121
Of course, there are many differences between cyberspace and the
other three international spaces. For one, the three international
spaces are all in physical existence (albeit an existence that takes
many varied forms), while cyberspace is nonphysical. The vital point
in categorizing spaces as international spaces lies not in their phys-
ical similarities, but in their international, sovereignless quality.122
Appropriate conceptual analogies to the notion of cyberspace are
found in regions where states may not typically assert sovereignty.123
While no state can claim sovereignty over international space, the
specter of international conflicts has been a prime factor behind the
formation of treaty regimes, which are only one, albeit the primary
source, of international law.124 Treaties concerning each of the for-
mer three international spaces have been formulated. This is not the
case for cyberspace. It emerged during the 1970s and 1980s as the
apparatus of the Internet took root, but it was not until the early
1990s that an explosion in users and uses, including commercial uses,
introduced a virtual community and achieved worldwide attention.
118
See, for example, J. Blum, The Deep Freeze: Torts, Choice of Law, and the
Antarctic Treaty Regime, 8 Emory Int’l L. Rev. 667–668 (1994).
119
See, for example, I.H.Ph. Diederiks-Verschoor, An Introduction to Space Law,
4–5 (2nd Ed. Kluwer Law International, 1999); H. Shin, Oh, I Have Slipped the
Surly Bonds of Earth: Multinational Space Stations and Choice of Law, 78 Cali.
L. Rev. 1379–1381 (1990); H. Keefe, Essay, Making the Final Frontier Feasible: A
Critical Look at the Current Body of Outer Space Law, 11 Santa Clara Computer &
High Tech. L.J. 366–367 (1995); S. Gorove, Interpreting Article II of the Outer
Space Treaty, 37 Fordham L. Rev. 349–352 (1969); N. Jasentuliyana, Space Law and
the United Nations, 17 Annals of Air & Space Law 137, 147 (1992); C.C. Okolie,
International Law Principle of Jurisdiction in Regard to Settlements of Humankind
on the Moon and Mars, in Proc. Thirty-Fourth Colloquium L. Outer Space 64–65 (1991).
120
See further Shin, id., at 1381.
121
E.A. Posner, Law, Economics and Inefficient Norms, 144 U. Pa. L. Rev. 1741
(1996); H.S. Rana, The “Common Heritage of Mankind” & The Frontier: A
Revaluation of Values Constituting the International Legal Regime for Outer Space
Activities, 26 Rutgers L.J. 245 (1994).
122
Menthe, supra note 99.
123
See further M.R. Burnstein, Conflicts on the Net: Choice of Law in Transnational
Cyberspace, 29 Vand. J. Transnat’l L. 103 (1996).
124
See further Menthe, supra note 99. For example, concerns over the Antarctica
“pie” during the Cold War led to a treaty freezing national claims to polar wedges.
See further Antarctica Treaty, Article IV, 12 U.S.T. 794, 402 U.N.T.S. 71, 75.
228 chapter six
National states have been trying to formulate new rules and trans-
form traditional regulations to accommodate it, but it shall still take
some time for all the states to reach consensus on a treaty to reg-
ulate Internet activities.125 For the time being, national rules shall
take the primary position in regulation.
In cyberspace, it would be meaningless to argue for sovereignty.
However, with more and more business carried out in cyberspace,
a standardized rule for assigning bodies the power to regulate is req-
uisite. The theory of international space rightly acknowledges the
importance of public law, which itself defines contours of private
law.126 The purpose of defining international space is to use the stan-
dard of nationality to characterize certain activity and claim national
jurisdiction.127 For example, in outer space, the nationality of the
registry of the vessel, manned or unmanned, is the relevant category;
in Antarctica, the nationality of the base governs. A version of this
principle shall also apply to activities in cyberspace.
Just as one would apply the law of the flag to the high seas, one
should apply the law of a “vessel” in cyberspace. What constitutes
this vessel? While the nationality of a web page may be important,
the nationality of the person or entity who undertakes the tasks, or
the ones who controls him, could be important as well.128 Not only
is determining which standard to be used to identify significant mate-
rials or actions difficult, but determining the nationality of those items
is also a dubious task.
To a certain extent, the problem of choice of law could be solved
by this principle, but not at all finally or resolutely. And the law
chosen as such is only a procedural part. What shall be the sub-
125
For this reason, it is suggested that international treaties should be crafted not
as rules but rather as standards, which shall be left for legal interpretation in imple-
mentation. See for further A. Schwartz & R.E. Scott, The Political Economy of
Private Legislatures, 143 U. Pa. L. Rev. 595, 597, 651 (1995).
126
The globalization of trade, and the issue of conflict of laws, require solutions
from the public international law system. See further H.H. Perritt, Jr., The Internet
and Public International Law: The Internet is Changing the Public International
Legal System, 88 Ky. L.J. 885, 892 (Summer, 1999/Summer, 2000).
127
For example, the general principle in the high seas is to adopt the law of the
ship’s flag to govern in nearly all matters relating to a vessel, its captain, and its
crew. See further W. Tetley, The Law of the Flag, “Flag Shopping,” and Choice
of Law, 17 Tul. Maritime L.J. 140 (1993); see also E. Lafleur, The Choice of Laws in
the Province of Quebec, 185 (1898).
128
See further Menthe, supra note 99.
stantial law for electronic commerce? Furthermore, this suggestion

only exacerbates conflicts among states concerning which organ is
up to the task of executing appropriate international law and which
organ shall have the final say.129 A comprehensive framework based
on accepted legal norms130 is needed to endow the Internet with set-
tled status.
There is a demand for law in cyberspace, or more specifically for
commercial activities carried out therein. A long-term solution to the
problems raised by this limitless space will include rules specifically
governing tort and contracts among individuals of different nations.
3.2. The Law for Electronic Commerce
3.2.1. The Necessity of “New” Law for Electronic Commerce

Some scholars wholeheartedly promote the development of a law for
cyberspace.131 Drastically different from physical space and a facili-
tator of activities that impact individuals around the globe, cyber-
space is not well suited to a legal framework based on territoriality.
To be successful, electronic commerce needs a new legal system to
support it.132
Others believe that this idea may place too much weight on the
influence the Internet could exert on social life. The Internet is after
all simply a means of communication, whose functions differs nothing
from other forms of communications.133 It is only a tool to realize a
certain objective.134 Basic commercial theories stay the same. Moreover,
129
This has been discussed in relation to the IAHC’s efforts. See further
A. Gigante, Blackhole in Cyberspace: The Legal Void in the Internet, 15 J. Marshall
J. of Computer & Info. L., 433 (1997).
130
M.S. Yeo & M. Berliri, Conflict Looms Over Choice of Law in Internet
Transactions, 4 Electronic Com. & L. Rep. 89 (1998).
131
For general description, see D.R. Johnson & D. Post, The Rise of Law on
the Global Network, in Kahin, supra note 38.
132
See further J.C. Ginsburg, The Cyberian Captivity of Copyright: Territoriality
and Authors’ Rights in a Networked World, 15 Santa Clara Computer & High Tech.
L.J. 347–348 (1999); J.R. Reidenberg, Governing Networks and Rule-Making in
Cyberspace, 45 Emory L.J. 911–912 (1996).
133
A.L. Shapiro, The Disappearance of Cyberspace and the Risk of Code, 8
Seton Hall Const. L.J. 703 (1998).
134
Judge Easterbrook argued that there was no reason to teach the law of cyber-
space any more than there was reason to teach the law of the horse since neither
would illuminate the entirety of law. See further F.H. Easterbrook, Cyberspace and
the Law of the Horse, U. Chi. Legal F., 207 (1996).
230 chapter six
major technological changes may have major legal effects without

their needing to generate a unique body of law.135 If you were to
devise one law for the Internet, would you have to make another
set of laws once new forms of communication appeared?136 All that
needs to be done is a modification of old rules to accommodate the
character of the new tool; cyberspace is a delightful new playground
for old games.137 Traditional legal approaches alone will be enough
to cope with the Internet.138
While both discussions are reasonable to a certain extent, the issue
of the necessity of new law is not so black and white. We still need
to look further into the activities in cyberspace and their connection
with law to form an appropriately colored approach.
Some refer to the Internet phenomena as “new.” But what is new?
Actually, from some angles, the Internet looks new; from others, it
does not. We must analyze its newness when justifying a legal
approach.139 There are different levels of laws. In the upper level,
there are laws generally applicable to all situations, which include
general legal conceptions and general principles flexible to change.
These laws are not appropriate for the Internet. While accommo-
dating new situations, those flexible rules can at the same time be
too general to give specific guidance, a problem which might lead
to inconsistent outcomes and make it difficult for citizens to comply
135
See, for example, M.J. Horwitz, The Transformation of American Law 1780–1860
(1977).
136
It is argued that such a body of regulatory law is a category, but not an
exclusive category of law. See further M.A. Geist, The Reality of Bytes: Regulating
Economic Activity in the Age of the Internet, 73 Wash. L. Rev. 521, 568–569 (1998);
see also T. Wu, Application-Centered Internet Analysis, 85 Va. L. Rev. 1163, 1183
(1999).
137
See further J.H. Sommer, Against Cyberlaw, 15 Berkeley Tech. L.J. 1231 (Fall,
2000).
138
As discussed, it is not necessary or constructive to treat the Internet as a
source of new legal issues that create a new legal discipline called “Internet law”.
Instead, the Internet is a new medium in which traditional legal principles are ana-
lyzed in novel contexts. There is no “Internet Law” as such and so no such spe-
cially designed law is required. See further G.B. Delta & J.H. Matsuura, Law of the
Internet, at xix (Aspen Law & Business, New York, 1998).
139
As discussed by T. Hardy, newness could mean that some sort of legal solu-
tion tailored to the cyberspace problem will bring clarity and predictability to the
rules attending cyberspace conduct, the benefits of which outweigh the additional
complexity thereby added to the legal system, or that the underlying policy con-
cerns of “real space” law are inappropriate when applied to activities in cyberspace.
See T. Hardy, The Proper Legal Regime for “Cyberspace”, 55 University of Pittsburgh
Law Review, 1053–1054 (1994).
with the law. More specific laws generally take into account specific
situations and apply to specific activities, and it is these laws that
we should pay attention to.
At a shallow level of analysis, every medium is fraught with com-
plex new legal questions, the most fundamental one being whether
or not existing laws designed with other media in mind could be
applied to this new medium as well.140 Generally speaking, means of
communications are not the basis for laws. We should distinguish
the difference between technological and substantive innovation. Some
issues appear just because the Internet creates new contexts for old
problems rather than new problems per se. Sending a defamatory
message online, for example, has no substantially different conse-
quence from that of sending such a message through the mail. The
traditional rule regarding defamation could serve both cases well.
New laws are not necessary since the old laws for other media could
do as well.141
Furthermore, it is not sensible to create laws for the Internet just
because it promotes convergence and thereby breaks down fixed spe-
cial boundaries around the treatment of one medium.142 Or else new
laws shall always come out when new technological developments
make new media possible, which would occasion overlapping legis-
lation and cause confusion in further applications. Moreover, the fact
is that statutory law written for high-technology issues is often only
relevant to (and includes a detailed account of ) the technology of
the time and thus has a short shelf life.143 When uncertainty regard-
ing applicable law is minor and not a significant clog in routine
behavior, then a specific rule will not be worth adding complexity
to our legal system.144
140
See further Hardy, id., at 996.
141
Easterbrook, supra note 134, at 207; Lessig, supra note 108, at 501.
142
OFTEL, Beyond the Telephone, the TV and the PC (London, 1995), para. 1.1.4.;
see also European Commission, Green Paper on the Convergence of the Tele-
communications, Media and Information Technology Sectors, and the Implications for
Regulation: Towards an Information Society Approach (COM (97)623). See also G.J.H.
Smith, Internet Law and Regulation (FT Law and Tax, London, 1996), Chapter 6.
143
A. Petkofsky, Cyber-Cases Present Challenge: Some Legal Issues Stretching Jurisdiction
of Traditional Courts, Richmond Times-Dispatch, 18 December 1994, at A1; J.P. Barlow,
Crime and Puzzlement: Desperados of the Data Sphere, Whole Earth Rev. 56 (Fall
1990).
144
Hardy, supra note 139, at 998.
232 chapter six
Nevertheless, there are indeed situations when the use of the

Internet could pose serious challenges to the existing laws.145 The
mere extension of physical world laws and government jurisdiction
to cyberspace shall ultimately prove ineffective. Changes in science
and technology have transformative power because the prevalent
ideas in science and technology today are central to the material
conditions in which those ideas arise.146 New technologies shall cre-
ate opportunities for new kinds of behavior as well as new legal
questions.147 With the use of the Internet, which is so different from
other media, new relationships and transactions are forged by modal-
ities novel to most people.148 For example, when business is con-
ducted online, there is the problem of digital signature. What shall
be the effect of signature? Again, the use of the Internet shall give
rise to cyberspace intermediaries. There have been long discussions
145
There is growing recognition that traditional forms of regulation are unsuit-
able for many of the economic and political transactions that occur on the Internet.
For general discussion, see Lessig, supra note 101; I.K. Gotts & A.D. Rutenberg,
Navigating the Global Information Superhighway: A Bumpy Road Lies Ahead, 8
Harv. J.L. & Tech. 275 (1995); F.H. Cate, Comment, Law in Cyberspace, 9 How.
L.J. 565, 567 (1996).
146
The influence of science and technology on the ends pursued by international
law has been pervasive, posing new problems or exacerbating old problems that
transcend national boundaries. See further J.W. Dellapenna, Law in a Shrinking
World: The Interaction of Science and Technology with International Law, 88 Ky.
L.J. 830, 852 (1999–2000); see also J.K. Gamble, International Law and the
Information Age, 17 Mich. J. Int’l L. 747 (1996); M. Lachs, Views From the Bench:
Thoughts on Science, Technology and World Law, 86 AJIL. 673 (1992).
147
See, for example, A.W. Branscombe, Cyberspaces: Familiar Territory or Lawless
Frontiers, 2 J. Computer-Mediated Comm. ( June 1996), at <http://www.usc.edu/dept/
annenberg/vol2/issue1/intro.html>; A.W. Branscombe, Jurisdictional Quandaries
for Global Networks, in Harasim, supra note 90, at 83–104; I.T. Hardy, Property
(and Copyright) in Cyberspace, 1996 U. Chi. Legal F. 217 (Fall 1996), at <http://
www.lib.uchicago.edu/forum/hardy.html>; D.R. Johnson, Due Process and Cyber-
jurisdiction, 2 J. Computer-Mediated Comm. ( June 1996), at <http://www.usc.edu/dept/
annenberg/vol2/issue1/due.html>; H.H. Perritt, Jr., Property and Innovation in the
Global Information Infrastructure, U. Chi. Legal F. (Fall 1996), at <http://law.lib.
uchicago.edu/forum/perritt.txt>; D.G. Post, Anarchy, State, and the Internet: An
Essay on Law-Making in Cyberspace, J. Online L. 3 (1995), at <http://www.law.
cornell.edu/jol/post.html>; J.M. Oberding & T. Norderhaug, A Separate Jurisdiction
for Cyberspace?, 2 J. Computer-Mediated Comm. ( June 1996), at <http://www.usc.edu/
dept/annenberg/vol2/issue1/juris.html>; A. Johnson-Laird, The Anatomy of the Internet
Meets the Body of Law 23–25 (1996); R.D. Cooter, Decentralized Law for a Complex
Economy: The Structural Approach to Adjudicating the New Law Merchant, 144
U. Pa. L. Rev. 1643 (1996); M.J. Radin, Property Evolving in Cyberspace, 15 J.L.
& Com. 509 (1996).
148
Y. Akdeniz, C. Walker & D. Wall (Eds.), The Internet, Law and Society, 17
(Pearson Education Limited, 2000).
about the liability of those intermediaries.149 Should intermediaries

be held liable for the wrong made by the third party? Under what
conditions shall they be held liable? No laws exist concerning these
problems. When the policy considerations that underlie an existing
rule no longer make sense as applied to cyberspace,150 a new law
shall be needed to define the status of digital signature.
Different ways of realizing electronic commerce have been sug-
gested. For those who insist on maintaining existing law, there is the
problem of adaptation. One way to adapt legislation is to reinter-
pret the laws’ wording. As we have seen in the case of “writing,”
the traditional interpretation concerns the writing of touchable, paper
documents; the new interpretation encompasses digital documents.
Thus, electronic commerce can be regulated without formulating new
laws.151
Since there is the looming prospect of a vast array of new ser-
vices and relationships in cyberspace, much effort shall have to be
spent on the formulation of new rules for electronic commerce.
Considering the international nature of the Internet, an international
treaty could be the best choice for electronic commerce. However,
since electronic commerce is a relatively new event, drafting a new
convention at the present stage might be too hasty. Other measures
have been suggested for the time being. First of all, lex informatica
has been specifically proposed for electronic commerce.152 It is kind
of autonomous body of law emerging from the chaotic legal reality
for cyberspace.153 We shall discuss this body of law further presently.
149
See further B.W. Sanford, Libel and Privacy, 48 Section 2.7.4. (2nd Ed., 1991).
For general discussion, see further Y. Zhao, Internet Service Providers and Their
Liability, 34 Law/Technology, World Jurist Association, No. 1, 1–19 (2001).
150
See further Hardy, supra note 139, at 998.
151
This is considered to be an adaptation of existing law, augmented by tech-
niques of governance. See further J.L. Goldsmith, Against Cyberanarchy, 65 University
of Chicago Law Review, 1199 (1998).
152
See, for example, A.W. Branscombe, Overview: Global Governance of Global
Networks, in A.W. Branscombe (Ed.), Toward a Law of Global Communications Networks,
1, 21 (1986).
153
Some scholars have offered emergent norms as an alternative to legal rule-
making, particularly in developing countries that lack an established legal system.
See, for example, R.D. Cooter, The Theory of Market Modernization of Law, 16
Int’l Rev. L. & Econ. 141 (1996); R.D. Cooter, Against Legal Centrism, 81 Cal. L.
Rev. 417 (1993); D.G. Post & D.R. Johnson, “Chaos Prevailing on Every Continent”:
Towards A New Theory of Decentralized Decision-Making in Complex Systems,
73 Chi.-Kent L. Rev. 1087–1088 (1998).
234 chapter six
Other suggestions have also been made concerning the principle of

respect within national legal systems for multi-national communities
within the Internet.154
3.2.2. Lex Informatica155

This suggestion originates from the idea of lex mercatoria or Law
Merchant.156 In the Middle Ages, transactions were carried out across
Europe, which required common rules to provide a basis for trans-
actions between those from different states with different local, feudal,
royal and ecclesiastical laws.157 No common laws were passed, but an
enforceable set of customary practices took effect, which promoted
the benefits of merchants and was reasonably uniform across all the
jurisdictions involved in the transactions.158 It was independent of
local sovereign rules and assured commercial participants of basic
fairness in their relationships.159 To enforce these practices, special
154
See further Akdeniz, supra note 148, at 16. It is also defined as the principle
of comity, which is the recognition one nation allows within its territory of the leg-
islative, executive, or judicial acts of another nation, having due regard both to
international duty and convenience, and to the rights of its own citizens or of other
persons who are under the protections of its law. See further Hilton v. Guyot, 115
U.S. 113, 163–164 (1995); see also Lauritzen v. Larsen, 345 U.S. 571, 582 (1953);
Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614 (1985); The Bremen v. Zapata
Off-Shore Co., 407 U.S. 1 (1972); for detailed discussion on this principle, see also
S.R. Swanson, Comity, International Disputes Resolution Agreements, and the
Supreme Court, 21 Law & Policy in International Business, 333 (1990); J.R. Paul,
Comity in International Law, 32 Harv. Int’l L.J. 1–44 (1991); H.E. Yntema, The
Comity Doctrine, 65 Mich. L. Rev. 9 (1966).
155
This term is taken from W.H. van Boom & J.H.M. van Erp, Electronic High-
ways: On the Road to Liability, in V. Bekkers et al. (Eds.), Emerging Electronic Highways:
New Challenges for Politics and Law 153, 156 (1996).
156
For discussions on Lex Mercatoria, see J. Wiener, Globalization and the Harmonization
of Law 151–183 (Pinter: London and New York, 1999).
157
With the fall of the Roman Empire, commercial activities in Europe were
almost nonexistent relative to what had occurred before and what would come later,
when professional merchants arose in the 11th and 12th centuries. There were
significant barriers to overcome before substantial interregional and inter-national
trade could develop: multilingualism, distance barriers, a lack of interpersonal bonds,
etc. Localized and contradictory laws and business practices produced local hostil-
ities towards foreign commercial customs and led to mercantile confrontations. Thus,
there was a clear need for law as a language of interaction. See further B.L. Benson,
The Spontaneous Evolution of Commercial Law, 55 Southern Econ. J. 644, 646–647
(1989).
158
See further W.A. Bewes, The Romance of the Law Merchant, 15–25 (1923); see
also L.E. Trakman, From the Medieval Law Merchant to E-Merchant Law, 53
University of Toronto Law Journal 276–283 (Summer 2003).
159
See further H.J. Berman & C. Kaufman, The Law of International Commercial
Transactions (Lex Mercatoria), 19 Harv. Intl L.J., 221, 274–277 (1978).
courts grew up whose jurisdiction was that of commercial transac-

tions, and judges were drawn from the ranks of the merchant class
itself on the basis of experience and seniority.160 They adjudicated
disputes by reference to customary trade practice. The determina-
tions of these courts were valid and enforceable under national laws
because the lords of the day recognized the benefits that would
accrue from efficient trade.161
Today, there are some disputes concerning the existence of Law
Mercatoria.162 There can be no proof of the practice without written
documentation; if there were written documents, then the legitimacy
of lex mercatoria as customs rather than rules is called into question.
Further, it is difficult to determine whether the flexible Law Mercatoria
should be considered as an independent body of law, or just a gap-
filler.163
As regards the present situation, some customs have been codified
in the national legal system. To achieve stability while preserving
the customs’ flexibility, customs were required to have been well
established. Legal documents can define the content of certain cus-
toms, while allowing for their continued development in practice.
Customs are developing in cyberspace as they might be in any com-
munity, and rapid growth in computer communications164 suggests
that there may be a great many such customs before long.165 Also,
when we look into the present arbitration system, which is actually
the modern form of the former special courts,166 we find that cus-
toms are applicable to the adjudication of cases and, more impor-
tantly, the enforcement of final decisions based on such customs has
received world recognition.167
160
Adjudicators were generally selected from the ranks of the merchant class on
the basis of their commercial experience, their objectivity and their seniority within
the community of merchants. See further L.E. Trakman, The Law Merchant: The
Evolution of Commercial Law, 11, 15 (1983).
161
Trakman, id., at 2, 9.
162
See further F. de Ly, International Business Law and Lex Mercatoria, 8 (1992).
163
See H.J. Berman & F.J. Dasser, The “New” Law Merchant and the “Old”:
Sources, Content, and Legitimacy, in T.E. Carbonneau (Ed.), Lex Mercatoria and
Arbitration, 21, 22 (1990).
164
K.D. Suzan, Comment, Tapping to the Beat of a Digital Drummer: Fine
Tuning U.S. Copyright Law for Music Distribution on the Internet, 59 Alb. L. Rev.
789, 828 (1995).
165
Hardy, supra note 139, at 1010.
166
See further Trakman, supra note 160, at 42.
167
See further Berman, supra note 163, at 21, 22.
236 chapter six
Evidently, lex mercatoria still exists and still has meaning today for
international business transactions. Founded on the shared legal under-
standings of an international community composed principally of
commercial, shipping, insurance, and banking enterprises, it is an
autonomous international body of law, which is binding in appro-
priate cases in national courts.168 Accordingly, lex mercatoria could
serve as a starting point in determining how the goals of lex infor-
matica can be attained.169
Two important elements distinguish lex mercatoria from other types
of law. Firstly, no statute or other authoritative pronouncement of
law gave rise to its existence; secondly, lex mercatoria exists in some
sense apart from and in addition to the ordinary rules of law that
apply to non-merchant transactions.170 Special courts and the appli-
cation of lex mercatoria speedily resolve disputes.
This discussion of lex mercatoria is relevant to the situation of cyber-
space. There is a need to have uniform guiding rules for transac-
tions carried out in cyberspace. At present, there are no such rules
and reaching a uniform convention will not be realistic in the short-
term. Furthermore, the idea that an ADR mechanism could be
devised to resolve disputes at a speedy pace gives rise to the possi-
bility of lex informatica.
Since custom is the foundation of the lex mercatoria, custom shall
naturally be the essential source of lex informatica.171 Since the appear-
ance of the Internet, more and more activities have taken place in
cyberspace. Customary rules called “netiquette” or “nethics”172 have
been developed. Such norms generally reflect the common real-life
community concerns that most are worried about preserving on the
Internet, provide the basic rules on the information highway, and
allow netizens to effectively punish those who breach the established
norms.173
168
See further Berman, id., at 21–24.
169
See further A. Mefford, Lex Informatica: Foundations of Law on the Internet,
5 Ind. J. Global Leg. Stud. 225 (Fall, 1997).
170
Hardy, supra note 139, at 1020; see also A.F. Lowenfeld, Lex Mercatoria: An
Arbitrator’s View, in Carbonneau, supra note 163, at 37, 54–55.
171
Mefford, supra note 169, at 228.
172
When the Net was much smaller, “high-minded” academics were able to fos-
ter a communitarian ethic that substituted cooperation for compulsory law, and
these were summed as “netiquette”. See further A. Rinaldi, Netiquette Home Page:
Questions and Answers, at <http://www.fau.edu/rinaldi/netiquette.html>.
173
G.B. Allison, The Lawyer’s Guide to the Internet, 338 (1995).
The parallels between lex mercatoria and lex informatica are strong.
In each case, national governments are not in the position of mak-
ing unilateral regulation and international regulation is preferable to
governmental interference. Today we can accept that developing an
international regulatory system shall require sufficient time and energy.
As there is not authoritative guidance at hand, the rules to be applied
in cyberspace could be those considered as customs among the users
in the Internet society: those practices generally observed in cyber-
space and voluntarily accepted as binding by users.
That said, lex informatica has no intention of displacing existing
rules and shall not take priority once new rules are reached among
states. Some scholars argue that lex informatica and legal rules paral-
lel and overlap one another.174 The present author holds the oppo-
site position. It is true that lex informatica is an important guide when
there are no rules to fill the gap in the legal society. Nevertheless,
once new rules are made, they shall take the place of lex informatica,
except in the situation when states have imposed certain restrictions
on such rules.
In the field of international law, customs occupy an important
position.175 They are a source for international law and directly applic-
able to adjudicating cases.176 There are two important factors based
on which certain practices can be defined as customs. A custom is
both objectively deemed so because of its general practice and sub-
jectively assumed customary as law, the so-called opinio iuris.177 With
174
See further J.R. Reidenberg, Lex Informatica: The Formulation of Information
Policy Rules Through Technology, 76 Texas Law Review, No. 3, 583–586 (February
1998). As discussed, the relationship between Lex Informatica and legal rules shall be
that policymakers must add Lex Informatica to their set of policy instruments and
should pursue Lex Informatica norms as an effective substitute for law where self-
executing, customized rules are desirable.
175
For general discussion of customary law, see R.P. Dhokalia, Codification of Public
International Law (1970); H.W.A. Thirlway, International Customary Law and Codification
(1972); G.M. Danilenko & H. Lauterpacht, Codification and Development of
International Law, 49 AJIL 16 (1955); O. Schachter, International Law in Theory
and Practice, 178 Recueil des Cours 9 (1982); P.C. Szasz, The Role of the U.N.
Secretary-General: Some Legal Aspects, 24 N.Y.U.J. Int’l L. & Pol. 161 (1991); P.R.
Trimble, A Revisionist View of Customary International Law, 33 UCLA L. Rev. 665
(1986).
176
The sources of international law include treaty, custom, and general princi-
ples of law. See further Statute of the International Court of Justice, June 26, 1945,
Art. 38; see also P. Malanczuk, Akehurst’s Modern Introduction to International Law, 36
(7th Ed., 1997); M.W. Janis, An Introduction to International Law, 4–6, 10 (1988).
177
Customary international law emerges from state practice backed by opinio juris.
238 chapter six
more and more activities taking place in cyberspace, certain uniform

rules to regulate activities in different locations are urgent. Internet
society is able to generate practices which appear most appropriate
for users in cyberspace. With the benefits in plain view, such prac-
tices are automatically followed, like customs.178
As states are not the best bodies to regulate, self-regulation groups,179
like commissions and panels of experts, take the place of such bodies
in forming rules to avoid chaos, which take into account existing
practices.180 Such groups and associations are formed with charters
and by-laws.181 Made by those who well understand cyberspace, the
Opinio juris signifies that state conduct is intended to express a legal norm. It means
that a state acts because it believes its actions are mandated by a norm, or that
the conduct is intended to give rise to a new norm. In colloquial terms, opinio juris
exists when a state acts in order to follow precedent set by other actions, or to set
a new precedent which will be followed in the future. This was confirmed by the
ICJ in the Nicaragua case; see further Nicaragua v. USA (Merits), ICJ Report, 1986,
14, at 97. In the Continental Shelf (Libya v. Malta) case, the ICJ further stated that
the substance of customary law must be looked for primarily in the actual practice
and opinio juris of states. See further ICJ report, 1985, 29; see also Advisory Opinion
on the Legality of the Threat or Use of Nuclear Weapons, ILM 35 (1996), 809,
at 826, paragraph 64; L. Condorelli, Custom, in M. Bedjaoui (Ed.), International
Law: Achievements and Prospects, 189 (Dordrecht-Boston-London, 1991); L.J. Gibbons,
No Regulation, Government Regulation, or Self-Regulation: Social Enforcement or
Social Contracting For Governance in Cyberspace, 6 Cornell J.L. & Pub. Policy 475,
505 (1997).
178
See, for example, R. Axelrod, The Evolution of Cooperation 11–19 (1984).
179
Groups such as the Whole Earth ’Lectronic Link (known as the WELL) do
resemble the small-town, restricted-entry communities. See generally R.C. Ellickson,
Order Without Law: How Neighbors Settle Disputes (1991); L. Bernstein, Merchant Law
in a Merchant Court: Rethinking the Code’s Search for Immanent Business Norms,
144 U. Pa. L. Rev. 1765 (1996); L. Bernstein, Opting Out of the Legal System:
Extralegal Contractual Relations in the Diamond Industry, 21 J. Legal Stud. 115
(1992); H. Rheingold, The Virtual Community: Homesteading on the Electronic Frontier 17–38
(1993); K. Hafner, The World’s Most Influential Online Community (and It’s Not
AOL), Wired, May 1997, at 98.
180
See, for example, Commission of the European Communities, Communication
from the Commission to the Council and the European Parliament: On “Standard-
ization and the Global Information Society: The European Approach”, COM(96)359
(final) at 4, available at Standardization and the Global Information Society, at <http://
www.ispo.cec.be/infosoc/legreg/docs/96359.html>. Committee T1 is a privately
sponsored organization accredited by the American National Standards Institute,
which develops technical standards and reports regarding interconnection and inter-
operability of telecommunications networks at interfaces with end-user systems, car-
riers, information and enhanced-service providers, and customer premises equipment.
See further Standards Comm., T1 Telecomm., T1 Overview, at <http://www.t1.org/
html/intro.html>.
181
For the association’s by-law, see general G.D. Webster, The Law of Association,
Section 2.03 (1)(b), (1993).
rules are geared to the reality of a constantly evolving cyberspace

in terms of speed, flexibility, and operation.182
Furthermore, users can create their own rules collectively through
daily practice. Parties can specify in a contract not only their behavior
toward one another,183 but also which set of laws will resolve their
future disputes.184 Service providers can specify behaviors in their
“part” of cyberspace through contracts. Other guides include the
writings of scholars, like publications of customary international prac-
tice, and model codes and recommendations by various international
bodies,185 which could prove extremely influential in future legal dis-
putes.186 They, of course, could all be posted on an electronic bul-
letin board.187
Though not obligatory, these rules are made for the benefit of
users and thus are voluntarily observed by users. Since they reflect
customs and provide a greater opportunity for users to interact with
and create rules than physical world law does, users recognize them
as more legitimate than jurisdictional law. Users are unlikely break
182
The primary source of lex informatica is the technology developer and the social
process by which customary uses evolve. See further L. Lessig, Reading the Constitution
in Cyberspace, 45 Emory L.J. 897 (1996).
183
For example, a telephone subscriber’s choice between per line and per call
blocking of caller identification information creates a default rule applicable to all
users of the particular telephone line. The fact that contracts between two parties
over the use of intellectual property rights have significant effects on third parties
is the central problem with the idea that private parties ought to be able to set
their own legal rules. Several scholars have offered examples of these external effects
in private contracts. See, for example, J.E. Cohen, Lochner in Cyberspace: The
New Economic Orthodoxy of “Rights Management”, 97 Mich. L. Rev. 462 (1998);
N. Elkin-Koren, Copyright Policy and the Limits of Freedom of Contract, 12 Berkeley
Tech. L.J. 93 (1997); W.J. Gordon, On the Economics of Copyright, Restitution,
and “Fair Use”: Systemic Versus Case-by-Case Responses to Market Failure, 8 J.L.
& Info. Sci. 7 (1997); Lemley, supra note 51, at 169–171; M.A. Lemley, The Economics
of Improvement in Intellectual Property Law, 75 Tex. L. Rev. 989, 1057–1058 (1997);
L.P. Loren, Redefining the Market Failure Approach to Fair Use in an Era of
Copyright Permission Systems, 5 J. Intell. Prop. L. 1 (1997); D. McGowan, Free
Contracting, Fair Competition, and Draft Article 2B: Some Reflections on Federal
Competition Policy, Information Transactions, and “Aggressive Neutrality”, 13 Berkeley
Tech. L.J. 1173 (1998); M.J. Meurer, Price Discrimination, Personal Use and Piracy:
Copyright Protection of Digital Works, 45 Buff. L. Rev. 845 (1997).
184
See further R.H. Coase, The Problem of Social Cost, 3 J.L. & Econ. 1 (1960).
185
Janis, supra note 176, at 42–45, 48.
186
See, for example, W.L. Craig et al., J. Paulson, International Chamber of Commerce
Arbitration, section 35.01 (2nd Ed. 1990).
187
See further E. Katsh, Law in A Digital World: Computer Networks and
Cyberspace, 38 Vill. L. Rev. 403 (1993).
240 chapter six
customary procedure and go their own way because once they devi-
ate from general practice, they might be punished, or even expelled
from cyberspace.188 Users in cyberspace regard common practice as
enforceable as law, as when one user breaks the practice, they put
certain enforcement mechanisms in place to force him back to the
right path.189 From a psychological point of view, the users in cyber-
space are committed to those practices as law and abide by these
practices with such a view. In short, those practices have acquired
legal force without the backing of the sovereign.
Consequently, the external and internal elements leading to the
existence of lex informatica have been sufficient. The idea for the cus-
tom may take its roots in a posting on a discussion group, followed
by a posted response that criticizes and expands on that idea, and
so on until the idea has been rehashed over and over again.190 In
this way, a clear custom shall come into being. Consequently, lex
informatica co-existing with existing laws would be an eminently prac-
tical and efficient way of handling commerce in cyberspace.
3.2.3. Lex Informatica and Dispute Resolution

Making rules for cyberspace or specifically for electronic commerce
is a conceptually distinct process, different from the process of dis-
pute resolution. However, these two different procedures can be com-
bined in practice.191 As we discussed, a new ADR mechanism shall
be formulated to resolve disputes in electronic commerce.192 Just like
in the Middle Ages, the mechanism shall function in ways that rec-
188
Technology allows automated and self-executing rule enforcement, which could
prevent actions from taking place without the proper permissions or authority. See,
for example, M. Blaze et al., Decentralized Trust Management, in Proceedings of the
IEEE Conference on Security and Privacy (Oakland, Cal.) (May 1996).
189
A group with a cohesive set of interests can punish individual members who
act contrary to those interests and still claim some legitimacy. See further M.A.
Lemley, Symposium on the Internet and Legal Theory: The Law and Economics
of Internet Norms, 73 Chi.-Kent. L. Rev. 1270 (1998).
190
See further T. Laquey, The Internet Companion: A Beginner’s Guide to Global
Networking, at 62–74 (2nd Ed., 1994). The arbitrators could establish a set of cus-
toms on a web page that would receive comment and criticism from academics
and contract practitioners. This page could be updated constantly to reflect the cur-
rent prevailing opinion of law for cyberspace. See further D.R. Johnson, The New
Case Law of Cyberspace, at <http://www.eff.org/pub/Intellectualprop . . . ration_cyber_
caselaw_johnson.article>.
191
See further Perritt, supra note 8, at 349, 389.
192
See, for example, Dunne, supra note 63.
ognize the needs of users in cyberspace;193 arbitrators shall be selected

from experts or esteemed specialists. The present mechanism also
takes the same attitude.
Different from official adjudicative procedures, the new mecha-
nism can rather flexibly accommodate the constantly evolving nature
of customs.194 Electronic commerce is replete with customary ways
of doing things. As commerce increases, customs shall proliferate and
develop on a larger commercial scale and may, in fact, conflict with
“real world” customs.195 The ability to respond and adapt rapidly to
changes196 in technical and legal environments197 constitutes one of
the most appealing aspects of lex informatica.198 In adjudicating cases,
the arbitrators shall make use of all existing rules and customs and
other relevant principles to reach objective, justified decisions. They
may make new rules just as a traditional common law court makes
new rules to realize fairness in a particular case. Thus, dispute res-
olution processes in electronic commerce can range from a complete
absence of pre-existing definite rules with a neutral party empow-
ered to resolve disputes on some kind of general fairness basis199 to
a system in which the rules are highly specific and a fact-finder is
193
The emphasis of these merchant courts and the law they applied was a speedy
resolution of disputes, an important element when time is money. See further Hardy,
supra note 139, at 1021.
194
Conditions in cyberspace change rather rapidly and so many transactions
occur that a well-established custom may only be weeks old.
195
See Hardy, supra note 139, at 1009–1010.
196
The rate of technological advances has outstripped the ability of the law,
lurching from one precedent to another, to address new realities. L.H. Tribe, American
Constitutional Law, Section 12–25, at 1007 (2nd Ed. 1988).
197
Hardy, supra note 139, at 1021. As the Internet society has increased from
less than a million scientists to more than one hundred million people from all
walks of life, the rules have necessarily changed. Further changes in the character
of Netizens and their sheer number shall push development of rules in cyberspace.
See further K.S. Byford, Privacy in Cyberspace: Constructing a Model of Privacy
for the Electronic Communications Environment, 24 Rutgers Computer & Tech. L.J.
1, 38, 63–64 (1998); L. Lessig, The Zones of Cyberspace, 48 Stan. L. Rev. 1403,
1407 (1996).
198
Alternatively, a system can be envisioned in which the rules are flexible and
easily changed and in which no one is given adjudicatory power and thus the rules
have only some kind of moral force.
199
For a general understanding of “fairness,” we can refer to common law. For
a custom to become enforceable, it has to be legal, notorious, ancient or immemo-
rial and continuous, reasonable, certain, universal, and obligatory. See further J.H.
Levie, Trade Usage and Custom Under the Common Law and Uniform Commercial
Code, 40 N.Y.U.L. Rev. 1101, 1103 (1965).
242 chapter six
empowered to apply them in a final and binding way.200 And this

shall become the origin of a new rule.201 Further, lex informatica has
the freedom of multiple jurisdictions, the deference to decisions of
those who understand concepts best, and the enforceability required
for effective cyberspace law.202
The application of lex informatica in dispute resolution and the final
decision made by the new mechanism are inter-operative. On one
hand, the ultimate decision regarding which customs should be applied
rests with the decision-makers203 and thus the application of the cus-
toms confirms their enforceability in cyberspace.204 On the other hand,
the decisions made could be a written form of evidence for those
customs, which influences disputing parties as well as others. Concerns
over the uncertainties of customs205 can thus be resolved to a large
extent by cumulative written decisions. Furthermore, the whole process
of making decisions can further develop those customs. As the decision-
makers are esteemed members of the Internet society, they are in the
right position to understand how the laws or customs are or shall
be evolving and accordingly and the decisions they made usually
represent right ideas towards certain issues.206 While considering the
existing practices, they shall postulate further developments, which
other members of the Internet shall respect.
200
Perritt, supra note 8, at 390.
201
The function is just that of the rulemakers. Since a case arises that seems
anomalous under the preexisting rules, the rulemakers can simply make a new rule
dealing with the case as they think appropriate.
202
See Mefford, supra note 169, at 226.
203
To maintain the stability and integrity of discretion based decisions, a judi-
cial review process within the Net itself might be established. To ensure that the
flexibility of the Net law does not lead to uncertainty, arbitrators who too easily
recognize custom or who too often bow to popular pressure could simply be removed.
See Mefford, id., at 230.
204
If cyberspace custom drives the decisions of cybercommunity-based dispute
resolution, such decisions shall be recognized by the cyberspace community as proper
and right. See, for example, B. Simpson, The Common Law and Legal Theory,
in W. Twining (Ed.), Legal Theory and Common Law, 19 (1986).
205
See further D.P. Fidler, Challenging the Classical Concept of Custom: Perspectives
on the Future of Customary International Law, 39 German Yearbook of International
Law. 198–208 (1996).
206
Empirical studies have also demonstrated that arbitrators often do not apply
the existing law to accommodate the specific situation in the case. See, for exam-
ple, H. Kronstein, Arbitration Is Power, 38 N.Y.U.L. Rev. 661, 669–679 (1963);
S. Mentschikoff, Commercial Arbitration, 61 Colum. L. Rev. 846, 865–867 (1961).
The information highway is now developing into a legal territory

of its own, a territory for which no uniform legislator is in sight.
While devising a mechanism for electronic commerce, the mecha-
nism’s potential contribution to the development of the law must be
taken into consideration.207 The dispute resolution process itself is
not only an application of the existing rules, but also a process of
formulating new rules, which could become customs once applied
extensively in the future practices. In other words, the function of
dispute resolution per se is not merely to resolve disputes but a way
to formulate rules for future use. As regards its latter function, cur-
rent dispute resolution, ADR in particular, is of momentous and far-
reaching historical significance. It is especially suitable where expertise
in a specific area is needed. The theory of lex informatica rightly affords
this opportunity and proceeds in this direction.
3.3. Comments
Technology’s intersection with the political or normative issues reshapes
everything we as international lawyers do.208 The inquiry into vir-
tual law provides repeated confirmation of the longstanding hypoth-
esis that individual and community identity requires the development
of a body of law that defines and distinguishes communities.209 As
Galanter has observed, “Law usually works not by exercise of force,
but by information transfer, by communications of what’s expected,
what’s forbidden, what’s allowable, what are the consequences of
acting in certain ways.”210 Cyberspace is a very distinctive space, with
its own set of rules. Difficulties faced in regulating the Internet through
conventional state-oriented means encourage exploration of new kinds
of public international law matrices for private self-ordering.211 Set
in the broad field of international law, its position is like that of
international space. Though different in many ways, cyberspace retains
207
Schneider, supra note 36, at 10.
208
See J.G. Ruggie, International Responses to Technology: Concepts and Trends,
29 Int’l Org. 557–558 (1975).
209
See further P. Giordano, Invoking Law as a Basis for Identity in Cyberspace,
Stan. Tech. L. Rev. P8 (1998), at <http://stlr.stanford.edu/STLR/Articles/98_
STLR_1/>.
210
M. Galanter, The Legal Malaise: Or, Justice Observed, 19 Law and Society
Review, 537, 545 (1985).
211
See further Perritt, supra note 126, at 931.
244 chapter six
the basic nature of international space. According to the theory of

international space, the law of the state to which relevant cyber-
activities belong should govern online activities.
However, in substance, as applicable law was rarely designed with
the Internet in mind, there is a today a practice of ‘hotchpotch’
rather than a codified set of rules.212 The present problem is that
there are no national laws to regulate the activities in cyberspace213
and regulation is requisite at the international level. A distinct body
of law for cyberspace at the national level is unwarranted. It has
been suggested that centralized law is not even plausible for a tech-
nologically advanced society; to be efficient, complex economies
require decentralized law.214 Tracing back to the Middle Ages, lex
mercatoria provides a nice example for cyberspace. Lex informatica could
be formulated to meet the Internet’s demands. Throughout history,
in almost all judicial systems, law has followed societal customs.215
Lex informatica is a complete set of independent rules that reaches
across borders and does not face the same jurisdictional, choice of
law problems that legal regimes encounter when networks cross ter-
ritorial or state jurisdictional lines.216 Representing the sum total of
opinions of those who have expertise in the legal aspects and needs
of the Internet, it meets many of the challenges faced by physical
world law when it deals with cyberspace.
Clearly, there was until now no consensus on what rules should
be adopted for electronic commerce or in cyberspace. However, the
current view is that these budding cybercommunities should be given
the chance to develop and test their own rules before the external
authorities exert too heavy a hand to bring them into conformity
212
L. Edwards & C. Waelde, Law and the Internet 9 (Hart Publishing, Oxford,
1997).
213
Historically, law and government regulation have established default rules for
information policy, including constitutional rules on freedom of expression and statu-
tory rights of ownership of information. However, these rules are not specifically
aimed at cyberspace. See generally J. Boyle, Shamans, Software and Spleens (1996);
M.E. Katsh, Law in a Digital World (1995); D.L. Burk, Federalism in Cyberspace,
28 Conn. L. Rev. (1996).
214
Cooter, supra note 153, at 141, 148 (1996).
215
For example, early American Indian tribal courts recognized that customary
underlying beliefs and conduct provided a contemporary foundation for tribal gov-
ernance and regulation. See further G. Valencia-Weber, Tribal Courts: Custom and
Innovative Law, 24 N.M.L. Rev. 225, 244 (1994).
216
See Reidenberg, supra note 174, at 578.
with real-world rules.217 We are happy to see that a new mechanism

for resolving disputes in cyberspace has been put in the agenda. As
online opportunities prompt the appearance of general practices
accepted by Internet society, the mechanism can both affirm those
practices as customs and occasion the birth of further customs.
Of course, we would not deny the necessity of national and inter-
national efforts in formulating rules for electronic commerce.218 Once
conditions ripen, certain rules can be put in place to stabilize legal
relationships. The potential exists for treaty or national rules and lex
informatica to regulate electronic commerce concurrently.219 Governments
and organizations should not rush to legislation. The law for electronic
commerce should reflect the current demands of Internet society and
future developments.
One last thing to remember is that any forum for resolving dis-
putes in electronic commerce should be viewed as credible by the
inhabitants of the Internet.220 This whole new system and the future
of electronic commerce largely depend on Internet society’s confidence
in them.
4. Epilogue
As pointed out above, a bottom-up, flexible method of dispute res-

olution is much more suitable to the dynamic realm of cyberspace
than a top-down statutory or judicial authority is in that it would not
stifle the development of either custom or technology.221 A formalized
217
A.W. Branscomb, Anonymity, Autonomy, and Accountability: Challenges to
the First Amendment in Cyberspaces, 104 Yale L.J., 1667 (1995).
218
For an argument concerning the appropriateness of the combination of new
customary rules and a treaty or national rules, see A. Endeshaw, The Proper Law
of Electronic Commerce, 7 Information and Communications Technology Law, No. 1, 11–12
(March 1998).
219
The successful ICAO and ITU regimes rest on treaty obligations but also
greatly depend on industry input for the development and enforcement of the rules.
See further H.H. Perritt, Jr., The Internet as a Threat to Sovereignty? Thoughts
on the Internet’s Role in Strengthening National and Global Governance, 5 Ind. J.
Global Leg. Stud. 433–434 (Spring, 1998).
220
A.E. Almaguer & R.W. Baggott III, Shaping New Legal Frontiers: Dispute
Resolution for the Internet, 13 Ohio St. J. on Disp. Resol. 717 (1998).
221
E.C. Lide, ADR and Cyberspace: The Role of Alternative Dispute Resolution
in Online Commerce, Intellectual Property and Defamation, 12 Ohio St. J. on Disp.
Resol. 216 (1996).
246 chapter six
ADR mechanism, grounded in customs, is a logical and natural step

for the resolution of dispute in electronic commerce. Applying an
online system applied to dispute resolution is not new. What is new
is the extension of such a system to the whole body of electronic
commerce. Disputes arising out of electronic commerce take various
forms. Ensuring the new mechanism accommodates all those dis-
putes is vital. The demands of the market and the unique circum-
stances of electronic commerce shall be considered in realizing the
mechanism’s initial purposes.
Considering the growth rate of electronic commerce, more dis-
putes are expected to arise. Such an online mechanism shall need
to stand the test of time. To make possible an objective assessment
of the new mechanism, feedback and evaluation tools should be built
into the mechanism. After one year of operation, all participants in
the new mechanism should be surveyed. Three criteria should be
considered in determining its worth: efficiency, effectiveness and the
public’s satisfaction with its process, outcome, and its relationship
with them.222 This mechanism should always remain responsive to
the changing nature of cyberspace and the needs of its habitants,
making corresponding modifications when necessary.223
Given the success of most ongoing online projects, we optimisti-
cally anticipate the development of the new mechanism. When more
complaints are brought to the center, a heavy case-burden shall
obstruct efficient resolution. Thus, independent sub-centers working
under the general guidance of the international center could then
be developed according to the standard of region or specialization.
Further development could include a two-level arbitration system.
While the sub-centers act as courts, the international center could
receive appeals.
Again, while the present topic is to devise a mechanism for elec-
tronic commerce, there has been interest in possibilities for extending
such an online mechanism beyond electronic commerce. The University
of Maryland Project took the initiative concerning this issue.
222
See Costantino, supra note 37, at 221–222.
223
See further Bordone, Electronic Online Dispute Resolution: A Systems Approach-
Potential, Problems, and a Proposal, 3 Harv. Negotiation L. Rev. 209–210 Spring
1998).
The NCAIR donated a grant for the initiation of the project,

which began in the fall of 1996. In it, the University of Maryland
School of Law and the Center for Online Mediation take the admin-
istrative job. A list of mediators is maintained and could be selected
for mediation.
The project differs widely from other projects discussed in Chapter
Five in that its concern is not with targeting disputes arising out of
online activities, but rather with bringing new methods and sets of
tools to bear on various other disputes that are currently being han-
dled in a traditional manner.224 This project has several limitations.
It shall only deal with disputes coming out in the State of Maryland
under Maryland law. Two types of disputes are defined: domestic
disputes such as custody, visitation, child support and property divi-
sion; and health care disputes between either consumers and insur-
ance companies, or consumers and health care device manufacturers.225
One prominent aspect of the project is that it chooses mediation
over arbitration to deal with such disputes. This arrangement appears
appropriate for the time being. In family law disputes, emotional
issues are more important than financial issues in most cases. The
physical and psychological distance created by forms of communi-
cation other than face-to-face communication reduces the amount of
emotional hostility between two parties. Agreements are reachable
with less time and energy.
Furthermore, as such disputes arise out of many divergent circum-
stances, mediating on a case by case basis is appropriate. The pro-
ject intends to make a wide array of tools available for mediators:
besides online communication tools, non-network modes of commu-
nications are to be on hand for information exchange in appropriate
situations. Additionally, network options should yield new perspectives
on analyzing the dispute and monitoring performance after settlement
is reached.226
Thus far, this project has been fairly successful, which suggests
that applying the online mechanism to disputes outside electronic
224
See further R. Granat, Creating An Environment for Mediating Disputes on the Internet
(May, 1996), <http://www.law.vill.edu/ncair/disres/granat.htm>.
225
Granat, id.
226
M.E. Katsh, Dispute Resolution in Cyberspace, 28 Connecticut Law Review, 966
(1996).
248 chapter six
commerce is feasible. In modern society, the volume of disputes is

expected to rise, particularly when easily accessible online systems
are made available. Such systems can in the future be adapted to
handle off and online disputes. Our present goal is to formulate a
complete and viable structure for disputes in electronic commerce,
making modifications to allow for the structure’s possible extension.
CHAPTER SEVEN
CONCLUSION
The Key to the Internet’s extraordinary innovation is that it doesn’t

allow a term like ‘allow’. It’s architected to disallow it.1
The world is undergoing a technical revolution.2 Rapid technologi-
cal development has made business online realistic and thus served
as a catalyst for a new globalization system.3 Its application in busi-
nesses has accelerated the convergence of national and regional mar-
ket forces towards a truly global economy.4
As the world becomes an increasingly interwoven place, your
opportunities and threats increasingly derive from those you are con-
nected to, and those you are connected to exhibit radically different
interests and traits. Behind computer screens, there are people of all
nationalities, all ethnic-cultural groups, all social classes, all profes-
sions, all religions, all political convictions, all ages, all life-styles, and
both sexes who together, but also among themselves, show a rich
diversity of preferences, dislikes, expectations for the future and fears.5
In this global world, international cooperation and harmonization
shall be valued and pursued, but conflicts shall continue to exist,
1
L. Lessig, Architecting Innovative, The Standard (Intelligence for the Internet Economy),
November 14, 1999, at <http://www.thestandard.com/article/display/0,1151,7430,00.
html>. Every new developing technology brings challenges and opportunities
which frighten people with power, and empower people without power. See fur-
ther G. LaMarche, International Free Expression Principles in Cyberspace, 17 Whittier
L. Rev. 279 (1995).
2
For a discussion of the technical development, see J.E. Faucette, Note, The
Freedom of Speech at Risk in Cyberspace: Obscenity Doctrine and a Frightened
University’s Censorship of Sex on the Internet, 44 Duke L.J. 1155, 1161–1162 (1995).
3
F.H. Cate, Symposium: Sovereignty and the Globalization of Intellectual Property:
Introduction Sovereignty and the Globalization of Intellectual Property, 6 Ind. J.
Global Legal Stud. 1 (1998); F.H. Cate, Symposium: Data Protection Law and the
European Union’s Directive: The Challenge for the United States: The E.U. Data
Protection Directive, Information Privacy, and the Public Interest, 80 Iowa L. Rev.
431, 441–442 (1995).
4
J.W. Dellapenna, Law in a Shrinking World: The Interaction of Science and
Technology with International Law, 88 Ky. L.J. 809, 837 (1999–2000).
5
A. Benshop, Peculiarities of Cyberspace “Building Blocks for an Internet Sociology”, at
<http://www.pscw.uva.nl/sociosite/WEBSOC/introE.html>.
250 chapter seven
and these conflicts shall exhibit even more complicated faces. Perhaps
no set of issues appears more vexing than those associated with
potential disputes arising out of electronic commerce, particularly
between parties located in different parts of the world. Thus ques-
tions are raised concerning the nature of conflicts and conflict res-
olution. One particular hindrance to the growth of the electronic
marketplace is, in fact, the lack of consumer confidence about being
able to obtain a remedy if a complaint about a transaction, marketer,
product or service cannot be settled amicably with a merchant. Rapid
response from legal society is needed.
The fact that the legal world lags behind6 and parties involved in
electronic commerce feel rather insecure regarding the legal impli-
cations of their behavior has seriously impacted concerns over who
shall take the responsibility to resolve a dispute once one arises and
what rules shall help clarify the issue.7 If these significant matters
are not dealt with, the further development of electronic commerce
may be limited. It is the purpose of the present study to tentatively
address them.
This study explores a comprehensive legal environment for resolv-
ing disputes in electronic commerce. Chapter Two provides back-
ground information on electronic commerce, the Internet, cyberspace,
disputes, and dispute resolution mechanisms. This overview of the
present understanding among the public concerning disputes in elec-
tronic commerce serves as a starting point for further research.
Chapter Three discusses three policies important to resolving dis-
putes in electronic commerce. Self-regulation affords Internet soci-
ety the power and opportunity to define its position and express its
own attitudes towards activities in cyberspace created by the appli-
cation of the Internet. While electronic commerce is essentially a
global, rather than a national issue,8 the policy of international coop-
6
M.I. Meyerson, Virtual Constitutions: The Creation of Rules for Governing
Private Networks, 8 Harv. J.L. & Tech. 129 (1994); J. Connellan, Regulators Face
up to Ecommerce Uncertainty, Telecommunications (International Edition) 35–37
( January 2000); E.M. Landry, Scrolling Around the New Organization: The Potential
for Conflict in the On-Line Environment, 16 Negotiation Journal, No. 2, 133–140
(April 2000).
7
L. Margherio, The Emerging Digital Economy, at <http://www.ecommerce.gov/dan-
intro.htm>.
8
Building Confidence in Electronic Commerce: A Consultation Document, Depart-
ment of Trade and Industry, UK, Unique Reference Number: URN 99/642.
conclusion 251
eration is of consequence to all. Internet interactions recognize no

territorial boundaries, inexorably forcing those with competing values
and interests into conflicts in an environment outside exclusive domes-
tic control.9 With the trend of globalization well underway, this pol-
icy shall be increasingly and more broadly applied. Thirdly, the
policy of consumer protection arises out of the fact that consumer
transactions are becoming more and more important and extending
further into our daily life. The specific position of consumers in elec-
tronic commerce justifies special treatment in such transactions. The
way in which the former conception of consumer protection is refor-
mulated in the present stage shall have vital effects on the fate of
electronic commerce. These three policies are treated from a macro
point of view and need to be further examined in detailed cases.
With the basic policy in hand, it is necessary to elaborate on dis-
pute resolution in electronic commerce. Litigation, as the traditional
main mechanism, shall still maintain its strong influence on disputes
in electronic commerce. However, to accommodate recent techno-
logical developments the court system shall need to fundamentally
change some theories, for example, those concerning adjudicative
jurisdiction and choice of law, which are scrutinized in Chapter Four.
Its discussion could provide a tentative guide for the future treat-
ment of these issues.
Adjudicative jurisdiction, the entrance to court procedures, occu-
pies an important position in litigation theory. A look into existing
practices in the US and the EU serves to guide the present discus-
sion. International efforts in realizing harmonization in adjudicative
jurisdiction are also significant. The Draft Hague Convention pro-
vides a nice suggestion for change: the identification and localiza-
tion of the parties to the contract could be one way to substitute
the traditional territorial connection.
Choice of law arrives after the justification of adjudicative juris-
diction. Two issues are identified: contractual issues and tort. This
study addresses ongoing practice in the US and the EU. Party auton-
omy is a very important theory for contractual disputes. In cases
where autonomous choice is absent, we must make the choice of
law with a view to certain connecting factors, for example, the place
9
V. Chiappetta, The Impact of E-Commerce on the Laws of Nations Forward,
7 Willamette J. Int’l L. & Dispute Resolution 9 (2000).
252 chapter seven
of the delivery of goods or services, or the place of the merchant’s

residence or place of business. The location of the server could pro-
vide a point for deciding applicable law for tort.
Because of shortcomings in the litigation, ADR mechanisms are
often valued. Several examples are discussed in Chapter Five.
Pioneering the field of dispute resolution in electronic commerce,
many of these experiments have achieved success, which suggests
promise for future efforts. In particular, the successful WIPO mech-
anism for domain name disputes has received much attention, which
caught the interest of the present study. But as an experiment, its
reach is limited. Its success cannot justify its extension to other areas
in electronic commerce. Without doubt, a more viable mechanism
should be pursued further for disputes in electronic commerce in
general.
Given the interconnection of trade with the Internet, it is easy to
predict that the foreseeable expansion of electronic commerce shall
lead involved parties to turn to the same media through which they
do their business when it comes to their resolving disputes. While
taking these media into account, Chapter Six undertakes to devise
a permanent body to resolve disputes in electronic commerce. At
first gloss, this body resembles other arbitration bodies, but its fur-
ther elaboration requires us to acknowledge that our prior percep-
tions and assumptions about conflict and modes of resolving disputes
may require further reorientation.
The difference between the present mechanism and traditional
mechanisms concerns the use of online facilities, which has larger
underpinnings for issues of maintenance, enforcement, and other
ensuing procedures. This mechanism lies somewhere between a pure
adjudicative one and a simple forum for the rule enforcement of a
chosen legal system, incorporating expert neutrals to make determi-
nations dependent on the unique nature of cyberspace.10 It is a ten-
tative one, the feasibility of which shall be tested in real commercial
life. Cyberspace is an arena of experimentation and competition. It
is not now and probably never will be a harmonious place. The
emergence of effective justice systems will require considerable cre-
10
E.C. Lide, ADR and Cyberspace: the Role of Alternative Dispute Resolution
in Online Commerce, Intellectual Property and Defamation, 12 Ohio St. J. on Disp.
Resol., 220 (1996).
conclusion 253
ativity, but the larger and more active cyberspace becomes, the more
likely it is that demand for online ADR mechanism will grow.11 In
an age when law enforcement agencies are learning how to police
a system in which they are unfamiliar, and the existing mechanisms
are not rightly in the track of this new phenomenon, an alternative
which has the potential to bring order on the new frontier should
deserve considerable attention.
Closely related to this mechanism, the law for electronic commerce
is discussed in a broad framework—the Internet. Lex informatica appears
appropriate for electronic commerce for the time being. Reflecting
self-regulation on the part of Internet society, a kind of “electronic
federalism,”12 lex informatica shall prelude formal harmonized rules for
electronic commerce in the strict legal sense.
This study examines the legal system for resolving disputes in elec-
tronic commerce, and enthusiastically presents the probable mechanism
for addressing such disputes. Whether the question is the protection
of domain names, transnational security, the establishment and use
of crypto-secured digital identities, or any other issue arising in the
context of electronic commercial transactions, the need for efficient
and effective dispute resolution cannot be overstated.13 Fortunately,
more and more timely attention is being paid to this topic. Many
scholars have started researching it from different angles and vari-
ous parties have already started projects offering dispute resolution
services. Such efforts result from the initiative of the citizens of the
Internet community at large. Its attitudes and activities rightly lead
the way in this new exploration.
The efforts made by individual scholars and separate parties
have aroused the attention of international society. Its interest led to
the International Conference on Dispute Resolution in Electronic
11
E. Katsh, J. Rifkin & A. Gaitenby, E-Commerce, E-Disputes, and E-Dispute
Resolution: In the Shadow of “eBay Law”, 15 Ohio St. J. on Disp. Resol. 733 (2000).
12
See further G.S. Wood, Thomas Jefferson, Equality, and the Creatipon of a
Civil Society, 64 Fordham L. Rev. 2133, 2135 (1996); J.R. Reidenberg, Governing
Networks and Rule-Making in Cyberspace, in B. Kahin & C. Nesson (Eds.), Borders
in Cyberspace: Information Policy and the Global Information Infrastructure 84 (Cambridge,
MA: MIT Press, 1996); D.L. Burk, Federalism in Cyberspace, 28 Conn. L. Rev. 1095
(1996); D.G. Post, Anarchy, State, and the Internet, 1 J. Online L. 3, 20 (1995), at
<http://www.law.cornell.edu/jol/post.html>.
13
L. Yves Fortier, International Commercial Arbitration and E-Commerce: Plus
ca Change, plus c’est La Meme Chose, October 27, 2000, International Conference
on Dispute Resolution in Electronic Commerce, WIPO, ARB/ECOM/00/2.
254 chapter seven
Commerce organized by the WIPO Arbitration and Mediation Center

on November 6 and 7, 2000. Besides individual participants, repre-
sentatives from around 40 countries, intergovernmental organizations,
non-governmental organizations also took part in this conference.14
Various topics related to dispute resolution in electronic commerce
were heatedly discussed. Discussions concerned new legal issues for
dispute resolution, including issues of encryption and security, domain
name dispute resolution, application service provider disputes, auc-
tion site disputes. Ostensibly, debates over such issues could provide
the impetus for a new round of development in electronic commerce.
Dispute resolution is not only an issue for the Internet society to
deal with, but also the present focus of international scene.
The general consensus of ongoing projects and discussions is that
e-commerce, or more generally, information technology, shall change
the way of conducting dispute resolution by imposing specialized
techniques, such as online arbitration. The need for fair, efficient,
speedy and appropriate dispute resolution for electronic commerce
has justified the online performance of dispute resolution. First of
all, this causes no technological difficulties. The issues of security,
confidentiality and encryption could be well resolved through technical
improvements and legal implementation. The greatest practical hurdle
could be dealing with heavy documentary evidence but, in the end,
papers can be scanned. The minds of those arbitrators not keen to
abandon well-proven methods in favor of untried methods15 must be
changed. Arbitration, a millennium-old dispute resolution mechanism,
has always demanded innovation. This has in turn required arbi-
trators to be both aware of and responsive to the needs of its users.
As discussed in Chapter Six, legal problems such as the arbitra-
tion agreement, the seat of arbitration, final award, shall not become
obstacles for the new mechanism. International society has launched
efforts to provide a legal environment for electronic commerce. Several
states in the US enacted versions of the Uniform Electronic Trans-
actions Act (UETA); however, many states modified this model act,
thus rendering interstate enforcement inconsistent. In 2000, the fed-
eral government enacted the Electronic Signature Act, leading to
14
WIPO, ARB/ECOM/00/INF/1 Prov. 2, November 6, 2000.
15
R. Hill, Institutional Perspectives and Responses, International Conference on
Dispute Resolution in Electronic Commerce, November 3, 2000, WIPO, ARB/
ECOM/00/32.
conclusion 255
some consistency among states but still leaving gaps for those states
that did not enact UETA. The European Commission and other
government and non-governmental organizations have promulgated
a series of directives.16 UNCITRAL, for instance, presented a model
law. None of these promises to create a universally recognized legal
framework for electronic commerce in the near term. But though
there is at present no complete set of national legislation or generally
accepted international rules concerning electronic commerce, a new
ADR mechanism seems appropriate.
Electronic commerce is reshaping and adopting new techniques
and rules of dispute resolution to cope with its very nature. It opens
the door for practitioners in arbitration to advocate and market a
uniquely flexible and well-established dispute resolution mechanism
to a new generation of people in cyberspace. An online dispute res-
olution mechanism should be the right choice for you when you
need the assistance of a capable, experienced ADR professional; when
you do not want to go to court; when you want to hold down costs
and fees; and when you want to use an asynchronous process that
allows you to participate when you have time. It is the obligation
of global providers to build user confidence in electronic commerce
and ensure protection in online transactions.17
It might be a bit too early to envisage a perfect and complete
dispute resolution mechanism for electronic commerce that would
have no gaps, uncertainties, or difficulties, even in developed parts
of the world. The development of a mechanism for dealing with dis-
putes in electronic commerce shall depend on electronic commerce’s
further development. The present study offers a few introductory
suggestions that may aid others in their steps forward to a more per-
fect realization of dispute resolution in electronic commerce.
16
See further M.I.M. Aboul-Enein, An Outline on “Dispute Resolution in Electronic
Commerce” in the Arab Countries: Institutional Perspectives and Responses, Inter-
national Conference on Dispute Resolution in Electronic Commerce, November
2000, WIPO, ARB/ECOM/00/29.
17
L.E. Teitz, Providing Legal Services for the Middle Class in Cyberspace: The
Promise and Challenge of On-Line Dispute Resolution, 70 Fordham L. Rev. 1016
(December 2001).
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INDEX
1985 Hague Convention, 136 Auction, 104–105, 163–164, 218, 254

Authentication, 64, 214
Abusive registration, 180, 182 Automated Clearing House (ACH), 14
Acceptance, 1, 25, 60, 127, 156, 217,
219 Bad faith, 94, 177–180, 184
Access provider, 27 Better Business Bureau (BBB), 44, 80,
Accountability, 48, 55, 191 168
ADR, 9, 33–38, 41, 65, 67, 78–79, Bias, 193
84–85, 90, 164, 166, 168, 193–194, Brussels Convention, 83, 110–113
196, 199, 201–202, 208–215, 221, Bureaucracy, 53
236, 240, 243, 246, 252–253, 255 Business-to-administration, 23
Adaptation, 9, 53, 233 Business-to-business (B2B), 3–4, 23–24,
Adhesion contract, 22, 118, 139 121
Adjudication, 36, 38, 43, 54, 204, Business-to-consumer (B2C), 23–24
212, 235
Administrative tribunal, 91 Center of gravity, 134, 144
Admissibility, 167, 182 Certainty, 67, 130, 133–134, 140, 142,
Advertisement, 22, 29, 76, 85, 97, 144, 150, 152
101, 104, 109, 114, 139, 172 Characteristic performance, 134
American Arbitration Association Chargeback, 164–166, 169
(AAA), 55, 154, 156, 203, 216 Chat room, 185
American Bar Association (ABA), 120 Check and balance, 47
America Online (AOL), 158 Civil offence, 179
Antarctica, 223, 225, 228 Choice of law, 10, 31, 90, 124–129,
Anti-competitiveness, 46 131–132, 135–139, 141–147,
Antitrust, 46, 213 149–152, 213, 228, 244, 251
Appeal, 120, 217, 241, 246 Clarity, 145, 189
Applicable law, 34, 36, 60, 78, 86, Classification, 26–27
90, 124, 128, 131, 134, 137–138, Clickwrap, 215
140–142, 144–147, 149–150, 152, Code of behavior, 51
167–168, 213, 231, 244, 252 Collective process, 207
Application Service Provider (ASP), Commercial
10, 66–67, 254 – contract, 29
Appointment, 23, 181, 203, 211 – guarantee, 68
Arbitrability, 200 Common Heritage of Mankind
Arbitral award, 216, 218–221 (CHM), 226–227
Arbitration, 8, 11, 35–36, 38, 55, Comparative impairment, 130
63–65, 67, 75, 154–155, 157–159, Competence, 82
162, 166–167, 172, 183–184, 186, Competition, 30, 55, 70, 76, 87, 116,
190, 193, 199–203, 205, 209–211, 119, 187, 194, 252
213–215, 217–221, 246–247, 252, Complainant, 154, 158, 167, 171–172,
2554–255 176–178, 180–181, 186, 188, 190,
Arbitration Agreement, 200, 213–215, 192–193, 198, 203, 205
217–220, 254 Compliance, 45–48, 76, 79, 87, 171,
Arbitrator, 36, 167–168, 171–172, 189, 195–196, 217, 221
200, 202–203, 205–207, 210–213, Computer Integrated Courtroom (CIC),
216, 220, 241, 254 151
ARPANET, 15 Confidential information, 171
288 index
Confidentiality, 34, 156, 171, 207, 214, 140–145, 147, 149–151, 153, 168,
254 198–199, 209, 212–213, 221–230,
Conflict 232–233, 235–246, 250, 252–253,
General, 6, 9, 31, 34, 57–58, 60, 255
109, 120, 126, 128–130, 133, 136, Cyberspace Law Institute (CLI),
139, 144, 150–151, 161, 173, 227, 153–154
229, 241, 249–252 Cybersquatting, 175–180, 186, 189,
– of laws, 34, 128, 130, 136, 150 191–192
– resolution, 250 CyberTribunal, 166–168
Congestion, 32
Connecting factor, 92, 121, 128, 133, Data protection, 30, 58, 135
140–141, 149, 251 Defamation, 30, 141, 155, 231
Consistency, 191, 255 Defense Department, 15
Consumer Delict, 112
– association, 62 Delivery, 22, 24, 27, 66, 121, 131–132,
– awareness, 87 134, 140, 182, 252
– complaint, 33, 74, 169, 202 Damage, 7, 31, 45, 77, 95, 117, 146,
– confidence, 38, 68, 73, 79, 87, 187, 192, 213
163–164, 170–172, 196, 250 Decision-maker, 186, 188, 211, 242
– contract, 29–30, 83, 111, 113, Democracy, 17
122, 132, 134, 139, 200, 221 Determinacy, 150
– interest, 71, 77, 85, 118 Digital
– International (CI), 65, 153, 195 – cash, 25
– organization, 76, 198, 205 – divide, 53
– protection, 38, 65, 68–73, 75–78, – signature, 64, 220, 232–233
80–82, 84–88, 94, 113–114, Digitalization, 1
118–119, 132, 135–136, 165–166, Dilution, 81, 179
208–209, 251 Directive on Electronic Commerce, 62,
– transaction, 4, 8, 24–25, 38, 71, 72, 83–84, 111, 115
75, 86, 94, 114, 118, 132, 138, Disclosure, 74, 79, 155, 192, 216
166, 196, 215, 251 Discovery, 190, 192, 206, 215–216,
Contractual 225–226
– dispute, 26–27, 104, 112–113, Discretionary power, 91
127–128, 150, 200, 251 Dispute avoidance, 10, 66, 169
– relationship, 25–27, 30, 67, 127, Dispute review board, 35, 67
133, 138 Dissemination, 171
Convergence, 78, 231, 249 Domain names
Copyright, 30, 90, 145, 154–155, 166 General, 10, 20–22, 27, 30, 66–67,
Counterclaim, 113 94–95, 172–180, 183–190,
Country of 192–193, 252–254
– origin, 78, 111, 147 – dispute, 10, 30, 67, 95, 172,
– destination, 114 175–179, 185–187, 190, 252, 254
Courtroom, 56, 74, 151, 204 Draft Hague Convention, 120–121,
Credential, 195 123, 251
Credit card, 22, 164–166, 209 Due process, 94, 98–99, 108, 211
Criminal jurisdiction, 179 Duel, 31
Criminality, 179–180
Custom, 212, 235–246 Early neutral evaluation, 35, 67
Cybercourt, 127 eBay, 10, 54–55, 163–164, 169, 172
Cyber-domiciliaries, 27 Effectiveness, 69, 197, 201, 225, 246
Cyber-tort, 141 Effects test, 104
Cyberlaw, 125–126 Efficacy, 158
Cyberspace, 17–18, 25, 32, 39, 41, 74, Efficiency, 4–5, 19, 24, 57, 144,
90, 106, 108, 124–127, 131–132, 197–198, 211, 246
index 289
Electronic Data Interchange (EDI), Free will, 118–119, 122

14, 23–24, 29 Freedom
Electronic General, 30, 48, 58, 87, 117–119,
– fund transfer, 14 131, 138, 162, 166–167, 184,
– payment, 13, 29 242
– signature, 89, 168 – of contract, 117
– Signature Act, 254 Frequency, 195
Encryption, 171, 254
Enforceability, 198, 212, 242 GATS, 20
Enforcement, 36, 43, 45–46, 48, 53, Geographic location, 42, 91
59, 77–79, 83, 85, 90–91, 110, 116, GII-GIS, 60
139, 159, 171, 184, 198, 216–221, Global Information Infrastructure (GII),
235, 240, 252–254 150
Escrow Arrangement, 10, 163 Globalization, 57, 249, 251
Ethics, 85 Governance, 191, 194
European Governmental
– Commission, 4, 61–62, 72, 115, – interest analysis, 129
255 – regulation, 45, 48, 51–53, 59, 117
– Council, 111, 145
– Data Protection Directive, 58 Habitual residence, 121–122, 134
– Economic Community (EEC), 80 Harmonization, 81–82, 126, 135, 249,
– Free Trade Association (EFTA), 251
111 Hearing, 182, 185, 189, 193, 197, 216
– Internet Services Providers High seas, 225, 227–228
Association (EuroISPA), 50 Home base, 209
– Parliament, 56
– Union (EU), 4, 61 Identification, 123, 214, 251
Evidence, 75, 79, 89, 169, 179–182, Immovable property, 113
185, 199, 242, 254 Impartiality, 181, 186
Expertise, 64, 161, 171–172, 186, Implied choice, 134
243–244 In rem proceeding, 93–95
Expression, 30, 58, 90, 166 Independence, 181, 212
Extraterritorial regulation, 58 Industrial Revolution, 98
Information
Fact-finding expert, 35, 67 – distribution, 73
Fair play, 99, 108 – flow, 57
Fairness, 86, 89, 99, 144, 148, 150, – revolution, 41
152, 197–198, 234, 241 – society, 60–62, 83
Federal Trade Commission (FTC), 72, – superhighway, 56
75–80 – technology, 3, 79, 161, 164,
Federation of European Direct 183, 202, 254
Marketing (FEDMA), 210 Infrastructure, 4, 20, 26–28, 60, 150,
Feud, 31 183
Filing, 38, 113, 167, 185, 190, Infringement, 26–27, 30, 109, 141,
197–198, 203, 206, 211 146, 154–155, 187
Fixed establishment, 111 Injunctive relief, 187
Flowchart, 192 Injustice, 90, 143, 191
Foreignness, 220 Insurance arrangement, 54
Foreseeability, 148 Intellectual property, 10, 26, 30, 65,
Forum 123, 141, 155, 172, 175, 184, 186
– selection, 128 Interconnection, 20, 27–28, 119, 252
– State, 31, 93, 96–102, 105, Interest-balancing, 208
108–110, 121, 132, 218 Interest-based approach, 198
Fraud, 68, 155, 158 Interim relief, 35
290 index
Intermediary, 36 Language, 94, 182, 209–211

International Law Merchant, 234
– Ad Hoc Committee (IAHC), 223 Leflar better law approach, 144
– Chamber of Commerce (ICC), Legal guarantee, 34, 68
63–64, 67, 120, 153, 167, 201, Legitimacy, 204, 212, 235
203, 209 Legitimate right, 149
– cooperation, 10, 59–60, 67, 79, Lex
120, 249 – cyberalty, 125, 127
– organization, 21, 30, 60–61, 67, – fori, 145
120, 194 – informatica, 11, 213, 233–234,
– Space, 222, 224–228, 243–244 236–237, 240–245, 253
Internationalization, 124 – loci delicti, 142–143, 145
Internet – mercatoria, 234–237, 244
– Assigned Numbers Authority Liability, 29, 68, 100, 106, 187, 233
(IANA), 173 Libel, 26, 90
– community, 51, 54, 253 Liberalization, 20, 28, 65, 116
– Corporation for Assigned Names Lis pendance, 114
and Numbers (ICANN), 65, 67, Litigation, 7–10, 31–35, 37, 54,
173–175, 177–178, 183, 186–188, 66–67, 78, 89–91, 115, 117, 124,
190–191 151, 154, 157, 159, 184, 186–187,
– Protocol (IP), 15, 20, 173–174 189, 191–192, 195, 203–204, 206,
– server, 19, 146–147, 150 211, 215, 217, 251–252
– Service Provider (ISP), 21, 25, Localization, 123, 251
28–30, 50, 148, 171, 209 Long-arm statute, 98
Intranet, 23 Lugano Convention, 110, 112
ITU, 20
Magaziner Report, 50
Judgment, 33, 78–79, 83, 89–91, Maliciousness, 185
94–95, 106, 110, 112, 120, 124, Mandatory rule, 132, 134
147, 158, 186, 200 Market
Judicial procedure, 37, 62, 84 – failure, 71
Jurisdiction – force, 116, 249
General, 8, 10, 18, 31–32, 34, 38, Mass advertising, 17
61, 64, 69, 78, 81, 83, 85–86, Materiality, 182
90–113, 116–124, 132, 138, 141, Media, 16, 41, 68, 70, 73, 231–232,
145, 151–152, 154, 156, 159–160, 252
167, 179, 184–185, 200, 212, Mediation, 35–36, 65, 67, 153,
226, 228, 232, 234–235, 242, 161–164, 166–167, 172, 183, 199,
251 247, 254
– Adjudicative, 10, 90–93, 106, Middle Ages, 31, 234, 240, 244
110, 113, 116–117, 119–121, Mini-trial, 35, 67, 199
123, 151–152, 200, 251 Minimum contact, 97, 101–102, 104,
– Criminal, 179 106–109
– Exclusive, 98, 118 Mobility, 145
– General, 96–98 Model Law on Electronic Commerce,
– In rem, 93–95 6, 219
– Mutual, 185 Moderator, 31, 158
– Personal, 93–96, 98, 102, Most significant relationship theory,
105–109 130
– Specific, 96, 98 Multi-User Dimension (MUD), 206
– Tag, 105
Jurisprudence, 100 National
Justice, 9, 78, 90, 99, 107–108, 114, – Arbitration Forum (NAF), 190,
144, 252 216
index 291
– Center for Automated Information Privacy, 34, 44, 58, 155, 166,
Research (NCAIR), 153–154, 161, 168–169, 192, 214
247 Procurement, 24, 170
– interests, 7, 28, 124 Product liability, 100
– regulatory bodies, 28 Propaganda, 105, 205, 210
Nationality, 112–113, 130, 226, 228 Proprietary right, 179
Negotiation, 20, 23, 28–29, 35–36, 61, Public policy, 132–133, 139
63, 67, 121–123, 130, 153, 163–165 Publicity, 34, 61, 79, 122, 160,
Nethics, 236 204–205, 210, 217
Netiquette, 71, 236 Purposeful availment, 100, 105
Netizen, 71, 236
Network Solutions, Inc. (NSI), Reasonableness, 105, 128, 157
174–175 Reasoning, 199, 216
Neutral fact-finding expert, 35, 67 Redress, 7, 38, 62, 65, 75, 77–78,
Neutrality, 200, 212 85–86, 88, 152, 170
New York Convention, 159, 218–221 Registrar, 174, 180, 182–184, 187, 192
Newsgroup, 156 Registration
Non-contractual dispute, 10, 26, 29–30 General, 21, 95, 132, 173–174, 177,
Nondiscrimination, 62 180, 182–189, 193, 202
Non-governmental entity, 47 – Agreement, 183–185, 187
Not-for-Profit, 65, 201, 211 Regulability, 225
Relationship, 10, 13, 19, 21, 25–27,
Obscenity, 90 29–30, 32, 34, 37, 47, 64, 66–67,
Ombudsman, 35, 161–162, 172 87, 93, 98, 127, 130, 132–133, 138,
Ombudsperson, 67 140, 143–145, 149–150, 171, 194,
Online bookstore, 30 199, 232–234, 245–246
Online Ombuds Office, 10, 54, Reliability, 97, 170, 196
161–162 Reputation, 34, 43, 168, 179, 196
Openness, 62, 191 Rights-and-power-based system, 198
Opinio iuris, 237 Rome Convention, 83, 133, 135, 137,
Organization for Economic 146
Cooperation and Development Rome II Convention, 146
(OECD), 64–65, 69, 72, 86, 88, Rule of origin, 146, 148
120, 153, 165
Out-of-court, 62, 84 Safeguard, 25, 163
Scaling approach, 106–108
Panel, 180–187, 190–191, 238 Scam, 76–77
Panellist, 181–182, 185–186, 191 Search engine, 18, 22, 105
Parasite, 178–179 Security, 5, 30, 34, 64, 134, 160, 206,
Party autonomy, 131, 133–134, 212, 214, 253–254
138–140, 251 Self-help, 70, 162
Passivity, 187 Self-policing, 55
Payment, 13–14, 22, 27, 29, 134, 163, Self-regulation, 10, 42–57, 59, 61,
180 77–78, 87, 116–117, 127, 153,
Personal data, 135 169–171, 188, 238, 250, 253
Physical Self-regulator, 43–47
– location, 19, 116, 124, 132, 138, Settlement counsel, 35, 67
143, 152, 206, 220 Signature, 5, 64, 89, 168, 182, 220,
– presence, 93, 100, 168 232–233, 254
Physicality, 140 Significant relationship principle, 150
Pleading, 143, 188, 206 Simplicity, 144, 189
Precedent, 91, 191 SLD, 21, 176
Predictability, 130, 142, 146, 152 Sliding scale, 101
Principal obligation, 121 Sovereignless, 227
292 index
Sovereignty, 57, 99, 109–110, 223, Trademark, 21, 27, 30, 102, 109,
225–228 154–155, 169, 174, 177–179, 184,
Spillover effect, 52, 58–59, 225 188, 192–193
SquareTrade, 163–164 Transparency, 62, 79, 191, 195
Stability, 7, 149, 235 Transaction cost, 23, 74
Stakeholder, 79, 209 TRUSTe, 44, 168–169
Standard contract, 73–74 Trustworthiness, 158, 217
State-of-origin, 83 Twin, 150, 178–179
State of
– central management, 121 UNCITRAL, 6, 60, 151, 167, 219,
– domicile, 113 255
– incorporation, 121 Uniform Computer Information
– performance, 112 Transactions Act (UCITA), 131–132
– residence, 111, 122 Uniform Domain Name Dispute
– statutory seat, 121 Resolution Policy (UDRP), 175,
Status quo, 187 177–178, 181, 183, 187–188,
Stream of commerce theory, 100 190–191, 193
“Stream-of-commerce plus” standard, Uniform Electronic Transactions Act
101 (UETA), 254–255
Subject matter, 130 Uniform law, 126, 213
Subsidiarity, 81 Uniformity, 130, 142
United States Council for International
Technical expert, 162, 172, 214 Business (USCIB), 202
Telecommunications, 1, 20, 28, 209, Uruguay Round, 20, 28, 63
219
Teleconference, 206, 214 Virtual
Territorial connection, 91, 123, 147, – Magistrate, 10, 54–55, 127,
223, 251 153–157, 159–160, 162, 170–171
Territoriality, 143, 146, 227, 229 – space, 91
Testimony, 168, 206 Voluntary compliance, 46
Third party, 25, 30, 148, 158, 164,
174, 188, 220, 233 Win-win, 34, 198
Time limit, 18, 185, 188, 191, 197, Witness, 87, 168, 197
216 World Intellectual Property
TLD, 21–22, 173, 178, 180, 188–189 Organization (WIPO), 10, 65–67,
Tort, 26, 104, 112, 122, 127, 141–142, 172, 175–178, 181–186, 188, 191,
145, 147, 150, 221, 229, 251–252 193, 252, 254
Trade World Trade Organization (WTO),
– association, 43, 111, 198, 205, 20, 28, 60, 62–63, 67
218 Writing, 5, 17, 89, 133, 164, 219–220,
– barrier, 17 233, 239
– secret, 154–155
STUDIES AND MATERIALS
ON THE SETTLEMENT OF
INTERNATIONAL DISPUTES
Series Editor
Professor Peter Malanczuk

School of Law, City University of Hong Kong
ISSN: 1387-2990
1. Kazazi, M. Burden of Proof and Related Issues. A Study on Evidence Before

International Tribunals. 1996. ISBN 90 411 0142 X
2. Wellens, K.C. Economic Conflicts and Disputes Before the World Court (1922-1995). A
Functional Analysis. 1996. ISBN 90 411 0195 0
3. Kokott, J. The Burden of Proof in Comparative and International Human Rights Law.
Civil and Common Law Approaches with Special Reference to the American
and German Legal Systems. 1998. ISBN 90 411 0570 0
4. Maluwa, T. International Law in Post-Colonial Africa. 1999. ISBN 90 411 1089 5
5. Magliveras, K.D. Exclusion from Participation in International Organisations. The Law
and Practice Behind Member States’ Expulsion and Suspension of
Membership. 1999. ISBN 90 411 1239 1
6. Kaikobad, K. Homi The International Court of Justice and Judicial Review. A
Study of the Court’s Powers with Respect to Judgements of the ILO and UN
Administrative Tribunals. 2000. ISBN 90 411 1471 8
7. Kamminga, M.T. & S. Zia-Zarifi (eds.). Liability of Multinational Corporations under
International Law. 2001. ISBN 90 411 1504 8
8. Schweigman, D. The Authority of the Security Council under Chapter VII of the UN
Charter. Legal Limits and the Role of the International Court of Justice. 2001.
ISBN 90 411 1641 9
9. Zhao, Y. Dispute Resolution in Electronic Commerce. 2005. ISBN 90 04 14383 1

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Dispute Resolution in Electronic Commerce

Studies and Materials on the Settlement of

MARTINUS NIJHOFF PUBLISHERS

Printed on acid-free paper.

Koninklijke Brill NV incorporates the imprints Brill Academic Publishers,

Printed and bound in The Netherlands.

Chapter One Introduction .................................................... 1

Chapter Two Electronic Commerce and Dispute

Chapter Three Policy Choice .............................................. 41

Chapter Four Development of Litigation for Electronic

3.2.2. Analysis of the Present Applicable Law

Chapter Five Attempts at Formulating a New

Chapter Six A New Mechanism for Electronic

Chapter Seven Conclusion .................................................... 249

Bibliography .............................................................................. 257

Index .......................................................................................... 287

AAA American Arbitration Association

GII-GIS Global Information Infrastructure—Global Information

USCIB United States Council for International Business

considered a watershed in the way we do business . . . an abrupt and

zero to a predicted US$300 billion in the ten years up to the turn

Having realized the advantages of electronic commerce, other

sumers into electronic commerce is believed to be a simple matter

Recognising the eﬃciency and convenience brought by the Internet,

Trade Law (UNCITRAL) took the initiative to draft Model Law on

can be found at <http://www.iccwbo.org/guidec2.htm>. For general discussion, see

if a product or service purchased through the Internet is not received,

3. Approach and Scope

As discussed above, disputes shall arise during the process of elec-

tion system. While litigation may serve a purpose, alternatives to lit-

The present study consists of seven parts. After a brief introduction,

several speciﬁc types of electronic commerce, followed by an expla-

Based on the practices described in Chapter Five but not a sim-

ELECTRONIC COMMERCE AND DISPUTE RESOLUTION

1. An Overview of Electronic Commerce

Electronic commerce is a “buzzword,” which has no clear meaning

Electronic Data Interchange (EDI) all make it possible to do busi-

2. Business through the Internet

2.1. The Internet as a Medium

based on the Internet Protocol or its subsequent extensions/follow-

Introduction to the Internet, in E. Mackaay et al. (Eds.), The Electronic Superhighway,

Internet would serve as a means to disperse information not exclu-

persons. Only the Internet integrates sounds, text, interpersonal com-

2.2. Cyberspace for Electronic Commerce

Information Infrastructure. See for example, J.C. Ginsburg, Global Use/Territorial

2.3. Character of Electronic Commerce

2.4. Preparation and General Procedures for Electronic Commerce

The domain name system operates in a hierarchical manner.37

23, 1998, Chapter 1, para. 2(iv), at <http://wipo2.wipo.int/process/eng/rfc3/

With this system, each IP number corresponds to an alphanumeric

The whole transaction is completed without the two parties’ meet-

2.5. Types of Electronic Commerce

One of the most immediate promises of EDI is increased eﬃciency

2.5.2. Business-to-Consumer (Consumer Transaction)

There are two sub-types of consumer transaction. The ﬁrst is a

3. Disputes in Electronic Commerce

Actually, electronic commerce does not change the basic purpose of

is important to assess diﬀerent types of disputes in electronic com-