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On September 1, 1999, the European Commission presented its amended proposal for a directive on certain legal aspects of electronic commerce ("e-commerce directive"), an ambitious Commission initiative to harmonize:

• the law applicable to the establishment of e-commerce businesses;
• their commercial communications with on-line users;
• the enforceability of electronic contracts;
• the liability of on-line intermediaries such as ISPs; and
• the out-of-court settlement of e-commerce disputes

in the fifteen Member States of the EU (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Ireland, Luxembourg, the Netherlands, Portugal, Spain, Sweden, the United Kingdom).

Applicable Law: the "Internal Market Clause"
Commercial Communications
Electronic Contracts
Limited Liability for ISPs
Dispute Resolution and Enforcement

The amended proposal maintains the key provisions of the original proposal of November 1998. Thus, the central provision of the proposed directive, Article 3 (often referred to as the "Internal Market Clause"), provides that e-commerce businesses established in the European Union, referred to as "Information Society Service Providers" (ISSPs) in the proposal, are subject to the laws of the country of their establishment. The proposal considers the place of establishment of an e-commerce business to be the place where it is effectively located for an indeterminate duration; the location of technical equipment such as servers alone will not establish the e-commerce business in a particular country. This provision promises to be of great benefit to e-commerce businesses, because it means that they would need to comply only with the law of the Member State of their establishment rather than up to fifteen Member State laws, thus reducing risks and saving considerable legal costs. Some important areas of law are exempted from this provision, however, including contractual obligations concerning consumer contracts, intellectual property, data protection, and the legal conditions applying to unsolicited commercial communications.

Currently, the Internal Market Clause is part of a wider controversy over which law should apply to and which court should have jurisdiction over e-commerce service providers. The Commission is preparing regulations addressing applicable law and jurisdiction generally, to update and add to the 1968 Brussels Convention on jurisdiction and enforcement and the 1980 Rome Convention on the law applicable to contractual obligations. Proposals for these regulations put forward by the Commission have come under heavy attack from e-commerce companies who argue that they are too heavily slanted in favor of the consumer, as general regulations take insufficient account of the distinct nature of e-commerce, impose too onerous and costly obligations on e-businesses and are in contradiction with the e-commerce directive's Internal Market Clause.

The directive would require Member States to provide in their legislation that access to the activity of an ISSP is not subject to prior authorization.

Commercial Communications

Article 5 of the proposal sets forth the information that ISSPs are to render accessible "in a direct and permanent manner to their recipients and competent authorities": information relating to the name of the service provider, the address at which the service provider is established, and particulars which allow the user to contact the service provider, such as his e-mail address, trade register number and/or VAT number, where applicable.

The Directive also lays down certain requirements on commercial communications of a service provider: they must be clearly identifiable as such, their origin must be clearly stated, and promotional offers, competitions or games, where permitted by the Member State in which the service provider is established, shall be presented accurately and unequivocally. Member States will need to specify in their legislation that unsolicited commercial communications such as "spam" e-mail must be clearly identifiable as soon as it is received by the recipient. Further, service providers will need to observe "opt-out" registers of addresses of persons who do not wish to receive unsolicited commercial communications.

Electronic Contracts

The Directive would also establish the validity of contracts concluded electronically for all Member States (with the exception of contracts requiring the involvement of a notary, contracts which are required to be registered with a public authority to be valid and contracts governed by family law or the law of succession).

Member States are to ensure that the legal requirements applicable to electronic contracts do not prevent the effective use of electronic contracts or diminish their legal effect because they were concluded electronically. This will require Member States to change many laws that currently inhibit the use of electronic contracts. The service provider will also be required to explain in clear terms the manner of formation of the electronic contract (Article 10).

The proposed Directive provides that the contract is concluded when the recipient of the service has received from the service provider in electronic form an acknowledgment of receipt of the other party's acceptance; unlike the original proposal, the Amended Proposal does not require that the service provider confirm receipt of the acknowledgment of receipt. The amended proposal provides that acknowledgment of receipt is deemed to be received when the recipient of the service is able to access it and that the service provider is obligated to immediately send the acknowledgment of receipt. However, it is unclear that the proposal's contract provisions cover one key issue arising in this area, namely the evidentiary value of electronic documents. In some countries (e.g., Germany), "written documents" are attributed greater value than other evidence. Therefore, if electronic contracts are not deemed to be evidenced by "written documents," as are traditional paper contracts, electronic contracts (and thus e-commerce) could be disadvantaged.

Limited Liability for ISPs

The proposal limits the liability of Information Society Service Providers when they act as on-line intermediaries. Although numerous amendments concerning this issue were put forward in the European Parliament, the Commission has left the relevant Articles 12-15 unchanged in the amended proposal.

The liability limitations constitute the most valuable part of the proposal for ISSPs who act as intermediaries, including network operators, access providers and host service providers. They provide a minimum of legal security to the ISSPs who have up to now been subjected to very divergent liability regimes in the various Member States.

Articles 12-15 cover the transmission of information, access provision and the provision of hosting services, as well as system caching activities undertaken for the benefit of these activities. Contrary to recent U.S. OSP copyright liability legislation, the limits apply horizontally to various types of unlawful acts, including copyright infringement, trademark infringement, defamation and infringement of a Member State's pornography and indecency laws. (The exemption of copyright in Annex II of the proposal applies only to the internal market clause and not to any of the other provisions of the Directive.) While the proposal does not state so explicitly, the liability limitations appear to apply to both civil and criminal liability.

The exemptions from liability in Articles 12-15 are not blanket exemptions. First, to benefit from the exemption, a number of conditions need to be fulfilled. Second, the proposal relates the liability limitations to specific activities (or functions) rather than to particular categories of operators. As a result, ISSPs that provide a wide variety of services, only some of which fall within the definition provided in Articles 12-15, would still benefit from the Proposal's provisions on liability, but only with regard to those services that can be characterized as on-line intermediary activity. Activities ISSPs undertake outside their capacity as intermediary (e.g., the sale of goods on-line) and activities of ISSPs not touched upon by the proposal (e.g., site locator, tool provision, linking) remain subject to the existing liability rules of each individual Member State. Third, the exemptions from liability do not prevent third parties from obtaining an injunction against an ISSP covering the transmission or storage of information.

Fourth, the exemptions only affect the liability of ISSPs acting as on-line intermediaries, not that of users (individuals and companies including other ISSPs). This is particularly relevant in the context of copyright infringement and the upcoming Directive on copyright and related rights in the information society. Unlike the e-commerce Directive proposal, the copyright proposal seeks to deal with all temporary copies made in the process of use or transmission of a work. From a user perspective, the copyright proposal is much more important, because it defines the scope of the user's liability for infringement of the reproduction right in Article 5.1. The question whether a user infringes copyright by making a RAM copy of a copyright work in the context of browsing the Internet is not addressed at all by the e-commerce Directive, because the liability exemptions apply only to on-line intermediaries.

Finally, it is important to note that the e-commerce Directive will not limit the ability of Member States to impose levies on on-line intermediaries (or upon those who make and sell equipment with which copies are made). This must be achieved in the copyright directive.

Dispute Resolution and Enforcement

The proposed e-commerce Directive complements other legislative initiatives that have important consequences for the provision of e-commerce services, such as Directive 89/552/EEC of 3 October 1989 as amended by Directive 97/36/EC "on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities" (with regard to "teleshopping"), Directive 97/7/EC of 20 May 1997 "on the protection of consumers in respect of distance contracts" (O.J. L 144/19), the proposal for a directive on electronic signatures (COM 1999 195 final) and the proposal for a directive "on distance contracts between suppliers and consumers concerning financial services."

If adopted in or close to its current form, the Directive is expected to have a major impact on Member States' e-commerce law. For example,

• e-commerce service providers will need to comply only with the law of the EU Member State where they are established for most legally relevant acts (with the important exception of consumer contracts);
• electronic contracts will have to be recognized by all Member States' laws, which means that in an on-line context at least, traditional formalities that apply in many Member States to a variety of contracts (such as the requirement of a physical writing and a handwritten signature) will no longer apply;
• Spam e-mail and like advertising will have to be easily identifiable.

The amended proposal might be adopted as a Directive within the next six months. The initial proposal for an e-commerce Directive was put forward by the Commission on November 18, 1998. In observance of the so-called "co-decision procedure," the legislative procedure that applies to this Directive (see Article 189b of the EC Treaty, amended and renumbered as Article 251 as a result of the entry into force of the EU Amsterdam Treaty on May 1, 1999), the proposal was voted on by the European Parliament in the first of its two readings before adoption of the proposal as a directive. Unless the Council agrees with all of the Parliament's amendments, which is likely, it will adopt a "common position" on the proposal; this common position will be forwarded to the Parliament, which will re-examine the proposal as amended ("second reading"). If the Council and the Parliament are still in disagreement at this stage, a further procedure aimed at reaching a compromise between their respective positions, called the "conciliation proceeding," follows. In that event, the final adoption of the Directive may take considerably longer. Once the Directive is formally adopted, Member States will have one year after the entry into force of the Directive (on the twentieth day after its publication in the EC Official Journal) to change their national laws to implement the provisions of the Directive.