Marketers fear EU regs will hinder e-commerce

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Direct marketers and online retailers fear the European Union is close to approving rules that would create a new obstacle to developing e-commerce in Europe.

The Council of Ministers will vote this fall on a proposal backed by the European Parliament under which e-commerce disputes between consumers and online sellers would be handled by the courts in the consumer's country rather than the marketer's.

"It affects liability for breach of contract -- where you can sue," said Mike Pullen, a Brussels-based partner at law firm DLA that handles many e-commerce clients. "Strategically, it's a major problem."

He said the new regulation, which requires a unanimous vote from the 15-member council to become law, "will probably be a done deal at the end of this year."

Previous drafts allowed more flexibility in deciding where a dispute could be settled.

"If the council decides to follow the opinion of the parliament, a company selling on the Internet will risk being sued before the courts in any or all European countries," said Alastair Tempest, director general of the Brussels-based Federation of European Direct Marketing. "This could obviously be a major obstacle for [small to medium] companies wanting to . . . use online media."


There is already an EU directive on e-commerce, adopted by the Council of Ministers about six months ago and generally favored by direct marketing and Internet companies. The directive covers advertising, direct marketing and sponsorship but not "backroom" functions such as contract disputes and where they should be resolved, Mr. Pullen said.

"Most stuff isn't deliberate," he said of the EU's morass of existing and pending legislation. "A lot of the parts of the European Commission have different mandates, and they tend to turn out conflicting legislation."


One piece of legislation, for example, specifies that marketers need to get consumers' permission to send them e-mail, while the e-commerce directive says they don't; the e-commerce directive does stipulate an opt-out mechanism.

"A lot of [European] laws originated in the 19th and early 20th centuries," Mr. Pullen said. "The EU is trying to fit 21st century technology into that box rather than looking at new laws that cover this stuff."

In the U.S., the Federal Trade Commission generally urges that the consumer's location determine which laws apply, not the seller's. Last month, the FTC issued a 20-page report on "Consumer Protection in the Global Electronic Marketplace."

"Our report says that e-commerce does not warrant a different standard," said Lisa Rosenthal, an FTC legal adviser for international consumer protection.

The FTC report suggests costs can be kept under control through alternative dispute resolution that bypasses the courts or by creating "common core consumer protections" in different countries.

The FTC does draw the line on some of the issues the EU is grappling with. For example, simply having a Web site that can be accessed in another country but isn't deliberately marketing to that country's citizens shouldn't open the door to a lawsuit, according to the FTC report.


By contrast, the wording in the EU legislation was changed about a year ago to describe companies subject to the law from those "soliciting consumers" to the much-broader "directing activities at consumers."

"If a country-of-destination approach were stretched to its extreme, online companies simply posting a Web site could be subject to courts and conflicting laws around the world, regardless of where they intended to do business," according to the FTC report.

While marketers grumble, the European Consumers' Organization is claiming victory.

"We are extremely happy and pleased that the European Parliament supported our view that the courts of the consumer's country should have jurisdiction over online trade disputes," a spokeswoman for the group said.


European e-commerce sales are forecast to roughly double each year. According to Internet data aggregator eMarketer, e-commerce sales will hit $33.6 billion in Europe this year and $67.2 billion next year, reaching $420.2 billion by 2003.

But most of the forecast growth is in business-to-business sales. Business-to-consumer e-commerce is only likely to reach $7 billion this year and $11.8 billion next year, according to eMarketer projections.

European consumers lag their U.S. counterparts online. The most enthusiastic online shoppers in Europe are Swedes, whose spending of $86 per person in 1999 comes closest to the U.S.'s $112 per person. Brits spent $26 online, followed by Germans at $16.30 and the French at $9.20.

Selling across the supposedly single market of the 15-country European Union is still fraught with problems, of which the current wrangle over jurisdiction for disputes is just a small part.

"Until the EU changes a wide range of rules, regulations and tax laws, growth of retail e-commerce is likely to be stymied," eMarketer said in its eGlobal Report. "Moreover, certain types of pricing schemes are entirely verboten. In Germany, a law prohibits offering special discounts for individual customers, making auction systems impossible."

Or, as Mr. Pullen said of the intricate workings of the EU legislative process, "it's like trying to wade through molasses."

Contributing: Ira Teinowitz.

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