E-Commerce News- Round up of European Legislation

1. E-Commerce Directive Update

The E-Commerce Directive (Directive 2000/31/EC) has two main objectives, firstly, to establish a legal framework for the development of e-commerce throughout the European Union; and, secondly, to ensure that a wide range of electronically delivered services benefit from the Internal Market principles of free movement of services and freedom of establishment. Principally, where service providers are able to comply with the law in their country of origin (i.e, their home Member State), they will be able to provide their services throughout the EU with the benefit of harmonised rules.

To recap, the Directive addresses the following principal areas of relevance to information society service providers:

• recognition of electronic contracts by obliging Member State to adjust national legislation to remove prohibitions or restrictions on the use of electronic media for forming contracts;
• ensuring legal security by clarifying the moment of conclusion or formation of the online contract;
• online enforcement mechanisms, such as, alternative cross-board dispute settlement systems, and court redress, etc;
• imposing requirements on the provision of commercial communications by an information service society provider. For example, clearly defined rules governing online advertising and direct mail;
• applying the Single Market principle of "mutual recognition" to on-line services – a service provider will in principal only have to comply with one country’s laws to do business across the EU. This, however, will not apply to tax, personal data or gambling activities;
• addressing the liability of on-line intermediaries for providing access to the network and for transmitting and storing information;
• defining and setting out conditions for the place of establishment of information society service providers.

Having been adopted on 8^th June 2000 and subsequently published in the Official Journal of the European Communities on 17^th July 2000, the E-Commerce Directive has continued to make progress towards implementation. Member States now have until 16 January 2002 to implement the requirements of the Directive. In the UK, the Government is currently planning to implement the Directive through secondary legislation, in particular, under Section 2(2) of the European Communities Act 1972.

On 10^th August 2001, the DTI published a public consultation document entitled ‘Consultation document on implementation of the E-Commerce Directive’ which it put forward to a wide range of individuals, companies and ‘representative’ organisations. The Consultation document sets out the specific requirements of the Directive, an assessment of the Government’s approach to preparing Regulations and a request for consultees to respond to specific questions raised by the DTI. In addition, the DTI has also published a ‘Regulation impact assessment’, which can be found at the back of the Consultation document.

The aim of the Consultation document will be to obtain these responses from the public in order to assist the Government with preparing the draft Regulations to implement the Directive. Any guidance produced by the DTI for businesses and consumers will also stem from this document.

Consultees now have until 2^nd November 2001 to make their submissions to the DTI.

For more information and a copy of the Consultant document, visit the DTI Website on:
http://www.dti.gov.uk/cii/ecommerce/europeanpolicy/ECD_consolidated_version.pdf.

The proposed Directive for the Distance Selling of Financial Services is designed to supplement the Distance Selling Directive (97/7/EC), which sought to protect consumers when concluding contracts for goods and services over a distance. It did not however, specifically cover contracts for financial services. The proposed Directive was submitted by the Commission in 1998, but the momentum has only now again gathered pace following a political agreement being reached by Ministers of the Internal Market, Tourism and Consumer Affairs Council on 27^th September 2001, dealing with common rules for selling contracts for credit cards, investment funds, pension plans and the like to consumers by means of telephone, fax or the Internet.

The main features of the proposed Directive are:

• the prohibition on "inertia selling" (i.e. sending unsolicited financial services or products to consumers and using abusive marketing practices to oblige them to purchase them);
• rules to restrict other practices such as unsolicited phone calls and/or faxes (i.e. "cold calling and/or cold faxing"), and unsolicited emails (i.e. "spamming");
• establishing an obligation on the sellers of financial services and products to provide consumers with a comprehensive information package before the conclusion of a contract – including the identity and contact details of supplier, price and payment arrangements, contractual rights and obligations, information regarding the service offered, and information on the quality and nature of the financial service;
• a consumer’s right to withdraw and cancel a contract within the cooling off period of 14 days, extended to 30 days in the case of life insurance and pension plans. However, it is worth noting that this right of cancellation will not apply in the case of financial services that are subject to price fluctuations, such as, securities or sale of foreign currency;
• an opportunity for consumers to be able to cancel transactions and be entitled to a reimbursement of any sums charged, where there is fraudulent use of payment cards or other non-cash means of payment.

This political agreement is seen as crucial to the Commission’s strategy to develop an Internal Market for retail financial services. It is hoped that "the adoption of harmonised rules across the EU will make it easier for both consumers and suppliers to cross national boundaries in an environment of greater legal security and confidence. That is especially true for Internet trade for which financial services are especially well suited. This Directive is an essential complement to the e-commerce Directive which was adopted last year and which will enter into force this coming January." (Commissioner Frits Bolkestein).

It is anticipated that the Council will shortly adopt its Common Position on the proposed Directive. Then, following the European Parliament’s conclusion of its second reading, the Council should subsequently proceed with its final adoption.

The July 2001 edition of the IT and E-Commerce Bulletin featured an article on web accessibility to coincide with the introduction of a new US federal law, Section 508 of the Rehabilitation Act. Section 508 was passed in 1998 and aims to make major commercial hardware and software products and federal government websites more accessible to people with disabilities. The new law, which took effect on 21 June 2001, requires the federal government to purchase computers and software that meet new standards for accessibility. The new standards are designed to ensure that websites do not depend too much on one sense, such as sight or hearing and reflect the Web Content Accessibility Guidelines issued by the World Wide Web Consortium (W3C). The W3C guidelines were established by the Web Accessibility Initiative (WAI), a project of W3C and are widely recognised as a global standard for the design of accessible websites. A copy of the W3C guidelines can be found at http://www.w3C.org/TR/UAAG1O/

On a related note, the European Commission recently adopted a Communication on improving the accessibility of public websites and endorsed the W3C guidelines. There are approximately 37 million people with disabilities in the European Union and the number of old people is increasing year by year. The Commission’s Communication attempts to ensure that people with disabilities are able to benefit fully from the new technological developments and the Internet.

In addition, the European Commission is rather appropriately taking active steps to improve its own Internet based services. The Europa website (http://europa.eu.int/) intends to adopt the W3C guidelines by the end of this year and the Office of Publications has launched a pilot project to make Treaties accessible to visually impaired users. Member States and the European Institutions aim to adopt the W3C guidelines for all public websites by the end of this year.

An inter-institutional group to promote the adoption and implementation of the guidelines with European Institutions will also be created and European- or Member State – funded organisations will be actively encouraged to adopt the W3C guidelines.

The Communication will undoubtedly boost awareness of issues concerning accessibility of the Internet for those with disabilities. As mentioned in the July edition of the IT and E-Commerce Bulletin, IT experts agree that the most cost-efficient solution to making websites accessible to everyone is to build it in accordance with the W3C guidelines from the outset as retro fitting a site can be an expensive business. Companies concerned about the accessibility of their website can test it free of charge on a non-profit site commonly known as "bobby" which checks for compliance with the basic W3C standards. Bobby can help businesses identify any changes which need to be made to make web pages more accessible to disabled users. Further details of this tool can be found at http://www.cast.org/Bobby/AboutBobby313.cfm

The European Commission recently released details of proposed legislation that seeks to establish unified consumer protection and advertising guidelines for companies across the European Union.

The Commission argues that the huge differences in prices of consumer goods between Member States and the low volume of cross-border on line shopping suggests that the business-to-consumer (B2C) Internal Market is not realising its full potential. They argue that consumers lack the confidence to purchase online and companies are reluctant to directly offer their goods across the European Union because of the wide differences in national consumer protection rules. The Commission is of the view that the impact of these differences on consumers and businesses is likely to grow with the development of ‘new economy’ commercial practices.

The Commission believes that existing EU rules are no longer adequate to deal with the challenges posed by the increased volume of cross-border online trade. The current rules cover a limited number of commercial practices and have failed to keep up with market developments. The Commission’s Green Paper proposes harmonising different consumer protection rules throughout the European Union using self regulatory codes within the confines of a legislative framework. The Commission argues that legal back-up system to self-regulatory codes of conduct are necessary to increase consumer confidence and ensure that companies who break the rules are punished. The Commission believes that the goals of consumer protection are to deliver a system of regulation that:

• achieves as high as possible a level of consumer protection whilst also keeping costs to business to a minimum;
• is as simple as possible and is sufficiently flexible to respond quickly to the market, and which involves stakeholders and as much as possible; and
• provides legal certainty and ensures its efficient and effective enforcement, especially in cross-border cases.

The Commission is organising an intensive consultation process which "aims to stimulate a wide debate on options to improve the functioning of B2C Internal Market". The Commission has carried out three extensive studies on national and EU legislation on B2C commercial practices which may be found at http://europa.eu.int/comm/consumers/policy/developments/fair_comm_p. The framework proposed by the Commission aims to ensure good practice in B2C commercial practices. The Commission believes there are essentially two options of achieving greater harmonisation:-

• a specific approach based on the adoption of a series of further directives; or
• a mixed approach of a comprehensive framework directive supplemented by target directives, where appropriate.

The Commission believes that a standard fair practice code would not erode existing consumer protection legislation but the precise impact of the proposed guidelines on existing regulations remains to be seen. The Green Paper is available at
http://europa.eu.int/comm/consumers/policy/developments/fair_comm_p
The Commission invites interested parties to comment on its proposals by 15^th January 2002.

Currently, sales promotions are regulated differently in Member States across the EU, in particular, to ensure consumer protection and protection against unfair competition. These differences have led to cross-border restrictions to the use and communication of sales promotions; which in turn, has prevented businesses from exploiting the benefits of the Internal Market.

The proposed Council and European Parliament Regulation will seek to establish a clear regulatory framework to remove barriers within the Internal Market to cross-border use and commercial communication of sales promotions, something which the Commission identified in 1998 as a priority area in its Commercial Communications policy. The Commission has, therefore, identified national provisions dealing with discounts, premiums, free gifts, promotional contests and games as the offending barrier. The purpose of the proposed Regulation is to replace these national provisions with transparency and information requirements to allow for pan European marketing initiatives, by setting a uniform and very high level of protection of public interest objectives, including consumer protection.

According to the Internal Market Commissioner, Frits Bolkestein:

Sales promotions are used as a key tool across all industries to market goods and services, and are essential to businesses in the development of cross-border trade, especially for small innovative SME’s in their exploitation of their niche markets within the Internal Market. According to the Communication from the Commission on sales promotions in the Internal Market, which sets out the proposal - the design, execution and communication of sales promotions accounted for over one million jobs last year; and in terms of estimated total investment, in nine of the Member States this amounted to over 40 billion Euros.

There are four main features to the proposed Regulation:

• to remove all outdated national provisions of Member States which apply general restrictions or bans to the use and commercial communication of promotional tools. Examples include national bans on premiums, and national value limits on discounts;

• to ensure higher levels of consumer protection by setting out modern and appropriate information requirements. Currently, there are two sets of information requirements envisaged:

1. transparency provisions applicable to commercial communications of the sales promotion. For example, the use and communication of premiums (currently banned in some Member States) will only be allowed on the basis that the commercial communication associated with it indicates the value of the premium; and
2. those which must be made available to the customer or client on request. For example, in relation to discounts, it may well be a condition that upon a request by the client the promoter will have to indicate to that client what the preceding price of the goods and/or services was, and how long it was at that price.

• to provide for high protection of minors and public health. For example, bans on offering free gifts of alcoholic drink to minors and adolescents;
• to ensure full legal certainty and a true Internal Market in relation to sales promotions, by means of subjecting remaining national restrictions to the principle of mutual recognition, thereby allowing operators who are lawfully established in one Member State to freely provide their service in other Member States

The timing of this proposed Regulation is such that it not only complements the Commission’s proposal of the Green Paper on Consumer Protection, but it adds to the growing requirement to establish a set of ground rules for price related promotional instruments as a result of the introduction of the Euro as well as the forthcoming implementation of the E-Commerce Directive into national laws.

For more information and a copy of the Commission’s Communication, visit the Europa website on:
http://www.europa.eu.int/comm/internal_market/comcom/unfair/reg-en.pdf.

"© Herbert Smith 2002

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