UK: ICSTIS Action Raises E-commerce Directive Questions

Last Updated: 11 November 2002
Article by Graham Smith

ICSTIS, the UK Independent Committee for the Supervision of Standards of Telephone Information Services, has taken action to suspend web-related premium rate telephone services provided to the UK by two companies established in Spain and Germany. It barred access to the services for two years, fined the companies £75,000 and £50,000, issued a formal reprimand and instructed them to offer redress to all complainants. ICSTIS' action is the first occasion on which a UK authority has had to consider whether its actions are compliant with the European internal market provisions of the recently introduced Electronic Commerce Regulations, which implement the Electronic Commerce Directive.

The Directive lays down a general principle of mutual recognition of laws within the EEA. So in general an authority in a country in which services are received from a provider established in another EEA State cannot (as ICSTIS has done in this case) take action to restrict such incoming services. It should leave enforcement to the authorities in the State in which the service provider is established. This principle is intended to reduce the exposure to multiple countries' laws of e-commerce businesses providing cross-border services within Europe, and thus reduce their compliance burden; and consequently to provide consumers with increased choice by encouraging cross-border services. This 'country of origin' principle is of critical importance to online traders, given the extreme difficulty of restricting an online offering to a particular geographically defined market.

However, the Directive does set out some exceptions to the general internal market principle. ICSTIS contends that these exceptions legitimise its action in this case. Authorities in a member State are permitted to take measures to restrict incoming services if the measures are necessary for reasons of (among other things) protection of minors and consumers and are proportionate to those objectives. The service must also prejudice, or present a serious and grave risk of prejudice, to the objective. Except in cases of urgency, an authority must first ask the member State in which the service provider is established to take measures, and can only take action if it does not take measures or they are inadequate. The authority must also notify the European Commission and the relevant member State of its intention to take such measures. In case of urgency, an authority may act first and notify the Member State and the Commission afterwards.

In this case ICSTIS relies on the full urgency exception. Certainly, if ICSTIS' account of the facts is correct, the activities of the companies in question presented a serious danger to UK consumers. According to ICSTIS, the companies' websites downloaded dialler software to users' computers without their knowledge. The dialler program would then dial up a premium rate number charged at £1.50 per minute. The promotional material for one website is said to have contained references to paedophilia and sexual acts involving children.

One might question, on the facts as found by ICSTIS, whether its action was constrained by the E-Commerce Directive at all. To constitute an information society service within the Directive, a service must be provided 'at the individual request of a recipient of the service'. The nub of the complaint here was that the dial-up occurred without the user's knowledge! However, ICSTIS have proceeded on the basis that they had to justify their actions within the terms of the Directive and in any event similar principles are embodied in the EU Treaty.

However indefensible the activities of service providers, if authorities such as ICSTIS are to take action to restrict services in the country of receipt rather than the country of establishment the action must still be necessary and proportionate to the objective of (in this case) protecting minors and consumers.

There can be little doubt on the available facts that, assuming that the urgency requirement was satisfied, ICSTIS was justified in suspending the services, at least for a sufficient period to enable authorities in Germany and Spain to take appropriate action. That would have protected consumers and minors. As to the fines, would they be regarded as a 'restriction' on the provision of services? If not, they would be outside the limitations of the Directive. But if they do constitute restrictions it is questionable whether, once the services have been suspended, the additional imposition of fines of £75,000 and £50,000 can be said to be either necessary or proportionate to those objectives. That would appear to go beyond what is necessary for the protection of consumers and minors, and instead to usurp the jurisdiction of the authorities in the home countries of the service providers - the very thing that the E-Commerce Directive set out to prevent.

As to whether the urgency requirement was met, we are not told how long ICSTIS took to investigate and determine these cases. Was it so urgent that there was no time to pick up the phone to the authorities in Spain and Germany?

No tears are likely to be spilled over the case of these two particular services. However, the action has implications for the future. If UK authorities push the country of receipt exceptions to (and arguably beyond) the limits, that will simply encourage other Member States to take similar action against outgoing services from the UK, perhaps in cases where the merits of the service are less clear. If that occurs, ICSTIS's actions will have done no favours to the country of origin cause.

Under the terms of the Electronic Commerce Directive the European Commission has to examine the compatibility of notified measures with Community law. If it concludes that the measures are incompatible, the Commission will ask the Member State in question to put an end to the measures. It will be interesting to see the outcome of the Commission's deliberations in this case

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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