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Adam Angyalosi BA IB Year 2 Market Regulation and Consumer Protection Essay #2 05/01/2011
As a result. even with their lower share in the activities conducted. The „E-Stats” report of the Census Bureau1 also showed that manufacturers and wholesalers used e-commerce much more extensively. and. most of the time though. or e-commerce.E-commerce today Electronic commerce. These data might suggest that consumer protection in ecommerce should receive a higher emphasis on B-to-B regulations. a share which has 1 ’E-Stats’ (http://www.gov/econ/estats/2008/2008reportfinal. taking up 39 percent of all shipments.census. we will see that the unique characteristics of this trading environment make B-to-C. but later on. but how does e-commerce activities stack up as a share of total transactions inside each sector? According to the aforementioned 2008 study. Throughout the last decade. retail and service businesses). e-commerce has taken a significant share of the economic activities conducted all along the world: buying something on a website has become such an everyday activity as visiting the little convenience store next door. According to the U. is the technique of selling goods or services through an electronic media. We have already taken a look at the share of the various sectors inside total ecommerce.S. wholesale. business-to-business trading has taken a large share of total ecommerce activity in that timeframe. the term refers specifically to internet trading. e-commerce activity increased between 2007 and 2008 at a higher rate than total economic activity in three out of four dominant economic sectors (those being manufacturing. than the retail and service industries. C-to-C transactions a significant issue to consider. Census Bureau. as it is commonly known. electronic trading was most dominant in the manufacturing sector. most importantly. with 92 percent of all transactions conducted in a B-to-B environment.pdf) .
wholesalers took the second place with their e-commerce activity taking up 20. .1 percent respectively. However.been continuously increasing since 2003. Retailers and Selected Service Industries were the least reliant on electronic trading. especially in the case of the service industries. the real question is still unanswered: what should and what can consumer protection regulation do when dealing with e-commerce? E-commerce from a consumer protection standpoint Internet transactions are theoretically considered the same as a business conducted in more „traditional”. we must point out that their growth rates from the previous year – 3. with only nominal shares in retail activities.6 percent of all sales. with some emerging importance in B-to-B relationships. with their shares of 3.3 and 14. However. Looking back. e-commerce takes up a small share of the market.6 and 2. the trends and growth patterns point to additional increases in all of these categories. what can we say in general about the presence of e-commerce in the economy? It is clear that as of now. making e-commerce a very important method of doing business for future considerations.1 percent – are showing an increasing trend in sales. However. most commonly in return for a sum of money transferred from one actor to the other. offline manners: goods or services are exchanged between a selling and buying party. Dropping behind. Consumer law is present all the same: misleading your customers is condemned no matter if it is done through paper-based advertising. However. the unique trading environment of the internet allows prospective frauds to circumvent regulations and take advantage of loopholes in some ways that weren’t feasible in the past. in your store or on your website and through e-mail messages.
These factors result in large numbers of smaller sellers entering the market: although the website doesn’t give out exact figures. Finally. we must also mention the problems associated with the anonymity and low cost of online communications: since sending out spam messages through e-mail has very small costs (especially marginal costs are close to zero). advertising agencies). but with the availability of a wide range of search tools and trading portals. which means decreasing the number of levels of regulation and supervision a misleading advertisement would have to pass through before getting out to costumers. : ’The Internet and the Future of Consumer Protection’ (pp.The first of these special characteristics is what Howells calls the „democratization of entrepreneurship”2: e-commerce presents aspiring traders with significantly lowered barriers of entry. Some argue that customers effectively become producers.4 Going back to the aforementioned topic of marketing. 10) ’ Number of Ebay Sellers’ (http://www.333) Swire. with no additional marketing spending necessary. trading on the internet doesn’t only lower the startup costs. frauds can try carrying out 2 Howells.net/number-of-ebay-sellers/) 3 4 . G. television and radio channels and broadcasters. : ’Handbook of research on international consumer law’ (pp. it is also worth mentioning that internet advertising removes the intermediaries we became used to existing (e. some argue that the online auction site eBay.numberof. and the anonymity of the medium greatly reduces the risks of getting caught.3 Moreover. and customers can occasionally find you based solely on product information provided.g. as setting up a website and online catalogue of products can be achieved by only a fraction of what it would cost to rent store space and commence daily retail operations in an offline environment.com has tens of millions of sellers worldwide. P. marketing and advertising also becomes cheaper.
has already passed a directive which promotes the cooperation of the various consumer protection agencies of individual member states. . we must next take a look at how the presence of these unique circumstances might influence the role of the regulator in this situation. that the small number of people fooled by them would make their use unpractical. which calls for a higher degree of cooperation and standardization between the regulative bodies of individual countries. The role of the regulator on the Internet The first guess of an uneducated spectator would most logically be that the increased ease of scamming and consumer deception on the internet coupled with the lack of intermediary channels which would normally serve as part of the regulation framework. is difficult to determine when an electronic storefront offers only a photograph of the goods before we make an irreversible purchase. Also. a much stricter role and presence of consumer protection measures would be required. This characteristic of the internet also results in a much larger share of retail trading across borders. the relative novelty of the medium also holds the danger of customers being unfamiliar with and unprepared for common methods of deception. for example. With all these intricacies and special features of the internet trading environment reviewed.scams that would be normally so unrealistic. leaving it up solely to the regulator to protect them. for one. The EU. Product authenticity. There are lots of claims supporting this argument: apart from the difficulties mentioned earlier. some additional problems arise with the elimination of geographical barriers.
trying to identify what specific measures and rules are warranted from a policy maker to successfully control this industry. However. i. depending on the specific circumstances which pertain to that particular occurrence. In the following sections. is it really fair to leave them to fend for themselves or is it the responsibility of regulators to watch out for scammers even if consumers could take care of this task on their own? Finally. and the role of the regulator should vary from case to case. along with product review portals. Specific issues regarding consumer protection and the internet Naturally. a third approach argues that offline and online transactions shouldn’t be viewed as two separate categories.e. this elimination of information asymmetry still raises a question about how much effort from consumers should be required: even though they possess the necessary tools. I will attempt to dissect the framework of e-commerce from a regulative point of view.There is. however. . the various contracting methods through which e-commerce activities might be conducted and what kind of different approaches these warrant when compared to everyday offline retailing. we will start this methodical analysis by looking at the most fundamental legal issue concerning business transactions. buyers have a wide range of tools at their disposal to efficiently protect themselves against any deception and fraud. as they are closely linked. Some argue that the internet offers so many sources of free information for prospective customers that the role of the regulator becomes minimal: with various websites available which offer ratings of individual sellers and transactions in multiple categories. some debate concerning whether this approach of increased regulation is the most appropriate one.
which was welcomed with general controversy.Imagine walking into a grocery store to buy a carton of milk.ucitaonline. for example. to which the customer usually agrees with clicking their mouse.com/) . the National Conference of Commissioners on Uniform State Laws (NCCUSL) has produced a proposal called the Uniform Computer Information Transactions Act (UCITA). the vendor presents you with a multiple-page contract detailing the terms you should follow in order to enter into business with him. with statutes that. would 5 UCITA Online (http://www. but it is essentially what happens with almost every internet purchase: most e-commerce websites have a very detailed and lengthy list of „terms and conditions”. In order to complete that small purchase. business law differentiates between three types of contracting practices: The first of these is that of shrink-wrap contracts. you signal your acceptance by banging once on the desk. which refers to the oft-occurring fashion of presenting contract terms to the customer only after the purchase has been made (hence the name. a legislation aimed to standardize electronic contracting procedures inside the US. only two – Maryland and Virginia – accepted the act. with terms of business being packaged inside the box of a product). 5 Most people argued that many measures of the UCITA helped large businesses and the government at the expense of consumers. Between 1996-1999. which refers to the offline occurrence of the matter. One problem with this practice is that usually the terms are located at a different section of the website than on which the purchases are made – very often a customer accepts a long list of policies without even being aware of them. out of the fifty states. Sounds rather silly. doesn’t it? This situation is almost impossible to imagine when talking about offline transactions. an ordinary activity which usually carries no legally bonding significance. then exit the store with your newly acquired beverage. However. In general. After reading through all the conditions.
R. is a mixture of these two practices.have codified shrink-wrap agreements by making customers legally obligable to be bound by whatever terms they accepted without being presented to them. 11(1).eu/internal_market/ecommerce/directive_en. 2000 OJ L178/1.7 The last type of agreements.6 As of now. most usually clicking a button with their mouse (hence the name) to signal that they accept those terms. the case of shrink-wrap contracts is a highly controversial and unclear area of regulations. http://ec. and although there are a few differences – the entirety of the list of terms is usually only accessible via scrolling or some other additional action and the legally binding effect of a simple click with a mouse is often not evident for consumers – this method requires the least alterations to consumer protection policies. and consumers are especially endangered to frauds when they are dealing with this type of online contracts.europa.com/UCITA--Shrink-wrap-license-agreements/2009-1081_3276012. in particular electronic commerce. the E-Commerce Directive ensures that there are no unintended acceptance of contracts by simply requiring confirmation of entering into contracts with an additional click. This type of e-commerce contracting is the most transparent and the one which most closely resembles traditional. browse-wrap contracting. In the EU. for example. but at 6 ’ Burmeister. the buyer is given the terms and conditions of the transaction prior to making the purchase. Art.: UCITA: "Shrink-wrap" license agreements ’ ( http://news. The second case is that of click-wrap contracts: in this type of contracting. in the Internal Market. offline retailing. as it is difficult to see to which degree these agreements are enforceable. . with the terms being presented on the website prior to the purchase.htm.cnet.html) 7 Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services. and has to perform some kind of action.
(b) A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation. „(a) A record or signature may not be denied legal effect or enforceability solely because it is in electronic form. At the beginning of the 1990s. make it clear in American law. and its federal counterpart. there have been various controversies and debates over whether the statutes and laws that had been used to govern traditional contracting policies are applicable to business transactions conducted online. an electronic record . (c) If a law requires a record to be in writing. neither ink. that electronic text can be considered „written” and that electronic signatures hold the same legally binding characteristics than their ink and paper based equals. both in the US and in the EU. „on paper” and which require a signature to make a contract enforceable? Since then. which were aimed at making this issue more transparent and easily standardizable: the Uniform Electronic Transactions Act (UETA). as courts have trouble deciding whether buyers can be legally bound by the terms when they didn’t actively and knowingly encounter and accept them.a space separate from that used to making purchases. The first of these issues was that of whether a business procedure which involves neither papers. when e-commerce started emerging. This practice is similar to shrink-wrap contracting from a legislative viewpoint. there have been a wide number of statutes and legislations passed. can be bound by laws which refer to terms „in writing”. the Electronic Signatures in Global and National Commerce Act (ESIGN). Customers can easily enter into business without encountering the terms. as there is no explicit confirmation necessitated and navigation of the website is possible without ever seeing the conditions of the company. for example.
enforceable agreements. we must also mention electronic signatures. it might be possible that one or more of the parties engaged in the transaction are unable to access the terms of the business. Opening an electronic document. (d) If a law requires a signature. outdated one. If the format of the document is an older. with their resources to prove the fraud being extremely limited. and the entirety of contracts can be lost if there is no backup of the data present. Last. concerning electronic contracts and the magnitude to which they can be upheld legally. they standardize and clear up the various legal issues and grey area associated with e-commerce. and thus actually facilitates and encourages the expansion of the sector.satisfies the law. these legislations create new problems from a customer protection standpoint: numerous issues can arise which would make frauds possible. which are much easier to forge than their traditional counterparts: if electronic signatures present legally binding. while hard drives and disks are often prone to malfunctions. On the other hand. are often considered to be a double-edged sword: on one hand. A loss of storage data is also a looming danger: paper-based contracts can be relatively safely stored in designated areas. an electronic signature satisfies the law.”8 Statutes like this. it seems relatively simple to enter into a contract in someone else’s name. § 7 . by making electronic contracts universally enforceable. but not least. for example. requires a compatible software. thanks to the fundamental differences between electronic and paper-based record keeping. 8 ’Uniform Electronic Transactions Act’ .
Some of the aforementioned statutes do contain some provisions which try to alleviate these issues: ESIGN. This being only one of few examples. the other party of the contract is the operator of the machinery. Model Law on Electronic Commerce with Guide to Enactment 1996. which states that „Data messages that are generated automatically by computers without direct human intervention should be regarded as ’originating’ from the legal entity on behalf of which the computer is operated. http://www. Furthermore. ESIGN states that some messages of emphasized importance (cancellations. in order to ensure customers’ receipt of these notices (15 USC § 7003(b)). with the Guide to Enactment of the Model Law on Electronic Commerce.org/pdf/english/texts/electcom/05-89450_Ebook. and the transaction goes down with the mediation of the electronic equipment.pdf .”9 9 United Nations Commission on International Trade Law (1999). It must be pointed out that interfacing with electronic agents was something customers regularly did before the development of the internet: soda vending machines or the ticket printers located at subway stops are good examples of buyers interacting with an electronic intermediary. In these cases. explicitly requiring that buyers agree and be notified of policies regarding e-mail notifications (the underlying danger here is that of people changing e-mail addresses often. Another notable aspect of the unclear legislations concerning e-commerce is that of the presence of non-human intermediaries and agents in the most basic activities conducted on the market. defaults) are to be sent via regular mail. it must be noted that similar provisions exist in other markets as well.uncitral. for example. has a part pertaining to notifications toward consumers. and thus losing important information and notifications regarding their past contracts) (15 USC § 7001(c)). The United Nations passed specific legislation pertinent to such situations in 1996.
something which both the EU and the US seek to achieve internally. As such. and the customer physically interfaces with only his own computer. ESIGN and UETA can be attributed to these cases in the US. . and whether the operator of the machinery and the website can be made responsible for information generated by a self-learning algorithm.However. no geographical limitations and barriers should apply. unless the pertinent laws are common and standardized. there is still a significant grey area concerning this issue. What happens if we try to apply these statutes to modern computers and the internet? The first problem we must face is that with internet transactions. but which has not been excessively promoted in international connections between the two sectors. and as such. which may happen at a place far away from the seller and the server on which their online ecosystem is located. designed to fulfill only one highly automated purpose. and policy makers have some work to do before customer protection can sufficiently account for the common problems raised about internet commerce. Today. and they do an acceptable job at addressing problems about the lack of human interaction in a transaction. however. This makes it hard to determine exactly which legal jurisdiction the case should fall under. it would be hard to fairly assess any legal claims from the parties. Another problem arising with the UN statute is that it was written with very simple computer systems in mind. making it extremely difficult to determine how a legal case should view these electronic storefronts in terms of data originating with or without human intervention. there are actually multiple electronic intermediaries present. In Europe. it is not entirely infeasible to create a website or system which is able to „learn” and adapt to various circumstances. the aforementioned examples relate to cases in which the electronic agent in question is a relatively simple piece of machinery.
as consumers are still uneducated about the specific characteristics of this practice and the dangers and legal issues stemming from them. and as such. two important legislations are in effect: UETA and ESIGN account for specific contract types and the adaptation of contractual legislations from paperbased to contract to electronic ones. especially in this early stage of its existence. however. consumers have access to such a magnitude of pertinent information that they are theoretically able to protect themselves from any scams. These statutes also address to some extent the loopholes and controversies arising from the increasing complexity and self-operation of computer systems. but if this is really their . The relative novelty of e-commerce makes it a highly lucrative area for prospective scammers and frauds. In the US. however. the elimination of geographical boundaries and the often international nature of such trades make this very difficult. The EU’s policy framework is compatible with that of America in most cases. it must also be noted that some argue that internet transactions eliminate the need for a legislator: as the asymmetry of information is removed.Conclusion Although e-commerce is far from taking over the majority of business transactions in any sector. must be approached with emphasized concern and importance. it is undeniable a rapidly spreading form of doing business. The question. but there is still some work needed to achieve complete clarity and standardization. it is up to policy makers to devise a system of consumer protection rules which adequately serve to shield all actors from taking unfair advantage of the electronic marketplace. is not whether buyers have the ability to counter fraudulent activities. As such. However.
responsibility. . or that of legislators. policy makers still have some work to do. The answer seems the latter: but in that case.
http://ec.cnet. G .htm. : ’The Internet and the Future of Consumer Protection’ • UCITA Online (http://www.Bibliography • Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services.ucitaonline. 11(1).net/number-of-ebay-sellers/) Burmeister. P.org/pdf/english/texts/electcom/05-89450_Ebook. Model Law on Electronic Commerce with Guide to Enactment 1996.census.: ’Handbook of research on international consumer law’ Number of Ebay Sellers’ (http://www. in particular electronic commerce.numberof.pdf) Howells.html) • • • • • Swire.pdf • • . § 7 United Nations Commission on International Trade Law (1999).com/UCITA--Shrink-wrap-license-agreements/2009-1081_3276012. in the Internal Market. 2000 OJ L178/1.europa. E-Stats (http://www.uncitral. Art.com/) Uniform Electronic Transactions Act . R. http://www.: UCITA: "Shrink-wrap" license agreements (http://news.gov/econ/estats/2008/2008reportfinal.eu/internal_market/e-commerce/directive_en.