Are e-commerce laws holding your business back?

UK trade bodies are calling for the new EU Commission to complete the digital single market to encourage enterprise, competition and innovation across the European economy.

In November 2009 the European Commission reported that 60% of EU cross border e-commerce contracts fail for one reason or another. The statistic is an unfortunate indictment on the European Single Market's ability to create certainty across the digital economy and a black hole which is damaging UK e-commerce opportunities as well as hindering economic growth.

New Single Market laws proposed

To counteract the problem, the European Commission is expected to announce major changes to the e-commerce regulatory environment in Europe any time now. This is just the start of a number of regulatory changes expected to be made over the next twelve months in respect of the general e-commerce framework, data protection, cloud computing and data breach notifications.

Industry has lobbied for changes in the e-commerce legal framework for some time. The divergence of national laws within the fields of e-commerce, data protection and intellectual property has presented a major barrier to the growth of cross-border e-commerce.

In Europe, the on-line marketplace has been hampered by small and fragmented national markets. Unlike the United States which has created an environment in which technological giants such as Google can thrive. As the markets embrace innovative technological advancements that present us with truly global opportunities, such as those witnessed by the pioneers in cloud computing, it is important that the European regulatory environment is sufficiently flexible and permissive to allow the European market to flourish.

Consumers

Yet fears still remain that mandatory consumer protection rules also prevent online businesses from fully embracing the benefits of the European Single Market. The legal framework on e-commerce in the European Single Market was established under the E-Commerce Directive (Directive 2000/31/EC) which included the the so-called 'country of origin' principle where the courts and laws of the country in which a supplier is based apply to information society services.

'Country of destination' principle

However, since 2000 and the Brussels I Regulation, consumers have been able to sue in their own courts under a 'country of destination' principle. The legal rule was strengthened by subsequent EU regulations dealing with applicable law relating to contractual and non-contractual obligations introduced in 2009 and 2008 respectively.

Imagine the effect the country of destination principle has upon a small online business based in the UK with limited resources for fighting legal battles. Local laws are difficult enough to understand never mind foreign ones, and if something does go drastically wrong businesses could end up being sued in several countries all at once.

Not a good picture for promoting enterprise, competition and innovation during these difficult economic times. As we progress towards a Digital Single Market and Europe 2020, a successful on-line marketplace for Europe is central to economic success. It will encourage investment and innovation and help to create new jobs .

In 2010, the European Commission launched a public consultation on the future of electronic commerce in Europe and on the lessons learned from the implementation of the E-Commerce Directive. This consultation closed in November 2010 and over 400 responses were received. The European Commission will be publishing its findings imminently.

The need for change

The need for change within the e-commerce market was apparent from the outcome of the European Commission Retail Marketing Monitoring Report “Towards more efficient and fairer retail services in the internal market for 2020” and the European Commission Communication “A Digital Agenda for Europe”, both of which were published in 2010. These communications identified a number of issues with the cross-border e-commerce market, including insufficient development of e-commerce as a result of a series of obstacles, such as payment mechanisms and a poorly functioning system of redress. The view of the European Commission is that significant change is required in order to overcome these fragmented markets and the general lack of trust in the security of communication networks.

However, any new proposal must focus on the end-to-end process of doing business online and identify where the gaps in legal certainty remain. And it is not just about providing trust and confidence to consumers. Small and medium-sized businesses also need help to embrace the full potential of the Single Market.

Macro policy environment

The E-Commerce Directive sits alongside a significant number of other Directives dealing with consumer protection, including the Data Protection Directive (Directive 95/46/EC), the E-Privacy Directive (Directive 2002/58), the Distance Selling Directive (Directive 97/7/EC), the Unfair Commercial Practices Directive and the Unfair Contract Terms Directive (Directive 93/13/EEC). The European Commission is keen to review the E-Commerce Directive alongside these other Directives and initiatives to ensure greater clarity and harmonisation. However, a policy change that only focuses on consumer protection is unlikely to result in the benefits that the Digital Single Market is looking for.

European contract law

The European Commission is also proposing a pan-European directive to harmonise contract law. However, there is much debate as to how effective such a proposal will be on opening up the Single Market, particularly when small and medium-sized businesses will have to apply two different regimes to contracts.

E RADAR takes the view that more empirical data is required to evidence the need for a pan European contract law proposal - one which is also likely to take some time to implement across all 27 member states. Any default setting for contract law should focus on the whole cycle of contracting and not just on specific elements.  That way, the balance between the economics of supply and demand is better understood resulting in the introduction of good laws when and if they are needed.