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SWITZERLAND--Bernhard Meyer-Hauser

Zurich, December 20, 1999

ABA Cyberspace Jurisdiction Project

Ladies and Gentlemen

I reviewed the drafts relating to the above project and have the following comments with regard to Switzerland.

Some general Swiss (and international) legal principles pose difficulties in E-Commerce transactions:

A. Formation of Contract

Under Swiss law, a contract in the legal sense is only concluded when two parties, expressly or impliedly, agree to specific terms known to them. Typically, conclusion of a contract is completed through an offer and acceptance procedure. If and only when the offer and the acceptance match, a valid contract is concluded.

However, like in many other legal systems, there are exceptions to this rule. A contract concluded on the basis of fraud, or on the basis of a fundamental errors, can be challenged. Such a contract may be invalidated by the competent judge.

Additional requirements such as a meeting of minds (beyond the words) may be required. Furthermore, with regard to special types of contracts - particularly contracts with consumers - formal legal requirements are stipulated by Swiss law. For instance, a consumer who is offered to buy movable goods or services at home (so-called house door business) may withdraw from a contract within seven days after having accepted the offer (Art. 40e Code of Obligations). Other consumer transactions, such as sales in installments, are only valid in Switzerland if the contract is made "in writing" (Art. 226a Code of Obligations) and - if the purchase price exceeds CHF 1'000 - a married spouse must have the co-signature of his/her spouse (Art. 226b Code of Obligations). In all these (and other cases), a contract concluded over the internet which does not fulfill the requirements of Swiss law is not valid and not enforceable in Switzerland.

Another trouble area is that Swiss requires a person to have legal capacity to act before he/her can conclude a contract. In the case of an electronic sales transaction, the counterpart of a purchaser is often a programmed computer, not permanently controlled by a human mind. This computer, and not a legally capable person, „accepts" the purchase order.

Of course, the fact that a machine acts as seller is not a totally new concept, neither in Switzerland or abroad. Vending machines, mail-order businesses, telephone or television sales have a long history in commerce. However, these transactions have been comparatively simple in the past and normally involved some human activities at some stage. Vending machines had to be fed with physical goods, mail-order businesses, telephone and television sales were followed by shipments of physical merchandise. By contrast, a purchase from a computer is normally more complex. The buyer must make a series of choices to define the goods, and it is the customer himself who prompts the computer on the other side to deliver the merchandise. In a typical case of a purchase of computer software on-line, no human activity is involved on the seller’s side and the computer does all by itself. Whether or not such a transaction is valid if challenged on the grounds that there was no real "meeting of minds" or no "legal capacity to act", is unclear in Switzerland and elsewhere.

B. Legal Nature of On-line Contracts

A conventional sale over the internet, i.e. the sale of certain physical goods with subsequent delivery by mail, does not pose special problems. Such a transaction qualifies as a sale also in the legal sense.

If only information is provided over the internet, retrieved by the buyer on-line, the qualification as a service agreement is not very difficult either. The hard question concerning the legal nature of the on-line contract comes up under Swiss law when computer software or certain other intellectual work products (e.g. the text of a book, a newspaper article, a series of pictures, etc.) are retrieved from the internet.

To qualify such retrievals as a sale is - strictly legally speaking - not correct under Swiss law. There is no transfer of a physical object which is the essential element of a sales contract. All that happens is that electronic data, resident on a computer, is reproduced and that such digital copy is supplied to another computer through the internet. To call such a contract a license or a mandate relationship - rather than a sale - would be more accurate and closer to reality. In spite of this, and simply for convenience reasons, I will use the terms „sale", „buyer" and/or „seller" in this report in a broader sense, i.e. not only for traditional electronic sales with subsequent delivery of physical goods but also for on-line retrievals of software, information and/or other intellectual work products.

C. Jurisdiction

Absent any specific party agreement or international convention on the question of jurisdiction, Swiss contract law provides (with many exceptions) that the courts' of defendant's domicile or business establishment have jurisdiction over any disputes. If the purchaser is a consumer in the sense of the pertinent law, he or she may also file suit against the seller at the consumer's domicile or ordinary residence.

In spite of the above rules, the concepts of Swiss law may be inappropriate in e-commerce transactions. Sometimes, a buyer of - for instance - computer software does not even know where the seller is located. Likewise, the seller may be unaware where the order comes from. Under these circumstances, it is obviously difficult for either party to sue to other party before any courts and the counter party would first have to be identified.

D. Applicable Law

Under Swiss law, the parties are free to choose the law applicable to a transnational contract. This rule also applies to contracts concluded on-line.

If the parties fail to make a choice, Swiss law provides that the contract is subject to the law of the state with which it is most closely connected. It is presumed that the closest connection is with the state in which the party called upon to provide the characteristic performance has its ordinary residence or business establishment. But, here again, it is difficult to see how the traditional concepts work in on-line sales:

In a traditional sales or licensing arrangement, the characteristic performance is normally the one of the seller. The seller is stocking, selecting, individualizing, shipping -- i.e. handling and controlling -- the goods. In an electronic sale, particularly in a sale with on-line retrieval and delivery, the roles are quite inverse. The buyer logs into the seller’s computer from anywhere in the world. The buyer is defining the goods to be purchased in accordance with certain options. The buyer pushes the button for retrieval and delivery. The seller normally has very little control over the transaction. Therefore, it is unclear today in Switzerland whether or not the traditional concepts of applicable law will be applied in an E-Commerce transaction or if the (Swiss) purchasers' law will be applied instead.

E. Enforcement

Another problem area of an on-line sales transactions is enforcement. As mentioned before, a typical situation in many e-commerce transactions is that the buyer does not know where the computer taking his or her order is physically located. In addition, it is common practice in the internet that the buyer must furnish his credit card number and authorize a charge to the seller prior to delivery.

Thus, if the merchandise - particularly computer software retrieved on-line - does not satisfy buyer’s requirements, is not complying with the specifications or is simply not delivered, it is extremely difficult for the buyer to bring and enforce a claim against the seller, in Switzerland or elsewhere. Even if the anonymity is lifted, enforcement of warranty or other claims is difficult. The amounts involved normally do not justify international enforcement proceedings.

F. Role of the Access Provider

For the above reasons, it has been suggested that the access provider, normally sitting near buyer’s domicile, should respond under some sort of agency theory to any claims a buyer may have. However, under Swiss law this concept is not expected to be working because the access provider has no possibility to know or police transactions channeled through its computer system. The access provider places at the parties’ disposal a powerful computer link and telephone lines. He does not and cannot, however, control the millions of electronic signals channeled through his system every day.

G. Specific Swiss Laws for and Court Decisions on E-commerce

Until today, Switzerland does not have any specific e-commerce laws yet. As of January 1, 2000, there will be a public key infrastructure in place. However, a digital signature law as adopted in other countries and as proposed by the European Union (of which Switzerland is not a part) has not been enacted yet in Switzerland. The Federal Counsel expressed an interest to enact such a law but under the slow Swiss law making process it is not expected that such a law will enter into force prior to the year 2002.

As far as the judiciary is concerned, there are no real precedents available in Switzerland relating to e-commerce matters. There is only one internet related Federal Supreme Court decision known to date and it dealt with a collision between a domain name and a registered trade mark.

H. Conclusion

As a result, the field of on-line sales contracts in Switzerland is widely untested and it is expected that Switzerland will follow the developments in Germany and other EU countries.

BM/mb/20. Dec. 1999

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