Testimony by Henry H. Perritt, Jr.
Dean, Chicago-Kent College of Law
Illinois Institute of Technology
Before the subcommittee on courts and intellectual property
Committee on the Judiciary
United States House of Representatives
29 June 2000
Thank you Mr. Chairman for the opportunity to appear today. I request that this prepared statement be included in the record even though I summarize it orally.
My basic biographical information is attached to this prepared statement.
The subject of the relationship between the Internet and courts is an important one, implicating broader questions of jurisdiction over the Internet. Chicago-Kent College of Law recently finished working with dozens of members of the American Bar Association to complete a report on Internet Jurisdiction. This report is available on the Internet at www.kentlaw.edu/cyberlaw. Its main observations will be presented at the American Bar Association's annual meeting in London in July of this year. I will offer some insights gleaned from my involvement in the project and my other involvements with the Internet and Law over the last 10 years:
1. Rapidly expanding e-commerce and political activity on the Internet make it difficult to localize conduct, even though localization is the method traditionally used to determine what state or government has jurisdiction to make rules and to apply those rules to particular conduct.
2. The most interesting forms of governance for the Internet are hybrid forms of regulation, in which public institutions establish "floors" for minimum standards and provide backup enforcement when private dispute resolution and enforcement do not work. Within this broad framework represented by public law, a variety of private self regulatory mechanisms can work out the details, accommodating rules and dispute resolution procedures to the particulars of constantly evolving markets and democracy. Such hybrid regulatory approaches have been embraced by the United States Department of Commerce and the European Commission as a model for protecting privacy, and by the United States Congress for protecting children's online privacy and copyright, in the Children's Online Protection Act and the Digital Millennium Copyright Act, both of which have safe harbors for private self regulation. Hybrid regulation also has promise for protecting consumer interests.
3. Effective dispute resolution is a prerequisite to realizing the potential of the Internet. Having to file a lawsuit in the regular courts is not a very attractive alternative when difficulties in localizing the relevant conduct create jurisdictional uncertainty, and when the costs of a lawsuit far outstrip the value of the transaction. The European Commission, the United States Government, academics, and participants in e-commerce recognize the importance of dispute resolution. There are some important successes with the ICANN/WIPO domain name dispute resolution process, which has already handled some 300 cases successfully.
4. One of the most attractive forms of informal dispute resolution that has great promise for the Internet is represented by credit card "chargebacks," the mechanism required by Federal Reserve Board Regulation Z, and used voluntarily in many other countries in Europe and elsewhere. When a consumer has a dispute with a merchant involving credit card payment, the consumer can cause the card issuer to "chargeback" the amount of the sale until the dispute over delivery or performance is resolved. This is a powerful and low cost method of dispute resolution. Its success in satisfying both merchants and consumers is exemplified by the miniscule amount of litigation occurring over the last couple of decades over credit card charge back arrangements. The OECD was correct in its white paper issued last Spring that proponents of e-commerce should focus on extending the chargeback idea. The United States Government through its diplomatic channels with the OECD should encourage this point of view in Europe and elsewhere.
5. Many myths exist. First of all, the United States and Europe take remarkably similar approaches to basic concepts of prescriptive and adjudicative jurisdiction. We use different terminology, and sometimes have different starting points in terms of legal philosophy, but our legal systems deal with similar problems and would resolve most contested cases in exactly the same way.
6. I have been involved in discussions over a proposed international treaty on the international enforcement of civil judgments, a project of the Hague Conference on Private International Law. These discussions have been illuminating and have promise for helping provide an appropriate framework to encourage electronic commerce on the Internet. As the discussions continue, we must focus attention sharply on differences between European and American interest groups on whether consumer contracts should be treated specially, understanding in a more precise way similarities and differences between European approaches and the approaches of state consumer protection agencies in the United States. We also need to reconcile an apparent conflict between U.S. Constitutional requirements for "purposeful availment" before one can be subjected to jurisdiction, and the proposal in the current draft convention that would allow jurisdiction over one who merely causes injury within a jurisdiction. Perhaps most important, the drafters of the proposed convention should understand and embrace the opportunity to use new methods of dispute resolution as a way of bridging the gap with respect to consumer transactions.
7. One final word about the potential for private dispute resolution. Before I got involved in Internet law, I was predominantly a labor and employment lawyer. I know of the power of private institutions, such as those long a feature of American collective bargaining, to make rules and decide disputes more cheaply, more quickly, and more in tune with the interests of the parties than many public institutions can. Accordingly, the call for self regulation of the Internet resonates with me. I think the Clinton/Gore Administration has shown outstanding leadership in shepherding e-commerce and the Internet through the early stages of its life.
But industry proponents of self regulation must now step up to the plate, and they must do it more aggressively than they have in the past. Self regulation will not be acceptable in the long run unless it is backed up by real sanctions for violators, unless there is an independent audit mechanism for determining compliance, and unless the ground rules within the self regulatory regime are appropriately linked with widely shared norms of conduct, such as those involving privacy, and consumer protection.
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