Testimony of Henry H. Perritt, Jr.
Dean and Professor of Law
Chicago-Kent College of Law
Illinois Institute of Technology
U.S. House of Representatives, Committee on the Judiciary
June 29, 2000
Oversight Hearing on the
    Thank you, Mr. Chairman and members of the committee, for the opportunity to be here this morning.  I appear in my individual capacity and not on behalf of any organization or institution.

    I would like to make four brief points.  First of all, even if Jeff Kovar and his colleagues succeed in negotiating an international treaty on civil judgment enforcement that is acceptable to the United States, that is not enough.  It will help, because it will reduce uncertainty.  But it is not enough to solve the problem of your furniture manufacturer in Thomasville, North Carolina, who sells furniture through the Internet.  The problem that will remain is that if the treaty says that your furniture manufacturer must litigate in, let's say, Tirana, Albania where one of his customers is, that is not going to be a very attractive proposition if he sold $1,000 worth of furniture, because it will cost him more to litigate there than the transaction was worth.  And if the treaty says that your furniture manufacturer gets to litigate at home, in North Carolina, that won't be a very attractive proposition for the purchaser of the furniture in Tirana, Albania.

    The problem is that the transaction costs of adjusting disputes through conventional judicial institutions are too high for many of the low-value transactions that represent the Internet's greatest potential.

    So, second, what we must do is to develop new kinds of global institutions to deal with these problems of electronic commerce.  And we have begun to do so.  Professor Thurmon gave the very good example of the ICANN dispute resolution process.  And as someone who has served as a panelist under that process, I agree with him as to its effectiveness, fairness, and promise.

    The agreement negotiated between the Department of Commerce and the European Commission to provide a so-called privacy safe harbor is another promising example of a new kind of international institution.  It is a strong example of hybrid regulation, where public law provides a general framework with some minimum standards and some backup enforcement, but leaves most of the details to be worked out through private self-regulation.

    And there also are some promising beginnings with respect to informal private dispute resolution mechanisms that are so badly needed for these small-value transactions like the hypothetical furniture sale from Thomasville to Tirana.  One of the most pervasive dispute resolution techniques that exists in all of our lives is the credit card chargeback mechanism.  And indeed it is relied upon, at least subconsciously, by most consumers and small businesses who do business already through the Internet's World Wide Web.  And we need to understand the promise of the credit card chargeback mechanism as a very successful private dispute resolution mechanism to encourage further expanse of e-commerce.

    Third, American leadership has been essential to encourage development of these new international institutions.  The Clinton-Gore administration deserves enormous credit for taking leadership, initially expressed in the Framework for Electronic Commerce issued in 1997.  It not only was a sound statement of policy, but it worked.  Against all odds and lots of doubts, we have persuaded people who grew up in the European civil law tradition to embrace the idea of private self-regulation for certain parts of the Internet.

    But even if American leadership has been successful in the short term in providing breathing space for electronic commerce, it will not be successful in the long term if our ideas don't work.  And we have to make sure that they do work.

    So, my fourth point is that there have been promising beginnings, there are promising initiatives, some of which are bearing fruit, but now the challenge must be met as much by Visa and America Express and BBB Online and Trustee and the Internet Privacy Alliance, all private initiatives, as by the Federal Trade Commission and French consumer protection authorities.

    We must ensure that the new initiatives for private self-regulation provide real compliance and enforcement; adopt rules that are linked to broadly accepted norms for privacy protection, consumer protection, and respect for intellectual property; and we must have some kind of third-party audit mechanism to reassure the people in American and elsewhere that these private self-regulatory regimes are working.

    You asked at the beginning of the hearing, Mr. Chairman, what role the legislative process can play.  It can play a very important political role in serving as kind of prod to remind the people who have advocated self-regulation that they must step up to the plate, and turn it into a reality.  And more than that, when the Congress and State legislatures and Parliaments in other countries consider legislation, they always should consider the possibility of legislation that includes a safe harbor, so that private institutions who know the Internet the best and who are themselves the innovators in a constantly changing environment, can be given the opportunity to work out the details within a broad public law framework that is publicly acceptable.

    Thank you.