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Protecting the Digital Consumer: the Limits of Cyberspace Utopianism Indiana Law Journal Volume 74 Issue 3 Article 5 Summer 1999 Protecting the Digital Consumer: The Limits of Cyberspace Utopianism John Rothchild University of Chicago Law School Follow this and additional works at: https://www.repository.law.indiana.edu/ilj Part of the Consumer Protection Law Commons, and the Internet Law Commons Recommended Citation Rothchild, John (1999) "Protecting the Digital Consumer: The Limits of Cyberspace Utopianism," Indiana Law Journal: Vol. 74 : Iss. 3 , Article 5. Available at: https://www.repository.law.indiana.edu/ilj/vol74/iss3/5 This Article is brought to you for free and open access by the Law School Journals at Digital Repository @ Maurer Law. It has been accepted for inclusion in Indiana Law Journal by an authorized editor of Digital Repository @ Maurer Law. For more information, please contact [email protected]. Protecting the Digital Consumer: The Limits of Cyberspace Utopianism JoHN ROTHCHILD I. INTRODUCTION .............................................. 895 II. NAT=U OF ONLINE COMMERCIAL AcTIvITIEs ................... 899 A. World Wide Web ......................................... 900 B. Newsgroups ............................................. 901 C. ElectronicM ail .......................................... 902 D. Chat Sessions ........................................... 903 III. VARIETIEs OF ONLINE DECEPTIVE MARKETING PRACTICES ........ 903 A. FraudulentOnline Conduct ................................ 904 B. Misleading Online Conduct ................................ 910 IV. SPECIAL CHARACTERISTICS OF THE ONLINE MEDIUM ............. 911 A. Increased Volume of Cross-BorderTransactions ............. 912 1. Extraterritorial Assertion of Jurisdiction ................... 912 a. Jurisdiction to Prescribe .............................. 913 b. Jurisdiction to Adjudicate ............................ 914 c. Location and Foreseeability in the Online Context ........ 916 d. Summary: Jurisdiction over Online Conduct ............. 916 2. Establishment of Jurisdiction ............................ 917 3. Choice of Law ......................................... 918 4. Enforcement of Judgments .............................. 919 5. Evasion of Law Enforcement Through Cross-Border Targeting ............................................. 921 6. Difficulty in Obtaining Pre-Judgment Freezes of Assets Located Outside the Forum Country ...................... 922 7. International Comity ................................... 923 8. Restrictions on International Information-Sharing Among Law Enforcement Agencies ............................. 923 9. Impediments to Efforts by Consumers to Protect Themselves . 925 B. Ease of Evading Detection: Portabilityof Fraudulent Operations, and Disguisingof Identity ...................... 926 C. New Entrepreneurs ....................................... 929 D. GeographicIndeterminacy ................................ 930 1. Limitations Imposed by Technology ...................... 930 2. Implications for Online Sellers ........................... 933 3. Home-Country Control ................................. 937 4. Opting Out ........................................... 939 * Victor Kramer Fellow, University of Chicago Law School. AB., Princeton University, 1979; JD., University of Pennsylvania Law School, 1986. In 1997-98, 1 chaired a project ofthe Organisation for Economic Co-operation and Development ("OECD') that developed guidelines for consumer protection in electronic commerce. This Article builds on the work done in that project and Iwish to acknowledge the helpful comments I received from the project participants. The view expressed in this Article are my own, and not necessarily those of the OECD or any of the project participants. INDIANA LAW JOURNAL [Vol. 74:893 E. UnclearRegulatory Environment ........................... 940 F. Summary: Barriersto the Development of Electronic Commerce Raised.by the Special Characteristicsof Online Communications ......................................... 942 V. ROLE OF GoVERNMENT IN CONTROLLING DECEPTIVE MARKETING PRACTICES IN ELECTRONIC COMMERCE ......................... 942 A. Market Forces and Government Regulation .................. 943 B. The Need for Government Intervention to Control Deceptive Conduct in Electronic Commerce ........................... 952 C. Four Dogmas of Cyberspace Utopianism: The Argument Against GovernmentRegulation of Electronic Commerce ...... 953 1. "Cyberspace Is a Self-Contained Jurisdiction, over Which Territorially Based Sovereigns Have No Legitimate Authority.".......................... 953 2. "Attempts by Territorially Based Sovereigns to Exert Control over Online Transactions Will Inevitably Prove Futile." ..... 954 3. "If One Government May Apply Its Laws Extraterritorially, So May All Others, Resulting in a Clash of Jurisdictions and a Requirement to Comply with All Nations' Laws Simultaneously.". ..................................... 955 4. "Online Conduct Can Be Effectively Regulated by Those Who Engage in It."..... ................................ 955 D. The Dogmas Dissected: Cyberspace UtopianismHas No Clothes .............................................. 955 1. The Special Characteristics of Online Communications Do Not Undermine the Legitimacy of Territorially Based Jurisdiction ........................................... 956 a. Online Communications, Though Universally Accessible, Have Locally Differentiated Impact .................... 957 b. Cost and Speed Advantages of Online Communications Create Only Practical Issues .......................... 957 c. Virtual Addressing Does Not Undermine Territorial Sovereignty ........................................ 958 d. Physical Location of Online Interlocutors Is Not Unknowable ....................................... 958 e. The Relevant Factor Is the Location of the Communicators, Not the Location of the Communication ................ 960 2. The Argument from Futility Refutes Only One, Particularly Poor, Enforcement Approach ............................ 960 3. The Problem of Overlapping Jurisdiction Can Be Addressed Through Approaches Less Drastic Than Abdication ......... 961 4. Deceptive Marketing Practices Are Not Likely To Be Adequately Controlled by Market Forces Alone ............ 962 5. Summ ary ............................................. 968 VI. LEriNG ONLINE COMMERCE GROW ............................ 968 A. Improving the Transparencyof the Legal Framework, and Adapting It to the Online Environment ...................... 969 1. General Rule of Parity .................................. 969 1999]. PROTECTING THE DIGITAL CONSUMER 2. Reasoning from Analogy with Other Means of Communication ..................................... 970 3. Clarification and Updating of Regulatory Regimes .......... 971 4. Educating Online Entrepreneurs ......................... 971 5. Negotiating an International Baseline Consumer Protection Regime ..................................... 972 6. Protecting Online Privacy ............................... 972 B. Enhancing the Effectiveness of Market-BasedSolutions to the Problem of Online Deceptive Marketing Practices ....... 973 1. Facilitating Consumer Sovereignty ....................... 973 2. Industry Self-Regulation ................................ 974 3. Adapting Existing Alternative Dispute Resolution Mechanisms .......................................... 976 4, Developing New Alternative Dispute Resolution Mechanisms .......................................... 976 C. Restraint in ExtraterritorialAssertions of Jurisdiction ........ 978 1. Limiting What Is Deemed to Constitute Foreseeable Extraterritorial Effects .................................. 978 2. Focus on Location of People, Not of Computers ............ 981 D. InternationalCooperation Among Law Enforcement Authorities .............................................. 983 1. Mechanisms to Improve International Cooperation .......... 983 2. Positive Comity ....................................... 985 3. Recognition of Foreign Judgments ........................ 986 4. Removing Obstacles to Cross-Border Investigations ........ 986 VII. CoNcLusIoN ............................................. 988 I. INTRODUCTION Business-to-consumer commerce conducted via online means of communication,' though at present relatively modest in volume, is expected to grow exponentially over the next few years. According to one report, consumer purchases made over the Internet will rise from $289 million in 1996 to $26 billion in 2001.2 With an 1. For purposes ofthis Article, "online communications" refers to communications by means of data interchange across computer networks. This includes communications occurring via open networks, such as the Internet, as well as proprietary online services, such as America Online, CompuServe, Microsoft Network, and Prodigy. "Online commerce" and "electronic commerce" refer to commercial transactions in which online communications play a significant role. 2. See BmLBuRNHAM TiE ELECTRONIC COMMERCE REPoRT 238 (1997). These figures are for purchases by U.S. households that are paid for via the Internet See id. Other estimates of the annual volume ofIntemet retailing within the next few years range from $7 billion to $115 billion. See DEPARTmENr OF COMMERCE, THE EMERGING DIGrAL ECONOMY 38 (1998). A much larger volume of electronic commerce-$202 billion in the year 2001-ilU consist of business-to- business transactions. See BURNHAM, supra,at 239. Some of the business entities involved in these transactions, in view of their small size and limited
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