THE BENEFITS OF ADOPTING THE EU RULES ON THE EXEMPTION FROM INTERMEDIARY SERVICE PROVIDER LIABILITY FOR ONLINE MARKETPLACES IN INDONESIA Master’s Thesis LLM Law and Technology Tilburg University Steven Leonardi (U1259071/364245) Thesis Supervisor: Prof. mr. C. (Kees) Stuurman 1 Table of Contents Chapter 1 – Introduction ................................................................................................................. 4 1.1. Background .............................................................................................................................. 4 1.2. Research Question ................................................................................................................... 6 1.3. Significance.............................................................................................................................. 7 1.4. Methodology ............................................................................................................................ 7 1.5. Overview .................................................................................................................................. 8 Chapter 2 – Definition and Limitation ............................................................................................ 9 2.1. Definitions of online marketplaces and its difference with online retail stores, online stores, and online shops. ............................................................................................................................. 9 2.2. The online marketplaces as an intermediary service providers and their exemption of liability. ......................................................................................................................................... 11 Chapter 3 – The exemption from intermediary service providers under articles 12 to 15 of Directive 2000/31/EC ................................................................................................................... 13 3.1. The exemption from intermediary service providers under articles 12 to 15 of Directive 2000/31/EC ................................................................................................................................... 13 3.1.1. Directive 2000/31/EC ......................................................................................................... 13 3.1.2. Characteristics of the liability regime. ................................................................................ 22 3.1.3. Case Law ............................................................................................................................. 30 3.2. The reason or benefit of having exemption from intermediary service provider liability . 35 3.3. The disadvantage of having exemption from intermediary service provider liability ....... 37 Chapter 4 – Indonesian Current Liability Regime for intermediary service provider .................. 39 4.1. The exemption from intermediary service provider liability under article 15 paragraph 2 of Indonesian Law No. 11 of 2008 on Information and Electronic Transactions. ........................ 39 4.1.1. Indonesian E-Commerce Development. ............................................................................. 39 4.1.2. Current regulation on liability of intermediary service providers in Indonesia .................. 42 4.2. The benefit of adopting exemption from intermediary service provider liability for online marketplaces in Indonesia. ............................................................................................................ 62 4.3. The disadvantage of exemption from intermediary service provider liability for online marketplaces in Indonesia. ............................................................................................................ 64 Chapter 5 - Conclusion ................................................................................................................. 67 5.1. Conclusion .................................................................................................................................. 67 5.2 Recommendations ....................................................................................................................... 68 Bibliography ................................................................................................................................. 74 2 Legislations ............................................................................................................................................. 74 Books ...................................................................................................................................................... 75 Journals ................................................................................................................................................... 75 Websites .................................................................................................................................................. 77 3 Chapter 1 – Introduction 1.1. Background Online trading or e-commerce has become a new trend in Indonesia in recent years. There are several forms of online trading, i.e. business to business (B2B), business to consumer (B2C), and consumer to consumer (C2C)1. TokoBagus, Berniaga, and Markplaats are examples of C2C online marketplaces that bring sellers and buyers together. Online marketplaces are intermediary service provider that provide services for people to advertise their goods2. Users can take a position as a seller and set up the price to be open-for-auction or a fixed price. They can also take a position as a buyer and bid for an item being offered. In this scenario, the online marketplaces merely act as a service provider that brings sellers and buyers together. It is different with regards to an online retail store (e.g. plaza.com), online store (e.g. apple store), or online shop (private and personal online sellers). In Indonesia, the increasing number of online marketplaces have been followed by an increase in the number of cases of fraud.3 A recent survey by Asosiasi Penyelenggara Jasa Internet Indonesia (APJII), an Indonesian Internet Service Providers Association, shows that out of 77, 2% of people who do not shop online, 34, 6% of them are afraid of fraud, 21, 5% of people reason that they cannot see the item by themselves, 13, 8% of people reason that the price is expensive, while the remainder say that they are not interested4. In general, fraud is a tort arising from a knowing misrepresentation, a concealment of material fact, or reckless misrepresentation made to induce another to act to 1 David D. VanHoose, E-Commerce Economics, South-western:2013, p.9 2 Ibid., p.10 3 Denny Mahardy, Penipuan Online Masih Marak Di Indonesia, Liputan 6, 12th December 2012, from http://tekno.liputan6.com/read/475855/penipuan-online-masih-marak-di-indonesia accessed 11th December 2013 4 Asosiasi Penyelenggara Jasa Internet Indonesia, Orang Indonesia Belum Hobi Belanja Online, APJII Media, 12 December 2012, from http://www.apjii.or.id/v2/index.php/read/article/apjii-at-media/131/orang-indonesia-belum- hobi-belanja-online.html accessed 11th December 2013 4 his or her detriment5. Due to the characteristics of the internet, such as a high degree of anonymity, incomplete legal constraints, and lower barriers to entry and exit, it is more difficult to handle fraud in the online marketplaces6. Therefore, e-commerce law in Indonesia creates a strict liability regime to protect the consumer. However, Indonesian law does not clearly define the position of online marketplaces as intermediary between buyer and seller in the trade and to what extent online marketplaces can be held liable if a fraud is committed by one or more users. It only states that every online company has to be responsible and can be held liable for everything that happens on their website7. Furthermore, user’s lack of understanding and knowledge regarding the regulation of online marketplaces cause them to blame online marketplaces when fraud occurs while using online marketplaces’ services. The current regulations that exist for electronic commercial activities are the Indonesian Law No. 11 of 2008 on Information and Electronic Transaction and the Indonesian Government Regulation No. 82 of 2012 on Operation of Electronic System and Transaction. In the hierarchical terms, the Indonesian Law No. 11 of 2008 on Information and Electronic Transaction has a higher position compared to the Indonesian Government Regulation No. 82 of 2012 on Operation of Electronic System and Transaction. According to these regulations, there is no article that clearly defines the position of the online marketplaces in the trade between users and to what extent the online marketplaces can be held liable if a fraud is committed by one or more users. This condition leads to an increased burden of responsibility on the online marketplaces. Without an explicit exemption of 5 Bryan A. Garner (ed), Black’s Law Dictionary, Eighth Edition 6 Fei Dong, Sol M. Shatz, Haiping Xu, and Dibyen Majumdar, Price Comparison: A Reliable Approach To Identifying Shill Bidding In Online Auctions?, Electronic Commerce Research and Application 11, 2012, p. 171-179. 7 Article 15 paragraph 1 Indonesian Law No. 11 of 2008 on Information and Electronic Transaction 5 liability, online marketplaces become more vulnerable to be held liable by its users because in principle they are liable for every crime that is committed by its users. This