The recent French jurisprudence granting extremely high damages against a hosting provider for hosting a cost-free personal homepage which happened to display pictures of Estelle Halliday nude, although these images had been immediately withdrawn, and without any attempt at suing the owner of the site in question⁽³⁾ shows the need for a harmonised and unambiguous regulation at the European level, and exemplifies the very negative consequences that may arise from a confusion between these new, specific, businesses of the Information Society and their approximate traditional counterparts, like printer or publisher.

23 February 1999

DRAFT OPINION

(Rule 147)

for the Committee on Legal Affairs and Citizens' Rights

on the proposal for a European Parliament and Council Directive on certain legal aspects of electronic commerce in the internal market (COM(98)0586 - C4-0020/99 - 98/0325(COD)) - report by Mrs Christine Oddy.

Committee on Economic and Monetary Affairs and Industrial Policy

Draftsman: Mr Karsten Friedrich Hoppenstedt

At its meeting of 20 January 1999 the Committee on Economic and Monetary Affairs and Industrial Policy appointed Mr Karsten Friedrich Hoppenstedt draftsman.

It considered the draft opinion at its meetings of 23 February 1999, .....

At the last meeting it adopted the following conclusions by ... votes to ... , with ... abstentions/ unanimously.

The following were present for the vote: von Wogau, chairman; Katiforis, Garosci and Secchi, vice-chairmen; Hoppenstedt, draftsman; ..................................

INTRODUCTION

With the Internet becoming a commodity, electronic commerce as a new way to conduct business has the potential to impact immensely on economic activities and the social environment. Barriers to engaging in e-commerce have progressively fallen for both buyers and sellers, thanks to a combination of regulatory reform and technological innovation. Earlier forms of e-commerce were mostly custom-made over proprietary networks, complex and expensive. Today, anyone can become a merchant and reach millions of consumers world-wide, as proven by famous examples like "Yahoo" or the on-line bookseller "Amazon". So, in some way, the Internet has done for e-commerce what Henry Ford did for the automobile - converted a luxury for the few into a relatively simple and inexpensive device for the many.

In Europe, the potential opportunities offered by e-commerce for the economy, consumers and employment are indisputable. But so is the need for a favourable environment for this ongoing evolution. In order to build confidence among businesses and consumers, a coherent legal framework needs to be firmly established. Un-coordinated developments in each Member State would however hinder new enterprises being created in Europe.

Therefore, it appears necessary to foster the emergence of a Single Market with harmonised rules here as in other fields. Actually, there is in most cases no need to regulate when general principles apply. The multiple initiatives⁽¹⁾ of the Commission in fields related to the Information society testify to this objective to encourage the vigorous growth of e-commerce in Europe by providing a proper regulatory framework, based on the Single Market freedoms, and complemented with only those clarifications that are needed as a consequence of the innovative concepts, paradigms and trades brought about by the new practices of the "Net economy".

This is why the draftsman welcomes the present Commission proposal for a directive "on certain legal aspects of electronic commerce in the internal market", announced already in the "Framework Communication: A European Initiative in Electronic Commerce". Some legal obstacles for on-line services are already dealt with by the Directives on Distance Selling, Personal Data and Copyright. The new Directive will complete these measures and provide maximum possibilities for the free provision of on-line services without frontiers. The Commission has identified a number of areas where harmonisation is necessary, based on the key principle of "country of origin" and "mutual recognition". By endorsing this principle, the Commission aims at "ensur[ing] that the Union reaps the full benefits of electronic commerce by boosting the consumer confidence and giving operators legal certainty, without excessive red tape".The Directive covers five major areas, which also corresponds to the requests formulated by the Parliament in its resolution of 13 May 1998 on the Commission's Communication "A European Initiative in Electronic Commerce":

1. Establishment of the provider

2. Commercial Communication

3. Moment and circumstances of conclusion of a contract on-line

4. Liability

5. Enforcement and dispute resolution

General remarks

This proposal is characterised by a very well balanced approach to the needs of consumers and vendors and completes the regulatory framework of the Information Society together with the Directives on Copyright and Electronic Signatures. In this context, this directive presents a big step towards the establishment of a clear and predictable legal environment in the "online world", and with this, a major contribution to the development of the internal market and the competitiveness of European industry.

Application of the country of origin principle

This is a key principle for ensuring the smooth functioning of the Single Market given that its application is the most efficient way to remove legal borders between Member States. This principle relies on mutual confidence between national authorities and therefore represents a key element of European integration and the Community legal order. It is crucial to preserve the integrity of the Single Market and the free provision of services across borders, in accordance with article 59 of the Treaty⁽²⁾. The application of this principle is imperative for electronic commerce given that a Web site is automatically accessible in 15 Member States and in many cases it is impossible to demand that it complies with the legislation of the 15 Member States. To do so would amount to a denial of the benefits of the Single Market to e-commerce, in particular for the consumer willing to have access to new information, services and products. The absence of an internal market approach would be a deterrent for to development of electronic commerce in Europe by creating additional trade barriers. This principle will also improve the protection of consumers: it will reduce the risk of illegal activities via the Internet in Europe by establishing effective control by national authorities at the origin of the activity (in the Member State where the company in question is established).

The specific question of the liability of intermediaries

The need to address this issue at Community level has been stressed by the European Parliament on several occasions in the past. During the course of examination of the proposal for a "Directive on the harmonisation of certain aspects of copyright and related rights in the Information Society", the question was discussed and the Commission recognised that the issue of liability was a horizontal one affecting a number of areas other than copyright and related rights (e.g. trademarks, misleading advertising, defamation) and took the commitment to clarify this issue at Community level in the context of the electronic commerce directive.

The EP in its above-mentioned resolution on the Commission's Communication "A European Initiative on Electronic Commerce" also acknowledged such a horizontal nature and urged the Commission to address the issue in the context of the electronic commerce directive . The same position (urgency of dealing with the issue in a horizontal manner and in the context of the electronic commerce directive) has been reiterated again in the first reading of the EP on the proposed Copyright Directive. The draftsman welcomes therefore the inclusion of the liability section in the e-commerce proposal. It stresses the importance to clarify the potential liability of the intermediary activities that have been addressed in the Commission proposal and believes that a reasonable balance between the different interests at stake has been achieved.

The timing of this proposal is of the utmost importance. It is urgent to adopt a balanced harmonised solution at European level. For the time being, the application of existing and emerging legislation to Internet intermediaries is not clear and they are being subject to contradictory judgements at Member State level.

It is important to clarify this matter as discussions on the copyright proposal are at an advanced stage. The copyright proposal does not deal with the issue of liability and it simply defines the scope of the rights granted to right holders (including the limitations to such rights). In view of the fact that some of these rights, and in particular the reproduction right, are often involved in the activities of Internet intermediaries, it is absolutely crucial to ensure exemptions and limitations to the liability of such intermediaries.

The draftsman welcomes the Commission's proposal concerning the establishment of a mere conduit exemption (art. 12) and of limitations for the acts of caching (art.13) and storage of third party information (art.14). He also welcomes the fact that the Commission proposal acknowledges the fact that intermediaries should not be requested to police the network, while nevertheless having to behave in a responsible manner so as to act expeditely whenever they are aware of an infringement (art.15).

The recent French jurisprudence granting extremely high damages against a hosting provider for hosting a cost-free personal homepage which happened to display pictures of Estelle Halliday nude, although these images had been immediately withdrawn, and without any attempt at suing the owner of the site in question⁽³⁾ shows the need for a harmonised and unambiguous regulation at the European level, and exemplifies the very negative consequences that may arise from a confusion between these new, specific, businesses of the Information Society and their approximate traditional counterparts, like printer or publisher.

On the basis of the legal principles established in the proposal, interested parties will be in a position to development mechanisms of notification (notice and take down mechanisms) to facilitate the rapid removal of illegal material from the networks.

CONCLUSIONS

The Committee on Economic and Monetary Affairs and Industrial Policy calls on the Committee on Legal Affairs and Citizens' Rights, as the committee responsible, to incorporate the following amendments in its report:

Whereas, in order to ensure legal security and consumer trust, it is essential that this Directive establishes a general Internal Market framework with effect on all legal aspects of electronic commerce;

Whereas it is important to ensure that electronic commerce could fully benefit from the Internal Market and therefore that, as with the Television Without Frontiers Directive, a high level of Community integration should be achieved;

Whereas, despite the global nature of electronic communications, coordination of national regulatory measures at European Union level is necessary in order to avoid fragmentation of the Internal Market, and for the establishment of an appropriate European regulatory framework as well as a common and strong negotiating position in international fora;

Whereas it is critical for the unbiased development of electronic commerce that this legal framework is simple, minimalist and predictable;

Whereas such a legal framework should ensure the proper functioning of the Internal Market in the field of electronic commerce on the same conditions and following the same principles as in conventional areas, so as to guarantee complete freedom for European enterprises to provide services, and in particular to ensure that enterprises which meet the legal requirements in their country of origin can transact business freely throughout Europe;

Whereas the confidentiality of electronic messages is guaranteed by Article 5 of Directive 97/66/EC; whereas in accordance with that Directive Member States must prohibit any kind of interception or surveillance of such electronic messages by others than the senders and receivers;

Whereas the confidentiality of electronic messages is guaranteed by Article 5 of Directive 97/66/EC; whereas in accordance with that Directive Member States must prohibit any kind of interception or surveillance of such electronic messages by others than the senders and receivers and abstain from prohibiting or restricting the use of cryptographic methods or tools for protecting confidentiality or ensuring authenticity of the information transmitted or stored;

Whereas it is important to establish the liability of intermediaries by making reference to the concrete activities that they undertake and to their knowledge of the information they transmit or store, and whereas when making such a clarification it is not desirable to make reference to national legal concepts such as "objective liability" or the distinction between "criminal" and "civil" liability;

Whereas this Directive clarifies the liability of service providers transmitting and storing third party information as regards all types of infringements, so that this includes infringements of copyright and related rights, and whereas it is important to provide for such a horizontal solution as otherwise the potential liabilities of Internet Intermediaries may be established on the basis of different set of rules to the detriment of legal certainty and security;

Whereas the proposal for a directive on copyright in the Information Society should come into force within a time scale similar to that of the electronic commerce directive to ensure that the issue of liability of intermediaries for copyright infringements is addressed at Community level in a satisfactory manner;

Whereas the Directive strikes a balance between the different interests at stake and establishes principles upon which industry agreements and standards can be based;

For the purpose of this Directive, the following terms shall bear the following meanings: (a) "Information Society services": any service normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services;		For the purpose of this Directive, the following terms shall bear the following meanings: (a) "Information Society services": those services defined in article 1(2), of Directive 98/34/EC of the Council of 21 July 1998
For the purpose of this definition: - "at a distance" means that the service is provided without the parties being simultaneously present;
- "by electronic means" means that a service is sent initially and received at its destination by means of electronic equipment for the processing (including digital compression) and storage of data, and entirely transmitted, conveyed and received by wire, by radio, by optical means or by other electromagnetic means;
- "at the individual request of a recipient of services" means a service provided through the transmission of data on individual request.

Member States shall lay down in their legislation that prices of Information Society services are to be indicated accurately and unequivocally.

Member States shall lay down in their legislation that, where Information Society services refer to prices and other essential terms and conditions, these are to be indicated accurately and unequivocally.

Member States shall lay down in their legislation that unsolicited commercial communication by electronic mail must be clearly and unequivocally identifiable as such as soon as it is received by the recipient.

Member States shall lay down in their legislation that unsolicited commercial communication by electronic mail must contain at the beginning of its subject line the following text string: #/# so as to be immediately and unequivocally identified as such by the recipient, whatever the languages or mail software used.

1. Member States shall lay down in their legislation that, save where otherwise agreed by professional persons, in cases where a recipient, in accepting a service provider's offer, is required to give his consent through technological means, such as clicking on an icon, the following principles apply:		1. Member States shall lay down in their legislation that, save where otherwise agreed by professional persons, in cases where a recipient, in accepting a service provider's offer, is required to give his consent through technological means, such as clicking on an icon, the following principles apply:
(a) the contract is concluded when the recipient of the service: - has received from the service provider, electronically, an acknowledgment of receipt of the recipient's acceptance, and - has confirmed receipt of the acknowledgment of receipt;		(a) the contract is concluded when the recipient of the service has received from the service provider, electronically, an acknowledgment of receipt of the recipient's acceptance;
(b) acknowledgment of receipt is deemed to be received and confirmation is deemed to have been given when the parties to whom they are addressed are able to access them;		(b) acceptance of the offer and acknowledgment of receipt are deemed to be received when the parties to whom they are addressed are able to access them;
(c) acknowledgment of receipt by the service provider and confirmation of the service recipient shall be sent as quickly as possible.		(c) acknowledgment of receipt by the service provider shall be sent as quickly as possible.
2. Member States shall lay down in their legislation that, save where otherwise agreed by professional persons, the service provider shall make available to the recipient of the service appropriate means allowing him to identify and correct handling errors.		2. Member States shall lay down in their legislation that, save where otherwise agreed by professional persons, the service provider shall make available to the recipient of the service appropriate means allowing him to identify and correct handling errors before the moment at which the contract is concluded.

1. Member States shall ensure that effective court actions can be brought against Information Society services' activities, by allowing the rapid adoption of interim measures designed to remedy any alleged infringement and to prevent any further impairment of the interests involved.

1. Member States shall ensure that effective court actions can be brought against Information Society services' activities, by considering that requests be not deemed inadmissible because they are transmitted by appropriate electronic means, and in the case of consumers, the use of the Community language of their choice and by allowing the rapid adoption of interim measures designed to remedy any alleged infringement and to prevent any further impairment of the interests involved.

(b) the field covered by Directive 95/46/EC of the European Parliament and of the Council(4);

(b) the field covered by Directives 95/46/EC and 97/66/EC(5) of the European Parliament and of the Council;

1. Commission Communication on a common framework for electronic signatures COM 898) 297

Commission Communication on an action plan on promoting safe use of the internet COM (97) 582

Commission Communication on electronic commerce and indirect taxation COM (98) 374

Commission Communication on globalisation and the Information Society - The need for strengthened international cooperation COM (98) 50

Commission Communication on a framework communication: a european initiative in electronic commerce COM (97) 157

Proposal for a Directive on the harmonisation of certain aspects of copyright and related rights in the Information Society (COM(97) 628

Proposal for a Directive concerning the legal protection of services based on, or consisting of, conditional access COM (97) 356

2. For the "off-line world", this principle is already at heart of the Single Market principles for goods and services in general, and has in particular been implemented by the Television without frontiers directive (89/552/EEC and 97/36/EC)

3. Cour d'Appel de Paris, Arrêt du 10.2.1999, 14è Chambre, section A RO NI ­ 1998116424 ­ http://www.altern.org

4.

¹ OJ L 281, 23.11.1995, p. 31.

5. ² Directive 97/66/EC of 15 December 1997 concerning the processing of personal data and the protection of privacy in the telecommunications sector, OJ L 24, 30.1.1998, p. 1.