March 2002 - VOLUME 23 - NUMBER 3
C o r p o r a t e C a p t u r e o f t h e I n t e r n e t
By Charlie Cray
The Hague Convention and the Threat to Internet Freedoms and Consumer Protection
The integrity of the Internet, and an array of consumer, civil and other
kinds of legal protections and even national sovereignty may be undermined
by an obscure treaty, now under negotiation, designed to strengthen the
global enforcement of court decisions related to business, observers say.
The agreement, known as the Hague Convention on Jurisdiction and Foreign
Judgments in Civil and Commercial Matters (the Hague Convention)
is being negotiated by more than 50 countries, including the United States.
It is designed to give parties assurance that if they win a lawsuit in
one country, it will be enforced in another.
Even critics of the treaty acknowledge that international enforcement
of court decisions would have some benefits. For instance, business scofflaws
or foreigners who leave a country to evade a civil judgment could be forced
to surrender their assets in any country that signs the treaty.
This kind of extension of the reach of national laws seemed an attractive
proposition when negotiations on the draft treaty began in 1992. Back
then, the driving factor was the U.S. perception that U.S. courts
typically enforce foreign judgments, while foreign courts often do not
enforce U.S. judgments, says Barbara Wellberry, a former chief counselor
for e-commerce to the Commerce Departments undersecretary for international
Although the drafting of the Hague Convention began in 1992, formal negotiations
didnt begin until 1999. The last time the parties convened in a
two-week session in June 2001, the negotiations broke off with little
achieved besides an agreement to resume discussions by 2003.
Virtually everyone involved attributes the slow progress to complications
brought on by the introduction of e-commerce, which has exploded from
virtually nothing as late as 1995 to an estimated $330 billion last year,
and is projected to reach $2 trillion to $3 trillion by 2005.
One reason for concern is that the treaty might subject both consumers
and businesses to virtually any jurisdiction where the Internet is available
giving plaintiffs the ability to shop around for a legal forum
where they might have an advantage.
Allowing plaintiffs to sue wherever the harm has arisen in the
electronic commerce context subjects an alleged tortfeasor to jurisdiction
in any country of the world, regardless of whether there have been meaningful
contacts with the particular jurisdiction, says Wellberry. Wellberry
is now a partner at Morrison and Foerster in Washington, D.C., representing
a coalition of corporate interests known as the Internet Coalition on
Worse, according to consumer rights advocates, the ability of multinationals
with subsidiaries in numerous countries to comparison shop among different
national laws gives them the ability to use the treaty to drag civil rights
such as free speech protections and public rights to privately held intellectual
property (such as fair use of copyrighted material), down
to the level of the country with the weakest levels of protection.
As drafted, the treaty will shrink the publics rights to
only those that exist in every country, which of course is smaller than
what exists in any country a frightening outcome, says James
Love of the Washington, D.C.-based Consumer Project on Technology. Love
argues that countries should not adopt a jurisdictional treaty covering
e-commerce unless they have first harmonized the applicable commercial
and civil laws.
Caught in the Internet
Critics say that unless it explicitly exempts speech torts, the Hague
Convention could expose writers, publishers and even people who post opinions
on the Internet to defamation and libel suits in countries where free
speech protections are weaker than those in countries such as the United
There are a lot of countries that have laws that are far less protective
of free speech than the United States, Chris Chiu, an Internet policy
analyst with the American Civil Liberties Union points out. What
has prevented a lot of foreign judgments from being enforced on U.S. soil
is that courts in the United States have refused to enforce those decisions
based on the First Amendment and other public policies. The concern is
that the Hague Convention will shift the balance of power, and create
some sort of bias towards enforcement of foreign judgments. It opens up
the possibility that American publishers will face potential lawsuits
from places like mainland China, Singapore and other countries where there
are strong restrictions on what people can say about the government.
Even without the treaty, observers have noted a growing incidence of
cross-border defamation and libel lawsuits, where plaintiffs have used
the ubiquity of the Internet to seek out jurisdictions where libel and
defamation laws are stricter than where the plaintiff would normally be
expected to sue.
In one case last August, the Supreme Court of the Australian state of
Victoria ruled that Melbourne businessman Joseph Gutnick could sue Dow
Jones for defamation in an Australian court over an article published
in the United States, but posted on an online version of Barrons
magazine. Barrons is not sold in Australia.
Gutnick, a mining magnate, claimed the article wrongly portrayed him
as a schemer given to stock scams, money laundering and fraud.
Although Australias highest court ruled in December that New York-based
Dow Jones & Co. can appeal the decision, Dow Jones attorney Geoffrey
Roberson points out that if it sticks, the Victoria Supreme Court ruling
would set a precedent that anything published on the Internet could be
subject to litigation in any country, and would therefore have a significant
impact on freedom of speech in cyberspace.
Supporters of the Hague Convention say the treaty will not necessarily
exacerbate the situation, since countries including the United States
with stronger free speech laws could block enforcement of such decisions
by exercising a public policy exemption built into the treaty. The exemption
allows signatory countries to preserve unique constitutional protections,
such as the U.S. First Amendment.
However, observers say U.S. judges may be reluctant to continuously exercise
public policy exemptions in order to protect free speech, knowing that
foreign judges might in turn refuse to enforce U.S. decisions.
Right now U.S. courts have a fair amount of latitude in terms of
whether they want to enforce judgments from other countries, says
the ACLUs Chris Chiu. The public policy exemption [in the
Hague Convention] is not well defined. It doesnt explicitly mention
free speech. The people who have drafted and pushed the treaty along have
so far made it so that the exemptions should be interpreted strictly and
not expansively. In that sense, theres a genuine concern, especially
in the realm of free speech.
Plaintiffs could also threaten companies with deeper pockets such as
Internet service providers (ISPs) like AOL Time Warner and Yahoo!, which
host the sites where controversial material is posted.
The result of such a chain of interlinked responsibility could force
ISPs to police their own sites, a monumental task that they say is virtually
impossible, given the amount of traffic.
A case brought against Yahoo! in 2000 illustrates what observers say
might become epidemic under the Hague Convention.
Yahoo! was threatened by a French court with stiff fines for hosting
a U.S.-based web page where Nazi memorabilia was being sold. French hate-speech
laws disallow the trading of Nazi items within France. Although the listing
is constitutionally protected under U.S. law, since the website was accessible
within France, the court claimed Yahoo! was violating the law.
A U.S. federal judge ruled in November 2000 that Yahoo! was not obligated
to comply with the French ruling as it applied to sites hosted in the
United States. In February 2002, the French criminal court said it would
seek to hold Yahoo! liable, with a former company CEO facing a maximum
prison sentence of five years.
Under the proposed treaty, France would have more leverage to enforce
the French courts decision against Yahoo!
While surely U.S. courts would refuse to enforce such judgments
on First Amendment grounds, the Hague Convention would nonetheless compound
the problem, says Wellberry, whose clients include Yahoo! By
requiring that those judgments be enforced in other countries where U.S.
companies have assets, U.S. First Amendment principles could more easily
be avoided. The result could be that the Internet is reduced to the lowest
common denominator, where web sites avoid any but the safest content for
fear of offending someone and being hauled into court.
In general, our view remains that a convention could provide an
effective framework, says Mark Bohannon of the Software & Information
Industry Association, the principal trade association of the software
and information content industry. Such a convention should not exclude
nor carve out intellectual property, but would have to be consistent with
U.S. and international norms for the enforcement of judgments in this
and other areas.
Intellectual property laws are not consistent internationally, however.
Critics say the Hague treaty would allow the owners of intellectual property
to forum-shop for the most restrictive intellectual property laws and
trample on fair use and other public rights established in
countries like the United States.
The range of activities common to Internet users that may come under
threat include the liberal use of quotations from authors, linking to
articles originating in commercial publications, the sampling of copyrighted
video and recording materials, and the use of reverse engineering techniques
to find out how to make software programs work together (be interoperable).
Even activities not on the Internet, such as the distribution of copyrighted
materials in classrooms, are potentially threatened.
We are concerned that the draft Convention, with its current rules
regarding forum selection, could subject Internet users in the United
States to intellectual property infringement in other countries for activities
that are lawful in the U.S. For example, users could be sued for engaging
in conduct falling within the fair use doctrine, states the American
Library Association in a letter to the U.S. delegation to the Hague Convention.
It makes no sense at all to lock in the whole world to a system
that extends every nations intellectual property rights regime to
everyone. The fact that intellectual property right regimes are so different
now, and undergoing so much change, is a good reason to exclude intellectual
property issues from the Hague, as has been done for maritime law and
other areas where there is not agreement upon jurisdiction issues,
says James Love.
Some large multinationals, such as Internet-based businesses, agree.
Most concerned are Internet service providers, who are worried about being
held liable for activities of their users.
The Hague Convention would allow copyright owners to avoid the
limitations on liability that were negotiated with U.S. service providers
under the Digital Millennium Copyright Act, by bringing suit against the
service provider for copyright infringement in countries that have no
laws limiting service provider liability, says Wellberry. In
addition, where the service provider had no assets in the country in which
suit was originally brought, under the Hague Convention copyright owners
would be entitled to enforcement in the U.S. or any other signatory country
to the Hague Convention where the service provider has assets.
Although there are various global treaties and conventions dealing
with intellectual property laws, there is no one international global
copyright, patent or trademark law, adds Sarah Deutsch of Verizon.
Intellectual property laws generally are still created nationally
and such laws are enforced locally by their respective national courts.
These national intellectual property laws may differ on what may constitute
a registerable trademark, what may be copyrightable subject matter or
the subject of patent protection. In the trademark area, many countries,
including the United States, generally avoid enforcing judgments or adjudicating
disputes outside their jurisdiction. In the U.S., courts have defined
the rule succinctly: [When] trademark rights within the United States
are being litigated
in an American court, the decisions of foreign
courts concerning the trademark rights of the parties are irrelevant and
But as the negotiations drag on and pressure to complete an agreement
rises, delegates are likely to agree that reducing the treaty to a limited
set of issues may be necessary for any agreement to be reached. And most
of the stakeholders who have provided input to the U.S. delegation agree
that one area where there is little agreement is business-to-consumer
contracts. In part, that is due to large differences between U.S. and
European consumer laws.
I dont see European courts changing their consumer protection
laws and I dont see the U.S. Congress changing U.S. consumer protection
laws. We have to figure out a way to finesse that as some language has
done, or leave that argument for another day, says Marc Pearl, a
partner in the Washington, D.C. office of Shaw Pittman, who coordinates
an ad hoc working group of companies and trade association with e-commerce
But disagreements run deep between different stakeholder groups within
each country as well.
Consumers could be at a considerable disadvantage if they are subjected
to the jurisdiction of distant courts when disputes arise, the Trans-Atlantic
Consumer Dialogue (TACD) suggested in a group resolution. TACD is a loose
federation of consumer groups in the United States, Canada and Europe.
Depriving consumers of access to their own courts in the case of
cross-border disputes is effectively denying them their right to redress
via the public justice system. Meanwhile, businesses can limit
the jurisdictions in which they transact with consumers to those jurisdictions
in which they are comfortable being subject to litigation.
On the other hand, corporate representatives claim the treaty offers
excessive rights to potentially litigious consumers.
Allowing consumers to bring actions in the courts where they live,
as proposed in the Convention, merely because a web site is available
may cripple the development of electronic commerce, says Wellberry.
Such allowance means that even the smallest merchant may be subject
to jurisdiction and the expensive burden of defending lawsuits around
the world. And because of the close relationship between choice of forum
and choice of law, worldwide jurisdiction may also mean that merchants
will have to go to the expense of being compliant with laws around the
In many instances it will be impossible for a seller to determine
where the buyer or user of a digitized product (even if such buyer or
user is a business or commercial entity) is located at the time of the
sale or use or where performance of the electronic contract took place,
agrees Mark Bohannon of the Software Information & Industry Alliance.
In an Internet-based transaction, in particular, application of
this standard would potentially subject a company to jurisdiction in unexpected
But this still does not resolve some issues. For example, it leaves open
the question of how business is defined. Should that definition
include small non-profit groups who are incapable of defending themselves
in foreign countries?
While raising such objections, James Love continues to advocate for the
removal altogether from the treaty of intellectual property, speech-related
torts, contracts of adhesion and rules that could undermine the free software
Software companies object to these specific carve-outs, which would limit
the circumstances under which the treaty would cover e-commerce. You
cant draw a bright line between what is commerce and what is e-commerce,
says Marc Pearl. If crafted successfully, [the treaty] could create
greater predictability and reliability.
Without removing e-commerce, however, the issue of forum-shopping will
remain a sticking point.
Several firms, including Quova, Digital Envoy and NetGeo, have proposed
a technical fix to this jurisdictional conundrum by developing technologies
that would allow businesses to target their on-line presence to particular
geographic areas. At the same time, governments and policy makers are
determining how technologies used to restrict online advertising to specific
geographical audiences might be used to play a role in Internet lawmaking.
But the Internet community has had little chance to discuss the benefits,
challenges and consequences of creating e-borders or zoning
the Net with these technologies. Many say the technical solutions
threaten to destroy the fundamentally open nature of the Internet.
But even Bohannon cautions that it is important that U.S. government
and other delegates understand that the ultimate merits of the proposal
are based entirely on prospective benefits, not retrospective experience.
Inevitably, this requires a complex and detailed assessment of the costs
and benefits emerging from the changes required by the proposal which,
to date, has been absent.
The treaty negotiations are being carried forward by a political momentum
born before the advent of e-commerce and the recent realization by many
Internet-based firms that the Hague Convention might subject them to an
unwanted host of liabilities.
But with business and consumer opposition growing, and business proponents
offering only the tepid support voiced by Bohannon and others, the Hague
Conventions future is very much in doubt. Perhaps the lingering
momentum will be sufficient for finalization of a treaty that excludes
e-commerce or at least contains severe restrictions on coverage of e-commerce.
For now, it appears that consumer and civil liberties advocates may have intervened early and strategically enough including working successfully to cultivate business allies that their worst fears about the Hague Convention will not be realized. With complex international treaty negotiations, however, the final result is never clear until the process is completely finished.