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Extra-territorial jurisdiction: borders in e-commerce

Nigel Morris-Co...

Australia has once more taken action against an overseas corporation in respect of the terms and conditions it imposes on purchasers in Australia.

Is Australia's approach to policing e-commerce workable in a global economy?

In my 2015 book "Cleaning up the 'net" I wrote "The internet is not a thing, it is not a place, it is not a person. ..The internet is like the pipes in a domestic plumbing system. The plumbing system allows the delivery of water to terminal points: taps, showers and toilets. The internet allows the delivery of instructions and information to terminal points - computers. Activity that appears to happen "on the internet" actually happens on those computers. For too long we have talked about regulating "the internet." The internet is the wrong target. To combat crime committed using the medium of the internet, we must regulate the people." That book included the text of my 1999 paper "The Use and Abuse of the Internet for Financial Crime." In that paper I said "The Internet provides an ideal opportunity for defrauding those who are less technologically advanced or who are enthralled by the technology. ..."

But since before the internet as we know it, two questions have remained unanswered: who regulates the internet and who's law applies?

The USA has made its big bid in the Digital Millennium Copyright Act which essentially says that US copyright law applies to the internet. Surprisingly, the major parts of that have been accepted, at least obliquely, by English courts. But e-commerce remains, largely as I said in that 1999 paper, a matter of buyer beware.

Australia has taken a very different view. It has found that on-line publishers can be liable for libellous content accessible from Australia and it has adopted a system under which it takes the view that, as a country, it has the duty and right to protect its citizens. One area in which it has had success is in relation to conditions of business.

It is not the only place that has attempted to do this: California has tried to operate as a consumer protection enclave within the wider USA and beyond. California has the advantage that, if there is actual fraud or other crime, it can pass cases to the Federal government where a charge of "wire fraud" can be tagged on to give jurisdiction to big brother.

But Australia has no such advantage and, in any case, mostly it is not looking at obviously criminal conduct - it is looking at consumer protection measures that may attract criminal liability in Australia but not in the country in which the supplier of services operates.

However, it does have one big advantage: Australia is a massive country with a small population. It imports almost all its software and other technology products. It is therefore a lucrative market even though it is not large. Global companies vie for market position. So while the loss of Australian business may not be a big thing to a small overseas company, for a company like Sony, compliance and the ability to sell into the Australian market matters.

Moreover, while previous cases have focussed on physical goods, a new Australian Federal Court decision relates to downloads - which is now bread and butter to many global businesses in entertainment and media.

The Federal Court has ordered Sony Interactive Entertainment Network Europe Limited (Sony Europe) to pay AUD3.5 million in penalties for making false and misleading representations on its website and in dealings with Australian consumers about their Australian Consumer Law (ACL) rights.

The Australian Consumer and Competition Commission (ACCC) said that Sony Europe made misleading representations to four consumers who believed they had purchased faulty PlayStation games. This occurred when Sony’s customer service representatives told them over the phone Sony Europe was not required to refund the game once it had been downloaded, or if 14 days had passed since it was purchased.

That is inconsistent with Australian consumer law. But Sony had gone further and therefore so did the Court which declared that Sony Europe breached the Australian Consumer Law by telling one of the four consumers it did not have to provide a refund unless the game developer authorised it and by telling a fifth consumer that Sony Europe could provide a refund using virtual PlayStation currency instead of money.

ACCC said "Between October 2017 and May 2019, Sony Europe’s Terms of Service implied that users did not have consumer guarantee rights regarding the quality, functionality, completeness, accuracy or performance of their purchased digital games. This was false as these guarantees cannot be excluded, restricted or modified."

Mr Rod Sims, the ACCC's Chairman, said "“No matter where in the world a company has its headquarters, if it is selling to Australian consumers, the Australian Consumer Law applies.”

That's fine for big companies but if all countries followed that same course of action, the compliance costs to small and medium size businesses would make it cost prohibitive to export to more than a handful of countries. That's fundamentally in conflict with the nature of the internet. However, some businesses, notably some in Australia, say, simply, "we do not export." They have decided that the additional revenue that they might earn is not worth the cost of international product standards, customs and taxation complexity. Add in making sure that they are compliant in every respect with consumer law in each country a "walk-in" internet company would have and it's complex and expensive.

This, in the great scheme of things, is not a large penalty for Sony. But it's a warning shot to everyone. Not only will AUS collect a penalty that would wipe out the profits from many, many unit sales ultimately it has the power to ban companies from the Australian market.

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Cleaning up the 'net". Paperback.