Cover Story -- The Internet Age -- Government
Taming the Wild, Wild Web
Without strong laws, the Net's growth will be stunted
It appeared to be an open-and-shut case involving nude pictures of a French model--reprinted without her permission. But these photos were posted on the Internet. No sooner did Estelle Hallyday win a copyright-infringement suit last spring than things got complicated.
A French judge used a 40-year-old publishing law to slap AlternB, the company hosting the offending Web site, with a $70,000 fine. AlternB promptly responded by shutting down its server, which hosted 4,000 Web sites. Then it threatened to lead a migration of French e-businesses to friendlier jurisdictions. Soon, "Keep the Net Free" groups rallied on the Web to AlternB's defense. Sites around the world thumbed their noses at the French courts by plastering the images of Hallyday all over cyberspace.
In the end, Hallyday reached an out-of-court settlement with AlternB, which agreed to give $7,000 to her favorite charity. By that time, her property and privacy were irretrievable, and French law was moot. On the Internet, says cybervisionary Esther Dyson, "Things are moving a lot faster than governments realize."
And how. In the early stages of the Industrial Revolution, coping with the technological and legal issues was a fairly forgiving process. If train tracks were different widths in France and Spain or travelers had to carry electrical converters to deal with different voltages, no big deal. But the Internet zips information across borders with the click of a mouse. The speed and scale are immense challenges for the rule of law. "We're having problems of pornography distribution to minors, violations of intellectual-property rights, potential violations of privacy, and new types of crime," says Ira Magaziner, the architect of the White House Internet strategy. "We've got to move quickly to get them addressed in real time so we don't engender a reaction against the Internet."
Bringing law and order to the Wild West of cyberspace will be a tall order. Without broad international agreements, the sheriffs, judges, regulators, and tax collectors are easily given the slip. That's why the settlers--not just the lawmakers--will have to play a large role in taming this frontier. Business, in particular, has little choice but to come up with its own system of rules if it wants to protect property rights and get customers to feel comfortable online. For better or worse, the Net is spawning two parallel and sometimes contending regimes for regulation.
The success of the two regimes--public and private--will determine how powerful the Net becomes. To develop into the world's largest marketplace, the Net must provide the same guarantees as any marketplace, from the rights of property-holders to the power of short-changed consumers to get refunds. In short, before societies en masse start buying cars and taking out mortgages online, they'll need to ensure customers that their transactions are secure and legally binding. A Forrester Research Inc. study predicts that the global Internet economy will reach $3.2 trillion in 2003 if it is managed well--but less than half as much if security and regulatory snarls persist.HUNG UP. It's not that regulators aren't trying. Negotiators at the Organization for Economic Cooperation & Development in Paris have been working on the most basic tenets of Internet Law for two years--eons in Internet time. And they continue to get hung up over liability and jurisdiction. If a Japanese Web site with its server in the U.S. defrauds a customer in Canada, whose laws count? This year it seemed that the European Commission had ironed out an agreement on jurisdiction for its e-commerce directive. Then negotiators allowed for one seemingly small change: Customers would rely on consumer-protection regulations in sellers' home countries. This would force e-merchants to wrestle with dozens of different laws. A business uproar scotched the deal. "It's the exception that ate the rule," laments Microsoft Corp. attorney Peter Fleischer.
For business, the search for solutions starts, not surprisingly, with technology. An entire industry is growing around security, mainly software programs designed to keep hackers, thieves, or even government tax snoops, from infiltrating Web bank accounts, e-mails, or corporate purchasing networks. "It's a terrifying, brave new world," says Peter R. Beverley, managing director of Magex, an e-commerce security company in London. And every time a hacker makes the news, the market for protection programs heats up.
At the same time, e-merchants know that technology alone provides scant comfort against gifted hackers and organized criminals. To allay fears, e-businesses are likely to start certifying safe sites. These would be industry seals of approval for sites meeting standards ranging from privacy to high-tech encryption of customers' or business partners' financial or health data. Eventually, Web-site rating agencies similar to debt-rating agencies are likely to emerge. In such a scheme, a security downgrade on a major e-merchant could prompt investors, customers, or business partners to flee.HORNET'S NEST. It may be a while before governments can mete out such punishments. In the U.S., a national commission on Internet taxation is studying collection methods--but is deadlocked on whether Net transactions should be taxed at all. And the latest global efforts are faring no better. The nonprofit, quasi-government Internet Corporation for Assigned Names & Numbers (ICANN) has already stirred up a hornet's nest just by trying to manage the Web's addressing system.
Basically, governments are torn because making e-commerce secure seals out police who want to keep an eye on crime. In the U.S., for example, the National Security Agency wants to limit access to the world's top cryptography, and leave open access "keys" to encrypted computer systems; the fear is that cartels and terrorists, protected by a maze of code, will be able to conduct drug deals and plot assassinations with impunity on the Net. Meanwhile, the Japanese government may soon permit police to intercept e-mail. Russia forces Internet service providers to install hotlines to the Federal Security Bureau so agents can keep an eye on traffic.
Cultural differences rankle, too. Take the privacy battle between the U.S. and Europe, which wants strong rules to protect privacy in cyberspace. Europeans still harbor vivid memories of the Gestapo and Stasi amassing files on citizens. But what good is protecting a Dane's privacy in Denmark, if e-merchants in Kuala Lumpur are creating a profile based on her bank statements and video preferences? The European Union is enacting a rule to prohibit export of data, such as airline frequent-flyer information, to countries that don't meet European standards. That would include the U.S., where much of the data flow is protected by the Constitution.
Privacy may be the best example yet of how difficult it is to harness both private and public interests in regulation. For the past year, Europe and the U.S., the two biggest e-economies, have been negotiating a joint standard for protecting privacy. The U.S. proposal would set up a self-regulatory body to create "safe harbors" for e-businesses that adhere to Europe's standards. If this proposal doesn't measure up, watch for a trade flap at November's Seattle round of the World Trade Organization. For now, the result is a regulatory vacuum. "E-companies in Europe are not complying with Europe's law," says Clive Mayhew-Begg, international vice-president at CDNOW.com, a leading online music business.
So Europe's law, like so many other attempts, promises only to disrupt e-commerce until it becomes world law, which is a long way off. Battles like this could rage for decades as the wild frontier of cyberspace gradually grows civilized. "There are no silver bullets, either legislative or technological," says Paul Saffo, director of the Institute for the Future in Menlo Park, Calif. "The way through this swamp is with a lot of small, comparatively weak solutions acting in concert." E-businesses may find out what it was like to run a sagebrush saloon before the law rode into town.By Stephen Baker; With Mike France in New YorkReturn to top