March 26, 1999
Re: U.S. Perspectives on Consumer Protection in the Global Electronic Marketplace -- Comment, P994312
To the Secretary:
Mars, Incorporated ("Mars") welcomes the opportunity to submit comments to the Federal Trade Commission (FTC) in this proceeding examining U.S. Perspectives on Consumer Protection in the Global Electronic Marketplace, 63 Fed. Reg. 69289 (December 16, 1998). The overriding question for all those anxious to fully realize the benefits of electronic commerce (e-commerce) can be expressed quite simply: what set of rules will serve to foster the global growth of electronic commerce, while providing reasonable protection to both consumers and businesses?
The key to the future development of e-commerce is for consumers and businesses to be confident that a stable and predictable commercial and legal environment exists. Mars believes that in the vast uncharted legal sea that is the Internet, the following common sense rules should apply.
The above rules reflect Mars' agreement that simple and reliable consumer protection rules or norms, along with effective enforcement mechanisms to prevent abuses by disreputable companies, are needed. At the same time, we also recognize that overly restrictive regulation of the Internet and electronic commerce will not benefit the vast majority of consumers dealing with reputable businesses and will, instead, deprive consumers unnecessarily of the benefits of e-commerce.
Our comments below address some of the specific questions posed by the FTC, recognizing the increasing importance of the Internet for electronic commerce. The Company strongly believes that it is in the interest of consumers, companies and governments to create a marketplace where responsible companies can operate without burdensome regulation or threats of unnecessary legal action. The FTC and its counterparts throughout the world should work in tandem with responsible businesses and consumer groups seek to promote fair business practices with minimal regulation.
What current protections exist for consumers engaged in electronic commerce with foreign businesses?
The consumer's first line of defense in protecting against fraud, unethical conduct, or other unfair and deceptive practices, whether in the electronic or the traditional marketplace, is, first and foremost, to deal with honest and reputable companies with a proven track record of responding to customers. Companies with nationally and internationally known brands are universally vigilant in their desire to fairly and expeditiously resolve any customer complaint. For them, as for Mars, the quality of their products and satisfaction of their customers are key to their business success. These companies are committed to resolving any problem or question a consumer may have should their products, for whatever reason, fail to meet their expectations.
Consumers have another line of defense: using credit cards. Credit card companies offer specific protections for their customers when they use their cards to purchase goods or services from a third party. A credit card company is usually able to intercede between its customer and a company in resolving consumer complaints. A company's failure to satisfactorily respond to a complaint may result in the company being dropped by the credit card company.
Sadly, the world is populated by a small number of businesses that may either intentionally seek to harm consumers, or that are unresponsive to legitimate consumer complaints. Abuses that have been seen in traditional types of marketing are finding their way to the e-commerce environment. Targeted laws and regulations may be needed to address consumer problems with such companies, and cooperation among governments may be essential to root out fraud and abuse in specific industry sectors where abuse is widespread. Laws and regulations, where necessary, can again only do part of the job. Responsible companies strive to comply with applicable rules and regulations. Companies determined to take advantage of consumers will continue to pursue unfair business practices, regardless of rules that the FTC or any other government entity may adopt. Again, an educated consumer and use of targeted dispute resolution or law enforcement mechanisms provide the combination of tools now available to combat unfair practices.
To what extent do current protections vary by sector or context?
Experience with consumer protection in the traditional marketplace in the U.S. has shown that no single system will work for all products, markets and consumers. The FTC, recognizing this, has issued a variety of trade regulation rules and guidelines governing certain industry practices or sectors; other U.S. agencies address certain specific types of transactions. The securities industry is heavily regulated to protect investors, requiring specific disclaimers related to risk and likely return, for example. Most U.S. states and foreign countries either heavily regulate or prohibit gambling, and this industry is likely to require special attention as gambling becomes more prevalent on the Internet. Applicable requirements related to fair treatment of consumers may also differ depending on the context - door-to-door sales are treated differently than other sales, for example, by the FTC. As is the case with traditional commerce, a single method of protecting consumers in the global e-commerce marketplace would be unnecessary and ineffective.
The FTC should recognize that different products and services require solutions that are tailored to the specific problem or abuse. Generally applicable laws aimed at protecting all consumers in the electronic marketplace worldwide would either be so burdensome and onerous because they attempted to address the most abusive sector that they would effectively stifle the electronic marketplace, or would have little effect.
When a consumer engages in electronic commerce with a foreign business, which laws govern the transaction? How is it determined?
There are several possible approaches to determine the law governing an international electronic transaction. The first and most obvious is that the law where the communication originates would apply. This could be the location of the company's headquarters, the state or country of incorporation or, less obviously, the location of the server. The law where the consumer resides could also apply in some circumstances, but, for businesses engaged in global electronic commerce, a rule specifying that any country where a potential consumer can access your Web site via the Internet carries an impossible burden and unacceptable legal risk. It would be equally unfair and inappropriate for the FTC to attempt to assert jurisdiction over all businesses engaged in e-commerce anywhere in the world as it would be for every other country who may have consumers accessing the Internet to attempt to regulate U.S. businesses engaged in international e-commerce. Businesses and consumers would face a maze of conflicting requirements if this were the case, leading to an unstable and unpredictable environment. Application of a rule intended to protect consumers by requiring companies doing business on the Internet to accede to the jurisdiction of essentially every country in the world could also result in making the communication itself illegal in certain areas, potentially violating First Amendment rights of U.S. companies whose communications are fully in accord with applicable U.S. laws.
An example in this regard is the United Kingdom's Financial Services Act, Section 57, which makes it unlawful to issue an investment advertisement in the U.K. unless it is approved by U.K. authorities. Advertisements are "issued" in the U.K. if they are on a Web site accessible in the U.K. absent such approval. The law provides that this is so even if there is a disclaimer that it is not aimed at investors in the U.K., and without apparent regard to mechanisms that companies might put in place to assure that actual sales of such services to U.K. citizens are not made. The intent of the law is obvious: to protect U.K. citizens from investment schemes which have not undergone review by U.K. authorities. Broad application of such a rule to international electronic messages, however, would force many businesses to avoid engaging in international electronic commerce at all, since those who offer international goods and services electronically cannot guarantee that those who may be barred from buying the services will not see or access the information. It is in this area where more predictable legal rules are needed.
Which choice of law would best facilitate commerce and provide effective consumer protection?
The Administration, in examining the issue of what legal rules should govern e-commerce, has set out its position in the Framework on the Global Information Infrastructure (GII).(1) The GII Framework states the following:
In general, parties should be able to do business with each other on the Internet under whatever terms and conditions they agree upon.
Private enterprise and free markets have typically flourished, however, where there are predictable and widely accepted legal environments supporting commercial transactions. To encourage electronic commerce, the U.S. government should support the development of both a domestic and global uniform commercial legal framework that recognizes, facilitates, and enforces electronic transactions worldwide. Fully informed buyers and sellers could voluntarily agree to form a contract subject to this uniform legal framework, just as parties currently choose the body of law that will be used to interpret their contract.
Participants in the marketplace should define and articulate most of the rules that will govern electronic commerce. To enable private entities to perform this task and to fulfill their roles adequately, governments should encourage the development of simple and predictable domestic and international rules and norms that will serve as the legal foundation for commercial activities in cyberspace (emphasis added).
Mars agrees that buyers and sellers using the Internet should be encouraged to establish predictable rules and norms governing international electronic transactions. From the early days of international commerce, merchant ships on the high seas were subject to the laws of their flag state. Under this principle, each state determines the conditions on which it will grant nationality to a merchant ship, and accepts responsibility for it and authority over it.(2) Ships which fail to fly a national flag, however, may be subject to the jurisdiction of many countries. Mars believes that this premise can easily serve as the legal foundation for e-commerce transactions. Like merchant ships, a company operating a Web site on the Internet cannot be subject to the laws of every nation simultaneously, but must meet the requirements of, and receive the protection of, its nation's laws. Companies and their customers can gain that protection and legal certainty by placing a notice on a Web site or electronic communication identifying the applicable law governing the electronic transaction.
So long as there is a reasonable business nexus to the transaction, the parties to that transaction and governments worldwide should give that choice of law full faith and credit. Having a business nexus to the transaction is especially important in business to consumer transactions to avoid a situation where a company seeks to evade application of consumer protection laws. For example, a company physically headquartered in the U.S. with no offices elsewhere in the world which specifies that the laws of e.g., Mauritania apply to all of its e-commerce transactions might be viewed in that light. Unless the company is offering special targeted products or services to consumers in Mauritania, the business nexus seems lacking. Companies that fail to specify the law governing the transaction, however, might be subject to the potential jurisdiction of both the country where the communication actually originates or of any country where the purchaser resides, if jurisdictional requirements are otherwise satisfied.
This simple rule will encourage businesses to alert their customers to the laws which they will follow when doing business online. Customers dissatisfied with the stated choice of law can elect to avoid doing business on the site. Educating consumers therefore becomes key. Governments can aid in this process by providing information to their citizens on those jurisdictions which fail to offer adequate consumer protection, gauged by a comparison to the level of protection available under local law.
As a general guiding principle, and as recommended by the Administration, the FTC and other national and international government entities should accept and promote the free-market premise that parties are free to transact business in circumstances where the parties are aware of the applicable law and voluntarily agree to jurisdiction and choice-of-law for dispute resolution purposes. This "agreement" should be assumed to exist by virtue of a posted notice on the site which otherwise satisfies Internet-appropriate rules regarding conspicuousness; click-on contract approaches should also be given effect. In the absence of such notice or agreement, companies should be subject to the laws of the jurisdiction where they are located, or the laws of a jurisdiction where there is a reasonable business nexus to the specific electronic transactions at issue.
What is the proper role for law enforcement agencies in providing effective protection for consumers engaged in global electronic commerce?
Despite the best efforts of responsible businesses and governments to promote ethical business practices online, undoubtedly some consumers will fall prey to unfair business practices in the global electronic marketplace, just as they may suffer harm in the traditional marketplace. There is no doubt that some businesses will deliberately establish their operations in areas where they hope to avoid being subject to consumer protection laws or to a vigorous enforcement regime. The obvious need is for law enforcement agencies to target actions where they are most needed. Close cooperation between international law enforcement agencies around the world is essential to take action against repeat violators. The need for adequate law enforcement should not, however, become a means of imposing overly burdensome regulations on the Internet, which would be sure to limit its potential. In this regard, again, the primary law enforcement agency acting to protect consumers should be the agency in the country where the Web site is located or where the business has elected to be legally bound by virtue of appropriate notices or agreements with its customers.
What steps have been, and should be, taken to educate consumers about the global electronic marketplace? What steps have been, and should be, taken to educate business about consumer protection in the global electronic marketplace?
Education is critical to the development and expansion of a successful international electronic marketplace. Consumers and businesses alike, especially those less sophisticated at dealing with the international environment, may need help understanding the rules, and the benefits and limits of e-commerce technology. Governments, industry and consumer groups could work together in this educational process. The centerpiece of this educational effort would be to urge consumers to look for information on each Web site that they visit on laws and rules governing e-commerce transactions at the site. The consumer can then consult with national authorities, consumer groups or business groups in her country to assess whether the stated law provides an adequate assurance of protection to satisfy the consumer's needs with respect to that particular transaction.
An appropriate role for the FTC and other government bodies around the world would be to inform consumers about countries that provide inadequate consumer protection for e-commerce transactions. By doing so, the consumer will be better informed as to the risks of conducting business with a company that deliberately chooses to establish itself in a particular country precisely because the jurisdiction either lacks domestic consumer protection laws or refuses to act to protect foreign citizens harmed by unfair business practices of companies choosing to operate within its borders. Just as the U.S. State Department warns travelers of risks in certain areas, the FTC and sister agencies around the world should warn Internet users of countries that have inadequate consumer protection laws, as well as industry sectors where scams and abuses may be likely.
To what extent do/will industry-led self-regulatory programs provide effective protection for consumers in the global electronic marketplace?
Responsible business leaders have always worked together to foster an atmosphere in which the market is allowed to prosper by giving consumers the confidence that they will be treated fairly. Consumer trust and confidence is the cornerstone of a flourishing marketplace. For that reason, a widespread number of industry groups which offer dispute-resolution procedures, industry guidelines, and other mechanisms to enhance consumer trust and confidence in the traditional marketplace are working diligently to extend these guidelines and programs to the electronic environment.
This has been the case, for example, with respect to guidelines developed by the Children's Advertising Review Unit (CARU) to govern national marketing and advertising practices to children. Indeed, the CARU Advisory Council, a group which consists of representatives of advertisers, ad agencies, and public interest or academic bodies, initiated perhaps the first industry-led effort to adopt self-regulatory guidelines on marketing and advertising to children for the Internet environment. In that effort, the CARU Advisory Council utilized its knowledge of children's cognitive development and of advertising practices in traditional media to develop specific recommended practices to govern the interactive electronic environment. This process did not involve a blind transfer of rules designed for one medium, like print or television, to the interactive electronic medium, but, rather, a considered evaluation of the technical aspects unique to the interactive electronic medium. The result has been the adoption of special rules for interactive electronic media, including new provisions regarding the issue of personal privacy - an area where aspects of the electronic media make this a special concern. The concepts pioneered by CARU several years ago are largely reflected in the Children's Online Privacy Protection Act (COPPA) adopted last fall, and the FTC will be taking further action to implement this law later in the spring. Mars is proud of its participation in the CARU Advisory Council, and believes that this is an example of the effort that responsible businesses will continue to make to promote ethical practices and develop workable rules that protect consumers engaged in global electronic commerce.
CARU's development of guidelines governing advertising to children on the Internet is a major part of the self-regulatory approach followed by most industry bodies, but the advertising industry also adopts a case approach. The CARU guidelines are utilized by the CARU staff in reviewing specific advertising with a view to suggesting changes or corrective action as appropriate. In this regard, CARU is part of the National Advertising Review Council (NARC), an entity formed many years ago by the Association of National Advertisers (ANA), the American Advertising Federation (AAF), the American Association of Advertising Agencies (AAAA) and the Council of Better Business Bureaus (CBBB), with the goal of improving standards of truth and accuracy in advertising. NARC establishes guiding principles for the self-regulatory program, and the National Advertising Division (NAD) investigates questions about national advertising - including online advertising - and issues decisions on the merits of each particular case. A party who disagrees with an NAD decision may file an appeal with a panel comprised of members of the National Advertising Review Board (NARB), a body established as a peer review group consisting of advertising professionals and representatives of public interest groups. In the very rare instance where voluntary cooperation is not obtained even in the wake of an NARB decision, the case may be referred to the FTC for action.
The NAD, CARU and NARB decisions are published. Publication of these decisions is just one aspect of the educational effort to increase awareness of advertising issues throughout the industry and with consumers. Seminars and one-on-one discussions are part of the self-regulatory educational tool kit as well.
The advertising dispute resolution process followed by NARC and CARU encourages responses tailored to new circumstances and media like the Internet. The value of this approach over the simple adoption of a code of conduct or rule of law enforced by a government agency or industry group is clear: it is dynamic and flexible. Self-regulation in the advertising industry has worked precisely because it has the support of the industry and incorporates a process in which business leaders can respond quickly to new issues and changing circumstances, as it did in modifying the CARU Guidelines. It has been proven to have improved standards of truth and accuracy in advertising over the years.
Again, just as the CARU/NARC self-regulatory program is specific to national advertising, self-regulation tends to be sector-specific. This is entirely appropriate and serves the best interests of consumers and businesses by assuring that questions and issues unique to that sector are addressed. This is not to say that in the Internet environment, international dispute resolution mechanisms would not be desirable. The International Chamber of Commerce (ICC) has an international dispute resolution process, and there are many national self-regulatory models, like the national advertising industry model described above, that might be expanded in a way useful to consumers and businesses.
What should be the primary focus and scope of the Commission's initial public workshop on "U.S. Perspectives on Consumer Protection in the Global Electronic Marketplace?" Which interests should be represented?
Mars urges the Commission to focus on simple, workable rules of the sort outlined here in its upcoming workshop. Mars and other responsible companies appreciate the thoughtful way in which the FTC is approaching the issue. No doubt the Commission will, as it has done in the past in similar workshops, seek to involve a cross-section of interested parties reflecting views from consumer groups, business interests, academic sources, and law enforcement agencies.
Mars strongly supports the FTC's efforts to encourage expanded confidence in global electronic commerce. The Company believes that consumers and businesses alike will benefit from a rule that allows the parties to specify the governing law, supplemented by appropriate educational efforts to inform consumers about jurisdictions which offer less than optimal consumer protection. Mars looks forward to working with the Commission in developing a system of norms that are both flexible and effective in helping the global electronic marketplace reach its potential.
Sheila A. Millar
2. Lauritzen v. Larsen, 345 U.S. 571, 73 S.Ct. 921 (1953).