Apr 1, 2000
Web Sites and the Application of Local Laws
by Gary Dunn

Introduction

The last time I checked there were well over 200 countries in the world. Assisting clients in the context of the Internet in identifying the potential application of foreign substantive laws to their activities originating in Canada can give one a headache. Like intellectual property protection, the best a company can hope for is a strategy that will maximize its resources while minimizing its risks in an increasingly complicated medium. In short, conducting business on the Internet in the absence of clear rules requires measures of both judgment and luck to avoid the unhappy situation of being forced to defend one’s positions thousands of kilometers from home.

It is not my intention to look at why the forum where an action is brought is significant to litigants (procedurally or substantively), or to discuss how an Internet presence may give rise to the exercise of jurisdiction.

What I will look at is the application of certain Canadian laws in the context of localizing foreign web sites for Canada. By localizing, I refer to a process of choosing and then applying Canadian local laws (primarily statute based) to foreign originated Internet activity. In doing so, my intention is to suggest a method of inquiry that could be used in determining where foreign compliance might be necessary.

We should not forget that if the parties to a transaction specify either their choice of law or the forum in which they will resolve their disputes, much of the uncertainty surrounding choice of law would likely evaporate. Terms of Service specifying choice of law have been upheld in both Canada and the USA. Having said this, it is likely that many Canadian laws (for example, privacy, consumer protection, packaging and criminal legislation) will always apply, for reasons of public policy.

What follows is a brief discussion of a few areas of law where compliance with Canadian law will be required.

The Application of Canadian Laws

The question of whether and when a contract comes into existence will continue to be a matter of local interest, and will remain governed by local courts in the absence of legislation or treaties to the contrary. Nothing, however, prevents persons from entering into agreements governing how their relationship will be governed in the future, including how contracts will be formed between them. A number of provinces continue to require written contracts for certain activities. For example, various provincial statutes (for example, Sale of Goods Acts and Consumer Protection Acts) require that certain contracts be in writing and signed by the consumer.

There are no laws in Canada that clarify whether electronic signatures and electronic contracts meet these contract formalities. Prudence dictates that web sites conduct business in a way that mirrors traditional local contractual analysis, with the mechanics of the web site mimicking the offer, acceptance, and conveyance of the acceptance of the offer analysis that common law legal systems expect.

As in many foreign jurisdictions, minors cannot generally be bound by contracts for goods that are not necessities of life. The age of majority in Canada varies from province to province, being either 18 or 19. Specific product acquisition or activities may also have different age requirements.

The Competition Act establishes a variety of consumer protection oriented requirements to prevent misleading or false advertising in such areas as pricing and performance claims, and with respect to packaging. It is not uncommon in Canada in the direct sales and retail fields for companies to complain to the federal government about competitors' allegedly unfair/illegal advertising practices and to attempt (with some success) to instigate government investigations and prosecutions.

Packaging laws apply particularly to food and drug products, although all products are subject to basic requirements, including bilingual labelling. Industry Canada does not consider passive web sites located outside of Canada as selling goods in Canada and labelling laws might not apply to goods shipped into the country from such sites.

The Competition Act also reinforces the Criminal Code with respect to on-line contests and gambling. Many advertising promotions such as "free" give-aways are subject to these stringent rules.

For examples of local laws unfamiliar to foreign retailers, one needs look no further than Germany. Among the European Union countries, Germany stands out as possessing some of the most arcane laws affecting retailers. For example, Land’s End Inc. was banned from advertising its unconditional guarantee in Germany; guarantees are unconventional in German business practice. Wal-Mart suffered a similar fate when it promised to compensate customers who found lower prices on the same products in competitors’ stores.

Bill C-6 Protection of Personal Information and Electronic Documents Act passed the House of Commons on October 26, 1999 and has been given third reading by the Senate. It is presently back before the House for approval of the amendments.

The U.S. approach to privacy has tended to leave the issue to the private sector. Having said that, the sector approach favoured in the U.S. has resulted in stringent rules being proposed with respect to the protection of personal information. If this is a precursor of the future, additional legislation protecting privacy can be expected.

The European Union passed the Data Protection Directive in 1998 which provides a strict code of conduct with respect to the collection, management and sharing of personal information. To date, the European Union has not been enforcing the directive in the interests of promoting voluntary co-operation among nations.

The practical limitations on the ability of a country to enforce its’ laws with respect to non-resident data bases will substantially limit a country’s ability to apply local privacy laws. We saw this concern expressed as part of the province’s contracting out process regarding the BC Online database.

A foreign web site may not own exactly the same intellectual property rights in Canada as it does in its home jurisdiction. For example, trademarks are problematic since they may be registered in one country but not another.

It is not uncommon in the case of domain name disputes that U.S. courts will take jurisdiction over Canadian defendants and apply substantive U.S. law to the determination of the parties rights. This has happened frequently to Canadian companies.

Substantive differences also exist in other areas, such as patents and copyrights. For example, the first amendment “freedom of speech” right to parody found in U.S. copyright law does not exist in Canada as Sheila Copps recently proved to Hustler magazine’s chagrin.

Whether intellectual property rights exist at all varies between jurisdictions. The protection of databases and rights of personality are other examples of the law differing between U.S. and Canadian jurisdictions.

When Internet activities result in products being shipped into another jurisdiction, the collection and remittance of taxes is likely to become an issue.

Warranty disclaimers, particularly in a consumer transaction, should conform to Canadian requirements. For example, contrary to the language on many U.S. web sites, the corresponding Canadian warranty disclaimer should not try to exclude any liability for direct damages. Otherwise the courts may determine that consumers have no recourse and will impose a remedy without recourse to the limitation specified by the supplier.

The UN Convention on the Sale of Goods was enacted into British Columbia law by legislation. Unless there is an express and clear exclusion of the application of Act, it will apply in many situations to govern e-commerce transactions over the Internet.

What the Future Holds

On May 17, 1999, The Canadian Radio-Television Commission (CRTC) concluded that it was not necessary for it to regulate new media services on the Internet.

The Uniform Law Conference of Canada, an organization devoted to harmonizing laws in Canada completed its work on a model Uniform Electronic Commerce Act (UECA) and adopted the Act on September 30, 1999. The UECA is based to a large degree on the United Nations Model Code on Electronic Commerce. Among other things, the proposals clarify issues directed at the formation of on-line contracts, such as when e-documents are deemed to be sent and received, the use of electronic agents and the effect of clicking on the “I agree” button. In light of various governments’ fervent embrace of e-commerce, the UECA bears watching.

The Canadian Copyright Board ruled in October that the responsibility for obtaining reproduction rights for copyrights lies with the content distributors, and that Internet service providers are not liable for copyright infringement for content they carry as “intermediaries”. The case, which commenced three years ago, involved the collection of music royalties by SOCAN, a Canadian royalty collection society, for public performances of music on the Net.

Interestingly, the Board felt that its jurisdiction to impose copyright tariffs rested solely on the location of the web server hosting the content on the basis that communications occur where the transmission originates. As a result, the Board dismissed the place of origin of the request for the content, the location of the person posting the content, and the location of the controlling mind of the web site as irrelevant.

And so how does one make sense of all of this? Like other commercial decisions, one solution is to determine where a business’ principle markets are, and then to prioritise compliance on that basis.