E-Commerce Directive Could Cause Legal Quagmire for Direct Marketers Inside EU

BRUSSELS – The European Union’s new directive governing the conduct of electronic commerce could leave direct marketers who operate within the EU stuck in a legal quagmire if some provisions aren’t changed before passage.

At issue: in any dispute, does the law of the country of origin or that of the country of destination apply? The way the directive is now worded, both could apply in some situations, leaving marketers in a quandary. Here’s why.

Like the “television without frontiers” directive that governs sales of product on TV, the e-commerce directive says online offers should be governed by laws of the country of origin.

Thus, if someone sells a book from France to Germany and uses a sales promotion that is legal in France but not legal in Germany, the Germans could do nothing to stop the sale.

That’s fine for television, but an online sale requires a contract between buyer and seller, and contract law has never been part of any European authority’s competence.

“It’s a small pin,” said Alastair Tempest, director general for public affairs of the Federation of European Direct Marketing (FEDMA), “but it has a whopping great angel sitting on the end of it.”

The directive makes a complex and hair-splitting distinction between offer and contract, and while the offer remains under the laws of the country of origin, the contract does not. Contracts are ruled by country of destination.

FEDMA submitted a paper to the EC protesting this part of the directive, arguing that a contract is more than just a piece of paper stating” I hereby agree to buy this product from company X,” Tempest said.

“If I go to a Web site and see an offer of three shirts for the price of two,” he said, “and I buy the shirts and only get two, even though I’ve contracted to buy only two shirts, the offer was for three shirts, so the offer is part of the contract, part of my expectations.

“In other words, the offer becomes part of the contract and instead of being governed by the country of origin provision it is covered by country of destination and then it becomes immensely complicated.”

Marketers, Tempest noted, would be forced to get legal advice to determine “which part of your offer is part of the contract” and thus subject to a different legal jurisdiction.

Vocal consumer groups across Europe have argued for country of destination rules since it is hard for them to find out what rules apply in country of origin.

These groups, though a minority, have lobbied loudly and long enough that they demand that all transactions be ruled by the country of destination laws.

That kind of pressure dramatizes the new directive’s pivotal role. “It is a cornerstone for a whole load of policy initiatives including taxes,” Tempest said.

The EC is preparing another directive covering taxation of Internet transactions, i.e., how best to impose a value added tax (VAT). While there is no firm link between the two, Tempest said the tax draft could be affected by the final form of the e-commerce law.

The European Commission published the e-commerce draft in December and it is now before the European parliament where changes favorable to the DM industry may yet be made.

The legal affairs committee has been given the lead on pushing the directive through parliament and its chair, Christine Oddy, has drafted a paper favoring country of origin control over contracts as well as offers.

The question now is whether Oddy will stick by her original position given opposition within parliament. Time is a factor. Oddy wants a vote on her committee’s report this month and a vote on the directive in April.

European parliamentary elections are due in June, so if the directive does not pass in April it will be held over until the next parliament meets in September.

Then new problems arise. It is constitutionally unclear whether a newly elected parliament would accept the draft of the old parliament. It could take the whole thing back to the drawing board, a process leading to long delays.

“We would rather see the directive go through this year with Ms. Oddy’s opinion intact,” Tempest said. “In general, we believe this directive is a good effort once the origin vs. destination conflict is resolved.”

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