23 CHAPTER Real Space and Cyberspace: Jurisdiction, Taxation and International Law Issues

Jurisdiction States are limited in the ways they can raise revenue by the Commerce Clause and the Due Process Clause States must apportion taxes on multi-state businesses to their activities within the state 45 states have sales taxes on sales made to state residents Main exception was for mail order businesses who did no more than send catalogues to a state

State Taxes and Web Sites As E-Commerce grew states made various attempts to get out-of-state web sites to collect taxes on in-state sales Congress passed the Internet Tax Freedom Act (ITFA) of 1998 The ITFA was passed in part because of fear of multiple taxation on E-Commerce transactions The IFTA imposed a 3-year moratorium on Internet access charges New sales taxes on out-of-state web sites Prohibition on federal taxes

State Taxes and Web Sites The ITFA Moratorium was extended until November of 2003 To date there is no federal tax on E-Commerce and Congress is trying to shield the Internet from foreign taxes States have tried to impose sales taxes directly on residents Expect major changes in state taxes as states continue to struggle to balance their budgets

International Law Each nation is sovereign so compliance with international law is voluntary decision Countries choose which parts of international law they want to adhere to Individual citizens and firms do not have a choice as to what parts of international law they respect They are bound by decisions made by their countries Sources of International Law Treaties and Conventions, custom, general principles of law and prior court decisions

Principles of International Law Comity Countries recognize and enforce each others’ legal decrees E.g., a court in this country will not take a case that is being litigated by a foreign court Sovereign Immunity--Codified Foreign Sovereign Immunity Act, 1976 A foreign country cannot be sued in a domestic court except if The foreign country was engaged in commercial activity The foreign country waives its immunity

Principles of International Law Act of State Prohibits courts in one country from legal actions taken by another country within the other country’s borders International and Regional Organizations United Nations--engages a variety of activities Most of its power is reserved for the Security Council--of which the U.S. is one of 5 permanent members All nations of the world are members of the General Assembly UN is a world organization

Regional Organizations European Union Probably the most successful regional organization Goal is to abolish barriers to movement of goods, capital and labor EU has adopted a single currency the EURO EU law is overshadowing national law EU Council of Ministers and EU Commission are legislative bodies that have power to enact laws for good of the entire EU

Regional Organizations North American Free Trade Agreement (NAFTA) Goal is to create a free zone between the three member nations Elimination of tariffs is to occur gradually and there are some special interest exceptions

International Courts International Court of Justice (ICJ) The only litigants that appear before it are nations Focus is on treaty disputes between nations ICJ has no enforcement powers European Court of Justice Has jurisdiction to enforce EU law Litigants could include member nations, institutions and other interested parties Is the highest arbiter of EU law

International Protection of IP Most of the IP in the world is produced in the U.S., Western Europe, and Japan These nations want international respect for IP Many Third World countries can make lots of money not respecting IP The WTO, whose members include 135 nations was created to lower tariffs, but it is also available to authorize sanctions against countries that do not respect IP

International Protection of IP The WTO is like a worldwide industrial union Trade disputes between nations are first taken before a Panel of judges from 3 member nations Each side presents evidence and then the Panel makes its decision The decision is submitted to a WTO dispute settlement body The losing party has the right to appeal to an appellate body which is composed of judges from 7 member nations Once the appeals are exhausted the WTO can issue a cease and desist order to the offending nation and award fines to the aggrieved nation If the offending nation does not pay the fine, the WTO is empowered to order trade sanctions

World Intellectual Property Organization WIPO is responsible for promoting protection of IP throughout the world WIPO administers most of the important conventions that define and enforce IP rights Including the Berne (copyright) and Paris Conventions (patent and trademark) WIPO is a ICANN approved body for resolving domain name disputes

Trade-Related Aspects of Intellectual Property Rights (TRIPS) TRIPS is a WTO multilateral agreement Purpose of TRIPS is to set minimum standards for IP among the 135 member nations of the WTO Failure by a nation to adhere to the minimum standards set by TRIPS subjects it to WTO trade sanctions TRIPS requires each nation to Observe the substantive requirements of the various conventions w.r.t. various forms of IP Adhere to minimum statutory and enforcement requirements of TRIPS Provide national treatment (reciprocity) to each form of IP

IP Conventions Paris Convention requires National treatment International priority based on 12-month rule that relates back to the original patent application Adhere to common rules for granting patents such as not granting patents for ideas

International Protection of IP Berne Convention National treatment Copyright protection for authors regardless of whether the work is registered Requirements that each nation respect copyrights issued by other nations Adherence to common rules for issuing copyrights

International Contract Law The U.N. equivalent to the UCC is the Convention on contract for the International Sale of Goods (CISG), 1988 Many contracts between companies from different countries have choice of law clauses that do not select the CISG CISG only applies to business-to-business contracts Does not apply to sales contracts with consumers, or for service contracts, legal issues related to product liability and contracts that are subject to regulation such as securities

International Contract Law CISG makes use of contract principles of civil law countries which are mainly in Western Europe Under the CISG Additional terms in the acceptance are treated as counteroffers Price must be stated for a contract to exist Firm offers by merchants are enforceable during the time stated in the offer Contracts involving more than 5,000 francs must in writing

UNCITRAL Model for E-Commerce The U.N. Commission for International Trade Law (UNICITRAL) has proposed a model E-Commerce Contract Law in 1996 Among the provisions of this model law are: Electronic messages are treated as paper records as long as they can be reproduced and stored Electronic signatures are valid as long as the other party agrees to allow electronic signatures Acceptance among nations of this model law has been sparse

International Jurisdiction International criminal jurisdiction Is based on 5 general principles Territoriality--where did the crime take place? Nationality of the defendant Protective principle--jurisdiction can take place if the crime affects the national interest of a nation Passive personality principle--jurisdiction can be based on the nationality of the victims of the crime Universality principle--allows nations to take the alleged criminal into custody In most cases the first principle controls

Choice of Forum Clauses In international civil law jurisdiction is most often determined by choice of forum clauses These clauses are often used by web sites as well as in business to business contracts The theory is that if both parties consent to the jurisdiction of a court, the issue of jurisdiction is resolved If there is no explicit consent, international jurisdiction can be asserted based on Physical presence, domicile or minimum contacts

International Jurisdiction Among its citizens the EU does not recognize choice of forum clauses in consumer sales if The sale takes place where the consumer lives the seller solicits sales through advertising the seller is located in another EU state the suit is brought in the seller’s home country The same rule applies to E-Commerce Consumer can sue web sites in their home country if they have a dispute with the seller

International Jurisdiction Choice of law clauses Need not agree with choice of forum clauses The parties can agree to litigate before an arbitrator located in London, while having the litigation decided based on Illinois contract law When there is no choice of law clause or in a tort claim Various criteria are used to decide choice of law including: If the dispute involves public issues or law, the court will apply national law

Choice of law clauses If the dispute involves private law choice of law is determined by whether the applicable law is determined by statute, which nation has the most significant relationship in the outcome, or which nation has the greatest governmental interest in the outcome