e‐commerce business models — the law's response

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E‐Commerce businessmodels — the law'sresponseCharles Lim Aeng ChengPublished online: 12 Aug 2010.

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articles Commonwealth Law Bulletin

government needs to resist the pressures of regressive forces and alsomake a positive and innovative response to community expectations.

These are some of the more important steps taken so far in bringingincremental, progressive, and permanent reforms to the criminal justice system,and to the legal system generally.

Endnotes

* An edited version of the Doughty Street Lecture, delivered on 7 October 1997, in London:1. Section 51 of the Australian Constitution 1901.2. John Rentoul, Tony Blair, Little Brown and Company, London, 1995, pp 284, 285.3. Ibid, p 285.4. By way of s.ll(lA) of the Drug Misuse and Trafficking Act 1985 (NSW), inserted in 1987.5. In South Australia by way of s.45A(2) of the Controlled Substances Act 1984 (SA); in the

Australian Capital Territory by way of S.171A of the Drugs of Dependence Act 1989 (ACT);in the Northern Territory by way of the Misuse of Drugs Act 1990 (NT).

6. By way of the Drug Misuse and Trafficking Amendment Bill 1997 (NSW).7. As discussed in Dietrich v The Queen (1992) 177 CLR 292.8. NSW Legislative Assembly Hansard, 9 September 1969, p 754.9. Since re-enacted and expanded as the Public Defenders Act 1995 (NSW).

10. See SS.19A, 441B, and 442 of the Crimes Act 1990 (NSW), along with S.13A of the SentencingAct 1989 (NSW).

11. See NSW Bureau of Crime Statistics and Research report, Hung Juries and MajorityVerdicts, October 1997.

12. Adam John Nunn [1996] 2 Cr App R (S) pp 136-14113. John Rentoul op cit.

E-Commerce Business Models —The Law's ResponseBy Charles Lim Aeng Cheng,* being a Paper presented at the Singapore MilleniumLaw Conference, "Leading the Law and Lawyers into the New Millenium" held on12 April 2000

The competitive landscape of the future will inevitably be shaped not so much by thestruggles of individual products for market share, but by the the battle of business models toserve the same market (emphasis added).

Thomas B Kelly, Managing Partner, Arthur Andersen's Knowledge EnterprisesForeword, The Clickable Corporation, The Free Press, 1999.

Internet is the foundation for the "new industrial order"Fortune

A. INTRODUCTION — WHAT IS E- BIZ MODEL?

1. Legal Challenges and Risks from CEO's Perspective

This paper will deal with the legal issues and risks from the perspective of theChief Executive Officer (CEO) of a dot com start up. It seeks to define the E-Bizmodel and the ways in which the law has responded to these novel legal issues. Itwill include both international as well as Singapore developments.

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Volume 26, No. 1, 2000 articles

2. No "Standard" Business Model

Although the term E-Commerce or E-Biz business model is often used, there is noconsensus on what a standard or defined model is. It is also known by differentnames eg Jonathan Rosenoer calls it the "clickable corporation."1 FortuneOnline calls it the "E-Corporation" and the current flavour is the "Dot com"corporation or the Internet Start Up. My search for a standard model was futilesimply because it doesn't exist. It is an evolving model. Certainly it is more thanjust a web site or Internet store front. Different sectors of the economy will havedifferent sectoral models eg banking, securities, advertising, entertainment, retail,travel, search engines, directories, online auctions etc.

Currently the models can be categorised broadly into:(a) Business to Business or B2B Models — The chain would look something

like this: customer self service -> procurement animation -* channelmaster extranets -> supply chain management -» e business

(b) Business to Consumers or B2C Model — The chain would looksomething like this: interactive marketing -» integrated web store-> unassisted selling -> e business.

(c) The inverse Consumers to Business Model or C2B Model — An examplewould be consumer bidding eg Car Auc International (joint venturebetween SCS and Singapore Secondhand Motor Vehicle Dealers'Association) and E-Bay.

3. Re-engineer Business Processes

A true E-Com Business Model is not just using the Internet to alter its approachto markets and customers. It is combining computers, the Web, enterprisesoftware to change everything about how the corporate operates and it will seekto create value. According to Fortune Online, competition today is not betweenproducts, it is between business models. Irrelevancy is a bigger risk thaninefficiency. As Fortune Online put it, the "hottest and most dangerous" newbusiness models out there are on the Web. Some well known Internationalexamples are Amazon.com, Barnes and Nobles.com, Dell Computer, WellsFargo, Citibank, Charles Schwab & Co, Yahoo and Boeing. Closer to home,some Singapore examples include the Singapore E-Awards winners SISTIC (anonline ticketing system for concerts and events), and POEMS (an online sharetrading system by Phillip Securities). Other local examples are Mustafa the giantSingapore Serangoon Road tourist retail store, Catcha.com.sg and Singapore'smore versatile version of LEXIS and Westlaw, LawNet.com.sg

B. SIGNATURE FEATURES OF E-BIZ MODELS

I have identified eight features or distinguishing characteristics of theE-Commerce Business Model. Some features are not unique to E-Commerce butplay such a prominent role that they cannot be ignored. They are:

1. Virtual vs Bricks & Mortar2. Information

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3. Customer Empowerment4. Convergence5. Connected World6. Pull vs Push — World Wide Marketing7. New Financial Management8. Trust and New Business Risks

1. Virtual vs Bricks & Mortar

The most obvious distinguishing characteristic of the E-Commerce BusinessModel is that it is virtual, paperless and intangible with faceless customers unlikethe bricks and mortar department store. Amazon.com sells books with nophysical retail store. You would not be able to find any Dell PC sold in anyretail store in Singapore or anywhere else and yet Dell Computer hasovertaken Compaq to be the largest PC manufacturer in the US. According toDataquest, Dell sold 2 million PCs in the US in the third quarter of 1999 giving it17.1 per cent of the market. The virtual business model will incorporate a facelesscustomer and a faceless vendor but yet it is interactive. It will allow for onlinecontracting, ordering and procurement eg Dell, Amazon and E Bay (onlineauction). In some cases such as Dell and Amazon, the delivery is physical butdelivery may often be virtual for software and entertainment such as video ondemand. Even the books sold online may soon be delivered virtually withMicrosoft and Barnes and Nobles.com launching a partnership on 5 Jan 2000 topromote E-Books.

2. Information or Knowledge Management

The buzz word in Singapore and round the world today is the "knowledge basedeconomy" or "KBE" with "knowledge management" as a key component. TheE-Biz Model makes extensive use of knowledge management and knowledgedistribution. Frequently knowledge itself is the product. For example, searchengines and directories such as Yahoo, Catch.com.sg and Findlaw specialisein finding, sorting and distributing knowledge. Other models could becontent-driven selling news, financial and legal information and other content egLawNet, Lexis-Nexis, Reuters and Bloomberg. The E-Biz model will leverage onthe World Wide Web by making extensive use of caching, hyperlinking, framingand mirroring as a virtual portal.

3. Customer Empowerment

In the bricks and mortar world, products and services were designed and built farin advance of customer needs, and there was little customers could do toconfigure those products and services to their own requirements. The E-BizModel currently allows a vendor to build to demand, thus keeping inventory toa minimum. Increasingly the Model will enable building to specifications. Dellallows customers to configure PCs and servers to their choice. With Dell,customers can specify their choice of sound card, video card, video monitor,speakers, and memory capacity from a menu or Dell's Website. Dell will even tell

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a customer whether choosing a particular part would delay shipment or causea compatibility problem with some other part. It is not surprising that Dell wasreported in 1999 to be selling $6 million of products a day over its Website andbelieves that 50 per cent of its sales will be Web-based by the end of 2000. The newbusiness model gives the customer choice — "as you like it". The customer cansimply choose to move to the competitor who is only one click away eg Barnesand Nobles.com vs Amazon.com.

Fulfillment is the other half of convenience. Bricks and mortar retailersstill require customers to go to them. But online consumers are demandingconvenience and that retailers have to go to them. "My place, my time" is the newdemand of online consumers eg booking SISTIC online ticket sales to anyconcert or performance from the comfort of the consumer's home. My time willbe as important as my place. No one sleeps in cyberspace, and the store is alwaysopen.

4. Convergence

"Convergence" is the process by which the same content can be transmitted overdifferent mediums. Convergence has meant that the world of telecommunicationsand television are growing ever closer, particularly in the area of digitalinteractive services. It will therefore be possible for the consumer to accessa variety of digital services over terrestrial broadcast, satellite, cable or even newhigher bandwidth telephony products such as ADSL, which allows broadcastcontent over the telephone network or more accurately the ATM AsynchronousTransfer Mode network. SingTel's Magix makes use of this technology for itsbroadband service on which Singapore One rides. The use of multi-media on theNet is itself an example of convergence. For example with a broadband Magixsubscription, I am able to listen to the latest MTV music, view MTV musicvideos, listen to sermons from Faith Community Baptist Church's services, watchTiger Woods on ESPN Sports, read Time magazine, watch Terminator II onMagix's Video on Demand Service, submit my census 2000 survey form and playinteractive games. I can even make long distance phone calls over the Net.A recent powerful example of convergence is the acquisition of Time Warner byAOL to form "AOL Time Warner" (10 Jan 2000). The new entity will be able todeliver programming from cable to web. Time Warner has under its stablea formidable range of media products including Time Magazine, CNN, WarnerBros, People, HBO, Sports Illustrated, Fortune, Cartoon Network, WarnerMusic Group and Entertainment Weekly. The convergence of telecommunica-tions, television, broadcasting, print and IT is one of the reasons for the mergerof the National Computer Board and the Telecommunications Authorityof Singapore to form the Info-Comms Development Authority of Singapore in1999.

5. Connected World

E-commerce breaks every business free of its geographic moorings. No longer willgeography bind a company's aspirations or the scope of its market. Amazon.com

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spans the globe, selling 20 per cent of its books to foreign destinations. A physicalbookstore serves an area of a few square miles, and even the super store Bordersin Singapore does not always stock the books I am looking for but which areinvariably available on Amazon or Barnes and Nobles. But whether you are inAlbania, Mongolia or Singapore, Amazon.com or Barnes and Noble.com is onlya click away. The Attorney-General's Chambers used to have to wait at leasta week for foreign newspapers and publications to arrive by expensive air mail.Now The Times (London), New Straits Times and Straits Times are all availableintantaneously on the Web. Catching up with international developments in thelaw has never been faster with most countries putting their legislation and LawReform Commission Reports on the Web. The differences in distance and timehave become compressed. Time differences are eradicated and work can literallycarry on round the clock. In the United Kingdom, Prime Minister Tony Blairrecently mooted the "GET Project" (Greenwich Electronic Time) wherebymessages sent over the Net instead of being stamped with local date and timestamp will be stamped with an international Greenwich electronic time as localtime stamps are meaningless in cyberspace where time differences have beeneradicated.

The eradication of geographical borders means that regulatory borders can becircumvented with relative ease. Activities which would never have beenpermitted by a local government or authority now transcend geographical andregulatory barriers. Internet share offerings, "objectionable" or pornographicmaterials, virtual banking and Internet gambling are some activities in cyberspace that local authorities find difficulty in regulating and enforcing. It iscommonly acknowledged that one of the driving forces of E-Commerce on theInternet are the internet commercial pornographic sites which many countrieswhich seek to embrace the Internet (and Singapore is no exception) are unable toeffectively shield its citizens from.

6. Pull vs Push — World Wide Marketing

The distinguishing feature of the World Wide Web from traditional means ofmedia and broadcasting is the characteristic of "pull vs push". Broadcasting andtraditional print media "pushes" or thrusts content and advertisements out intothe consciousness of the public. The challenge of the Web is to pull or catch theattention of surfers in an information overload world. This is why traditionalmedia has been used to draw attention to the web site just as Amazon.com gainedfame through traditional media news articles. One is constantly reminded ofCatcha.com through large advertisements appearing on Singapore public buses.The E-Com Business Model also seeks to "pull" by adopting web to webstrategies such as hyperlinking and portals eg Austlii World Law or banneradvertising eg Amazon.com banner ad appears when a user uses Yahoo to searchon Barnes & Nobles. Truly the competition is just one click away.

Another technique adopted is the chain mail or "word of mouse" technique.Within 18 months of its launch, Hotmail had garnered nearly ten millioncustomers for its free, advertising-supported E-mail service. In December 1997,Microsoft bought Hotmail for an initial payment estimated at more than $400

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million. The secret of Hotmail's success is word of mouse. Each time someonesent an E-mail to a friend, the message carried an offer to sign up for free E-mail.At Hotmail they call it viral marketing: Harnessing word of mouse, Hotmail'smessage spread like a contagion. This kind of multiplier effect is every marketer'sfantasy, but no amount of hype can produce an online buzz. Viral marketing ofthe type perfected by Hotmail is the product of an offer too good to refusemultiplied by exponential word of mouse.

7. New Financial Management

Many E-Commerce Business Models are "free" and do not collect payment fromconsumers or internet users by thriving on advertisement revenue such as Yahoo,Hotmail and Online newspapers. Nevertheless for many other Business Modelsthe existence of a secure means of online payment is all important especially forthe B2C and C2B Models. In the B2B model with a pre-existing businessrelationship, payment can be made online through traditional means includingGIRO. A sobering example is Mustafa the giant Singapore tourist retail storewhich aborted its thriving online sales because of credit card fraud. There arecurrently a number of cashless or online means of payment such as Mondex, SET,SSL, NETS, CashCard, credit cards and the newly announced international"Visa Cash CashCard" (Straits Times, 12 Jan 2000). Yet credit cards remain themost popular means of payment for online consumers. Several aspects ofcommerce over the Internet pose challenges for the operation of tax systems.

Online banking promises to revolutionise the global banking industry. WellFargo (wellsfargo.com) was the first bank to start Internet banking in 1995.Internet securities and derivatives trading eg Charles Schwabb (schwab.com) andPOEMS pose challenges to banking and securities regulators round the world.

8. Trust and New Business Risks

With the dot com mania, it seems that "risk" has lost its meaning. Neverthelessmore than ever, "risk" is the word on every technopreneur's heart. In this worldwith the clear and present danger of hackers and computer crime, risk andsecurity are key concerns of the technopreneur. Hackers were recently able tobring down Yahoo. On the other hand over zealous internet service providerssuch as SingNet may be reprimanded for scanning the ports of their subscribersfor the "Trojan horse back orifice". Businessmen who worry that their tradesecrets may be leaked may nevertheless face restrictions on the use of strongencryption.

Another form of risk, no less real is the risk of liability for intellectualproperty violations. For example, Pacific Internet recently filed a suit againstcatcha.com.sg for hyperlinking. Internet Service Providers and network andcontent providers face the possibility of being sued for third party content carriedover their networks.

To the consumer, accreditation schemes such as CaseTrust, and Etrust bringsome comfort. Assoc Prof Toh See Kiat, the Chairman of CASE, the ConsumersAssociation of Singapore, dubbed this the online "Guanxi" (personal) connection

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without which traditional Asian businessmen cannot operate. Consumers arerightly concerned about their online privacy and consumer rights. For example,Demon Internet was reported on 31 March 2000 of having settled Godfrey'sdefamation suit for 15,000 Sterling Pounds.

C. THE LAWS RESPONSE TO E-BIZ MODELS

Three years ago (which seems like three decades in Internet time), the ClintonAdministration issued A Frameworkfor Global Electronic Commerce. The Frame-work established five basic principles to guide development of Internet com-merce. First, the private sector should lead. Second, governments should avoidundue restrictions that might distort development of the electronic marketplace.Third, government should work to foster a legal environment that is predictable,consistent, and minimalist (emphasis added). Fourth, governments shouldrecognize that the Internet is unique, and requires new policies. Fifth,electronic commerce should be facilitated on a global basis.

1. Virtual vs Bricks & Mortar

Legal Issues

The virtual, paperless and intangible qualities of the E-Biz model raises thefollowing legal issues:

(a) lack of writing on paper (whether the law recognises electronic records asbeing equivalent to paper);

(b) lack of a handwritten signature (whether the law recognizes electronicsignatures as being equivalent to handwritten signatures);

(c) proof of electronic signatures including digital signatures in court;(d) whether the statutory and common law requirements for writing and

signature are satisfied by electronic signatures and records;(e) whether evidence of electronic records and signatures are admissible in

court;(f) how to preclude repudiation on the basis of the possible corruption of the

record in the course of electronic transmission;(g) authentication of the identity of the sender and the electronic records;(h) how to determine the place and time of sending and receipt of electronic

records;(i) the formation of contracts in cyberspace;(j) how to ensure non-repudiation of electronic messages and orders;(k) how to prove delivery of electronic-goods.

International Developments

Owing mainly to the early efforts at harmonization achieved by the UNCommission on International Trade Law (UNCITRAL) in its Model Law onElectronic Commerce adopted in 19962, there has been a number of nationalefforts based on the Model Law which have addressed these legal issues.UNCITRAL is also currently working on draft Uniform Rules on Electronic

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Transactions. The US has in the meanwhile made a proposal which was discussedat the meeting of the UNCITRAL Working Group on Electronic Commerce inNew York on 29 June-10 July 1998. The proposal is for the adoption of anInternational Convention on Electronic Transactions (25 May 1998). In thisregion alone, Malaysia has its Multi Media Super Corridor, Hong Kong has itsDigital 21 IT Strategy and Cyber Port, Australia has its E-Commerce Strategy aspart of its Strategic Framework for the Information Economy — IdentifyingPriorities for Action, New Zealand has its "21st Century Freezer Ship", andSingapore has its Electronic Commerce Hotbed and Master Plan. A whole newbody of cyber law has accordingly evolved beginning with the UNCITRALModel Law on Electronic Commerce 1996. Singapore enacted its ElectronicTransactions Act in 1998, and Malaysia, its Digital Signatures Act in 1997. TheUnited Kingdom, Australia, New Zealand, Hong Kong and Korea have all eitherdrafted or introduced electronic commerce legislation. The national efforts are asfollows:

(a) Illinois Electronic Commerce and Security Act 1998;(b) United States Uniform Electronic Transactions Act which has been

enacted in an increasing number of US states;(c) Australian Electronic Transactions Bill 19993 ;(d) Hong Kong Electronic Transactions Ordinance 2000;(e) United Kingdom Electronic Communications Act 2000;(f) Malaysia Digital Signature Act 1997;(g) South Korea Basic Law on Electronic Commerce;(h) New Zealand Law Commission's draft Electronic Transactions Bill 1999;(i) European Union Directive 99/93/EC on a Community Framework for

Electronic Signatures (13 December 1999).

Singapore Developments

The Singapore developments in this area have been focused on the followingpieces of legislation:

(a) Electronic Transactions Act (introduced in 1998);(b) Evidence (Amendment) Act 1996;(c) Evidence (Computer Output) Regulations;(d) Electronic Transactions (Certification Authority) Regulations.

The Electronic Transactions Act provided the crucial legal framework forelectronic transactions and offers the transparency and predictability that isrequired for electronic contracts and digital signatures. UNCITRAL acknow-ledged the Singapore Electronic Transactions Act as the first in the world to enactthe UNCITRAL Model Law. The Singapore Act goes further to provide for thepublic key infrastructure and legal rebuttable presumptions in respect of secureelectronic signatures and secure electronic records. The Electronic Transactions(Certification Authority) Regulations provides the framework for the minimumstandards and criteria for licensing of certification authorities.4 The Evidence Actwas amended in 1998 to pave the way for admissibility of evidence in court in theform of computer output including multi-media material. It sought to strike the

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balance between facilitating admissibility but yet ensuring reliability or authen-ticity of the evidence. The Evidence (Computer Output) prescribes compliancecriteria by which audited imaging systems can qualify for certification as anapproved process. Computer output produced from an approved process areeasily admissible in evidence and are presumed to be accurate evidence of theoriginal paper documents.

2. Information or Knowledge

Legal Issues

The E-Biz Model makes extensive use of knowledge management and knowledgedistribution. Frequently knowledge itself is the product. Other models could becontent-driven selling news, financial and legal information and other contenteg LawNet, Lexis-Nexis, Reuters and Bloomberg. The E-Com model will makeextensive use of caching, hyperlinking, framing and mirroring as a virtual portal.These attributes raise the following legal issues:

(a) intellectual property rights protection in cyberspace for knowledge egdatabase protection;

(b) liability for possible violation of third party intellectual property rights;(c) regulation of content — undesirable and pornographic materials;(d) liability for defamation and contempt of court in respect of third party

content;(e) infringement of regulatory rules imposed by national regulatory

authorities such as investment advice and financial regulators andpharmaceutical products and health authorities.


The World Intellectual Property Organisation has been active in proposingseveral intellectual property treaties for the protection of intellectual propertyin cyberspace. These include the World Intellectual Property OrganisationCopyright Treaty 1996 and the World Intellectual Property OrganisationPerformancesand Phonograms Treaty 1996. The issue of the liability of networkservice providers and internet publishers has been addressed in the US in thecases of Cubby v CompuServe Inc5 and Stratton Oakment Inc v Prodigy Services.6

The decision in the Prodigy case was overruled legislatively by section 509 of theUS Communications Decency Act 1996 which seeks to shield access providerssuch as Prodigy from defamation liability in a section entitled "Protection forGood Samaritan Blocking and Screening of Offensive Material". That provisionstates that "no provider or user of an interactive computer service shall be treatedas the publisher or speaker of any information provided by another informationcontent provider". It also states that no provider of an interactive computerservice shall be held liable on account of any voluntary action "taken in goodfaith to restrict access to or availability of material that the provider or userconsiders to be obscene, lewd, lascivious, filthy, excessively violent, harassingor otherwise objectionable. The United Kingdom has addressed the issue ofthe liability for defamation by providing a special defence for an "electronic

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publisher" in section 1 of the UK Defamation Act. The scope of section 1 wasdiscussed by the English courts in Godfrey v Demon Internet Ltd1 which held thatthe defence was not available to Demon Internet. It was reported in the StraitsTimes of 31 March 2000 that before the hearing of the appeal, Demon Internethad settled Godfrey's defamation suit for 15,000 Sterling Pounds damages. TheEU efforts at addressing the potential liabilities of a network service provider forthird party content are more comprehensive and closer to the Singapore model insection 10 of the Singapore ETA. The EU legislation can be found in section 4 ofProposal for a European Parliament and Council Directive on Certain LegalAspects of Electronic Commerce in the Internal Market COM (1998) 586.

Providing information across borders may also infringe on the regulatoryregimes of national regulatory bodies. Virtual securities, financial and bankingservices are discussed below. Undesirable content such as pornography has alsobeen the subject of international efforts to control the proliferation of suchmaterial in the interests of minors. It is notable that the US CommunicationsDecency Act 1996 was held by the US Supreme Court to have violated theconstitutional guarantee of freedom of speech.

Much publicity was focused in 1998 on the conviction in May 1998 in MunichGermany of a former CompuServe official for failing to block access topornographic pictures available on the Internet. This case serves to highlight therange of the unresolved cases in the interrelated areas of jurisdiction, regulationand enforcement.


The Singapore efforts in clarifying the liabilities of network service providersand the protection of intellectual property in cyber space and the regulation ofundesirable content can be found in the following legislation:

(a) section 10 of Singapore Electronic Transactions Act (which clarifies thata network service provider is exempt from both civil and criminalliability in respect of third party content for which it merely providesaccess);

(b) section 193C (Acts by network service provider at direction of another)and section 193D (Exemption of network service provider from liabilityfor removal of copy etc from network) of Singapore Copyright Act;

(c) Singapore Broadcasting Authority class licensing rules and Code ofPractice;

(d) Films Act and Undesirable Publications Act.

On 28 April 1998, the Minister for Law and Foreign Affairs, Prof S Jayakumar,announced that an inter-ministry committee chaired by the Registrar of TradeMarks and Patents had been appointed to examine intellectual property andcopyright issues for the Internet and electronic commerce and to suggest therelevant changes to the law (Straits Times, 29 April 1998). The Committeeconsidered the underlying principles and initiatives of the two relevant treaties,the World Intellectual Property Organisation Copyright Treaty 1996 and theWorld Intellectual Property Organisation Performances and Phonograms

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Treaty 1996 as well as impending and recent developments in variousjurisdictions. The Minister announced on 7 May 1999 that the Committee hadcompleted its Study. On 17 August 99, the Copyright (Amendment) Act 1999 waspassed by Parliament to address the more urgent needs of copyright owners andusers of copyright materials in the online environment. These amendmentswill improve protection on the Internet for many important industries, thuspromoting the use of the Internet for the exploitation of creative endeavours. Theamendments will also clarify the delicate balance to be struck between protectionfor copyright owners and legitimate and reasonable access to copyright materialson the Internet for users. The amendments will also liberalise some existingrestraints in the enforcement of copyright.

In July 1996, the Singapore Broadcasting Authority (SBA) introduced theInternet Class Licence Scheme8 and the Internet Code of Practice to put inplace a basic framework that is intended to set minimum standards for thehealthy growth of the Internet. In October 1997, following recommendationsmade by the National Internet Advisory Committee9 (NIAC) and feedback fromthe industry, SBA revised the Internet Code of Practice for greater clarity andsimplicity, and issued a set of industry guidelines.10 Through these frameworks,SBA strives to adopt a balanced and light-touch approach towards encouraginga healthy and responsive environment for Internet to thrive. On the other hand,the Films Act and the Undesirable Publications Act were extended in 1998to control obscene content and pornography distributed in Singapore inmulti-media form.

3. Customer Empowerment

Legal Issues

Customer empowerment and the interactive nature of the Net has given rise tothe following legal issues:

(a) Repudiation(b) Online contracting(c) Authentication — electronic signatures(d) Shrinkwrap or click wrap contracts(e) Privacy issues

International developments

A shrinkwrap licence is a familiar vehicle for licensing software distributed inphysical form such as a diskette or CD-ROM. Typically the software is deliveredin a package or envelope that contains certain license terms printed on theoutside. The customer does not sign an agreement but the terms state that byopening the package or using the software the customer has accepted theshrinkwrap terms. Shrinkwrap concepts are also relevant to many onlinetransactions. The publisher of a web site may display terms and conditions onscreens along with the content, stating that the user is deemed to accept the termsby clicking, using or downloading the content. This is popularly known asa clickwrap agreement. Similarly a number of web sites may contain a link to

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disclaimers, warranties and other terms. The United States cases suggest thata properly structured shrinkwrap or clickwrap agreement would be enforceable ifthe terms and conditions are presented to the customer before he enters into theagreement. The proposed UCC Article 2B-307 will focus on whether the usermanifested assent to the terms after having had an opportunity to review theterms and whether the user is given an option not to assent and what type ofaffirmative conduct is required for acceptance.

The other issues relating to online contracting are addressed by the UNCIT-RAL Model Law and various other national laws on electronic transactions(see above). The UN Convention on Contracts for the International Sale ofGoods, Vienna 1980 is also relevant to the issue of electronic contracting as itprovides for specific rules on the formation of contracts. The UN Conventiondoes not recognise the postal rule and requires communication of acceptance ofan offer.

The European Union's comprehensive privacy legislation, the Directive onData Protection (the Directive), became effective on 25 October 1998. It requiresthat transfers of personal data take place only to non-EU countries that providean "adequate" level of privacy protection. While the United States and theEuropean Union share the goal of enhancing privacy protection for their citizens,the United States takes a different approach to privacy from that taken by theEuropean Community. The United States uses a sectoral approach that relies ona mix of legislation, regulation, and self regulation. Given those differences,many United States organisations have expressed uncertainty about the impactof the EU-required "adequacy standard" on personal data transfers from theEuropean Community to the United States.

To diminish this uncertainty and provide a more predictable framework forsuch data transfers, the Department of Commerce issued International SafeHarbour Principles (the principles) under its statutory authority to foster,promote, and develop international commerce. The principles were developed inconsultation with industry and the general public to facilitate trade andcommerce between the United States (US) and European Union (EU). They areintended for use solely by US organisations receiving personal data from theEuropean Union for the purpose of qualifying for the safe harbor and thepresumption of "adequacy" it creates.

The EU and the US reached an "agreement in principle" in February 2000 thatwill allow US companies to adhere to a Safe Harbor set of principles that willallow them to remain under US industry self-regulation jurisdiction. But theagreement still requires approval from both sides in the talks, as well as thehigh-tech and other industries in the US.

The EU and US have hoped that the European Parliament, the EU Article 31Committee (a group of EU member state representatives), the CommerceDepartment and other governmental and private concerns would sign off on theagreement by the end of March 2000.

The United Kingdom, in compliance with the EU Directive, enacted the UKData Protection Act 1998. New Zealand is an early leader in this region with theenactment of their Privacy Act in 1993. Hong Kong and Australia have in placedata protection legislation.

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Parts IV and V of the Electronic Transactions Act provides the legal frameworkfor electronic contracting. These provisions are based on the UNCITRALModel Law on Electronic Commerce. The Sale of Goods (UN Convention) Actimplements in Singapore the UN Convention on Contracts for the InternationalSale of Goods which allows for contracts on the sale of goods to be concludedelectronically.

An inter-ministry committee is currently studying data protection issues. Inorder to promote self-regulation by industry, the National Internet AdvisoryCommittee (NIAC) drafted and recommended an E-Commerce Code for theProtection of Personal Information and Communications of Consumers ofInternet Commerce.11 On 13 April 1999, "Case Trust" a self-regulatory certifica-tion scheme was launched to ensure that E-Commerce vendors comply witha code of practice which includes consumer protection and privacy obligations. Itis similar to but wider than "E-Trust" which is narrower in that it only enforcesa privacy code. It is a joint project of the Consumers Association of Singapore,CommerceNet Singapore and the Retail Promotion Centre.12 The NIAC statedin its 1999 Report that it will continue to monitor the industry adoption andimplementation of its E-Commerce Consumer Protection Code. The NIAC plansto study as well as give feedback and comments on the Model Code forthe Protection of Personal Information to be drawn up by the IDA. Whereappropriate, the NIAC will take the necessary measures to improve theE-Commerce Consumer Protection Code in order to encourage further industryself-regulation.

4. Convergence

Legal Issues

Elements of the legal and regulatory framework for broadcasting and telecommu-nications will be affected by convergence. The traditional system of regulationfaces new challenges as delivery systems adopt a common technology and assumecommon capabilities. Some new services fall within the remit of more than oneregulator, creating a risk of excessive or inconsistent regulation. Where anidentical service is transmitted over different delivery systems, it may be subject todifferent regulatory regimes. The development of new services, and their wideavailability, may be jeopardised by such regulatory overlaps and anomalies.


In the United Kingdom (UK) and Europe, several consultative papers have beenpublished on the challenges to the regulatory regime posed by convergence. TheUK Green Paper — Regulating Communications: Approaching Convergence in theInformation Age sets out the UK Government's preliminary views and reasoningon the likely implications for the legal and regulatory frameworks coveringbroadcasting and telecommunications.13 The European Commission publisheda Green Paper on the Convergence of the Telecommunications, Media andInformation Technology Sectors, and the Implications for Regulation.14

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The Copyright (Amendment) Act 1999 was enacted to clarify the intellectualproperty rights of multi-media works. The Info-Communications DevelopmentAuthority Act 1999 was enacted to merge the National Computer Board and theTelecommunications Authority of Singapore into a single regulator for both ITand Telecommunications services and networks. As yet, the regulator for radio,television and cable broadcast media is still the Singapore Broadcasting Author-ity which will focus on regulation of content over the Internet.

5. Connected World

Legal Issues

The borderless and connected world in cyberspace raises the following legal issues:(a) Conflicts of law —

(i) governing law;(ii) law of the forum;

(b) Territorial jurisdiction of courts;(c) Enforcement of foreign judgments;(d) Computer crime across borders — extradition and mutual legal

assistance;(e) Tranborder Data Flow.


Some international developments in this area are as follows:

(a) Hague Conference — draft Convention on Jurisdiction and Enforcementof Judgments in civil and commercial matters — October 2000Diplomatic Conference;

(b) New York Convention on Recognition and Enforcement of ArbitralAwards;

(c) US cases on jurisdiction — Bensusan Restaurant v Richard King (TheBlue Note case), Cybersell v Cybersell Inc (1997).

6. Jurisdictional Issues in General

The subject of jurisdiction can be examined traditionally from three perspectivesviz the international law, the domestic or national law, and the civil or criminallaw perspectives.

International law recognises five distinct bases on which jurisdiction (both civiland criminal) may be claimed by states ie (1) territoriality, (2) nationality, (3)protective, (4) passive personality, and (5) universality principle. In addition, theUS has from 1942, claimed jurisdiction on the basis of the "effects doctrine". TheCommonwealth governments and courts have tended to be critical of the wideextra-territorial jurisdiction claimed by US courts on the basis of the "effectsdoctrine". Where an international convention provides for extraterritorialjurisdiction and Singapore is a party to that Convention, legislation will usuallybe enacted to confer such extraterritorial jurisdiction on the Singapore courts.

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One example is the Tokyo Convention Act which confers jurisdiction in respectof offences committed on board aircraft.

Singapore like England adopts the territoriality principle of jurisdiction exceptwhere the statute expressly provides for extra-territorial jurisdiction either on theeffects principle or the nationality principle. Singapore statutes are presumed toapply to the territory of Singapore unless the statute expressly provides forextra-territorial jurisdiction (Nippon Fire and Marine Insurance v Sim Jin Hwee15

and section 15(c) SCJA).

Criminal Jurisdiction

The basis for Singapore courts to exercise civil jurisdiction is different fromthe basis for criminal jurisdiction. In criminal matters, the general rule underEnglish common law is that English courts will assert jurisdiction in relation toacts or omission of British subjects or aliens taking place within the territory ofEngland and Wales. Depending on the offence, an English court may assertjurisdiction where certain elements of the offence were committed abroad. Whereacts were done partly within and partly outside England then at common law anEnglish court might be able to assert jurisdiction even where some centralelement of the offence was committed abroad. This common law principle isrecognised and legislated in section 15(1) of the Supreme Court of Judicature Actwhich provides that the High Court shall have jurisdiction to try inter alia alloffences committed within Singapore.

Territoriality Principle and Acts of Agents

A Hong Kong case, AG v Yeung Sun-Shun16 held that a conspiracy formed inMacau and carried out by an innocent agent within Hong Kong is subject to thecriminal jurisdiction of the Hong Kong courts. In this case, the offence involvedillegal smuggling of elephant tusks. Prof Sornarajah has expressed the interestingview that "English courts, though convinced of the need to assume jurisdictionover transnational frauds, continued to justify such assumptions of jurisdiction ina manner consistent with the territoriality principle. Several techniques have beenused to rationalise extensions of jurisdiction with the territoriality principle. Onetechnique was to use some act that takes place within England as that of an agentand assume jurisdiction on the basis that there was some part of receiving bymeans of deception or part of an act involving the conspiracy to defraudcommitted in England through agency."17 The Singapore High Court in PPv Abdul Rashidls, cited with approval the English principle inRv Brisac and Scottthat an English court has jurisdiction over a conspiracy made outside England ifan overt act in execution of the conspiracy was done in England by an innocentagent of the conspirators.

Civil Jurisdiction

The English common law rules of jurisdiction in civil matters are based on theability to serve process on the defendant within the jurisdiction. The court alsohas power to assume jurisdiction of granting leave to serve process outside the

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jurisdiction of the case falls within one of the heads of RSC Order 11 Rule (1).Singapore's Order 11 Rule 1 of our Rules of Court was amended in 1988 on therecommendations of the Electronic Commerce Hotbed Study Group to clarifythe courts' jurisdiction in relation to cross border e-commerce transactions.

Jurisdiction Over Web Presence

The traditional principle of territorial jurisdiction is difficult to apply incyberspace where the only presence or conduct within Singapore is throughaccess to an overseas web site. There are several cases from US courts on whethera US state court can exercise jurisdiction on the basis of mere web presence.

These US cases include Benusan Restaurant Corp v King19 and Zippo Manufac-turing Company v Zippo DotCom Inc.20 In the US cases, the US courts havedetermined civil jurisdiction on the basis of the US "minimum contacts test". Themere existence of a web page on the Internet is not in itself sufficient to conferjurisdiction. Jurisdiction will be directly proportional to the nature and extent ofthe commercial activity that an entity conducts over the Internet. This wasreferred to in the Zippo case as the "sliding scale". The "minimum contacts test"has not been adopted by the courts in England or Singapore in determiningjurisdiction.

One also has to bear in mind that the US cases do not deal with criminaljurisdiction. Unlike the US, the English and Singapore courts have not producedsignificant cases on the issue of jurisdiction based on mere web presence. Ina recent 1999 unreported case, Graham Waddon, a Surrey businessman, wasconvicted by the Southwark Crown Court of running the UK's largestpornography operation from servers located in the US. I understand that thisdecision is under appeal and there is no reported judgment.

The UK Financial Law Panel has expressed the view that "generally speaking,the English courts may have jurisdiction over foreign web site operators and ISPswhere Internet material for which they are responsible constitutes an element ofa criminal offence under English law committed wholly or partly in England". Inmy view, the Singapore courts would be reluctant to assert criminal jurisdictionover an overseas web site operator on the ground of mere web presence in theabsence of express statutory provisions. One example of such a statutoryprovision is section 11 of the Computer Misuse Act which provides for limitedextra-territorial application when a person outside Singapore hacks into acomputer located within Singapore.

6. Pull vs Push — World Wide Marketing

Legal issues

The principles of pull vs push and the extensive use of hyperlinking on the worldwide web gives rise to the following legal issues:

(a) Regulation of advertising;(b) Who owns the domain name?;(c) IPR of hyperlinks, deep hyperlinking and framed hyperlinking and

mirror sites.

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Advertising laws apply to the Internet in the same way as it applies to moretraditional media. The question of ownership of domain names and their rela-tionship with trade marks and trade names and the regulation of cyber squattingon domain names are current legal issues. I would like however to deal a bit morein detail with the issue of hyperlinking which is the signature characteristic of theWorld Wide Web.

Hypertext links are the signature characteristic of the World Wide Web. Theability to jump from one page to another through hypertext links makes the webexciting and attractive to viewers. Both creation and use of hyperlinks arerelatively simple tasks, which can be accomplished unilaterally by the author orreader of a web page.

The simplest link acts merely as an automated directory — when the hypertextlink is clicked with the mouse, the connection to the page with the link is droppedand the user's computer then connects with the linked site, without furtherconnection with the original page. The simplicity of making web links and thelack of any centralised control are largely to credit for the phenomenal growth ofthe Web.

At least three kinds of linking are used on the Internet. The simple hyperlinksthat almost all web viewers regularly use are Hypertext REFerence (HREF) links.These convenient links permit a viewer to jump from one web page to another;clicking on the link essentially activates software code written in the language ofthe Web, HyperText Markup Language (HTML), which instructs the viewer'sweb browser software (Netscape Navigator or Microsoft Internet Explorer, forexample) to go to the linked location, which is often another website. Framing,which also creates links or associations between web pages, is a method ofarranging and viewing web pages that web browsers introduced to Internetusers in 1996. Framing allows the operator of a website to divide a browserwindow into multiple, independently scrollable frames with different layouts, andto place separate documents, from different Internet sources, in each window.Mined images linking (something called IMG ("IMaGe") links) enables graphicsto be visible on screen as part of a web document's main body (ie, not ina separate frame) even though they originate outside the document's HTML code— that is, some where else on the website publisher's server, or even at a differentwebsite.

The technology is truly revolutionary and holds great promise for increasingcommunication, learning, and the speed and reach of business activity. Businessusers of the World Wide Web, however, also understand technological laws, andin particular one immutable principle that applies not only to technology but toall human affairs: One thing leads to another. When one thing (including anInternet link) leads to another (such as a copyright or trademark infringement,a false or misleading reference, or a misappropriation of a business opportunity),law comes into play. Where there are legal prohibitions against certain kinds ofassociations, the law will at least examine, and possibly prohibit, unlimitedlinking, no matter what the preference of the technology enthusiasts. Put simply,the millions of hyperlinks created on the World Wide Web are not just linked to

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web sites and one another. They are also linked, inextricably, to the laws thatregulate business activities.

Some of the cases on hyperlinking are:(a) Shetland Times Ltd v Dr Jonathan Wills [1997] Sess Cas 604(b) Washington Post Company v Total News Inc, 1997(c) Ticket Master Corp v Microsoft Corp 1997

The world's first widely-noted hyperlink lawsuit (Shetland Times Ltd vDr Jonathan Wills) arose in the Shetland Islands of Scotland, out of an electronicnewspaper rivalry. The established Shetland Times challenged the upstartShetland News in court in late 1996, claiming that the News's hyperlinks to someof the Times's stories constituted copyright infringement. The case deservesattention because it was a trailblazer. The links involved were standard hypertextreference links. When the Times protested the News's periodic links to its stories,Dr Wills, the Web-savvy editor of the News, expressed his disbelief that anyonewould complain about hyperlinks. The Times, however, was quite serious. Itsought a court order to prevent such linkages.

In court, the Shetland Times had sought to restrain the News's unauthorizedlinks on the grounds that the News's links (which reproduced the Times'sheadlines for those rare exclusives) constituted copyright infringement. TheShetland News had argued in response that hyperlinks could not constituteinfringement, because free access constituted the basic principle of the Internet,But, the Court of Sessions in Edinburgh, per Lord Hamilton, disagreed. TheCourt granted the Times an interim interdict (comparable to an interiminjunction) preventing the News from making further hyperlinks. Among otherthings, the Court noted that the News's hyperlinks to certain of the Times's storiespermitted readers to get access to the Times's stories while "by-passing the[Times'] front page and accordingly missing any advertising material which mayappear on it." This potential advertising loss figured heavily in the Court'sdecision in favor of the interim relief.

This interim ruling was appealed, and although the News made a worldwideappeal for assistance through its web site, ultimately the case was settled shortlybefore a scheduled further hearing. The settlement permitted the News to link tothe Times's page, but specified that the links would clearly identify the Times asthe originator of the linked stories. Essentially, the parties negotiated a linkinglicense.

In Washington Post Company v Total News Inc, the Washington Post andseveral other major publishers asserted a variety of theories against Total NewsInc, a small Arizona company that operated an independent gateway to theInternet news pages, including those of the plaintiffs. Among other things, theplaintiff publishers complained that when a web surfer used the Total News siteto explore news sites, the news sites (for example, the main news page of theWashington Post, or news pages offered by other plaintiff publishers such as TimeInc., CNN, and Dow Jones) would appear "framed" within the advertising-filledborders of the Total News site. By so framing the news sites, the plaintiffpublishers alleged, Total News often cut off from the readers the advertisements,banners and Internet addresses of the publishers, and covered them with Total

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News's banners and advertising. The complaint alleged that these practices wereactionable as common law misappropriation, federal and state trademark dilu-tion, unfair competition, trademark infringement, copyright infringement, andtortious interference.

As the plaintiffs' complaint made clear, the hyerlinks per se were not theproblem. Rather, plaintiffs complained of the way Total News orchestrated thelinks: when a link was clicked by the user, the user would not receive the linkedsite in its totality but rather would see the linked site within a Total News frame.This gives the user something different than he or she would encounter by seekingthat site directly, or by linking to it from a normal non-framed hyperlink. Mostimportantly to the plaintiffs, the Total News site potentially blocked out what wasmost valuable to the plaintiffs — banner advertisements on their pages. Pointingto this advertising blocking, plaintiffs claimed that Total News operated a"parasite site" that "diverts" and "free-rides" on plaintiffs' good will.

The Total News case was settled in June 1997, only four months after it wasfiled, with an agreement that recognised a new Internet property right — thelinking license. In the settlement, Total News was required to obtain fromthe Washington Post and other publisher plaintiffs' licenses authorising thehyperlinks that Total News had previously set up without authorisation.Additionally, Total News was required as a condition of the license to display thelinked materials only in certain ways — for example, without deleting any text,graphics or advertising, and without "framing" the linked site.

In Ticketmaster Corp v Microsoft Corp, a ticket-selling agency complainedabout a city guide's unauthorised hyperlink to its site because the link enabledInternet users to bypass the agency's "front door" (which contained paidadvertising) and proceed directly to a page that contained event and ticketinformation (and was free of advertising). Ticketmaster alleged that by offeringthis bypass, Microsoft's "Seattle Sidewalks" service was "in effect, committingelectronic piracy." Ticketmaster claimed that unless it controlled "the mannerin which others utilize and profit from its propriety services" it wouldface the prospect of a feeding frenzy diluting its content. It alleged that thebypass hyperlink constituted trademark dilution and unfair competition.After some spirited arguments back and forth between those two PaulAllen-connected businesses, the case was settled, in February 1999, withMicrosoft's agreement not to make "deep links" to Ticketmaster's web pages.Rather, Microsoft agreed to link its Internet "Sidewalks" guides only toTicketmaster's home page.


It was reported in the Straits Times on 11 December 1999 that PACIFIC Internetfiled a writ against homegrown start-up Asian search engine Catcha.com forbreach of copyright. In the writ filed in the High Court on 10 December 1999,Internet Service Provider (ISP) PacNet alleged that Catcha.com had reproduced,in its own websites, two PacNet websites, webpages and their contents, withoutconsent. This is believed to be the first case of its kind before the courts inSingapore. Four-month-old Catcha.com is alleged to have placed hyperlinks

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Volunte 26, No. 1, 2000 articles

in their movies website, that will lead surfers to PacNet's Movies Onlinewebsite. This means that Internet surfers who click on the highlighted links inCatcha.com's Movies website will be taken to PacNet's Movies Online subsidiarywebpages. By providing direct access to the subsidiary pages, web surfers will notgo through PacNet's homepage and its Movies Online website, bypassing theadvertisements, information and restrictions contained in the ISP's homepage.PacNet alleged that because of this bypass, it was losing advertising revenue andalso received fewer "hits", which means it recorded fewer surfers going to its site.PacNet, pleaded in the writ that "such deep hyperlinking allowed the defendantsa 'free ride' on the plaintiffs' costly efforts to create, generate and maintain" theirwebsite.

7. iVevv Financial Management

Legal Issues

The financial legal issues raised include:(a) Electronic money — Is it legal tender?;(b) Taxation of E-Commerce;(c) Internet securities offerings.

International and Singapore Developments in Electronic Money

"What is money and when is it legal tender?" One must first of all distinguishbetween "money" and "means of payment". A credit card or a cheque are meansof payment, but they are not money. In the same way, the Nets Cashcard isa means of payment, but it is not money although it is understandable if some areunder the misconception that it is "electronic money". It is no more than amulti-purpose stored value card with Nets holding the cash float. It would thusfall within the definition of "stored value card" under S.77A of the Banking Act.The authoritative legal text on money "FA Mann, The Legal Aspect of Money" (atp 8) suggests that "in law, the quality of money is to be attributed to all chattelswhich, issued by the authority of the law and denominated by reference to a unitof account, are meant to serve as universal means of exchange in the State ofissue."

Mann also defines legal tender as such money in the legal sense as the legislatorhas so defined in the statutes organising the monetary system. Chattels which arelegal tender have, therefore, necessarily the quality of money, but logically, theconverse is not true — not all money is necessarily legal tender.

The immediate difficulty with the above definition of "legal tender" by Mann inrelation to "electronic money" is that it is not a "chattel". Electronic money isintangible. It comprises credits stored in electronic data in a card with noparticular denomination. Nevertheless in this electronic age, it is probable thatthis concept can evolve to one in which electronic money can be accorded thesame status as notes and coins.

If the "electronic money" in a cashcard can be money, then, it follows that itcan be legal tender. Difficulties such as determining the "face value" of a cashcardand exchanging the cashcard for foreign currency would arise. Other issues are

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how will the authorities control the supply and regulate the circulation ofelectronic money?

Even if "electronic money" can legally be money, there remains the practicalissue of the necessary prevalence of the electronic infrastructure for it to bea universal medium of exchange. Not all retailers and vendors have the technicalequipment to accept cashcards. Individuals are highly unlikely to have theequipment necessary to accept cashcards as a medium of exchange.

No country has, as far as I know, issued electronic cash as a substitute fornotes and coins although there are international discussions along this trend.There are of course projects such as Mondex, Digicash and Cybercash. TheClinton Framework identified electronic payment systems as a key element ofglobal electronic commerce. It recognised that, at this early stage in thedevelopment of electronic payment systems, the commercial and technologicalenvironment was changing quickly, making it hard to develop timely andappropriate policy. For these reasons, the Framework concluded, inflexible andhighly prescriptive regulations and rules would be inappropriate and potentiallyharmful. Instead, electronic payment experiments should be monitored on acase-by-case basis.

Since the Framework was released, Internet commerce has increased rapidlyin volume, and is projected to be hundreds of billions of dollars by the startof the twenty-first century. Because sales cannot go forward without payments,the development of electronic payment systems has emerged as a top priority forinnovators and policymakers in the new millennium. Thus far, credit cards haveemerged as the most popular method of payment over the Internet. Consumerssend their card numbers over the phone lines, apparently confident that existingencryption protocols are sufficient to protect them against theft and fraud.

Meanwhile, competing electronic payment systems are struggling to survive.DigiCash, Inc. is known as the company that developed eCash, a system formaking anonymous electronic payments using digital "coins." However, the ideafailed to catch on, and DigiCash petitioned for Chapter 11 reorganisation inNovember 1998. Smart cards have not fared much better. Recently, Citibank andChase Manhattan ended a smart card pilot program operating in the Upper WestSide of Manhattan due to a lukewarm response from the public.

Internet buyers seem to prefer credit cards to other electronic payment systemsthat have been made available to them. One reason for this may be simplefamiliarity. It is easier for buyers to make purchases on the Internet when theycan use a familiar payment method, like the credit card. As time passes, buyersshould become more comfortable with Internet commerce. Innovative paymentproducts, such as smart cards and electronic money, should become morefamiliar to them. Even then, however, Internet buyers may continue to prefercredit cards, particularly when making expensive purchases. This is becausecredit cards offer strategic advantages to buyers in general. If a credit cardpurchase goes sour, a buyer often can avoid loss by asserting her claims ordefences on the purchase against the issuer of the card. By contrast, the law makesit difficult to recover cash, once spent, cash cannot be recovered. Similarly,a cashier's check-long recognised as a substitute for cash-cannot easily bestopped. Electronic money that functions like cash or cashier's checks may

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face similar constraints. For sellers, credit cards have the following strategicdisadvantages: unlike cash or cash equivalents, credit card charges aresubject to percentage fees. A buyer who uses a credit card may refuse to paythe issuer on the grounds that he has a claim or defence arising out of theunderlying transaction. When this happens, the issuer may pass the loss backto the seller. Enrolling in the credit card system requires establishing arelationship with a depositary bank, including the signing of a complexcommercial agreement.

International and Singapore Developments in Tax Issues

In general, tax compliance is facilitated by identifying key "taxing points": forexample, reporting and withholding requirements can be imposed on financialinstitutions which are easy to identify. In contrast, one of the great commercialadvantages of electronic commerce is that it often eliminates the need forintermediating institutions. Although from a purely economic perspective such"friction-free" capitalism may be an advantage of the new technologies, thepotential loss of these intermediating functions poses a problem for taxadministration. Developments in electronic payment systems also pose issues fortax administration. Electronic payment systems may partially displace cash,cheques and credit cards, which currently constitute about 90 per cent, by volume,of financial transactions. Electronic payment systems have the potential to createnew forms of money in which value is represented in digital form. The digital formof electronic money allows it to be processed inexpensively and instantaneouslytransferred around the world. "Electronic money" encompasses a wide range ofproducts, which are all still under development. However, electronic paymentsystems share certain similar features and an understanding of these generalfeatures is a necessary step in developing means to integrate these new paymentsystems into our system of tax administration and compliance.

The US Internet Tax Freedom Act, enacted in 1999, ensures that US states donot impose any new Internet taxes. The supporters of the Internet Tax FreedomAct argue that it is needed not just to give the Net room and time to grow,but also because the Net is inherently susceptible to multiple and discriminatorytaxation in a way that commerce conducted in more traditional ways is not.They also argue that the very technologies that make the Net so useful andefficient — notably its decentralised, packet-switched architecture — alsomean that several States and perhaps dozens of localities could attempt totax a single Internet transaction. The Internet Tax Freedom Act will protectcommerce conducted over the Internet from being singled out and taxed in newand creative ways, and will give Americans the reassurance they need that theywill not be hit with unexpected taxes and tax collecting costs from remotegovernments.

In Singapore, tax authorities have gone against the tide by giving tax incentivesto encourage the growth of the E-Commerce business model in Singapore eg theApproved Cyber Trader scheme under section 43O of the Income Tax Act(awarded to inter alia Kian Ann Engineering, EXCA — Sumitomo and NewEngland circuit sales).

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International Developments in Internet Financial Services

Virtual securities offerings across boundaries have the ability to circumventregulatory boundaries imposed by securities and banking regulators. Variousregulators have issued statements to the effect that they do not welcome virtualofferings targeted at their residents. Examples of such statements are as follows:

(a) US-SEC's Interpretation Release, March 1998"Use of Internet Web Sites to Offer Securities, Solicit SecuritiesTransactions or Advertise Investment Services Offshore";

(b) Australia — ASIC Policy Statement 141, 10 February 1999"Offer of Securities on the Internet";

(c) UK - FSA, 1998"Treatment of Material on Overseas Internet World Wide Web SitesAccessible in the UK, but not intended for investors in UK";

(d) HK - HKSFC Guidance Note on Internet Regulation, March 1999.

Singapore Developments in Internet Financial Services

It was reported in the Straits Times on 15 February 2000 that the way has beencleared for investors to apply for new shares and to buy unit trusts online fromthe comfort of home. This is because electronic prospectuses for initial publicofferings (IPOs) and unit trusts are now formally allowed. The guidelines foronline offers of securities were announced by the Monetary Authority ofSingapore (MAS) and the Registry of Companies and Businesses on 14 February2000. The MAS said that although the Internet had become an important andcost-efficient distribution channel for securities, "questions have arisen as to howexisting laws would apply to public offers of securities through the Internet".Singapore's Companies Act requires that an application to buy shares or unittrusts must be accompanied by a prospectus. It was not clear in the past whetheran electronic prospectus could be issued. The result was that no applications forshares or unit trusts could be made online. The law has now been updated toallow such electronic prospectuses. This means that investors can apply for IPOsand unit trusts directly on the Internet — instead of through automated tellermachines, brokers and fund managers' offices. Online IPOs, which have not hitthe market yet, are being studied by "all the banks here." Overseas Union Bank(OUB) head of corporate finance Soon Boon Siong was reported to have said.Investors can look forward to them soon because key IPO arrangers have had thechance to study the new guidelines for electronic prospectuses for at least threemonths, the Straits Times understands. On the other hand, the selling of unittrusts online is not new — having been introduced by UOB Asset Management(UOBAM) in September last year. The Straits Times reported that UOBAM haddeveloped its service in sync with the new regulations and the firm was "in fullcompliance". Despite the advent of its electronic counterpart, however, thetraditional printed prospectus is unlikely to be phased out.

In a separate Internet-related announcement, the MAS issued guidelines21 forfinancial institutions wishing to put product information on websites which arenot their own. With a view to protecting online investors, it has put the onus on

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institutions to make sure that "third party" websites are secure, and thatinformation is up-to-date and accurate. Despite the new guidelines, local onlinefinancial "supermarket" Dollardex.com will not need to put additional securityfeatures on its website. "That's because we don't perform any transactions on oursite," its chief executive Richard Lye was reported to have said. "We are notresellers of financial products. We merely point people to a bank or an insurerand the financial institutions do all the processing at their end." The MAS statedthat it had no immediate plans to regulate such "third party" websites.

8. Trust and New Business Risks

Some of the most controversial legal issues relate to trust and security. These aresome of the issues:

(a) protection against hackers and computer crime and fraud(b) control of encryption software(c) privacy and data protection(d) transborder data transfer(e) E-Biz dispute resolution processes

International Developments in Cryptography Policy

The Clinton Administration was initially a firm supporter of control of strongcryptographic encryption products and firmly advocated compulsory keyrecovery for law enforcement reasons. Advocates of free speech and e-commerceargued strongly that cryptography is essential to security and privacy incyberspace. They also imposed export controls of encryption software above 40bits: The Zimmerman case (PGP).

In Bernstein v US Dept of State (Cryptography controls violated First andFifth Amendments of US Constitution), the US government defendantsappealed against the grant of summary judgment to the plaintiff, ProfessorDaniel J Bernstein ("Bernstein"), enjoining the enforcement of certain ExportAdministration Regulations ("EAR") that limit Bernstein's ability to distributeencryption software. The circuit court found that the EAR regulations (1) operateas a prepublication licensing scheme that burdens scientific expression, (2) vestboundless discretion in government officials, and (3) lack adequate proceduralsafeguards. Consequently, the court held that the challenged regulations consti-tute a prior restraint on speech that offends the First Amendment.

On 12 October 1998, the US Congress passed the Digital MillenniumCopyright Act, ending many months of turbulent negotiations regarding itsprovisions. Two weeks later, on 28 October, President Clinton signed the Act intolaw. The Act is designed to implement the treaties signed in December 1996 at theWorld Intellectual Property Organization (WIPO) Geneva conference, but alsocontains additional provisions addressing related matters.

One of the major foundational documents for the development of nationalcryptography policies is the OECD Guidelines on Cryptography Policy.22 In theUK, cryptography issues are dealt with in the Electronic Communications Bill1999 (Parts I & II).

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Singapore Developments on Cryptography Policy

The most important development in Singapore's policy on cryptography wasthe announcement by the Info-communications Development Authority ofSingapore (IDA) on 19 January 2000 that controls on the import of crypto-graphic products would be lifted with effect from 21 January 2000. TheIDA explained that the use of cryptography is essential for the development ofe-commerce as it allows the protection of electronic data and records fromunauthorised access or modification. IDA believes that the lifting of the importrestrictions will further promote confidence among companies to conducte-commerce in Singapore: The IDA encouraged businesses to use cryptographicproducts that meet their business needs. However, they should learn to managethe encryption technology appropriately. Companies are strongly encouraged byIDA to consider implementing measures such as key recovery to minimisepossible disruptions to business operations. For example, if the keys forencryption are lost or corrupted, companies that use key recovery will then beable to recover the encrypted data. The Trade Development Board (TDB) willamend the Regulation of Imports and Exports Regulations (RIER) to lift theimport control on cryptographic products. The Regulation of Imports andExports Regulations was amended on 21 January 200023 by deleting item4 (encryption software). The TDB also issued an Imports and Exports Notice tothe relevant parties for information. Singapore has no legislation controlling theexport of encryption products. Enforcement authorities are empowered undersection 10 of the Computer Misuse Act as amended in 1998 to gain lawful accessto encrypted material in the course of investigations into computer crime.

International and Singapore Developments in Data Protectionand Transborder Data Flow

The International and Singapore developments in Transborder Data Flow andData Protection have been substantially discussed elsewhere in this Paper and itis not necessary to repeat them.

International Developments in Computer Crime and Security

Computer Crime in the US is regulated mainly through the US Computer Fraudand Abuse Act 1995 and the US Electronic Communications Privacy 1995. In theCommonwealth, the UK Computer Misuse Act 1989 served as a model for manyCommonwealth countries including Singapore and Malaysia. Singapore recentlymade extensive amendments to its Act in 1998 which departed significantly fromthe UK model. The issue of lawful access to encrypted material for lawenforcement purposes is a key component of the OECD Guidelines onCryptography Policy.

Singapore Developments in Computer Crime and Security

The Computer Misuse (Amendment) Bill 1998 was introduced in Parliament on1 June 1998. It was passed on 29 June 1998 and came into force on 1 August 98.

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The Act amended the Computer Misuse Act to enhance computer security bygiving greater protection to "protected computers". It also made the penaltiesproportionate to the damage caused and it created new offences of unauthoriseddisclosure of access codes and unauthorised obstruction of use of computer.These new offences are necessary as sophisticated computer crimes may becommitted without the criminal having to gain "unauthorised access" to anycomputer system eg by "mail bombing" or the "ping of death" attacks. Section 15of the Act also empowers the police to gain lawful access to computer materialincluding encrypted text. The Singapore High Court has also imposed deterrentcustodial sentences for serious hacking offences even for teenage hackers.

The Infocomm Development Authority of Singapore (IDA), on behalf of theNational IT Committee, also released on 6 January 2000 a set of guidelines tosafeguard public interests when Internet Access Service Providers (IASPs)conduct preventive security scanning exercises.24 The need for such guidelineswas heightened following an incident in May 1999 when SignNet scanned200,000 subscribers' computers without informing them. The government hadstressed that such computer scanning without permission is wrong, and that moreclarity is required in the approach to such scans. The Guidelines for IASPs onScanning of Subscribers' Computers were developed by the IDA in closeconsultation with all the players in the Internet access services market. TheGuidelines are based on international best practices in the areas of consumerprivacy and protection. In line with international practices, an industryself-regulation approach has been taken in the formulation and implementationof the Guidelines. The Guidelines articulate the importance of accountability andtransparency when security-conscious IASPs conduct scanning exercises toensure that their subscribers' computers are safe and are not infected by malicioussoftware or viruses. In particular, consent by IASP subscribers should beexplicitly obtained before such exercises can be conducted. Scanning activitiesmust be non-intrusive, and the IASP must inform its subscribers on how theirprivacy will be protected during such activities.

D. CONCLUSION

This paper does not pretend to be a comprehensive treatise of all the legal issuesarising from the E-Biz model but the author hopes that it has at least touched onthe more important issues. From this survey of both international and Singaporedevelopments, the author has come to the conclusion that the law has strived torespond in a consistent and predictable way to the E-Biz model. Murky watersremain in areas such as electronic payments, tax administration and cross-borderjurisdiction, regulation and enforcement. Another issue that troubles nationalgovernments is how and to what extent existing laws should apply to E-Biz suchas licensing and advertising laws.

Differences in approach between the US, the EU and APEC countries hasmeant that the laws have not developed as uniformly or harmoniously as onewould have liked. The speed at which the E-Biz model is evolving has alsoprompted some jurisdictions to adopt a "wait and see" attitude. Withthe establishment of a dedicated Law Reform and Law Revision Division

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in the Attorney-General's Chambers on 1 April 2000, the SingaporeAttorney-General's Chambers hopes to remain in the forefront of developmentsin technology laws.

Endnotes

*MA (Cambridge), Barrister (Middle Temple), Senior State Counsel, Head, Law Reform andRevision Division, Deputy Head, Legislation Division, Director, Computer Information Sys-tems Division, Attorney General's Chambers, Singapore.

1. Jonathan Rosenoer, The Clickable Corporation, The Free Press, 1999.2. Model law adopted by the UN General Assembly in 1996 (General Assembly Resolution

51/162 of 16 December 1996).3. The Electronic Transactions Bill 1999 was introduced into the Commonwealth Parliament

by the Attorney-General on Wednesday 30 June 1999. The Bill is based on the UNCITRALModel Law, as modified by the recommendations of the Electronic Commerce ExpertGroup. Information about the background to the Bill is available at: http://law.gov.au/ecommerce

4. A copy of the Act and Regulations can be found at the Web Site of the Controller ofCertification Authorities at www.cca.gov.sg

5. 776 F Supp 135 (SDNY 1991).6. Co 23 Media L Rep (BNA) 1794 (1995).7. [1999] 4 All ER 342.8. GN No. S 306/96, Singapore Broadcasting Authority (Class Licence) Notification 1996.9. The National Internet Advisory Committee (NIAC) was appointed by the Ministry of

Information and the Arts in August 1996. There are 19 members in this Committee which ischaired by Assoc Prof Bernard Tan, Director (Office of Student Affairs) in NUS. Membersare drawn from a wide cross-section of our society and serve for two years.

10. The guidelines can be found at http://www.sba.gov.sg/internet11. This Code can be viewed at http://www.sba.gov.sg/internet.htm12. Its homepage is at http://www.casetrust.com.sg13. DTI consultation (7/98).14. [COM] (97) 623 14.15. [1998] 2 SLR 806 at para 20.16. [1987] HKLR 987.17. M Sornarajah, "Crime without Borders; Cross-Border Jurisdictional Issues Arising from

Technological Crimes", delivered at International Crime and Technology Conference 1998.18. (1993) 3 SLR 794.19. 937 F Supp 296 (SNDY 1996).20. 952 F Supp 1119 (WD Pa 1997).21. The Guidelines are available on the MAS website.22. The OECD Guidelines can be found at www.oecd.org23. GN No. S27/2000.24. Guidelines for Internet Access Service Providers on scanning of subscribers' computers,

6 January 2000 (Explicit consent required for preventive scanning for viruses or trojans).

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e‐commerce business models — the law's response

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