E-Commerce Law and Dispute Resolution: Issues Concerning Jurisdiction

By Atty. Juris Bernadette M. Tomboc

This paper was prepared in partial fulfillment of the requirements of the course on E-Commerce Law and Rules on Electronic Evidence of the San Beda Graduate School of Law. The author is thankful to her classmates and Prof. Emmanuel L. Caparas for sharing their insights and suggestions on the topic.

I. Introduction

Section 3 (c), Chapter II (Declaration of Principles for Electronic Commerce Promotion) of Republic Act No. 8792, also known as the Electronic Commerce Act, takes cognizance of the essentially global nature of e-commerce, viz.:

“(c) International Coordination and Harmonization. Electronic Commerce is global by nature. Government policies that affect electronic commerce will be internationally coordinated and compatible and will facilitate interoperability within an international, voluntary and consensus-based environment for standards setting.”

The foregoing provision implies that companies engaged in e-commerce must be prepared to comply with the laws of each country where they can potentially close transactions. However, conflict of laws between countries gives rise to complex legal and practical issues to both businesses and consumers. Thus, ideally there should be international coordination and harmonization of e-commerce laws in order to support the growth of e-commerce. (Disini 2000)

As a matter of fact, Senate Bill No. 1523 and House Bill No 9971 on the then proposed Electronic Commerce Act initially contained the following provision on jurisdiction:

“Section 26. Jurisdiction – An electronic contract dealing with the use of a key management system shall indicate the jurisdiction whose laws apply to that system or whose law shall apply to the contract. In the absence of such indication, jurisdiction over the contract shall be acquired in accordance with existing laws.” (Disini 2000)

However, the proposed provision was subsequently dropped by the Bicameral committee due to unresolved issues concerning jurisdiction. (Disini 2000)

This paper will examine the said jurisdictional issues in e-commerce in order to provide a better understanding of them and to arrive at practical recommendations to help reduce uncertainty by businesses and consumers in e-commerce transactions.

II. Statement of the Research Problem

Thus, the following are the research problems that this paper aims to address:

A. What are the jurisdictional issues in global e-commerce transactions?

B. What are the jurisdictional rules being applied in the European Community, the Unites States and the Philippines in relation to e-commerce transactions?

C. How may issues and problems concerning jurisdiction in global e-commerce be addressed? Alternatively, how may businesses and consumers avoid complex legal problems that may arise from their global e-commerce transactions?

III. Review of Related Literature

A. Effect of the Rule of Law on the Growth of E-Commerce

E-commerce trade continues to grow as an increasing number of businesses and consumers adopt the Internet to exchange information, goods and services. E-commerce transactions grew from $162 billion in 2000 to $991 billion in 2004 in the United States alone and from $196 billion to $1,584 billion during the same period outside of the United States. It can be noted, however, that the growth of e-commerce among different countries has been uneven even in developed economies. For instance, e-commerce accounted for only 0.4 percent of gross domestic product in Ireland and two percent in Canada from 1999 to 2001. (Chuan-Fong, Dedrick and Kraemer 2005)

Hargattai (1999 cf. Chuan-Fong, Dedrick and Kraemer 2005) hypothesizes that a country’s economic wealth and telecommunications policy are significant determinants of e-commerce. On the other hand, Oxley and Yeung (2001 cf. Chuan-Fong, Dedrick and Kraemer 2005) argue that several economic and policy factors influence the growth of e-commerce. One of the more significant factors is the degree to which the “rule of law” prevails in a country. “Rule of law” may be defined as:

“[T]he institutional environment that establishes the basis for economic investment, production, and exchange. It includes sound political institutions, an impartial court system, legal protection of property rights, enforceable contract laws, and citizens who have confidence in the legitimacy of these institutions and accept their authority in resolving disputes.” (Chuan-Fong, Dedrick and Kraemer 2005)

The importance of rule of law is more evident in online e-commerce transactions since buyers need to be assured that they will receive goods that they have paid for; that their credit card information will not be used for fraudulent purposes; and that they will be protected against defective goods. Sellers also need protection from fraudulent buyers when they ship goods before receiving payment as is common in business-to-business transactions. (Chuan-Fong, Dedrick and Kraemer 2005)

Thus, the availability of investment capital and high credit card penetration are not enough to promote the growth of e-commerce as parties would likely still be hesitant to engage in global e-commerce transactions when there is a high likelihood of misconduct but a lack of legal recourse. Conversely, a strong rule of law will encourage the growth of e-commerce since sellers and buyers will become more confident that they can obtain effective redress in case of online fraud. (Chuan-Fong, Dedrick and Kraemer 2005)

The foregoing empirical findings are supported by a survey of more than 2,100 business establishments in ten countries conducted by the Globalization of E-Commerce Project in 2002 of the International Data Corporation. (Chuan-Fong, Dedrick and Kraemer 2005)

The study showed that a higher percentage of firms in the United States as compared to the global sample use the Internet for selling (43 percent as compared to 30 percent) and for buying (73 percent as compared to 47 percent). The study showed that only 11 percent of the respondents rated inadequate legal protection as a barrier to e-commerce in the United States and that only 8 percent said that business laws do not support e-commerce. The findings suggest that the legal and regulatory environment in the United States is significantly better than those in other countries. (Chuan-Fong, Dedrick and Kraemer 2005)

B. Impact of Social Trust on E-Commerce Transactions

The concept of social trust has become one of the most widely studied in social sciences around the world (e.g., Jackman and Miller 1998, Paxton 1999, Warren 1999). Opinions regarding the degree of presence of social trust in any country have become a general concern because of their implications on the latter’s social health and economic wealth. As opined by Arrow (1972):

"Virtually every commercial transaction has within itself an element of trust, certainly any transaction conducted over a period of time. It can plausibly be argued that much of the economic backwardness in the world can be explained by the lack of mutual confidence." (Mutz 2005)

Social theorists such as Fukuyama (1993 cf. Mutz 2005) and Putnam and his colleagues (1993 cf. Mutz 2005) have suggested that social capital beyond the usual predictors of economic growth explains the success of some countries as compared others. The logic behind the theory relating social trust to economic growth is relatively straightforward. High levels of social trust facilitate economic transactions between people who do not know each other. Trust reduces “transaction costs” involved in monitoring others and imposing sanctions for misbehavior It aids in economic development through increasing economic efficiency by facilitating transactions even in the absence of enforceable contracts. (Mutz 2005)

The relatively high level of social trust in the United States significantly promoted the expansion of e-commerce by making it acceptable to disclose credit card information to pay for goods ordered and yet to be delivered. As can also be gleaned from earlier data, the United States expects further economic growth through e-commerce. (Mutz 2005)

To illustrate the impact of social trust on e-commerce, Mutz (2005) conducted an experiment involving the manipulation of generalized levels of social trust. In the experiment, respondents in the “Positive Trust” condition read only parts of the results of a Reader’s Digest experiment – in which representatives “accidentally” dropped wallets with $50 worth of local currency in cities around the world – that showed examples of how trustworthy people can be. Meanwhile, respondents in the “Negative Trust” condition read only parts of the results of the same experiment that showed the negative aspects of human nature. Afterwards, the respondents were given five questions to measure their intent to purchase online during the coming year.

The results of the experiment showed a significant statistical difference in future intent to purchase online between respondents in the Positive Trust and Negative Trust conditions among those who had no previous online buying experience. Those in the Positive Trust condition were significantly more inclined to make an online purchase than those in the Negative Trust condition. Although the experiment had nothing to do with the trustworthiness of businesses engaged in e-commerce, the generalized level of trust or distrust that it produced significantly influenced the respondents’ willingness to assume the risk of online shopping.

Many observational studies have earlier found correlations between standard social trust measures and economic growth thus prompting governments and non-government organizations to spend millions of dollars in efforts to increase levels of social trust, although others opine that generalized social trust is a characteristic of culture and may only be changed very slowly over a long period of time. However, the latter opinion’s implication for developing economies is quite discouraging. (Mutz 2005)

The foregoing experiment presents a more hopeful view that social trust is malleable. It would seem that the degree of presence of social trust might be altered by what people see, hear and read. However, it is beyond doubt that sustaining trust over an extended period of time requires real trustworthiness. (Mutz 2005)

IV. Discussion of Issues Concerning Jurisdiction

Questions regarding which country’s laws should be applied arise almost inevitably whenever disputes occur between businesses and consumers located in different territorial jurisdictions. The issue may further be complicated by the fact that e-commerce transactions are coursed through servers and Internet service providers that may likewise be located in other jurisdictions. (Ong 2005)

As mentioned earlier, these issues are important not only to lawyers but to businesses and consumers as well. When there is no certainty over the possible outcomes of transactions, business relations are likely to be hindered and thus international trade through e-commerce may not reach its full potential. (Ong 2005)

An issue that is commonly raised in e-commerce transactions is that consumers are not adequately protected. Information about businesses and their products may not be widely available. Further, most consumers have no idea of how they can seek redress or which country’s courts have jurisdiction in case they encounter problems in their e-commerce transactions. Moreover, since e-commerce is still developing, courts are bound to have different views and give different interpretations on e-commerce disputes. (Ong 2005)

Thus, there is need for government intervention on behalf of consumers with regard to potential disputes that may arise in e-commerce transactions. Private agencies may also assume the role of government in this regard.

On the other hand, businesses exposed to the possibility of having to attend to suits in other jurisdictions argue that Internet advertisements are merely invitations to make offers. They claim that they have no intention of promoting their products in another jurisdiction but that any effect of that nature is merely a consequence of the global nature of the Internet. Moreover, they claim that merely posting advertisements on the Internet does not warrant the exercise of another country’s jurisdiction over them since they only rely on consumers to initiate transactions with them. In other words, businesses may assert that consumers may seek redress only if they did not initiate the e-commerce transaction. (Ong 2005)

In addition to concerns by consumers as well as businesses, there is the issue of whether and how a ruling handed down by a court of one country may be enforced in another country. Thus far, there is no internationally recognized jurisdiction hence the need for an international agreement to address the foregoing issues.

A. In the European Community

Due to the above-mentioned concerns raised by businesses, countries in the European community follow the Country of Origin rule (E-Commerce Directive) providing that online transactions shall be subject to the law of the member-state in which the business is established. For example, if a buyer based in Hong Kong purchases a product online from a seller based in Denmark any dispute that may arise from the transaction shall be subject to the laws of Denmark. (Ong 2005)

However, debate is still ongoing with respect to whether Rome II (Country of Destination) providing that online transactions shall be subject to the laws of the country where the buyer is located should be adopted. For illustration, under Rome II if a buyer from Australia purchases a product from a seller located in Germany any dispute that may arise from the transaction will be subject to the laws of Australia. (Ong 2005)

Rome II aims to strike a balance of interests of business and consumers since consumers claim that the Country of Origin rule does not foster their trust and confidence. On the other hand, application of Rome II would expose businesses to unforeseeable risks. Having to understand various laws and to take them all into consideration will unduly burden any business, whether large or small. There is also the danger that consumers may take advantage by forum shopping. (Ong 2005)

The European Commission is of the view that the application of Rome II will may give rise to the application of laws of other countries within the European community and thus contradict its proposed single market concept. However, while the country of origin rule facilitates e-commerce trade between member-states it creates barriers to cross-border e-commerce trade. Further, it may give rise to conflicting rulings in cross-border e-commerce disputes (Ong 2005)

On the other hand, the European Commission may be applying the Country of Origin rule not because it considers the same to be the best approach but because it perceives no other more practical remedy available to it. (Ong 2005)

B. In the United States

1. General Jurisdiction over E-Commerce Transactions

In the United States, state jurisdiction is generally based on geography or contacts with the person or business. Thus, a state has jurisdiction over its residents. Further, a state may also exercise jurisdiction over an out-of-state business that maintains an office or direct sales agents in the former based on the “minimum contacts” test. This would benefit individual plaintiffs who would logically prefer to sue in their home state since it is would be costly to travel all the way to the respondent’s home state to bring an action.

However, in the case of National Bella Hess, Inc. v. Dept. of Revenue of the State of Illinois, 386 U.S. 753 (1967), the court ruled that mail order business is outside of a state’s jurisdiction if the former has no other physical presence in the state. (Baumer and Poindexter 2002)

In many instance, courts in the United States have likewise limited the application of the “minimum contacts” test in e-commerce cases because of the impracticality of making all businesses engaged in e-commerce subject to the jurisdiction of all fifty states. (Miller and Jentz 2002)

Hence, in the case of Lynda Butler v. Beer Across America (United States District Court, N.D., Alabama, 83 F. Supp. 2d 1261 (Feb. 10, 2000)) the court held that there must be purposefulness on the part of the respondent in order to satisfy due process. Thus: “it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protection of its laws.”

In the said case, the plaintiff is the mother of a minor who allegedly purchased beer from the respondent Beer Across America through a website that accepted the minor’s credit card. The plaintiff filed the suit in the Circuit Court of Shelby County, Alabama. The defendant, an out-of-state corporation, moved the case to the Federal District Court on the ground of diversity of citizenship and subsequently moved for the dismissal of the case on the ground of the court’s lack of personal jurisdiction over it.

In ruling that there was no sufficient basis to justify the exercise of general jurisdiction by Alabama tribunals over the respondent, the court noted that the respondent is not registered to do business in Alabama, that it does not own any property, maintain office, nor have agents within the state, and that it does not place advertisements in Alabama media outlets nor engage in any other significant promotions targeting the state.

However, in the case of Zippo Manufacturing Co. v. Zippo Dot Com, Inc. (United States District Court, Western District of Pennsylvania, 1997, 952 F. Supp. 1119), a Pennsylvania court held that it had jurisdiction over the respondent Zippo Dot Com which operated a web page and an Internet subscription service from its base in California. Zippo Manufacturing Company based in Pennsylvania filed a suit in a federal district court against Zippo Dot Com alleging trademark infringement because of the respondent’s use of the word “Zippo”. The court based its ruling that it had personal jurisdiction over Zippo Dot Com on the fact that the latter had conducted substantial business -- with approximately 3,000 individuals and seven Internet access providers -- exclusively over the Internet in Pennsylvania.

The court found the justification for its ruling in the case of Hanson v. Denckla (357 U.S. 235, 78 S. Ct. 1228, 2 L. Ed. 2d 1283 (1958)) where the Supreme Court noted that “[a]s technological progress has increased the flow of commerce between State, the need for jurisdiction has undergone a similar increase” and in the much later case of Burger King Corp. v. Rudzewicz (471 U.S. 462, 105 S. Ct. 2174, 85 L. Ed. 2d 528 (1985)) where the Court observed that jurisdiction cannot be avoided “merely because the defendant did not physically enter the forum state. xxx [I]t is an inescapable fact of modern commercial life that a substantial amount of commercial business is transacted solely by mail and wire communications across state lines.”

Thus, in the case involving Zippo Dot Com, the Pennsylvania court explained the use of the “sliding scale” measure in determining whether a court may exercise jurisdiction on the basis of a website’s contacts in a locality, viz.:

“[T]he likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet. xxx At one end of the spectrum are situations where a defendant clearly does business over the Internet. If the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmissions of computer files over the Internet, personal jurisdiction is proper. At the opposite end are situations where a defendant has simply posted information on an Internet Web site which is accessible to users in foreign jurisdictions. A passive Web site that does little more than make information available to those who are interested in it is not ground for the exercise of personal jurisdiction. The middle ground is occupied by interactive Web sites where a user can exchange information with the host computer. In these cases, the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information that occurs on the Web site.”

2. Jurisdiction in E-Commerce Contract Law

Thus, considering possible unwieldy application of the “minimum contacts” test there have been extensive proposals in the United States for a uniform e-commerce contract law. The Uniform Commercial Code (UCC) dealing mainly with the sale of goods in general is being rewritten to treat electronic records as the equivalent of paper records and to recognize the formation of online contracts “even if no individual is aware of its receipt [of an electronic message].” Further, the Computer Information Transactions Act (UCITA) has been proposed to deal comprehensively with computer software, multimedia interactive products, computer data and databases, Internet and online information. On the other hand, the Uniform Electronic Transaction Act (UETA) is a procedural statute that applies to all e-commerce transactions giving electronic records the same evidentiary weight as written documents. (Baumer and Poindexter 2002)

In any case, parties to an e-contract are free with few limitations to stipulate on terms to govern their relation. Thus, in the case of In Re RealNetworks, Inc. (Privacy Litigation) (United States District Court, N.D. Illinois, Eastern Division, 2000 WL 631341 (N.D. III.) (2000), the court held that the End User License Agreement (EULA) – which appear on the user’s screen and must be accepted by the user before the latter can install RealNetworks’ software package – effectively barred a suit because of its arbitration clause. The said arbitration clause reads:

“This License Agreement shall be governed by the laws of the State of Washington, without regard to conflicts of laws provisions, and you hereby consent to the exclusive jurisdiction of the state and federal courts sitting in the State of Washington. Any and all unresolved disputes arising under this License Agreement shall be submitted to arbitration in the State of Washington.”

In the said case, plaintiffs on behalf of a class of Illinois plaintiffs and individually brought suit against RealNetworks alleging trespass to property and privacy claiming that RealNetworks software products secretly allowed the latter to access and intercept users’ electronic communications and stored information without their knowledge or consent.

In other cases, a contractual stipulation may provide for a forum selection clause. Thus, in the case of Steven J. Caspi v. The Microsoft Network (“MSN”), L.L.C. (Superior Court of New Jersey, Appellate Division, 323 N.J. Super. 118, 732 A. 2d 528 (1999)), the court held that the forum selection clause in their contract limited plaintiffs from bringing suit in New Jersey. The said clause requires that lawsuits against MSN to be litigated in the State of Washington, viz.:

“This agreement is governed by the laws of the State of Washington, USA, and you consent to the exclusive jurisdiction and venue of courts in King County, Washington in all disputes arising out of or relating to your use of MSN or your MSN membership.”

In the said case, the plaintiffs alleged fraud and breach of contract on the part of MSN claiming that they were victimized by a “negative option billing” clause in the contract whereby they were charged with paying for software unless they took action to say that they did not want the software.

Further, a customer who purchases online is frequently confronted with terms of the “offer” relating to warranties, returns and reproduction or duplication and other “fine print” only upon his receipt of the goods. These terms are often referred to as “clickwrap” agreements. “Shrinkwrap” agreements, on the other hand, refer to terms of a contract that a customer can only be informed of after paying for the item and opening the wrapping around the CDs that contain the software program. A “boxwrap” or “boxtop” agreement is similar since the customer can only discover the terms of the contract after opening the box and reading the terms of the contract accompanying the items purchased.

In the case of Rich and Enza Hill v. Gateway 2000, Inc. (U.S. Court of Appeals for the Seventh Circuit, 105 F.3d 1147 (1997)), the court upheld the validity of the arbitration clause included in the additional terms in the box containing the computer purchased by plaintiffs from Gateway 2000.

The arbitration clause required all disputes regarding performance of the Gateway 2000 computer to be subject to arbitration and that the plaintiffs waive their right to bring a case in court. The plaintiffs made the purchase based on a telephone conversation. They were given thirty days to decide whether to bind themselves to the terms of the contract or return the computer. The plaintiffs kept the computer for more than thirty days before bringing suit in a federal court for racketeering against Gateway 2000. They argued that the arbitration clause was not printed prominently and that they should not be bound by terms that they did not know about at the time that they entered into the contract.

The Circuit Court of Appeals which held that the arbitration clause is valid and enforceable reversing the ruling by the District Court allowing the plaintiffs to proceed with the suit in the federal courts.

The case of Step-Saver Data Systems, Inc. v. Wyse Technology (U.S. Court of Appeals, 3rd Circuit, 939 F.2d 91 (1991)) was decided differently under the current Article 2 of the UCC providing that additional terms which materially alter a contract will not be considered as part of the said contract. (Baumer and Poindexter 2002)

In the said case, the parties’ earlier negotiations were materially altered by the boxtop license printed on the packaging of the software. Step-Saver would typically order by telephone twenty copies of the software program at a time and thereafter send a purchase order detailing the price, quantity and shipping and payment terms. In turn, the respondent would ship the order with the invoice. Neither party mentioned about the respondent’s warranty disclaimers on the product printed on the package of each copy (the boxtop license) in which the respondent disclaimed all express and implied warranties except for a warranty that the disks are free from defects. At the time of the filing of the claim, had purchased resold and resold one hundred forty-two copies of the respondent’s software program. The court held that the respondent’s warranty disclaimers materially altered the parties’ agreement and thus did not become part of their contract.

The proposed Section 2-207 of the UCC provides that additional terms in the acceptance will be part of the contract should they materially alter the contract. This is due to the fact that incorporation of additional terms with acceptance is an established commercial practice. (Baumer and Poindexter 2002)

3. Online Dispute Resolution

The Internet provides online dispute settlement such as newsgroups, negotiation services, mediation providers and arbitration programs that respond the need for e-commerce dispute resolution mechanisms that traditional courts have not yet been fully equipped to address. These alternatives seem to be more practical for the resolution of disputes involving small- to medium-sized liability claims than a traditional court suit.

Generally, online dispute settlement mechanisms base their resolutions on general legal principles independent of the laws of any particular jurisdiction. Fees, if any, are nominal or less than two to four percent of the amount of the dispute. Decisions are non-binding unless the parties agree otherwise. Thus, parties can still go to court. However, according to iCourthouse, a cyberspace forum, no one has brought any of its decisions to a regular court. (Miller and Jentz 2002)

C. In the Philippines

1. The Electronic Commerce Act

As mentioned in the Introduction, the Philippines does not have any provision yet on jurisdiction in e-commerce transactions in its E-Commerce Act or its Implementing Rules and Regulations. Thus, businesses engaged in e-commerce have been advised to be ready to comply with the laws of – and to answer potential suits in – any jurisdiction in which they may potentially conclude e-commerce transactions.

However, the foregoing policy may give rise to a confusing and uneven application of conflicting jurisdictional rules of other countries. To illustrate, although Philippine residents and businesses engaged in e-commerce transactions may generally be sued in the Philippines and likewise in relation to the Country of Origin rule adopted by the European community, they may also be subject to the jurisdiction of foreign courts applying the “minimum contacts” test, such as courts in the United States, depending on the amount of business that they conduct over the Internet.

On the other hand, however, Philippine residents who are buyers or consumers in global e-commerce transactions may be required to bring suit for their claims in foreign courts. To date, there had been no instance wherein the Philippine Supreme Court had occasion to apply the “minimum contacts” test to an e-commerce transaction to grant jurisdiction to courts in the place or residence of the plaintiff or claimant.

The Supreme Court had occasion to apply the “minimum contacts” test in the case of Hongkong Shanghai Banking Corporation v. Jack Robert Sherman, Deodato Reloj and the Intermediate Appellate Court (G.R. No. 72494, August 11, 1989), involving collection of a sum of money loaned by the plaintiff Bank to a company incorporated in Singapore. The respondents are directors of the company and guarantors of the loan. Although the contract contained a forum selection clause stating that courts in Singapore shall have jurisdiction over all disputes arising under the guarantee, the Court held that the same does not bar the exercise of jurisdiction by Philippine courts considering that the respondents are residents of the Philippines.

The Department of Trade and Industry (DTI) has authority to lay down policies for the promotion of e-commerce in coordination with the Department of Budget and Management and the Bangko Sentral ng Pilipinas. (Disini 2000) Section 3 of Republic Act No. 8972 provides, viz.:

“Section 3. Authority of the Department of Trade and Industry and Participating Entities. The Department of Trade and Industry (DTI) shall direct and supervise the promotion and development of electronic commerce in the country with relevant government agencies, without prejudice to the provisions of Republic Act No. 7653 (Charter of the Bangko Sentral ng Pilipinas) and Republic Act No. 8791 (General Banking Act).”

The Department of Trade and Industry (DTI) has been tasked to ‘review, study and assess all legal, technical and commercial issues arising in the field of electronic commerce” and to “convene the appropriate government agencies in order to discuss, deliberate on and resolve the same and in the proper cases, promulgate additional rules and regulations to implement the Act.”

Further, the Commission on Information and Communications Technology (CICT) established by Executive Order Nos. 269 (2004) was created as a national body supported by the private sector “to work closely with government to encourage ICT related business and investment, xxx meaningful legal and regulatory reform, xxx consistent with Philippine goals to compete in the global ICT market” and to promote wider use of the Internet, cyberspace infrastructures and other exchanges of universal application in consultation with the private sector and other entities such as the educational and training sectors.

One helpful provision under Republic Act No. 8972 is its Section 43 (a) (iii) which provides that the DTI may establish a voluntary listing system for all businesses engaged in e-commerce, viz.:

“Section 43. xxx (a) The Department of Trade and Industry shall:

(iii) Establish a voluntary listing system for all businesses or entities involved in electronic commerce including, but not limited to, value-added services (VAS) providers as this term is understood in Republic Act No. 7925, banks, financial institutions, manufacturing companies, retailers, wholesalers, and on-line exchanges. The list of electronic commerce entities shall be maintained by the DTI and made available electronically to all interested parties.”

The list of businesses engaged in e-commerce may assist in informing the public which entities are registered with or accredited by the DTI. Likewise, the public may enlist the help of the DTI in potential e-commerce disputes thus providing more security in their e-commerce transactions.

2. Jurisdiction under the Revised Rules of Court

Jurisdiction has been defined as “the inherent power of a court to hear or determine legal controversies and to order enforcement of such judgments or orders as may be rendered thereon” (Laureta 1994 citing Nash v. Harman, 139 S.E. 273, 274, 148 Va. 610).

Jurisdiction has four elements, namely: jurisdiction over the subject matter, jurisdiction over the res or property, jurisdiction over the issues, and jurisdiction over the parties.

Only law gives jurisdiction over the subject matter in a judicial proceeding. Parties cannot waive any objection based on the lack of such jurisdiction. The law on jurisdiction in the Philippines is the Judiciary Act of 1948, as amended, and the Judiciary Reorganization Act of 1981. (Laureta 1994 citing U.S. v. De la Santa, 9 Phil. 22, 26)

Jurisdiction over the res or property is the power of the court over the thing before it, regardless of the parties. The court may adjudicate where the res is within its territorial jurisdiction and determine obligations of parties including non-residents. Conversely, the court cannot acquire jurisdiction in an action in rem where the property lies outside of its territorial limits. (Laureta 1994 citing 21 C.J.S. 42 and In re Antigo Screen Door Co., Wis. 13 F. 249, 59 CCA 248)

Jurisdiction over the issues is the authority of the court to hear and determine the legal questions raised by the parties (Laureta 1994).

Jurisdiction over the parties is the power of the court over the parties to a proceeding. The court will acquire jurisdiction over a plaintiff upon his filing of a complaint for the enforcement of protection of his right or for the prevention or redress of a wrong. On the other hand, the court will acquire jurisdiction over a respondent when the latter voluntarily appears before the court or upon valid service of summons upon him. The court must acquire jurisdiction over the person of the respondent who must be within the State in order have authority to adjudicate.

(See Habana v. Vamenta, et al., L-27091, June 30, 1970; Soriano v. Palacio, L-17469, November 28, 1964; Algrabe v. CA, L-24458-64, July 31, 1969; Rodriguez. Et al. v. Alikpala, et al., L-38314, June 25, 1974; and Dumlao v. Dumlao v. Quality Plastic Products, Inc., L-27956, April 30, 1976 cf. Regalado 1997)

There are three modes of serving summons under the Revised Rules of Court, namely: personal service, substituted service and service by publication. Personal service refers to handing the summons and a copy of the claim to the respondent or defendant in person. Substituted service refers to leaving the summons and a copy of the claim at the respondent’s resident with some person of suitable age and discretion or at the respondent’s office or regular place of business with some competent person in charge thereof, when the respondent cannot be served within a reasonable time by personal service. Service by publication refers to publication in a newspaper of general circulation and on such places and for such time as the court may order, when the respondent has been designated as an unknown owner or when his address is unknown or cannot be ascertained by diligent inquiry. (Laureta 1994)

Extra-territorial service of summons may only proper when the action affects the personal status of the plaintiff or when the action relates to property within the Philippines attached by the court or from which the plaintiff requests the defendant’s interest to be excluded. (Laureta 1994)

It is evident from the foregoing that it is not easy for Philippine courts to acquire jurisdiction over respondents residing in another country. Further, even assuming that a Philippine court can acquire jurisdiction over the respondents, if it does not have jurisdiction over property to be attached such as when the respondent’s property is located outside of its territorial boundaries, enforcement of its decision in a foreign forum may entail a complicated and costly procedure.

V. Conclusion

Considering that the presence of a strong rule of law is imperative for the development of a global e-market, the lack of uniformity in the application of rules concerning jurisdiction by different countries effectively hinders global e-commerce from reaching its full potential. Further, with few exceptions, the degree of social trust associated with any country appears to be directly correlated to the presence of a strong rule of law.

The issues regarding jurisdiction in different countries concern national or regional policies on the degree of protection in to be given to businesses and consumers. While the European Commission aims to promote e-commerce within the European community by providing a uniform e-commerce trade environment through the adoption of the relatively straightforward Country of Origin rule, the United States seek to balance protection of its businesses engaged in e-commerce and its consumers by adopting neither the Country of Origin or Country of Destination rules but a “sliding scale” standard in determining whether the exercise of jurisdiction is proper in each case applying the “minimum contacts” test. Parties are however relatively free to stipulate on the terms that will govern their e-commerce relation.

On the other hand, the Philippines has yet to develop a clear policy regarding jurisdiction in e-commerce transactions.

VI. Recommendations

The ideal situation is for the international community to come up with a uniform standard to govern all e-commerce transactions. Otherwise, the Philippines may enter into bilateral e-commerce trade agreements with foreign countries to provide a certain of measure of protection for its businesses.

The same treaty can also protect consumers in e-commerce trade. For example, if Philippine courts could by treaty enforce the “minimum contacts” test and acquire jurisdiction over non-residents and their property in relation to e-commerce disputes, then consumers and other buyers may have the alternative to pursue claims arising from inter-country e-commerce transactions in Philippine courts.

However, even in the absence of a treaty, the DTI can assist businesses and consumers by hosting a list of accredited e-commerce entities. Further, the DTI can facilitate claims by parties to e-commerce transactions against entities submitting to its jurisdiction either through the court system or by other extra-judicial modes of dispute settlement. Moreover, the list may be expanded in coordination in other countries to include other business entities located within the region.

Alternatively, the proposed list of accredited e-commerce businesses may be hosted by international private agencies that can undertake inspection, verification and certification of e-commerce entities for a fee. Likewise, international private agencies may provide online e-commerce dispute settlement services consistent with basic rights of parties generally accepted principles of law as well as rules agreed upon by their member-entities. As earlier noted, online dispute resolution is a practical option with respect to small to medium-sized e-commerce liability claims.

Hopefully, these steps will eventually lead to the development of a global e-market where businesses and consumers will have greater confidence in trading online. Without a doubt, an efficient global e-market can support the growth of international trade and commerce.

For the meantime, businesses may protect themselves by including a forum selection or an arbitration clause in their e-commerce contracts. For their part, consumers should always take note of the “fine print” before entering into e-commerce contracts and transactions for their own protection.

VII. References:

Books:

Baumer, D. and Poindexter, J.C. (2002). Cyberlaw and E-Commerce. New York: McGraw: 2002.

Disini, Jr. J.M. (2000). The Electronic Commerce Act and Its Implementing Rules and Regulations. Philippine Exporters Confederation, Inc. Manila.

Laureta, W.G. (1994). Remedial Law Reviewer. Manila: Rex.

Miller, R.L. and Jentz, G.A. (2002). Finance and E-Commerce: The Online Legal Environment. West Legal Studies in Business 2002.

Regalado, F. (1997). Remedial Law Compedium. Manila: National.

Articles:

Chuan-Fong, S., Dedrick, J., Kraemer, K.L. (2005). Rule of Law and the International Diffusion of E-Commerce. Association for Computing Machinery. Communications of the ACM. New York: Nov 2005. Vol. 48, Issue 11, pages 57-62.

Mutz, D.C. (2005). Social Trust and E-Commerce: Experimental Evidence for the Effects of Social Trust on Individuals' Economic Behavior. Public Opinion Quarterly. Chicago: Fall 2005. Vol. 69, Issue 3, pages 393-416.

Ong, C.E. (2005). Jurisdiction in B2C E-Commerce Redress in the European Community. Journal of Electronic Commerce in Organizations. Hershey: October-December 2005. Vol. 3, Issue 4, pages 75-87.

Cases:

Algrabe v. CA, L-24458-64, July 31, 1969

Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S. Ct. 2174, 85 L. Ed. 2d 528 (1985)

Dumlao v. Dumlao v. Quality Plastic Products, Inc., L-27956, April 30, 1976

Habana v. Vamenta, et al., L-27091, June 30, 1970

Hanson v. Denckla, 357 U.S. 235, 78 S. Ct. 1228, 2 L. Ed. 2d 1283 (1958)

Hongkong Shanghai Banking Corporation v. Jack Robert Sherman, Deodato Reloj and the Intermediate Appellate Court, G.R. No. 72494, August 11, 1989

In re Antigo Screen Door Co., Wis. 13 F. 249, 59 CCA 248

In Re RealNetworks, Inc. (Privacy Litigation), United States District Court, N.D. Illinois, Eastern Division, 2000 WL 631341 N.D. III. (2000)

Lynda Butler v. Beer Across America, United States District Court, N.D., Alabama, 83 F. Supp. 2d 1261, Feb. 10, 2000

National Bella Hess, Inc. v. Dept. of Revenue of the State of Illinois, 386 U.S. 753 (1967)

Nash v. Harman, 139 S.E. 273, 274, 148 Va. 610

Rich and Enza Hill v. Gateway 2000, Inc., U.S. Court of Appeals for the Seventh Circuit, 105 F.3d 1147 (1997)

Rodriguez. et al. v. Alikpala, et al., L-38314, June 25, 1974

Soriano v. Palacio, L-17469, November 28, 1964

Step-Saver Data Systems, Inc. v. Wyse Technology, U.S. Court of Appeals, 3rd Circuit, 939 F.2d 91 (1991)

Steven J. Caspi v. The Microsoft Network, L.L.C., Superior Court of New Jersey, Appellate Division, 323 N.J. Super. 118, 732 A. 2d 528 (1999)

U.S. v. De la Santa, 9 Phil. 22, 26

Zippo Manufacturing Co. v. Zippo Dot Com, Inc., United States District Court, Western District of Pennsylvania, 1997, 952 F. Supp. 1119