In late September 2011, the European Commission is expected to announce changes to the e-commerce regulatory environment in Europe. This is just the start of a number of regulatory changes expected to be made over the next twelve months in respect of data protection, cloud computing and data breach notifications.

A change in the regulatory e-commerce framework has been lobbied for as part of the Digital Single Market project, a project of the European Policy Centre and its project partners, including Ericsson, Intel, Microsoft, Nokia and Vodafone, seeking to bring about greater economic, social and environmental benefits for Europe. There has long been concern within Europe that the divergence of national laws within the fields of e-commerce, data protection and intellectual property has presented a major barrier to the growth of cross-border e-commerce.

In Europe, the on-line marketplace has been hampered by small and fragmented national markets. On the other hand, the United States has created an environment in which technological giants such as Google can thrive. As the markets embrace innovative technological advancements that present us with truly global opportunities, such as those witnessed by the pioneers in cloud computing, it is important that the European regulatory environment is sufficiently flexible and permissive to allow the European market to flourish.

The existing regulatory environment

The E-Commerce Directive (Directive 2000/31/EC) was adopted in 2000 and was aimed at harmonising the regulatory framework for e-commerce in the Internal Market. It has now been nearly a decade since Member States implemented the E-Commerce Directive and the regulatory regime is once again facing change. This is largely driven by the fact that the growth of cross-border e-commerce has been remarkably unsuccessful when appraised against the underlying aims of the E-Commerce Directive. As we progress towards a Digital Single Market and Europe 2020, a successful on-line marketplace for Europe is central to economic success. It will encourage investment and innovation and help to create new jobs .

In 2010, the European Commission launched a public consultation on the future of electronic commerce in the Internal Market and on the lessons learned from the implementation of the E-Commerce Directive. This consultation closed in November 2010 and over 400 responses were received. The European Commission will be publishing its findings imminently. It is therefore important for businesses to consider the key issues faced by the e-commerce community and to prepare for change.

Background to the E-Commerce Directive

The purpose of the E-Commerce Directive was to remove the barriers associated with providing e-commerce services in the Internal Market and to give legal certainty to both the providers and the users of the services.

The E-Commerce Directive broadly covered six key areas of e-commerce:

(1) The country of origin principle: A cornerstone of legal certainty is that a service provider is able to understand the regulatory framework under which it is required to operate. The E-Commerce Directive sought to achieve this by stating that an e-commerce provider, when providing on-line services, shall be governed by the laws of the Member State in which it is established. As a consequence, no other Member State could impose additional regulatory requirements on that e-commerce provider regardless of whether e-commerce services were directed to users based in that other Member State. This has been one of the key ways in which the E-Commerce Directive aims to ensure uniformity, and is fundamentally different from the Data Protection Directive which ultimately makes e-commerce providers offering services across the Member States subject to multiple data protection laws.

(2) Establishment and information requirements: In order to facilitate growth in e-commerce services, the E-Commerce Directive prohibits any form of prior authorisation by a Member State before an e-commerce service can be launched. It also sets out mandatory information that all e-commerce providers must supply when providing their services (e.g. the name and geographic address of the service provider). The purpose of this was to boost consumer confidence, ensure transparency and strengthen legal certainty.

(3) Commercial communications: The E-Commerce Directive lays the framework for e-commerce providers to identify commercial communications and unsolicited commercial communications. The latter are dealt with further as part of the E-Privacy Directive (Directive 2002/58/EC), as recently amended with new requirements on the use of cookies.

(4) On-line contracting: A large part of the E-Commerce Directive deals with on-line contracting, including the information to be provided by the e-commerce provider and the requirements imposed upon the placing of an order. These provisions should also be read alongside the Distance Selling Directive (Directive 97/7/EC).

(5) Intermediary liability: Perhaps the most important aspect of the E-Commerce Directive, and consequently the most controversial, is the regulatory regime dealing with intermediary liability. This regime has been of fundamental importance to the on-line community and is at the heart of the future of any investment in on-line services. The purpose of this regime is to ensure that intermediaries of on-line content are exempt from liability in circumstances where they are not responsible for the relevant content themselves. The E-Commerce Directive distinguishes between acting as a “mere conduit”, “caching” and “hosting”. In respect of acting as a “mere conduit”, the provider of services that simply transmit content over a communications network will not be liable for the content to the extent that they do not initiate or receive the transmission or do not modify the content of the transmission. In respect of “caching”, the provider of services that facilitate the automatic, intermediate and temporary storage of content for the sole purpose of making more efficient the content's onward transmission shall not be liable for the nature of the content provided that certain conditions are met. Finally, in respect of “hosting”, the provider of hosting services (e.g. ISPs) shall not be liable for the content hosted on their services provided that certain conditions are met (e.g. no knowledge of unlawful content and expeditious action to remove the content on becoming aware). This is likely to be a key area of concern for ISPs and content owners, particularly in light of recent European case law dealing with intermediary liability and concerns around actions required to be taken against infringers.

(6) Administrative cooperation: The final key aspect of the E-Commerce Directive is the requirement for Member States and the European Commission to co-operate with each other with regard to understanding the issues arising out of the implementation of the E-Commerce Directive in various Member States.

The Digital Single Market and the call for change

There is now a growing movement behind the Digital Single Market within Europe, which is larger in nature than just e-commerce. The aim of the Digital Single Market is to create a competitive European domestic market, similar to that enjoyed by the United States, where businesses will drive technological developments and encourage ongoing investment.

One aspect of the Digital Single Market is the promotion of a successful on-line Internal Market. This will create a competitive market throughout Europe for goods and services by increasing access to all markets. The aim is to create an on-line marketplace which consumers can trust.

The need for change within the e-commerce market was apparent from the outcome of the European Commission Retail Marketing Monitoring Report “Towards more efficient and fairer retail services in the internal market for 2020” and the European Commission Communication “A Digital Agenda for Europe”, both of which were published in 2010. These communications identified a number of issues with the cross-border e-commerce market, including insufficient development of e-commerce as a result of a series of obstacles, such as payment mechanisms and a poorly functioning system of redress. The view of the European Commission is that significant change is required in order to overcome these fragmented markets and the general lack of trust in the security of communication networks.

The Digital Single Market will seek to have a consistent EU approach towards the harmonisation of consumer rights. As a consequence, standards will be developed for e-payments, e-invoicing, e-signature, e-identity and e-contracts, and this will help liberalise the market place.

The purpose of the consultation

The purpose of the European Commission’s consultation on the E-Commerce Directive was to gather information on the experiences of providers and users in a number of areas, including contractual restrictions, intermediary liability and on-line disputes. The aim is to develop an action plan for making key changes to the E-Commerce Directive to ensure that a Digital Single Market is achieved.

The bigger picture

The E-Commerce Directive sits alongside a significant number of other Directives dealing with consumer protection, including the Data Protection Directive (Directive 95/46/EC), the E-Privacy Directive (Directive 2002/58), the Distance Selling Directive (Directive 97/7/EC) and the Unfair Contract Terms Directive (Directive 93/13/EEC). The European Commission is keen to review the E-Commerce Directive alongside these other Directives and initiatives to ensure greater clarity and harmonisation. The Data Protection Directive is also due for an overhaul in the short-term, and the relationship between data protection and e-commerce will be a key driver to ensuring success. However, it must be recognised that a policy change that only focuses on consumer protection is unlikely to result in the benefits that the Digital Single Market is looking for. What will be required is a broad-based initiative which addresses all the issues currently impacting growth and innovation.

The road ahead

Whilst the advocates of the Digital Single Market will welcome changes to the E-Commerce Directive, the lack of a truly global approach on e-commerce will still remain as an obstacle to an international single market. However, changes in the European framework will at least bring Europe a step closer to the functioning markets of the United States. As we prepare for the impending announcement from the European Commission, it is important that businesses understand and prepare to exploit the changes.