Legal risks lurking in cyberspace

(R CHEEKS JR.)

IN today's brave new digital era, the power of the internet as a driver of business growth is unparalleled. Recognising this, the best led regional enterprises continue to augment their models of market engagement to include an interactive presence in cyberspace.

For Bahamian businesses seeking to leverage the marketing and transactional power of the Internet through e-commerce initiatives, important (and in many cases unresolved) questions of legal compliance arise. For the uninformed business the voyage into cyberspace is likely to be very risky. One important risk is that of extraterritorial liability.

A business that develops an interactive online presence may, in the absence of proper guidance, unwittingly expose itself to liability for breach of the laws of another jurisdiction from which its portal is accessible. These risks are amplified where the online activity is of a kind typically subject to strict regulation around the world. Businesses that have faced the greatest difficulty in this regard are those involved with online betting and gaming and the provision of usually regulated professional services. Questions can frequently arise surrounding such issues as how or where customers’ personal information is to be stored or processed, or what is an adequate level of due diligence to perform over a customer that one is meeting in the expanse of cyberspace with little to no personal contact.

Additionally, publishers such as newspapers and magazines who distribute information via their websites also face significant extra territorial legal exposure, particularly in the context of defamation, IP infringement and contempt claims arising as a result of the unlimited accessibility of their publication around the world.

The risk of extraterritorial liability, however, is not confined to these domains. The US-based Internet giant Yahoo! learned this lesson in very expensive fashion. This article will outline the circumstances of Yahoo's experience as an illustration of the compliance risks that some Bahamian businesses may face once they have blasted off into cyberspace.

The case of LICRA v Yahoo is now famous in technology circles. In May of 2000 the French Supreme Court ordered Yahoo! to implement technical measures to prevent customers based in France from buying Nazi memorabilia which were being sold in online auctions conducted on Yahoo's US-based website. The website came to the attention of the French authorities who sued Yahoo claiming that its website violated French law which prohibits the exhibition of Nazi related material.

Naturally, Yahoo's lawyers resisted the suit asserting that as a US-based outfit operating from the US, the material appearing on Yahoo's website was perfectly legal in its own jurisdiction and, indeed, protected by the US First Amendment. At the heart of this matter was the question of legal jurisdiction in cyberspace, a question that continues to perplex technology law practitioners worldwide. Yahoo submitted that it could not be sued in France under French law, as the French Courts had no jurisdiction in the matter. The French judge held quite a different opinion. The French Courts held that it was competent to rule on the matter as the visualisation in France of the offending objects in question meant that Yahoo had breached French law on French territory. To protect itself from the order of the French court, Yahoo applied to the US District Court of California asking for a declaration that the Order was unenforceable in the US. The US court, after considering the French judgment held that “the First Amendment precludes enforcement within the United States of a French order intended to regulate the content of its speech over the Internet.” It also condemned the fact that “by imposing restrictions on the US-based Yahoo.com, the French court tried to regulate the activities of a US corporation within the US on the basis that such activities can be accessed by Internet users in France.”

This case nicely illustrates how the borderless nature of the Internet presents an unprecedented challenge to the concept of sovereign rights and legal jurisdiction in the context of cyberspace. These matters continue to raise very interesting questions of international law and policy, the answers to many of which remain unclear. What is abundantly clear however is that businesses seeking to develop an interactive online presence should ensure that they are properly advised in relation to the very specific and often complicated risks involved. Bahamian businesses operating online must ensure that their cyberspace activity complies with Bahamian domestic law. In addition, a properly advised business will be well aware of the extraterritorial risks lurking in cyberspace and will deploy legal and practical measures to mitigate such risks.

This post is for your information only and is not intended to constitute a legal opinion.  If you require specific advice you should contact a Bahamian e-commerce attorney.  You can contact a Bahamian e-commerce attorney by clicking here.