E-CommerceALERT.com is part of the Bennett Gold LLP web site network.
LINK TO: Bennett Gold LLP, Chartered Professional Accountants, home page.
LINK TO: E-CommerceALERT.com Home Page.
CLICK to GO BACK to Main Page.

Research and retrieval of news articles by:
Bennett Gold LLP, Chartered Professional Accountants

Effective December 31 2012, articles are no longer being updated on this web site.
The site is now maintained as an historical archive, covering notable e-commerce news articles from the period 1999 to 2012.


Source: Globe and Mail

Posted on August 9, 2001

      As business gravitated to the Internet in the late 1990s, concern over the legal risks of e-commerce quickly moved to the fore. The unique challenge presented by the Internet is that compliance with local laws is rarely sufficient to assure a business that it has limited its exposure to legal risk.

      Since Web sites are typically accessible worldwide, the prospect that a site owner might be hauled into a courtroom in a far-off jurisdiction is much more than merely academic -- in an on-line environment that provides instant global access, it is a very real possibility.

      Courts took note of these jurisdictional concerns and quickly developed a test for determining when it is appropriate to assert jurisdiction over a Web site. Frequently referred to as the "passive-versus-active test," this approach has been adopted in hundreds of cases in both Canada and the United States.

      The test places on-line activity along a spectrum. At one end of the spectrum are "passive" Web sites that are largely informational in nature. These sites feature minimal interactivity by functioning much like an electronic brochure. Courts have taken a hands-off approach to such sites, recognizing that site owners cannot reasonably foresee facing a legal action in a far-off jurisdiction based simply on the availability of information.

      At the other end of the spectrum are those sites that are fully e-commerce enabled. These interactive sites are the on-line equivalents of real-world stores, and are characterized as "active" sites. Courts have repeatedly asserted their authority over such sites, arguing that site owners are aware of the risk of facing legal actions in multiple jurisdictions since they are doing business globally over the Internet.

      Despite its widespread use, cracks have begun to appear in the passive-versus-active test. Close examination of recent case law indicates that courts have quietly started shying away from the approach, moving toward a broader, effects-based analysis to determine when assertion of jurisdiction is warranted.

      Rather than slotting Web sites along the passive-versus-active spectrum, courts are instead focusing their attention on the Web site's actual effects within the jurisdiction. Where the site has a significant local impact, courts will assert jurisdiction, regardless of whether the site might be considered passive or active.

      For example, with courts characterizing chat-room postings as passive, many might be inclined to dismiss cases involving allegedly defamatory or harassing speech on jurisdictional grounds. Such speech may often be targeted toward a particular individual or entity located in a jurisdiction different from that of the poster or the chat site itself. An effects-based approach, unlike the passive-versus-active test, ensures that defamed parties get their day in local court.

      There are several reasons for the change. First, the current test simply doesn't work particularly well in every instance. While an active Web site may want to sell into every jurisdiction, the foreseeability of a legal action is confined primarily to those places where actual sales occur. The passive-versus-active test does not distinguish between actual and potential sales, however, but rather provides that the mere existence of an active site is sufficient to assert jurisdiction.

      The test also runs contrary to public policy that seeks to encourage the use of the Internet for commercial purposes. The passive-versus-active test may actually inhibit e-commerce development, since prospective Web site owners who are concerned about their exposure to legal liability will rationally shy away from developing active Web sites.

      The test also fails to deliver the legal certainty that businesses and their lawyers crave. The majority of Web sites are neither entirely passive nor completely active. Accordingly, they fall into a "middle zone," which requires courts to gauge all relevant evidence and determine whether the site is "more passive" or "more active." With many sites falling into this middle zone, legal advisors are frequently unable to provide a firm opinion on how any given court might judge the interactivity of the Web site.

      Finally, the standards for what constitutes an active or passive Web site are constantly shifting. When the test was developed in 1997, an active Web site might have featured little more than an e-mail link and some basic correspondence functionality. Today, sites with that level of interactivity would likely be viewed as passive, since the entire spectrum of passive versus active has shifted upward together with improved technology. In fact, it can be credibly argued that sites must constantly re-evaluate their position on the passive-versus-active spectrum as Web technology changes.

      As case law mounts, it is becoming clear that the passive-versus-active test has not aged well. The courts are beginning to recognize the need for change. It now falls to the cyberlaw community to develop a new test that creates both jurisdictional certainty and remains relevant in an ever-changing technological environment.

- By Michael Geist / www.lawbytes.com

CLICK to GO BACK to Main Page.

E-Commerce Alerts are issued by Bennett Gold LLP, Chartered Professional Accountants as situations develop. Bookmark this site and check back often. Our e-mail address is: info@BennettGold.ca

In accordance with United States Code, Title 17, Section 107 and Article 10 of The Berne Convention on Literary and Artistic Works, the news clippings on this web site are made available without profit for research and educational purposes.

Final Entries

LINK TO: Bennett Gold, Chartered Professional Accountants: A Licensed Provider of WebTrust Services.

WebTrust Is Your
Best Defense
Privacy Breaches.

Get WebTrust
Working For
Your Site.