It is unusual these days to pick up a newspaper or magazine that does not have at least one article reporting on some form of contentious e-commerce activity. News of people registering, as a domain name, trademarks they do not have any claim to, or of the music industry complaining about consumers downloading free MP3 files, is common. How can the law deal with issues raised by this relatively new technology?

Domain names

The registration of domain names is not a creature of statute and so has no real legal standing. Initially, there was a flood of "cyber squatters" registering as domain names trademarks to which they had no ownership claim. These cyber squatters would then try to sell the domain name to the true trade mark owner for a handsome profit.
However, a number of trademark owners have taken the matter to Court, and it is now well established that cyber squatting is unlawful. The registration of a trade mark as a domain name by someone other than the trade mark owner is unlawful and will be the subject of an injunction by the Court ordering the domain name to be registered in favour of the true trade mark owner. In other words, trademark law, copyright law and the New Zealand Fair Trading Act 1986, should override any domain name registration.

MP3 files

MP3 files enable you to download from the Internet a song and replay it at near CD quality. Not surprisingly, the record industry is very concerned about this enormous threat to revenue. Copyright law says that no one is entitled to record or publicly play a song without the permission of the person who owns the copyright to that song. The owner is usually the record company that has purchased the rights to the song from the artist.
When you buy a tape or CD from the music store, you are given only a limited right to play that music - only for your personal use. Once again, the Internet is not immune from copyright law. Invariably, Web sites that offer free downloads of songs or music videos do not have the permission of the record companies or artists. They are breaching copyright by doing so, and any one who downloads those songs or music videos will also be breaching copyright law.

In April this year a US Court held that MP3.com violated copyright law by offering for downloading over the Internet an extensive library of songs without the permission of the owners of the copyright in those songs. While there are a number of differences between New Zealand and US law, there is no doubt that New Zealand courts would take a similar approach to the US.

What law applies

One of the more difficult issues that arises out of the Internet is which country's law applies to a transaction between parties operating from different countries. If there is no agreement between the parties as to which country's law applies, the issue will be determined by assessing "which country has the closest and most real connection to the transaction". Obviously, this provides little certainty to the parties. A good Web site should contain a statement of which law applies to any transaction conducted through it, and require the user's acknowledgement of that (and what ever other terms and conditions the Web site operator wishes to apply) before the user is able to enter the relevant part of the Web site.

Consumers purchasing from an overseas supplier may not be protected by the same consumer protection law that exists in New Zealand. Equally, businesses may find themselves subject to laws that they have not even heard of. In addition, many countries have laws that cannot be contracted out of (e.g. the Fair Trading Act 1986) and so a New Zealand firm doing business overseas through the Internet may be subject to another country's laws, notwithstanding that it has a statement in its terms and conditions that only New Zealand law shall apply.

Contracts

In general terms, the law says that a contract is formed when a person who has made an offer (or counter offer) is told that their offer has been accepted. One issue presented by electronic communications is: when does this occur ? - When the email containing the message of acceptance is actually read by the person who made the offer, when the message is received by that person's computer system, or at some other point? Another issue is, when the contract is breached, how do you prove who the other party was? A message from a particular computer has no legal standing, unless you can prove who actually sent it.

Unfortunately, technology is changing faster than the law is able to. While parts of our existing law are able to deal with some of the issues arising out of e-commerce (e.g. trademark law with domain names, and copyright law with MP3 files) other parts of the law are clearly deficient and are in dire need of statutory assistance. This is particularly so in the field of contract formation, negligent misstatement, and defamation. New Zealand has yet to enact an Electronic Transactions Act to deal with these issues. Until then, businesses that operate in any way in the electronic environment should ensure that written agreements are in place with the people they deal with, defining the rules to apply to their electronic communications.

If you have concerns with the legalities of your Web site, think someone is infringing on your trademark, or have any other legal queries please contact Fortune Manning who can assist with:

- Drafting appropriate terms and conditions to govern dealings in the electronic sphere;

- Advice on trademark and copyright law issues;

- Advice on how to minimise risks in operating in the electronic arena;

- Protection and enforcement of intellectual property rights.

This is a general summary only and should not be taken as a substitute for specific advice

Glen Heath is a partner at Fortune Manning.
Web site: Fortune Manning
Email: gjh@fmlaw.co.nz

February 2001