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Introduction

In 1995, I brought to light various policy issues that a variety of governmental and non-governmental interests were reviewing or becoming aware of—as pertained to electronic commerce, the Internet, and cyberspace.  I suggested that the hand of government and special interests would attempt to involve themselves in and effect some control over cyberspace.  I also stated that the drivers of all of this were control by politicians, corporations, and special interests, media attention, and monetary related.

 A year later, many of my predictions have come true, as government and special interests are now seeking control over the Internet and the international electronic marketplace in a big way.

 The intent of this writing is to expand upon issues that I deem key to electronic commerce, namely: 1) U.S. Federal Communication Commission (FCC) review of access fee exemptions for Enhanced Service Providers (ESPs), and universal service; 2) taxation as pertains to goods and services sold over the Internet, as well as on-line service providers; 3) intellectual property and copyright; 4) information warfare; and 5) cryptography.

 The ultimate “thread” will be to explore how the massive number of people now using the Internet, coupled with traditional special interests such as government bureaucrats, law enforcement, large corporations, civil libertarians, lawyers, are seeking to adapt conventional in-place rules and regulations to the unique global Internet architecture, and how it meshes with the consensual governance model that has built the Internet.  Just as the wild west and most every other technology was “tamed” over time, the jury is out on whether the Internet may be less governable in a conventional sense, or in five to ten years  it will be just another part of our daily lives with property rights, law enforcement, and cordoned off areas for commerce, expression, vices .

FCC

The U.S. Federal Communications Commission (FCC) is considering whether to include review of a provision enacted in the early 1980’s which exempted data service providers from paying per minute access charges, typically imposed on long distance telephone calls, in upcoming access fee reform   Local telephone companies want access fees imposed on Internet service providers (ISPs), claiming that heavy use is causing a degradation of voice service, and costly upgrades.

 The 1996 Telecommunications Act formed a joint federal-state board to review whether the long-standing universal service goal of supplying inexpensive telephone service to the general population should be redefined to include new technologies such as Internet access.

 The Clinton Administration supports Internet access for all schools, libraries and public places.  Questions have arisen as to who will pay for all of this, and whether ISPs can be mandated to supply access, in that they are not regulated common carriers.

 Taxation

Taxation issues are gaining prominence and will impact electronic commerce significantly.  In the U.S., states and localities are seeking to impose taxes on ISPs or the users of such services.  It seems reasonably clear that they may be able to do this in the case of local providers, but less clear when the provider is out of state.

 States are also wrestling with the question of how to tax goods and services sold on-line.  Constitutional nexus questions are under review, which limit the ability to impose tax collection/remittance on out of state sellers.

 States are again reviewing “creative” nexus by trying to say that licensing of intangible property such as software, or agreements between in-state telecom providers, ISPs, and sellers creates “agency” nexus. 

 Leading tax experts believe that state and national tax systems do not work well in a borderless electronic commerce environment, and suggest that new tax models will need to be developed at the international level.

 Intellectual Property

Producers of written content, software, audio recordings, video, and other items of value that may be digitized, are seeking protection in the digital age.

Content producers not only wish liability to be placed upon individual violators, but also On-Line and Internet service providers, and even telephone companies.

Congressional Legislation (H.R. 2441) is pending to address on-line copyright issues, however there is dispute over on-line service provider liability, distribution rights, and circumvention of technology.

 A World Intellectual Property Organization (WIPO) working group, of which the U.S. is a participant, is formulating three treaties that cover on-line service provider liability, protections for producers of sound recordings, and database protections.  The treaties will be introduced are intended to update the Berne Convention.

 Information Warfare

Information warfare (IW) is a significant electronic age business threat.

 Using the Internet, a competitor based thousands of miles away might “hack” into a company’s computer database and steal millions of dollars of trade secrets, or maliciously compromise the database.

An attacker might also undermine the reputation of a company by putting out inaccurate information on Internet usenet groups, mailing lists, or the World Wide Web.

 With the advent of easier to use “hacking tools,” coupled with the explosive proliferation of computers, stored databases and information, as well as network access, the number of security breaches will only increase, as unfortunately, a large percentage of companies are not adequately prepared to fend off information attacks.

 Cryptography

Current United States law allows the use of strong cryptographic product use domestically, but imposes significant limitations on exports.

 The Clinton Administration has been a proponent of a key escrow/key recovery policy, whereby through court order, law enforcement would be able to recover keys enabling access to encrypted items. 

 Governance

Much of the computer industry, user base, civil liberty interests, and members of Congress, have not favored this policy, as they believe it is unworkable, violates privacy rights, and is harming the U.S. software industry.

 Many factions of society are attempting to govern and impose their will on the Internet and international electronic market place.

 The Internet was a “creature” of the U.S. Government, in that they funded the initial research and Internet backbone.  The creators and users were comprised of a small elite homogenous male population of scientists, educators, researchers, engineers, military, and government types.  A somewhat U.S. centric Internet evolved due to:  foreign dependence on the U.S. Internet backbone for backhauling, data transit, and traffic termination; the bulk of Internet hardware/software originated in the US;  the majority (64 % today) of  Internet servers have been in the U.S., and English has been the dominant language.

The trend today is for the Internet, now comprised of a heterogeneous user base, to become less U.S. centric.  This is due to: a reduction of U.S. Government support; exponential growth; international network deregulation; and lawyers.

Although the Internet and cyber world has been a somewhat anarchistic “wild west” environment, ad-hoc consensual governance bodies such as the IETF, IANA, ISOC, and ISOC have evolved, primarily to address Internet engineering and standards issues.  The ad-hoc bodies have done an outstanding job in progressing the Internet, however, fissures are appearing in this process, as they enjoy no real legal authority.  The heterogeneous nature of Internet users/interests, will no longer allow these groups to operate in a relatively unencumbered vacuum.

The Internet, the expected twenty-first century electronic commerce conduit of choice, has flourished in the U.S. due in large part to a hands off approach, the free flow of information, a deregulated telecommunications environment, and a lack of taxation and access charges. 

Outside the U.S. Internet growth has been apparent in markets with deregulated telecommunications policies, and less expensive Internet pricing.  The opposite has been true in heavily regulated, non-competitive markets.  This has led to uneven Internet growth.

 The U.S. and other countries would be well served to move cautiously in imposing new taxes, access fees and universal service mandates, or risk killing the goose that laid the golden egg, so to speak. The Internet will become less U.S. centric as regionalization of traffic becomes a reality.  As networks/content servers become globally distributed, and caching models are put in place.  This will affect Internet traffic patterns, and electronic commerce in a big way, not just technologically, but policy and governance-wise as well.

Corporations will evolve from nation-specific to regional, and will look to the Internet as a way to communicate with far-flung staffs, customers, and trading partners. 

Significant tension will occur, as various factions seek to govern Internet/Electronic Markets (i.e. governments, multilateral orgs., consensual bodies, private sector, special interests, lawyers). 

Markets that restrict information, in keeping with traditional political norms, will lag in the international electronic marketplace. 

 The jury is out as to whether the expected emergence of five to six global communications providers, coupled with fewer ISPs will enable governments the control they so cherish, and how this may impact electronic commerce.

In any case, Governments and special interests must look for new governance solutions compatible with technologies and a marketplace that transcends physical boundaries.