MICHAEL GEIST
Thursday, June 15, 2000
While business strenuously lobbies for a hands-off regulatory approach to the Internet and e-commerce, recent developments suggest that the law is playing an increasingly vital role in shaping the e-commerce landscape.
In fact, despite urging government to refrain from regulating the Internet, many businesses and industries are currently using the legal system to slow the pace of change by targeting new e-commerce startups that may be perceived as competitive threats.
Consider the recent spate of challenges to new e-commerce distribution models. Plans for a new travel supersite founded by a group of major airlines has an association representing travel agents up in arms, concerned about the potential for anticompetitive activity.
A new auto parts supply supersite founded by several leading automakers has raised similar concerns. The automakers' plans are under investigation in both the U.S. and Europe, delaying the debut of the site until at least the fall.
The automobile industry is actually caught up in a range of disputes as manufacturers, dealers, and new dot-com car sites fight to carve out territory in the on-line environment. Dealers in the United States have employed franchise legislation to bar manufacturers from using the Internet to sell cars directly to the public, while several manufacturers have cautioned their dealers against selling cars to dot-com car sites.
The entertainment industry has also found itself embroiled in a number of high-profile disputes with upstart e-commerce businesses.
Concern over the popularity of MP3 music files has led to a series of lawsuits by the Recording Industry Association of America (RIAA) against Napster for its program that facilitates the swapping of MP3s, against the makers of the Diamond Rio for a playback system for MP3s, and against MP3.com for its mymp3 service that allows for legally purchased CD's to be heard directly via the Internet. RIAA even went so far as to threaten legal action against MP3Board.com for merely linking to MP3s.
Similarly, the Motion Pictures Association of America (MPAA) swiftly targeted Canadian Webcaster iCraveTV last winter when it began broadcasting television programming on the Web.
Although the RIAA and MPAA lawsuits have enjoyed moderate success, they are in all likelihood fighting a losing battle.
Attempting to stop companies such as Napster or iCraveTV is like playing the "whack a mole" game. For every Napster or iCraveTV that is stopped, two or three new versions quickly appear. In fact, the introduction of Gnuttela, a Napster-like service that has no centralized control, and RecordTV.com, a VCR-like Web site that records television for playback on-line, illustrates that this represents a tidal wave that no court can stop.
Rather than fighting e-commerce with the law, established businesses would be well advised to consider both the reasons for these new dot-coms' emergence, and where e-commerce is taking traditional business models.
In the case of new distribution channels, the changes illustrate the attraction toward the efficiencies that e-commerce provides. Consumers and businesses demand maximum information, low cost, and quick delivery -- features that are now provided by the Internet in ways not previously possible.
In the case of Napster and the emergence of MP3s, popularity may stem from consumer frustration with overpriced CDs that cannot be effectively sampled prior to purchase. New modes of delivery might result in increased customer satisfaction and a decrease in digital music piracy.
The use of law to subjugate change is a trend that must be monitored. The issue seems insignificant when examining isolated cases, since the law has long been used to obtain competitive advantage. Collectively, however, these cases become more problematic as they may stifle innovation in e-commerce.
Companies that succeeded in the pre-Internet world can also emerge as e-commerce leaders, but they should do so by trying to win the battle on-line, rather than in the courtroom.
Michael Geist is a law professor at the University of Ottawa Faculty of Law specializing in Internet and electronic-commerce law. He can be reached at mgeist@uottawa.ca and on the Web at http://www.lawbytes.com.
