Industry Has Big Stake in Monitoring Government

By David Silverberg, Contributing Writer



The explosive growth of electronic commerce has caught the attention of U.S. policy-makers, who are grappling with a wide range of issues including enforcement, jurisdiction, taxation, tariffs, national sovereignty, privacy and security.

A Commerce Department estimate anticipates e-commerce revenue of $1 trillion annually by 2003. Internet retail sales are expected to spring from their 1996 level of $530 million to $6.6 billion by the end of the year.

One estimate has the number of Internet users doubling every six to nine months. Intel Corp.'s experience is a good example of this impact. At the beginning of 1997, Intel was not doing sales over the Web. After putting up a Web site, by November 1998 it was selling $1 billion worth of chips a month.

Unsurprisingly, all this activity has come to the attention of the feds in the executive branch who are grappling with the big questions: How do you encourage commerce while combating crime and do it in an environment where rules and capabilities are evolving daily?

Besides the issues of enforcement, jurisdiction, taxation, tariffs, national sovereignty, privacy, security, there are questions of liability, responsibility and culpability.

If a recent conference on electronic commerce regulation held at American University's Washington College of Law is any indication, pure capitalists have little to fear — so far. The 1997 Framework for Electronic Commerce, which establishes U.S. government policy, still holds. That framework states that the private sector should lead, government should avoid over-regulation, and where it's needed to regulate, its rules should be "predictable, minimalist, consistent and simple." It called on all governments to acknowledge the Internet's unique capabilities and facilitate electronic commerce.

Given this policy, regulators are very wary of going too far. They are especially afraid of strangling the baby in the cradle.

As Elliot Maxwell, a special adviser to the Commerce Secretary William Daley noted, "This market is blessed. It's blessed by access to capital, so that any good idea can get funded. It has wonderful technology. It has entrepreneurial spirit. The thing that is most problematic is policy. If we get the policy right, we can do wonderful things. If we get it wrong, we can strangle this."

At the same time, the need for regulation is growing along with the e-commerce activity. Regulators are going to have to establish standards and enforce the law. The standards, which include signatures, banking and security are in flux, all because they depend on technological solutions that are still evolving.

Enforcement seems to be steaming along mainly because the tools exist in law and merely have to be applied in a new technological environment. A prime example of this is the Securities and Exchange Commission's Office of Internet Enforcement, which is using existing regulations to pursue electronic fraud, market manipulation, spamming and a variety of other Internet scams and crimes.

What does all this struggling mean to the folks with their hands on the hardware? Not much at the moment. But that is exactly the point. If industry people want to shape the regulatory environment of the future, they have to get involved at this early, conceptual stage before regulations are promulgated and published.

That means starting to think about these issues and the industry's preferred solutions. What kind of regulation would industry like to see? What kinds of legal standards?

It also means the industry has to look up from its monitors and start monitoring the government, examining proposed regulations, getting input to lawmakers and regulators at both the state and federal levels. And this means active grass-roots involvement — not just leaving it up to associations and lobbying groups.

"We're going through a dangerous time when regulators are looking to offline models for regulation," warned George Vradenburg III, senior vice president for global and strategic policy at America Online. Regulators and courts are looking to old regulatory models like the railroads and heavy industry as they grope for metaphors for e-commerce — and those old models do not apply.

Vradenburg's solution is for industry to police itself as much as possible. "If we [industry] provide a safe, valuable and secure experience online, government doesn't have to," he argued.

Perhaps one of the most telling summations of the state of e-commerce regulation at the American University conference was given by Thomas Vartanian, an attorney with the firm Fried, Frank, Harris, Shriver & Jacobson.

As Vartanian put it: "The rules of regulation are that you monitor infant markets, guide adolescent markets and regulate mature markets."