Civil Law View of State's Role Slows EU Growth

Last Tuesday, I played a very small part in the closing panel discussion at the Society for Computers and Law 3rd Annual Policy Forum. The focus of the Forum was the European Commission’s painful review of the 15 or so Directives it has set up to regulate retail communications (and content/e-commerce) over the past decade.

It was an excellent event, and here is the link to the presentations.

Huge credit goes to Chris Marsden for persuading a stellar line-up of international speakers over the 2 days. Credit is also due to Mark Turner of Herbert Smith and Caroline Gould of the SCL for hosting the event and taking care of the endless practicalities.

For what they are worth, the points I made during the closing discussion were:

• The European Commission continually states its belief that regulation is required to catalyse cross-border retail markets in Europe. As it was explained to me in International Comparative Jurisprudence at law school, that’s because the European, civil law, view of the world is that people should only do what the State says is acceptable, whereas the common law view is that the law should follow to regulate commerce/behaviour as necessary to resolve market problems.

• However, while national e-commerce has surged, the evidence of the past 10 years is that the EC’s approach to cross-border markets hasn’t worked and will not do so until more the more practical obstacles to cross-border trade are cleared. As set out in my previous post, Civic Consulting found that these include language, culture, consumer preference for national products, lack of shared data on creditworthiness, tax/employment differences, difficulty in penetrating foreign markets, differences in consumer demand, lack of confidence in foreign brands, different stages of market development, lack of adequate marketing strategy.

• Regulators can play a role in early market phases. In fact, they would gain the trust and the buy-in of market participants to any regulatory measures that may eventually be required if they first helped facilitate market participants’ efforts to remove the practical obstacles to cross-border trade and learned something about the markets they’re trying to regulate along the way. Regulating first will either prove futile, or risk creating further obstacles. In the meantime, it will needlessly interfere with national markets.

Because of the jurisprudential difference I mentioned, these points seem to find favour with the common law members of the audience, rather than our civil law friends. Ironically, EC officials don’t seem to see it as within their remit to care whether or not regulation actually will deliver a single market. They simply have a mandate to churn it out in line with the EU’s single market policy, and fuss around with reviews when it doesn't work out. The practicalities are ignored. As a result, we are doomed to wait a much longer period of time for cross-border retail markets to develop, if they ever really will.

EU Choking on its Own Consumer Law

Having committed rather too late to the principles of "better regulation", it's only right that the European Commission should now seem to be choking on the dog's breakfast of consumer laws it has served up over the past 13 years (bearing in mind it takes 5 years to pass an EU directive).

Officials are reforming a plethora of electronic communications directives, and reviewing the 8 directives that make up what is (weirdly) known as the "Consumer Acquis" (which for some reason excludes the constant review of the E-commerce Directive). And, of course, it's overseeing the implementation of the Audio Visual Media Services Directive which overhauled EU television regulation in December '07.

With any luck, the Commission might realise how truly gargantuan a meal this has been for the average European citizen or small business to digest, let alone for the lawyers who have to produce bite size summaries for the busy executive's bin.

Has all this amounted to the catalyst for a cross-border consumer market that the Commission hyped, sorry, hoped? Not according to the Commission's own research. Nor could it, for the practical reasons previously mentioned. There is a facilitative role that the Commission can play, but that involves understanding the problems, their root causes and potential solutions before regulating.

More in this vein next Monday/Tuesday at the SCL's Annual Policy Forum!

Too Many Snouts in the Bank Charges Trough

Some bank customers are understandably frustrated when it comes to refunds of what they regard as excessive charges. So the last thing they need is to pay needlessly to have their complaint resolved. Yet that is precisely what some customers are at risk of doing.

The Financial Ombudsman Service offers a financial services dispute resolution service that is free of charge to consumers. Thanks to some sensible increases in its remit, FOS can handle virtually all consumer financial services complaints these days, including those related to consumer credit.

True, the banks have diverted the specific issue of excessive overdraft charges to the courts, and are now dragging the whole process to the House of Lords. That means a long wait for most of the customers affected. But the Financial Ombudsman will still deal with complaints about overdraft fees for those customers in financial difficulty, and the delay doesn't affect complaints about other types of charges - like credit card default fees - which FOS is still handling.

So it's troublesome to see certain claims managers and law firms, advertising themselves as able to recover these charges for a fee, without any reference that I could see to the free service offered by the Financial Ombudsman Service. A bit rich from claims managers in particular, considering that they are responsible for 18% of claims referred to the Financial Ombudsman! Note, too, that in February 2008 there were 427 claims managers operating in the "financial products" space, with a total turnover of £68m - all additional cost and friction that the Financial Ombudsman is designed to avoid.

And watch out for the fine print. One claims manager debits its customer's credit card for all their "Service Charges" as soon as any amount of refund is obtained. Is it possible that a customer could owe more in service charges to the claims manager than the amount of the refund?

Time, you would've thought, for some joined up activity from the Ministry of Justice (which now regulates claims managers), the Office of Fair Trading (which regulates consumer credit) and the Solicitors Regulatory Authority (does what it says on the tin). These complaints should be resolved at minimum cost to the consumer. The best escalation path for any complaint should be from the bank's own complaints process to FOS. Heaven forbid the lawyers need to get involved, but we are here as a last resort. I don't see what value "claims managers" add in this sector.

Employers: Underreact to Staff Social Network Case

Laurie Kaye reports on a recent case, Hays v Ions, where an ex-employee has had to reveal the data from his LinkedIn account to his former employer. The reason?

"Hays had encouraged Mr Ions to use the LinkedIn services for the purposes of his employment. However, the Court decided this did not constitute authorisation to use the information gathered and stored on his LinkedIn account after he had left Hays."

So Mr Ions was ordered to disclose:

- the business contacts on his LinkedIn page which had been requested by Hays;
- all emails sent to or received by his LinkedIn account from Hays' computer network;
- all documents that indicated his use of the LinkedIn contacts and any business obtained from them."

While employers need to be clear with employees about what is confidential and what is not, let's not rush to amend staff handbooks to deal specifically with social network services in this respect. That would infringe the 'principle' (adage) that a "hard case makes bad law".

This decision does not extend the ordinary obligation on any employee to respect his or her employer's confidentiality. It is clear from the decision that the employee was found to have agreed to use LinkedIn in the course of his employment; in the course of doing so he sent, received and stored confidential information; and then accessed or otherwise used that information outside the employment relationship. That LinkedIn was involved is irrelevant. The result would have been the same (though less topical) if the employee had used a third party email account for the same purpose.

Consumer Protection from Unfair Trading Regs 2008

I've given up my attempt to independently summarise the Consumer Protection from Unfair Trading Regulations 2008 ("CPRs" in the trade), and am simply going to refer you to what the OFT and BERR seem to make of them.

Oh, alright then. To summarise briefly:

• Regulation 3 bans unfair commercial practices - basically anything unacceptable from an objective professional standpoint which is (or is likely to) change an economic decision of the "average" consumer. In other words, because of the practice the consumer buys (or sells) what they would not otherwise have bought (or sold), or fails to cancel a transaction that they would otherwise have cancelled.
• Regulations 5-7 prohibit commercial practices which are misleading (whether by action or omission) or aggressive, and which cause or are likely to cause the average consumer to take a different decision.
• There are 31 practices that are prohibited in all circumstances - regardless of whether or not they actually affect a consumer.
• Oh, and this is all backed by criminal and civil enforcement powers and remedies.
  

Of course, this is fantastic example of EU overkill. There is simply no major consumer problem in the UK that deserves a whole swathe of new regulation which is harmonised with Greece.

Okay, so there are still dodgy traders, but we have TV shows that doorstep those guys for fun.

But some lawyers are getting pretty worked up about these regulations from a compliance standpoint (did I mention the criminal and civil enforcement provisions?). But this misses the wood for the trees. Any consumer-facing business that is reliant on these sorts of practices for its bread and butter has heavy cultural issues to contend with, and these issues could go right to the top of the tree. Cultural change is tough, and it isn't driven from the compliance coal face alone.

Which is why I enjoy advising Web 2.0 businesses - as they are predicated not only on treating consumers fairly, but enabling consumers to ensure that they are treated fairly.

Interesting issues for some eBay power sellers, though, and I guess there may be some old sharks who'll find themselves with a fine or making licence plates.

Lest we forget, there are also changes to the comparative and misleading advertising regulations. Basically, the Business Protection from Misleading Marketing Regulations 2008 ("BPMMRs"):

• prohibit advertising which misleads traders (Reg 3);
• sets out the conditions under which comparative advertising is permitted (Reg 4) - including the condition that the ad must not be misleading either under Reg 3 or the CPRs (see above);
• requires traders and bodies responsible for codes of conduct or monitoring compliance with such codes not to promote misleading advertising and comparative advertising which is not permitted (Reg 5).

And, unlike the rather limp Advertising Standards Association advertising codes, these puppies have teeth - criminal and civil enforcement remedies and nasty accompanying powers.

West End ad agencies will never be the same again.

Better Regulation - Fill Your Boots

For those interested in keeping regulation to a bare minimum, like BERR (yeah, right), here's a little gem from the Office of the Leader of the House of Commons - the Government's rationale for the 2008/09 legislative programme.

It actually wouldn't let me set up any email alerts for speeches, statements, debates, parliamentary questions and so on, but it's a nice idea all the same...

There's plenty of fun to be had figuring out what problem(s), if any, they are trying to solve and comparing the rhetoric with the substance. I have some pet issues to revisit in the coming months.

Meanwhile, look out for random infrastructure projects to be paid for with public funds, like the £1.5bn pledged toward the Manchester congestion charge scheme. New Labour seems to believe it has a lot of taxpayers' money to hand out and not much time to do it!

Bad Phorm?

Back in February, I commented on the Open Internet Exchange initiative being planned by Phorm, whereby and major ISP partners BT, Virgin Media and Talk Talk will be paid for allowing all the web browsing by their customers to be trawled for advertising purposes.

Not a lot was known about the initiative at the time, but negative news has been snowballing since, and opponents are taking to the streets. The Register is maintaining a dossier, known as "The Phorm files", and a "No Deep Packet Inspection" street demonstration is timed for BT's AGM on 16 July 2008. See also the Facebook Group "Save UK internet privace - reject ISPs that use Phorm".

Incidentally, you might wish to be more wary than usual of the Wikipedia entry on this subject.

The concerns raised are similar to those related to Facebook's "Beacon" initiative that led FB to significantly alter the functionality (though you might wish to be somewhat sceptical of that Wikipedia entry too!). The chief one being that there seems no reliable way to ensure that you are really opted-out. However, the Phorm scenario is worse than with Beacon, because the inspection, storage and use of data is at the ISP layer, making it much harder in practical terms to avoid the service than if it was operated, say, on a site-by-site basis. In other words, you can't decide simply not to visit certain sites if you doubt that the opt-out would actually prevent the abuse of your personal data. Instead, you would need to switch ISPs. However, you may not actually be able to avoid using one of the "problem" ISPs (e.g. at a friend's place, work, or via an internet cafe). And what if all the ISPs join the initiative?

Further, as the Guardian has noted, the challenge for Phorm is to reconcile two apparently contradictory statements:

"Advertisers are told that it will be able to profile the surfers, based on where they have visited, and target them through that uniquely numbered cookie. But users are told they will not be identifiable. It's the apparent contradiction in those statements that has infuriated so many."

If you are remotely concerned, now is the time to make your feelings known to your ISP, your MP, and participating advertisers.

Ironically, Search is Now a Shield Against Competition and Innovation

Stories used to abound of small companies finding new markets via search. The Birmingham based chocolate shop selling to Bostonians is one that springs to mind.

But Google's decision to follow Yahoo in allowing rivals to bid on brand names will limit competition and innovation from start-ups and other cash-constrained companies.

Unless brand owners win the daily and hourly battle to stay on top of the key word auctions, they risk leaking customers to rivals. That process suits anyone earning super-normal profits in any given market segment, particularly big brand owners and their agents and introducers of business. Any of these players could not only afford to stay at the top of the bidders' list for their own brand names, but could also choke off competition by winning the auction for their rivals' key words and re-direct the traffic to their own sites. To stay on the whiter side of what is legally a grey area, all the winning bidder on a rival's trade mark really ought to avoid is their rival's trade marks appearing in the search result that in fact promotes the winning bidder's own products or services.

Competition authorities and legal advisers should pay close attention to who bids on the search terms related to market segments where dominance is of particular concern. But it seems unlikely that the authorities, challenger brands or the search engines themselves will have the resources to focus on this battleground, or respond to every complaint. Indeed, the cost of responding to requests to prevent bidding on brand names is possibly the reason that the search engines have dropped their previous restrictions in this area.

The Open Internet Exchange

According to the FT:

"The new marketplace, called the Open Internet Exchange uses anonymous information about internet users’ browsing activity to serve up more relevant adverts.The system tracks recent sites visited by the user and any keywords they have entered to search engines to identify their interests, but replaces their identifying details with a random number that cannot be traced back.“We cannot know who you are or where you’ve been,” said Kent Ertugrul, chief executive.

The supplier of the technology, Phorm, says that consumers are given an opportunity to opt-out of having their browsing activity (anonymously) tracked.

The service is being promoted by participating ISPs - currently BT and Carphone Warehouse at Webwise.com: as their "response to consumers’ growing concerns and frustrations with the Internet. Webwise can help protect you from fraudulent “phishing” websites that may put your financial and personal data at risk. It also helps reduce the number of irrelevant, untargeted ads you see."

That site it is offering people the opportunity to opt-in as well as opt-out.

Question is will it be defaulted to "opt-in" when users sign up or next fire-up their internet connection?

And what will this mean in terms of advertising revenue?

"...analysts at Investec estimated that BT and Carphone Warehouse could see revenue benefits of £85m and £65m respectively.

The high margin nature of online advertising revenues meant this could benefit their 2010 earnings by about 1.3 per cent and 10 per cent respectively, Investec said."

HM Nanny Bombs in Nuclear Clean-up

HM Nanny is in fine fettle, commanding the nation's workers to get healthy and demanding that kids must wait until they're 18 before hurtling around the country's roads (which will help the ailing job figures, by the way, to the extent that these unreliable teens might dare to drive to work).

These subtleties are what really count in government. After all, three quarters of the country wants the government to tell us how to live our lives in detail.

So, there was no sense in Gordo galavanting on our behalf at the signing ceremony of the EU Constit... er, sorry, "Reform Treaty", when there was a meeting of the House of Commons "liaison committee" to attend.

And if the government can't control the security of people's personal information, then it can at least have a policy of being transparent when they get it wrong. And keep logs of the problems. And undertake investigations. You never know, people might just get sick of hearing about it all and stop bothering to care about their personal security anyway.

And then there is the distraction of targets. And of reports of performance against targets.

We are blinded by the detail.

But just for a laugh, I looked at the Autumn 2007 Performance Report of the Department for Business, Enterprise and Regulatory Reform, or "BERR". That's the department charged with promoting enterprise and cutting red tape, I'll have you know.

Footnote 6 on page 5 gives you an idea where the report is headed:

"Factors affecting performance are only discussed for targets from the current spending review [undertaken in 2004]. The performance on targets from previous spending reviews can no longer be influenced since the period covered by them has ended."

In other words, if they miss the targets, the slate gets wiped clean.

And here's what we got for our tax money spent on promoting enterprise and cutting red tape:

"Of the ten PSA targets from SR04 which BERR is responsible for delivering, five are assessed as on course to be delivered, two are assessed as showing slippage, two are split up and assessed in more detail by sub-target (with most of the sub-targets assessed as on course for each) and one further target is yet to be assessed."

5 out of ten.

But what of the targets "showing slippage"?

Pah! They're only concerned with fuel poverty in vulnerable households, reducing EU trade barriers to help developing countries and nuclear clean-up. "Greater choice and commitment in the workplace" hasn't even been assessed.

I'm sorry, did you say, "nuclear clean-up"?

Ah, yes... Target 9, page 7:

"reduce the civil nuclear liability by 10% by 2010, and establish a safe, innovative and dynamic market for nuclear cleanup by delivering annual 2% efficiency gains from 2006-07; and ensuring successful competitions have been completed for the management of at least 50% of UK nuclear sites by end 2008."

I see. The same government that tells us how to live our lives is also dumping our unencrypted personal data in Iowa and failing to clean up its own nuclear waste.

Somehow, I reckon life could get pretty warm around here during '08.

Better make this New Year's Eve party a big one. Enjoy.

"Distance" selling - secret rules exposed

I've been involved in helping people sell at a distance secretly now since lawyers were first told it was okay in a coded document (97/7/EC) leaked by the European Commission in 1997.

Now I see that two equally shadowy entities, OFT and TSS, are trying to let the cat out of the bag so that virtually anyone could comply.

What a pair of do-gooders.

They say that 66% of people selling remotely have never found the laws that require some bumf on their web sites, which could land them in hot water with local officials.

Well, don't think the official hot tub sessions will stop there, folks. There's a lot of regulation that has been released by the European Commission in code that only lawyers can read. Allegedly, because it helps create confidence in doing business across the length and breadth of the EU.

Join the Quest for the Source of EU Legislation

This is the Last Straw. I've just seen "micro-enterprise" defined in a document called "2005/0245 (COD) LEX 797" as:

"an enterprise, which at the time of conclusion of the payment service contract, is an enterprise as defined in Article 1 and Article 2(1) and (3) [oh, don't forget 2(3)!!] of the Annex to Recommendation 2003/361/EC".

I'm thinking of launching a Quest to find those responsible for this latest gobbledigook and demand to know in plain English what "micro-enterprise" was intended to mean, without referring me anywhere else.

But where to start?

In 2005, the UK's Better Regulation Commission produced a fascinating, literal "map" of what we might really loosely describe as the 'European Union legislative process'. See especially page 14.

I'm not being sarcastic here. The report is a veritable base camp from which to begin the quest for the source and true meaning of EU legislation. It provides a guide, pack animals, tents, rope, torches and other basic tools. The rest of the specific search is down to good eyesight, a laptop or PC, broadband, physical fitness, strength, caffeine, food, and several towels that can be soaked in ice cold mountain springs and wrapped tightly around one's head. Oh, and a journey to Brussels. With a lobbyist.

Are you in?

It will be very crowded, but ours will be lonely work. Listening amidst the din of countless institutions and committees for the mystical whisper known as the "Social Dialogue". For it is only in that stream of semi-consciousness that we may dare to even hope to find the truth of the coded messages embedded in the "stakeholder input", "advice", "green papers", "proposals", "adoptions of proposals", "opinions", "consultations", "co-decisions", "common positions" and, ultimately the Regulations and Directives that emerge six or seven years later to drive us to distraction.

No?

Yeah, sod it. I'm staying in London to earn a crust.

You and Your Lawyer - Law 2.0

I'm enjoying Nick Holmes' digests of Richard Susskind's forthcoming missive on the future of legal services - a plea for innovation amidst the rising tide of super-normal law firm profits. You could be forgiven if images of King Canute wash into your mind at this point, but the nub of the IT aspect of Richard's thesis is that:

"...there is remarkable scope for greater and beneficial deployment of ... disruptive legal technologies [which] do not support or complement current legal practices. They challenge and replace them, in whole or in part... If lawyers are barely conversant with today's technologies, they have even less sense of how much progress in legal technology is likely in the coming 10 years."

Of course, Richard is wasting his time and effort when it comes to the very law firms who need to listen most. Enormous profits provide no incentive to innovate, except perhaps to cut the costs of current processes and figure out new excuses to hike hourly rates. None is really organised to innovate. The trend away from the pretence of partnership and chatter about who will list on the stock exchange reveals that their true intent, ironically, is to mirror the ethos of their best and biggest clients. Economies of scale and profits, not staff or clients, are paramount, the argument being that only huge profits allow adequate investment in staff and various hallmarks of quality. Like extra sculptures for the foyer.

True, clients do get resentful as rates soar, and the big ones bully firms into complex discount arrangements that sub-scale clients ultimately pay for. But that's merely a corporate game of cat-and-mouse, not seismic innovation.

No, the only participants in Law 2.0 are going to be relieved clients, the lawyers who solve their legal issues, and law firms that do no more than what is strictly necessary to facilitate the interaction between the two in order to solve those legal issues. In other words, lean, rather than obese, intermediaries.

I began working through Lawyers Direct two years ago to top-up my salary while working at Zopa, the person to person lending marketplace (in fairness to them, it was perhaps my stints at Reuters, DLA and GE that drove me to become a serial disruptor). Lawyers Direct offers access to more than 60 highly experienced lawyers at half what their City rates would have been. There is a fantastic but small support team in a small office in West London. The lawyers work wherever and whenever they please, linked by email and with the same sort of online tools and intranet that any self-respecting law firm should have. The reduced overhead means that even after the lower charge-out rate, the lawyers still have the opportunity to take home the same salary as some of their City counterparts (the ones who really do the work of solving legal issues).

Vaporised is the monolithic concrete tower with its vast, wasted common areas, sculptures, reception, private dining rooms, gym, library and hordes of support staff. There are neither billing targets nor the anxiety and temptation that goes with them. There are no partners, committees of partners, managing partners or senior partners.

All that's left is a compelling, lean and efficient business model for clients and lawyers alike.

List that, and I'll queue for the stock!

EU Regs Won't Catalyse Cross-border Markets

The European Commission's plans to regulate to create cross-border consumer markets will only limit innovation and growth. Faciliating solutions to more practical problems inhibiting the organic growth of markets would be more helpful.

The European Commission recently announced its decision to propose new EU consumer rules in an attempt to create cross-border retail markets in the EU. The member of the European Commission responsible for consumer policy, Mrs Meglena Kuneva, said:

“I am convinced that consumer policy is uniquely well-placed to help the EU rise to the twin... challenges of growth and jobs and reconnecting with its citizens... The Commission’s vision is to demonstrate by 2013 to all EU citizens that they can shop from anywhere in the EU, from a corner shop to a website, with confidence and equal protection. And we will also show to all retailers that they can sell anywhere on the basis of a single, simple set of rules.
We are a long way from those goals now…”

A long way indeed.

A study by the European Consumer Network on cross border complaints pointed to problems with delivery (46%) and defects or lack of conformity with description (25%) as the two main problems.

Furthermore, Eurobarometer discovered in October 2006 that while 27% of EU citizens shopped online in 2006, only 6% made a cross border purchase online. It also found that consumer perception is focused on more practical concerns: "... it is harder to resolve problems such as complaints, returns, price reductions, guarantees etc” (71%); “there is a greater risk of falling victim to a scam or fraud” (68%); “there is a greater chance of having delivery problems with goods or services” (66%); “there are more problems returning a product they bought at a distance within the "cooling-off" period” (65%). From a business standpoint, “the biggest perceived obstacle to cross-border trade is the insecurity of transactions (61%)… potential problems with resolving complaints (57%)… difficulties in ensuring after-sales service (55%) and extra delivery costs.” A further 43% of respondents cited language differences as an obstacle to cross-border trade. Such issues may point to problems with enforcement of existing laws and contracts, but not to any fresh regulatory opportunities.

Similarly, a May 2007 study by Civic Consulting reveals that efforts to construct a single European market for consumer credit by introducing a new consumer credit directive are flawed. According to the consumer organisations and national banking associations who were polled, “the main [non-regulatory] barriers hindering selling of consumer credit products in other EU Member States are different language and culture; consumers’ preference for national lenders; credit risk for lenders – no access to creditworthiness information; problems related to tax, employment practices etc.; difficulties to penetrate local market; different consumer demand in different Member States; lack of consumer confidence in a brand; differing stages of development of consumer credit; and lack of adequate marketing strategies.” The study concluded that “a single market for consumer credit cannot be expected to be created by harmonisation of legislation alone, and this is a long term rather than a short or medium term perspective.” As such, “the supply side of the market… does not expect increased demand and therefore economic growth from the proposal.”

In short, the European Commission is proposing a regulatory solution for problems that have no regulatory solution. And worse, for those of us who do share an ambition to create cross-border markets, is that, ironically, regulation in this area is likely to stifle innovation and constrain growth rather than promote it. As has been observed by Marsden et al. (2006) in connection with the reform of the TV Without Frontiers Directive, prescriptive regulation tends to cause markets “to develop towards more closed and concentrated structures”. This is because larger participants can afford compliance costs, lobbying efforts and have the bargaining strength to shift liability onto suppliers and consumers in a way that smaller market participants cannot – “hence, incumbents and regulated actors have incentives to drive up regulatory costs in other parts of the value chain”. Complex regulatory regimes may also either avert venture capital investment from attempted innovation in the regulated activity or ensure that it “will only flow to those companies considered to have the ability to ‘play a good game’ with the regulators”.

If the European Commission must play a role in creating cross-border retail markets, then it should help foster solutions to the real obstacles, bottom-up amongst market participants, not pose new ones.