European Union

Author: | Published: 2 Feb 2000
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

by Mark F Kightlinger & Stephan G Jaggi of Covington & Burling, Brussels

The rapid emergence of the electronic marketplace since the mid-1990s has created new opportunities for consumers and businesses, and posed a number of challenges for regulators. In response, the European Commission has begun to review the entire regulatory framework for the technological infrastructure of the Information Society. At the same time, EU policymakers are working on various pieces of legislation intended to place electronic commerce on an equal footing with conventional commerce. Needless to say, policymakers have found themselves in a maelstrom of competing interests, and at this stage, it is not clear how the various legislative battles will end. This paper provides an overview of the current state of EU Information Society legislative activity. The first part reviews EU telecoms legislation and discusses changes that have been proposed. The second part discusses work to date on the regulatory framework for e-commerce.

EU Telecommunications Legislation

Liberalization of telecoms equipment, infrastructure and services during the last decade led to substantial changes in Europe's business environment, triggering rapid growth in the telecoms industry and supporting the rise of the information society. In November 1999, the Commission proposed a thorough revision of the telecoms regulatory framework to ensure that it remains responsive to market changes and technological developments. There follows a brief description of the liberalization process and a review of the new proposals.

Liberalization and harmonization

In the early 1980s most telecoms operators in the EU were state-owned and operated. In 1984 the Commission took several steps intended to pave the way for liberalization of the telecoms industry. The Commission began to press for technical standardization across Europe, poured money into research and started promoting regional development.

In 1987 the Commission adopted a Green Paper outlining a liberalization strategy for the European telecoms market. Over the next 10 years European regulators adopted a series of initiatives intended to implement the strategy. They acted first against the hardware sector with legislation on telecommunications terminal equipment and their strategy survived a challenge before the European Court of Justice. They then adopted legislation liberalizing specific telecoms services, beginning with value-added services and ending, perhaps most famously, with voice telephony (effective 1998 in most member states).

Flanking measures included steps to harmonize member state regulations in the areas of licensing standards, interconnection and access, numbering, universal service and data protection. In addition, the Commission twice issued papers clarifying the application of European competition law to telecommunications.

Preparing the future: the 1999 communications review

In November 1999 the Commission issued a paper on the 1999 Communications Review, a consultation process that will lead to a complete overhaul of EU telecoms legislation. The Review incorporates the results of earlier consultations on convergence and radio spectrum policy, an examination of the Digital Television Standards Directive and a number of studies on the telecoms industry ordered by the Commission. Comments on the Commission's paper are due by February 15 2000. The Commission hopes to release draft legislation in May 2000 and the new framework should enter into force by 2003.

Need for new framework

Why is an overhaul of the existing framework needed? According to the Commission, there are three reasons. First, liberalization and harmonization are more or less complete, although further work is needed in specific areas in particular countries. New rules are necessary for this liberalized environment. Second, in recent years, the information society has become central to Europe's economy, and e-commerce has begun to revolutionize the way businesses operate. This has placed significant new demands on the telecommunications services that provide the internet backbone, creating pressure for revision of the existing rules. Third, the convergence of telecoms services, audiovisual services, and broadcasting is erasing old sectoral boundaries and raising questions about existing industry-specific legislation.

Scope of new framework

The new legislative framework that the Commission is considering would cover all electronic communications infrastructure and associated infrastructure services, including fixed and mobile telecoms networks, satellite networks, cable TV and broadcast networks. Content provided via these networks and facilities, including e-commerce, would not be covered.

Guiding principles

The Commission proposes several principles to guide development of the new regulatory framework. Regulations should:

  • be based on clearly defined policy objectives, such as ensuring competition or consolidating the internal market;
  • be kept to a minimum and automatically withdrawn when no longer necessary;
  • enhance legal certainty by combining binding rules with non-binding measures that improve coordination of member state activities;
  • aim to be technologically neutral; and
  • be enforced to the maximum extent possible by National Regulatory Authorities (NRAs), because they are closest to the regulated activity.
Outline of new framework

The new framework would consist of three parts: binding legal measures, non-binding "soft law" measures, and general competition law. Binding measures would include a Liberalization Directive, a Framework Directive, and four "specific" Directives. The Liberalization Directive would consolidate and simplify existing liberalization legislation. The Framework Directive, which would replace the Open Network Provision (ONP) Framework Directive, would identify policy objectives, guarantee certain consumer rights, ensure interoperability and establish new advisory and regulatory bodies (discussed below). The four specific Directives would deal with:

  • licensing and authorizations;
  • access and interconnection;
  • universal service; and
  • data protection.

Spectrum management, which is important for the supply of wireless communication services, will be regulated by a Decision on Harmonization of Radio Spectrum. The Commission will try to:

  • harmonize spectrum management at EU level, thereby facilitating delivery of pan-European services;
  • ensure that public policy concerns are given appropriate weight in decision-making about spectrum issues; and
  • safeguard EU interests in international negotiations on spectrum allocation.

In addition, the new Directive on Access and Interconnection would make possible secondary trading of spectrum. In addition to formal legislation, regulators will rely increasingly on non-binding soft law measures, including recommendations, guidelines and codes of conduct. Such measures will form the second part of the new framework, improving coordination among member states on key issues while preserving the flexibility to respond rapidly to new developments. General competition law based on the EC Treaty will be the third part of the framework and it gradually will supplant industry-specific rules, as competition becomes increasingly effective.

Institutional changes

The Commission also recommends modifying the institutional framework. One important area of debate was whether the EU should establish a centralized telecoms regulatory agency. The Commission has decided not to take this route. Instead, a new Communications Committee comprising representatives of the member states and the Commission would replace existing bodies dealing with ONP and licensing.

Another new body, the High Level Communications Group, would bring together NRAs and the Commission to coordinate their activities and ensure cooperation with other organizations. Coordination will be important because, as already noted, NRAs would be responsible for most enforcement activities. A newly established Radio Spectrum Policy Expert Group, comprising regulatory authorities and representatives from radio spectrum communities, would advise the Commission on spectrum issues.

E-Commerce Legislation

In 1997 the Commission published a paper entitled A European Initiative on Electronic Commerce covering a range of regulatory issues, including digital signatures, secure payment systems, data protection and commercial communications. After extensive consultations the Commission put forward a number of initiatives to regulate the electronic marketplace, including the E-Commerce Directive, the E-Signatures Directive, distance selling legislation, transparency legislation and copyright legislation.

The E-Commerce Directive

The proposed E-Commerce Directive undertakes an unusual and ambitious project – regulating a new market within a few years of its inception. Prepared chiefly by the Commission's Internal Market Directorate General (DG), it addresses the main regulatory questions arising from cross-border online commerce, and thus will become the centrepiece of EU information society legislation. It is intended to be light-handed and liberal, facilitating rather than shackling e-commerce.

The proposal has passed its first reading in the European Parliament and the member states are formulating their position in the Council of Ministers. Thus, the proposal is a moving target. This section describes the Commission's most recent version of the proposed Directive, noting areas where member states or Parliament may demand changes.

Internal market principle

The Directive would apply a "country of origin" rule to information society services in an effort to ensure free movement of such services within the EU's internal market. To be covered, a service must be delivered at a distance by electronic means and normally provided for remuneration on request of the user. The country of origin rule would:

  • require each member state to enforce applicable legislation with respect to all Information Society service providers established on its territory; and
  • prohibit member states from imposing their laws on cross-border services originating in another member state.

The result is that each company would be required to comply only with the law of the country in which it is established, and not with the laws of all 15 member states.

The Commission has carved out two significant exceptions to the country of origin rule. One would allow the member state where a consumer lives to regulate online contracts involving the consumer. The other would allow each member state to regulate in-coming unsolicited commercial communications by e-mail (often called spam). Member states also would have authority to override the country of origin rule for reasons of public policy, public health, public security or consumer protection. Measures adopted would have to be necessary, proportionate and directed at a "serious and grave" threat. They would also have to survive scrutiny by the Commission.

Commercial communications

Commercial communications in the EU are subject to a complex and bewildering array of national laws that have stymied cross-border provision of advertising services in the offline world. The proposed Directive would prohibit countries from applying these laws to online commercial communications crossing their borders from another member state – a substantial step toward liberalization of the advertising sector.

To allay member state concerns about the impact of liberalization, the proposed Directive would impose disclosure requirements on companies engaging in online advertising and promotion. For example, a commercial communication would have to be clearly identifiable as such and would have to contain information about who is responsible for it. Special disclosure requirements would apply to promotional offers and games. The proposed Directive would allow regulated professions such as law and medicine to advertise online – another significant break with past practice in the EU.

Special rules would apply to commercial communications by e-mail. As noted, this activity would be exempted from the country of origin rule. In addition, the proposed Directive would require creation of centralized lists (so-called Robinson lists) of people who do not wish to receive unsolicited e-mail advertising. Direct marketers would be required to consult and respect these lists. Direct marketers hope that this requirement will discourage member states from adopting new anti-spam legislation.

Online contracts

The proposed Directive would require member states to ensure that their laws do not discriminate against electronic contracts. Thus, a contract could not be held invalid or unenforceable simply because it was concluded online. Member states would be allowed to discriminate with respect to special categories of contracts, eg, those covered by family law. The Directive would impose requirements concerning information that must be disclosed in an electronic contract and introduce uniform rules for the steps that must be taken to conclude such a contract. The latter provision is controversial and may be watered down.

Service provider liability

The section on service provider liability is a key element of the proposed Directive. The country of origin rule would apply to most illegal content, ensuring that the laws governing, for example, pornography and defamatory statements are those of the country where the company originating the content is established. There is an exception for content that violates copyright law allowing regulation by the country where illegal materials are received.

Certain intermediary service providers would be exempt from liability. These include "mere conduits", who neither select nor modify posted materials. Under specified conditions, caching services that undertake "automatic, intermediate, and temporary" storage of information for purposes of onward transmission, and hosting services that store information for a recipient, also would be exempt from liability. These provisions track the liability exemptions in the US Digital Millennium Copyright Act adopted in 1998.

The political debate

From the outset, the most controversial aspect of the E-Commerce Directive was the scope of the country of origin rule. Within the Commission, the Consumer Protection DG insisted on, and received, exemptions related to consumer protection, marketing e-mail and consumer contracts. Industry groups have been lobbying to limit these exemptions, thus far without success.

Several member states have pressed for a new exemption covering international private law, ie, the rules that determine which country's laws and courts will be used in legal disputes between parties located in different countries. If this exemption ultimately is included in the Directive, it could undermine the internal market for e-commerce. Individual member states have called for additional exemptions covering such areas as financial services, commercial communications and pre-contractual agreements. As this is being written, it is not clear who will prevail in the battle over these exemptions.

Jurisdiction and applicable law

The EU currently is revising two Conventions and preparing a third dealing with basic international private law issues. The 1968 Brussels Convention determines which member state has jurisdiction in cases where more than one member state is concerned. The Commission has proposed a revision that would grant jurisdiction to the courts of the country where a consumer resides in almost any case arising out of e-commerce. Industry has opposed this approach because it will not help consumers (who still must enforce judgments abroad) but will be expensive for businesses, impeding cross-border e-commerce.

The member states have begun work on a revised version of the 1980 Rome Convention, which determines what law applies to contractual obligations, and have completed a draft of a new "Rome II" Convention, which would determine what law applies to non-contractual obligations. The latter include tort/delict, consumer protection, and competition. With regard to both Conventions, officials are expected to press for an expansion of the right of the consumer to rely on the laws of the country where he or she resides, particularly in cases arising out of e-commerce. Again, the business community opposes this approach because it will impede e-commerce without helping consumers.

The E-Signatures Directive

Digital codes will be an important means of identifying the participants in electronic transactions and ensuring the integrity of electronic documents, among other things. To bring legal uniformity to this area, the EU has finalised an E-Signatures Directive. The Directive will forbid member states from declaring a signature ineffective or inadmissible in court solely on the ground that it is electronic. The Directive gives advanced e-signatures – based upon a qualified certificate and created by a secure signature creation device – equal legal status to hand-written signatures. Annexes to the Directive outline requirements for certification and creation of secure signatures. The Directive applies a country of origin rule to e-signature services, allowing them to circulate freely in the EU. It also creates liability rules for certification service providers who issue certificates supporting e-signatures.

Distance Contracts and Financial Services

By its very nature, e-commerce involves transactions at a distance and parties do not encounter one another physically. In 1997, the EU adopted a general Directive on such distance sales specifying, among other things, the type of information that sellers must provide to buyers. The Directive applies to conventional as well as electronic transactions.

Financial services were excluded from the general Directive, and in 1998, the Commission proposed a special distance selling Directive for this sector. A key area of debate is whether member states will be allowed to adopt rules that are stricter than those contained in the new Directive and apply them to cross-border services. Most segments of the business community wish to limit member state authority in this regard, arguing that the resulting patchwork of rules would undermine free movement of financial services, online or offline, throughout the EU.

The Transparency Directive

The Transparency Directive enhances public scrutiny of national legislation in fields that it covers. Originally adopted in 1983, it was intended to help the Commission monitor new member state proposals concerning technical rules and standards. The Directive was amended in 1998 to cover member state proposals affecting information society services. The member states must notify the Commission of each new proposal, then observe a standstill period of at least three months. During the standstill, the Commission and other member states have an opportunity to comment. This Directive provides an important opening for the business community, which can review new proposals and discuss them with policymakers prior to adoption.

The Copyright Directive

The member states are reviewing a proposed Copyright Directive that would harmonize copyright law throughout the EU and implement two international agreements adopted by the World Intellectual Property Organization. The proposed Directive is intended, among other things, to adapt copyright law to the needs of the information society. Disagreements between content providers and the telecoms industry over whether and to what extent copyright laws should apply to temporary copies created by transmission of materials over the internet have slowed the legislative process. The proposal may begin to move again in spring 2000.


At a time when the available evidence points to exceptional growth for information society services, the EU wants to ensure that appropriate rules are in place. Thus, an effort is underway to redesign the regulatory framework for telecoms and other infrastructure services and, at the same time, finalise a framework for commercial activities utilizing these services.

This presents a tremendous opportunity for the business community to ensure that the new rules promote, and do not deter, the growth of the electronic marketplace. It is difficult to overstate the potential benefits to consumers, businesses and governments if policymakers get the rules right. On the other hand, regulatory missteps could impede the development of the information society, making it more difficult for companies operating in the EU to compete in the global electronic marketplace.

Contact Details:

Covington & Burling

Avenue des Arts 44-Bte.8

Brussels 1040


Tel: +32 2 549 5230

Fax: +32 2 502 1598