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Post date: September 23 1999

"Ensuring The Integrity Of Electronic Commerce" Remarks By Attorney General Eliot Spitzer Annual Meeting Of The New York State Business Council Bolton Landing, New York

"Ensuring The Integrity Of Electronic Commerce" Remarks By Attorney General Eliot Spitzer Annual Meeting Of The New York State Business Council Bolton Landing, New York

Good morning, everyone. I'd like to talk with you today about the tremendous promise that electronic commerce holds for New York's business community. The internet is revolutionizing the way we do business, the way we communicate with others, and the way seek entertainment and information.
 
The statistics speak for themselves:

    * 92 million North Americans use the web--up from 17 million just one year ago. An additional 17 million new users are projected by the end of this year;
    * Last year, there were 55 million online shoppers in the U.S.;
    * Online retail sales by us-based internet companies topped $100 billion in 1998;
    * Internet-related businesses in the US earned more than $300 billion in revenue during 1998--a growth rate of 175 percent over the past few years;
    * And perhaps most importantly, internet-related businesses created 1.2 million jobs in 1998.

These figures point to one conclusion: there is extraordinary opportunity in e-commerce.

Each of you has an obvious interest in capitalizing on this sea change in our economy. Because of the internet's undeniable importance in the lives of New York's consumers and its businesses, I am fully committed to working with you to ensure that our state can share in its economic and social benefits, and be a true leader in e-commerce.

But for e-commerce to flourish in New York, I believe that we need to act, and act aggressively. In this regard, it is absolutely critical that New Yorkers have full confidence in the integrity of the electronic marketplace. That trust will come about only if consumers believe they can find law and order on the web -- if we demonstrate to them that the same basic protections which exist in the offline world will be applied to online commercial transactions as well.

To that end, I have established a unit within my office dedicated to online enforcement. My Internet Bureau is headed by one of the real stars of my office, Caitlin Halligan, whom many of you have met in recent weeks. This unit is the place New Yorkers can turn to if they confront unlawful or deceptive activity while online. And people are turning to us in increasing numbers. This year, my office will likely receive more than 2,500 complaints about online problems experienced by New York consumers and businesses. We mediate these complaints, and where appropriate, initiate investigative or enforcement actions. These enforcement efforts will ensure that legitimate businesses will not be tainted by the bad apples engaged in fraudulent or deceptive business practices.

I also believe that, in this arena, it's important to go beyond the traditional enforcement powers of this office. As some of you know, I have begun a dialogue with Ed Reinfurt and others at the Business Council to explore how we can work together to foster the growth of e-commerce in New York. In response to the concerns raised in these discussions, I'd like to suggest three ways in which we can collaborate as we move ahead.

1. BRINGING LEGAL CERTAINTY AND PREDICTABILITY TO E-COMMERCE

Businesses have a right to the same legal certainty and predictability available in the offline world when they engage in commercial transactions online. Knowing the legal consequences of an action allows parties to conform their conduct to law and understand the rights and obligations they have with the party on the other end of a transaction. This certainty allows you to deal efficiently with your business partners, and modify default rules with specific contractual language when you need to.

Offline, these rules have been clarified and refined over the years through the uniform commercial code. But with online deals, the legal system does not always provide contracting parties with similar certainty.

In some circumstances, it may not be clear how an offline UCC Rule translates to the online world. For example, all of you have a pretty clear idea when you are acting as an "agent" for another corporation. Online, it's not so obvious. Does providing a link to another site suffice to render you an "agent" of that website? That's a good question -- A question that deserves a clear answer.

In other situations, online interactions may pose new problems for which there's no clear analogue in the offline commercial world. Here, we need to develop new rules of the road.

Whether it's a matter of understanding how existing rules apply or drafting new ones, I want to work with you to ensure that New York has a legal framework that is conducive to e-commerce.

Several recently-enacted and proposed statutes may help us make progress toward this goal. For example, just last month New York passed an important law regarding digital signatures. Other statutes regarding digital information transactions and electronic contracting are likely to come before the state legislature and congress over the coming year.

2. UNDERSTANDING JURISDICTION IN CYBERSPACE

If businesses are to take full advantage of the opportunities afforded by the internet, law enforcement must have a strong online presence, to protect both consumers and businesses.

For e-commerce to realize its potential, consumers must believe that the internet is as safe a place to spend their dollars as main street. Only with adequate enforcement efforts will consumers have this confidence.

Much of my office's work has been focused on protecting members of the public when they venture online. But I realize that businesses, like consumers, also need to be protected from unlawful online activity. Just as you have to know that if someone breaks into your store or office or plant at night, law enforcement will come to your aid, you need to know that when someone hacks into your system or counterfeits your software, law enforcement will be there when appropriate.

Businesses also deserve a clear understanding of the jurisdictional reach of various enforcement agencies. Put simply, you need to know who to call when you confront a problem online. Resolving jurisdictional boundaries is still an evolving project in the online world, but let me give you a few brief pointers.

In the civil context, this office has jurisdiction over disputes in any areas where we have jurisdiction in the offline world; for example, consumer protection, securities, or antitrust cases. In a commercial transaction, that is true if either the buyer or seller resides in New York, provided that a potential defendant has purposefully availed itself of the forum provided by New York through its contacts with the state. With respect to criminal actions, this office has jurisdiction over matters such as securities or antitrust violations, and will work with state agencies and local law enforcement to handle other criminal matters, where appropriate.

Of course, these basic principles don't answer all of your questions, and there may be some areas where jurisdictional lines are unclear, or where it's necessary to confer new authority upon a law enforcement agency. I promise to work with you to clarify the contours of this landscape, and to fill in any gaps that might exist, so that businesses and their customers have adequate redress for online wrongs.

3. DEVELOPING ADEQUATE ONLINE PRIVACY PROTECTIONS

Perhaps the most important measure businesses can take to realize the tremendous potential of e-commerce is to develop adequate online privacy protections.

Recent surveys show that consumers are extremely concerned about their privacy when engaged in e-commerce.

    * 80% of consumers indicate a substantial interest in safeguarding their personal information.
    * More than 80% of consumers believe websites do not have the right to resell their information to third parties.
    * 56% of online users believe government should act now to restrict collection and use of information on the internet.

Privacy concerns are a genuine threat to the continued growth of e-commerce.

    * More than 70% of online users decline to register at a website because of privacy concerns.
    * Even when they do provide information, mistrust remains. More than 1 of every 4 consumers provides false information online because of privacy concerns.

This data makes clear that if consumers do not trust companies to protect their privacy, businesses will not see the full benefits promised by the electronic marketplace. For New York to be a key player in the information economy, our state's businesses must demonstrate a strong commitment to privacy protections. Some of New York's corporations have already taken important steps in this direction. For example, IBM recently announced that it would review the privacy policies of its vendors in deciding where to place its business.

But there's much more work to do. I propose the following initiative to make sure New York achieves this goal: The first step is to learn more about the privacy policies that New York's businesses currently have in place. Specifically, I have suggested that the business council survey its membership and determine (1) how many businesses with an online presence have a privacy policy posted on their websites, and (2) what protections are provided by these policies.

Once we have this snapshot picture, I would encourage all of the Business Council's members to commit to developing meaningful privacy protections. Such policies should:

    * Tell consumers about how information they provide is collected, maintained, and used, whether by the business itself or a third party.
    * Give consumers a meaningful choice about the use of their data. If a consumer does not want his/her personal information transferred or sold to a third party, he or she should be able to protect it.

If New York Can demonstrate to its own residents and the rest of the cyberworld that its businesses will adequately protect personal information obtained online, I am confident that our state's businesses can lead the rest of the world in this tremendous new economic frontier.

I am eager to hear your comments on this challenge so I will conclude now, but before I do I want to leave you with one final thought: In recent years, we have made progress in improving New York's competitiveness. that's a credit to the Governor and to your strong lobbying of the legislature. I would suggest, however, that many of the very worthwhile steps that have been taken have been largely reactive. Cutting sky-high tax rates, lowering workers' compensation costs and reducing regulatory burdens -- these are all important efforts that we must continue.

With e-commerce, however, we have a chance to be proactive. We have a chance to get ahead of the curve. We have a chance to lead the process instead of trying to play catch-up with other states. I know you understand the importance of staying ahead of the competition, but in the public policy arena the tendency is to act only when a crisis looms and then to take incremental steps only. I hope we can change that in the weeks and months ahead. I look forward to working with the business council and each of you to achieve that goal.