Here's the scenario: You enter into a contract with a Russian company. The contract is negotiated, created, executed and stored digitally on the Internet. If you have a dispute, which country's law will the court apply?
Now, let's add a few more details. Your electronic messages pass through 28 countries between Russia and the United States. You have no telephone calls, no physical contact, you never leave the United States, and they never leave Russia. Your check is to go to a Swiss bank account, and they are to perform services only in Russia.
But they don't do whatever it is they're supposed to do in Russia and breach the contract.
Let's say that you sue them in a Russian court. Should the Russian court apply Russian, American or some other law in resolving the dispute?
Lawyers will immediately recognize this as a classic "choice of law" question. Choice of law issues arise when the events underlying a legal question span more than one state or country, and it's what lawyers call choice of law principles that resolve the question of whose law applies.
The problem is that these principles are old and, while they are time-tested, they weren't developed with cyberspace in mind.
The traditional rules rely heavily upon geographical locations and boundaries, concepts that aren't relevant in cyberspace. Conceivably, using the Internet, you may not have known you were dealing with a company located in Russia. For all practical purposes, electronic responses to your queries will reach you at the same time whether the other party is half a world or half a mile away.
Contract Should Answer the Question
If you have a contract, the best answer to a choice of law question is that the contract answers the question. In other words, the contract should simply spell it out: "This contract shall be governed by Florida law" or whatever law you agree upon.
The catch is that contracts are often silent on this issue. Sometimes, it's because the parties didn't consider the question. Other times, the parties choose silence because they can't agree on an answer. Essentially, they've agreed to let the court decide what law will apply in a lawsuit.
However, many legal disputes don't involve contracts at all. Defamation is just a single example of a potential non-contractual dispute that can arise in cyberspace. If you post a libelous message in a newsgroup (an electronic bulletin board where your libelous message can be read by millions over the Internet) concerning a British citizen, which law applies, British or American? It's a good question without a clear answer.
Most Significant Relationship
In the United States, the traditional underlying concept in choosing which state's law would apply in an interstate transaction is that the court should apply the law of the state that has the most significant relationship to the events or parties involved. To help determine that, courts generally look at things like the place of the injury, the place of the conduct causing the injury, where the negotiations took place and the nationality of the parties.
But those aren't concepts that translate to cyberspace, because they all revolve around physical geography and political boundaries. On the Net, there's no such thing.
In the hypothetical dispute with the Russian company, for example, everything happened in cyberspace without reference to physical location. To litigate a contract dispute, should you be subjected to something so completely unexpected as Russian law? And of course, the Russian party will probably feel the same way about American law.
One state Attorney General in the United States has taken a strong position about whose law applies when it comes to the Internet, and here's what he says:
"Warning to All Internet Users and Providers
Persons outside of Minnesota who transmit information via the Internet knowing that information will be disseminated in Minnesota are subject to jurisdiction in Minnesota courts for violations of state criminal and civil laws."
This is no hypothetical. It's the official position of the Minnesota Attorney General, and you can find it and its related provisions at http://www.state.mn.us/ebranch/ag/memo.txt. It's a scary read, and here's an example of what it means. The Attorney General goes on to say: "Thus . . . credit card companies that . . . provide services to gambling organizations after notice that the activities of the organizations are illegal would be subject to accomplice liability."
Let's break this one down: A Minnesota citizen goes to a web site where she can play casino games and gamble. The web site is hosted on a computer in another country where the activity is perfectly legal. The Minnesotan uses her credit card to buy chips. According to the Attorney General, the Minnesota citizen, the casino and the credit card company have now committed serious crimes in Minnesota.
One of the many problems with this position is that the casino and credit card companies have no practical way of knowing that the gambler is physically in Minnesota. The credit card company conceivably could be charged with the responsibility of not allowing its card to be used for gambling if the account address is in Minnesota-but then what if the Minnesotan is using a computer in a state where Internet gambling is legal? Certainly, Minnesotans are permitted to gamble in Las Vegas without fear of criminal prosecution in Minnesota. And, what if the Minnesotan uses an out-of-state mailing address? Where does the credit card company's responsibility end?
This scenario gets even worse if the credit card company's home state had a law that authorized the credit card company to service all gambling activities if the gambling is legal where the casino is located.
These are all issues without clear answers today. The legal academic community is actively discussing them and proposing solutions, but so far there's no clear consensus.
One interesting proposal comes from Georgetown Law Professor David Post, who proposes that we simply recognize cyberspace as a distinct place in which distinct laws apply. Under this proposal, in ruling on your dispute with the Russian company, the Russian court would apply the Law of Cyberspace. Taken a step further, we could set up a new cyber forum with jurisdiction over cyber law.
The problem with this proposal is that it's not practical in the fractious world we live in. International tribunals have only had limited success in other contexts, and there's probably no reason to think that some miraculous change will happen because we now have the Internet.
We live at a time when cyberspace is still a truly new frontier, and as with any frontier, you venture into many uncertainties. One is the law-the simple fact is that Internet law is less defined than other more traditional legal areas.
Until and unless a distinct law of cyberspace develops, you must continue to look to plain old terrestrial law for guidance. Be as aware of geography as if you weren't in cyberspace. Know that physical location will often answer the question of "whose law applies," even if the concept makes no sense in cyberspace.
The best you can do today is understand the trends and watch for new ones. Armed with expert legal advice, you can make reasoned, if not perfect, choices.