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CHAPTER ONE

1.0 INTRODUCTION

The role of the internet in today’s world has unexpectedly fast evolved from a medium of pure communication and information derivation to one additionally facilitating the direct sale and purchase of goods and services. Welcome to the era of electronic commerce in which, human wants and needs ranging from foodstuff, property, electronic gadgets to shares listed on the Nairobi Stock Exchange, delivery services, books, clothes and many more in this day and age, can be satisfied with a mere click (or two). The phenomenon has not been lost on the Kenyan populace with some of the popular local online shops providing internet based transactions being: Rachel’s bargain corner; N-soko; Eastafricanized; Gadgetsguru; and Onlineduka. However, as much as e-commerce derives its upward growth rate and prides itself from and in, respectively, the ease and convenience in the conduct of business transactions, it is not bereft of the legal pitfalls associated with internet based transactions and internet use in general.

This work studies the major legal issues in electronic commerce and their proposed resolution via regulation. Specifically, it addresses the question of the appropriate level of control the Government of Kenya and its agencies may enforce on internet based transactions.

1.1 THE PROBLEM

1.1.1 BACKGROUND OF THE PROBLEM

Electronic commerce involves the use of information technology to enhance communications and transactions with all of an organisation’s stakeholders. Such stakeholders include customers, suppliers, government regulators, financial institutions, managers, employees and the public at large. In brief, it is the carrying out of commercial transactions on the internet.

Websites offering internet based commercial transactions may be classified either as business to consumer (B2C), business to business (B2B) or consumer to consumer (C2C) the last of which is the latest entry in the said classifications.

Electronic commerce generally affords users improvement of organisational performance, increased profitability, increased market share, improved customer service, faster product delivery, round the clock utility, global reach, minimal costs of acquiring serving and retaining customers, offers an extended enterprise that is easy to build, dispenses with the need for intermediaries due to directly approaching customers, improved customer service, knowledge of customer behaviour, defiance of distance limitations, defiance of time limitations, larger markets, increased economic productivity, less advertising costs among numerous other benefits associated with the electronic age. In this light, the internet promotes trade, both local and international, in a way and to an extent not previously envisaged.

Its main stumbling block however, is the sluggish pace at which government regulators are keeping abreast with the information technology revolution in addressing the arising legal issues such as the protection of consumer privacy, the security of consumer payments, contract regulation, protection of intellectual property, the borderless nature of the internet and dispute resolution mechanisms especially for parties in different geographical jurisdictions.

The internet has therefore been often regarded as a wide frontier in which regulation, policies and conventions lag behind developments. The making of case law which demonstrates how laws and regulations are likely to be interpreted also lags behind the specification of laws and regulations. Because the internet and electronic commerce are fairly new in the legal perspective, it is extremely difficult to predict the legal consequences of any action.

Governments the world over know that the internet has become a vital tool in the modern business environment but are not sure whether it deserves their attention and if so how. The aim of this study is therefore to assess the need for government regulation of internet based transactions in Kenya and suggest the extent to which the same may take.

1.1.2 STATEMENT OF THE PROBLEM

With the arrival of fibre-optic cables to East Africa, electronic commerce in Kenya is poised for exponential growth due to the increased web traffic and accessibility offered by this infrastructure that is pegged on affordable and fast access to the internet. This requires an accurate policy and regulatory framework to shape the environment into which the new bandwidth arrives. However, despite an increase in internet based transactions, little has been done to analyse and formulate a clear structure of the extent of regulation to address the legal issues arising from internet based transactions.

Currently the indication of it is to be found in the National Information and Communications Policy 2006 at 3.3.2 ‘Electronic Commerce’ which states that,

In recognition of the important role e-commerce plays in economic development, the use of e-commerce in trade and investments as a means of integrating Kenya into the global economy will be promoted.

To this end, the Government will:

a) Support the development of e-commerce by enacting appropriate legislation to support e-business…

Certain issues are left unresolved in this provision such as, what is the legal framework to ensure the entrenchment of the policy’s provision? What timeframe should be given to enact such legislation? Which issues is such legislation to address? What is the role of the private sector in developing internet based commerce regulations? What kind of restrictions should the government avoid in coming up with a regulatory framework?

If these questions are not seriously addressed and acted upon urgently, opportunities that would otherwise have been available to the business community and the general public due to the increased internet accessibility, will become foreclosed due to the lack of a substantive and procedural framework to address the everyday issues arising in electronic commerce previously highlighted such as the protection of consumer privacy, the security of consumer payments, contract regulation, protection of intellectual property, the borderless nature of the internet and dispute resolution mechanisms especially for parties in different geographical jurisdictions.

This will in the long run impede Kenya’s goals in its search for dominance in the world’s dynamic economic environment. The expediency with which the regulation on this front is required cannot therefore be stressed enough. It therefore becomes the intention of this work to suggest a regulatory framework for the same in Kenya.

1.1.3 RESEARCH QUESTIONS

Main Research Question

As a guide in formulating a solution to the stated legal problem, the question that begs an answer is:

What appropriate level of control may the Government of Kenya and its agencies enforce on internet based transactions?

Specific Research Questions

Specific questions without which the foregoing cannot be answered are formulated as hereunder:

1. To what extent are differences between electronic commerce and traditional modes of transactions existent that justify separate regulation?
2. To what extent do legal issues arise in electronic commerce bringing about the need for regulation?
3. To what extent do the laws of Kenya currently in existence act as barriers to electronic commerce?
4. To what benefit is a comparative study to the United Kingdom’s system in coming up with Kenya’s regulatory framework?

1.2 POINTS OF DEPARTURE, SIGNIFICANCE, PRESUMPTIONS AND HYPOTHESIS

1.2.1 THEORETICAL FRAMEWORK

There are three main aspects that underpin the question on whether or not to have various governments regulate internet transactions within their respective jurisdictions. The first of these is the economic theory which looks to the various economic merits and demerits that are associated with having either a controlled business environment (planned economy) or an economy subjected solely to the market forces of demand and supply (free market system). The other is the argument for and against the libertarian theorywhile the last considers the position of state sovereignty versus the borderless nature of the internet. This section considers all these points of view and attempts to derive a point of convergence for the current research agenda.

1.2.1a Economic Theories

A free market system is where the decision about what is regulated is the outcome of millions of separate individual decisions made by consumers, producers and owners of productive services. The decisions reflect private preferences and interests.In addition, the system elevates the principle of party autonomy which is considered essential in the conduct of business transactions. Apart from playing its traditional role of providing defence, police service and such infrastructural facilities as roads for public transport, a government plays a very limited role in directly economic profit making activities.

The free market system affords various advantages to the parties involved. Firstly, people are given the incentive to work hard because opportunities exist for individuals to accumulate high levels of wealth via unlimited means. Secondly, people are afforded the opportunity to spend their money in whichever manner they wish. Thirdly, a free market is flexible in that it responds adequately to changes in consumer wishes. Finally,because the decisions are made in response to market demands, there is no need to use additional resources to make decisions, record them and check on whether or not they are being carried out. The size of the civil service is therefore significantly reduced.

A planned economy on the other hand is a system where all major economic decisions are made by a government ministry or affiliated planning organisation. Here all questions about the allocation of resources and mode of operation in transactions are determined by the government.

A major benefit associated with this kind of intervention is the promotion of public policy given the government’s position of being best placed to know and protect the interests of its populace.One of the disadvantages associated with this kind of economy is the lack of choice for the transacting parties on the conduct of their activities or the erosion of party autonomy. Further, since the state makes all the decisions, there must be large influential government departments which may lead to inefficient planning and to communication problems. Government officials can become over privileged and use their position for personal gain, rather than for the good of the rest of the society. This is in addition to the colossal costs of maintaining such a system.

1.2.1b Libertarian and Governance Theories

Are individuals the best judges of their own interests, or does the state, acting on behalf of society, have the right to set limits on what it regards as acceptable? This question defines the ongoing conflict between the rights of the individual and the rights of society.

The debate was initiated in 1957 when the Wolfenden Committee made recommendations for the legalisation of private prostitution and private male homosexual activities. What was of particular importance was the Wolfenden view of the function of criminal law which was stated as the preservation of public order and decency, the protection of citizens from what is offensive or injurious and to provide safeguards against the exploitation and corruption of others. It was further stated that this excluded the intervention in the private lives of citizens or the enforcement of particular patterns of behaviour.

The findings of the Wolfenden Committee were clearly based on John Stuart Mill’s statement:

The sole end for which mankind is warranted, individually or collectively, in interfering with the liberty of action of any of their number, is self protection. The only purpose for which power can be rightfully exercised over any member of a civilised community, against his will, is to prevent harm to others. His own good, either physical or moral is not sufficient warrant.

This became known as the no-harm principle according to which, there is no justification for the use of the law against citizens for any other purpose other than the prevention of harm to other citizens.

The objections to government interference were listed to be of three kinds. Firstly, the thing to be done is likely to be better conducted by individuals than by the government based on the premise that, there is no one so fit to conduct any business as those who are personally interested in it. Secondly, it is desirable that a thing should be done by individuals, rather than by the government, as a means of exercising their judgment, and giving them a familiar knowledge of the subjects in question. Thirdly, the avoidance of adding unnecessarily to a government’s power is considered to be desirable.

1.2.1c State Sovereignty versus ‘Borderless Nature of the Internet’

Apart from the economic considerations given to regulation of business transactions, the issue of jurisdiction arises given the ‘borderless nature of the internet’.Jurisdiction concerns the power of the state to affect people, property and circumstances and reflects the basic principles of state sovereignty, equality of states and non-interference in domestic affairs. Jurisdiction is a vital and central element of state sovereignty, for it is an exercise of authority, which can alter or create or terminate legal relationships and obligations.

Cyberspace is an amorphous space that does not occupy a set physical or geographic location.It is not a physical object with a tangible existence, but is itself a set of network protocols that has been adopted by a large number of individual networks allowing the transfer of information among them It is therefore a key feature of the Internet that it is set up to operate logically rather than geographically.

Since transactions can involve computers in many countries at once, it is difficult under current jurisdictional analysis to assign liability. It has been argued that a way to regulate the internet is to allow Internet service providers to serve as enforcers and regulators by virtue of the market.

1.2.1d Point s of Convergence

Despite the argument for self-regulation and party autonomy as expressed under free market thinking, consideration for public policy as best protected by the state should be given primary concern.This is because the state is under an obligation to uphold the best interests of the greater populace given the mandate which has been entrusted upon it by the people who have submitted their power and sovereignty to the state. In this way, the public order, safety, health, morals or the fundamental rights and freedoms of others are upheld to the benefit of having an enhanced society.

It therefore becomes necessary to formulate a system embodying both the free market and planned economies to mitigate against their individual demerits. To this end, a mixed economyis utilised. It includes elements of both free market and planned economies with the ratio of such mix depending on a particular set of circumstances. Transactions between a citizenry either using traditional methods or the internet are influenced by the market forces and self regulation but also subject to some further government control, such as through data protection, pollution, consumer protection, safety, employment and dispute resolution regulations and laws. This effectively cushions against the negative effects of exclusively free market and planned economies.

The operation of an optimal market depends upon parties having the confidence that they will be able to transact in an enabling environment. If they see the risk as being unacceptable, they will not employ resources, including labour and the general standard of living of the country will fall. It is for this reason that the mixed economy is utilised to dictate certain minimum standards in the conduct of transactions both over the internet and those that rely upon purely traditional methods.

The libertarian theory discussed above gives credence to the need to find an elusive balance between government regulation and the liberty of persons to do as they wish. Specifically, the thin line is described as that point at which government regulation and interference is needed for the prevention of harm to others. This could be interpreted to mean that a government can step in to protect consumers from harmful products or unethical business practices, to uphold an individual’s dignity by affording data protection laws, to protect consumers from fraud by affording payments protection among other measures which would be non-existent if the internet transactions were left purely to the mechanisms of self-regulation.

As much as the borderless nature promotes self-regulation, it becomes necessary for a state in the exercise of its sovereignty to govern certain aspects arising in internet transactions for the sake of public welfare as described in the foregoing.

1.2.2 SIGNIFICANCE OF THE STUDY

This study is of potential usefulness to the ICT Board of Kenya and Ministry of Information and Communication in their endeavour for a regulatory framework for electronic commerce in Kenya and in the achievement of the ambitious Vision 2030 agenda.

It can also be utilised in the impartation of knowledge on the legal aspects of Information Technology-an upcoming area of law-to the entire legal fraternity via continuous legal education and basic undergraduate learning.

Further, it can be used for the sensitization of legal issues in internet based commercial transactions and how to effectively tackle them to the business community and the public at large.

1.2.3 PRESUMPTIONS OF THE STUDY

The following presumptions are made regarding regulation of internet based transactions limited to the scope of this study;

1. That the internet is gaining ever-increasing importance in commercial transactions conducted in Kenya.
2. That ‘electronic commerce’ for the purposes of this work refers to internet based transactions. It is not the intention of this paper to cover mobile money transfer services such as M-Pesa, Yu Cash, IkoPesa and Zap offered by various telecommunication service providers.
3. That this work shall not deal with cyber-crimes unless the same relate to commercial transactions over the internet.
4. That based on the dynamism of the internet, boundaries have to be clearly set out.
5. That the work shall be limited to the extent of regulation rather than the specific legislative technical form the same shall take given the writer’s lack of legislative drafting skill or experience

1.2.4 HYPOTHESIS

The work will dedicate a significant amount of its time and resources in an endeavour to analyse the accuracy of the following statement:

The purpose for which power can be rightfully exercised over a citizenry is to prevent harm to others and facilitate amicable transactions.

1.3 RESEARCH DESIGN

A comparative analysis will be conducted between various jurisdictions which have regulation of electronic commerce in place and the efforts made in Kenya. This will seek to establish whether and how the issues related to electronic commerce can be resolved. An examination is also conducted into why the different jurisdictions tackle the issue as they do in addition to utilising common elements to suggest a solution to the issue at hand.

A comparative study given the present case finds its suitability on the premise that it will contribute to deeper or expanded insights and a better understanding of the work. Further, given the fact that Kenya’s efforts on this front have been largely unsuccessful or vague at best, it becomes prudent to seek some form of clarity if this work is to effectively answer its main research question. Finally, regard must be had to defiant nature of the internet towards geographical borders which restricts the use of a single national system in this work.

The study will be undertaken mainly with reliance upon a diverse range of text books and various academic articles derived from various documents and electronic sources.

1.4 LITERATURE REVIEW

Regulation takes the form of public law in the form of constitutional criminal and administrative law and private law in the form of tort law, property and contractual law. A further aspect is competition law whereby public law instruments are used to intervene in free contracts ruled by private law when the market fails. This occurs when the players in the market threaten to abuse dominant positions, negative externalities arise and information inadequacies such as the lack of information on the side of the consumer to make a well informed and free choice in the market rear their ugly head. The government may use different instruments to achieve its goal to redress such market failure. The list of available instruments ranges from command and control (under public law) to self regulation and enforcement of rights and liabilities (under private law).

Transactions taking place between a supplier in one jurisdiction and one in another is a difficulty in the determination of disputes. The internet promotes international trade in a way not previously envisaged and has therefore become a wide frontier in which regulation policies and conventions lag behind developments while the making of case law which demonstrates how laws and regulations are likely to be interpreted also lags behind the specification of laws and regulations. Because the internet and e-commerce are new, it is very difficult to predict the legal consequences of any action.

On the local front, it is noted that the ICT policy is silent on the security challenge, the pricing issue, the intellectual property issue, protection of harmful content among others.

The same is galvanized by pointing out that the laws of Kenya at present do not recognize electronic transactions with some of the requirements in place acting as clear indications of this. These include giving information in writing, providing a signature, producing a document, recording information and retaining a document all of which must be in material form.

1.5 CHAPTER BREAKDOWN

In the achievement of the foregoing objectives, this work follows the order as described hereunder.

The first chapter covers the introductory phase of the study by expressing the background to the problem and statement of the same that necessitates the study, highlighting the major legal issues involved and outlining the scope of the work. The chapter further stipulates how the work is to be tackled.

The secondchapter considers the legal issues involved that have been highlighted in the first chapter. Specifically, it conducts an in-depth examination of: the differences between electronic commerce and traditional modes of transactions that justify separate regulation for the internet; the legal challenges arising in electronic commerce; and the extent to which the laws of Kenya currently in existence act as barriers to electronic commerce.

The third chapter conducts a comparative study of the United Kingdom’s regulatory system on internet based transactions with the aim of deriving lessons from it.

Finally, the fourth chapter suggests an appropriate level of control the Government of Kenya and its agencies may enforce on internet based transactions with consideration to the legal issues and the United Kingdom’s system. The chapter includes the role of the private sector towards the formulation of said level of control and the kind of restrictions the government should avoid in coming up with a regulatory framework. It concludes the conduct of this work.

CHAPTER TWO

2.0 INTRODUCTION

This chapter considers the differences between the internet and other forms of technology necessitating its own form of regulation. It further delves into the legal issues that have to be dealt with given the nature of the internet and finalises with a commentary on the laws that act as barriers to the conduct of electronic commerce in Kenya.

2.1 DIFFERENCES BETWEEN THE INTERNET AND OTHER FORMS OF TECHNOLOGY NECESSITATING ITS OWN FORM OF REGULATION

A nagging challenge is existent in regulating ICT given its uniqueness as compared to other forms of technology. This section of the paper seeks to examine the extent to which this is manifested.

Regulation takes the form of public law in the form of constitutional, criminal and administrative law and private law in the form of tort law, property and contractual law. Competition law can also be discussed whereby, public law instruments are used to intervene in free contracts ruled by private law when the market fails because players on the market threaten to abuse dominant positions, negative externalities and information inadequacies such as the lack of information on the side of the consumer to make a well informed and free choice in the market.

The government may use different instruments to achieve its goal to redress the market failure. The range of available instruments ranges from command and control under public law to self regulation and rights and liabilities under private law.

Use of the internet is growing rapidly every year, due to the decrease in computer costs and availability of free internet access.

The first of the main differences between fixed telephony and the Internet is that the former has been shaped by parastatals which follow state guidelines in the strict sense while the latter has been subject to a negotiating process of self regulation derived from various private company boardrooms. The real worries about design and standardization on the internet therefore relate to the instance at which push comes to shove in the never-ending search for dominance in the marketplace.

Second , the anonymity option and applications enables commercial transactions to flood the internet. Such anonymity is not usually guaranteed in other forms of technology thereby bringing in the need for separate regulation.

Technical devices (in the form of software) which enable the formation of legal relationships are increasingly important. Electronic commerce needs its own set of regulations separate from the conventional law of contract in order to maintain financial transactions, anonymity, and verification of accounts and parties to transactions.

Third , given the internet’s description as ‘a network of networks linked to many national territories’ an implication for the need of special regulation is made given ICT’s international nature which differs from that of other technologies. Enforcement of law is hardly conceivable without the enforcement on national territories. It is from this point that international law regarding ICT develops.As far as trade is concerned the international law as it was formed in the physical world of international trade on the basis of trade customs, general conditions and agreements, develops as easily on the internet as in the traditional physical world.

Fourth , is the lack of authority on the internet. The internet is without a clear controlling body. It lacks in a mechanism to guide its processes since it exists as a network of computers. This causes all sorts of problems especially in fields that should not be left to self regulation by stakeholders with their own interest, but should rather be covered by a more democratic form of regulation under public law. This is especially given the lengths individuals go to protect their own selfish interests to societal detriment. These include constitutional values such as the freedom of expression, right to privacy and protection of proprietary interest.

Finally , the constant clash of different schools of thought regarding the privacy and its protection necessitate the creation of separate regulations for ICT. These are the utilitarian and dignitarian notions. The former enhances protection in the manner of a mere interest as opposed to the latter which views such protection to be that of an inherent right. These are discussed further below.

Privacy is an issue that concerns the computer community in connection with maintaining personal information on individual citizens in computerized record keeping systems. It deals with the rights of the individual regarding the collection of information in a record-keeping system about his person and activities and the processing dissemination storage and use of this information in making determinations about him. This last aspect is a long-standing legal and social problem that has become associated with the computer field mainly because computerised record-keeping systems are much more efficient than the manual systems they have replaced and because they permit linkages between record-keeping systems and correlations of records on a much greater scale than previously possible in manual systems. Thus threats to individual privacy from manual record-keeping systems are potentially amplified in computerised system.

Given the wide ranging differences between the two in their definition and application it becomes necessary to create a form of separate regulations for the internet since it cannot be based on physical territory, physical objects and physical persons.

2.2 LEGAL ISSUES ARISING IN INTERNET TRANSACTIONS

2.2.1 PRIVACY

Privacy has had varied definitions and significance attached to it. Technology, especially the internet phenomenon, has had quite an impact in this field. It is the purpose of this section to delve into the intricacies of privacy: its definition; significance; the role of technology in the field; and the role of law in its safeguarding.

“ The right to decide how much knowledge of his personal thought and feeling and how much knowledge therefore of his tastes and habits of his own private doings and affairs and those of his family living under his roof, the public at large shall have is as much as one of his natural rights as his right to decide how he shall eat and drink, what he shall wear and in what manner he shall pass his leisure hours”

Those who attempt to define privacy seek to describe what privacy constitutes. Academics have defined privacy as a right to personhood, intimacy, secrecy, limited access to the self, and control over the information. The term privacy is used to denote a condition or a state in which a person is less inaccessible to others, either on the spatial, psychological or informational plane. In short, it denotes a state of limited accessibility. The notion of related interests denotes interests which privacy helps to promote and which help to promote privacy. The principal such interests are autonomy (that is, self determination), integrity (that is, a person’s state of intact, harmonious functionality based on other persons’ respect for him/her) and dignity (that is, a person’s intrinsic worth).

The common law secures to each individual the right of determining ordinarily to what extent his thoughts, sentiments and emotions shall be communicated to others. This goes to the extent that even if he has, in his discretion, chosen to give them expression, he can still limit the publicity extended to such expressions. The existence of this right does not depend upon the particular method of expression adopted. It becomes immaterial the form in which the expression has been made (words, signs, or some form of art). Neither is dependence placed upon the nature or value of the thought nor upon the brilliance of the mode of expression.

Information does indeed possess a number of attributes attachable to ordinary property two of which are that it is transferable and it has value whereby publication or reproduction is a means by which that value is realised. Therefore, the protection accorded to thoughts, emotions and sentiments, as regards publication of the same, is an instance of the upholding of the ‘right of the individual to be let alone’. The reality of which is pegged upon the principle of ‘inviolate personality’. These rights, not arising from a contractual relation, are rights in rem. The applicable principle in the protection of these rights cannot therefore be the principle of private property rather, it is the right to privacy.

The power to keep information to oneself relates to the fair treatment of individuals in society thereby emphasising respect for the fundamental dignity of persons. This in effect reduces the grading of everyone you bump into or interact with as potential customers based on ill obtained information. Such information may in fact lead to the formation of unreasonable judgments of personality and economic viability. Indeed, liberal moral philosophers maintain that respecting privacy is paramount to the respect for human dignity, moral autonomy, workable community life, personhood and tolerant democratic legal and political institutions.

The remedy for an invasion of the right of privacy has been mainly an action of tort for damages in all cases. Compensation could be allowed for injury to feelings with the remedy of an injunction upon the satisfaction of strict prerequisites by the claimant to the court.

William Prosser defines privacy torts as: public disclosure of private facts whereby a cause of action arises against one who publicly discloses a private matter that is highly offensive to a reasonable person and is not of legitimate concern to the public; intrusion upon seclusion whereby a remedy is provided when one intrudes upon the solitude of another, his private affairs or concerns if the intrusion is highly offensive to a reasonable person; false light which creates a cause of action when one publicly discloses a matter that places a person in false light that is highly offensive to a reasonable person; and appropriation whereby a cause of action arises against one who appropriates to his own use or benefit, the name or the likeness of the claimant. The right to privacy however, does not prohibit any publication of matter which is of public or general interest.

It is important to distinguish between the concept of privacy and the right of privacy. As Hyman Gross observed “the law does not determine what .privacy is, but only what situations of privacy will be afforded legal protection”. Privacy as a concept involves what privacy entails and how it is to be valued. Privacy as a right involves the extent to which privacy is and should be legally protected

Computers enable the easy storage and manipulation of data thereby making them a welcome tool for private companies especially marketers.Indeed, the internet has defined new frontiers for the exchange of information and in this regard enables new forms of targeted marketing via which a different advertisement is displayed for each user thus delivering advertisements to the consumers most likely to respond to them. Spamming, whereby unsolicited emails are sent to individuals to advertise products and services,is then undertaken. The collection of data is key to the definition of the target. Entrepreneurs’ ability to gather end users’ personal information and preferences on the internet has raised privacy concerns especially in relation to consumer e-commerce data.

An argument for the use of data mining is that the needs of individuals are better met because technology can track and predict their behaviour.

Two general methods can be used in this regard. First, a company can directly request users to log in to obtain access to certain parts of a website. It also collects data whenever a user makes a purchase. As people sign up for newsletters, purchase items and generally browse even for a ‘window-shopping’ excursion, their data is being collected via data mining. Thereafter, analytical tools for interpreting data make it possible to detect certain behaviour patterns and develop psychological profiles. Secondly, websites can secretly track a users web surfing. Keystroke loggers, cookies and web bugs are means by which data collection is undertaken and can be secretly installed onto one’s computer to derive said data. Websites use cookies to identify and thus target particular users. A cookie is a small text file that is downloaded into the user’s computer when a user accesses a website. It is encoded usually including an identification number. It serves the function of letting a website know that a particular user has returned which can then access any information it collected about that individual on his previous visits to the website.

Marketers are not the only ones who utilise this kind of technology. Copyright holders in their quest to prevent the violation of their rights, utilise DRM technologies to track down internet users who act in violation of copyright terms and conditions.Rights-management languagesexpress in machine-readable form the rights and responsibilities of owners, distributors, and users, enabling application programs to determine whether requested uses should be allowed come in handy in this regard.

Certain technologies have been developed to counter data collection. One of these is encryption, a method of translating a communication into a code which is translated back to the original message by the intended recipient thereby protecting the confidentiality and security of communications. Another is anonymising technology that enables people to use the internet without leaving a data trail. This prevents a website from being able to trace a user. As much as methods to counter data mining have developed over the years, they still remain insufficient to deal with advanced and resilient hacker tactics. The fact of the matter is that personal information about various internet users is frighteningly easy to obtain and even easier to sell. This leaves legislation and other legal mechanisms as the most solid options for consumer data protection. How the law responds to the future and present dangers of privacy varies from jurisdiction to jurisdiction.

2.2.2 INTELLECTUAL PROPERTY

Intellectual property, very broadly, means the legal rights which result from intellectual activity in the industrial, scientific, literary and artistic fields. Countries have laws to protect intellectual property for two main reasons. One is to give statutory expression to the moral and economic rights of creators in their creations and the rights of the public in access to those creations. The second is to promote, as a deliberate act of Government policy, creativity and the dissemination and application of its results and to encourage fair trading which would contribute to economic and social development.

Generally speaking, intellectual property law aims at safeguarding creators and other producers of intellectual goods and services by granting them certain time-limited rights to control the use made of those productions. Those rights do not apply to the physical object in which the creation may be embodied but instead to the intellectual creation as such. Intellectual property is traditionally divided into two branches, “industrial property” and “copyright.”

The expression “industrial property” covers inventions and industrial designs. Simply stated, inventions are new solutions to technical problems and industrial designs are aesthetic creations determining the appearance of industrial products. In addition, industrial property includes trademarks, service marks, commercial names and designations, including indications of source and appellations of origin, and protection against unfair competition. Here, the aspect of intellectual creations—although existent—is less prominent, but what counts here is that the object of industrial property typically consists of signs transmitting information to consumers, in particular as regards products and services offered on the market, and that the protection is directed against unauthorized use of such signs which is likely to mislead consumers, and misleading practices in general.

A patent is a document, issued, upon application, by a government office (or a regional office acting for several countries), which describes an invention and creates a legal situation in which the patented invention can normally only be exploited (manufactured, used, sold, imported) with the authorization of the owner of the patent. “Invention” means a solution to a specific problem in the field of technology. An invention may relate to a product or a process. The protection conferred by the patent is limited in time (generally 20 years). Simply put, a patent is the right granted by the State to an inventor to exclude others from commercially exploiting the invention for a limited period, in return for the disclosure of the invention, so that others may gain the benefit of the invention.The disclosure of the invention is thus an important consideration in any patent granting procedure. An invention must meet several criteria if it is to be eligible for patent protection. These include, most significantly, that the invention must consist of patentable subject matter, the invention must be industrially applicable (useful), it must be new (novel), it must exhibit a sufficient “inventive step” (be non-obvious), and the disclosure of the invention in the patent application must meet certain standards.

Copyright protects from exploitation by other people the fruits of someone’s work, labour, skill or taste. This is achieved by making it unlawful to reproduce or copy any literary, dramatic, musical or artistic work without the consent of the owner of copyright in that work.There are two main categories of rights under copyright law. First and foremost, are economic rights that allow the owner to derive financial reward from the use of his works for example, by copying, reproduction or communication of the work to the public. Secondly, the author has moral rights that allow the author to take certain actions to preserve the personal link between himself and the work usually via acknowledgement and protection from mutilation of the work jeopardizing the author’s reputation (the paternity right and integrity right respectively). Under this system of rights, creators are assured that their works can be disseminated without fear of unauthorized copying or piracy.

Copyright protection, from the viewpoint of the creator of works, makes sense only if the creator actually derives benefits from such works, and this cannot happen in the absence of publication and dissemination of his works and the facilitation of such publication and dissemination. This is the essential role of copyright in developing countries.

Fair dealing or fair use is a limitation and exception to the exclusive right granted by copyright law to the author of a creative work which is found in many of the common law jurisdictions. The principle allows copying of copyrighted material for a limited and transformative purpose without the copyright owner’s permission. The same is a defence against an action for copyright infringement. Most fair dealing analysis falls into two categories: commentary and criticism or parody. Fair dealing principles allow one to reproduce some of the work in the conduct of comment and criticism of a copyrighted work with the rationale being the enhancement of the public benefit from the review by including some of the copyrighted work. The same allowance is extended to ridicule of another, usually well known work, by imitating it in a comical way that is, parody.

There are no hard and fast rules regarding fair use rather, only general rules and widely varying court decisions are utilized in its determination. The doctrine therefore faces a highly subjective test on a case by case basis. Judges consider: the transformative character that is, whether the material has been used to create something new or merely copied verbatim into another work; the nature of the copyrighted work with the effect that due to the public benefits derived from the dissemination of facts or information, more leeway is given to a copy from factual works than from fictional works; the amount and substantiality of the portion taken with consideration being given to whether the material copied is a large portion of the work copied. The smaller the portion, the more likely a claim of fair use will be upheld. However, a portion copied may be small but gives the entire work its meaning or interpretation of the work; and the effect of use upon the potential market with consideration being given to whether the use of the copyrighted work deprives its owner of significant income or undermines a new or potential market for the copyrighted work even if you are not competing directly with the original work.

A trademark is any sign that individualizes the goods of a given enterprise anddistinguishes them from the goods of its competitors.In order to individualize a product for the consumer, the trademark must indicate its source. This does not mean that it must inform the consumer of the actual person who has manufactured the product or even the one who is trading in it. It is sufficient that the consumer can trust in a given enterprise, not necessarily known to him, being responsible for the product sold under the trademark.

The function of indicating the source as described above presupposes that the trademark distinguishes the goods of a given enterprise from those of other enterprises; only if it allows the consumer to distinguish a product sold under it from the goods of other enterprises offered on the market can the trademark fulfill this function. This shows that the distinguishing function and the function of indicating the source cannot really be separated. For practical purposes one can even simply rely on the distinguishing function of the trademark, and define it as “any visible sign capable of distinguishing the goods or services of an enterprise from those of other enterprises.”

In this Intellectual property framework, one of the challenges faced-which is within the scope of this paper- is that of technical developments.

Basically there are trends of technological developments that will have an impact on intellectual property protection. Digitization allows information to be produced disseminated and used on the basis of a uniform format making copying alteration and use much easier at a less cost than with conventional media. The effect is enhanced by networking that permits easy dissemination as well as decentralised production. The foregoing is especially true for copyright which has been strongly related to media and their technical improvements.

Notably, digitisation and networking will result in a loss of control for the right holder and multiplication of potentials for infringement. Another effect of technological developments is emergence of new candidates for intellectual property protection. Domain names on the internet are only one example. Here, legal systems the world over have tried to cope with this problem within the workings of trademark systems. Unfortunately trademarks are only registered in terms of a particular country. Hence protecting a trademark on the internet is made difficult because the user of a trademark registered in one country is not guaranteed use of that trademark in another country.

2.2.3 CONSUMER PAYMENTS PROTECTION

The ready availability of information about individuals over the internet provides a fertile source of data for criminals. Stalkers obtain information about their victims over the internet. A more serious threat however emanates from the increase in identity thieves who utilise the glut of personal identifying information available over the internet to more easily obtain the necessary information to steal the identity of their victims. The latter end having innumerable bills and even criminal charges against them based upon the ‘false’ new bank accounts, credit cards and loans made out in their name. In addition is the damage to the victim’s credit record.

With the emerging technology, the risk of data theft, cash theft, theft of service, and corruption of data and viruses becomes a reality. The possibility of fraud also increases significantly with the Internet because of the difficulty of accounting for use of the service. Built-in security is not provided by the Internet as messages and information sent through a computer may be routed through many different systems before reaching their destination. Each different system introduces unwanted individuals who can access data; therefore, security is needed to protect messages from unwanted damage, copying, or eavesdropping.

Companies do not want private or confidential documents falling into the wrong hands. Unauthorized persons may also break into systems just to destroy data stored there. This may prove very costly to the company, even if they have made backups, as it takes time to restore the data and make additional backup copies. During reinstallation, the company may be paralyzed and unable to attend to their customers’ needs and these consumers may become dissatisfied and give their business to someone else.

To compound the problem, a secure network is critical to keep unwanted users from using company resources. Some unauthorized users may break into networks just to borrow resources and these additional users may cause organizations to lose valuable system administration time. If there is a large number of additional users on a system, it will slow down, possibly to a stop. The slow or down system may keep employees and customers from doing their business and will further their frustrations.

Intruders may also execute commands that modify or damage the system or cause corrupted or damaged products to be sent to customers.

Companies must consider the threat of personal or financial information being altered, damaged or destroyed as personnel records or customer records are greatly at risk of losing their confidentiality and secrecy especially the risk of credit card numbers being intercepted.

An important security issue to consider is that information about the Web server’s host machine may leak through, giving outsiders data that will allow them to break into the host machine. Allowing a security hole to the host machine would make a host vulnerable to the outside.

Just as the Internet does not provide its own system privacy, it does not have built-in individual user protection. The danger of the Internet now is the illusion of anonymity that is completely false. People think they’re invisible. In reality servers log every access, IP address, time of download, user’s name, URL requested, status of request, size of data transmitted, client the reader is using and sometimes the user’s real name and e-mail

A fast growing security concern is the protection of commercial transactions over the Internet. With wide, inexpensive and convenient access to the Internet, one would think electronic commerce would be the new way of doing business. However, the concept is off to a slow start owing to the problems associated with insuring security, as new security holes keep appearing. The issue of security is a major roadblock to the realization of the internet’s recognized potential as a vehicle for commerce in Kenya.

Even as buying and selling are now possible through the Internet, so have credit card numbers and other sensitive information been stolen online. If consumers and merchants don’t have a certain degree of confidence, electronic commerce is not going to work.

The lack of security, reliability and accountability make Internet transactions too risky for many users. One major fear of merchants is to shield their computers from hackers. If a hacker would break into their system, they could steal thousands of credit card numbers. The Internet allows stockpiling of thousands of credit card numbers untraceably. Thieves use each number once, reducing the probability of investigation

To improve security vastly, some governmental involvement is necessary: The architecture should provide for mechanisms that protect against classic security threats (to confidentiality, integrity, and availability of data and systems) as small as violations of intellectual property rights and personal privacy. This security architecture must include technical facilities, recommended operational procedures, and a means for recourse within the legal system.

Signatures have over the years been utilized to serve two legal functions The first is identification of the signatory and the second is proof of the declaration of will of the signatory.

Digitalsignaturesprovide assured provenance of digital content and non-repudiation of transactions.In addition it requires that sites provide their users with access to their information and ability to correct or amend it.

It is that in an increasingly globalized world, where the market for goods and services spans national borders, national safeguards and regimes for the protection of personal data or information about individuals is of little value, as technology allows the information to be whisked out of the jurisdiction.

2.2.4 DETERMINING THE APPLICABLE LAW FOR CONTRACTS

Some of the difficulties resultant from transacting on the internet include: because the sale is made via the exchange of electronic messages, it is frequently difficult to determine the precise nature of contractual obligation. Some commentators question whether an electronic communication can be considered a writing that will be accepted in a court of law; lack of an opportunity for parties to evaluate the goods being sold before purchase; and it is frequently difficult for parties to authenticate each other.

Because the sales transactions are conducted over national borders it is frequently difficult to determine which nation’s contractual law applies in a particular case. This is expressed as the problem of jurisdiction. The Rome Convention however seeks to act as a guide for this dilemma.

Central to the operation of the Rome Convention of 1980 on Contractual Obligations is the identification of the applicable law. The Regulation draws a distinction between cases in which the parties have made a choice (which fall under article 3) and cases where the parties have not made a choice (which are governed by article 4). However three important qualifications should be made at this stage. First, the determination of the applicable law is only the first stage in the choice of law process. Certain elements of the applicable law may be displaced by the mandatory rules of other countries- or may be displaced on grounds of public policy. Secondly, the general rules in articles 3 and 4 do not apply to consumer contracts and individual contracts of employment which are regulated by article 5 and 6 respectively. Thirdly some contractual questions are not governed by the applicable law or are not governed exclusively by the applicable law.

2.2.4a Applicable law chosen by the parties

Article 3 of the Regulation gives effect to the principle of party autonomy. The parties are free to choose the law to govern their contractual relationship. Article 3(1) provides that the choice of the parties must be ‘express or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case’.

Underlying the common law doctrine is the idea that where a contract includes a choice of jurisdiction in favour of a particular country’s courts, the parties intend to make that country’s law to govern the contract as they are most likely to in mind that the court or arbitral tribunal will apply its own law.

In the Kominos S, for example, it was held that the choice of ‘British courts’ was to be interpreted as a choice in favour of English courts. Further it was decided that it should be inferred that the parties intend their contracts to be governed by the law of the forum where the disputes are to be tried unless there are strong indications that they did not intend or may not have intended that result.

Nevertheless, a dispute resolution clause is not conclusive. In Compagnie Tunisienne de Navigation v Compagnie d’Armement Maritime SA the House of Lords decided that although a choice of English law would normally be implied from an agreement to refer disputes to arbitrators in England, on the facts of the case French law, as the law of the country with which the contract was most closely connected, was the proper law.

The common law approach has been adopted in circumstances governed by the Convention. In Egon Oldendorf v Libera Corpn in considering the effect of the arbitration clause under article 3, Clarke J concluded that, although the test is not the same under the Convention as that at common law, it is very similar and that the considerations set out by the House of Lords in the Compagnie Tunisienne case are relevant to the correct application of the test just as they are at common law. He considered that if the Convention involves a change of emphasis from the approach by the common law it is a small one.

A common indication of an implied choice is the use of standardforms, notably certain types of standard form which are drafted against the background of a particular system of law. For example, in Amin Rasheed Shipping Corporation v Kuwait Insurance Co,the House of Lords held that English law was the law governing the contract. In view of the English form of the policy, which could only be interpreted in the light of English law, the parties must have intended English law to govern. Although this case was decided under the common law prior to the enforcement of the Convention, the application of the Convention to the particular facts yields the same results.

2.2.4b Applicable law in the absence of choice

According to Article 4(1), to the extent that the parties have made no choice of law, express or implied, a contract is governed by the law of the country with which it is most closely connected. Although the principle of closest connection is easy enough to state, its operation is more complicated. Under the Convention, the task of identifying the applicable law is assisted (or, depending on one’s point of view hindered) by the use of various presumptions which are set ot in paragraph 2-4 of article 4. However, the presumptions are neither comprehensive nor conclusive. In some cases, no presumption applies while in others the presumption may be disregarded.

Article 4(1) states that to the extent that the law applicable to the contract has not been chosen in accordance with Article 3 and without prejudice to Articles 5 to 8, the law governing the contract shall be determined as follows:

1. A contract for the sale of goods shall be governed by the law of the country where the seller has his habitual residence;
2. A contract for the provision of services shall be governed by the law of the country where the service provider has his habitual residence;
3. A contract relating to a right in rem in immovable property or to a tenancy of immovable property shall be governed by the law of the country where the property is situated;
4. notwithstanding point (c), a tenancy of immovable property concluded for temporary private use for a period of no more than six consecutive months shall be governed by the law of the country where the landlord has his habitual residence, provided that the tenant is a natural person and has his habitual residence in the same country;
5. A franchise contract shall be governed by the law of the country where the franchisee has his habitual residence;
6. A distribution contract shall be governed by the law of the country where the distributor has his habitual residence;
7. A contract for the sale of goods by auction shall be governed by the law of the country where the auction takes place, if such a place can be determined;
8. a contract concluded within a multilateral system which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments, as defined by Article 4(1), in accordance with non-discretionary rules and governed by a single law, shall be governed by that law.

Basically this article states that the extent to which the parties fail to make a choice in law expressly or impliedly will leave the contract to be governed by the law of the country with which it is mostly connected. The task of identifying the applicable law is assisted by the use of various presumptions which are unfortunately neither comprehensive nor conclusive. In some cases no presumption applies, in some it is disregarded.

Under Article 4(2) where the contract is not covered by paragraph 1 or where the elements of the contract would be covered by more than one of points (a) to (h) of paragraph 1, the contract shall be governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence.

The presumption provided for under this clause is structured around two ideas: the party who is to affect the performance which is characteristic of the contract that is, the characteristic performer and a territorial connection. The circumstances of the case determine which of the four possible territorial connection, habitual residence, central administration, principal place of business or another place of business through which the characteristic performance is to be effected is the relevant one.

In a Unilateral Contract it follows from the fact that only one party is under a legal obligation which is characteristic of the contract. The choice of law of the party who is to provide the goods or services may be justified by the likelihood that that party’s performance is the more active and complex as a consequence of which the characteristic performer is more likely to have to consult the law during the performance. There is also an argument on economic efficiency of this. The doctrine of specific performance has some limitations also one of which is that it is impossible to determine the characteristic performance in relation to a contract where both parties undertake to perform obligations of the same type and it is not easy to see how the notion of characteristic performance can be applied in a complex contract and also that in such a contract it is not always the performance in which money is paid.

Depending on the circumstances the link may be characteristic to the performer’s habitual residence or the other aforementioned situations. If a contract is concluded in the course of the characteristic performer’s trade then the contract is presumed to be most closely related with the country in which the principals business is situated.Quite a number of international contracts are concluded in the course of the characteristic performer’s trade or profession. Where a contract is concluded otherwise, it is presumed to be most closely related with the performer’s country of residence.

Under Article 4(3) where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. This article mainly deals with the issue of immovable property. It holds that where the subject matter of the contract is a right in immovable property or a right to use immovable property then it shall follow that the contract is most closely connected with the country where the immovable property is situated.

Article 4(4) holds that where the law applicable cannot be determined; the contract shall be governed by the law of the country with which it is most closely connected. The terms of the Convention do not provide any Guidelines on how the court is to determine this and the Guiliano Lagarde Report is of inadequate help. The courts have however adopted a practice of looking for the centre of gravity of the contract. The theory advanced by Chesire is that, in cases where the parties fail to make a choice, the court should have regard to localizing elements that is, the elements which connect the contract with the various countries involved: the governing law should be the law of the country in which the localizing elements are most densely grouped. This localizing and centre of gravity approaches can be justified on the basis that it is the country in which the elements of the contract are most densely grouped whose interests and policy are most likely to be affected by the contract.

2.2.4c Consumer contracts

Article 6 governs the choice of law applicable to consumer contracts. The scope of the equivalent provision in the Rome Convention was restricted to contracts for the supply of goods and services. Article 6 of the Rome I Regulation, however, contains no such limitation. As a result, special exclusions have been made for certain transactions where it remains essential for a single law to apply. These specific contracts have been excluded from Article 6 and, as a result, parties can continue to choose the law that will apply without restriction.

Under Article 6(1) without prejudice to Articles 5 and 7, a contract concluded by a natural person for a purpose which can be regarded as being outside his trade or profession (“the consumer”) with another person acting in the exercise of his trade or profession (“the professional”) shall be governed by the law of the country where the consumer has his habitual residence, provided that the professional: pursues his commercial or professional activities in the country where the consumer has his habitual residence, or by any means, directs such activities to that country or to several countries including that country, and the contract falls within the scope of such activities.

Notwithstanding paragraph 1, the parties may choose the law applicable to a contract which fulfills the requirements of paragraph 1, in accordance with Article 3. Such a choice may not, however, have the result of depriving the consumer of the protection afforded to him by provisions that cannot be derogated from by agreement by virtue of the law which, in the absence of choice, would have been applicable on the basis of paragraph 1. If the requirements in points (a) or (b) of paragraph 1 are not fulfilled, the law applicable to a contract between a consumer and a professional shall be determined pursuant to Articles 3 and 4. The most significant exclusions that apply are those arising in the financial context and are referred to in Article 6(4) of the Regulation. These exclusions support the objectives of MiFID which establishes a high level of harmonization in this field, including an important degree of consumer protection. The exclusions include: a contract for the supply of services where the services are to be supplied to the consumer exclusively in a country other than that in which he has his habitual residence; a contract of carriage other than a contract relating to package travel within the meaning of Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours; contract relating to a right in rem in immovable property or a tenancy of immovable property other than a contract relating to the right to use immovable properties on a timeshare basis within the meaning of Directive 94/47/EC; rights and obligations which constitute a financial instrument and rights and obligations constituting the terms and conditions governing the issuance or offer to the public and public take-over bids of transferable securities, and the subscription and redemption of units in collective investment undertakings in so far as these activities do not constitute provision of a financial service; contract concluded within the type of system falling within the scope of Article 4(1), point h.

The significance the consumer contract provision is relatively limited as article 5 is circumscribed by a number of factors. Most importantly the article does not apply unless the object of the contract is the supply of goods or services to a person for a purpose which can be regarded as being outside his trade or profession, the article however neither applies to contracts of carriage nor to contracts for the supply of services where the services are to be supplied to the consumer exclusively in a country other than that in which has his habitual residence.

The retention of some degree of party autonomy for consumer contracts, combined with specific provision for certain financial instruments, should to a greater extent align the Rome I Regulation with the Rome Convention and broadly strike an appropriate balance between consumer and business interests.

2.2.4d Overriding mandatory provisions

Overriding mandatory provisions are provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organization, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation. Effect may be given to the overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful. In considering whether to give effect to those provisions, regard shall be had to their nature and purpose and to the consequences of their application or non-application.

Given the kind of contracts made online which are mostly of a ‘shink-wrap’ nature, the provisions in the Rome Convention are applicable.

2.3 COMMENTARY

The laws of Kenya at present do not recognise electronic transactions as the following requirements have to be presented in material form: provision of information in writing; production of documents; the retaining of documents; and provision of a signature and the recording of information. These are to be met in material form.

The legal issues arising as stated in the foregoing have been addressed differently in certain jurisdictions and regional bodies. The next chapter of this paper conducts a comparative study of the said legal provisions in the United Kingdom.

CHAPTER THREE

3.0 INTRODUCTION

This chapter considers the electronic commerce legal environment in the United Kingdom with the aim of obtaining lessons from it. The Electronic Commerce (EC Directive) Regulations came into force in the United Kingdom on 21st August 2002. The said regulations sought to implement the European Union’s E-Commerce Directive into the United Kingdom law. The EU Directive sought to streamline the rules of doing business over the internet throughout Europe. The following is an outline of the Regulations.

3.1 SCOPE AND APPLICABILITY

The Regulations cover all commercial websites.

The Regulations refer to an information society service. This is defined as:

any service normally provided for remuneration at a distance, by means of electronic equipment for the processing (including digital compression) and storage of data, at the individual request of a recipient of the service.

This is believed to cover more than just electronic commerce businesses. In 2002, the UK’s Department of Trade and Industry said that, in its view,it is not restricted to buying and selling online.

The requirement for an information society service to be ‘normally provided for remuneration’ does not restrict its scope to services giving rise to buying and selling online. It also covers services (insofar as they represent an economic activity) that are not directly remunerated by those who receive them, such as those offering online information or commercial communications (e.g. adverts) or providing tools allowing for search, access and retrieval of data.

A UK business cannot escape the terms of the Regulations by locating its servers in, say, Australia. The Regulations look at where a business is based, not where its equipment is based.

The Directive and Regulations do not address where you can sue or be sued, although they do provide for the law which applies in the event of a dispute in some circumstances.

Further, the Directive and Regulations do not apply to tax, gambling or lotteries and do not affect data protection laws or cartel laws.

3.2 APPLICABLE LAWS

The Regulations apply a country of origin principle. In its simplest form, this means that as long as a UK business complies with UK laws, it can ignore the laws of other member states.

The Regulations do not apply the country of origin principle to the terms of consumercontracts. In practical terms, this means that a UK-based e-commerce site’s terms and conditions should meet the laws of every member state in which consumers can buy its products, not just UK laws.

Copyright and certain other intellectual property rights are excluded from the scope of the country of origin principle. So are electronic money, real estate transfers and unsolicited commercial email.

A member state can override the country of origin principle and impose its own laws against a supplier in another Member State for reasons of: public policy; protection of public health; public and national security; and protection of consumers.

This is to be exercised with due consideration to the principle of proportionality.

3.3 INFORMATION PROVISION

Service providers, whether involved in e-commerce or not, should provide the following minimum information, which must be easily, directly and permanently accessible: the name of the service provider must be given somewhere easily accessible on the site and any difference from the trading name should be explained; the emailaddress of the service provider must be given; the geographic address of the service provider must be given; membership details including any registration number to a trade or professional association should be provided; the VAT number of the business; and finally, prices should be clearly and unambiguously stated.

In addition to the requirements above, certain other information must be given where a contract is concluded by electronic means (typically on a website). These overlap with the provisions of the Distance Selling Regulations. But unlike those rules, the E-commerce Regulations apply to sales to either businesses or consumers.

Before an order is placed, the seller must provide: the technical steps to follow to conclude the contract; whether or not the concluded contract will be filed and whether it will be permanently accessible; the technical means for identifying and correcting input errors prior to placing orders; languages offered for the conclusion of the contract; provide a link to any relevant codes of conduct to which you subscribe (unnecessary if the contract is concluded by email); and terms and conditions of the contract must be made available in a way which allows a user ‘to store and reproduce’ them (again, unnecessary if the contract is concluded by e-mail).

3.4 COMMUNICATIONS

Marketing by email or text messaging, whether solicited or unsolicited, must clearly identify: that it is a commercial communication; the person on whose behalf it is being sent; and if appropriate, that the communication is a promotional offer and further make conditions clear, unambiguous and easily accessible.

3.5 ORDER PLACEMENT

When selling to consumers, when orders are being placed online, you must give shoppers the ability to identify and correct input errors before completing their orders. Also, you must acknowledge receipt of the order as soon as possible by electronic means (though the acknowledgement may take the form of the provision of the service paid for where that service is an information society service, such as a song download)

3.6 LIABILITY OF INTERMEDIARIES

As is explained in more detail below, provided a service provider that acts as an ISP, network operator or web host complies with the Regulations, it is generally not liable for any material where it: acts as a mere conduit; caches the material; or hosts the material

Further, compliance with the Regulations will act as a defence to a criminal prosecution being brought against the service provider (though theexpectations change when the service provider gains ‘actual knowledge’ of unlawful content, as explained below).

3.7 MONITORING OF INFORMATION

The E-commerce Directive states there must not imposed a general obligation on service providers to monitor the information which they transmit or store. It is normally accepted that if you do monitor the content on your servers then you are at greater risk as you will be treated as a publisher of that information.

CHAPTER FOUR

4.0 INTRODUCTION

The chapter herein deals with recommendations towards the extent of legislation to govern transactions on the internet. A substantive and procedural framework with regard to the said transactions to address the everyday issues arising in electronic commerce previously highlighted such as the protection of consumer privacy, the security of consumer payments, contract regulation and the protection of intellectual property. This will therefore provide an enabling environment for the conduct of commercial activities and the upgrade of the country’s general economy.

4.1 THE MINIMUM STANDARD

The foregoing has demonstrated that the law has to meet the balance between advancing individual rights such as privacy and the greater considerations of public policy given the touchy issue that is the sovereignty of states. It is with this regard that a certain minimum standard has to be met whenever the question of government regulation of internet transactions.

4.1.2 ELECTRONIC SIGNATURE LEGISLATION

Signatures have been utilised over the ages to give credence to the intention and identity of a party to a transaction. They have also been utilised to serve as evidence of the transaction. The adoption of electronic signature legislation is therefore what can be considered a minimum standard in order to provide legal certainty to electronic authentication techniques as a substitute for handwritten signatures and other traditional procedures. The most common model for such legislation is the United Nations Commission on International Trade Law (UNCITRAL) 1996 Model Law on Electronic Commerce and the UNCITRAL 2001 Model Law on Electronic Signatures. In the same vein, in 1999 the European Union adopted a directive setting out a community framework for electronic signatures (the E-Signature Directive). The utility of these Model Laws as standards for the creation of said legislation would go a long way towards the smooth conduct of various transactions.

4.1. 3 PRIVACY AND INTELLECTUAL PROPERTY

The question of privacy has been raised time and time again. This is especially with regard to consumer provision of information and the utilisation of digital rights management systems by intellectual property rights holders. The legislation has to be of a kind that adequately balances the need for individual privacy and the upholding of the economic rights of the intellectual property rights holder.

Various privacy laws find claim their basis from the Universal Declaration of Human Rights which states that

No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has a right to the protection of the law against such interference or attacks.

The Organisation for Economic Cooperation and Development (OECD) Guidelines set out eight key principles for the protection of personal information

First is the principle of collection limitation: data should be obtained by lawful means and with the consent of the data subject where appropriate. Secondis the principle of data quality: collected data should be relevant to a specific purpose and up-to-date. Third is the principle of purpose specification: the purpose for collecting data should be settled at the very beginning .The fourth principle, use limitation, stipulates that the use of personal data should be limited to specific purposes and data acquired for one purpose ought not to be used for others .The fifthprinciple is security: data must be stored and collected in such a way reasonably calculated to prevent its loss theft or modification. The sixth principle is openness: there should be transparency with respect to the practices of handling data. The seventh principle is individual participation: individuals should have a right to access, confirm and demand correction of their personal data. The eighth and last principle is accountability: those in charge of handling data should be responsible for complying with the principles of the privacy guidelines.

The problem with the guidelines is that they are non-binding on signatories. This hasn’t however impeded their incorporation into privacy laws the world over. They can therefore be utilised as a basis for the framing of specific legislation regarding privacy in Kenya with all due consideration to the economic rights of the intellectual rights holders.

4.1.4 AUTHENTICATION BODIES

The creation of bodies tasked with the granting of authentication to various business entities which ply their trade over the internet. This is in recognition of the lack of an assurance as to who it is one is dealing with for a certain transaction. Not only is this aimed at giving peace of mind to the consumer or other person conducting said transaction, but also enables the tracking down of such parties whenever dissatisfaction over the delivery of a service is registered. This avoids the hectic and expensive process of utilising IP addresses for this kind of work. It therefore becomes a convenient and efficient method for the establishment of trust in the internet transaction system by various parties. The creation of these bodies could possibly follow the structure of credit reference bureaus.

4.1.5 DISPUTE RESOLUTION

Given the inevitable disputes that arise in commercial transactions, it becomes necessary to stipulate the law that applies in the event of a dispute arising in some circumstances.

4.1.6 INFORMATION PROVISION

Certain guidelines need to be established as regards the provision of information by a seller such as : the name of the service provider must be given somewhere easily accessible on the site and any difference from the trading name should be explained; the emailaddress of the service provider must be given; the geographic address of the service provider must be given; membership details including any registration number to a trade or professional association should be provided; the VAT number of the business; and finally, prices should be clearly and unambiguously stated.

Before an order is placed, the seller should be required to provide: the technical steps to follow to conclude the contract; whether or not the concluded contract will be filed and whether it will be permanently accessible; the technical means for identifying and correcting input errors prior to placing orders; languages offered for the conclusion of the contract; provide a link to any relevant codes of conduct to which you subscribe; and terms and conditions of the contract must be made available in a way which allows a user “to store and reproduce” them.

4.2 SECONDARY CONSIDERATIONS

4.2.1 CONSULTATIONS

Consultations on the kind of regulation to be enforced by the government would attain optimal potency if consultations are to be held with the various stakeholders in the industry who would be affected by the regulations and legislation.

4. 2.2 ADMINISTRATION OF THE LAW

It would of course render futile any efforts if an administrative structure of the various government agencies to govern the enactment and enforcement of the proposed electronic commerce legislative measures. The question as to which body is competent to conduct this task does arise. The Communications Commission of Kenya is in a prime position to adequately execute this mandate given the fact that it has been the regulatory body for matters relating to communications systems and communications. It can therefore be held to have the requisite technical expertise in the field to conduct the work.

The Central Bank of Kenya is the other body that could be considered up for the task. This is given the consideration of funds being a basic requirement and issue in the conduct of transactions of whatever kind. An alternative would be to have both as the administrative bodies so as to achieve the best of both worlds. Other bodies that could be considered could be the recently formed ICT Board and the Capital Markets Authority.

4.3 CONCLUSION

The foregoing would form a sufficient starting point for the regulation of transactions on the internet towards the actualisation of greater economic efficiencies and the betterment of the society’s welfare.