On-Line Commerce Issues and Information Age Technologies:

Opportunity or Pitfall

[a transcript of extemporaneous remarks]

Nicholas Johnson

University of Iowa College of Law Continuing Legal Education

Legal Issues Affecting Entrepreneurs and Start Up Businesses

UI Memorial Union, Iowa City, Iowa

September 11, 1998



When our species began we moved around as nomads finding food.  It took us a long time to discover that it's easier to grow your food than to chase it.

And that is what took us into the Agricultural Age, which many Iowans believe we are still in.  And, indeed, some of you may have farms or parents or grandparents who do.

That lasted about 10,000 years, and then we moved into an Industrial Age that lasted a couple of hundred years, depending on how you count.

What do I mean by an "age," or an "industrial economy," or "agricultural economy"?  I mean that most of the people -- in the case of the agricultural age  we were talking about upwards of 90% of the population -- make their living and contribute to the gross domestic product out of a particular sector, in that case agriculture.

Measured by that standard, we are now in what surely can be called an "Information Age" or "Information Economy."

Most of us in this country today, including everybody in this room, is a part of the information economy.  Very few people here are handling anything on an assembly line or riding a tractor as a part of their normal work.  We are gathering and processing and disseminating "information" most broadly defined. And the impact of this, and the Internet as a subset of it, is as dramatic -- and I would contend much more dramatic -- than if, in the course of five or ten years, we suddenly introduced the automobile, the interstate highway system and the jet airplane, with all the dramatic impact that you know they had.

My own Web page, which the Des Moines Register wrote up this morning in the paper, gets thousands of hits from all around the world -- Southeast Asia, Eastern Europe, Japan, wherever. It's relatively easy to travel around today by jet plane.  And I do a lot of that.  I was supposed to be Indonesia now helping them write broadcast law, Albania in a couple of weeks.  I've canceled all of that now that I "think locally and act locally" as a school board member. That's  relatively easy to do. But what is so much easier to do is to put something up on a Web page and let people get access to it that way. And that they do.

Entrepreneurial opportunities abound.

I told some law students not long ago, "We used  to have a problem with folks who came to law school and didn't really want to do what lawyers do. They just wanted to be lawyers."  I said, "The problem with some of you is you not only don't want to do what lawyers do, you don't even want to be lawyers. You just want to be rich."

But to borrow the golfer's phrase, you "Play her where she lays." So I try to make pedagogy out of profit.  And I give them the assignment that they must come up with some new innovative idea involving information age entrepreneurship that will gross at least a billion dollars a year.  A million dollars a year is easy, but that's not a passing grade.  And you'd be amazed how many can do it.

We are dealing today with what I call the 99.9%-off sale.  Imagine if you could buy a Rolls Royce for a hundred bucks instead of a hundred thousand. How might you use it differently? How many of them might you have?  And that's what we're talking about with this technology

When I went on the Federal Communications Communication we had one satellite and three dishes and they cost $3 million apiece.  After the 90%-off sale they dropped to $300,000.  With the 99%-off sale they dropped to $30,000.  Cable companies could use them. And then came the 99.9%-off sale and suddenly they were sprouting like mushrooms in farmers' yards.

We don't think normally about bringing industrial equipment into our backyards.  You wouldn't normally think about putting a steel mill in your backyard, and then decide, "Oh, I guess I won't do it ‘cause it makes a lot of smoke and  besides it costs too much money."  You don't even think about it.  But as these prices drop 99.9% suddenly things that were unthinkable before become popular consumer items that everybody wants to have.

We also have the phenomenon of "convergence." What looks like a cell phone turns out to be a handheld computer with access to the Internet.  The pager is bringing you news, the telephone company wants to distribute cable television, and the cable company wants to get into the telephone business -- even though they haven't done a very good job so far with the television business.

The point is that geography is no longer relevant.  It makes no difference that we have no ocean front property in Iowa.  Businesses that are multi-billion-dollar businesses, located elsewhere, could have been in this state.  There's nothing that Microsoft does in Seattle that couldn't be done in Sioux City.  There's nothing that America On-Line does that couldn't be done in Amana.  There's nothing that CompuServe does in Ohio that couldn't have been done in Clinton.  All those businesses could be here.

I came back from Seoul, Korea, and I tried to sell this University on the idea of distributive education, a sort of "Mc-University," going around the Pacific Rim. Because believe me there was a demand for it. Kids who couldn't get into university there, mid-level and top business executives wanting education from the United States. It would have brought billions of dollars into this state. There wasn't much interest in it at the time.  Now there's a little bit more. But now other people have long since got the idea and they're doing it.

We have a lot going for us in this state. We have one of the lowest crime rates in the United States. We were recently voted the best state in which to raise children. We have some of the highest test scores. We have a quality workforce. We ought to be going after those opportunities. You don't have to grant them property tax relief and you don't have to deal with smokestacks. They provide high-paying jobs. We can do it. And Internet is a big part of that.

We have assumed as lawyers -- much as the fish do not think about the waters of the sea -- we have not as a profession thought about the extent to which we have been geography-bound for hundreds of years.  Again, it's not that we think about it and don't recognize it, it's that we don't even think about it.  For the most part it never occurs to us that an action of the Iowa Legislature or an Iowa court would be binding on someone in New Mexico. And when those things come up it involves some conflict of  laws principle or some constitutional law principle. Geography was embedded in everything we thought about with regard to the law.  That is no longer true. It is a whole new ball game, a whole new paradigm, and we've got to get with it and understand it.

The question of jurisdiction. How much electronic presence satisfies the constitutional due process requirement that you are "there"?  Well, a  fellow doing business in Texas found that he was "in Ohio," much to his surprise, never having visited the state, and had to show up in court there.

Indecent material. We're not now talking about, necessarily, pornography or obscenity where it exists. But by what standard is that going to be judged? Are you now subject to the jurisdiction of any country on earth, and you have to meet the Islamic or Muslim standards of the Middle East? Well, that's what happened to a couple out in California that had a Web site with some material on it that was perfectly acceptable within the community where they lived. But a person in Tennessee, who was deliberately trying to to set up a case, got access to it. They were prosecuted in Tennessee under the community standards of a little town in Tennessee.

Geography is no longer relevant.  There was a German case recently involving defamation, because you know there again the standard is have you been harmed within your "community"?  What's your community?  The people who are in the chat room with you who are using anonymous names and who may be for the most part 14-year-old boys parading as something else?  Is that your community?  Is it your next door neighbors who don't even have access to the Web and haven't the foggiest notion you've been defamed?  Where's the community?

A German court recently decided that if the Web site has a link to -- I have links out there to thousands of Web sites off of my Web page -- if you have a link to another Web site that has some defamatory material on it, you have defamed the person defamed.

Where are you practicing law when you put up your Web site and somebody out in Utah gets hold of it?  Are you engaged in the unauthorized practice of law in Utah?  That's one we have to think through as a profession.

There's a global organization which I presume you know of called Hieros Gamos, which is law firms all around the world. They are the relatively smaller law firms, not the big corporate style. They refer business to each other. Well now, what's that Hieros Gamos Web site? Is that practicing law all around the world?  Anybody who's linked off of that? Certainly the German court's analysis would suggest that they are.

Copyright? Forget it.  I know we've learned some useful things about copyright today and I don't mean to trash that for a moment.  I think it was an excellent presentation. But the point is, any 14-year-old kid can now do things that only major industries could have done 50 or 100 years ago.  Anybody with a nickel can make a copy of a piece of print. Any teenage kid can tape music off of an FM radio station. Anybody can download material off the Internet. That, of course, is the easiest.

The most ironic is when you buy some new software and at first there's a warning, "Don't you dare ever copy this or we're going to send the FBI after you and you're going to be in Levenworth for a long time."  And then you turn the page and it says, "Now the first thing you must do is make a copy of this software. You put a floppy in Drive B: and this one in Drive A: and you make a copy, because you don't want to lose your original disk."

Domain names. Hot topic. Obviously all this stuff is global, folks. As we've said, geography is irrelevant. If you're going to protect your domain name you're going to have to have a global organization. And that's what we're in the process of setting up.

Trademarks you've heard about. There are within the Web pages that we are about to see something called "meta tags," which you don't see. What if somebody takes "Coca-Cola" and puts it in one of those invisible meta tags. People looking for Coke go to that Web site. Are they using the trademark?  They're not selling Coca-Cola. They're just getting more hits on their Web page than they otherwise would.

There's the matter of on-line sale of stuff. On-line sale of alcohol to kids, tobacco, pharmaceuticals. We're not talking about hard drugs, criminalized stuff, but pharmaceuticals that have not been approved by the FDA or other regulatory bodies in other countries that you can buy off the Internet. How on earth is that going to be regulated -- or should it be?

And of course there are frauds and scams without end. On-line gambling which they're trying to regulate and having difficulty doing obviously. Sales of securities, direct public offerings off of the Web. News that manipulates stock prices, particularly for microcap companies as a result of exchanges in chat rooms driving up prices or driving down.

Privacy issues, again without end. The European standards are far higher than ours. Once again this is global. What does an American firm do when the Europeans can get access to the records of employees in the United States that contain data that if they were employed in Europe they couldn't have had?

Spamming. The sending out of e-mail broadside. Trying to advertise something to people who didn't want to receive it. We're trying to regulate that.

Encryption. There's already been some talk about that. We haven't talked too much about the clipper chip and the government desire to be able to continue to listen in on all our phone conversations and monitor all our e-mail -- which becomes very difficult unless they know the key to our encryption. And that's what the clipper chip controversy is about.

A New York law was recently passed, as the relevant attorney said this morning, attorney client privilege is not lost in New York as a result of the insecurity of e-mail exchanges.

Taxation. Whether or not you can tax Internet service providers. There's a lot of pressure to say, "No. Let's let this industry get going."

There's also the issue of sales tax. It's obviously nonexistent on transactions that conceivably can be argued are not taking place within the state of Iowa.

And, finally, I return once again to the "Y2K," or Year 2000, problem and the litigation that is going to arise out of that whether you find yourself on the plaintiffs' or defendants' side.

As you know, law professors don't answer questions, we just raise issues. I hope I've done that successfully.  My two colleagues will now provide all the answers and give you something worthwhile.

Thank you for your attention.


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