Wednesday, November
1, 2000
eMarkets Must Honor Confidentiality to Flourish
Companies are holding back on Net trade because of legal concerns, according
to a recent Report from Forrester Research B.V. The first study yet undertaken
anywhere in the world into the legal aspects of online business-to-business
(B2B) trade advises participants to push eMarketplaces for contracts
that respect confidentiality while balancing security and liability issues.
"Companies have every right to feel uneasy about sharing
their data in eMarketplaces," said Jaap Favier, senior
analyst at Forrester's European headquarters. "In the
offline world, companies sign nondisclosure agreements
all the time. They shouldn't settle for anything less
in an eMarketplace -- and should take a 'no safety, no
sales' attitude when joining eMarkets. Importantly, the
EU's strict digital-privacy laws apply to individuals
and not to companies, so corporate data provided to an
online exchange doesn't fall under EU law."
"The EC filled a significant security gap when it issued
the EU Directive on Digital Signatures, but beyond that,
the law takes a hands-off approach: eMarketplaces don't
have to install online locks, alarms, and vaults, nor
do they have to guarantee that their technical measures
create a secure trading place," Favier added.
To make B2B exchanges succeed, Forrester advises eMarketplaces
and their participants to self-regulate data management
in line with the EC eCommerce Directive, which prescribes
that buyers and sellers get to know each other's identity
and contractual terms before they complete a transaction.
Participants must set up disclosure levels to ensure
that sensitive data can't reach their competitors, while
offers and bids get fully exposed to potential partners.
Contracts from eMarketplaces must also explicitly state
that owners of the Net market have the same status as
members -- to prevent them from snooping into data and
to take away concerns about abuse of market information.
Participant firms will reward eMarketplaces that listen
with more business than the odd excess inventory, driving
their revenues and profitability.
Forrester encourages Net markets to redesign their security
to ensure that they can deliver on their confidentiality
policies. Also, Net markets must continuously check to
see if users have the required security clearance for
every page they visit, and only members registered as
authorized buyers and sellers should get access to pages
with other members' contract terms and conditions.
"Members must demand that an eMarketplace accepts liability
for correctness and timeliness of all distributed data," Favier
continued. "Users should require it to indemnify members
in cases of processing errors, and walk away from Net
markets that won't comply. But liability will work both
ways -- members must guarantee legality by not sending
data that could be harmful or infringe on copyrights.
Should a dispute make it to court, the so-called Rome
Convention leaves the choice of law and court up to the
contracting parties, and European participants must require
jurisdiction and applicable law in the EU," he concludes.
Transactions on electronic marketplaces in the EU are
expected to jump to 900 billion, or $759 million, by
2005, compared with this year's estimated 500 million
in online B2B trade.
For the Report "eMarketplaces Face The Law," Forrester
spoke with 40 European companies that participate in
eMarketplaces, and interviewed five help providers involved
in setting up more than 100 eMarketplaces combined. Additionally,
Forrester spoke with Paul Timmers, head of sector for
eCommerce at the European Commission, and analyzed all
legal and regulatory matters in close cooperation with
four leading international law firms.
