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A doctrine of ‘market sovereignty’ to solve international law issues on the Internet?

By Dan Jerker B. Svantesson


One of the most prominent features of jurisdictional rules is a focus on the location of actions. For example, the extraterritorial reach of data privacy law may be decided by reference to whether there was the offering of goods or services to EU residents, in the EU.

Already in the earliest discussions of international law and the Internet it was recognised that this type of focus on the location of actions clashes with the nature of the Internet – in many cases, locating an action online is a clumsy legal fiction burdened by a great degree of subjectivity.

I propose an alternative: a doctrine of ‘market sovereignty’ determined by reference to the effective reach of ‘market destroying measures’. Such a doctrine can both delineate, and justify, jurisdictional claims in relation to the Internet.
It is commonly noted that the real impacts of jurisdictional claims in relation to the Internet is severally limited by the intrinsic difficulty of enforcing such claim. For example, Goldsmith and Wu note that:

“[w]ith few exceptions governments can use their coercive powers only within their borders and control offshore Internet communications only by controlling local intermediaries, local assets, and local persons” (emphasis added)

However, I would advocate the removal of the word ‘only’. From what unflatteringly can be called a cliché, there is now a highly useful description of a principle well-established at least 400 years ago.

ethernet padlock

The word ‘only’ gives the impression that such powers are of limited significance for the overall question, which is misleading. The power governments have within their territorial borders can be put to great effect against offshore Internet communications. A government determined to have an impact on foreign Internet actors that are beyond its directly effective jurisdictional reach may introduce what we can call ‘market destroying measures’ to penalise the foreign party. For example, it may introduce substantive law allowing its courts to, due to the foreign party’s actions and subsequent refusal to appear before the court, make a finding that:

  • that party is not allowed to trade within the jurisdiction in question;
  • debts owed to that party are unenforceable within the jurisdiction in question; and/or
  • parties within the control of that government (e.g. residents or citizens) are not allowed to trade with the foreign party.

In light of this type of market destroying measures, the enforceability of jurisdictional claims in relation to the Internet may not be as limited as it may seem at a first glance.

In this context, it is also interesting to connect to the thinking of 17th century legal scholars, exemplified by Hugo de Groot (better known as Hugo Grotius). Grotius stated that:

“It seems clear, moreover, that sovereignty over a part of the sea is acquired in the same way as sovereignty elsewhere, that is, [...] through the instrumentality of persons and territory. It is gained through the instrumentality of persons if, for example, a fleet, which is an army afloat, is stationed at some point of the sea; by means of territory, in so far as those who sail over the part of the sea along the coast may be constrained from the land no less than if they should be upon the land itself.”

A similar reasoning can usefully be applied in relation to sovereignty in the context of the Internet. Instead of focusing on the location of persons, acts or physical things – as is traditionally done for jurisdictional purposes – we ought to focus on marketplace control – on what we can call ‘market sovereignty’. A state has market sovereignty, and therefore justifiable jurisdiction, over Internet conduct where it can effectively exercise ‘market destroying measures’ over the market that the conduct relates to. Importantly, in this sense, market sovereignty both delineates, and justifies, jurisdictional claims in relation to the Internet.

The advantage market destroying measures have over traditional enforcement attempts could escape no one. Rather than interfering with the business operations worldwide in case of a dispute, market destroying measures only affect the offender’s business on the market in question. It is thus a much more sophisticated and targeted approach. Where a foreign business finds compliance with a court order untenable, it will simply have to be prepared to abandon the market in question, but is free to pursue business elsewhere. Thus, an international agreement under which states undertake to only apply market destroying measures and not seek further enforcement would address the often excessive threat of arrests of key figures, such as CEOs, of offending globally active Internet businesses.

Professor Dan Jerker B. Svantesson is Managing Editor of the journal International Data Privacy Law. He is author of Internet and E-Commerce Law, Private International Law and the Internet, and Extraterritoriality in Data Privacy Law. Professor Svantesson is a Co-Director of the Centre for Commercial Law at the Faculty of Law (Bond University) and a Researcher at the Swedish Law & Informatics Research Institute, Stockholm University.

Combining thoughtful, high level analysis with a practical approach, International Data Privacy Law has a global focus on all aspects of privacy and data protection, including data processing at a company level, international data transfers, civil liberties issues (e.g., government surveillance), technology issues relating to privacy, international security breaches, and conflicts between US privacy rules and European data protection law.

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Image credit: Ethernet cable with a padlock symbolising internet security. © SKapl via iStockphoto.

Recent Comments

  1. [...] Market Sovereignty based on the effective reach of Market Destroying Measures – governments determined to have an impact on foreign Internet actors beyond their directly effective jurisdictional reach can introduce “market destroying measures” to penalise the foreign parties within the market within their control (i.e. within their market sovereignty); [...]

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