It was originally argued that widespread disintermediation would occur over the Internet. It was originally believed that the Internet would provide a means to allow transacting parties to deal directly with each other. In reality the opposite has occurred with additional layers being formed rather than removed. There are two primary reasons for this growth of intermediaries, the first is related to the need to connect to the Internet and the second derives from both trust and the availability of payment. In either case any transaction conducted over the Internet will not be in person. The consequence being that cash exchanges cannot occur in the third-party will need to provide the trusted source of funds. The simple need to connect also derives from the distance that may be involved. When communicating across vast distances in small amounts of time and intermediary is always needed. In the past telecommunications carriers provided fax and phone services to satisfy this transaction. In effect what the Internet has done is to supplant fax, telephony, telex and electronic data interchange (EDI) with new and more universally accepted protocols. It would be rare to find any two parties with sufficient resources to construct and connect a global internetwork themselves.
The issue of trust surrounds payments creating opportunities for both payment and auction intermediaries. In a contemporary transaction for the sale of a product any one individual would not be able to assemble the essential resources necessary to reach a global market. The growth of auction intermediaries such as eBay has created the ability to offer products and services internationally creating global markets. The consequence is that intermediaries have created market segments that were not thought possible and did not previously exist curtailing the expected disintermediation of the Internet.
Internet service providers
An Internet service provider or ISP provides the communication backbone supporting the Internet. To end-users, the ISP is the entity responsible for opening access to the content on the Internet. Generally speaking, an end-user is unlikely to care about the true path traversed in receiving their data. Most users will not care about the nature of Internet protocols, how routing systems function, what type of physical infrastructure is in place as long as they receive their transmission. In becoming acquainted with the significance of a suitable regulatory design of sensitivity to context, it is imperative to differentiate distinct roles that an ISP can play in the provision of standard Internet services.
There are in effect three primary classifications and ways of distinguishing ISPs. It is likely that any Internet-based transaction will follow through a path of Source ISP, Backbone Providers, and arrive at a Destination ISP where both the source and destination ISPs are effectively endpoints. Backbone providers include the class of telecommunication carriers who deal solely with the transmission and routing of packets across provider networks. For purposes of liability, backbone providers offer little more than a conduit for contractual loss from other providers but they deal with. Backbone providers are unlikely to have the capabilities or capacity that will allow them to distinguish between data, traffic or protocol content making the ability to filter illicit activity next to impossible at this level. Source and destination ISPs are in effect similar in many ways. In particular, any endpoint ISP will at some stage act as either and both source or destination ISP.
Any end-user request over the Internet is served by a destination ISP. A Source ISP is the organisation that supplies access to the servers and systems where the unlawful content (both lawful and illicit) is presented or hosted. There are two significant differences involving the Source ISP and the Destination ISP when viewed under a regulatory framework. Firstly the Destination ISP serving ordinary end-users is most unlikely to have any direct association with or precise information concerning the primary malfeasor. Any logs or materials that may be maintained are unlikely to hold the level of detail necessary to prove malfeasance. A Source ISP conversely is likely to maintain logs and track access to the content that it maintains. Any process of assessing how “fair” it would be to “hold responsible” the Source ISP for the misconduct of its clients or other parties and also in determining how successfully the Source ISP could serve as a regulator in controlling misconduct needs to be weighed against a variety of factors. In many cases, the Source ISP may be located in a jurisdiction without reciprocal regulations thus preventing prosecution. Next, the Source ISP may itself be a victim of illicit activity.
In the instance that a Source ISP supplies both the host that contains content and also the access to that material, it is likely to be able to more effectively monitor and control the activity than would an ISP that provides only access to the material. A Destination ISP can not readily remove itself from the authority of the regulatory regime in whose jurisdiction the users are situated. To do so would result it in also removing its ability to server those end-users. A Source ISP and the content it hosts, if desiring to make possible prohibited conduct, can move itself to an alternate jurisdiction that does not disallow the illicit conduct. For instance, a Source ISP that is wishes to implement access to Internet gambling can locate itself in a jurisdiction where these activities are eagal and thus legitimised. This in effect places these organisations beyond the jurisdiction and capability of the majority international legal edicts and the related enforcement capabilities. The Destination ISP however is not beyond this reach. An ISP in London with local clients that allows its clients to connect to a child pornography site in Nigeria needs a local presence in London. At this least this would include a local sales office, local servers, cabling, power and equipment such as switches and routers.
A Destination ISP supplies an end-user with the data that they have requested from Internet. Many ISPs are merely resellers of Internet connectivity maintaining only simple connection, billing and routing systems. As such, Destination ISPs may be further subdivided into the additional subcategories of Retail ISPs and Link ISPs. A Retail ISP is the one that maintains and operates an end-user billing system. A Link ISP provides not just access but also hosts systems needed to access internet applications including SMTP, POP3 and World Wide Web systems (for e-mail and web access respectively). These organisations also act as the gateways allowing end-users to access the various internet protocols. As the administrators of systems that link disparate networks and the Internet backbone, as well as encapsulating application data into an arrangement that may be broadcast along the backbone, Destination ISPs are capable of averting selected attacks through the blocking of access to certain sites, hosts or even selected data available on the Internet. They may also aide in mitigating or at least slowing the transfer of certain other malicious classes of data such as worms or other malware.
Link ISPs and Retail ISPs need to integrate to present the end-user with access to the Internet and the related services. It is possible to consider their functions to be either integrated or disintegrated based on the circumstances.
Where legislation is focussed on stopping selected Internet access it is fitting to concentrate on those Retail ISPs dealing directly with those affected by the legislation. Legislation mandating IP address filtering (such as to block access to pornographic sites) is better directed to Link ISPs as they can process Internet traffic more effectively than Retail ISPs. Ideally, it is beneficial to consider a single entity Destination ISP formulated from a collaborating Retail ISP and Link ISP group.
The difficulties in transferring cash payments over large distances and between people who may have never met and may never meet created the need for payment intermediaries in Internet transactions. Payment intermediaries provide both trust and some realistic means for a purchaser to transfer consideration to the seller reliably. For instance, if a buyer on an online auction site comes up with the highest bid incurring a debt, a payment intermediary would be involved in order to arrange a transfer of funds either from the purchases banking account or via some payment card system cons making the transaction.
As an example, if party A located in Singapore was to sign up for an account with a licensed online casino such as Lasseter’s online in Australia, party A would require some means of transferring funds from their banking account to a trust account managed and maintained by Lasseter’s. When party A has subsequently been successful at their gambling pursuit playing online poker, the party would require some means of ensuring the return of their winnings. If on the other hand party A had accumulated gambling debts, Lasseter's would require some means of ensuring that funds in the trust account we used to pay those debts.
In the case of smaller amounts, this may be as simple as holding party A’s credit card details in a database. In situations where the transactions a large, lasses may wish to use party A’s bank to transfer money in advance or otherwise to secure some assurance that A’s potential gambling losses will be covered. The payment card company or bank in practice is an essential actor for the conduct in which party A desires to enact.
It was originally believed that digital cash or electronic money would be created or minted allowing for some type of universal credit and would facilitate Internet transactions. Although a number of schemes did emerge, the vast majority of transactions that occur across the Internet are made by means of traditional means such as credit cards. Rather than digital cash being minted, a new type of payment intermediary developed. Peer to peer (P2P) payment systems, such as PayPal, emerged allowing individuals to receive transactions directly, bypassing merchants and also act as a means of consolidating payment methods by providing a mechanism to interact with various banks and payment card institutions directly.
Peer-to-peer processing networks have aided the growth of auction intermediaries such as eBay. Payment card providers, P2P systems, and other entities that act as a mechanism to facilitate commercial transactions also have the capability to stop illicit transactions and act as revelatory enforcement points. A commercial site distributing child pornography from Nigeria cannot be run profitably without an economical method of receiving consideration. If the site operators cannot reliably receive payment, they will quickly shut down. As the financial gatekeepers, payment intermediaries can be used to prevent illicit activity over the Internet. Either through proactive actions or upon the receipt of court orders and Internet payment intermediary could be used as an aid to curtail undesirable activities occurring across the Internet.
The auction intermediary has become the predominant means of matching buyers and sellers. These range from the classic option structure as defined by the industry leader, eBay, through to a more dynamic market structure more reminiscent of a stock exchange futures exchange trading floor. At the simplest, these parties provide client to client matching services allowing individuals and small corporations across the globe to deal (seemingly) directly.
These organisations are the target of most complaints concerning breaches of contract, illicit or illegal goods and even failure to act. One of the difficulties is the direct result of legislative differences between jurisdictions. In many cases, goods or services that may be legal in one jurisdiction could be controlled or proscribed in another. Liability for internet auction intermediaries mirrors those principles that have been created and applied in disputes concerning traditional or real-world auction intermediaries as may be seen in Fonavisa.
.See, Shapiro, Andrew L., Digital Middlemen and the Architecture of Electronic Commerce, 24 Ohio N.U. L. Rev. 795 (1998).
. Jonathan D. Bick, Why Should the Internet Be Any Different?, 19 Pace L. Rev. 41, 63 (1998) states that “Even the simplest internet transaction usually involves a user’s computer, an internet service provider’s access computer, a regional router, a governmental backbone computer, another regional router, another internet service provider’s computer, and a content provider’s computer. So, even in the simplest transactions, there are many more intermediaries than users or content providers”.
.This seems to be the view of earlier writers, who argue that the difficulty of understanding the data that travels over ISP networks is an artifact of the internet’s basic transmission protocol, under which the data that travels over those networks is in the forms of dis-integrated packets of any particular file. See Lessig; Solum & Chung. It seems plain that backbone providers readily can discern the IP address to which packets are being routed. More generally, more than one reader of a draft of this essay has found it easy to imagine technology that would allow backbone providers to recognize certain types of content passing through its network.
.This point is best made by Jonathan Zittrain, Internet Points of Control, 44 B.C. L. Rev. 653 (2003).
.In such a structure, there is and has been an international race to the bottom to attract business to certain countries by decreasing the legal obstacles to their establishment. In the context of internet gambling, the winner of this race has arguably been the small island of Antigua in the British West Indies. See Don Yaeger, Bucking the Odds, Sports Illustrated, Jan. 8, 2001, at 26 (“Some 850 Web gambling sites are based [in Antigua] and an estimated 80% of all gaming URLs on the Web can be traced back to servers on the 108-square-mile island.”); United States General Accounting Office, Report GAO-03-89, Internet Gambling: An Overview of the Issues 52 (2002), available at http://www.gao.gov/new.items/d0389.pdf [hereinafter GAO Report] (listing 35 of 88 internet gambling websites as registered in either Antigua or Barbuda, but failing to report the percent of internet gambling taking place at these sites).
.Indeed the United States even brought a case against the country of Antigua and Barbuda before the WTO in an effort to curtail the proliferation of internet gambling operations on that tiny island nation. The United States lost that suit. See Naomi Rovnick, Herbies Helps Antigua in WTO Outsourcing Victory, Lawyer, April 5, 2004, at 10.
 Many Retail ISPs maintain little or no technological capability to filter internet traffic.
.In 2002, roughly ninety percent of internet transactions used credit cards. Ronald J. Mann, Regulating Internet Payment Intermediaries, 82 Texas L. Rev. 681, 681 (2004).
.In this context, P2P stands for “person-to-person.” The term is to be distinguished from the more common use of the same acronym to describe the peer-to-peer filesharing discussed in the context of piracy.
.See Mann, supra note 9, at 683.
.Because of the fluidity of payment mechanisms on the internet, there are a wide variety of service providers of various kinds (companies like Checkfree, Cybernet, and Authorize.net, for example) that might or might not be regarded as intermediaries, depending on the circumstances. For purposes of this Essay, however, we focus on the dominant intermediaries like Visa, MasterCard, and PayPal.
.Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir. 1996).
Friday, 15 February 2008