The Internet and the Abiding Significance of Territorial Sovereignty Citation Jack L. Goldsmith, The Internet and the Abiding Significance of Territorial Sovereignty, 5 Ind. J. Global Legal Stud. 475 (1998). Published Version http://www.repository.law.indiana.edu/ijgls/vol5/iss2/6/ Permanent link http://nrs.harvard.edu/urn-3:HUL.InstRepos:12786006 Terms of Use This article was downloaded from Harvard University’s DASH repository, and is made available under the terms and conditions applicable to Other Posted Material, as set forth at http:// nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA Share Your Story The Harvard community has made this article openly available. Please share how this access benefits you. Submit a story . Accessibility Indiana Journal of Global Legal Studies Volume 5|Issue 2 Article 6 4-1-1998 The Internet and the Abiding Significance of Territorial Sovereignty Jack L. Goldsmith University of Chicago Law School Follow this and additional works at:http://www.repository.law.indiana.edu/ijgls Part of theComputer Law Commons, and theInternational Law Commons Recommended Citation Goldsmith, Jack L. (1998) "The Internet and the Abiding Significance of Territorial Sovereignty,"Indiana Journal of Global Legal Studies: Vol. 5: Iss. 2, Article 6. Available at:http://www.repository.law.indiana.edu/ijgls/vol5/iss2/6 This Symposium is brought to you for free and open access by the Law School Journals at Digital Repository @ Maurer Law. It has been accepted for inclusion in Indiana Journal of Global Legal Studies by an authorized administrator of Digital Repository @ Maurer Law. For more information, please [email protected]. The Internet and the Abiding Significance of Territorial Sovereignty JACK L. GOLDSMITH* INTRODUCTION More than any other technology, the Internet facilitates cheap, fast, and difficult-to-detect multi-jurisdictional transactions. This in a nutshell is why so many believe that the Internet "undermin[es] the feasibility-and legitimacy--of laws based on geographical boundaries."' Dean Henry H. Perritt's essay is sanguine about the Internet's ability to facilitate national governance.' But even Perritt appears skeptical about the efficacy of territorial regulation of the Internet. His arguments for the Internet's potential to strengthen national and international governance are tempered by doubts about whether regulation conceived in territorial terms can effectively govern Internet transactions.3 This essay attempts to alleviate Perritt's doubt. It aims to show that from the perspective of jurisdiction and choice of law, territorial regulation of the Internet is no less feasible and no less legitimate than territorial regulation of non-Internet transactions. * Associate Professor, University of Chicago Law School. Thanks to Andrew Guzman for helpful comments, and Greg Jacob for excellent research assistance. I. See David R. Johnson & David Post, Law and Borders-The Rise ofL aw in Cyberspace, 48 STAN. L. REv. 1367, 1367 (1996). 2. See Henry H. Perritt, Jr., The Internet as a Threat to Sovereignty? Thoughts on the Internet'sR ole in Strengthening Nationala nd GlobalG overnance, 5 IND. J. GLOBAL LEGAL STuD. 423, 436-37 (1998). 3. Perritt, The Internet as a Threat to Sovereignty, supra note 2, at 426-27. The Internet is "not susceptible to the same physical and regulatory controls as telegraph, telephone, radio, and television technologies." Id at 426. Perritt notes the "difficulty in imposing border controls on Internet communications." Id. "The Internet may very well be a direct threat to certain types of conceptions about sovereignty-those that rely on maximum, centralized control over the life of a people." Id See also Henry H. Perritt, Jr., Jurisdiction in Cyberspace,4 1 Viu. L. REv.1 ,1 (1996) ("Conduct with potentially serious legal consequences is difficult for traditional sovereigns to control in the [Global Information Infiastructure] because it is ephemeral, invisible, and crosses geographical boundaries easily."). However, Perritt isa moderate on this issue. CompareJ ohnson & Post, supran ote I. 4. My arguments about the relevance ofterritorial sovereignty to Internet transactions apply with similar (but not identical) force to national sovereigns and sub-national quasi-sovereigns (such as the several states). Throughout this essay I will use focus on "national" territorial regulation as opposed to "sub-national" territorial regulation unless otherwise indicated. 475 GLOBAL LEGAL STUDIES JOURNAL [Vol. 5:475 I. TERRITORIAL SOVEREIGNTY "Sovereignty" has many meanings. In this essay I analyze the relevance to the Internet of a particular conception of territorial sovereignty. A nation possesses territorial sovereignty in the sense that it exercises the principal means of authority within a given territory. Territorial sovereignty so conceived does not commit one to the realist conception of sovereignty that Perritt criticizes.6 It is consistent with the view that non-governmental organizations and extra-territorial factors significantly influence governmental options and other events within the territory, and that persons and firms can evade regulation by avoiding a territorial presence.7 Territorial sovereignty is relevant to Internet regulation in a straightforward fashion. The Internet is not, as many suggest, a separate place removed from our world. Like the telephone, the telegraph, and the smoke signal, the Internet is a medium through which people in real space in onejurisdiction communicate with people in real space in another jurisdiction. Territorial sovereignty supports national regulation of persons within the territory who use the Internet. It also supports national regulation of the means of communication-Internet hardware and software-located in the territory. Finally, a nation's prerogative to control events within its territory entails the power to regulate the local effects of extraterritorial acts.' When a person abroad uses the Internet to 5. See Stephen D. Krasner, Sovereignty: An InstitutionalP erspective, 21 COMP.P OL. STuD. 66, 86 (1988) ("The assertion of final authority within a given territory is the core element in any definition of sovereignty."). Id. Janice E. Thomson, Sovereignty in HistoricalP erspective: The Evolution of State Control over ExtraterritorialV iolence, in THE ELUSIVE STATE: INTERNATIONAL AND COMPARATIVE PERSPECTIVES 227, 227 (James A. Caporaso ed., 1989) ("Despite their debate over whether the state is a withering colossus or a highly adaptive entity, international relations theorists agree on an even more fundamental point. Both liberal interdependence and realist theories rest on the assumption that the state controls at least the principal means of coercion."). Id. (citations omitted). 6. See Perritt, The Internet as a Threat to Sovereignty, supra note 2, at 425. 7. See Janice E. Thomson & Stephen D. Krasner, Global Transactions and the Consolidation of Sovereignty, in GLOBALCHANOESANDTHEOREnCALCHALLENGES: APPROACHESTO WORLD POLITICS FORTHE 1990s 195, 198-206 (Ernst-Otto Czempiel & James N. Rosenau eds., 1989). 8. Some commentators suggest that this effects criterion for local regulation constitutes a rejection of territorial sovereignty as traditionally conceived. See, eg., Larry Kramer, Vestiges of Beale: Extraterritorial Application ofAmerican Law, 1991 SuP. CT. REV. 179, 202 (1992). To the contrary, however, the traditional territorialists recognized that "[aicts done outside a jurisdiction, but intended to produce and producing detrimental effects within itjustify a State in punishing the cause of the harm as if he had been present at the effect...." Strassheim v. Daily, 221 U.S. 280,285 (1911) (Holmes, J.). This point flows from the traditional conception's emphasis on plenary sovereign power within the territory. It is true, however, that the effects test for territorialjwisdiction has greater prominence now than in the late-nineteenth and early-twentieth centuries. Several reasons explain this change. All conflicts of law problems by definition have connections to two or more territorial jurisdictions. A dominant version oftraditional territorialism-best represented by Joseph Beale-used 1998] THE ABIDING SIGNIFICANCE OF TERRITORIAL SOVEREIGNTY 477 produce harmful local effects, the local sovereign isjustified in regulating these local effects." These various forms of legitimate territorial regulation enable nations to significantly raise the cost of, and thus to regulate, proscribed Internet transactions.10 The arguments against this view begin with empirical assumptions about Internet architecture." A distinguishing feature of the Internet is that protocol addresses do not necessarily correlate with physical location. This means that persons transacting in cyberspace sometimes cannot know each other's physical location and cannot control the geographical flow of content. In addition, information mediated by many Internet services can appear simultaneously in all jurisdictions around the world. Finally, information transmitted on the Internet can easily flow across national borders without detection. There are many reasons to question these empirical and technological, claims.2 In this essay I want to focus instead on legal and conceptual arguments against territorial regulation of the Internet. There are three basic undermined Beale's notion of a uniquely legitimate governing law in conflicts cases. The massive increase in transjurisdictional transactions during the late nineteenth and twentieth centuries exacerbated the number and scope of conflicts of law. The rise of the regulatory state led to more caustic public policy differences among states and pressured interested fora to apply local regulations whenever possible. These changes in the world combined with changes in legal and related conceptual understandings. The legal realists demolished Beale's intellectual edifice, and showed that nothing in the logic of territorialism justified legal regulation by any one of several territories that had connections to the transaction in question. See WALTER WHEELER COOK, THE LOGICAL AND LEGAL BASES OF THE CONFLICTOF LAWS 311-22,351-70,433-37 (1949); ERNESTG. LoRENzEN, SELECTEDARTICLES ONTHECONFLICTOF LAWS (1947). The realists successfully argued that any jurisdiction with a sufficient connection to a case can with justification apply its law to the case. This, in a nutshell, is the effects criterion, a criterion that constitutes an expanded conception of territorial sovereignty, not a rejection of the conception. 9. This effects criterion is a pervasive and well-settled feature ofdomestic and international conflicts of law. See Allstate Ins. Co. v. Hague, 449 U.S. 302 (1981). The Constitution permits a state to apply its law if it has a "significant contact or significant aggregation of contacts, creating state interests, such that the choice of its law is neither arbitrary nor fundamentally unfair." Id. at 313. Similarly, "[i]ntemational law permits nations to regulate extraterritorial activity with local effects." RESTATEmENT(THIRD)O FTHE oREGN RELATIONS LAW OF THE U.S. § 403 (1987). 10. For my more comprehensive analysis, see Jack Goldsmith, Against Cyberanarchy,6 5 U.C Hi. L. REV. (forthcoming 1998). 11. See Perritt, Jurisdiction in Cyberspace,s upran ote 3, at 1-2; Johnson & Post, supra note I, at 1370- 76. 12. For example, the central empirical assumption that Internet content providers cannot control where and to whom their content flows is either misleading or wrong. See Goldsmith, Against Cyberanarchy,s upra note 10. Content providers can control these flows through a variety ofmeans ranging from conditioning access on presentation of age or geographical identification to labeling and rating for filtering software. These and other forms of information flow control are neither perfect nor costless. But neither is control over the transjurisdictional effects of non-Interet activities. Moreover, the accuracy ofIntemet content control is rapidly rising, and the costs ofsuch control are rapidly diminishing. Although technological predictions in this context are perilous, there is presently every reason to believe these trends will continue. For further analysis, see id. GLOBAL LEGAL STUDIES JOURNAL [Vol. 5:475 arguments to this effect.'3 First, territorial regulation of the Internet is not feasible because the source of Internet transactions can easily be located outside ofthe regulating sovereign's territory. Second, unilateral territorial regulation of the Internet leads to overlapping and often inconsistent regulation oft he same transaction. Third, unilateral territorial regulation of the Internet produces significant, normatively problematic spillover effects. I consider each argument in turn. II. REGULATION EVASION The first argument against territorial regulation of the Internet concerns regulatory leakage. This is an argument about the infeasibility of territorial regulation of the Internet. Because Internet information flows cross territorial borders without detection, and because Internet content providers can shift with relative ease the source of their information flows outside of any regulating territory,4 much of the content of the Internet is beyond the regulatory scope of any particular territorial sovereignty. It is true that it is costly (but not impossible)"5 to arrest the flow of Internet protocol packets over territorial borders. It is also true that these information flows often have an extraterritorial source. But these features do not distinguish the Internet from real space transnational transactions for which territorial regulation is a common and effective tool. Persons acting abroad often do things that cause adverse effects within the regulating jurisdiction that cannot be intercepted at the border. For example, when English reinsurers conspire in England to limit the types ofreinsurance sold in the United States, U.S. customs 13. An extreme statement of these arguments is found in Johnson & Post, supra note 1. For a more nuanced assessment, see Perritt, Jurisdiction in Cyberspace, supra note 3. 14. Content providers can do this by, among other ways, locating physically beyond the regulating jurisdiction or by employing technology like telnet or anonymous remailers. 15. For example, China regulates access to the Internet through (among other means) centrally regulated servers. See China Tightens Control Over Internet, INDEPENDENT (UK), Dec. 31, 1997 ("All locally-dialed internet servers available in China must send traffic leaving the country through nodes controlled by the Ministry of Post and Telecommunications and there isw idespread belief that targeted screening of this interet use is routine."). Perritt acknowledges this point. See Perritt, The Internet as a Threat to Sovereignty, supra note 2, at 426. See also Timothy S. Wu, Cyberspace Sovereignty? - The Internet and the International System, 10 HARV. J. L. & TECH. 647,652 (1997). 19981 THE ABIDING SIGNIFICANCE OF TERRITORIAL SOVEREIGNTY 479 officials cannot stop the harm to American insurers and insureds atthe border.6 The local economic harm of foreign activity is similarly impossible to stop at the border when a foreign corporation makes a fraudulent tender offer on foreign soil for a foreign corporation owned in very small part by Americans.7 In the modem interdependent international economy, these economic effects are oblivious to border control. The point is not limited to economic effects. Harmful pollution that wafts from one state into another is also difficult to intercept at the state line.' Does the inability of governments to stop these harmful effects at the border mean that the extraterritorial sources of these local harms are beyond local regulation? Of course not. Some harmful effects cannot be intercepted at the border and thus must be regulated expost through legal sanctions (or ex ante through the threat of such sanctions). In each of the three non-Interet examples above, for example, the jurisdiction that suffered the harmful effects applied its laws to the extraterritorial activity. Internet activities are functionally identical to these non-Intemet activities. People in onejurisdiction do something-upload pornography, facilitate gambling, offer a fraudulent security, send spain, etc.-that is costly to stop at anotherjurisdiction's border and that produces effects within that jurisdiction deemed illegal there. The territorial effects rationale for regulating these harms is the same as the rationale for regulating similar harms in the non-Intemet cases. The medium by which the harm is transmitted into the regulating jurisdiction-be it economic interdependence, postal mail, wind curients, or the Internet-is not relevant to the justification for regulating it. The effects criterion tells us that it is legitimate for a nation to apply its regulation to an extraterritorial act with harmful local effects. It does not tell us whether such a regulation will be efficacious. In most instances, regulation of extraterritorial activity is efficacious only to the extent that the agents of the acts have a local presence or local property against which local laws can be enforced. In this sense, the concept of the extraterritoriality can be misleading. It does not (usually) mean that a nation enforces its law abroad. Rather, it means that a nation uses the threat of force against local persons or property to punish, and thus regulate, extraterritorial acts that cause local harms. If the 16. See Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993). 17. See Consolidated Gold Fields PLC v. Minorco, S.A., 871 F.2d 252, modified 890 F.2d 569 (2d Cir. 1989). 18. See Georgiav. Tennessee CopperCo., 237 U.S. 474 (1915). Cf.T rail SmelterCase (U.S. v. Canada), 3 R.I.A.A. 1911 (1949). 480 GLOBAL LEGAL STUDIES JOURNAL [Vol. 5:475 extraterritorial source has no local presence or property, the efficacy of the local regulation is diminished (but, as we shall see in a moment, not eliminated). In this sense the enforceable scope of a local regulation is much more significant than its putative scope. And the enforceable scope is largely limited by the old- fashioned conception of territorial sovereignty: a nation has plenary enforcementjurisdiction over persons and property within its borders but little if any beyond.9 The relative importance of the enforceable (as opposed to the putative) scope of a regulation is often not noticed with respect to extraterritorial regulation of non-Internet activities. Nor are the largely territorial limitations on this scope. This is probably because in non-Internet cases the extraterritorial source of local harm is frequently a firm with some local presence (property, employees, business contracts) against which the local regulating jurisdiction can assert leverage in trying to alter extraterritorial behavior. For example, the United States can apply its antitrust laws to alter the acts of English reinsurers in London because these reinsurers have widespread contractual relations with American firms that they want to preserve.20 Similarly, the European Community can impose strict and almost deal-breaking conditions on a Federal Trade Commission-approved merger between two U.S. companies with no manufacturing facilities in Europe because of the many offices, agents, and contracts that the U.S. companies have in Europe." In both cases the foreign company subject to local regulation has a local business presence that is more beneficial than the costs of local regulation; otherwise, the foreign company would eliminate its presence in the regulating jurisdiction and avoid the regulation. At first glance, the architecture of the Internet transactions appears to differ from real space in a way that makes regulatory leakage a more serious problem. For the Internet makes it very easy and very inexpensive for individualso utside the regulating jurisdiction to send harmful content into the regulating jurisdiction that is difficult to intercept at the border. Since individuals abroad rarely have local presence or assets, it appears that many local regulations of Internet activity will be inefficacious. As James Boyle puts the point: "If the king's writ reaches only as far as the king's sword, then much of the content of 19. 1 set aside for present purposes one relatively rare method of extraterritorial enforcement: military invasion. See, e.g., United States v. Noriega, 746 F. Supp. 1506 (S.D. Fl. 1990). 20. See HartfordF ire, 509 U.S. at 796. 21. See McDonnell Douglas-BoeingL ink Gets Europe Approval, N.Y. TIMES, July 31, 1997, at D4; Edmund L. Andrews, Boeing ConcessionA verts Trade War With Europe, N.Y. TIMES, July 24, 1997, at Dl. 1998] THE ABIDING SIGNIFICANCE OF TERRITORIAL SOVEREIGNTY 481 the Net might be presumed to be free from the regulation of any particular sovereign."2 This phenomenon-which we might label offshore regulatione vasion-is not limited to the Internet. For example, corporations reincorporate in jurisdictions with favorable internal affairs laws, and drug lords send cocaine into the United States from South America. Closer to point, offshore regulation evasion has been a prominent characteristic of other communication media.3 For example, Radio-Free Europe broadcast into the U.S.S.R. but lacked a regulatory presence there; television signals are sometimes broadcast from abroad by an entity with no local presence; and a person living in one country can libel a person in another via telephone. Like the content source of many Internet transactions, the extraterritorial source of these and many other non- Internet activities is often beyond the enforceable scope of local regulation. However, this does not mean that local regulation is inefficacious. In cyberspace, as in real space, offshore regulation evasion does not prevent a nation from indirectly regulating extraterritorial activity that has local effects. The reason once again has to do with territorial sovereignty as traditionally conceived. A nation retains the ability to regulate the extraterritorial sources of local harms through regulation of persons and property within its territory. This form of indirect extraterritorial regulation is how nations have, with various degrees of success, regulated local harms caused by other communications media with offshore sources and no local presence.24 It is also how nations have begun to regulate local harms caused on the Internet by extraterritorial content providers. For example, nations penalize in-state end- users who obtain and use illegal content or who otherwise participate in an illegal cyberspace transaction.2" They also regulate the local means through which foreign content is transmitted. For example, they regulate in-state entities 22. James Boyle, Foucault in Cyberspace: Surveillance, Sovereignty, and Hard-WiredC ensors, 66 U. CrN. L. REv.177, 179 (1997). 23. See generally Stephen D. Krasner, Global Communications and National Power: Life on the ParetoF rontier,4 3 WORLD POL. 336 (1991). 24. See id. at 340. 25. See, e.g,. Computer Information Network and Internet Security, Protection and Management Regulations (Approved by the State Council on Dec. 11, 1997 and promulgated by the Ministry of Public Security on Dec. 30, 1997) (visited Apr. 6, 1998) http://www.gilc.org/speech/china/net-regs-1297.html (describing Chinese law proscribing criminal punishment for in-state users who access or transmit prohibited conduct); IntemetGambling Prohibition Act, H.R. 2380, S.4 74, 105th Cong. (1997) (pending bill that provides for punishment of persons in the United States who engage in Internet gambling). GLOBAL LEGAL STUDIES JOURNAL [Vol. 5:475 that supply or transmit information.26 Or they regulate in-state hardware and software through which Internet transmissions are received." These and related local regulations affect the cost and feasibility within the regulating nation of obtaining content from, or participating with, offshore regulation evaders. In these ways, local regulations indirectly regulate extraterritorial content supply. In both the Internet and non-Internet contexts, such indirect regulation will rarely be perfect in the sense of eliminating evasion. But of course few if any regulations are perfect in this sense. And regulation need not be perfect to be effective.' The question is always whether the regulation will heighten the costs of the activity sufficiently to achieve its acceptable control from whatever normative perspective is deemed appropriate. Whether indirect regulation of Internet content transmitted from abroad will achieve acceptable control depends on one's normative commitments and on empirical and technological questions that remain unresolved. There are several reasons to believe that Internet regulation will be at least 26. For example, a new German law imposes liability on Internet access providers "if they are aware of [illegal] content" and fail to use "reasonable and technically possible" means to block it. Germany to Enforce Child-Friendly Internet, Cm. TRIB., July 5, 1997, at 4. Australia is about to implement a similar law. See Electronic Foundation Frontier, Internet Regulation in Australia( visited Apr. 6, 1998) http://www.efa.org.au /Issues/Censor/cens lhtml. Similarly, Internet service providers have been held liable in the United States for facilitating the transmission of content deemed illegal in the regulating jurisdiction. See Stratton-Oakmont, Inc. v. Prodigy Service Co., 1995 WL 323710 (Sup. Ct. N.Y. May 24, 1995). See also Internet Gambling Prohibition Act, H.R. 2380, S. 474 (authorizing federal authorities to order Internet service providers to shut down offending gambling sites). 27. Several Middle Eastern and Asian countries have taken these steps. See Madanmohan Rao, Persian Gulf Net Censorship: Governments Force Server Blockades, (visited March 23, 1998) http://mediainfo. elpress.com/ephome/news/newshtmlwebnews/globl 003.htm (discussing how Middle Eastern states have set up "software blockades and proxy servers" to control Internet content flows); Wu, supra note 15 (describing similar measures in Singapore and China). Many believe that the United States will impose similar, but perhaps more modest, restraints. See Boyle, supra note 22, at 179. See also Lawrence Lessig, What Things Regulate Speech (visited Oct. 22, 1997) <http://www/si.umich.edu/prie/tprc/abstracts97/lessig.pdf>. The FCC has already required the television V-chip to be placed in all computers capable of receiving broadcast transmissions. See FCCR uling Gives Go-aheadt o Tri- Vision's V-Chip, FINANCIAL POST, Mar. 13, 1998, at 3. 28. As Lessig correctly argues: A regulation need not be absolutely effective to be sufficiently effective. It need not raise the cost of the prohibited activity to infinity in order to reduce the level of that activity quite substantially. If regulation increases the cost of access to this kind of information, it will reduce access to this information, even if it doesn't reduce it to zero. That is enough tojustify the regulation. If government regulation had to show that it was perfect before it was justified, then indeed there would be little regulation of cyberspace, or of real space either. But regulation, whether for the good or the bad, has a lower burden to meet. See Lawrence Lessig, The Zones of Cyberspace, 48 STAN. L. REv. 1403, 1405 (1996).