A US court ruled last week that a decision by a French court which restricted access to Yahoo! auction sites hosted in the US is unenforceable through the US courts.

The earlier decision of the French court related to a provision of the French Criminal Code under which it is illegal to exhibit Nazi propaganda and artifacts for sale. In a ruling by the Tribunal de Grande Instance de Paris in May 2000, Yahoo! was ordered to prevent French citizens from accessing material on the Yahoo.com auction site which offered for sale Nazi memorabilia. This material could either be accessed through links from the yahoo.fr website or by accessing the yahoo.com site direct.

Yahoo! argued that although it was willing to take certain steps to restrict the availability of Nazi material on its auction site it was technologically impossible to prevent users located in France from accessing the US site which is hosted in the US. Nevertheless the French court reaffirmed its ruling in November 2000 and it also ordered that Yahoo! comply with its ruling within 3 months or face a potential penalty of 100,000 francs (approximately US$13,300) per day. This penalty was specifically imposed against the US company Yahoo! Inc, not Yahoo.fr.

Although there were further steps which had to be taken before the proposed penalty against Yahoo! Inc was fixed, Yahoo! Inc took the decision to apply for a declaration by the US courts that the French court s ruling was unenforceable in the US.

Whilst the US court indicated that it respected France s sovereign right to determine its own laws and, specifically, to enact and enforce laws to restrict the promotion of Nazism, it also considered that these laws were inconsistent with the right of freedom of speech granted under the US Constitution. The US court further held that in relation to activity taking place in the US (in this case, the hosting of the Yahoo.com website), it had no option but to comply with the US Constitution.

From a legal perspective, it is hard to fault the logic of the US courts in this case. Whilst accepting that overseas countries have a sovereign right to regulate activity within their own territory they have also recognised that it would be impossible for US courts to enforce the decisions of overseas courts which are inconsistent with the US Constitution.

This highlights a dilemma faced by governments seeking to regulate activity over the Internet. For the past 12 months, the Hong Kong SAR government has been seeking to amend the Gambling Ordinance so that it expressly regulates gambling services offered to Hong Kong residents from overseas. Specifically, the proposed new legislation would make it an offence for the operator of a website hosted overseas to accept a bet from anyone in Hong Kong.

This provision has been consistently criticised by members of the Bills Committee who are currently scrutinising the proposed new law because penalties awarded for the offence would not be enforceable overseas where the operators of the relevant websites would be based. In many jurisdictions (such as Australia and the UK), it is perfectly lawful to operate websites which offer gaming, bookmaking or other betting services provided that local regulations are complied with. As in the Yahoo! case, there appears to be no reason why the courts in such jurisdictions would be willing to enforce any penalty which a court in Hong Kong imposes against its citizens, when their activities are lawful under local laws.

To date, the government has not been prepared to consider making any amendments to this element of the proposed new legislation. However, the government has proposed that a detailed examination of extra-territorial issues relating to the current version of the Gambling Ordinance be conducted when the Bills Committee next meets on 26 November.

Whether this examination includes a consideration of the enforcement issues highlighted by the recent decision of the US courts in relation to Yahoo! remains to be seen. In the meantime, a question mark remains over the logic of seeking to enact legislation which purports to regulate the activities of companies based outside Hong Kong but, in reality, appears to be unenforceable.

An edited version of this article was first published in South China Morning Post on 17 November 2001