Companies are holding back on Net trade because of legal concerns, according to a recent Report from Forrester Research B.V. (Nasdaq: FORR). 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 [EURO]900 billion, or $759 million, by 2005, compared with this year’s estimated [EURO]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.