Repercussions of Brazilian internet Law on international agreements with Brazilian users.

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Mandatory changes to Internet User Agreements in Brazil

 The picture declares: Say NO to the Brazilian Internet Law. 

The new Brazilian internet law (Marco Civil da Internet), which is bound to enter into force at the end of June, 2014, is a complex regulation, encompassing public policies, technical standards and consumer’s rights. The bill also has some very worrying provisions that allow the State to closely monitor internet users and contents published in the internet and that resemble censorship.

In this article, I will focus on the provisions dealing with private international law and regulation of international agreements related to the internet.

General approach

Brazilian conflict of law rules have historically been based on the domicile of the contracting parties. That is, generally Brazilian law will apply over agreement entered into in Brazil and not apply when agreements have been executed abroad. Nationality of the parties is not important.

In case of agreements between parties who happen to be physically distant, Brazilian law determines that the law of the country of residence of the one making the proposal shall be the applicable law.

Since internet agreements don’t have a physical place where they are signed, and since most of providers of software, applications and other internet services are not located in Brazil, the application of Brazilian rules will generally bend towards the law of the country of the provider (considering that the provider –seller- is typically the one who proposes the terms).

Brazilian government seems to have resented this situation. The new internet law reflects this disturbance and has adopted a legal shortcut to allow the use of Brazilian law in agreements entered into through virtual environments. The Marco Civil determines that whenever a terminal is located in Brazil, the legal residence of the party using the terminal should also be Brazil. And that any internet transaction (or exchange of information) performed through a terminal located in Brazil should be subject to Brazilian law.

Terminal, under the legal definition, is any device capable of accessing internet. From cell phones to heavy processors and servers.

Limits to the application of Brazilian law over terminals located in Brazil.

The use of Brazilian law over terminals located in Brazil is, in theory, restricted to the acts of collection, keeping and using user’s data. And Brazilian law should be applied specifically in what regards privacy and protection against non-authorized use (including sale of information for advertising agencies, espionage and data mining by foreign governments).

If the scope of the use of Brazilian law were limited to the topics above, it means that commercial terms of the agreements should be subject to usual conflict of law rules, meaning that the use of foreign law would be allowed.

This conclusion, however, is not certain.

For once, because another part of the law mentions that the application of Brazilian consumer protection rules is also mandatory.

Also, the law may be used by the government to justify the taxation of software sales and licensing in Brazil.

In addition to that, several principles established by the bill are phrased to sound as “collective interest and national security” issues. Whenever a rule is considered as relevant to nation security, it attracts Brazilian law.

This means that some dominant clauses in standard terms of use, such as a clause allowing the Seller to automatically charge the Buyer’s credit card, may be ruled illegal in Brazil because Brazilian law is very protective of consumer’s credit, and because the application of Brazilian consumerist law may be considered as a matter of national security and public interest.

Limitations to the choice of forum and arbitration

The bill also establishes that mass agreements entered into via internet cannot exclude Brazilian forum. Or, in other words, the law prohibits foreign providers to attract the solution of disputes to their home countries (Facebook would not be allowed to choose the US as the preferred forum for dispute resolution, for instance).

It is not clear if this provision will prevent the use of arbitration or if the use of arbitration in those cases must follow some special provisions that are already applicable to domestic consumer agreements (basically, the need for a very distinctive clause, in bold letters).

Consequences: Shut down of websites and persecution of subsidiaries in Brazil

The consequences of the non-compliance with the privacy rules described in the bill are dire: a fine of up to 10% of the gross revenue of the economic group responsible for the application (think 10% of the worldwide revenues from Angry Birds, or, again, Facebook).

The bill provides, clearly, that the fines may be charged against local subsidiaries of the companies, and even against any assets or related companies and distributor in Brazil .

The law does not mention in clearly, but the shutdown of a website is also a possibility (it is important to note that even famous sites like youtube have been shutdown in Brazil, a few years ago).

Conflicts with international conventions. Possible unconstitutionality.

Some aspects of the Marco Civil violate international privacy protection agreements. Many of those agreements have not been ratified by Brazil, but are applicable in the countries where the application provider is located. Specially, the Marco Civil determines that the Sellers of internet servers or applications must cooperate with Brazilian authorities and share information about its customers with the Brazilian police and courts.

Moreover, the application of penalties over local subsidiaries that have not performed any illegal activities per se may be ruled unconstitutional, since the Brazilian constitution prohibits the penalization of innocent parties.

The Brazilian internet law is bound to controversy and, possibly, to battles in court regarding its validity vis a vis international conventions, as wells as its constitutionality. We shall watch carefully how the principles and rules described in the law are applied,