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Yahoo must prevent French customers from gaining access to the portions of its auction site that sell Nazi-related goods.

So ordered French Judge Jean-Jacques Gomez, in a precedent-setting decision handed down late Monday that will reverberate throughout the Internet industry.

Monday's decision reinforced a preliminary opinion delivered by Gomez in May instructing Yahoo to put filtering systems in place. Yahoo had long contended that filtering systems don't work, while plaintiffs such as the League Against Racism and Anti-Semitism, or LICRA, and the Jewish student group UEJF had advocated that a partial solution is better than none.

Gomez ruled that Yahoo must put a three-part system in place that includes filtering by IP address, the blocking of ten keywords, and self-identification of geographic location. The system follows the recommendations of an expert panel appointed by the court to investigate such technologies, which revealed its findings earlier this month. Yahoo will have three months to put the system in place, after which time the company would be subject to a fine of 100,000 francs ($13,000) a day if the system has not been implemented. (See "Yahoo Wins Reprieve in Nazi Sales Case." )

Issues of Jurisdiction

The case has raised questions about the jurisdiction of national courts over international Internet companies and has sparked a widespread debate over whether local laws should apply to foreign Internet companies. Yahoo believes its U.S. parent company should not be subject to French law, and that it already complies with the French law forbidding the sale of Nazi-related goods on its French Web site.

"Our reaction [to the decision] remains what we've said thus far in the case," said Yahoo spokeswoman Sue Jackson, leaving the courthouse in Paris Monday evening. Yahoo doesn't believe that a U.S. company should be subject to individual laws around the world, she said. "Does one country have jurisdiction to regulate companies in another country?" she asked skeptically.

But the French courts--as well as the French public, which in increasing numbers sees Yahoo as an insensitive American invader--obviously see things differently.

"The French justice system has heard us," says Marc Knobel, a member of the board of LICRA. "It is no longer OK for online retailers to say they are not affected by existing laws." Global Internet companies should put "ethics and morals" first, Knobel claims. "If they won't do it themselves, they have to be forced."

Yahoo said it is currently reviewing the decision and will decide how to proceed in the coming weeks. The company can appeal the decision in French courts and may end up fighting the battle in U.S. courts, as well, Jackson says. "Given the free-speech implications, there are strong questions whether a U.S. court would agree to the decision," she says.

Whether Yahoo decides to comply or not, the verdict has already had an impact on the Internet industry, which remains fearful of a highly regulated Internet controlled by many different governments at the same time. The repercussions will only grow larger if the case ends up in U.S. courts.

"This case has sparked off the issue of cultural differences and national sovereignty," says Jean-Claude Patin of Paris-based legal research firm Juritel. Internet companies are going to come under increasing fire if they don't comply with existing regulations, he says. "We will definitely see more of the of these cross-border cases."

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