Managing the Law Chapter 17 Electronic Commerce

© 2003, Pearson Education Canada.17.2 Chapter 17 Overview  electronic commerce legislation -Canada’s Uniform Electronic Commerce Act -provincial electronic commerce legislation  contracting online -contract formation -automated electronic commerce -authentication -information security -domain names  internet access provider and online service provider liability -jurisdiction -online intermediaries  online consumer protection

© 2003, Pearson Education Canada.17.3 Electronic Commerce  technologically-mediated business transactions  usually involves the transportation of goods, services, or information -physically or digitally  advantages: -saves transaction costs and time -allows the reach of more customers in more places  disadvantage: -uncertainty in the law

© 2003, Pearson Education Canada.17.4 UNCITRAL  United Nations Commission on International Law  encourages countries to create uniform legislation -based on the Model Law on Electronic Commerce -does not create powers, obligations, immunities -provides a model for consistent laws -the extent to which the model is decided by each government

© 2003, Pearson Education Canada.17.5 Canadian Legislation  the Canadian Constitution states that commerce is generally a provincially regulated matter -electronic commerce has been enacted on a province-by-province basis  the coordination of the regulation of electronic commerce is desirable at the national level -the Uniform Law Conference of Canada created a model law called the Uniform Electronic Commerce Act (UECA), based on the UNCITRAL model law -has no legal force -forms the basis of most electronic commerce laws in Canada

© 2003, Pearson Education Canada.17.6 Uniform Electronic Commerce Act  scope -UECA lists the transactions to which it does not apply -excludes wills and dealings in land -the list of exclusion varies by jurisdiction  consent -UECA provides a means to facilitate electronic commerce for those who expressly or impliedly choose to engage in it

© 2003, Pearson Education Canada.17.7 Uniform Electronic Commerce Act  functional equivalence -UECA identifies the essential purpose of a traditional rule and indicates how that purpose can be accomplished electronically -a writing requirement can sometimes be satisfied through the click of a mouse  electronic contracts -transactions may be achieved without human intervention -enforceable contracts may be created by shopping bots or automated electronic devices

© 2003, Pearson Education Canada.17.8 Uniform Electronic Commerce Act  sending and receiving electronic documents -a message is deemed to be sent from the sender’s place of business and received at the recipient’s place of business -a message is deemed sent when it leaves the sender’s control -a message is deemed received when it reaches an information system in the control of the person to whom it is sent -the Act does not change the common law rules regarding the communication of acceptance

© 2003, Pearson Education Canada.17.9 Uniform Electronic Commerce Act  government documents -UECA contains provisions regarding electronic documents that are sent to government -a government can specify the formats it is willing to accept

© 2003, Pearson Education Canada Provincial Electronic Commerce Legislation  provinces have adopted the UECA model entirely, with minor variances, or have used different approaches -New Brunswick -does not regulate the process of offer and acceptance -Quebec -more extensive than other provinces -contains detailed provisions regarding the consultation and transmission of documents that have legal implications for third parties  businesses should consult the relevant legislation in each province or territory it operates in

© 2003, Pearson Education Canada Contracting Online  some aspects of contracting online are not completely governed by electronic commerce legislation  some uncertainties remain: -contract formation -automated electronic commerce -authentication and security

© 2003, Pearson Education Canada Contract Formation  shrink-wrap license -when mass-marketed software is placed in a package that is wrapped in clear cellophane -a license is created when a consumer removes the cellophane -by removing the cellophane, the consumer agrees to abide by rules of use shown on a card underneath it

© 2003, Pearson Education Canada Contract Formation  click-wrap license -when a person accepts the terms of a licensing agreement with the click of a mouse  web-wrap license -when a person accepts the terms of a licensing agreement by some form of online interaction -terms of an online contract are effective only if they are reasonably brought to the parties’ attention

© 2003, Pearson Education Canada Contract Formation  the traditional rules of offer and acceptance apply to online contracts  a website should be designed to provide invitations to treat rather than offers  whether a particular electronic transmission is considered instantaneous or non-instantaneous depends on the circumstances and is determined on a case-by-case basis  redundant means of communication help businesses overcome the risk of messages being lost or delayed in cyberspace

© 2003, Pearson Education Canada Automated Electronic Commerce  automated transactions do not easily fit within traditional notions of contract, such as a “meeting of the minds”  transactions may not involve human interaction  automation allows systems to act intelligently and independently from their human creators  most provincial electronic commerce statutes allow contracts to be created by automated electronic devices  most of the provincial statutes specify exceptions that render automated transactions unenforceable

© 2003, Pearson Education Canada Keystroke Error  occurs when a person mistakenly hits a wrong button or key  legislation may render a contract unenforceable when the mistaken party can prove that -the automated system did not provide an opportunity to prevent or correct the error -the other party was notified of the error as soon as possible -reasonable steps were taken to return any benefit received under the transaction -no other material benefit was received from the transaction

© 2003, Pearson Education Canada Authentication  an authentication function identifies the signatory and ties that person to a document  useful when the identity of a party is important  helps to manage risk when doing business with strangers  often uses electronic signatures

© 2003, Pearson Education Canada Electronic Signatures  usually involve -a certification authority -a trusted third party that provides a transaction partner with a digital certificate - an electronic document that authenticates information such as identity, age and security clearance of a particular person -public key cryptography -the sender encrypts a signature into unreadable ciphertext with a private key -the receiver decrypts the encrypted signature into a readable form with a public key

© 2003, Pearson Education Canada Public Key Infrastructure (PKI)  set of policies and procedures that provides a high level of security  allows certification authorities to provide digital certificates -a digital certificate can be followed, traced and linked instantaneously as it moves around  may create the “most pervasive electronic surveillance system ever built”  crucial to the success of internet commerce when used with other security measures

© 2003, Pearson Education Canada Information Security  is used to protect against the threat of tampering, interception, worms, viruses, and logic bombs  involves a combination of communications security and computer security -communications security protects information while it is transmitted from one system to another -computer security protects information within a computer system  may involve the use of hardware, software, strict workplace policies, personnel security

© 2003, Pearson Education Canada Using the Law to Protect Security  businesses can protect their security interests by using the law as a deterrent  the Criminal Code of Canada prohibits -unauthorized use of a computer under s computer mischief under s. 430(1.1) -interception of private communications under ss. 283 and 184  contractual terms and confidentiality agreements can be used to protect security interests

© 2003, Pearson Education Canada Other Ways to Protect Security  a business should create, publicize, and enforce a policy governing -the use, disclosure, and return of confidential information -the use of the internet -permission to monitor employee communications  a business can reduce some security risks by outsourcing to security providers

© 2003, Pearson Education Canada Domain Names  a domain name locates an organization on the internet  a cybersquatter purchases a potentially valuable domain name with the intention of later selling it to the highest bidder  if no one claims a prior right to a particular domain name, the first person to register it becomes the owner and has the right to resell it

© 2003, Pearson Education Canada Disputes About Domain Names  disputes about domain names usually fall into three groups: -a person may have innocently registered a domain name that was later disputed -a person may have registered a domain name in which it claimed commercial right, to which other parties also claim a commercial right -a person may have registered a domain name in which it had no commercial right

© 2003, Pearson Education Canada Disputes About Domain Names  in some circumstances, parties are entitled to litigate disputes about domain names -costs time and money, and a determination of the appropriate court to hear the matter  the bodies that regulate domain names (eg CIRA) have adopted procedures to resolve disputes primarily through arbitration  the best strategy is to minimize the potential for domain name disputes -businesses should register bona fide trademarks and business names as early as possible

© 2003, Pearson Education Canada Jurisdiction  jurisdiction refers to the ability of a court from a particular place to hear a case -three tests can be used to determine jurisdiction -real and substantial connection test -passive versus active test -effects-based test

© 2003, Pearson Education Canada Jurisdiction  real and substantial connection test -usually used in Canada -considers whether the plaintiff’s cause of action and the effects of the defendant’s conduct are sufficiently linked to the place in which the plaintiff wants to sue  passive versus active test -considers the level of interactivity between the parties and the commercial nature of the exchange of information that occurs on the website

© 2003, Pearson Education Canada Jurisdiction  effects-based test -focuses on the actual impact that a website has in the place where jurisdiction is being sought  a business can avoid targeting a jurisdiction by -inserting a jurisdictional clause into its contract that requires disputes under the agreement to be heard in a specified place -restricting the geographical area in which it does business

© 2003, Pearson Education Canada Online Intermediaries  an online intermediary is a party that enables or facilitates an online transaction between others -internet access providers -online service providers

© 2003, Pearson Education Canada Internet Access Providers  provide access to the internet, often for a fee  supply the pipeline, do not monitor flow  generally are not liable if someone uses the internet service to cause some harm  employee actions may attract liability to an employer if internet access is provided for free by the employer

© 2003, Pearson Education Canada Online Service Providers  provide goods or services beyond mere internet access in exchange for something of value - suppliers, bulletin board operators, auction hosts  an exclusion clause may shield an online service provider from liability towards its customers  exclusion clauses do not shield an online service provider from liability to a third party -when a customer uses Yahoo! to distribute a defamatory statement, the victim of that tort may sue both the customer and the online service provider

© 2003, Pearson Education Canada Liability of Online Intermediaries  two US decisions suggest -a distributor is liable only if it actually knows that an illegal message was posted but does nothing -a publisher who exercises editorial control over the contents of its bulletin boards is liable for an illegal message in any event -service providers who exercise no editorial control over their sites are immune from liability  these decisions discourage service providers from monitoring their sites and removing offensive material

© 2003, Pearson Education Canada Liability of Online Intermediaries  in the United States and the United Kingdom, legislation protects online service providers from liability in some circumstances  in Canada, those issues are not consistently addressed -Quebec has enacted an Act to Establish a Legal Framework for Information Technology -service providers acting as intermediaries are not generally responsible for illegal acts of service users -service providers may incur liability if they participate in acts performed by service users

© 2003, Pearson Education Canada Liability of Online Intermediaries  to shield itself from intermediary liability, a business should -have a clear contract with each user -require clear consent to terms of service -explain and provide examples of acceptable and unacceptable uses -require indemnification from a user if the business is found liable for something a user has posted -set up operations such that it can demonstrate that the business merely acts as a conduit or pipeline for the materials

© 2003, Pearson Education Canada Online Consumer Protection  a dot-con is a con artist who uses the internet to defraud customers  multi-level marketing is a system of marketing that puts more emphasis on recruiting distributors than on selling products -the products at the heart of the sales pyramid are usually overpriced and shoddy -people often pay more for their supplies and promotional materials than they will ever earn in sales

© 2003, Pearson Education Canada Some dot-cons  duplicitous actions  hidden-term contracts  forged invoices  deceptive advertising  fraudulent credit card charges  fictitious business opportunities  miracle cures

© 2003, Pearson Education Canada Consumer Protection  by adopting consumer protection principles relating to electronic commerce, a business can enhance its reputation and strengthen consumer confidence  Industry Canada has promoted a set of guidelines that suggest ethical and effective business practices that are intended to supplement the laws that already protect consumers

© 2003, Pearson Education Canada Consumer Protection Guidelines  consumers should be provided with clear and sufficient information to make an informed choice about whether and how to make a purchase  vendors should take reasonable steps to ensure that the consumer’s agreement to contract is fully informed and intentional  vendors and intermediaries should respect privacy  vendors and intermediaries should take reasonable steps to ensure that the transactions in which they are involved are secure  consumers should have access to fair, timely, effective, and affordable means for resolving problems with any transaction  consumers should be protected from unreasonable liability for payments in transactions  vendors should not transmit commercial without the consent of consumers, unless a vendor has an existing relationship with a consumer  businesses should promote consumer awareness about the safe use of electronic commerce