Chapter 14 E- Contracts

2 Chapter Objectives 1. Discuss whether shrink-wrap and click- on agreements are enforceable. 2. Describe the nature and function of electronic agents and some of the legal issues raised by such agents. 3. Summarize the background and general coverage of the Uniform Computer Information Transactions Act (UCITA). 4. Define what constitutes an e-signature and the legal validity of such signatures. 5. State some of the major provisions of the Uniform Electronic Transactions Act (UETA).

3 Shrink-Wrap Agreements An agreement the terms of which are expressed inside a box in which the goods are packaged. Sometimes called a shrink-wrap license.

4 Case 14.1 M.A. Mortenson Co. v. Timberline Software Corp. M.A. Mortenson Co. bought software from Timberline Software Corp. The screen on each program, also referred to the license, included a limitation of Timberline’s liability. Mortenson discovered a bug in some of the software, which Timberline was aware of and had provided a newer version of the software for. Mortenson filed a suit against Timberline alleging the software was defective. What was the court’s decision? Is it fair to hold that a person can be bound by an agreement that he or she has not read? Why or why not?

5 Case 14.2 Klocek v. Gateway, Inc. Gateway, Inc. includes a Standard Terms and Conditions Agreement with every computer it sells. William Klocek bought a Gateway computer, and filed a suit against Gateway because the computer was not compatible with his other equipment. Gateway filed a motion to dismiss, asserting Klocek was required to submit his claims to arbitration under Gateway’s “Standard Terms.” What did the courts decide? Note how the court in this case applied UCC provisions to a shrink-wrap contract. Can you think of some other ways in which the courts are applying traditional laws to business practices that did not exist when the UCC was drafted?

6 Click-On Agreements Occurs when a buyer, completing a transaction on a computer, is required to indicate his or her assent to be bound by the terms of an offer by clicking on a button that says, for example, “I agree.” Sometimes it is called a click-on license or click-wrap agreement.

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8 Case 14.3 Hotmail Corp. v. Van$ Money Pie, Inc. The Hotmail Corp. provides free service to subscribers. In 1997, Van$ Money Pie, Inc., and others began using Hotmail’s service to send spam peddling pornography, bulk e- mailing software, “get-rich-quick” schemes, and other items. After many complaints from subscribers, which took up a large amount of Hotmail’s computer capacity, Hotmail filed a suit against the spammers, alleging breach of contract and computer fraud. What did the court conclude? In your opinion, are most consumers fully aware of the legal consequences of clicking an “I agree” box on a Web site?

9 E- Signatures An electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record, according to the Uniform Electronic Transactions Act.

10 E- Signature Technologies Asymmetric cryptosystem—creates a digital signature using two different (asymmetric) cryptographic “keys.” A person then attaches a digital signature to a document using a private key, or code. Cybernotary—a legally recognized certification authority that issues the keys for digital signatures, identifies their owners, certifies their validity, and serves as a repository for public keys. Signature dynamics—involves capturing a sender’s signature using a stylus and an electronic digitizer pad.

11 E-Signatures: What Lies Ahead? The Electronic Signatures in Global and National Commerce Act (E-SIGN Act), became effective October 1, A major goal of the E-SIGN Act was to encourage e-commerce through the use of electronic signatures. Yet the act itself does not accomplish this goal. At the time the E-SIGN Act was passed, twenty-two states already had enacted some form of electronic-transactions laws, and another twenty-four states had addressed e- commerce contracts in some way. Why, then, did Congress and the president decide that federal legislation was necessary?

12 E- Agents A computer program, or electronic or other automated means, used to independently initiate an action or to respond to electronic messages or performances without review by an individual, according to the Uniform Computer Information Transaction Act.

13 The Uniform Computer Information Transaction Act A draft of legislation suggested to the states by the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute (ALI).

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15 Case 14.4 Caspi v. Microsoft Network, LLC Microsoft Network, LLC (MSN), is an online computer service. Prospective subscribers are prompted to view multiple screens of info. Steven Caspi was a subscriber, alleging that MSN rolled over his membership into a more expensive plan without notice. Caspi and others filed a suit against MSN. What were the results? Many attorneys advise their business clients that it is especially important, when forming e-contracts, to include forum-selection clauses. Would including such a clause be more important when forming an e-contract than when forming a traditional, printed contract?

16 The Uniform Electronic Transactions Act The Goal of the UETA is to support the enforcement of e-contracts, not create rules for electronic transactions.

17 Differences Between the UETA and the UCITA The UETA supports all electronic transactions, but it does not create rules for them. The UCITA concerns only contracts that involve computer information, but for those contracts, the UCITA imposes rules. The UETA does not apply unless contracting parties agree to use e-commerce in their transactions. The UCITA applies to any agreement that falls within its scope.

18 UCITA Some consumer groups argue that the UCITA favors the software industry and will have harsh effects for consumers. Among other things, they object to the automatic enforceability of licensing agreements, including shrink-wrap or click-on agreements, which can easily go unread by consumers. Do you agree with the consumer groups? Why, or why not?

19 For Review 1. When is a shrink-wrap agreement or a click-on agreement enforceable? 2. For the purposes of the UCITA, what is computer information? 3. What important, general legal principle does the UCITA recognize? 4. What is a mass-market license? 5. State some of the similarities and differences between the UCITA and the UETA.