IBT - E-Commerce Contracts Issues Victor H. Bouganim WCL, American University

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 2 E-Commerce Laws F UNCITRAL – United Nations Commission on International Trade Model Law on Electronic Commerce 1996 F UETA – Uniform Electronic Transactions Act 1999 F UCITA – Uniform Computer Information Transactions Act 1999

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 3 UNCITRAL F Model law has no authority until individual countries adopt it through legislation –e.g. EU Directives on E-Commerce F Minimalist approach towards providing clarity to electronic contracts F Generally provides that contracts may be made and signed in the electronic context and that electronic transmissions may satisfy signature requirements

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 4 UNCITRAL - Contracts Article 11 F In the context of contract formation, unless otherwise agreed by the parties, an offer and the acceptance of an offer may be expressed by means of data messages. F Where a data message is used in the formation of a contract, that contract shall not be denied validity or enforceability on the sole ground that a data message was used for that purpose.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 5 UETA F Uniform code, which is recommended for adoption in all states. F Minimalist approach to legislating the conditions for electronic contracts based on existing contract law F Provides a general framework for further state law on electronic transactions F Clearly validates electronic signature and contracts formed by electronic agents

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 6 UETA- Legislative History F Approved by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in July F Adopted by most states (at least 20 states) as of February 2000 including MD and VA. F Pending bills in other states. F Slow process of adoption by each state See: UetaOnline.Com

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 7 UCITA F Approved by the NCCUSL in July F Began as a proposed “Article 2B” of the UCC on licensing F Essential purpose is to identify the terms and conditions for making contracts in the electronic environment. F Principal application is to computer software and information products –Currently adopted in some states, while others introduced bills. See: UcitaOnline.Com

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 8 UETA & UCITA Approved Issues F equivalency of electronic records and writings F validity of electronic signatures F contracts can be formed by electronic agents F contracts can be formed by interaction of an electronic agent and a human being F a person is attributed with an electronic act if the other person can prove that the act was the result of the person or its agent

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 9 Can Computers Make Contracts? F Artificial Intelligence (“AI”) and autonomy of computer software F The Computer as a Legal Person F The Computer as a mere machine F UETA & UCITA clarify the legal status of Electronic Agents

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 10 Electronic Agent F “Electronic agent” means a computer program, or electronic or other automated means, used by a person to initiate an action, or to respond to electronic messages or performances, on the person’s behalf without review or action by an individual at the time of the action, or response to a message or performance. UCITA, Sec. 102; EUTA, Sec. 2(6)

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 11 Automated Transaction F "Automated transaction" means a transaction conducted or performed, in whole or in part, by electronic means or electronic records, in which the acts or records of one or both parties are not reviewed by an individual in the ordinary course in forming a contract, performing under an existing contract, or fulfilling an obligation required by the transaction. EUTA, Sec. 2(2)

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 12 Assent & Opportunity to Review F In UCITA, a "manifest assent" to a contract is - –having had an opportunity to review the written terms, u essentially means having a chance to look at the contract before you assent to it. –you act or fail to act, –you have reason to know that the other party will infer from your conduct or lack of conduct that you agree to the contract.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 13 Mass Market Licenses F A new concept of contracts under UCITA. F A mass market license (MML) is a standard form contract used for transactions with the general public in a retail setting where the information is generic and the customer can be anyone. F The term "MML" also includes all consumer contracts.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 14 Validity of MLL F An MML is effective only if - –the licensee manifests assent to it –after having an opportunity to review the terms of the contract F The terms of the license are limited by the following rules: –Unconscionable terms are unenforceable –Terms that violate a fundamental public policy are unenforceable. –Terms that conflict with the actual agreement of the parties are unenforceable

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 15 Shrink-wrap F Contract of Adhesion F The term "shrink- wrap" refers to a contract that you do not see until after you initially agree to acquire a product and receive it. F You might order a product over the phone or by mail: once it is delivered and you open the box, a contract might be contained in the box or in the start-up screen for the software.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 16 Shrink-wrap License F A mass market shrink-wrap license is unenforceable unless: –you had reason to know that more terms would be coming –you are given a right to return the product if you don't like the terms –your right of return is cost-free –you are reimbursed any reasonable costs of restoring your system if it was altered when you tried to read the license terms.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 17 ProCD v Zeindenberg 7th Cir., 1996 F ProCD compiled information from over 3,000 telephone directories into a computer database and sells the database in a 5 CD-ROM set. F Zeidenberg purchases the ProCD database, accompanied by a shrinkwrap license, and makes the information available on the Internet for a price that is less than ProCD charges. F The court finds, under theories of contract law, that shrinkwrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 18 Class Discussion F Should shrink-wrap licenses and MML contracts be valid? F What are the industry arguments for the enforceability of these licenses? F What are the consumers concerns regarding the validation of these licenses? F How to balance between the industry needs and protection of consumers? F Are there any other solutions?

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 19 What Terms Apply? F Conflicts of Laws: How do we define the effective terms of the contract? What law applies to the transaction? F Which court has jurisdiction to resolve a particular dispute? F Choice of Law / Choice of Forum –Parties to a contract can agree upon applicable law and forum.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 20 UCITA - Choice of Law F In Internet transactions - the state law of the licensor's principal place of business. F In consumer cases where a tangible product is delivered - the law of the state where the product is to be delivered. –Often, this is the consumer's residence or the place where the transaction physically occurred. F In all other cases, the law of the state with the most significant relationship to the transaction.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 21 UCITA - Choice of Forum F UCITA allows choice of an exclusive judicial forum, but only if the choice is not "unreasonable and unjust." F Choice of Forum can be stated in a non- negotiable standard form contract. F Courts can invalidate abusive terms regarding choice of forum on the basis of fairness and reasonableness.