1. CHAPTER Current Future Contract Law for E-Commerce Current Future Contract Law for E-Commerce 9

2. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-2 E-Commerce and the Internet Ever since E-Commerce over the Internet became significant commercially there have been proposals to make it uniform The model is the UCC which was composed and revised by the NCCUSL –Article 2 is in the process of being revised The NCCUSL has proposed UETA and UCITA to deal with E-Commerce –UETA has been adopted by 41 states, UCITA 2 –It seems likely that UCITA will have to be revised or withdrawn Ever since E-Commerce over the Internet became significant commercially there have been proposals to make it uniform The model is the UCC which was composed and revised by the NCCUSL –Article 2 is in the process of being revised The NCCUSL has proposed UETA and UCITA to deal with E-Commerce –UETA has been adopted by 41 states, UCITA 2 –It seems likely that UCITA will have to be revised or withdrawn

3. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-3 E-Commerce Contract Law Issues There are four contract law issues that have emerged in E-Commerce: Parity between electronic and paper records Enforceability of click-wrap, shrink-wrap and boxtop agreements Attribution or non-repudiation procedures Unique digital signatures There are four contract law issues that have emerged in E-Commerce: Parity between electronic and paper records Enforceability of click-wrap, shrink-wrap and boxtop agreements Attribution or non-repudiation procedures Unique digital signatures

4. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-4 Parity between Paper and Electronic Records The combined effect of UETA and E-SIGN has been that for most E-Commerce, but not necessarily for most contracts, there is parity between paper and electronic records UETA--Uniform Electronic Transactions Act E-SIGN--federal legislation –Electronic Signature in Global and National Commerce Act Both UETA and E-SIGN say that a record will not be denied legal effect solely because it is electronic The combined effect of UETA and E-SIGN has been that for most E-Commerce, but not necessarily for most contracts, there is parity between paper and electronic records UETA--Uniform Electronic Transactions Act E-SIGN--federal legislation –Electronic Signature in Global and National Commerce Act Both UETA and E-SIGN say that a record will not be denied legal effect solely because it is electronic

5. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-5 Parity between Paper and Electronic Records There are a number of exceptions and qualifications under both UETA and E-SIGN –UETA does not apply if any state law requires a contract to be in paper to be valid –E-SIGN requires that electronic records must be storable and reproducible Divorce decrees, will, prenuptial agreements and many other types of contracts must be in paper –For common E-Commerce transactions, electronic records are enforceable –Both UCITA and revised UCC both have similar provisions enforcing electronic contracts There are a number of exceptions and qualifications under both UETA and E-SIGN –UETA does not apply if any state law requires a contract to be in paper to be valid –E-SIGN requires that electronic records must be storable and reproducible Divorce decrees, will, prenuptial agreements and many other types of contracts must be in paper –For common E-Commerce transactions, electronic records are enforceable –Both UCITA and revised UCC both have similar provisions enforcing electronic contracts

6. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-6 UCITA Uniform Computer Information Transactions Act covers computer software, multimedia interactive products, computer databases Internet and online information Uniform Computer Information Transactions Act covers computer software, multimedia interactive products, computer databases Internet and online information

7. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-7 Enforceability of X-wrap Agreements Electronic commerce makes extensive use of click-wrap agreements –Shrinkwrap agreements have been around for some time –Increasingly boxtop agreements are being used In general these types of agreements are enforceable if sellers follow certain steps Note that contracts are increasingly being formed by the interaction of computers-- –EDI was harbinger of things to come More recently ISPs and web site are making use of “browse-wrap” agreement--by browsing you agree Electronic commerce makes extensive use of click-wrap agreements –Shrinkwrap agreements have been around for some time –Increasingly boxtop agreements are being used In general these types of agreements are enforceable if sellers follow certain steps Note that contracts are increasingly being formed by the interaction of computers-- –EDI was harbinger of things to come More recently ISPs and web site are making use of “browse-wrap” agreement--by browsing you agree

8. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-8 Enforceability of X-wrap Agreements Common terms in X-wrap agreements include Waiver of right to seek court remedies Choice of forum agreements Choice of law agreements Exclusion of warranties and limitations of liability Negative options Common terms in X-wrap agreements include Waiver of right to seek court remedies Choice of forum agreements Choice of law agreements Exclusion of warranties and limitations of liability Negative options

9. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-9 Contract Formation Issues CL rule was that acceptances had to be the mirror image of the offer Offeree had to accept each and every term of the offer and not add additional terms or else the acceptance was deemed a counteroffer UCC 2-207 allowed for additional terms in the acceptance under some circumstances –Proposed changes to the UCC would increase the ability of offerees to add additional terms in the acceptances even if these terms materially alter the contract CL rule was that acceptances had to be the mirror image of the offer Offeree had to accept each and every term of the offer and not add additional terms or else the acceptance was deemed a counteroffer UCC 2-207 allowed for additional terms in the acceptance under some circumstances –Proposed changes to the UCC would increase the ability of offerees to add additional terms in the acceptances even if these terms materially alter the contract

10. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-10 Contract Formation Issues For many transactions, the purchaser finds out what she agreed to only after the purchase has been made Obviously, there is a potential for abuse in X-wrap agreement, but if the seller –Provides the purchaser with clear notice of the additional terms and clear notice as to what constitutes an acceptance, and –the customer has an opportunity to inspect the terms –and has an unqualified right to return the goods, and –the terms are not unconscionable by ordinary commercial standards For many transactions, the purchaser finds out what she agreed to only after the purchase has been made Obviously, there is a potential for abuse in X-wrap agreement, but if the seller –Provides the purchaser with clear notice of the additional terms and clear notice as to what constitutes an acceptance, and –the customer has an opportunity to inspect the terms –and has an unqualified right to return the goods, and –the terms are not unconscionable by ordinary commercial standards

11. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-11 Attribution: Who is Accepting? With click-on acceptances, the advantage of unique signatures is lost There are substantial legal risks borne by the vendor if the clicker is underage or engages in fraud Attribution is essentially a procedure for creating non- repudiation by the buyer Note that in order to reduce the risk of fraud vendors often obtain information about buyers, which can be resold –Raises privacy concerns With click-on acceptances, the advantage of unique signatures is lost There are substantial legal risks borne by the vendor if the clicker is underage or engages in fraud Attribution is essentially a procedure for creating non- repudiation by the buyer Note that in order to reduce the risk of fraud vendors often obtain information about buyers, which can be resold –Raises privacy concerns

12. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-12 Commercially Reasonable Attribution Attribution means a procedure to verify that an event has taken place –If no special arrangements are undertaken, then the party claiming an event took place has the burden of proving that this event took place –If the vendor uses a commercially reasonable attribution procedure and the parties agree to use that procedure, then, the person pointed to by the attribution procedure has the burden of proof if she denies she ordered the products vendors often require use of passwords and credit card numbers by purchasers Attribution means a procedure to verify that an event has taken place –If no special arrangements are undertaken, then the party claiming an event took place has the burden of proving that this event took place –If the vendor uses a commercially reasonable attribution procedure and the parties agree to use that procedure, then, the person pointed to by the attribution procedure has the burden of proof if she denies she ordered the products vendors often require use of passwords and credit card numbers by purchasers

13. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-13 Electronic Errors and Consumer Defenses Mistake are made and the question is, what defenses do consumers have? According to UCITA The buyer must Notify the vendor promptly Return the product promptly and Not use or benefit for the product Mistake are made and the question is, what defenses do consumers have? According to UCITA The buyer must Notify the vendor promptly Return the product promptly and Not use or benefit for the product

14. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-14 Digital Signatures In the real world signatures are unique, unlike computer clicks For important contracts, notarization provides additional security for signed agreements Current contract law makes use of the term, “authenticate” to substitute for signature Authentication can be accomplished through computer clicks or biometrics but most common way is through encryption In the real world signatures are unique, unlike computer clicks For important contracts, notarization provides additional security for signed agreements Current contract law makes use of the term, “authenticate” to substitute for signature Authentication can be accomplished through computer clicks or biometrics but most common way is through encryption

15. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-15 Encryption Current most commonly used method to authenticate involves encryption –Effect of encryption is that interceptions are unintelligible to hackers and others –Only way to make encrypted data intelligible is to decrypt it with a private key that matches the public key used to encrypt the clear text –Encryption with public and private keys often makes use of CA’s, (certification authorities) CA’s are really just cyberspace notaries Current most commonly used method to authenticate involves encryption –Effect of encryption is that interceptions are unintelligible to hackers and others –Only way to make encrypted data intelligible is to decrypt it with a private key that matches the public key used to encrypt the clear text –Encryption with public and private keys often makes use of CA’s, (certification authorities) CA’s are really just cyberspace notaries

16. McGraw-Hill/Irwin Legal Environment of Business in the Information Age © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1-16 Authentication Can be accomplished in a number of ways –Could make use of passwords, because the parties have a preexisting relationship –Could make use of encryption –Could make use of biometric devices such as thumbprints, retinal scans –Could require use of offline notary Under E-SIGN the parties must agree separately to use digital signatures, and the vendor must make certain disclosures Can be accomplished in a number of ways –Could make use of passwords, because the parties have a preexisting relationship –Could make use of encryption –Could make use of biometric devices such as thumbprints, retinal scans –Could require use of offline notary Under E-SIGN the parties must agree separately to use digital signatures, and the vendor must make certain disclosures