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Course: Computers Law Fall 2003
School: unknown
Year: 2003
Professor: unknown
Course Outline provided by Legalnut.com

E-Commerce and United States Law: Get With the Times

What is Electronic Commerce?

    • Don Tascott characterizes the new economy as a 'digital' economy, as "vast amounts of information can be compressed, delivered and combined and reused in different ways."

    • New economy is knowledge-based, as intangible, intellectual property-type products tend to be growing in prevalence, while tangible products are beginning to take a backseat.

    • Craig Harding's definition: "the automation of business-to-business transactions through the use of telecommunications and computers to exchange and process electronically commercial information and business transaction documents."

Current State of E-Commerce Law

    • Failure of the Uniform Commercial Code

    • The UCC Itself:

    • UCC Article 2: The most basic and influential contracting law.

    • Purpose: "foster uniformity between states in resolving contractual disputes which concern the sale of goods." This goal is greatly compromised as technology continues to push modern-day commerce further away from the old definitions and intentions of Article 2.

    • Article 2 reflects the national economy of the 1940s, when it was written, when there was a sharp distinction between hard goods, intangibles and services. As the economy becomes digital, these distinctions are blurred.

    • Problem of Goods:

    • Article 2 concerns itself with transactions in goods, defined by §2-105(1) as "all things which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities and things in action."

    • "Movable": Problem with software licensing.

        1. Is licensed software 'movable'?

        2. Does it matter if it is bought via a physical disk or if it is transmitted electronically?

    • "Time of identification to the contract.": What about software not written yet like the dental lab software in Whelan Associates, Inc. v. Jaslow Dental Laboratory, Inc? It is not movable yet? The final product however seems like it might be a good.

    • "Sale": Software is not sold, it is licensed. However, after the transaction does take place, absent a separate support agreement, the licensee uses the product in a manner similar to good ownership. (Blurred distinction of goods and services).

    • We do not even know if the UCC actually governs.

    • The Offer/Acceptance Problem: "Click Wrap Agreements"

    • Stomp, Inc. v. NeatO, LLC: A clickwrap agreement allows the consumer to manifest its assent to the terms of a contract by clicking on an acceptance button on the website. Is this actually acceptance creating a binding contract according to the UCC?

    • UCC §2-206(1)(1) allows acceptance via "any manner and by any medium reasonable in the circumstances."

          1. Yes: If the order is being made on line, an acceptance should be allowed via an online form, as a mail-order catalog offer may be accepted via the mail.

          2. No:

        1. Great possibility to error with an online form.

        2. Wrong clicks being made.

        3. Online transactions do not have human involvement, no human to process.

    • We do not know if a valid contract has been made, as we do not know if there has been acceptance.

    • Digital Signatures: a type of code, created by an asymmetric encryption system that allows the receiver of a message to verify the identity of the signor. Are they valid?

    • UCC §1-209(39): Signature: "any symbol executed or adopted by a party with present intention to authenticate a writing." To theories of signatures:

        1. Signatures as symbols of intent. Here, a digital signature implies an intent, the problem is, are they "symbols" or actions?

        2. Signatures as authentication: Here a digital signature seems more likely to be found as valid, as a digital signature verifies the authenticity.

    • Again, we need an answer to know if contracts created via e-commerce are valid.

    • Case Law: Has not established a firm body of law with regard to e-commerce.

    • Is software (and other electronic products) goods? Two considerations:

    • Focus on contract delivery: RRX Industries, Inc. v. LAB-CON, Inc.: "In determining whether a contact is one for a sale of goods or to provide services we look to the essence of the agreement…when a sale predominates, incidental services provided do not alter the basic transaction. Because software packages vary depending on the needs of the individual consumer, we apply a case-by-case analysis." As electronic systems progress, the lines between goods and services will be less clear and the case-by-case analysis will become more difficult and less predictable.

    • Fear of no governing law: Advent Systems Limited v. Unisys Corporation: Software is a good because the UCC would regulate it well. "The Code offers a uniform body of law on a wide range of questions likely to arise in computer software disputes: implied warranties, consequential damages, disclaimers of liability, and the statute of frauds, to name a few." Might change with new statutory law.

    • The Offer/Acceptance Problem: "Click-Wrap" Agreements. Are these agreements valid?

    • Not many direct cases:

        1. Caspi v. The Microsoft Network: (New Jersey): An on-screen click acceptance is legally binding with the condition that the user has sufficient opportunity to read the contract.

        2. Hotmail Corp. v. Van Money Pie, Inc.: (N.D. CA): E-mail providers can curtail accounts of "spammers" based on the terms of a click-wrap agreement.

        3. LIMITING: CompuServe, Inc. v. Patterson: (6th Cir.) Contracts can be entered into online by typing "I agree."

    • "Shrink-wrap" cases (closest analogy): imposing the terms of a contract license on the end user, effective as soon as the customer removes the shrink-wrap packaging on the software.

        1. ProCD, Inc. v. Zeidenberg: (7th Cir.) Upheld shrink-wrap as binding.

        2. Hill v. Gateway 2000, Inc.: (7th Cir.) Shrink-wrap OK provided that the remover had a chance to return the computer after receiving the list of terms and conditions inside the packaging, and can return it.

        3. LIMITATIONS:

        1. Morgan Laboratories v. Micro Data Base Systems, Inc. (ND Ca.): Parties may not use shrink-wrap agreements to overcome specifically negotiated terms.

        2. M.A. Mortenson Company, Inc. v. Timberline Software Corporation. (Wash): Rejected Morgan, declaring that shrink-warp terms were found to overrule the terms of a previously negotiated license for the same software.

    • Digital Signature: Are these signatures legally binding?

    • S.C. of Florida: Amended the rules of judicial administration, allowing digital signatures to be used with regard to the electronic transmission and filing of documents, so long as the sender maintains a hard copy of the original.

    • State v. Smith: A facsimile transmission of a driving record satisfies a statute demanding documents to be submitted to the court "under their respective seals."

    • Houston Contracting Company v. Chase Manhattan Bank: A telexed payment order sent to a New York bank was not a legitimate "demand item" as required by UCC §4-302.

    • Kaspar v. Bellco First Federal Credit Union: A computer generated statement of financial condition, not prepared by the actual party it represented was not a "writing" under §523(a)(2)(B).

The Need for Federal Law

    • Need for Legal Certainty:

    • Parties might not enter into e-commerce contracts if they are unsure if the law will uphold it.

    • Dr. Mahin Faghfouri of the UN Conference on Trade and Development: "Creating legal certainty is a key element for enhancing trust…unless there is certainty that transactions undertaken by electronic means are legally validated and enforceable, e-commerce will not develop to its full potential."

    • Lack of legal certainty has been pushing many companies and types of transactions outside the electronic realm.

    • Need for Participation:

    • Electronic commerce is growing at a tremendous rate, attracting many new types of businesses every year, and allowing companies to do things that they would otherwise not be able to do.

    • Commerce will not be able to progress if parties do not engage in e-commerce, and without legal certainty and unified laws, fewer parties will take the risk of engaging in these e-commerce contracts.

    • Need for Technical Uniformity:

    • If the offer-computer and the acceptance-computer work on two different systems, then the transaction might not be able to take place.

    • A national legislation would facilitate this commerce, as the government would have the ability to make uniform technical requirements by which parties must abide.

What the New Law Should Handle

    • Legitimacy of Transactions: declaring certain actions as legally binding. (i.e. Electronic signatures).

    • Establishment of a contract: when is an offer made, when is an acceptance made?

    • Definitions: updating "goods", "signature", etc.

    • Methods of Handling Fraud: electronic transactions are especially vulnerable to forgery and fraud. Therefore, the law must create "attribution procedures": "a procedure established by law or agreement or adopted by the parties verifying that electronic authentication, records, message or performances are those of the respective parties or for detecting changes or errors in content, if the procedure is commercially reasonable."

    • Burden of Technical Error: Who assumes the risk of loss, misrepresentation or other problems arising due to computer error?

 

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