Computer or Internet Contracts and International Law

Computer or Internet contracts are increasingly being celebrated between parties located in foreign countries.  Although experienced companies on these international dealings carefully select a choice of law and jurisdiction clause, it is vital to know what international laws could be applicable to these contracts in case those laws are more advantageous. This article concentrates in the two general international laws applicable to computer contracts: the United Nations Convention on Contracts for the International Sale of Goods and the United Nations Convention on the Use of Electronic Communications in International Contract.

The United Nations (UN) Convention on Contracts for the International Sale of Goods (CCISG) came into force on January 1, 1988. It applies to contracting parties located in different countries and was issued to foment international trade. CCISG has been ratified for most countries including the United States and the majority of European countries, except United Kingdom and Ireland.  Contracting parties may exclude application of this convention or apply those parts of the convention best suitable for the parties' objectives.  This convention applies only to contracts for the sale of goods, even if celebrated through the use of the Internet.  Contract principles included in CCISG try to incorporate those recognized by civil law and common law systems. For instance, the definition of goods incorporated in this convention reflects that definition applicable in civil law and common law systems; that is, tangible objects or articles. Thus, software incorporated in a tangible form constitutes goods but software electronically delivered does not constitute goods.  This is the current approach in the United States -a common law system- and the European Union member states -mostly made of civil law system with some few exceptions.  Companies celebrating computer contracts at an international level should compare their countries' basic contract laws with those in the CCISG and determine which of them could be more advantageous.  For example, CCISG precludes open price contracts just as the U.S. Uniformed Commercial Code requires a price to be set for a contract to be formed.  Hence, some countries may allow open price contracts.   Also, the CCISG allows irrevocable offers while under some countries' contract law these offers are prohibited.

The UN Commission on International Trade Law (UNCITRAL) developed the United Nations Conventions on the Use of Electronic Communications in International Contract (UECIC), which the UN Assembly approved in 2005.  Many countries have approved UECIC, but given is recent enactment a great number of countries is still within the ratification process. UECIC's objective is facilitating the use of electronic communications in international contracts.  This convention specifically applies to any time of electronic communication, including data messages, used when celebrating international computer contracts; the only requirement is that the parties to these contracts must be located in different countries. Yet, some critics argue that this requirement may be easy to simulate given the contracts' electronic nature. This is despite the convention requirement that the parties must disclose their location. Some of the specific benefits UECIC offers are that the writing and signature requirement (commanded by some contract laws) are satisfied by the existence of the electronic communication.  UECIS also establishes rules about the dispatch and receipt of an electronic communication for purposes of determining when a contract is formed. [1]


Reference:
http://www.ibls.com/internet_law_news_portal_view.aspx?s=latestnews&id=2229

Electronic Signatures and Online Contracts

Electronic contracts and electronic signatures are just as legal and enforceable as traditional paper contracts signed in ink. Federal legislation enacted in 2000, known as the Electronic Signatures in Global and International Commerce Act (ESGICA), removed the uncertainty that previously plagued e-contracts.
This 2000 e-signature law made electronic contracts and signatures as legally valid as paper contracts, which was great news for companies that conduct business online, particularly companies that provide financial, insurance, and household services to consumers. The law also benefits B2Bs (business-to-business websites) who need enforceable agreements for ordering supplies and services. For all of these companies, the law helps them conduct business entirely on the Internet. This results in substantial savings to businesses, which can be passed on to consumers. For example, one online company estimated that eliminating paperwork fees reduced the cost of processing a home loan by $750.

What Are Electronic Contracts and Electronic Signatures?

An electronic contract is an agreement created and "signed" in electronic form -- in other words, no paper or other hard copies are used. For example, you write a contract on your computer and email it to a business associate, and the business associate emails it back with an electronic signature indicating acceptance. An e-contract can also be in the form of a "Click to Agree" contract, commonly used with downloaded software: The user clicks an "I Agree" button on a page containing the terms of the software license before the transaction can be completed.
Since a traditional ink signature isn't possible on an electronic contract, people use several different ways to indicate their electronic signatures, including typing the signer's name into the signature area, pasting in a scanned version of the signer's signature, clicking an "I Accept" button, or using cryptographic "scrambling" technology.
Though lots of people use the term "digital signature" for any of these methods, it's becoming standard to reserve the term "digital signature" for cryptographic signature methods and to use "electronic signature" for other paperless signature methods.

Cryptographic Signatures (PKI)

Cryptography is the science of securing information. It is most commonly associated with systems that scramble information and then unscramble it. Security experts currently favor the cryptographic signature method known as Public Key Infrastructure (PKI) as the most secure and reliable method of signing contracts online.
PKI uses an algorithm to encrypt online documents so that they will be accessible only to authorized parties. The parties have "keys" to read and sign the document, thus ensuring that no one else will be able to sign fraudulently. Since the passage of the e-signature law in 2000, the use of PKI technology has become more widely accepted. Many online services offer PKI encrypted digital signature systems that function much like we use PINs for our bank cards.

XML-Based Signatures

Other e-signature systems have been developed, including a method for digitally recording a fingerprint, and hardware that electronically records your signature. In addition, the organization that sets Web standards for the Internet, the Worldwide Web Consortium (W3C), developed XML-compliant guidelines for digital signatures. The results of their working group are discussed at the W3C website at www.w3.org/Signature.

Opting Out of Electronic Contracts

While the federal e-signature law makes paper unnecessary in many situations, it also gives consumers and businesses the right to continue to use paper where desired. The law provides a means for consumers who prefer paper to opt out of using electronic contracts.
Prior to obtaining a consumer's consent for electronic contracts, a business must provide a notice indicating whether paper contracts are available and informing consumers that if they give their consent to use electronic documents, they can later change their mind and request a paper agreement instead. The notice must also explain what fees or penalties might apply if the company must use paper agreements for the transaction. And the notice must indicate whether the consumer's consent applies only to the particular transaction at hand, or to a larger category of transactions between the business and the consumer -- in other words, whether the business has to get consent to use e-contracts/signatures for each transaction.
A business must also provide a statement outlining the hardware and software requirements to read and save the business's electronic documents. If the hardware or software requirements change, the business must notify consumers of the change and give consumers the option (penalty-free) to revoke their consent to using electronic documents.
Although the e-signature law doesn't force consumers to accept electronic documents from businesses, it poses a potential disadvantage for low-tech citizens by allowing businesses to collect additional fees from those who opt for paper.

Contracts That Must Be on Paper

To protect consumers from potential abuses, electronic versions of the following documents are invalid and unenforceable:

• wills, codicils, and testamentary trusts
• documents relating to adoption, divorce, and other family law matters
• court orders, notices, and other court documents such as pleadings or motions
• notices of cancellation or termination of utility services
• notices of default, repossession, foreclosure, or eviction
• notices of cancellation or termination of health or life insurance benefits
• product recall notices affecting health or safety, and
• documents required by law to accompany the transportation of hazardous materials.

These documents must be provided in traditional paper and ink format.

Consumer Concerns

Although it is expected that secure methods of electronic signatures will be become as commonplace and safe as credit cards, some consumer advocates are concerned that if a consumer uses an unsecure signature method (such as a scanned image of a handwritten signature), identity thieves could intercept it online and use it for fraudulent purposes.

Federal Law Versus State Law

Some states have adopted the Uniform Electronic Transactions Act (UETA), which establishes the legal validity of electronic signatures and contracts in a similar manner as the federal law. If a state has adopted the UETA, or a similar law, the federal electronic signature law won't override the state law. But if a state has adopted a law that is significantly different than the federal law, it will be trumped by the federal law. This ensures that electronic contracts and electronic signatures will be valid in all states, regardless of where the parties live or where the contract is executed.

Government Filings

As for the government, transactions between citizens and the federal government were addressed in 1998's Government Paperwork Elimination Act (GPEA), which created requirements and incentives for the federal government to make electronic versions of their forms available online. A good deal of progress has been made, as many online consumer transactions -- such as paying taxes and registering trademarks -- are now available from the feds. State governments are slowly catching up, as some states now allow you to register your business online.[1]



Reference:
[1]http://www.nolo.com/legal-encyclopedia/article-29495.html

LEGAL INSTRUMENTS ON INTERNATIONAL Electronic CONTRACTS

                                             

`

The Convention, adopted by the General Assembly on 23 November 2005 (resolution A/60/21), will assure companies and traders around the world that contracts negotiated electronically are as valid and enforceable as traditional paper-based transactions. The treaty seeks to remove obstacles to the use of electronic communications in international contracting, including obstacles that might arise under current international trade law instruments, most of which were negotiated long before the development of technologies such as e-mail, electronic data interchange and the Internet.

The provisions of the Convention aim at enhancing legal certainty and commercial predictability where electronic communications are used in relation to international contracts. They deal with, among other things, determining a party’s location in an electronic environment; the time and place of dispatch and receipt of electronic communications; and the use of automated message systems for contract formation.

Other provisions contain criteria establishing functional equivalence between electronic communications and paper documents -- including “original” paper documents -- as well as between electronic authentication methods and handwritten signatures

The Convention was drafted between 2002 and 2004 by the United Nations Commission on International Trade Law (UNCITRAL) Working Group on Electronic Commerce, and was adopted by UNCITRAL at its thirty-eighth session in 2005.  The Convention complements and builds upon earlier UNCITRAL instruments, including the Model Law on Electronic Commerce and the Model Law on Electronic Signatures.

The treaty will be open for signature by all States until 16 January 2008.  It is subject to ratification, acceptance or approval by the signatory States, and open for accession by all States that are not signatory States.  In accordance with its article 23, it will enter into force on the first day of the month following the expiration of six months after the date of deposit of the third instrument of ratification, acceptance, approval or accession.  A signature event to promote participation is expected to take place during UNCITRAL’s thirty-ninth session, to be held in New York from 19 June to 7 July 2006.

The Optional Protocol, adopted by the General Assembly on 8 December 2005 (resolution A/60/42), expands the scope of the 1994 Convention to cover all other United Nations operations -- from the delivery of humanitarian, political or development assistance in peacebuilding to the delivery of emergency humanitarian assistance. The 1994 Convention is a key legal instrument in efforts to give United Nations and associated personnel the security required to carry out their work.  The legal protection it offers, however, does not go far enough -- thus the need for the new Protocol.

“I urge those Member States that have not yet done so to sign and ratify the Convention”, Secretary-General Kofi Annan told the General Assembly on 8 December, “and all Member States to become party to the Protocol whose adoption we mark today. Without security, our work for your people suffers.”

In accordance with its article IV, the Optional Protocol shall be open for signature by all States until 16 January 2007 at United Nations Headquarters in New York.   The Optional Protocol is subject to ratification, acceptance or approval by the signatory States and is open for accession by any non-signatory State after 16 January 2007, in accordance with its article V.  Only States which are party to the 1994 Convention may ratify, accept, approve or accede to the Optional Protocol. 

States wishing to sign the Convention and the Optional Protocol must notify, and provide copies of the required full powers in advance to the Treaty Section, Office of Legal Affairs, at United Nations Headquarters in New York (Telephone: (212) 963-5047, Facsimile: (212) 963-3693, e-mail: treaty@un.org).  For information on full powers, please refer to the Treaty Handbook on the United Nations Treaty Collection website, which can be accessed at http://untreaty.un.org.  The above procedures also apply to States wishing to deposit instruments of ratification, acceptance, approval or accession.[1]

Reference:

[1]http://www.un.org/News/Press/docs/2006/lt4395.doc.htm

Click-wrap Agreement Held Enforceable

Click-wrap agreements are contracts formed entirely over the Internet. A party posts terms on its website pursuant to which it offers to sell goods or services. To buy these goods, the purchaser is required to indicate his assent to be bound by the terms of the offer by his conduct -- typically the act of clicking on a button stating "I agree." Once the purchaser indicates his assent to be bound, the contract is formed on the posted terms, and the sale is consummated. No paper record is created nor is the signature of the purchaser required.

Click-wrap agreements derive their name from shrink-wrap agreements, by which most software is sold today. The software vendor offers to sell or license the use of her software according to terms accompanying the software. The purchaser or licensee agrees by his conduct to be bound by such terms. Such conduct typically takes the form of the retention or use of the software after being provided an opportunity to review the contract's terms and return the software for a full refund if they are unacceptable.

Lawyers have long opined that click-wrap agreements are enforceable contractual arrangements. In what appears to be the first judicial pronouncement on this subject, Hotmail Corporation v. Van Money Pie Inc., et al., C98-20064 (N.D. Ca., April 20, 1998), the United States District Court for the Northern District of California has agreed. In Hotmail, the court held that defendants were bound by Terms of Service posted on a website as a result of their act of clicking on a button "I agree."

Plaintiff Hotmail provides free e-mail services to over 10 million customers under its trade name and service mark "hotmail." To utilize Hotmail's services, one must agree to Hotmail's Terms of Service, which expressly prohibit use of Hotmail e-mail accounts to facilitate the transmission of unsolicited commercial e-mail, otherwise known as spam. Users agree to these Terms of Service via a click-wrap agreement, in which the customer, after being given the opportunity to view the Terms of Service on his computer, clicks a box indicating assent to be bound thereby.

Defendants sent spam which advertised allegedly pornographic materials. Defendants altered the return addresses of this e-mail to falsely indicate that it was sent from a Hotmail account, rather than its true source. This was accomplished by using plaintiff's mark in the e-mail's reply address. Numerous recipients of defendants' spam responded with complaints, which were sent to accounts defendants had set up at Hotmail for the receipt of e-mail.

Plaintiff moved to enjoin defendants both from sending "spam" which falsely stated it came from plaintiff's service, and from using Hotmail accounts as mail boxes for "spam" reply.
Plaintiff argued that defendants' conduct breached the Terms of Service, which constituted a contract governing defendants' use of plaintiff's services. Plaintiff also alleged that defendants' conduct infringed and diluted plaintiff's service mark, violated the Computer Fraud and Abuse Act and constituted unfair competition. The court agreed and issued a preliminary injunction, enjoining defendants from continuing this course of conduct.

The court held that "the evidence supports a finding that plaintiff will likely prevail on its breach of contract claim." As stated above, this contract was contained in plaintiff's Terms of Service which was breached by defendants' use of Hotmail accounts and the Hotmail mark in their transmission of spam. To reach this conclusion, the Court first had to hold that the plaintiff and defendants were parties to an enforceable agreement. By so doing, the Court indicated its willingness to uphold the validity of a click-wrap agreement, as defendants agreed to be bound by plaintiff's Terms of Service solely by clicking "I agree" after being presented with an opportunity to view the Terms of Service.

The court also held that plaintiff was likely to prevail on its claims of false designation of origin and unfair competition. Defendants used plaintiff's "Hotmail" mark in the reply address of spam defendants sent. The court found that this was likely to confuse members of the public by causing them to think that plaintiff was involved in sending them unwanted spam when, in fact, it was not.

Finally, the court found that defendants' conduct was likely to violate the Computer Fraud and Abuse Act, and constituted a trespass on chattel. The former act, 18 U.S.C. §1030, prohibits persons from knowingly causing the transmission of information that intentionally causes damage to protected computers. Defendants committed the requisite injury to plaintiff's computers by causing spam e-mail to bounce back to plaintiff's computers by use of a false return address. This conduct also caused a prohibited trespass on plaintiff's chattels, namely its computers.

The Court's decision in Hotmailaccords with two decisions of the Seventh Circuit Court of Appeals, each of which upheld the enforceability of shrink-wrap agreements.
In ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) the court held that "shrinkwrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general (for example, if they violate a rule of positive law, or if they are unconscionable)."
Defendant purchased CD-Roms which contained compilations of various telephone directories. These CD-Roms were packaged along with a user's manual in a box. Printed on the outside of this package was a notice that use of the CD-Roms was restricted by the terms of an enclosed license. This license, contained both in the user's manual found inside the product's packaging, as well as encoded on the CD-Rom disks themselves, restricted use to non-commercial purposes. In violation of this license, defendant sold the information contained on the CD-Roms to third parties.
In upholding this shrink-wrap agreement, the court determined that ProCD had made an offer to license its product which could only be accepted by conduct -- use of the software -- after being afforded an opportunity to read the terms of the license. By so using the software, defendant Zeidenberg was bound by the terms of the license.

Of like effect is the Court's decision in Hill v. Gateway 2000, Inc., 105 F. 3d 1147 (7th Cir. 1997), where the Seventh Circuit held that plaintiff's purchase of a computer was governed by contract terms shipped to her along with the computer. Plaintiff had received notice that the terms would govern the parties' relationship unless the computer was returned within 30 days. Plaintiff had failed to return the computer within the allotted time.

The court succinctly set forth the pertinent facts of the case. "A customer picks up the phone, orders a computer, and gives a credit card number. Presently a box arrives, containing the computer and a list of terms, said to govern unless the customer returns the computer within 30 days. Are these terms effective as the parties' contract, or is the contract term-free because the order-taker did not read any terms over the phone and elicit the customer's assent?"

The Seventh Circuit held that the terms do indeed govern the parties' relationship, validating Gateway 2000's "approve or return" device. The court held that Gateway's offer required acceptance by retaining the computer after receipt of the terms. As such, the parties' contract was not formed until the customer retained the computer for a period of 30 days, and the terms provided with the computer bound the parties.
These decisions are well grounded in existing law. Under Uniform Commercial Code ("UCC") §2-204, a "contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of a contract." Similarly, Section 19 of the Restatement (Second) of Contracts provides that "[t]he manifestation of assent may be made wholly or partly by written or spoken words or by other action or by failure to act." These provisions provide ample support for the conclusion that a binding contract can be created over the Internet by the act of clicking on an "I agree" button indicating assent to be bound by the offeror's proposed contract terms. Indeed, this rationale was utilized by the Seventh Circuit in support of its decision in ProCD.

The enforceability of click-wrap licenses will be firmly established should proposed UCC Article 2B be enacted. Under proposed Section 2B-207, "a party adopts the terms of a record, including a standard form, if the party agrees, by manifesting assent or otherwise, to the record: (1) before or in connection with the initial performance or use of or access to the information ...". Under proposed Section 2B-208 "a party adopts the terms of a mass-market license ... only if the party agrees to the license, by manifesting assent or otherwise, before or in connection with the initial performance or use of or access to the information...". Under both sections, a party must manifest assent to be bound by the offeror's contract terms. Under section 2B-111, a party manifests assent if she engages in affirmative conduct the seller clearly indicates will result in acceptance of the proposed agreement. To be binding, the party must be afforded an opportunity both to review the contract's terms, and to decline or accept the offer. Moreover, mere retention of information without more is insufficient to create an online contract.

These sections are intended to permit the creation of enforceable click-wrap agreements. This is made clear by the current comments to proposed section 2B-111, which provides that assent sufficient to form a contract is given in the hypothetical outlined below:

In its pre-registration information screen, NYT online states: "Please read the license. Click here to review the License. If you agree to the license, indicate your agreement by clicking the "I agree" button. If you do not agree to the License, click the "I decline" button. The underlined text is a hypertext link which, if selected, displays the license. Here, a party who indicates "I agree" manifests assent to the license. Its conduct in going forward to use the information also indicates it accepted the contract and adopted the terms of the license.

The fact that click-wrap agreements can be enforced does not mean that any particular agreement is in fact enforceable. Contracting parties must still turn to ordinary contract law principles to determine the enforceability of particular agreements. While beyond the scope of this article, contracts of adhesion are no more enforceable when consummated over the Internet than if consummated in a retail store. "Contracts of adhesion arise when a standardized form of agreement, usually drafted by the party having superior bargaining power, is presented to a party, whose choice is either to accept or reject the contract without the opportunity to negotiate its terms. Such a contract will not be enforced against the weaker party when it is (1) not within that party's reasonable expectations; or (2) is unduly oppressive, unconscionable or against public policy." AEB & Associates Design Group, Inc. v. Tonka Corp., 853 F. Supp. 724, 732 (S.D.N.Y. 1994) (citations omitted). Similarly, various UCC provisions are likely to be applicable to online contractual arrangements. These include UCC §2-316, which requires that for certain warranty disclaimers to be enforceable, they must appear conspicuously in the parties' contract.

In spite of Hotmail, ProCD and Hill, there will be continued uncertainty about the enforceability of click-wrap agreements until their validity is widely accepted by the courts. Taking the following precautions will enhance the likelihood that online contracts will be enforceable:

(A) Contract or license terms should be displayed to the prospective purchasers on the offeror's website;
(B) The purchaser should be asked to accept or reject those terms by clicking on buttons saying "I agree" or "I do not agree";
(C) The purchaser should not be permitted to purchase the product (or gain access to pay-per-view information) unless he/she has indicated assent to be bound by the terms of the contract;
(D) The offeror's contract should include a representation or warranty that the party entering into the contract is authorized to do so on behalf of any entity he is seeking to bind thereto;
(E) The terms of the proposed contract should be measured against traditional contract principles -- such as the prohibitions against adhesion contracts, and UCC §2-316 governing warranty disclaimers; and
(F) Follow the procedures specified by proposed UCC Article 2B governing the formation of enforceable online licenses.

Since I wrote this article, a number of other courts have addressed the issue of how to enter into a binding agreement online. You can find some of these decisions by visiting the Click-Wrap Agreements and Contracts sections of my Internet Library. [1]



Refrence:
http://www.internetlibrary.com/publications/cwahe_art.cfm

New OnGuard Online Section Offers Tips for Internet Auction Buyers and Sellers

The Federal Trade Commission and its partners in government and the technology industry today unveiled a new section of the OnGuardOnline.gov website with tips and activities to help buyers and sellers spot and avoid Internet auction fraud. The site’s interactive game, “Auction Action,” allows consumers to rack up points answering auction-related questions from different categories.

In 2005, the FTC received 80,450 complaints related to Internet auctions, or about 12 percent of the total number of complaints, making it the second most common kind of complaint after those about identity theft. The new Web site explains how Internet auctions work, the pros and cons of using different payment options, and how – as a buyer or seller – you can avoid the most common types of fraud.

The Internet auction complaints consumers sent to the FTC generally dealt with late shipments, no shipments, or shipments of products that weren’t the same quality as advertised; bogus online payment or escrow services; and fraudulent dealers who lured bidders from legitimate auction sites with seemingly better deals. Most complaints involved sellers, but in some cases, the buyers were the subject. The information on OnGuardOnline.gov includes tips for avoiding these frauds and others.

In addition to the auction information, OnGuardOnline.gov covers other online safety topics, including spyware, identity theft, phishing, and spam scams. The multimedia, interactive consumer education campaign was launched last fall by the FTC and a partnership of other federal agencies and the technology industry. OnGuardOnline.gov has received over 650,000 unique visits, and the FTC has distributed over 800,000 brochures and bookmarks. There is no copyright on the quizzes or other information on OnGuardOnline.gov; the information can be downloaded by companies and other organizations to use in their own computer security programs.



Reference:
http://www.ftc.gov/opa/2006/02/fyi0612.shtm

EU contract law to smooth Single Market for businesses

The European Commission proposed today, in a strategic policy paper, several options for a more coherent approach to contract law. The goal is to bring more legal certainty for businesses and simpler rules for consumers.

Contracts are the basic building blocks for relationships between businesses and consumers. The European Union’s Single Market is built on contract laws. However, businesses – particularly small and medium-sized companies – are hampered in cross-border sales because they must follow different contract laws for each of the EU’s 27 Member States. Only 8% of consumers buy online from another Member State. In addition, 61% of cross-border sales are rejected because traders refuse to serve the consumer's country. This is largely due to regulatory barriers and legal uncertainty about the applicable rules. To address some of these problems and boost the potential of Europe's Single Market, the European Commission proposed today, in a strategic policy paper, several options for a more coherent approach to contract law. A public consultation on the policy paper will run until 31 January 2011.

"I want a Polish, German or Spanish consumer to feel as safe when doing business with an Italian, Finnish or French company online as when they are at home. And I want Europe's small and medium-sized companies to offer their products and services to consumers in other countries without having to become experts in the national contract law systems of all other 26 EU countries," said Vice-President Viviane Reding, the EU's Justice Commissioner. "I call on consumers and businesses from all 27 Member States to contribute actively to the Commission's public consultation. This is certainly a time of crisis for Europe's economy. But it is also a time where we have an historic opportunity to drive economic growth by easing the cost of cross-border transactions. It is therefore now the time to make a quantum leap towards a more European contract law."

Contracts are essential for running businesses and making sales to consumers. They formalise an agreement between parties and can cover a broad range of matters, including the sale of goods and the provision of a service like the booking a flight or obtaining a loan. In a business-to-consumer contract, for example, an Irish consumer buys an MP3 player online from a French retailer. In this case, Irish contract law would apply if the French retailer has designed his website for Irish consumers.

Europe’s Single Market is based on a wide variety of contracts that are governed by different national contract laws. The co-existence of different rules can lead to additional transaction costs, increased legal uncertainty for businesses and lack of consumer confidence. Both consumers and businesses face significant barriers when they seek to take advantage of the EU’s Single Market. Transaction costs (like adapting contractual terms and commercial policies or obtaining translation of the rules) and legal uncertainty involved in dealing with foreign contract laws make it particularly hard for small and medium-sized enterprises, which make up 99% of all enterprises in the EU, to expand within the Single Market.

The Commission, therefore, proposed different ways to make contract law more coherent in a Green Paper adopted today. Among the policy options considered are:

• The publication on the web of (non-binding) model contract rules which could be used in Europe's Single Market.
• A (binding or non-binding) “toolbox” for EU lawmakers when they adopt new legislation to ensure better and more coherent rules.
• A Contract Law Recommendation that would call on EU Member States to include a European contract law into their national legal systems, thereby partly following the model of the United States where all but one of the 50 states voluntarily adopted the Uniform Commercial Code.
• An optional European Contract Law (or a "28th system"), which could be chosen freely by consumers and businesses in their contractual relations. This optional law would be an alternative to the existing national contract laws and would be available in all languages. It could apply in cross-border contracts only, or in both cross-border and domestic contracts. It would have to guarantee a high level of consumer protection and legal certainty throughout the life cycle of a contract.
• Harmonisation of national contract laws by means of an EU Directive.
• Full harmonisation of national contract laws by means of an EU Regulation.
• The creation of a full-fledged European Civil Code, replacing all national rules on contracts.

Background

Under the Europe 2020 strategy – launched by President José Manuel Barroso on 3 March 2010, the Commission is currently tackling bottlenecks in the Single Market to drive economic recovery. This includes working on harmonised solutions for consumer contracts, EU model contract clauses and making progress towards an optional European contract law. The creation of an optional contract law instrument is also one of the key actions in the Commission's Digital Agenda for Europe issued on 19 May 2010.

The European Parliament gave its backing to the idea of an optional European Contract Law in a resolution on 25 November 2009. Former Internal Market and Competition Commissioner Mario Monti also identified in his Single Market Report of 9 May the advantages that an optional "28th system" would bring for consumers and businesses.

On 12 May, the Commission convened a new expert group to transform the so-called "Draft Common Frame of Reference" – a first draft for a European contract law developed over the past years under the EU's Research Programme – into a simple, user-friendly workable solution adapted to the needs of consumers and the reality of the business environment. The group, which is composed of legal experts and practitioners from all over Europe, is currently meeting once a month in Brussels. The public consultation started today will help ensure that the group addresses the most important problems faced today by consumers and businesses in the field of contract law.

The consultation will run until 31 January 2011. Its results will help the Commission prepare proposals before 2012.[1]

Reference:

[1]http://www.eubusiness.com/news-eu/contract-law.107

MySpace suicide case based on breach of terms and conditions

UPDATED: A US woman has been indicted on charges of perpetrating an online hoax because she violated MySpace's terms and conditions. Prosecutors reason that a violation of contract terms can lead to criminal convictions.

Sixteen-year-old Megan Meier killed herself when she received cruel messages from an online friend, 16-year-old Josh Evans, through MySpace. It then emerged that Evans had never existed but was an online alter ego created by Lori Drew, a 49-year-old woman.
State authorities initially investigated the incident but found no laws on which to launch any action against Drew. Federal prosecutors, though, launched an action based on MySpace's terms and conditions.

In order to send messages to Meier, they argued, Drew would have had to sign up to MySpace, providing false information to create an account for the fictional Josh Evans. That would have involved giving at least a fake name and date of birth, both banned under the terms and conditions.

Prosecutors said that because her activity was conducted in violation of the terms and conditions of the site, it became unauthorised use of the service.
A federal grand jury in California has indicted Drew on charges of conspiracy and on three counts of accessing protected computers without authorisation to get information used to inflict emotional distress on Meier, Associated Press reported.

Prosecutors are expected to argue at trial that a violation of MySpace's terms and conditions can be extrapolated into an offence.



Reference:
http://www.out-law.com/default.aspx?page=9140

Blockbuster terms unenforceable because of unlimited right to amend

Website terms were unenforceable because a provision on the right to change them in future was unqualified, a US court has ruled. Existing terms were 'illusory' because of the threat that future changes could apply retroactively, the court found.

A woman is suing video rental firm Blockbuster but the company said that its online terms and conditions require all disputes to be settled by arbitration. The woman, Cathryn Harris, went to court and won a ruling which said that the terms and conditions could not apply.
Harris is a customer of Blockbuster’s online rental service who uses social networking site Facebook. Facebook's ill-fated advertising system Beacon broadcast Harris's video rental activity to her Facebook friends. Harris objected and sued Blockbuster for passing on the details, but Blockbuster said that the suit breached the terms and conditions to which she agreed when she joined Blockbuster Online.
Its terms of use say that customers cannot sue it in court but must go to arbitration, and that they cannot take class action suits against it.
The US District Court for the Northern District of Texas has said, though, that Blockbuster cannot rely on any of its terms and conditions because a clause allowing it to alter them creates too much uncertainty for customers.
The terms said that Blockbuster could vary them at any time without giving notice, and that modifications would be effective upon being posted. They added: “You agree to review these Terms and Conditions of Use periodically and your continued use of this Site following such modifications will indicate your acceptance of these modified Terms and Conditions of Use. If you do not agree to any modification of these Terms and Conditions of Use, you must immediately stop using this Site.
The Court looked at a previous case in which Halliburton was allowed to keep its arbitration clauses because they specifically said that terms and conditions amendments could not apply retrospectively to pre-existing disputes.
"The Court concludes that the Blockbuster arbitration provision is illusory," said the judge, Barbara Lynn. "There is nothing in the Terms and Conditions that prevents Blockbuster from unilaterally changing any part of the contract other than providing that such changes will not take effect until posted on the website."
"There are likewise no 'Halliburton type savings clauses', as there is 'nothing to suggest that once published the amendment would be inapplicable to disputes arising, or arising out of events occurring, before such publication'."
"The Blockbuster contract only states that modifications 'will be effective immediately upon posting,' and the natural reading of that clause does not limit application of the modifications to earlier disputes," she wrote.
"The Court concludes that the arbitration provision of the Blockbuster contract is illusory and unenforceable," ruled the Court.
A US court had previously ruled against a company that had changed its contracts online without telling customers. Talk America was told that it could not change the terms and conditions of its phone service's use without expressly notifying customers.
"Even if [the customer] had visited the website, he would have had no reason to look at the contract posted there," said the judgment, from Judges Kozinski, Gould and Callahan. "Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side. Indeed, a party can’t unilaterally change the terms of a contract; it must obtain the other party’s consent before doing so."
"This is because a revised contract is merely an offer and does not bind the parties until it is accepted," said the ruling.



Reference:
http://www.out-law.com/default.aspx?page=9967

Contract law reform: European Commission consults

The European Commission has outlined the various ways in which it could change contract law to encourage cross-border trading within the European Union. The Commission has published a Green Paper outlining seven kinds of new system the EU could adopt.

The Commission is consulting on the seven options which range from the publishing of suggested model contracts to an EU-wide law replacing all national contract laws.

The European Commission believes that contract law reform is necessary to stimulate cross-border trading, which has not been widely accepted by consumers or small businesses.
"Only 8% of consumers buy online from another member state," said a Commission statement announcing the consultation. "In addition, 61% of cross-border sales are rejected because traders refuse to serve the consumer's country. This is largely due to regulatory barriers and legal uncertainty about the applicable rules."
"I want a Polish, German or Spanish consumer to feel as safe when doing business with an Italian, Finnish or French company online as when they are at home," said Viviane Reding, the Justice Commissioner. "And I want Europe's small and medium-sized companies to offer their products and services to consumers in other countries without having to become experts in the national contract law systems of all other 26 EU countries."

The Commission Green Paper explains the seven kinds of new system the EU could adopt. These are:

1. non-binding model contracts;
2. a 'toolbox' for national legislators to use when passing national contract laws to improve consistency;
3. a non-binding plea to countries to incorporate a 'European contract law' into their laws;
4. the creation of an optional '28th system' EU contract law to add to the 27 member state legal systems;
5. partial harmonisation of contract law through an EU directive;
6. full harmonisation of contract law through a Regulation; and
7. an EU civil code on contracts which would replace national contract law.

"This is certainly a time of crisis for Europe's economy. But it is also a time where we have an historic opportunity to drive economic growth by easing the cost of cross-border transactions," said Reding. "It is therefore now the time to make a quantum leap towards a more European contract law."

The Green Paper is the work of an expert group convened by the Commission to create a 'common frame of reference' on which discussions could be based. The expert group contains three UK-based academics. They are Professor Simon Whittaker of Oxford University, Professor Hugh Beale of Warwick University and Professor Eric Clive of Edinburgh University.
Reding said earlier this year that she backed the creation of a '28th system' of contract law.
"Business-to-consumer relationships are complicated by 27 different regimes for contractual relations," she said in February. "That means that a consumer may be able to return a defective product for a full refund within 15 days of the sale in one country, whilst a consumer in another nation may get three months."

"Such a European Contract Law would exist in parallel to the national contract laws and provide standard terms and conditions," she said. "The United States started with a uniform commercial code to become a globally competitive economy. Why couldn't we have, in the end, a European civil code for our single market?"

The consultation process is open until 31st January 2011.


Reference:
http://www.out-law.com/default.aspx?page=11198

Browse-Wrap Agreements

Court holds that minors entered into valid ‘click wrap’ agreement with defendant IParadigms LLC (“IParadigms”) by clicking an “I agree” icon which appeared directly below an online Usage Agreement, and indicated their assent to be bound thereby.  Plaintiffs were high school students that were directed by the schools they attended to submit class work to defendant IParadigm’s “Turnitin” website to check for plagiarism.  As part of this submission process, plaintiffs were obligated to assent to the site’s Usage Agreement.  Because the Usage Agreement contained a limitation of liability clause precluding liability to plaintiffs as a result of their use of the Turnitin site, the Court rejected plaintiffs’ copyright infringement claims, which arose out of defendant’s storage of plaintiffs’ class work in a database used to check student homework for plagiarism.

In reaching this result, the Court rejected plaintiffs’ claims that, as minors, they were not bound by the terms of the site’s Usage Agreement.  Because they had accepted the benefits of the agreement – the ability to submit their class work for grade to their respective schools was dependent upon their use of the site – they could not escape the contractual conditions upon which such benefits were rendered.

The Court further held that plaintiffs’ copyright infringement claims failed because defendant had made a permissible fair use of their works.  In reaching this result, the Court relied on the fact that Turnitin’s use of plaintiffs’ school work was highly transformative of the original works, in that it added plaintiffs’ school work to a non-publicly available database used only to check for plagiarism by students.  The Court also rested its holding of fair use on the fact that defendant’s use did not impact the market for plaintiffs’ works, as the copies Turnitin made thereof were not available to the public, but rather maintained in a non-public database.

The Court rejected the counterclaims advanced by defendant iParadigms, including a claim for indemnification as a result of the commencement of this action.  This claim was based on a separate “Usage Policy” found on the Turnitin site.  The Court held that plaintiffs were not bound by this policy, which was not linked or otherwise referenced in the Usage Agreement to which plaintiffs were in fact bound.  There was no evidence that plaintiffs were aware of this separate “usage policy,” which was contained in a link on each page of the Turnitin site.  As a result, and because the parties’ contract stated that it constituted the full agreement between the parties, the plaintiffs’ use of the site was held not to create a valid browse wrap agreement, and the claim for indemnification, predicated on the Usage Policy, was dismissed.
The remaining counterclaims advanced by iParadigms arose out of the use of the site by one of the plaintiffs to submit class work to an institution he did not attend.  These claims for trespass to chattels, and violations of both the Computer Fraud and Abuse Act and Virginia Computer Crimes Act, failed due to the absence of the requisite damage.


Reference:
http://www.internetlibrary.com/topics/browse-wrap_agree.cfm

Case: Mortgage Plus, Inc. v. DocMagic, Inc., et al.

Plaintiff Entered Into Binding Online Contract By Clicking "Yes" Icon

Court holds that plaintiff entered into a valid agreement by clicking on an icon indicating its assent to be bound to displayed software license terms, and thereafter using defendant's software and services.  As a result, the Court, honoring a forum selection clause found in the parties' agreement, transferred the case before it from Kansas to California, the venue for suit designated in the forum selection clause.  In reaching this result, the Court rejected plaintiff's claim that it was not bound to the agreement because its assent had been given by an individual who lacked the authority to bind it to such an agreement.  The Court found that plaintiff had failed to establish this contention due to its failure to identify the individual(s) who give their assent.  In any event, plaintiff was bound because it had ratified its agent's acts by using the software and associated services for a period of six years.

Parties Entered Into Binding Contract

Plaintiff Mortgage Plus Inc. is a mortgage lender.  Seeking assistance in processing loan closing documents, plaintiff contacted defendant DocMagic, which markets a software product that aids in the preparation of such materials.  A customer uses DocMagic's software to input data which it transmits to DocMagic for insertion into the appropriate documents.  These documents are then transmitted by DocMagic to the customer via e-mail for its use.
At plaintiff's request, DocMagic sent plaintiff a CD-Rom containing its software, and started processing documents for plaintiff.  Claiming the documents DocMagic produced contained errors, plaintiff commenced suit in Kansas, where it does business.  In its suit, plaintiff claimed that DocMagic had, by its conduct, breached the parties' contract.  Plaintiff also asserted claims of breach of warranty and negligent misrepresentation.
To utilize defendant's software, it is necessary to install it on a computer.  At the outset of this process, a customer is presented with the terms and conditions of a software license governing its use of the DocMagic software, and asked to indicate his assent to be bound by clicking a "yes" icon.  If the customer does not wish to be bound, he is given the option of clicking a "no" icon, in which event the software will not load, and he will be unable to make use of it.
The Court held that by clicking the "yes" icon in these circumstances, plaintiff had entered into a valid and binding agreement.  Said the Court:

[I]t is undisputed . . .  that Mortgage Plus had to affirmatively click the "Yes" button in assenting to the Software Licensing Agreement as a prerequisite to installing the DocMagic software.  It further is undisputed that the software would not be installed if Mortgage Plus did not accept the terms and conditions of the Software Licensing Agreement.  Plaintiff had a choice as to whether to download the software and utilize the related services; thus, under the specific facts presented here, installation and use of the software with the attached license constituted an affirmative acceptance of the license terms by Mortgage Plus and the licensing agreement became effective upon this affirmative assent.  The Court finds the clickwrap agreement here is a valid contract

Plaintiff Bound Because It Ratified Its Agent's Acceptance Of Terms - Lack Of Authority Defense Rejected

In reaching this result, the Court rejected plaintiff's contention that the UCC applied to this transaction, holding that the contract at issue was predominantly one for the provision of document preparation services to which the UCC did not apply.
The Court also rejected plaintiff's claim that it was not bound to the software license because the individual who clicked the "yes" icon lacked the authority to bind it.  The Court held that plaintiff had failed to establish this contention because it did not identify the individual who clicked the "yes" icon, and therefore could not establish that he lacked the requisite authority.  In any event, plaintiff had ratified its agent's allegedly unauthorized action by continuing to use the DocMagic software for a period of six years after the agent first clicked the icon.  Said the Court:

It is well-settled that a party with knowledge of the facts can ratify an unauthorized act through conduct.  Ratification is the adoption on confirmation by a principal of an unauthorized act performed on its behalf by an agent.  One example of such ratification is election by the principal to treat the act as authorized, which includes attempting to enforce the contract or retain the benefits of the contract.

*          *          *

Here, on at least three occasions over the course of six years, an individual with the Mortgage Plus organization installed the DocMagic software and each time was required to assent to the Software Licensing Agreement in order to complete such installation.  While Mortgage Plus fails to identify the individual who accepted the terms and conditions of the Software Licensing Agreement before downloading the software, there is no dispute that for six years after such acceptance Mortgage Plus consistently utilized the loan document preparation services associated with the software.  The undisputed facts establish Mortgage Plus utilized the software to create and electronically submit literally hundreds of user worksheets to DocMagic for processing and preparation of final loan documents.  By doing so, Mortgage Plus obtained the benefits of the Agreement, and thereby ratified any unauthorized acceptance of its terms.

Court Transfers Case To Venue Specified In Forum Selection Clause

Finding the contract valid, the Court directed the transfer of the litigation to California in accordance with the forum selection clause in the parties' contract.  While not dispositive, such a clause was 'a significant factor' in the traditional balancing applicable to venue transfer motions.  Here, the Court held it outweighed any competing concern of inconvenience to plaintiff and its witnesses given Mortgage Plus' presence in Kansas.  In directing transfer of the entire case to California, the Court held that the language of the clause before it was broad enough to encompass both Plaintiff's contract and negligent misrepresentation claims[1].



Reference:
[1] http://www.internetlibrary.com/cases/lib_case356.cfm

E-Contract Problem

The Internet greatly increases the ease of accessing, reproducing, and transmitting information.
Many governments and regulatory bodies in Asia are starting, or have started to, recognize the economic potential of electronic commerce and are considering a number of policy initiatives designed to encourage the development of electronic commerce.

We have to mention that this ease raises a host of legal issues including the risk of copyright infringement, the protection of patent rights, and the validity and enforcement of agreements entered into via the medium of the Internet.
Goverments of many countries in Asia moved with initiatives include attempts to overlook to existing laws to deal with the emerging legal issues that electronic commerce raises.

Conflict of law issues is becoming increasingly evident that the process of mapping existing legal concepts and tools into this new domain is not effective and   number of familiar legal concepts will need to be reengineer before they can be efficiently usefull in the new environment.

The Future of E-commerce in Malaysia

E-commerce has evolved over the years from electronic funds transfers (EFT), comprising of online shopping and Internet banking, to electronic data interchange (EDI), comprising companies' transfer of documents such as purchase orders or invoices. Recent studies foresee a massive growth of e-commerce in the Asian region especially in Malaysia, Singapore, Hong Kong, Korea and Australia; possibly challenging Europe and United States.


E-commerce has its numerous advantages. For instance, it overcomes geographical limitations to allow market expansion; decreases administrative, marketing and logistics costs; increases efficiency and provides a competitive environment to improve quality of service. However, there are some concerns that need to be addressed, particularly, privacy issues, legal issues such as copyright infringement, protection of patent rights, domain name disputes and preservation of trade secrets as well as issues pertaining to the validity and enforcement of agreements made online.

Governments and regulatory bodies throughout Asia have recognized the prospects of e-commerce and policies have been designed to amend the existing laws to deal with the emerging legal issues post by e-commerce transactions. To attract new online business opportunities and increase the competency of e-commerce in the Asian region, it is important for international businessmen and their legal advisors to be familiar with the e-commerce laws, policies and regulations throughout Asia.

To date, some of the legislations that have been conceded in Asia include: Australia"s Electronic Transactions Act 1999; Broadcasting Services Amendment (On-Line Services) Act 1999; Privacy (Private Sector) Bill and the Copyright Amendment (Digital Agenda) Bill 1999; South Korea's Electronic Transaction Basic Act; Singapore's Electronic Transaction Act 1998; Hong Kong Electronic Transactions Ordinance 2000; Japan's Draft Bill Concerning Electronic Signatures and Certification Authorities and the Law Partially Amending the Trade Mark Law; the Philippines' Electronic Commerce Act; and India's Information Technology Act 2000.

Malaysia was one of the pioneers amongst Asian countries to establish a new federal ministry, Ministry of Energy, Communications and Multimedia. The main function of this Ministry is to spearhead and promote the growth of information and communication technology (ICT) with the support of several agencies, including the Malaysian Institute of Microelectronic Systems (MIMOS) established in 1984, Multimedia Development Corporation (MDC) established in 1996, and Malaysian Communications and Multimedia Commission (or MCMC) established in 1998.

These agencies contribute to e-commerce by developing their own agenda. For instance, the Multimedia Development Corporation has been working on a National Electronic Commerce Masterplan designed to facilitate the growth of e-commerce in Malaysia. The four key elements in this Masterplan are to boost confidence in on-line trading, prepare a regulatory framework, build a critical mass of Internet users and introduce an electronic payment system.

Amongst the legislations that have been passed in Malaysia are Malaysian Communications and Multimedia Commission Act 1998; Communications and Multimedia Act 1998; Digital Signature Act 1997; Computer Crimes Act 1997; and Telemedicine Act 1997. These legislations have been amended over the years in attempts to better address emerging e-commerce issues.

In lieu with the importance of e-commerce, the Malaysian Government has allocated RM 12.9 billion for the Ninth Malaysia Plan (2006-2010). On a broader perspective, Malaysia is participating in Asia Pacific Economic Cooperation's (APEC) to contribute in the efforts of introducing e-commerce laws, policies and regulations to facilitate e-commerce transactions internationally.

The future of e-commerce in Malaysia and the Asia region is bright. Governments and regulatory bodies are collaborating on a wider platform to ensure e-commerce law, policy and regulations are enforced to provide a guideline for traders to systematically utilize e-commerce and in tandem ensure protection for e-commerce users[1].



Reference:
[1]http://www.ibls.com/internet_law_news_portal_view.aspx?s=latestnews&id=1917

The Law of Electronic Contracts in the United States

The growth of electronic commerce has proportionally increased the use of electronic contracts as a faster and innovative way to carry out business. Between 1998 and 2002 most countries adapted their domestic commercial legislation to recognize electronic contracts and signatures as legally valid instruments. Still some less-developed countries are accomplishing this task. Even so, despite the inexorable expansion of e-commerce and the promulgation of laws protecting e-commerce contracts, many businesses and Internet users do not know precisely what law applies to their e-commerce contracts. The following laws constitute the basic legal framework of electronic contracts in the United States. In addition to these specific laws, there are some international laws that may well apply to electronic contracts if the contractual parties decide to abide by them. This article does not address the explicit international laws applicable to electronic contracts.




There are two broad categories of electronic contracts. First, those contracts that trade with physical goods or services. Second, those contracts that trade with electronic materials (software, images, e-delivered texts, etc). In addition to the basic commerce/contractual rules, each contract within any of these two categories may be subject to other set of specific regulatory policy. For instance, contracts on tobacco products, liquor, and firearms are subject to further and strict government regulations; and contracts on Internet telecommunication services and internet service providers may also be subject to domestic telecommunication laws and regulations. The following set of laws only refer to the basic contractual rules any electronic contract must follow to be binding on and enforceable by the parties.


United States basic contractual rules are found in the Uniformed Commercial Code (U.C.C.) and state judicial opinions published by the Restatement of Contracts. The U.C.C. is a set of uniformed commercial rules that have been adopted by most states. U.C.C. Article 2 refers to the sale of goods and Article 2A refers to the lease of goods including computer equipment. Thus, the U.C.C. applies to electronic contracts for the sale of goods. The U.C.C. does not apply to the online sale of services. Application of U.C.C. to the sale of electronic materials is definitely a complex issue that must be reviewed in a case by case basis. Important issues to be considered are if the licensing includes some type of service, the scope of the service, and the state where the contract is performed. The Restatement of Contracts may be an important tool here. For instance, if the state laws consider licensing of a product a sale of goods when incidental service is involved, then the U.C.C. rules would apply to that specific online licensing contract. In sum, the U.C.C. clearly applies to the online sale of goods; and it may also apply to the sale of certain electronic materials depending on the jurisdiction, the type of 'electronic material,' and the amount of service that this sale entails.




The Uniform Electronic Transactions Act (UETA) is another important U.S. legislation applicable to electronic contracts. UETA uniformed rules were proposed by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1999. 46 U.S. states, the District of Columbia, and the U.S. Virgin Islands have incorporated UETA rules within their state rules. UETA, as expressly defined in Articles 3 and 4, only applies to transactions related to business, commercial, and government matters; and to transactions conducted by electronic means.


The U.C. Electronic Signatures in Global and National Commerce Act (E-Sign Act) has been totally in effect since 2001. The Act recognizes the validity of contracts entered electronically, and where electronic signatures have been incorporated. The main purpose of this Act was to bestow on electronic contracts, the same authority as its paper-base counterpart. It is important to note that the E-Sign Act is not considered the U.S. electronic signature law. The E-Sign Act broadly defines electronic signatures as any mark or sound. Thus, any mark, image, symbol, or sound may constitute an e-signature for purposes of electronic contracts. The E-Sign Act expressly excludes its application to the following transactions:

wills, codicils, or testamentary trusts


family law matters like adoptions, divorce


the Uniform Commercial Code, except written waivers to discharge a claim or right
arising out of alleged breaches (§ 1-107); writing required for sale of personal
Property in excess of $ 5,000 (§ 1-206); and Articles 2 (Sales) and 2A (Leasing)

court orders or official court documents (briefs, pleadings, motions)
Notices cancelling a utility service

Notices related to residential mortgages and leases
Notices under a credit or rental agreement securing a primary residence

cancellation of health or life insurance or benefits
notices of product recalls or failures that may endanger health or safety
hazardous materials documents.


Finally, the Uniform Computer Information Transaction Act (UCITA) is a relevant U.S. set of proposed model rules applicable to the formation of electronic contracts, especially to those e-contracts on electronic materials, or "computer information transactions" as the Act calls them. UCITA has not been adopted by many states and several of the states that have adopted UCITA have included multiple amendments to the original UCITA text. Thus, when dealing with licensing or transfer of computer software within the United States, it is important to check whether UCITA"s rules have been adopted by the state legislator of the jurisdiction at hand.






U.S. rules applicable to the formation of electronic contracts for the sale of goods are pretty straight forward; as clear as the U.C.C. traditional rules and supporting case law. Instead, the rules on electronic contracts for the sale of services and electronic materials seem not so obvious for the average folks. They require a further analysis of the particular facts of each case and the jurisdiction involved[1].





References:
[1]http://www.ibls.com/internet_law_news_portal_view.aspx?id=1913&s=latestnews

Online Contarct Formation

This guide is based on the law of the UK. It was last updated February 2008.



The ability to form contracts online has revolutionised the way business is conducted. In the UK, almost all types of contract can be made online, there are very few which the law requires are still made 'in writing' or are physically signed by the parties.

Contracting online is essentially the same as contracting off-line (which is addressed in our guide to Formation of contracts). The same requirements have to be fulfilled in order to ensure that the contract is legally binding. These requirements are fairly basic: there must be an agreed set of terms and both parties must intend to enter into a legally binding agreement. Under English law, but not under Scots law, there must also be some form of 'consideration' – payment of some kind for the goods or services being provided.



Invitations to treat and offers

UK and US lawyers break down the process of contract formation into three stages: an invitation to treat, an offer and an acceptance. The distinction between the three stages is not always immediately obvious. When you see an item for sale in a shop window, you may think that the shopkeeper is offering to sell it to you. However, in legal terms the display of an object is not usually an offer to sell that object, rather it is an 'invitation to treat'. An invitation to treat comes before the offer in the contractual process, and is an indication by the seller that they may be prepared to enter into a contract. The second stage – the 'offer' – only takes place when you go into the shop and say that you'd like to buy the item in the window. Your statement is an offer to purchase the item and, in the normal course, the shopkeeper 'accepts' that offer by taking your money and handing you the item in question. However, the shopkeeper could refuse to sell it to you for any reason whatsoever. This distinction is important: if the item in the window was considered an offer, which the buyer accepts, then the shopkeeper would be bound to the contract as soon as the buyer asks to buy the item.
The three stage analysis is critical to the question of how contracts are formed on the web. It is likely that websites will be treated as being similar to a shop window and that the advertisement of an item for sale on a site will amount to an invitation to treat. If so, an offer will only be made when a customer gives notice of his intention to buy an item from the site (i.e. submits an order) – at which point the seller will still be free to accept or reject that offer. The significance of this analysis was dramatically illustrated in the UK when an online retailer mistakenly advertised televisions for sale on his site at £2.99 rather than £299. If the advert was an offer (and an order was acceptance) then the retailer was bound to sell for £2.99; if the advert was an invitation to treat (and the Customer's order was an offer), the supplier could refuse to accept the offer.

While it is likely that the websites will be treated like shop windows, the application of the three-stage analysis to the web has not been tested by the UK courts. Online traders should therefore specifically state in their terms and conditions that the display of items for sale on a website is only an invitation to treat.
Acceptance


With the online business process being automated there may be confusion as to when an offer is accepted. The basic rule is that for acceptance to be effective it must be communicated. However, as the law currently stands it is not clear when an online acceptance is communicated. For example, if the seller processes the customer's order through the website, but acceptance is made by email, is it communicated when the seller presses the 'Send' button, when it leaves the seller's email system, when it leaves the seller's ISP's mail server, when it hits the buyer's ISP's mail server, when it enters the buyer's email system or when the buyer reads it (or indeed any stage in between)? There are a number of initiatives which are intended to address this position – see our guide on EU and UK Regulations – but the safest course is to state, in the terms and conditions themselves, when acceptance will be deemed to have taken place.

One point to consider with an automated e-commerce process is the use of an automated receipt of order. Where there are a limited number of goods or where a serious pricing error has occurred, an automated acceptance could be disastrous, potentially binding the seller to contracts it cannot fulfill. In order to protect the seller any automated receipt should make it clear that it is simply a receipt of order and not an acceptance. The receipt should make it clear that the acceptance will follow later (when the seller has had a chance to check the order).The manner in which the content is formed and the point at which acceptance of order occurring should be made clear in the terms and conditions of sale.
Consideration
Under English law, there must be a consideration for a contract to be binding – each party must obtain a benefit from the contract. In commercial contracts (and therefore most online selling scenarios), consideration is rarely an issue – the buyer receives the goods or services and the seller receives the price – but there are rare occasions on which it becomes important (for example, guarantees and non-disclosure agreements which are more one-sided in their nature). Consideration is not a requirement of Scots law. See our guide Security Aspects of E-business.


Incorporation of terms

The terms and conditions on which the parties are contracting must be agreed by both parties and incorporated into the contract between them. Simply placing terms and conditions on a website is not enough to incorporate them into a contract: the parties must agree that they contract on the stated terms, and they must do so before (or at the same time as) becoming contractually bound. When dealing with customers of a website the seller must ensure that the ordering process requires the customers to read and agree to the seller's terms and conditions. Best practice to ensure this is to include the terms and conditions as a separate page in the sales process and requiring the customer to acknowledge he has read and agreed them (for example, by clicking an 'Agree' button) before proceeding to place an order.

However, to reduce the number of pages in the purchasing process, many websites use a different process, by placing a link to the terms and conditions from a page during the sales process, and requiring users to tick a checkbox to confirm that they are accepting those terms and conditions. Without ticking the checkbox users should not be able to proceed with the purchase. Underneath the checkbox users should then be offered buttons to click to proceed with the sale (for example 'Purchase' or 'Buy Now'), but alongside this must be a button allowing them to withdraw from the sale (for example 'Cancel').

You should avoid using words like 'I have read, understand and accept the terms and conditions' next to the checkbox. In the opinion of the Office of Fair Trading, you are then encouraging users to make undertakings that could be untrue (users can check the box without actually reading or understanding the conditions). Instead place a notice above the checkbox warning users that it is important to read and understand the terms before placing their order, and then use words such as "I accept the terms and conditions" beside the checkbox.

The words 'Terms and conditions' next to the checkbox should be an obvious link to the terms themselves. At the bottom of the linked page you will need to put a link that takes the user back to the purchasing process.
You should avoid relying on JavaScript based client-side validation to confirm whether the user has ticked the checkbox. This may now work with some browsers – or where the user has turned JavaScript off – meaning that the user doesn't have to check the box, and your terms and conditions aren't incorporated.



The use of 'browse-wrap' agreements has been heavily criticised by the courts and the Federal Trade Commission in the United States. A 'browse-wrap' agreement gives the purchaser the opportunity to follow a link to the supplier's terms and conditions before placing an order, but does not require the purchaser to read the terms before ordering. A court in New York determined that as such agreements do not bring the relevant terms to the attention of the purchaser before the contract is made they are not binding on the purchaser.
One of the most important terms to incorporate is a choice of law and jurisdiction clause - a statement that, for example, the contract will be made under English law and subject to the jurisdiction of the courts of England & Wales. Such a clause may prove essential in online contracts because of the uncertainty as to where in cyberspace a contract is made, although be aware that consumers will always have certain rights to sue in the country in which they live – see our guide on Jurisdiction.


Overriding laws

While you can try and control the relationship between buyers and sellers in the contract, it is important to bear in mind that contracts made online are also subject to the same laws as contracts made off-line. So, for example, contracts which are unenforceable off-line (such as certain contracts with children) will also be unenforceable online, and exclusions of liability contained in an English contract made on a supplier's standard web-published terms can be subject to a test to make sure that the terms are 'reasonable'.
Where a contract is made with a consumer, a raft of additional provisions apply – see, for the UK, our guide on Dealing With Consumers. These provisions vary from country to country, emphasising the importance of clearly stating the law which is to apply to your contract. However, even a clear choice of law clause will not prevent national courts from asserting jurisdiction if they feel that their consumers are being targeted by your website – see our guide on Jurisdiction – and the safest practice is to comply with the laws of all countries which are important markets for your products and to exclude orders from countries which are not. See also our guide on Internet Advertising.






There are also a number of regulations which specifically control contracts which are formed online. The 'distance selling' regulations came into force in 2000 and protect consumers involved in 'distance contracts' (including contracts concluded online) by requiring the supply of certain information to the consumer before and after the contract is entered into. They also give the consumer a seven day cooling off period during which he can change his mind and withdraw from the contract. The e-commerce regulations came into force in 2002, and also require a range of information is provided to consumers before they enter into the contract. For further information, see our guide on EU and UK Regulations, and our article, The Distance Selling Regulations – An Overview.














Reference:


[1] http://www.out-law.com/page-394The distance selling regulations do not apply to financial services products, although similar regulations came into effect in October 2004[1].