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].