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

                                             

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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