ECommerce

Kenneth D. Crews
Indiana University School of Law - Indianapolis

  1. The Problem

Electronic communication and delivery systems raise challenging new questions about the effectiveness of traditional law. In the familiar world of non-cyber transactions, the law has evolved over centuries to serve multiple purposes. As transactions move to a computer-networked environment, many of those same objectives of the law remain, but the law often fails to fulfill them—or at least the law sometimes falls short of meeting its goals when applied to electronic transactions.

The essential body of applicable law is contract law. Simple purchases, whether over the counter or from an Internet website are contracts. Picture the simplest contact: the purchase of some common object—food, clothing, household goods—from your local store. Underlying the transactions are the elements of a valid contract: offer, acceptance, and consideration. When making the purchase in person, opportunities abound to raise questions about the goods, the price, and other concerns. If the parties have doubts about the integrity of the products, or are concerned about whether the parties have authority to make the transaction, or if the check handed over for the price is somehow suspect, again the parties have opportunities to ask questions, glean subtle information, and size up the object, the person, and the signature on the check or credit card.

Move to the electronic environment and we have the same old contract. We can make the exact same sale for the exact same price involving the exact same goods between the exact same parties. But when the parties are removed from one another, and the transaction is consummated in the relatively remote conditions of cyberspace, new concerns are certain to arise. How may parties evaluate the goods and evaluate one another? When they exchange messages electronically, what aspects of the exchange constitute the terms of the purchase? Do these parties have authority to make the contract? If a signature is required, is an electronic "signature" sufficient? What are the consequences if the goods are never delivered or are defective?

Most of these concerns are actually not new. The earliest forms of distance communication—including mail, telegraph, and telephone—brought concerns about making contracts and fulfilling their terms. The electronic environment, however, is greatly exacerbating those challenges. The rapid growth of the Internet as a tool for commerce has brought a rapid shifting of common transactions from the marketplace to cyberspace. That development also has displaced millions of consumer purchases, plunging millions of common consumers into arrangements made on the Internet that often go sour. When sophisticated commercial transactions fail, one may hope or expect that the parties more likely have the insight, lawyers, and bargaining power to avoid problems and settle differences. They may not, or they may also find themselves facing unacceptable resolutions. Some of those parties are major businesses with enormous economic and political influence. On the other hand, millions of average consumers are also finding themselves in failed electronic transactions with little immediate recourse. They, too, may in numbers have considerable combined voting power, making lawmakers in state capitals and in Washington, D.C. take notice. Courts have struggled with some individual cases, but many of the developments in the law related to electronic commerce are in recent and pending state and federal legislation.

This overview will give particular attention to legal regimes related to making contracts in electronic commerce, with particular attention to the listed statutory developments.

 

  1. Uniform Computer Information Transactions Act (UCITA)

In its first incarnation, this uniform law was developed as a proposed "Article 2B" of the Uniform Commercial Code (UCC). The National Conference of Commissioners on Uniform State Laws (NCCUSL) had labored for years to craft the language and to negotiate major conflicts among interested parties, only to find themselves in conflict with the American Law Institute (ALI). The ALI must also approve changes to the UCC. That conflict appeared to be without resolution, and the two groups clashed over fundamental premises of the law’s direction. The resolution was a decision by NCCUSL to remove the proposal from the UCC and to develop it as a separate "uniform" code—which does not require ALI’s oversight and approval.

The result is the awkwardly named Uniform Computer Information Transactions Act (UCITA). Its essential purpose is to identify the terms and conditions for making contracts in the electronic environment. More specifically, it applies to the making of contracts for information goods, and even that scope has been beaten down as various industries have chosen not to be part of the effort. The principal application of the entire code is to computer software.

Much of the code has been criticized as far too supportive of the desires of the computer-software industry. In particular, provisions would strongly favor enforcement of mass-market licenses that purchasers might enter into as "click-on" or "shrink-wrap" contracts. Other provisions would appear to favor enforcement of contracts that may even alter the balance that Congress established in copyright law. For example, copyright law allows to the public certain rights of use of protected works, such as fair use. While one may under a negotiated circumstances forgo those rights under a contract, the question remains whether a unilaterally developed license agreement could similarly provide for waiver of public rights when the buyer had little opportunity to comprehend the legal implications. These issues raise serious questions about the appropriate policy position that the law should assume. Favoring enforcement of such licenses supports the desires of the software industry, which is a major element of the U.S. economy. On the other hand, upholding such license threatens the interests of consumers and unbalances the federal copyright system. These issues also suggest serious problems ahead for the UCITA, as future litigation will likely test whether its provisions or effect may be preempted under federal law.

Exercise:

  1. Review UCITA, available at http://www.law.upenn.edu/library/ulc/ucita/citam99.htm.
  2. Identify two provisions that are likely to serve the needs of owners of works seeking to license them for sale or use.
  3. Identify two provisions that are likely to serve the interests of consumers.
  4. Identify two provisions that are comparable to language regarding the making or performance of contracts under UCC Article 2.
  5. Select one of the following cases and identify how a result decided under the UCITA be consistent with or differ from the result in that case?

Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997).

ProCD, Inc. v. Zeindenberg, 86 F.3d 1447 (7th Cir. 1996).

Arizona Retail Systems, Inc. v. Software Link, Inc. 831 F. Supp. 759 (D. Ariz. 1993).

 

References:

Information about the former UCC Article 2B and the current UCITA is available at <http://www.law.upenn.edu/library/ulc/ucita/citam99.htm>; and <http://www.2bguide.com/>.

Jeff C. Dodd, Time and Assent in the Formation of Information Contracts: The Mischief of Applying Article 2 to Information Contracts, 36 Hous. L. Rev.195 (1999).

Christopher R. Drahozal, Electronic Commerce in Kansas: Contract Formation and Formalities Under Article 2, 68-MAY J. Kan. B.A. 22 (1999).

Raymond T. Nimmer, UCC Revision: Information Age in Contracts. 471 PLI/Pat. 377 (1997) [includes good background about Article 2B and about the structure of contract law in general].

Michael L. Rustad, Commercial Law Infrastructure for the Age of Information, 16 J. Marshall J. Computer & Info L. 255 (1997).

Pamela Samuelson, Foreword to Symposium: Intellectual Property and Contract Law in the Information Age: The Impact of Article 2B of the Uniform Commercial Code on the Future of Transactions in Information and Electronic Commerce. 13 Berkeley Tech. L.J. 809 (1998).

 

  1. Uniform Electronic Transactions Act (UETA)

Also emerging from NCCUSL as a free-standing uniform code is the Uniform Electronic Transactions Act (UETA), which takes a minimalist approach to legislating the conditions for electronic contracts. Instead, the UETA would create a general framework for further state law on electronic transactions. Perhaps most salient among its provisions are a definition of "electronic signature" and a preservation of consumer warranties in sales made electronically.

The UETA underscores some of the continuing difficulties of shaping law for the constantly evolving conditions of electronic commerce.

For updates on the status of this evolving legislation, see <http://www.abanet.org/nccusl/law1.html>.

 

  1. The Millennium Digital Commerce Act of 1999 (MDCA)

This federal legislation holds some prospect of conflicting with the UETA. Introduced in the U.S. Senate in March 1999, this bill does anticipate that contract law is ordinarily the domain of state law, and accordingly defers to state statutes that might conflict with the federal legislation—such as the UETA. Consequently, the federal bill has most significant applications to contracts and other transactions, where the applicable state law has not answered the legal issue that arises. Overall, the federal legislation does not break new ground for making contracts. Rather, it tends to assure that traditional principles of contracts will survive in electronic commerce.

General law of contracts tends to favor enforcement where the evidence overall indicates that the parties willfully entered into the transaction with agreement on the terms. That is the essence of a valid contract. To that end, the MDCA, among other provisions, would provide that an "electronic signature" may be identified by the circumstances surround the transaction, such as the intent of the parties and the content of the transaction. The fact that the transaction is made in electronic form, and that the evidence of the transaction may also be electronic, will not be excluded when litigating the parties’ intent. Also consistent with general contract law, parties may voluntarily enter into agreements that depart from the requirements of the UETA. In other words, if the parties want to make their own definition of "electronic signatures" and hold themselves to it, they may do so.

 

Exercise:

  1. The UETA clearly does not take great liberties with shaping the law of contracts. If it is falling short of that objective, what then are the underlying policy objectives of the UETA?

 

Reference:

Thomas J. Smedinghoff, Electronic Contracts and Digital Signatures and Overview of Law and Legislation, 557 PLI/Pat 549 (1999).

 

  1. State Statutes

Much of contract law traditionally has been the domain of state law. "Uniform" codes, for example, may be relatively consistent among the states, but they are actually state law, not federal law. As is true with all state law, it varies across the country and changes fairly rapidly.

Project:

Read the following: John Whipple, The Formation of Contracts and Enforcement of Electronic Contracts, Pub. L. Res. Institute Rep. <http://www.uchastings.edu/plfri/fall1994/whipple.html>

Select from the article three statutory provisions from California law (including California’s version of the UCC) and three contract provisions that relate to California law. Compare those provisions to the law of another state, identifying similarities and differences.

 

  1. International Dimension: UNCITRAL and the Influence of the European Union

The fact that contract law in the United States is principally state law creates complications when transactions are among parties in diverse states. The complications increase dramatically when the transactions cross national boundaries. Like multistate transactions, the fundamental question is: "Whose law applies?" There is no "international law" that applies to international contracts and determines their terms and enforceability. But there is international law that determines the appropriate jurisdiction for settling disputes and resolving conflicts when laws of multiple jurisdictions apply simultaneously and produce contradictory results.

Perhaps the most prominent sources of international law for contracts are the United Nations Commission on International Trade Law (UNCITRAL) and the Convention on Contracts for the International Sale of Goods (CISG). The CISG, in particular, reflects many of the concepts of the UCC Article 2. UNCITRAL is a political unit of the UN that has, among other duties, proposed Model Law on Electronic Commerce. While that model law has no authority until individual countries adopt it through the legislative process, it is an effort to bring clarity to electronic contracts in the international environment. It is also a concerted effort to give some assurance to the validity of electronic contracts in order to assure the stability of international commerce. Like the MDCA, the Model Law takes a minimalist approach, generally providing that contracts may be made and signed in the electronic context, and that electronic transmissions may satisfy signature requirements. Similarly, the European Union has issued a draft "Directive on Electronic Signatures" that would require member countries to enact legislation concerning the authentication and recognition of electronic signatures.

 

References:

UNCITRAL’s website includes an annotated bibliography, available at: <http://www.uncitral.org/english/sessions/unc/unc-31/acn9-452.htm>

Camilla Baasch Andersen, Furthering the Uniform Application of the CISG: Sources of Law on the Internet, 10 Pace Int’l L. Rev. 403 (1998).

Amelia H. Boss, Electronic Commerce and the Symbiotic Relationship Between International and Domestic Law Reform, 72 Tul. L.Rev. 1931 (1998).

Jennifer Conovitz, UNCITRAL Model Law on Electronic Commerce, 1075 PLI/Corp 47 (1998).

Richard Hill & Ian Walden, The Draft UNCITRAL Model Law for Electronic Commerce: Issues and Solutions, Computer Lawyer (1996).

A. Brooke Overby, UNCITRAL Model Law on Electronic Commerce: Will Cyberlaw be Uniform? An Introduction to the UNCITRAL Model Law on Electronic Commerce, 7 Tulane J. Int’l & Comp. L. 219 (1999).

 

Additional References:

John R. Austin, The Law of Electronic Commerce and Digital Signatures: An Annotated Bibliography, 17 J. Marshall J. Computer & Info. L. 1043 (1999).

Jody Storm Gale, Service Over the Net: Principles of Contract Law in Conflict, 49 Case W. Res. L. Rev. 547 (1999).

Fred M. Greguras, et al., Electronic Commerce: On-line Contract Issues, <http://www.batnet.com/oikoumene/ec_contracts.html>

John D. Muller, Selected Developments in the Law of Cyberspace Payments, 54 Bus. Law. 403 (1998).

Adam White Scoville, Clear Signatures: Obscure Signs, Cardozo Arts & Entertainment L.J. 17 (1999): 345-412.

Jane Kaufman Winn, The Emerging Law of Electronic Commerce, available at <http://www.smu.edu/~jwinn/mbachapter.htm>.

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