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Integrating Electronic Contracts into Negotiated Deals Courtney Stopp May 29, 2007 University of Connecticut School of Law.

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Presentation on theme: "Integrating Electronic Contracts into Negotiated Deals Courtney Stopp May 29, 2007 University of Connecticut School of Law."— Presentation transcript:

1 Integrating Electronic Contracts into Negotiated Deals Courtney Stopp May 29, 2007 University of Connecticut School of Law

2 Integrating Electronic Contracts into Negotiated Deals Introduction Internet Business Legal Regimes Putting it into Practice Conclusion

3 Doing Business on the Internet Internet Transactions The Appeal: Powerful & Efficient –Communication, Speed, Knowledge, Accuracy, Globalized Consumers have been experiencing the benefits of the internet for over a decade Large scale corporations are building strategies around a new way of doing business

4 Doing Business on the Internet Economics of the Internet Traditional notions of internet business account for only 9.6% of the total revenue generated on the internet Predicted by 2010 – 10 Trillion Dollars flowing through the internet economy –What will be driving the internet economy? Business to Business (B2B) Transactions – eBusiness

5 What is eBusiness? Electronic Business (eBusiness) involves the total digitalization of value chains and business processes, and holds the promise of helping traditional organizations create new value and reach previously unattainable height of operational excellence. Internal Value Chain External Value Chain Source: Managing E-Business Transformation: Opportunities and Value Assessment* Revised and forthcoming in Sloan Management Review; Barua, Anitesh, Konana Prabhudev, Whinston, Andrew, Yin, Fang; Center for Research in Electronic Commerce McCombs School of Business The University of Texas at Austin Source:

6 Creating an eBusiness Value Chain Alignment Electronic alignment from the Raw material supplier to end user Compatible internet based software throughout all organizations –Customized purchases, placing and filling purchase orders, tracking, shipping, financing, etc Automated transactions launched with a push of a button

7 Transitioning to an eBusiness Model Complete eBusiness transformation is not for everyone Ideal circumstance where transactions are: –Highly standardized –Low cost –Readily available materials –Minimal personal collaboration required Challenging circumstances where transactions contain: –Complex supply chains –High costs and high dollar products –Personal collaboration and trust requirements –Raw material shortages

8 Transitioning to an eBusiness Model Essentially, the difference between the Ideal Circumstance and the Challenging Circumstance is Risk Ideal Circumstances for eBusiness – known, predictable, low risk exposure Challenging Circumstances for eBusiness –Usually found in industries with few competitors and intense competition Unpredictable, high dollar, high risk exposure –Must find the nexus between traditional operational modes and eBusiness models

9 Managing eBusiness Risk Business Risk is mitigated through Legal Contracts. Creating the nexus between eBusiness and traditional business requires the interplay of two separate contracts and an understanding of how they interact Traditional business practices capture risk in the form of a negotiated contract –Complexity will drive the need for continued use of long term, highly concessionary, negotiated deals eBusiness provides a new set of rules –Competition and efficiency will drive the need for internet transactions governed by electronic contracts

10 Understanding Electronic Contracting in the United States The United States has validated the use of electronic contracts in both the court system as well as through Federal and State Legislation Doctrines of electronic contracting were derived from areas such as: –Licensing and Contracts –Uniform Commercial Code (UCC) Legislation developed to validate electronic contracts –Uniform Electronic Transaction Act (U.E.T.A) –Electronic Signatures in Global and National Commerce Act (E-Sign)

11 Understanding Electronic Contracting in the United States Legal concepts and practices: Electronic contracts are valid and may modify existing agreements as long as: –Each party has adequate notice of the additional terms –Each party has unambiguously assented to the additional terms Electronic contracts can be non negotiable –Legal precedent in US has established that the fact that a contract is non negotiable does not prohibit the use of such instrument The terms of electronic contracts cannot be unconscionable

12 Understanding Electronic Contracting in the United States Federal and State Statutes: Uniform Electronic Transaction Act (U.E.T.A) & Electronic Signatures in Global and National Commerce Act (E- Sign) –Codify that electronic contracts are valid and that assent to a contract may be provided by an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record This has been interpreted to include clicking certain links and specific buttons as well as signing s

13 Understanding Electronic Contracting in the European Union Statutory Doctrines: EU Directive 2000/31/EC passed in 2000 established the framework for conducting eBusiness within the community –Article 9: Allows contracts to be included by electronic means by systematically eliminating any legal requirements imposed on the contracting process that would impede the conclusion of binding electronic contracts or that would deny such contracts legal effectiveness or validity on account of the electronic method or creation

14 Understanding Electronic Contracting in the European Union 2006 the EU developed a commission to report out on the legal barriers to the use of electronic documents in eCommerce transactions, and to identify potential solutions to any such barriers, particularly on the cross border level, where the validity and acceptability of electronic documents generally possess the greatest difficulties. Results of study: –Many similarities between the Member States treatment of electronic contracts General acceptance of electronic contracting means General emphasis on the expressed will of the parties as opposed to the official form taken –Major Challenge Electronic Signatures Source: Legal Study and Administrative Practices Regarding the Validity and Mutual Recognition of Electronic Documents dex.htm

15 Understanding Electronic Contracting in the European Union Electronic Signatures EU has established a qualifying system for electronic signatures that has not proven convenient for transactions: –The technology to support the most secure signatures is not readily available and not used This leaves the will of the parties subject to interpretation and legal ambiguity Member States will defer to established framework agreements Paper document between the parties establishing how they will interact electronically –Validates Signatures –Determines if/when an electronic file is meant to be a binding contract

16 What is an Electronic Contract? Any electronic file, communication, may be used as a binding agreement if it is intended by the parties. Most common however because of their ease of application are: Clickwrap Agreements –Standard terms and conditions are presented through a pop up box that requires an acceptance prior to the completion of the transaction Browsewrap Agreements –Alternatively there may be a link to the terms and conditions on the website that dictates that the use of the site and completion of any transaction will be deemed acceptance of the terms and conditions

17 Correlating the Negotiated Deal with the Electronic Contract In order for a corporation to realize the benefits of an efficient eBusiness, it must be able adeptly correlate the electronic contract with the negotiated contract and mitigate the risk exposure of both worlds. As a corporation transitions to an eBusiness operational model - the risks must be mitigated –Corporations must acknowledge and prepare for electronic contracts to govern transactions –Use negotiation opportunities to address electronic contracting issues and develop framework agreements –Establish internal mechanisms for handling the correlation.

18 Correlating the Negotiated Deal with the Electronic Contract Legal mechanisms for integrating electronic contracts include elements such as: Creating, incorporating, and coordinating electronic contracts/Clickwrap Agreements into paper contracts Acknowledging others electronic contracts and their applicability Understanding the business and the terms of the transactions will take place on the internet

19 Conclusion The bottom-line is dictating that business transforms into eBusiness B2B eCommerce is a multi-trillion dollar enterprise because it creates efficiency in transactions and resources Without sufficient understanding of electronic transactions corporations may be exposed to unpredictable risk Attorneys traditionally charged with risk mitigation must understand how and when negotiated deals will interact with electronic contracts in order to provide adequate protection for the corporation

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