2. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Lecture 10: Commercial Transactions

3. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS What’s a Commercial Transaction? Sales contracts –Goods (physical delivery, inspection, etc.) –Intangibles (electronic media: music, software, images) –Auctions Banking transactions –Negotiable instruments (checks, promissory notes, letters of credit, warehouse receipts, bills of lading)

4. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Electronic Contracting Consent Formation –Acceptance –Conspicuousness Digital Signatures Jurisdiction Notices, “receipt,” confirmation Evidence –Data retention: changed or disappearing web pages Authority

5. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Requirements for a Contract Offer (ALWAYS REQUIRED) Acceptance (ALWAYS REQUIRED) Consideration (USUALLY REQUIRED) –Exchange of value or promises of value –But: Pennsylvania magic words: “intending to be legally bound hereby” Writing (SOMETIMES REQUIRED) –Value as evidence, memory aid Signature (SOMETIMES REQUIRED) –Solemnity (seriousness)

6. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Uniform Commercial Code Contract law is complicated; most terms are implied, not stated expressly All states except Louisiana have enacted versions of the Uniform Commercial Code (UCC) covering sales of goods UCC specifies –procedure for forming sales contracts –terms implied in all contracts, e.g. warranties –defaults for unspecified terms Warranty –A promise that a statement is true, e.g. “I own this watch and have the right to sell it to you.”

7. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Statute of Frauds “a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought...” 13 Pa.C.S. § 220113 Pa.C.S. § 2201 Purpose: –evidence; reminder to parties; seriousness of signing Is email a writing? (What’s the purpose of the law?) Is a digital signature a signature? Is a mouse click a writing? A signature?

8. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Uniform Codes Uniform codes are model laws proposed by the National Conference of Commissioners on Uniform State Laws National Conference of Commissioners on Uniform State Laws No legal effect unless enacted by a legislature Each legislature can modify the code Therefore: uniform codes are not uniform! Uniform Electronic Transactions Act (UETA) adopted by 39 states, e.g. PAadopted Uniform Computer Information Transactions Act (UCITA) adopted by 2 states (Virginia & Maryland) UETA AND UCITA adopted by 1 state (Maryland)

9. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Offer and Acceptance How is the offer communicated? Revocation of offer –An offer can be revoked anytime before it is accepted –TIME is important A counteroffer is a refusal of the original offer How is acceptance communicated –Offer revoked after acceptance is sent but before it is received

10. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Clickwrap Agreements UCC §2-204: “A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.” Shrinkwrap agreement: triggered by unwrapping and using the software. “Notice on the outside, terms on the inside.” Enforceable if the user can return the goods without penalty if he chooses not to accept Clickwrap: triggered by clicking “I Accept” after the agreement is displayed. Enforceable, since the click shows agreement. Hotmail Corporation v. Van Money Pie Inc., et al., C98-20064 (N.D. Ca., April 20, 1998) Question: evidence of clicking?

11. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS “Browsewrap” Agreements “Terms of use” buried in a page behind the frontpage Is a user bound by them in the absence of express acceptance? Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y 2001)Specht v. Netscape Communications Corp., –Court refused to enforce a Netscape browsewrap license –Netscape did no more than place notice of the license on the same webpage where it had made the download available –Netscape's license "allows a user to download and use the software without taking any action that plainly manifests assent to the terms of the associated license or indicates an understanding that a contract is being formed."

12. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Auctions (UCC §2-328 13 Pa. C.S. §2328)13 Pa. C.S. §2328 A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. A sale is with reserve unless the goods are in explicit terms put up without reserve. –In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale. –In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. –In either case a bidder may retract his bid until the announcement by the auctioneer of completion of the sale, but the retraction by a bidder does not revive any previous bid.

13. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Auctions (UCC 13 Pa. C.S. §2328)13 Pa. C.S. §2328 Bidding by or for seller.-- If the auctioneer knowingly receives a bid on the behalf of the seller or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale.

14. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Electronic Transactions Pennsylvania Electronic Transactions Act (signed 12/16/99). A version of the Uniform Electronic Transactions ActElectronic Transactions ActUniform Electronic Transactions Act All parties must consent to the electronic transaction. “Electronic signature. -- An electronic sound, symbol or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.“ “If a law requires a record to be in writing, an electronic record satisfies the law.” “If a law requires a signature, an electronic signature satisfies the law.”

15. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Digital Signature Legislation Electronic Signatures in Global and National Commerce Act (effective October 1, 2000)Electronic Signatures in Global and National Commerce Act “electronic signature” means 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. Electronic signatures valid, not required Must be accepted by government agencies Consumer disclosure and consent Retention satisfied by electronic records Federal pre-emption Electronic notarization, transferable records List of exceptions (wills, various cancellation notices)

16. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Consumer Agreements (UETA) Consumer: “an individual involved in an electronic transaction primarily for personal, family or household purposes” In a nonelectronic consumer contract, consumer must agree to any electronic provision by a separate acknowledgment. An agreement to conduct a consumer transaction or a part electronically may not be inferred solely from the fact that the consumer used electronic means to pay an account or register a purchase or warranty. These provisions of may not be varied by agreement of the parties to a consumer contract or transaction.

17. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Sending Electronic Records (UETA) “an electronic record is sent when it: (1) is addressed properly... to an information processing system that the recipient has designated or uses for the purpose of receiving electronic records … ; (2) is in a form capable of being processed by that system; and (3) enters an information processing system outside the control of the sender or... enters a region of the information processing system designated or used by the recipient which is under the control of the recipient.” “An electronic record is received... even if no individual is aware of its receipt.”

18. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Transferable Records (UETA) The law of negotiable instruments (checks, drafts, promissory notes, etc.) pays great attention to transferability and the “holder in due course” (rightful possessor without knowledge of fraud or defect) A negotiable instrument is token money (rightful possession is equivalent to ownership) Negotiable instruments are made electronic through “transferable records” A “transferable record” is an electronic record that would be a negotiable instrument if it were written and which the issuer has expressly agreed is a transferable record.

19. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Transferable Records (UETA) A person ‘controls’ a transferable record if (1) a single authoritative copy of the transferable record exists which is unique, identifiable and,... unalterable; (2) the authoritative copy identifies the controller as either the issuer or as most recent authorized transferee; (3) copies that change the identity of the controller can be made only with the consent of the controller; (4) the status of a copy (authoritative or not authoritative) is readily identifiable. Transferable records have the status of negotiable instruments

20. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Uniform Computer Information Transactions Act (UCITA) Deals with contracts for digital goods. Generally favors producers Approved by the National Commissioners. Adopted only in Virginia (home state of AOL) and Maryland VERY controversial Replaces “sales” by “licenses.” –Sale is a completed act. License is a continuing permission Allows hidden terms to govern even if not disclosed prior to licensing. Can deny buyer advance access to terms. Reduces scope of implied warranties Electronic “self-help.” Licensor can repossess products under certain conditions

21. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Uniform Computer Information Transactions Act (UCITA) Overrules prior court decisions in favor of consumers Allows vendors to prohibit reverse engineering Shrinkwrap licenses override purchase order terms ANY modification of a computer program void ALL warranties Vendor protected from consequences of known software bugs even if not disclosed to buyer

22. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Uniform Computer Information Transactions Act (UCITA) UCITA allows software publishers to change the terms of the contract after purchase. UCITA allows restrictions that prohibit users from criticizing or publicly commenting on software they purchased. UCITA allows software and information products to contain "back door" entrances, potentially making users' systems vulnerable to infiltration by unauthorized hackers. UCITA allows software publishers to sell their products "as is" and to disclaim liability for product shortcomings.

23. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Electronic Contracting Statutes Australia Electronic Transactions Act 1999 Uniform Commercial Code Sction 2B Model Act on Electronic Communications in Contractual Transactions Model Trading Partner Agreement (MTPA) Uniform Electronic Transactions Act (UETA) Uniform Computer Information Transactions Act (UCITA) American Bar Association –Working Group on Electronic Contracting Practices –Subcommittee on Electronic Commerce of the Cyberspace Law Committee

24. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Automated Transactions (UETA) “Automated transaction. -- A transaction conducted or performed, in whole or in part, by electronic means or electronic records, in which the acts or records of one or both parties are not reviewed by an individual in the ordinary course [of business].” “A contract may be formed by the interaction of electronic agents of the parties, even if no individual was aware of or reviewed the electronic agents' actions or the resulting terms and agreements.” Difference: automated transaction may be revoked for unilateral mistake if the other side has not changed its position in reliance

25. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Automated Transactions (E-Sign) “The term ‘electronic agent’ means a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part without review or action by an individual at the time of the action or response.” “A contract or other record relating to a transaction in or affecting interstate or foreign commerce may not be denied legal effect, validity, or enforceability solely because its formation, creation, or delivery involved the action of one or more electronic agents so long as the action of any such electronic agent is legally attributable to the person to be bound.”

26. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Transferable Records (UETA) The law of negotiable instruments (checks, drafts, promissory notes, etc.) pays great attention to transferability and the “holder in due course” (rightful possessor without knowledge of fraud or defect) A negotiable instrument is token money (rightful possession is equivalent to ownership) Negotiable instruments are made electronic through “transferable records” A “transferable record” is an electronic record that would be a negotiable instrument if it were written and which the issuer has expressly agreed is a transferable record.

27. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS UN Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce “Basic rules on the validity, attribution and effect of computer-based and other forms of electronic messaging in commerce” Electronic data messages have same legal effect as messages written in traditional format Similar to Uniform Commercial Code proposed 2B Signature: “method used to identify [a] person” Criteria for determining whether an electronic message is attributable to a particular party

28. 46-840 ECOMMERCE LAW AND REGULATION SPRING 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS Q A &