2. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS Electronic Transactions Michael I. Shamos, Ph.D., J.D. Institute for Software Research School of Computer Science Carnegie Mellon University

3. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS Electronic Transactions With the rise of the Internet, more and more transactions are negotiated and initiated electronically Internet sales: goods and intangibles electronic banking stock brokerage e-mail B2B transactions auctions Many are completely automated – no human intervention What is their legal status?

4. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 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. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 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) –Authentication

6. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 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. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS Statute of Frauds A very old statute requiring certain contracts to be in writing “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 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. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS Uniform Laws Uniform codes are model laws proposed by the Uniform Law Commission Uniform Law Commission No legal effect unless enacted by a legislature Each legislature can modify the code Therefore: uniform laws are not uniform! Uniform Electronic Transactions Act (UETA) adopted by 47 states (e.g. PA) + District of Columbiaadopted Uniform Computer Information Transactions Act (UCITA) adopted by 2 states (Maryland and Virginia)adopted UETA AND UCITA adopted by 2 states (MD, VA) This leaves out IL, NY, WA

9. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 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 General rule: acceptance is effective when communicated to the offeror Mailbox rule is an exception: acceptance occurs when it is placed in the mail, even if never received What is the electronic equivalent of the mailbox rule?

10. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 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.” 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: what is the evidence of clicking?

11. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS Electronic Transactions Pennsylvania Electronic Transactions Act (signed 12/16/99). A version of UETA 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.”

12. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS Electronic Signature Legislation E-Sign: Electronic Signatures in Global and National Commerce Act (effective Oct. 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)

13. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS Uniform Electronic Transactions Act Abbreviated UETA (pronounced you-eat-a) Enacted in 47 states and Washington DC Applies to transactions related to business, commercial (including consumer) and governmental matters within a state Applies to any electronic record or electronic signature created, generated, sent, communicated, received, or stored

14. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 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 may not be varied by agreement of the parties to a consumer contract or transaction.

15. 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.”

16. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 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. Do transferable records exist? Can they exist?

17. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 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

18. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 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

19. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS Automated Transactions (E-Sign) “‘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.”

20. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 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.

21. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS Uniform Computer Information Transactions Act (UCITA) Overrules prior court decisions in favor of consumers Reduces scope of implied warranties Electronic “self-help.” Licensor can repossess products under certain conditions 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. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS Uniform Computer Information Transactions Act (UCITA) Allows software publishers to change the terms of the contract after purchase. Allows restrictions that prohibit users from criticizing or publicly commenting on software they purchased. Allows software and information products to contain "back door" entrances, potentially making users' systems vulnerable to infiltration by unauthorized hackers. Widely regarded as a failure (adopted by 2 states) NCCUSL halted efforts to promote the Act and WITHDREW it

23. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS Major Ideas UETA (Uniform Electronic Transactions Act) has been widely adopted E-Sign (throughout the U.S.) allows “electronic signatures” to replace handwritten ones in most cases An “electronic signature” is not the same as a “digital signature,” but a digital signature can be an electronic signature and vice-versa UCITA (Uniform Computer Information Transactions Act) is too favorable to software vendors and has not future (adopted in 2 states with no more in sight)

24. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS Q A &