Transcript Sample - Eckert Seamans

Current Issues in Electronic
Contracting
E-Commerce: Legal and Practical Issues
Stephen M. Foxman
Philadelphia
PBI - December 2, 2005
Applicable Contract Law

UCC - Sale of Goods
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
2-204 - Formation in General - covers electronic
contracts
e-mail contracts; statute of frauds issues
trading agreements - EDI
Uniform Electronic Transactions Act


effective in PA January 15, 2000
adopted in 47 states and D.C. by May 2005
E-Sign, UCITA and State Laws

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
Federal E-Sign Law

preempts state law unless official UETA (or
consistent law) adopted

unique versions of UETA may be preempted
Uniform Computer Information Transactions Act
(UCITA)

adopted in only VA and MD

resisted based on perceived consumer issues
State general contract law
UETA Validates Electronic Contracts,
Signatures and Records

Contrast with UCITA - UCITA limited to
agreements that create, modify, transfer, or
license computer information

covers software licensing and online distribution of
information

overlaps with UETA and covers contract formation
and other issues dealt with by UCC for sale of goods
UETA Applies in PA

Applies to electronic record or signature created,
generated, sent, communicated, received or
stored after effective date (1/15/2000)

Virtually Identical to NCCUSL UETA

PA version places burden on party disputing nonconsumer transaction to prove invalidity if parties
agreed on security procedure or specific protocol in
advance (Chapter 7)

PA version contains requirement of consumer consent
to electronic contracting in certain cases (Chapter 9)
UETA Definitions

Electronic record: created, generated, sent,
communicated, received or stored by electronic
means

Electronic signature: 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


includes mouse click on “I Agree”, voice mail
Electronic: all electronic technology including
mobile phone, fax, etc.
UETA Definitions

Security Procedure: procedure to verify that
electronic signature, record or performance is that
of a specific person or for detecting changes or
errors; includes codes, identifying words or
numbers, encryption, callback or other
acknowledgement
Scope of UETA -
Sec. 104

Does not cover wills, codicils and testamentary
trusts

Does not cover UCC transactions, except for


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
1-107 (waiver or renunciation of claim or right after
breach)
1-206 (statute of frauds for personal property not
otherwise covered)
Article 2 (sales); Article 2A (leases)
Transactions covered by Act are also subject to
other applicable substantive law
Effect of UETA

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Electronic transactions treated the same as if in
written form - record or signature may not be
denied legal effect because of electronic form (303)
If a law requires a writing, an electronic record or
signature satisfies the law - (303)
Non-waivable right to refuse to conduct business
by electronic means - (301)
E-mail agreement of sale for sale of Liberty
Place?; problem of unread consumer adhesion
contracts
Application

Applies only to transactions between parties,
who have agreed to conduct transactions by
electronic means (301); may be implied by
conduct

Electronic record is not enforceable against
recipient if sender inhibits ability of recipient to
print or store record (304)
Requirement to Send Written Information

Requirement is satisfied if sent as electronic
record capable of being retained by the recipient
at time of receipt (304)

Does not alter effect of other laws requiring
particular method of posting, sending or
formatting records (e.g., posting of eviction
notice on property) (304)
Attribution -
Sec. 305

Record attributable to a person if act of that
person - may be shown in any manner, including
by efficacy of security procedure

Effect of electronic record or signature
determined by context and circumstances

Party alleging other party generated record or
signed has burden of showing record or
signature was act of other party or agent, BUT...
Attribution -
Ch. 7

If parties adopt security procedure and it is
relied upon, burden shifts to disputing party to
show unauthorized use or procedure misused
despite authorization (701)

Ch. 7 not applicable to consumer transactions
Errors in Transmission - Sec. 306 & Ch. 7

Automated transaction (electronic agents)


may be avoided by prompt action and return of
consideration if no opportunity to prevent error
Not automated

if no agreed security procedure, parties’ contract or
other law, including law of mistake, controls

if agreed security procedure, “treated as not having
been altered” (702), unless parties did not conform
to procedure (306)
Notarization and Acknowledgements

Electronic signature of person authorized to
notarize or acknowledge will be effective 30
days after adjustment of PA Notary Public Law

so far, law not changed
Authentication and Digital Signatures

Authentication of user: What you know
(password); What you have with you (smart
card); What you are (biometrics)

Digital signatures: signed with encrypted private
key and decoded with public key; hash function to
protect against alteration before receipt

Use of encryption to protect transmissions and
stored confidential information

Single sign on - Passport and Liberty Alliance
Retention of Records - Sec. 308

If law requires record, electronic records OK if
accurate and accessible; may be done by service
provider

Records of checks must contain information on
front and back of check

Electronic records are admissible in evidence

Effect - written records may be discarded

Governmental agencies may specify additional
requirements
Sending and Receipt - Sec. 311

Sent - addressed as designated by recipient, is capable of
being processed and has entered system outside sender’s
control

Received - enters recipient’s system and is capable of
being processed; no requirement for individual to be
aware of receipt

Place of Contract Formation - deemed sent from
sender place of business, and received at recipient place
of business (or residence) - not system location

Knowledge - if person aware of failure, legal effect
determined by other applicable law - non-waivable
Transferable Records - Sec. 312

Covers electronic negotiable notes (other than
checks), warehouse receipts, bills of lading,
documents of title under UCC

Transferable record must be single authoritative
unique copy, identifiable and unalterable; person
controlling is “holder”

Delivery, possession and endorsement not
required
Government Transactions - Ch. 5

Use of electronic records and signatures left in
discretion of each agency

Effect - each governmental entity given option
to determine extent to which it will use ecommerce

Executive agencies of PA must comply with
Governor’s Office of Admin standards

Commonwealth Procurement Code authorizes
electronic submission of bids and proposals
Consumer Transactions - Ch. 9
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Consumer = “primarily for personal, family or
household purposes”
For non-electronic consumer agreements, Ch. 9
requires consumer must separately agree to use of
electronic means, manner of use, and must specify
parts of transaction to be conducted electronically;
cannot be waived or inferred
If party has actual knowledge that record not sent
or received - then no legal effect (e.g., e-mail
notice bounces back)
Effect of Federal E-Sign Law

Electronic Signatures in Global and National Commerce
Act - signed 6/30/00

Similar to UETA in validating legal effect of electronic signature or
record, but is less comprehensive than UETA

Preempts inconsistent state law, but does not preempt in states
that have adopted official text of 1999 UETA, or have adopted
another statute, or any regulation, that is
 consistent with E-Sign Titles I and II
 does not favor a specific technology
 if enacted after E-Sign, makes specific reference to E-Sign

National businesses should comply with both laws - assume ESign controls
Exclusions from E-Sign Law
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E-Sign does not apply to
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wholly intrastate contracts
wills, codicils or testamentary trusts, or contracts
regarding adoption, divorce or family law
UCC other than 1-107, 1-206, Articles 2 and 2A
documents relating to foreclosure, eviction, and
repossession of primary residence
notices regarding termination of health insurance or life
insurance
notices of product recalls, health or safety risks
Shrink Wrap Contracts

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ProCD Inc. v. Zeidenberg -- knowledge of terms after

M.A. Mortenson v. Timberline -- customer did not install;

Hill v. Gateway; Brower v. Gateway -- knowledge of
purchase but before use OK, where right of return;
notice of unspecified additional terms before purchase
knowledge of terms imputed from past use of earlier
versions of software sufficient to provide notice
terms after opening box, but with 30 day right of return,
OK; contra - Klocek v,. Gateway -- contract formed at
time of order, not receipt of box and terms
Contract as consent v. contract as product

Viral contract -- terms run with product
Click Wrap Contracts

Forrest v. Verizon

Comb v. PayPal
(D.C. App. Ct. 2002) -- Virginia forum
selection clause in Verizon click-wrap DSL service agreement
enforced; plaintiff being forced to litigate in VA (as D.C. resident),
and loss of right to file class action under VA law did not make
clause unreasonable
(N.D. Cal. 2002) -- PayPal arbitration clause and
forum selection clause in click-wrap agreement found substantively
unconscionable under CA law because (1) could be amended
without notice; (2) forced arbitration under costly AAA rules; (3)
national users forced to arbitrate in CA; (4) PayPal could hold
customer funds until dispute resolved; and (5) requires users to
forego class action relief. Taken together, this allowed PayPal "to
insulate itself contractually from any meaningful challenge to its
alleged practices"
Browse Wrap Contracts

Implied contract or conditional gift analysis
 Register.com
v. Verio (2000) -- posted terms
specified that use of database indicated assent to
terms prohibiting copying and distribution; Verio
used software robot to extract information - held
that robot query coupled with knowledge of terms
bound Verio to terms (note: no “I Agree” button)
 Specht
v. Netscape (aff’d 2002) -- posted
downloadable software license terms held not to
apply because link to terms not conspicuous, no “I
Agree” button; “please review and agree” language
at click for download just invitation and not
precondition to use
Practice Pointers - See list in materials

Terms in plain English, copyable and printable; record of
dates and changes in terms

Clear reference to terms on product, in advertising, and at
download

Use “I Agree” / “I Do Not Agree” click online and upon
use; separate assent or highlight unusual terms; no access
until user has accepted terms; keep record (user acct log)

Assent to electronic contract; opportunity to correct errors
for online orders; clear privacy policy (relate to offline)

Provide for return and refund where purchase made before
terms can be reviewed and accepted
Web Site Posted Terms of Use

See Ticketmaster v. Tickets.com -- prohibition in posted
terms against deep linking not enforced

Clear reference to terms and access from all pages

Use “I Agree” / “I Do Not Agree” click where significant
liability exposure or valuable material involved

No liability for: implied warranties of merchantability or
fitness for particular purpose; consequential damages;
interruption or inaccessibility; material provided by others
or through linked sites

Establish rules on postings - chat rooms, forums and
bulletin boards
Global Contracting Issues
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Advice from local counsel; make sure choice of law,
jurisdiction and venue selection clauses are enforceable
Disclaim Convention on International Sales of Goods (BtoB
only)
Dispute resolution issues; arbitration generally is best
Laws differ - e.g., French language requirements in
Quebec; termination rights, consumer rights, etc.
Currency and foreign exchange issues on pricing; tax
collection and assessment issues

Export restrictions
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Privacy rules - e.g., EU Directive on Data Protection
Virtual Goods
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Consumer given right to use digital resource, such as
music, video game resources, graphic or animation, e-book
Format issues; enabling software or hardware (device
specific); tie-in to goods in real world
Control access to resource (e.g., PIN no.) and restriction
on copying or distribution or use on multiple devices
(Digital Rights Management - DRM)
License restrictions on use; detection of wrongful use
Ability to obtain and use customer info for marketing
Special problems with warranties, right to return “goods”,
validation of “delivery” and “receipt”, taxation categories