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

Integrating Electronic Contracts
into Negotiated Deals
Courtney Stopp
May 29, 2007
University of Connecticut
School of Law
Integrating Electronic Contracts
into Negotiated Deals
Introduction
Internet Business
Legal Regimes
Putting it into Practice
Conclusion
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
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
What is eBusiness?
Internal Value Chain
“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
External Value Chain
previously unattainable
height of operational
excellence.”
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 2001.
Source: www.themanager.org
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
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
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
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
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”)
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
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 (“ESign”)
– 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 emails
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
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:
Source: “ Legal Study and Administrative
Practices Regarding the Validity and Mutual
Recognition of Electronic Documents”
– Many similarities between the Member States
treatment of electronic contracts
http://ec.europa.eu/enterprise/ict/policy/legal/in
dex.htm
• 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
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
What is an Electronic Contract?
Any electronic file, communication, email 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
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.
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
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