Chapter 17: E-commerce and Digital Contracts PDF

Chapter 17 The internet delivers a large amount of digital content, including the streaming of movies and music. Social media sites are used by countless millions to communicate with each other. Electronic commerce, or e-commerce, using the internet, accounts for approximately 15 percent of the sal...

Chapter 17 The internet delivers a large amount of digital content, including the streaming of movies and music. Social media sites are used by countless millions to communicate with each other. Electronic commerce, or e-commerce, using the internet, accounts for approximately 15 percent of the sale, lease, or licensing of goods and services. Federal and state laws that existed before the advent of the information age have been applied to new digital technologies. In addition, federal and state governments have enacted new laws that apply directly to information technology. This chapter covers many of these laws and their application, including laws relating to e-commerce, e-contracts, licensing of software, the internet, social media, and other digital technology. Electronic mail, or email, and text messaging, or texting, are two of the most widely used methods of communication. Using email and text messages, individuals around the world can communicate instantaneously with one another. In many instances, email and texting are replacing telephone and paper communication between individuals and businesses. Many contracts are now completed by via email. These are referred to as electronic mail contracts, or email contracts. Contracts formed using text messaging are referred to as text contracts. Email and text contracts are enforceable so long as they meet the requirements necessary to form a traditional contract, including agreement, consideration, capacity, and lawful object. Traditional challenges to the enforcement of a contract, such as fraud, duress, intoxication, or insanity, may be asserted against the enforcement of email contracts. Email and text contracts usually meet the requirements of the Statute of Frauds, which requires certain contracts to be in writing, including contracts for the sale of real estate, contracts for the sale of goods that cost $500 or more, and other contracts listed in the relevant Statute of Frauds. The use of email and text communication is often somewhat informal. In addition, an email or text contract may not have the comprehensive formality of a paper contract that includes the final terms and conditions of the parties’ agreement. The terms of the parties’ agreement may have to be gleaned from seve Electronic contracts, also called e-contracts, have increased as a means of conducting personal and commercial business. Internet sellers, lessors, and licensors use websites to sell and lease goods and services and to license software and other intellectual property. Websites such as www.amazon.com, www.microsoft.com, and www.ebay.com use the internet extensively to sell, lease, or license goods, services, and intellectual property. Assuming the elements to establish a traditional contract are present, web contracts are valid and enforceable.In today’s e-commerce, many internet sellers have websites that use electronic agents to sell goods and services. An electronic agent is any computer system that has been established by a seller to accept orders. Web page order systems are examples of electronic agents. In the past, when humans dealt with each other face-to-face, by telephone, or in writing, their negotiations might have consisted of an exchange of several offers and counteroffers until agreed-on terms were reached and a contract was formed. Each new counteroffer extinguished the previous offer and became a new viable offer. Most web pages use electronic ordering systems that do not have the ability to evaluate and accept counteroffers or to make counteroffers. Thus, counteroffers are not effective against these electronic agents. In 2000, the federal government enacted the Electronic Signatures in Global and National Commerce Act (E-SIGN Act)1to apply to digital contracting. This federal statute is designed to place the world of electronic commerce on a par with the world of paper contracts in the United States. E-SIGN Act and Writing Requirement One of the main features of the E-SIGN Act is that it recognizes electronic contracts as meeting the writing requirement of the Statutes of Frauds—state laws that require certain types of contracts to be in writing—for most contracts. The E-SIGN Act provides that electronically signed contracts cannot be denied effect because they are in electronic form or media, or are delivered electronically. The act also provides that record retention requirements are satisfied if the records are stored electronically. The federal law was passed with several provisions to protect consumers. First, consumers must consent to receiving electronic records and contracts. Second, to receive electronic records, consumers must be able to demonstrate that they have access to the electronic records. Third, businesses must tell consumers that they have the right to receive hard copy documents of their transaction. E-Signatures Traditionally, a person entered into a contract by hand-writing a signature on a paper document. In the electronic age, the equivalent may be to answer a security question such as “What is your mother’s maiden name?”, to slide your smart card over a sensor, or to look into an iris scanner. But are electronic signatures sufficient to form an enforceable contract? The E-SIGN Act made the answer clear by recognizing electronic signatures, or e-signatures. The act gives an e-signature the same force and effect as a handwritten, pen-inscribed signature on paper. The act is technology neutral, however, in that it does not define or decide which technologies should be used to create a legally binding signature in cyberspace. Loosely defined, a digital “signature” is some electronic method that identifies an individual. The challenge is to make sure that someone who uses a digital signature is the person he or she claims to be. The act provides that a digital signature can be verified in one of three ways: 1. By something the signatory knows, such as a secret password or pet’s name 2. By something a person has, such as a smart card, which looks like a credit card and stores personal information 3. By biometrics, which uses a device that digitally recognizes fingerprints or the retina or iris of the eye The verification of electronic signatures has created a need for the use of scanners and other secure methods for verifying personal information. E-Licensing of Software and Information Rights 1. 17.4 Describe electronic licensing of software and information rights. Much of the cyber-economy is based on electronic contracts and the licensing of computer software and information. E-commerce created problems for forming contracts over the internet, enforcing e-commerce contracts, and providing consumer protection. License Intellectual property and information rights are extremely important assets of many individuals and companies. Patents, trademarks, copyrights, trade secrets, data, software programs, and the like constitute valuable intellectual property and information rights. The owners of intellectual property and information rights often wish to transfer limited rights in the property or information to parties for specified purposes and limited duration. The agreement that is used to transfer such limited rights is called a license, which is defined as follows: License means a contract that authorizes access to, or use, distribution, performance, modification, or reproduction of, information or information rights, but expressly limits the access or uses authorized or expressly grants fewer than all rights in the information, whether or not the transferee has title to a licensed copy. The term includes an access contract, a lease of a computer program, and a consignment of a copy (UCITA Section 102(a)(40)). The parties to a license are the licensor and the licensee. The licensor is the party who owns the intellect A license grants the contractual rights expressly described in the license and the right to use information rights within the licensor’s control that are necessary to perform the expressly described rights. A license can grant the licensee the exclusive rights to use the information. An exclusive license means that for the specified duration of the license, the licensor will not grant to any other person rights to the same information. E-License Most software programs and digital applications are licensed electronically by the owner of the program or application to a user of a computer or digital device. An electronic license, or e-license, is a contract whereby the owner of software or a digital application grants limited rights to the owner of a computer or digital device to use the software or digital application for a limited period and under specified conditions. The owner of the program or application is the electronic licensor, or e-licensor, and the owner of the computer or digital device to whom the license is granted is the electronic licensee, or e-licensee. Licensing Agreement A licensor and a licensee usually enter into a written licensing agreement that expressly states the terms of their agreement. Licensing agreements tend to be very detailed and comprehensive contracts. This is primarily because of the nature of the subject matter and the limited uses granted in the intellectual property or information rights. The parties to a contract for the licensing of information owe a duty to perform the obligations stated in the contract. If a party fails to perform as required, there is a breach of the contract. Breach of contract by one party to a licensing agreement gives the nonbreaching party certain rights, including the right to recover damages or other remedies. Unfair Business Practices in the Information Age 1. 17.5 List and describe laws that regulate unfair information technology practices. Consumers have always had to contend with unfair business practices. But digital technologies make it even easier for unscrupulous businesses and individuals to take advantages of consumers. State and federal governments have enacted laws that address these dangers. Several federal laws that address unfair business practices are discussed in the following paragraphs. Telephone Consumer Protection Act (TCPA) Telemarketers harass consumers with annoying and unwanted telephone calls and texts. Scammers often try to sell people goods or services, to convince them to invest in illegal scams, or to entice them to give up personal information that will be used to rob them of their money or property. In 1991, the Telephone Consumer Protection Act (TCPA),2 a federal statute, was enacted to curb abusive telemarketing calls, texts, and faxes. The Federal Communications Commission (FCC), an administrative agency, is empowered to enforce the TCPA and to adopt rules and regulations to implement the law. TCPA and FCC regulations prohibit unsolicited telephone calls and text messages; the use of autodialed, prerecorded, or artificial voice calls (commonly known as robocalls) to wireless telephone numbers; and the use of prerecorded or artificial voice calls to residential telephone numbers unless the caller has received the prior expressed consent of the ca Do-Not-Call Registry In 2003, to facilitate the enforcement of the TCPA, Congress enacted the Do-Not-Call Implementation Act.4 Pursuant to the act, the Federal Trade Commission (FTC), a government agency, created and administers a National Do-Not-Call Registry. Consumers can place their telephone numbers on the registry and free themselves from most unsolicited telemarketing and commercial telephone calls and texts. Both wireless phones and land lines can be registered. The registry applies only to residential phones and not to business phones. When a person registers a phone, it is recorded in the Do-Not-Call Registry the next day. Telemarketers and other businesses then have 31 days to remove the customer’s phone number from their sales call list and cease calling and texting the number. Registration of a telephone number on the Do-Not-Call Registry is permanent. The Do-Not-Call Registry also allows consumers to designate specific companies to not call or text them. The act does not limit calls by non-profit organizations, political organizations, and parties conducting surveys. However, the act does apply to telemarketers calling on behalf of these organizations. Creditors and collection agencies are exempt and may call or text parties listed on the registry unless those parties notify the creditor or agency to quit calling or texting them. The FTC can bring enforcement action against violators and recover civil fines, individuals may sue violators and recover damages, and Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act) Americans are often sent email spam—unsolicited commercial advertising. Many email spam messages are fraudulent and deceptive, and include misleading subject lines. In 2003, Congress enacted the federal Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act).5 The act (1) prohibits spammers from using falsified headers in email messages, including the originating domain name and email address; (2) prohibits deceptive subject lines that mislead a recipient about the contents or subject matter of the message; and (3) requires that recipients of spam be given the opportunity to opt out and not have the spammer send email to the recipient’s address. The act requires spammers who send sexually oriented email to label it properly as such. The FTC is empowered to enforce the CAN-SPAM Act. In effect, the CAN-SPAM Act does not necessarily end spam, but instead approves of the business use of spam so long as businesses do not lie. The act provides a civil right of action to internet service providers that suffer losses because of spam. However, the act does not provide a civil right of action to individuals who have received unsolicited spam. Individual users who receive spam can forward it to the FTC, which has authority to sue the offender and obtain damages. The CAN-SPAM Act does not regulate spam sent to Americans from other countries. Internet service providers (ISPs) are companies that provide consumers and businesses with access to the internet. ISPs provide email accounts, internet access, and storage on the internet to subscribers. ISPs offer a variety of access devices and services to connect users to the internet. There are also web-hosting services that allow users to create their own websites and provide storage space for website users. Domain Names 1. 17.6 Define domain name and describe how domain names are registered and protected. Most businesses conduct e-commerce by using websites on the internet. Each website is identified by a unique Internet domain name. The Internet Corporation for Assigned Names and Numbers (ICANN) is a private nonprofit organization that oversees the registration and regulation of domain names. ICANN provides for the registration of top-level domain (TLD) extensions. The stated purpose of having a great number of domain name extensions is to enhance competition and increase the choice of domain name space. There are more than 350 million domain names registered worldwide. The most widely used top-level domain extension is.com, with approximately 145 million domain names. Registration of Domain Names Domain names can be registered. The first step in registering a domain name is to determine whether any other party already owns the name. For this purpose, InterNIC maintains a database that contains the domain names that have been registered. The InterNIC website can be accessed at www.internic.net. Domain names can be registered with a variety of internet companies. An applicant must complete a registration form and pay a fee, both of which can be done online. Domain names may be registered for longer periods of time. Country-specific domain names are usually more expensive to register. Often, the companies that register domain names will do so for free if a party agrees to have that company provide hosting services for the registrant’s website.Domain Name Extensions A top-level domain (TLD) is a domain extension at the highest level in the hierarchical domain name system of the internet. It refers to the last part of a domain name, such as.com. The seven original TLDs were.com,.org,.net,.int,.edu,.gov, and.mil. Many additional TLDs have been added over the years. Some domain names are restricted to registrants who demonstrate eligibility to use the domain. Examples include.name,.pro,.coop,.gov, and others. Generic top-level domains (gTLD) are domains that are not restricted to any geographic or country designation. Specific Domain Names Some domains identify types of business, service, profession, or activity. These include.accountants,.actor,.attorney,.auction,.bar,.blog,.boutique,.camera,.career,.church,.club,.contractor,.credit,.dating,.dentist,.email,.engineer,.expert,.finance,.food,.gift,.homes,.kitchen,.loans,.mortgage,.music,.pharmacy,.pizza,.repair,.restaurant,.services,.shop,.tech,.toys,.vacation,.website, and.yoga. Companies can have their own company domains. These include such trademarked names such as.google,.mcdonalds,.cocacola,.microsoft, and.nike. Any business, service, or professional organization may use their name as a domain extension. In addition, companies can obtain domains for specific products, such as.iphone or.prius. Such domains will help companies with the branding of their company names and products. Cities and other government agencies can register domains, such as.nyc (New York City),.paris (Paris, France), and.quebec (Quebec Province, Canada). Persons sharing a cultural or community identity can have their own domain, such as.lat for Latin American communities;.scot for Scottish people;.saulttribe for the Sault Ste. Marie Tribe of Chippewa Indians;.kurd for Kurds living in any country; and.ven for the Venetian community in Italy. TLDs can be registered in languages other than English, including Arabic, Chinese, French, Russian, and Spanish. Country Domain Names Countries, territories, and sovereign states have top-level domains that are reserved to them. These domains are called country code top-level domains (ccTLD). The country code domain for the United States is.us. It is open to registrations by citizens, residents, and businesses with a presence in the United States. Many countries make their domain name available for private purchase for commercial use. Anticybersquatting Consumer Protection Act Sometimes a party registers a domain name of another party’s trademarked name or a famous person’s name, an act called cybersquatting. Often the domain name owner has registered the domain name with the hope of obtaining payment for the name from the trademark holder or the famous person whose name has been registered as a domain name. Trademark law is of little help in this area because trademark laws require distribution of goods or services to find infringement. Most cybersquatters do not distribute goods or services but merely sit on the internet domain names. In 1999, the U.S. Congress enacted the Anticybersquatting Consumer Protection Act (ACPA).7 The act was specifically aimed at cybersquatters who register internet domain names of famous companies and people and hold them hostage by demanding ransom payments from the famous company or person. The act has two fundamental requirements: (1) the name must be famous, and (2) the domain name must have been registered in bad faith. Thus, the law prohibits the act of cybersquatting itself if it is done in bad faith. The first issue in applying the statute is whether the domain name is someone else’s famous name. Trademarked names qualify; nontrademarked names—such as those of famous actors, singers, sports stars, and politicians—are also protected. The second issue is whether the domain name was registered in bad faith. In determining bad faith, a court may consider the extent to whi