Recognition of electronic contract and its various types

Emails are a type of electronic contract which attracts the essentials of the traditional contract. Server is the post office, letter box is the inbox of addressee, draft is post box. Offer can be made through email and amount is paid through electronic media. Electronic agents play a very important role in making of electronic contract where the electronic agents identify the buyer, identify the asset of buyer. It defines relationship between cyber law and artificial intelligence. Agents specify product, price of product and completed transaction of various activities. Uniform Computer Information Transaction Act and Federal Law on E-sign accepted this agent. The various types of Electronic Contract are:

1. Employment Contract: When any software company enter into an agreement with other client or customer there is some trade secret and prohibit the employee to indulge into competing business employment contract is made. Employment Contract is of 4 types:

  1. Consulted Agreement: To ensure that all IP created during the periods of consultancy belongs to the company. During contract for service between employer and employee a consulted agreement is required to protect IP.
  2. Contracted Agreement: Required for confidentiality. Agreement has contained some specific clauses dealing with the protection of confidential information of a company which the contractor may gain access during the course of employment.
  3. Distributor and Re-seller Agreement: Should not be anti-competitive. Reasonable care has to be taken to enforce the IPR of a company specially to maintain the trade secret of the company. 
  4. Non-disclosure Agreement: Generally the client insist that the employees of a company who works for that particular work in a specific project must execute a non-disclosing agreement regarding the same. It has to be signed by employee when he enters into project.

2. Shrink Wrap Contract: It is the prior license agreement enforced upon the buyer when he buys the pack. Before he/she tears the pack to use he/she is made aware that by tearingthey are bound by the license made by the manufacturers. The usual clauses that are part of the shrink wrap are prohibiting unauthorized creation of copies, rentals of software, prohibition of reverse engineering (decompilation/modification) prohibition usage in more than one computer specified for the purpose. The disclosure of warranties in respect of products sold.

3. Source Code Escrow: It is software programming which has copyright. If we want to sell it we have to take the help of third party i.e. Escrow who acts an agents.

CLICK WRAP METHOD AND ITS IMPORTANCE IN ELECTRONIC CONTRACT

Click-wrap agreements are those whereby a party after going through the terms and conditions provided in the website or program has to typically indicate his assent to the same, by way of clicking on an "I Agree" icon or decline the same by clicking "I Disagree".

These types of contracts are extensively used on the Internet, whether it be granting of a permission to access a site or downloading of software or selling something by way of a website. The question of the validity of Click-wrap agreements came for consideration for the first time in 1998 in the famous case of Hotmail Corporation v. Van $ Money Pie Inc, et al ,[1]where the court for northern district of California indirectly upheld the validity of such licenses where it said "that the defendant is bound by the terms of the license as he clicked on the box containing "I agree" thereby indicating his assent to be bound"[2].

This decision was followed and upheld in a catena of judgments like Groff v. America Online, Inc,[3] Steven J. Caspi, et al v. the Microsoft Network LLC, et al[4] and I lan Systems, Inc v. Netscout services Level corp[5]. Legislators have recognized the validity of mass market licenses like Click-wrap and Shrink-wrap whose proof is the proposed Article 2B of the UCC[6] which is now replaced by NCCUSL[7] with the UCITA[8] which was passed by the majority of the states of America on the 29 th of July 1999. Sec 209 of the UCITA states that the terms and conditions of the mass-market licenses can only be effectively adopted if the other party agrees to the license by manifesting his or her assent before or during the party’s initial performance or use and access of the information.

Sec 112 of the same deals with how assent can be manifested, it clearly lays down that a person can manifest assent to a record or a term by his conduct if he intentionally engages in such conduct with reasons to know that such behavior will be construed by the other party or his electronic agent to be a form of assent. But all this will only hold good if the terms and condition are within the knowledge of the party assenting and that he has the chance to review the same.

Thus in a Click-wrap license if a person reads the terms and clicks "I agree" he assents to the same by way of Sec 209&112. In the Illus 1 attached to Sec 112 the example of the NY online registration is given whereby a party can either chose to accept the terms by clicking the "I agree" button or decline the same by resorting to "I decline". It is made clear that whoever clicks "I Agree" assents to the license and adopts its terms.[9] Apart from the UCITA even UNICITRAL[10] Model law on Electronic Commerce (1996) in Sec 11 gives statutory recognition of Click-wrap licenses where it says that an offer and acceptance can be validly expressed by data messages which include information generated, sent, received or stored by electronic, optical or similar means including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy.[11]

Mention may be also made of India’s Information Technology Act 2000 whereby by way of Sec 11 the legislators accept offer by way of data message either by himself or by any electronic system programmed for that specific purpose. (Which would include offer in case of Click-wrap) but is silent as regards mode of assent or acceptance of the same. Hence we can say that under Click Wrap Method consumers click on the “accept” button and purchase any good or go into the offer. This term is derived from the fact that in the online context the acceptance occurs when the consumer assents to the terms and conditions by clicking on “I agree” button.

Through this method prior to supply of its goods and services, the online vendor usually display its terms and conditions and in order to proceed with the transaction the consumer/ subscriber must assent to be bound by those terms and conditions and by express conduct of clicking the “accept” icon. From vendor’s point of view a major advantage is visitors is denied to assess the material contained in any website and to any downloadable product/service until consumer express his/her assent through clicking the “accept” button or assent to the terms and conditions. Acceptance is when it is communicated to the offeror. Mail box rule is the exception to the general rules that when the acceptance is communicated through putting the letter in the box. Jurists said mail box rule can be accepted in electronic contract with modification.

In case of postal rule after dispatching letter acceptance is made Specht v. Netscape[12], involved the alleged click wrap agreement for Netscape's SmartDownload software, which improves the process of downloading files from the Internet by allowing users to resume interrupted downloads from the point of interruption, eliminating the need to start downloading the file again from the beginning.

Netscape made SmartDownload available for download on its Web site at no charge. Although the download page referred to the SmartDownload license agreement, the reference appeared far from the button labelled "Download," below the fold, that is, where the reference to the agreement would not be seen until or unless the user scrolled down. Even then, the notice read, "Please review and agree to the terms of the Netscape SmartDownload software license agreement before downloading and using the software." This language was, in the court's words, a "mere invitation," that is, there was no requirement or obligation that users agree to, or even review the license before downloading and using the software. When a group of users sued Netscape for allegedly using SmartDownload to collect private information about their Internet activity without their knowledge, Netscape tried to have the proceedings dismissed on the grounds that the SmartDownload license agreement required that all disputes had to be submitted to binding arbitration.

However, by failing to require that the users agree to the license before downloading and using SmartDownload, there was no basis for finding that the users had agreed to arbitrate their claims. In fact, by proceeding as it had, Netscape had distributed SmartDownload essentially as a giveaway, without any agreement with the users who downloaded it.[13]

Corinthian Pharmaceutical System Inc v. Lederle Laboratories[14]serve as a guide that when an acknowledgement of receipt comes it cannot be receipt of order. Court held that it is a mere acknowledgement rather than acceptance that would form a binding contract. Same rules apply in E-Commerce as well. So, this would mean that a computer generated message acknowledging receipt of an electronic order might not be sufficient to create an acceptance to bind a contract. For example: In case of computer order entry system we can place an order through computer or mobile and the system automatically generates a tracking number. When seller refuse to fulfill buyer’s order the buyer can sue. Then the court held that in that case it is only acknowledgement of receipt and order tracking number is for merely administrative convenience and not a clear acceptance.

In Entors v Miles Far East Corporation[15]and Brinkibon v Stahog Stahl[16]court held that with modern form of instantaneous communication the rationale behind mail box rule does not apply. Acceptance is effective only when it is received, in this method. Postal rule says that if offer contemplates acceptance by post, the acceptance is effected once it is posted rather than it is received. So, postal rule was overruled for online contract. Jurists said mail box rule should apply with modifications so that where acceptance is communicated by email or via third party.

Williams v. America Online, Inc.[17]shows that the rules for contract formation can help to address abuses of the inequality in bargaining position that shrinkwrap and clickwrap agreements involve. Williams involved claims brought against AOL brought in Massachusetts state court by a group of users whose computer systems were changed by AOL's installation software, resulting in their inability to access the Internet, send or receive e-mail, or access certain files except by using AOL. AOL attempted to have the case dismissed, on the grounds AOL's clickwrap agreement contained a forum selection clause that required that "any claim or dispute with AOL" had to be litigated in Virginia. However, the evidence showed that: (a) AOL's software altered the users' systems before they had a chance to review the clickwrap agreement; and (b) the alterations would proceed even when users rejected the agreement. Given that the user's systems were changed before the agreement could be reviewed, users had no notice of the forum selection clause, and no opportunity to accept or reject it. The court ruled that under these circumstances, AOL could not invoke the forum selection clause to require the users to proceed in Virginia.[18]

CONCLUSION

Section 4 of the Information Technology Act states that if any information or matter is rendered or made available in an electronic form and accessible subsequently shall be deemed to have satisfied requirement of law which says any information or matter shall be in writing or type-written form. Section 11 says that one may have to prove beyond reasonable doubt that electronic record has been attributed to the originator. Section 12 says that where  addressee has a choice to contact the originator by any means then he should do so in order to accept the offer else the originator will have to understand whether the offer has been accepted by the addressee or not through his conduct. The essential security aspect that are to be maintained are:

  1. Identifying person to whom we communicate
  2. Message integrity: Cannot be altered
  3. Effective audit
  4. Privacy

Section 14 and Section 15 advocates the application of any security measure procedures to make the electronic record secure. Section 7 states the condition to secure the electronic record and brings enormous responsibility on Government and its agency to be careful in fulfilling conditions laid down for retention of electronic record. This section has to be understood along with amendments made in Section 175, 192 of Indian Penal Code and Sections 3, 34, 39, 65A, 65B of Indian Evidence Act. Such protection in done in order to maintain the objectives of E-commerce which are as follows:

  1. To create a secure atmosphere of transacting online with the alternate mode of paper & writing.
  2. To create an electronic documents system to safeguard contracting parties at par with the traditional method.
  3. To create statutory status and monitoring verifying authorities for such electronic transaction.
  4. To check frauds, intentional/unintentional transactions to promote and build confidence in genuine online transaction.
  5. To create necessary legal structure to oversee transaction.
  6. To establish standard rules and regulations for smooth functioning of online transaction.
  7. To make digital signature legally valid and incorporate same with existing regime of contract, sales of goods, consumer law, etc.

The security procedures followed are as follows:

  1. Nature of transaction
  2. Level of sophistication of parties
  3. 3. Volume of similar transaction
  4. Cost of transaction
  • [1]C98-20064 (N.D. Ca, April 20, 1998)
  • [2] 47 U.S.P.Q. 2D (BNA) 1020, 1025(N.D.Cal 1998)
  • [3]File No C.A. No PC 97-0031 1998 WL 307001 (R.I.Superior Ct 1998)
  • [4]323 N.J.super 118 (N.J. App., 1999)
  • [5]Civ Act No.00-11489-WGY(D.Mass. Jan 2 2002)
  • [6]Universal Commercial Code
  • [7]National Conference of Commissioners on Uniform State Laws
  • [8]Uniform Computer Information Transaction Act.
  • [9]http://www.legalserviceindia.com/articles/econtracts.htm
  • [10]United Nations Commission On International Trade
  • [11]Sec 2 (a) http://www.uncitral.org
  • [12]2001 WL 755396 (S.D.N.Y. July 5, 2001)
  • [13]http://www.symantec.com/connect/articles/security-concerns-licensing-agreements-part-one-clickwrap-and-shrinkwrap-agreements
  • [14]724 F. Supp. 605
  • [15][1955] 2 QB 327
  • [16][1983] 2 AC 34
  • [17]2001 WL 1356825 (Mass.Sup.Ct. February 8, 2001)
  • [18] Supra 20

 

Abhishek Das 
on 10 October 2019
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