E- CONTRACTS & RELATED LEGAL ASPECTS

Presented by:Pooja PrasadMuthu Kumar

TuhinVishal Mahato

Essentials of General Contract

• Intention to enter into legal relation• Proposal• Acceptance• Communication• Consideration• Competency of Parties• Remedies for breach of contract

E-Contract

• E – Contracts are also called as Cyber Contracts, Online Contracts

• E – Contract : Contract entered through the medium of internet and software– Like constructs World Wide Web– Exchange of e-mail stating offers– Acceptance of terms and condition of a particular

transaction.– Software installation– Any E-Business

E-Contracts (contd…)

• E-contracts are conceptually very similar to traditional (paper based) commercial contracts.

• Vendors present their products, prices and terms to prospective buyers.

• Buyers consider their options, negotiate prices and terms (where possible), place orders and make payments.

• Then, the vendors deliver the purchased products. • Nevertheless, because of the ways in which it differs

from traditional commerce, electronic commerce raises some new and interesting technical and legal challenges.

Online Offers Should Include

• Remedies for buyers• Statute of limitation• What constitutes Buyer’s acceptance.• Method of payment• Seller’s refund and return policies• Disclaimers of liabilities• How seller will use buyer’s information

(Privacy)

Indian Penal code

• Information Technology Act, 2000• Indian Evidence Act, 1872• The Bankers Book Evidence Act, 1891• Reserve Bank of India Act, 1943

TYPES of E – Contracts

Two Types:

1) Web-wrap agreementsBy way of clicking the “I agree” or “I accept” button e.g

E-bay user agreement, Citibank terms and conditions, etc.

2) Shrink-wrap agreements

Which are accepted by a user when a software is installed from a CD-ROM e.g. Nokia pc-suite software.

Dispute Settlement Provisions

• Choice of law• Choice of Forum• E-bay uses online dispute resolution

Offers, Acceptance and Consisderation

• Offers:– Advertisement on website may or may not constitute an offer

• Acceptance– Unequivocal unconditional communication of acceptance is

required to be made in terms of the offer, to create a valid e-contract.

• CONSIDERATION:– something in return is called ‘consideration’. The present

rules of consideration apply to e-contracts. There is concern among consumers regarding Transitional Security over the Internet. The e-directive on Distance Selling tries to generate confidence by minimizing abuse by purchasers and suppliers.

DIGITAL SIGNATURES• Section 2(p) of The Information Technology Act,

2000 - digital signatures as authentication• A digital signature functions for electronic

documents like a handwritten signature does for printed documents.

DIGITAL SIGNATURES

• The signature is an unforgivable piece of data that asserts that a named person wrote or otherwise agreed to the document to which the signature is attached.

• A digital signature actually provides a greater degree of security than a handwritten signature.

DRAWBACK

• If there is no alternate means of identifying a person on the other side than digital signatures or a public key, it is possible to misrepresent one’s identity and try to pass of as somebody else.

• Lack of transparency in the terms & conditions attached to the contract.

EVIDENTIARY VALUE OF E-CONTRACTS

• This can be well understood in the light of the following sections of Indian Evidence Act. Sections 85A, 85B, 88A, 90A and 85C deals with the presumptions as to electronic records whereas Section 65B relates to the admissibility of electronic record.

Section 85a• It says that every electronic record of the nature of an

agreement is concluded as soon as a digital signature is affixed to the record.

• Section 85A has been added in order to ensure the validity of e-contracts.

• But there are some restrictions as regards the presumptive value. – The presumption is only valid to electronic records,

electronic records that are five years old – Electronic messages that fall within the ambit of Section

85B, Section 88A and Section 90A of Indian Evidence Act.

Section 85b• Section 85B provides any kind of alteration, it

should be done with another contract.• The secure status of the record may be demanded

till a specific time. The digital signature should also be presumed to have been affixed with an intention of signing and approving the electronic record.

Section 88a• “The court may presume that an electronic

message forwarded by the originator through an electronic mail server to the addressee to whom the message purports to be addressed corresponds with the message as fed into his computer for transmission, but the court shall not make any presumption as to the person by whom such message was sent”.

Section 90a• In case of an electronic record being five years

old, if proved to be in proper custody, the court may presume that the digital signature was affixed so as to authenticate the validity of that agreement. The digital signature can also be affixed by any person authorized to do so. For the purpose of this section, electronic records are said to be in proper custody if they are in the custody of the person with whom they naturally be. An exception can be effected in case circumstances of a particular case render its origin probable.

Section 85c

• As far as a digital signature certificate is

concerned, the court shall presume that the

information listed in the certificate is true and

correct.

Section 65b

• Section 65B talks about admissibility of electronic

records. It says that any information contained in

an electronic record which is printed on a paper or

stored/recorded/copied on optical/magnetic media

produced by a computer shall be deemed to be a

document and is admissible as evidence in any

proceeding without further proof of the original

CASE LAWS

1. Specht v. Netscape

• It is a case in the United States Court of Appeals for the Second Circuit regarding the enforceability of browse-wrap software licenses. 

The plaintiffs brought suit against Netscape Communications Corporation, alleging the defendant's SmartDownload plug-in invaded the plaintiffs' privacy in violation of the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act.[2] Netscape moved to compel arbitration and to stay court proceedings, arguing that the plaintiffs agreed to arbitration in the End User License Agreement. This means that any disputes, such as an invasion of privacy, would be settled out of court by an arbitrator. The plaintiffs allegedly accepted this EULA when they downloaded the plug-in.

The U.S. District Court for the Southern District of New York denied Netscape's motion.[3] The United States Court of Appeals for the Second Circuit heard the appeal, and affirmed the district court's decision, finding that "plaintiffs neither received reasonable notice of the existence of the license terms nor manifested unambiguous assent to those terms before acting on the web page’s invitation to download the plug-in program."

FACTS The plaintiffs allege that SmartDownload transmitted to Netscape the URL of the file being

downloaded along with a HTTP cookie and a 'key' (similar to a cookie) that would identify the user of the computer.

Five of the six plaintiffs downloaded Netscape Communicator, which consists of Netscape Navigator and other web software, from the Netscape website, and all five of them acknowledge that they clicked 'Yes', indicating assent to the terms of the click-wrap license agreement for Communicator. This is not to be confused with accepting the license agreement for SmartDownload.

When downloading SmartDownload, there was no click-wrap presentation. After downloading the software, there was no further information about the plug-in or the existence of license terms. The reference to license terms was only visible if the plaintiffs scrolled down beyond the Download button.

The SmartDownload license contained a provision requiring disputes related to the agreement to be submitted to arbitration.

The plaintiff Christopher Specht never downloaded or used SmartDownload. He operated a website that provided files for download. He alleged that the defendants intercepted information every time users downloaded files from him using SmartDownload.

The defendants allege Specht received a direct benefit under the SmartDownload license agreement, enough so that he should have to arbitrate his claims pursuant to the license terms. Specht claims that he never received any commission for providing files for download.

DECISION• The crux of the issue is whether or not the plaintiff's agreed to be bound by the defendant's licensing

terms when they downloaded the free plug-in, even though the plaintiffs could not have learned of

the existence of the terms before downloading. The court found that "a reasonably prudent Internet

user in circumstances such as these would not have known or learned of the existence of the license

terms before responding to defendants’ invitation to download the free software, and that defendants

therefore did not provide reasonable notice of the license terms."

• Claims related to SmartDownload are not covered by the license agreement for 

Netscape Communicator, despite the fact that SmartDownload is meant to enhance the functioning of

Communicator. This means that when the plaintiffs clicked through Communicator's license

agreement, they were not agreeing to the SmartDownload agreement.

• Specht was not bound by the SmartDownload agreement as a non-contracting beneficiary because he

had no preexisting relationship with the parties, was not an agent of any party, and received no direct

benefit from users downloading files from his website.

ProCD, Inc. v. Zeidenberg

• ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), is a United States contract case involving a "shrink wrap license". One issue presented to the court was whether a shrink wrap license was valid and enforceable. Judge Easterbrook wrote the opinion for the court and found such a license was valid and enforceable. The Seventh Circuit's decision overturned a lower court decision.

Facts:• The case involved a graduate student, Matthew Zeidenberg, who purchased a telephone

directory database, SelectPhone, on CD-ROM produced by ProCD. ProCD had compiled the information from over 3,000 telephone directories, at a cost of more than $10 million. To recoup its costs, ProCD discriminated based on price by charging commercial users a higher price than it did to everyday, non-commercial users.

• Zeidenberg purchased a non-commercial copy of SelectPhone and after opening the packaging and installing the software on his personal computer, Zeidenberg created a website and offered the information originally on the CD to visitors for a fee that was less than what ProCD charged its commercial customers.

• At the time of purchase, Zeidenberg may not have been aware of any prohibited use, however the package itself stated that there was a license enclosed. Moreover, because "the software license splashed across the screen and would not let him proceed without indicating acceptance," Zeidenberg had ample opportunity to read the license before using SelectPhone. Zeidenberg was presented with this license when he installed the software, which he accepted by clicking assent at a suitable dialog box—this type of license is commonly known as a click-through license or clickwrap. The license was contained, in full, on the CD.

DECISION• The court first held that copyright law did not preempt contract law. Under the

Supreme Court case, Feist Publications v. Rural Telephone Service, the court held that a telephone directory was not protectable through copyright. In this case, the court assumes that a database of a telephone directory was equally not protectable. However, the court held that a contract could confer among the parties similar rights since those rights are not "equivalent to any of the exclusive rights within the general scope of copyright".

• The court then held the license valid and enforceable as a contract. The court relied primarily on the Uniform Commercial Code (or UCC) sections 2-204 (describing a valid contract) and 2-606 (describing acceptance of a contract). There was little doubt that ProCD, in fact, offered use of the software as described by UCC section 2-606. The court examined more closely the question of acceptance.

• The court held that Zeidenberg did accept the offer by clicking through. The court noted, "He had no choice, because the software splashed the license on the screen and would not let him proceed without indicating acceptance." The court stated that Zeidenberg could have rejected the terms of the contract and returned the software. The court, in addition, noted the ability and "the opportunity to return goods can be important" under the UCC.

SoftMan Products Co. v. Adobe Systems Inc.

• Adobe produces a suite of publishing software. SoftMan sells various software through its website, including individual copies of Adobe software that was originally part of a bundle. Adobe claims such sales are unauthorized and SoftMan is infringing both Adobe's copyright and violating terms of service that is embedded in each Adobe Software. The users need to agree to these EULA to install the software. In addition, Adobe claims that SoftMan is distributing Adobe software that is not genuine, because unbundled software does not give the customers access to Adobe's support services. Based on the aforementioned claims, Adobe applied for a preliminary injunction.

Decision:• Judge Pregerson ruled that Adobe has sold its software instead of

licensed the software. Thus under the first-sale doctrine, Adobe can not control how SoftMan resells those particular copies of Adobe software after the initial sale. The Court also found that SoftMan had not infringed on the EULA because SoftMan had never run the program and therefore never assented to the terms. In addition, the Court found that factual disputes exist on whether the separately sold copies are materially different from the original copies, which is central to Adobe's trademark claim. Since Adobe was unable to demonstrate a likelihood of success on both copyright and trademark claims, the Court denied Adobe's application for a preliminary injunction against SoftMan.

Thank You