Reference no: EM132301849

To agree or not to agree: Legal issues in online contracting.  E-commerce for merchants and consumers is more than just establishing or visiting an attractive Web site to conduct business over the Internet. For companies and consumers alike, conducting business in cyberspace entails not only the traditional risks of sales and contracting, but also a new set of risks related to the electronic environment. For entities of all sizes, important components of those risks involve legal issues: jurisdiction, contract formation, contract validity, contract changes and errors, authentication and attribution, message integrity, and nonrepudiation. Becoming familiar with these issues can help avoid costly disputes in e-business.  Companies have been doing business electronically for a number of years. Take electronic data interchange, for example. Defined as the electronic exchange of information between trading partners, EDI has been used successfully by General Electric, General Motors, Sears, Wal-Mart, and a number of other major corporations. Human intervention is often nonexistent, with goods being ordered and delivered and payments initiated via electronic fund transfers (EFTs). Unlike ecommerce transactions, EDI traditionally requires trading partners to use a dedicated leased transmission line or a connection to a value-added network (VAN). Moreover, it involves both a direct connection and high start-up and operating costs—entry barriers that the Internet has lowered through its use of a common information and communication platform. Or consider Financial Electronic Data Interchange (FEDI), which integrates EFT and EDI and results in both remittance data and fund transfers being accomplished simultaneously. If the seller’s bank is not EDI-capable, a buyer can implement FEDI by contracting with a financial value-added network (FVAN), a separate organization that enables the linking of various EDI networks. However, in nearly all these electronic relationships, prior agreements (called “trading partner agreements”) provide answers to most of the legal questions that might arise. Virtually every contingency can be anticipated, and the partners can agree on how to proceed, even over a dispute. In contrast, when e-commerce participants are dealing with strangers over an open system like the Internet, bilateral agreements are harder to arrange. Agreements that anticipate all contingencies cannot be expected to be agreed to by thousands of customers who might visit an e-merchant’s Web site. As the world of e-commerce continues to expand, uncertainty about the enforceability of electronic agreements and the legitimacy of the parties involved has led many executives, attorneys, business owners, regulators, and others to ponder what might happen when disputes arise over electronic transactions. A 1997 court ruling by a Companies have been doing business electronically for a number of years. Take electronic data interchange, for example. Defined as the electronic exchange of information between trading partners, EDI has been used successfully by General Electric, General Motors, Sears, Wal-Mart, and a number of other major corporations. Human intervention is often nonexistent, with goods being ordered and delivered and payments initiated via electronic fund transfers (EFTs). Unlike ecommerce transactions, EDI traditionally requires trading partners to use a dedicated leased transmission line or a connection to a value-added network (VAN). Moreover, it involves both a direct connection and high start-up and operating costs—entry barriers that the Internet has lowered through its use of a common information and communication platform. Or consider Financial Electronic Data Interchange (FEDI), which integrates EFT and EDI and results in both remittance data and fund transfers being accomplished simultaneously. If the seller’s bank is not EDI-capable, a buyer can implement FEDI by contracting with a financial value-added network (FVAN), a separate organization that enables the linking of various EDI networks. However, in nearly all these electronic relationships, prior agreements (called “trading partner agreements”) provide answers to most of the legal questions that might arise. Virtually every contingency can be anticipated, and the partners can agree on how to proceed, even over a dispute. In contrast, when e-commerce participants are dealing with strangers over an open system like the Internet, bilateral agreements are harder to arrange. Agreements that anticipate all contingencies cannot be expected to be agreed to by thousands of customers who might visit an e-merchant’s Web site. As the world of e-commerce continues to expand, uncertainty about the enforceability of electronic agreements and the legitimacy of the parties involved has led many executives, attorneys, business owners, regulators, and others to ponder what might happen when disputes arise over electronic transactions. A 1997 court ruling by a Georgia appellate court has contributed to this uncertainty. In Georgia Dept. of Transportation v. Norris, the court held that filing a notice by fax did not satisfy a requirement that notice be in writing because the transmission of “beeps and chirps” along a telephone line is not writing in the customary sense of the term. The risks or uncertainties related to conducting business over the Internet are: • Jurisdiction—Who has legal jurisdiction over a cybercontract, given the global nature of e-business? • Contract formation—Is a business or other Web site owner making a contractual offer or an invitation to bargain? • Contract validity—What is the legal validity of a Web wrap or click-on contract? • Contract changes and errors—What is the legal effect of changes and errors in transmission over the Internet? • Authentication and attribution—How can parties to a contract be assured that those they are dealing with are legitimate? • Message integrity—Is the message received exactly the same as the message sent? • Nonrepudiation—How can a business or consumer be assured that parties cannot deny the content of a transaction or event? Given the importance of understanding these various risks, e-business participants should become familiar with the basic legal issues involved. Here we will analyze the status of contract law applicable to e-transactions, provide an overview of recent legislative efforts that have been undertaken to classify e-business contract law, and offer practical suggestions for contracting in cyberspace. E-SIGN is “technology-neutral,” anticipating the use of electrical, digital, magnetic, wireless, optical, and electromagnetic means for e-signatures. It also contains various consumer protection provisions. First, a consumer must have “affirmatively consented” to the use of electronic communication, and must not have withdrawn such consent. Before consenting, the consumer must receive certain disclosures. In a “clear and conspicuous” statement, the consumer must be informed of: • the right to have a record of the transaction provided on paper; • the right to withdraw the consent to have the record provided in electronic form; • the fact that any consent provided applies only to a specific transaction; • how to obtain a copy of any electronic message sent and whether any fee will be charged for a copy; • the procedures required to withdraw any consent provided; and • the type of hardware and software needed to access and retain any electronic record created by the transaction involved. The law is written in such a fashion as to not restrict or impinge on preceded consumer protection laws. As e-commerce grows, Web site owners remain concerned about the outcome of potential disputes or lawsuits over many aspects of online contracting. E-businesses can increase the likelihood of avoiding a costly dispute by gaining a basic familiarity with the legal issues involved (see Figure 2). To establish jurisdiction, business Web sites should be constructed to include both a forum selection clause and a choice of law provision, both of which should be part of the contract terms. E-commerce participants should consider what actions by buyers and sellers lead to forming a contract, and the prudent Web site owner should set forth an explicit means of contract formation (offer and acceptance). Because the use of electronic agents creates uncertainty in contract formation—May one make an offer or acceptance by machine?—a Web site should enable ecommerce participants to prevent the transmission of an erroneous record or to correct one after transmission. When it comes to electronic messages, e-consumers and emerchants alike must be matched up with legally responsible parties in the real world. Both must know that they can rely on a message as having actually been sent by the purported sender, and avoid liability in the event a message was sent or altered by an interloper or hacker. Finally, e-commerce participants must know the laws regarding esignatures, PINs, smart cards, digitized signatures, biometrics, and various forms of encryption. Because E-SIGN now allows electronic signatures to satisfy most existing legal requirements for written signatures, documents, or records, laws or regulations that require the use of signatures or written documents cannot be used to deny the validity of the transaction merely because electronic signatures and records were used. This is true for any transactions involving interstate or global commerce. UNABLE to fit full article

Step One: Read “To Agree or Not to Agree: Legal Issues in Online Contracting (Links to an external site.)Links to an external site.” by Carl Pacini, Christin Andrews, and William Hillison which can be purchased at the Harvard Business Review.

Step Two: Make note of the many issues that may arise as a result of online contracting.

Step Three: Select two (2) risks or uncertainties related to conducting business over the internet covered in this article and discuss the potential issues a company should be aware of. Include in your discussion a comparison of the differences from traditional, written contracts and what can be done to protect the company, avoid future issues, etc. I don’t expect you to be legal experts in this area, but it is important to be aware of the major pitfalls and problems facing companies in this situation.