Dr. Murray on electronic contracting

Submitted by tmurray on Thu, 12/13/2007 - 01:01.

Existing commercial laws were not designed to deal with electronic commerce. For example, contracts for the sale of goods priced at $500 or more are required to be in writing and signed by the party to be charged. Today, billions of dollars worth of transactions are not in writing and not signed in any traditional way. Are these deals legally enforceable?

The new statutes will no longer require a "writing." They will recognize an electronic transaction on a "record" which is defined to include old-fashioned documents but is much broader to recognize electronic data that is "retrievable in perceivable form."

How do you "sign" an electronic record? There is no longer a definition of "sign" in the commercial law of the future. Rather, the broader concept is "authentication" which includes old- fashioned signing, but also allows an electronic record to be made enforceable through the use of a symbol, encryption, or sound to identify the person sending the message, to indicate acceptance of the terms of a particular electronic record or to confirm the content of the message. The basic question of whether a buyer or seller can attribute a message to a given person or corporation requires the development of "attribution procedures" that verify the authenticated message.

If you want to use information on a data base, you enter into an "access contract" with the owner of the data base. Millions of Americans have such contracts with America OnLine, Microsoft, or similar corporations in the burgeoning electronic information industry. Innumerable companies form contracts to access specialized data bases.

Whether you have an access contract or purchase software on a disk, you are not buying the software, you are "licensing" the software. You own the disk, but the information on the disk is owned by the company that produced it and you are subject to limitations on your use of the information under the terms of a license. The license may be on a document inside the box and/or splashed on your computer screen when you "run" the program. You must press a key or mouse-click a symbol on the screen to indicate your agreement with the terms of the license before you continue to use the program.

Our current law deals with the "sale" of goods, i.e., goods which you own after you buy them, or a "lease" of goods, which gives you the exclusive right to use the goods for a specific time. There is nothing in modern commercial law statutes about "licensing" information on databases and the new statutes that are being prepared deal extensively with these questions.

The situation is complicated by the Federal Copyright law that protects the holder of the copyright who created novel material, but also provides protection for the user of the copyrighted material. New statutes have to be careful not to invade the province of controlling federal law. Not all the material on a database, however, is copyrighted.

In one case that has already become famous, software was developed containing millions of telephone numbers. Huge amounts were spent to develop this software even though the subject matter--telephone numbers--could not be copyrighted. They are in the public domain. The computer program allowed access to these numbers through a search engine that was copyrighted. An enterprising graduate student bought a copy of the software for a small sum and used the telephone numbers with a new search engine to create a new program competing with the developer of the software. The developer sought to stop this use.

The license terms were inside the box and also splashed on the screen. The new statutes call these "mass market licenses" or "shrinkwrap licenses" referring to the tight plastic or cellophane wrap around the box. The buyer paid no attention to this license arguing that he had bought the software without knowledge of the license. The court found the license terms to be enforceable and stopped the buyer from using the software. This is a controversial case because it binds parties to contract (license) terms hidden "inside the box." The proposed statutes attempt to provide safeguards including statements on the box that the transaction is subject to license terms inside and allowing a refund if the buyer chooses to reject the license terms after he sees them.

The new laws will also deal with "automated transactions" that allow computers to make contracts with other computers with no human review. The computer programs making such contracts are called "electronic agents." A wide variety of such contracts include automated reordering of goods when inventory levels descend to a certain level or very specific programmed ordering. The electronic agent may search for certain equipment at a certain price. Thousands of databases can be searched for the deal that matches the programmed request. New legal rules are necessary to deal with complex questions in such electronic transactions.

For as long as any lawyer or judge can remember, the basic standard in our law was the "reasonable man"--more recently the "reasonable person." Now, however, we must deal with the "reasonable electronic agent." Maybe those Sci-Fi movies suggesting the domination of the universe by computers should be reconsidered. Maybe this is the brave new world of the next millennium. On the other hand, maybe we are already there.