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Most Common Questions

What is E-Commerce?

The term e-commerce or e-business basically means doing business on the Internet. The laws regulating the Internet and doing business online are still evolving.

 What other laws specifically govern E-Commerce?                                                         

A number of new laws have been enacted that pertain specifically to the Internet. For example, federal laws such as the Digital Millennium Copyright Act provide stiff civil and criminal penalties for pirating and other unauthorized use of software. If a licensor brings a civil action against you, for example, it may be possible to obtain an injunction and monetary damages. The licensor may then choose between actual damages, which includes the amount lost because of infringement, plus any profits attributable to the infringement. In addition, the government can criminally prosecute you for copyright infringement. If convicted, penalties can include up to five years in prison and a fine of up to $500,000. Second-time offenders risk 10 years of prison and a $1,000,000 fine.

 Many of the transactions conducted online relate to the sale or lease of consumer goods. State and federal consumer protection laws (e.g., Magnuson-Moss Warranty Act) govern these transactions, which regulate advertising, warranties, and disclaimers. These laws also provide consumers with remedies not normally available under common law or the Uniform Commercial Code (UCC). In addition to general consumer protection laws, many states have adopted or are in the process of adopting specific laws directed at electronic transactions to protect consumers.

 The Electronic Signatures in Global and National Commerce Act validates contracts executed by electronic signature and serves to protect consumers by requiring consumers to provide adequate consent to an electronic transaction. The Act establishes the validity of certain transactions in or affecting interstate or foreign commerce. Specifically, it provides that a signature, contract, or other record relating to such transactions may not be denied legal effect, validity or enforceability solely because it is in electronic form. A contract relating to interstate or foreign transactions may not be denied legal effect, validity or enforceability solely because an electronic signature or electronic record was used in its formation. The Act defines an electronic record as a contract or other record created, generated, sent, communicated, received, or stored by electronic means. An electronic signature means an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed by or adopted with the intent to sign the record. However, this act only applies to interstate and international commerce. It would therefore only affect transactions between buyers & sellers in different states, or in different countries.

 The Uniform Computer Information Transactions Act (UCITA) was proposed for state adoption to eliminate the requirement for tangible writings and signatures in the purchase of “computer information”. Unfortunately, only about 2 states have actually enacted a version of this proposed act.  Most state legislatures are not expected to create or adopt a version of that law; therefore, it is not likely to provide much of a uniform solution.

 The Uniform Electronic Transactions Act (UETA) was proposed for amendment of  state commercial codes to eliminate the requirement for tangible writings and signatures in the purchase and sale of “goods”. Some version of this legislation has been adopted in 47 states and the US Virgin Islands. Even if it is adopted in all 50 states, it will only govern transactions for procurement of goods, and not services or computer information.

 UCC Article 2B revisions, as proposed for adoption by National Conference of Commissioners for Uniform State Law, would change some of the requirements for a writing and a signature. Contracts formed electronically would therefore be enforceable. It will be years before that recommendation is universally adopted and incorporated into state commercial codes.

 I understand that certain types of contracts must be in writing to enforceable. How does that affect the enforceability of making contracts on the Internet?

You are correct. The law does require that certain contracts must be in writing in order to be enforceable by a Court.  The state statutes that require certain contracts to be in writing are called statutes of fraud.  Statutes of fraud require that either the contract itself be in writing and signed by both parties or there must be a sufficient memorandum of the agreement signed by the party being sued for breach of contract.

  •  The statute of frauds normally does not apply if it is possible under the terms of the agreement to perform the contract within one year.  If no time for performance is specified in the oral agreement and the performance will not necessarily take more than one year, the statute of frauds would not apply.
  •  An agreement that cannot be performed within one year after the agreement is made must be in writing.  
  • Contracts involving the sale of land must be evidenced by a writing. 
  • Another type of contract that must be in writing is the promise to answer for the debt of another person.  
  • A promise by the executor or administrator of an estate to use personal funds to pay a debt of the estate must be in writing.  
  • A promise made in consideration of marriage must be in writing.  An example of this would be a prenuptial agreement.
  • If a contract provides for the sale of goods with a price of $500.00 or more, it must ordinarily be in writing.

 It is uncertain how the applicable law will be applied in the context of online agreements since there is no clear guidance as to whether a purely electronic transaction will constitute a writing for purposes of the statute of frauds. Part of the uncertainty is attributable to the definition of writing contained in the UCC. Writing includes printing, typewriting, or any other intentional reduction to tangible form. The UCC’s definition did not contemplate a technology in which data is stored in a computer memory and not on paper. An argument can be made that data stored in computer memory is not considered sufficiently tangible to satisfy the statute of frauds. However,  the data can be printed at any time. If storage in a computer’s memory is not sufficiently tangible, the electronic information can be produced in tangible form by simply printing it. In addition, electronic transactions are really no different than telegrams and telexes, both of which have been held to satisfy the writing requirement of the statute of frauds.

 Once it has met the standards for a writing, the online agreement must meet the subscription requirement. The subscription (signature) requirement of the statute of frauds can be satisfied by a single writing or by a series of writings. For purposes of the statute, if one of a series of papers relating to the same matter is signed by the party to be charged, that is sufficient, as all the papers are to be considered together in evidencing one contract or memorandum. The UCC has no formal requirements for a signature, only that it appears for the purpose to authenticate the writing. Instead of a name, the signature arguably can be an initial or a symbol.

 If an e-mail is sent, the sender identification in the header of an e-mail will be sufficient to show authentication. However, will use of the individual’s initials or name at the end of the message satisfy the signature requirement? E-mail software can create a signature that includes name, job title, and phone number.

 Proposed Article 2B of the Uniform Commercial Code will likely resolve many of the issues surrounding the statute of frauds in online contracts regarding the sale of good. Originally designed to address only software licenses, Article 2B has grown to include online licenses, subscription agreements, and other forms of electronic contracts.

 Other Acts that will provide some relief from the statute of frauds and which are discussed above are:

  •  The Electronic Signatures in Global and National Commerce Act;
  • The Uniform Computer Information Transactions Act; and
  • The Uniform Electronic Transactions Act.

What are the legal requirements for creating a Web page?                          

 There are really very few legal requirements in creating a Web page. The first thing you have to do is to secure the rights to use the domain name that you choose. This requires registering the name with a domain administrator. There are a number of domain name registration services around the world. The one you use should be accredited by the Internet Corporation for Assigned Names and Numbers (“ICANN“). ICANN is a nonprofit corporation that has been delegated responsibility by the U.S. government to coordinate Internet technical functions, including management of the Internet domain name system.

Once you are able to secure domain name registration, the process of starting an e-commerce business will be much the same as any other business enterprise. For example, you may want to incorporate your business. You will also need to enter into numerous contractual relationships in order to secure the services and products that are required to get the business up and running. You should pay close attention to any contracts that you are asked to sign, as they may have long-reaching effects. You should also be very careful about the scope and extent to which you use various products.

You also have to be very careful about intellectual property rights. One question to ask yourself, for example, is whether or not it is appropriate to incorporate source code into your Web site that you have taken from a commercial software company. It is oftentimes contemplated by a software license that the user is allowed to reproduce and distribute a software product as part of its own product, provided that usage is adding significant and primary value to the underlying software, along with numerous other limitations and restrictions.

Licensing your business can also be problematic. Wherever you have a home office, it is almost a certainty that you will need to obtain a business license. There may be other requirements in the locale where you are located. You must also undertake due diligence to see what requirements may be on the other end where your customers are. This is sometimes called part of the “fulfillment” process, which could be exceedingly complex depending upon the nature of your business and where your customers are located.

Once your business is up and operating, compliance issues are ongoing. A business activity that is illegal in one medium is not going to become legal simply because you are doing it over the Internet. Given the lack of restrictions in accessing and using the Internet, it is also sometimes easier to fall into traps for the unwary. Examples would include posting unauthorized materials on a Web site, infringing upon intellectual property rights, or engaging in unlawful solicitations (for example, spamming). In some instances, it is also much easier to get ripped off over the Internet by, for example, sending money to someone via an online auction to purchase an item that is never sent to you.

What is “spamming” and is it illegal?                                                                   

Spamming can take on many forms and is difficult to precisely define. Generally speaking, though, it consists of mass posting or cross-posting of unsolicited e-mail for commercial purposes. Under federal law, it’s unlawful to send junk mail by facsimile, with the possibility of civil liability of up to $500 per copy. Efforts have been made to extend this law to spam sent over the Internet, but isn’t clear if this law applies to spamming.

Some states like California have gone further. Under legislation approved in September 1998, unsolicited commercial e-mail messages must include opt-out instructions and contact information. An opt-out request must also be honored. Certain messages must also be identified in their subject lines as being advertisements. A service provider may also sue a sender of unsolicited commercial e-mail for violating the provider’s policies if the sender has actual notice of such policies and if the spam is sent out through the provider’s facilities located in California. Other states make it illegal to provide falsified routing information.

Inside Most Common Questions