Guide to Computer Law—Number 276
Practitioner’s Perspective
by Holly K. Towle, J.D.
New Laws Affecting E-Business
Transactions
In recent years both state and federal governments have enacted new laws that
apply when you transact business electronically. If you have not already become
familiar with them, it is likely time to do so.
Holly K. Towle is a
partner with Kirpatrick &
Lockhart Preston Gates
Ellis LLP (K&L Gates), an international law firm,
and chair of the firm’s E-merging Commerce
group. Holly is located in the firm’s Seattle
office and is the coauthor of The Law of
Electronic Commercial Transactions (2003,
A.S. Pratt & Sons). Holly.Towle@KLgates.com,
206-623-7580.
Someone in your office says: “Let’s allow customers to order online and
customize their orders —they’ll get what they want and our electronic
‘back office’ can instantly transmit orders for inventory and assembly to
our suppliers!”
Great idea? Could be. But what if a customer orders item X with 15
adjustments, i.e., an item no one else can use? The customer then sends you
a message saying he “goofed” and hit the wrong button in transmitting
that order, so wants to cancel. You have already sent irrevocable orders
for inventory and assembly and can’t cancel those. Must you honor your
customer’s cancellation notice? Yes, if your website failed to provide a
reasonable procedure for correcting errors. No, if the same order had been
made (with the same “goof”) by postal mail, in person, or orally via the
telephone. The difference is the medium: under laws applicable in a nonelectronic world you could have relied on the order you received. But new
laws regarding the use of electronics in commerce allow cancellation.
New laws that apply only to business done electronically are a new reality
of business. Another is that some aspect of most businesses is conducted
electronically. Accordingly, the new laws need to be considered sooner
rather than later. A few of the new laws are discussed below.
1. UETA. The Uniform Electronics Transactions Act (UETA) is a state
law adopted in about 46 states. Most U.S. businesses operate on an
interstate basis, so even if your state has not adopted it you cannot
really ignore it. It is the statute that created the most troublesome
version of the above rule. It has several other rules that adversely
impact commerce done electronically. It was designed as a procedural
statute to enable electronic commerce, but some of its rules do more to
impede than enable. In any case, you can deal with some (but not all)
of its rules by contract and should consider doing so.
Practitioner’s Perspective appears periodically
in the monthly ReportLetter of the CCH Guide to
Computer Law. Various practitioners provideindepth analyses of significant issues and trends.
2. UCITA. The Uniform Computer Information Transactions Act (UCITA)
has a version of the above UETA rule, but more appropriately confines
it to consumer transactions where it acts as a consumer protection
rule. UCITA has been adopted in Maryland and Virginia. It is a new
commercial code intended to create codified contract law for “computer
information transactions.” Lest you haven’t noticed, the only other
CCH GUIDE TO COMPUTER LAW
codified commercial code in the U.S., Article 2 of the
Uniform Commercial Code, was designed to apply to
sales of goods—it works poorly for licenses of computer
information. UCITA creates rules for this new subject
matter by blending UCC Article 2, common law and
intellectual property concepts applicable to information
and licensing. It also creates rules for “access contracts,”
i.e., the terms and conditions governing access to a
website. Even in states where UCITA has not yet been
adopted, it makes a good guide to the issues you will
encounter in an information economy.
3. E-SIGN. The Electronic Signatures in Global and National
Commerce Act (E-SIGN) is the primary federal law
enabling e-commerce. In general, it creates equivalency
between “paper” and “electronic” media, and “pen
and ink” and “electronic” signatures. It avoids most of
the problems created in UETA but does not preempt
it. If your state has adopted UETA, you will need to
examine the somewhat murky preemption provision
to determine whether UETA or E-SIGN controls. Even
if UETA applies it only impacts state law, so you still
need to learn E-SIGN as to federal law. This is especially
important for consumer transactions if, traditionally,
you were required to deliver a paper disclosure or
notice as part of a particular transaction. You cannot use
an electronic substitute unless you first provide a new,
separate disclosure about the use of electronics, and also
obtain the consumer’s consent to the substitution.
Here is a simple example of E-SIGN’s sweeping impact.
You probably have boilerplate in your important
contracts precluding amendment except by a “signed
writing.” Or perhaps you rely on a statute of frauds
that voids contracts not in a “signed writing” (e.g., a
home-owner in several states need not fear that oral
conversations with a real estate salesman will create a
contract to pay a commission, absent a signed writing).
E-SIGN creates equivalency between non-electronic
and electronic writings and signatures. Thus, an email
can suffice to amend your contract or to create the
commission agreement.
Of course, the email has to say the right things (e.g.,
has to contain an agreement to pay a commission, for
example). But if your only defense to the amendment
or commission contract is that it isn’t on a piece of
paper with an inked signature, that is no longer a
defense. There is still a “statute of frauds,” but it has
been broadened by E-SIGN to encompass electronic
media. There’s nothing wrong with that, but it does
NUMBER 276
mean that you should learn the new rules and adjust
your contracts and procedures accordingly (e.g., you
could change your amendment boilerplate to require
amendments in a “non-electronic record”).
4. New Language. If you used the term “record,” what would
you mean? “Record” is the new term for distinguishing
oral transactions from those where something is left
behind that can be consulted later (the record)—whether
it be non-electronic or electronic. A general definition of
record is this: “information that is inscribed on a tangible
medium or that is stored in an electronic or other medium
and is retrievable in perceivable form.” This includes
paper, emails, facsimiles, tapes, and the like. The breadth
of the definition may catch you by surprise. For example,
if you say amendments may only be in a “non-electronic
record” because you want to preclude emails, you will also
have precluded faxes. If you want to allow faxes but not
emails, you could say “non-electronic records except for
facsimiles”. The point here is to illustrate that traditional
language will not necessarily work, and unexamined use
of new language might not either. It’s a new world.
5. Topic Specific Laws. There is no way logically to
categorize the proliferation of new laws governing
transactions done electronically. Part of the problem is
finding those laws. Another problem is that the same
transaction can fall under different law depending upon
whether it involves electronics. This creates the refrain
“but if I can do it non-electronically this way, why can’t I
do it electronically the same way?” A good answer is not
always available except for the one your parents used
to give you: “Because we said so.” Here’s an example:
a new federal law prohibits electronically printing more
than the last five digits of a credit card number on a
receipt. What about receipts on which the full number is
written by hand or imprinted, or what if the entire card
is simply copied? The new federal law does not apply.
“Federal” was a deliberate qualifier. The states are busy
passing non-uniform laws. For example, in California a
business that asks to see a driver’s license operates under one
set of rules if it takes the number down by hand, and another
if it “swipes” the license in an electronic reader.
It is possible to articulate a justification (often questionable)
for each of these new laws, but the point for purposes of this
column is simply this: many new laws apply to business
done electronically. If you are not already familiar with them,
it may be time to do so.