ELECTRONIC CONTRACTSVIJAY PAL DALMIA

VAISH ASSOCIATES ADVOCATES

NATURE OF INTERNET

No physical boundaries.No physical boundaries. No writing.No writing. No handwritten signature, seals, thumb No handwritten signature, seals, thumb

impression. impression. Lack of Security, risk factor high. Lack of Security, risk factor high. Taxes, rules, regulations, between Taxes, rules, regulations, between

countries not clearly defined. countries not clearly defined. Technology fast changing. Technology fast changing. Ignorance of Common man about Ignorance of Common man about

technology. technology. No single authority over Internet who No single authority over Internet who

can decide.can decide.

ELECTRONIC CONTRACT

There are three main methods of contracting There are three main methods of contracting electronically:electronically:

Electronic mail, or e-mailElectronic mail, or e-mail

Website ContractsWebsite Contracts

Online/Click to Agree Contracts Online/Click to Agree Contracts

CLASSIFICATION AS TO SUBJECT MATTER

Sale of physical goodsSale of physical goods - goods are - goods are ordered over the Internet with payment ordered over the Internet with payment via the Internet but delivery occurs in the via the Internet but delivery occurs in the usual way;usual way;

Sale of digitised productsSale of digitised products - goods such - goods such as software can be ordered, paid for as software can be ordered, paid for and delivered on-line;and delivered on-line;

Supply of servicesSupply of services - examples include - examples include electronic banking, sale of shares, electronic banking, sale of shares, financial advice, or consumer advice.financial advice, or consumer advice.

ESSENTIALS OF AN ELECTRONIC CONTRACT

Offer and Acceptance, throughOffer and Acceptance, through

EmailEmail

Website FormsWebsite Forms

Online AgreementsOnline Agreements

Lawful ConsiderationLawful Consideration

Selling a pornographic movieSelling a pornographic movie

Intention to create legal relationshipIntention to create legal relationship

Website providing Cultural informationWebsite providing Cultural information

ESSENTIALS OF AN ELECTRONIC CONTRACT

Competent to ContractCompetent to Contract

How to ascertain the age online???How to ascertain the age online???

Free ConsentFree Consent

No Real-Time InteractionNo Real-Time Interaction

Lawful ObjectLawful Object

Possibility of performancePossibility of performance

ISSUES IN ELECTRONIC CONTRACTS

AuthenticityAuthenticity As to source or origin of the communicationAs to source or origin of the communication

IntegrityIntegrity As to accuracy and totality of the communicationAs to accuracy and totality of the communication

Non repudiationNon repudiation As not being able to deny the communicationAs not being able to deny the communication

Writing and signatureWriting and signature ConfidentialityConfidentiality

As to control the disclosure of information during As to control the disclosure of information during transmissiontransmission

ISSUES IN ELECTRONIC CONTRACTS

Use of Electronic SignaturesUse of Electronic Signatures

Digital SignatureDigital Signature

Bio-metric MeasuresBio-metric Measures

INFORMATION TECHNOLOGY ACT, 2000

Concept of Originator and AddresseeConcept of Originator and Addressee

Acknowledgement of receipt of Acknowledgement of receipt of Record/data/imformationRecord/data/imformation

Time of Dispatch and ReceiptTime of Dispatch and Receipt

““Instantaneous” CommunicationsInstantaneous” Communications

POSTAL RULEPOSTAL RULE Applicable to email contracts??Applicable to email contracts??

Applicable to transaction over world wide web Applicable to transaction over world wide web (www)???(www)???

ORGINATOR

An An OriginatorOriginator is a person who: is a person who: sends, generates, stores or transmits any electronic sends, generates, stores or transmits any electronic

message ormessage or causes any electronic message to be sent, generated, causes any electronic message to be sent, generated,

stored or transmitted to any other person.stored or transmitted to any other person. An electronic record shall be attributed to the An electronic record shall be attributed to the

originator—originator— if it was sent by the originator himself;if it was sent by the originator himself; by a person who had the authority to act on behalf of by a person who had the authority to act on behalf of

the originator in respect of that electronic record; orthe originator in respect of that electronic record; or by an information system programmed by or on behalf of by an information system programmed by or on behalf of

the originator to operate automatically.the originator to operate automatically. Does not include an intermediary like ISP etc.Does not include an intermediary like ISP etc.

ACKNOWLEDGEMENT OF RECEIPT

An An Addressee Addressee means a person who is means a person who is intended by the originator to receive the intended by the originator to receive the electronic record electronic record but does not include any intermediarybut does not include any intermediary

Where the originator has not agreed with Where the originator has not agreed with the addressee that the acknowledgment of the addressee that the acknowledgment of receipt of electronic record be given in a receipt of electronic record be given in a particular form or by a particular method, particular form or by a particular method, an acknowledgment may be given by:an acknowledgment may be given by: any communication by the addressee, automated any communication by the addressee, automated

or otherwise; oror otherwise; or any conduct of the addressee, sufficient to any conduct of the addressee, sufficient to

indicate to the originator that the electronic indicate to the originator that the electronic record has been received.record has been received.

TIME AND PLACE OF DISPATCH AND RECEIPT

Time of Dispatch: Time of Dispatch: Dispatch of an electronic record Dispatch of an electronic record occurs, "when it enters a computer resource outside occurs, "when it enters a computer resource outside the control of the originator", unless agreed to the the control of the originator", unless agreed to the contrary between the originator and the addressee.contrary between the originator and the addressee.

TIME AND PLACE OF DISPATCH AND RECEIPT

Time of Receipt: Time of Receipt: If the addressee has designated a computer If the addressee has designated a computer

resource for the purpose of receiving electronic resource for the purpose of receiving electronic records:records: receipt occurs at the time when the electronic receipt occurs at the time when the electronic

record enters the designated computer record enters the designated computer resource; orresource; or

if the electronic record is sent to a computer if the electronic record is sent to a computer resource of the addressee that is not the resource of the addressee that is not the designated computer resource, receipt occurs designated computer resource, receipt occurs at the time when the electronic record is at the time when the electronic record is retrieved by the addressee;retrieved by the addressee;

If the addressee has not designated a computer If the addressee has not designated a computer resource along with specified timings, if any, receipt resource along with specified timings, if any, receipt occurs when the electronic record enters the occurs when the electronic record enters the computer resource of the addressee.computer resource of the addressee.

Unless agreed to the contraryUnless agreed to the contrary

TIME AND PLACE OF DISPATCH AND RECEIPT

Place of Dispatch and Receipt:

an electronic record is deemed to be despatched at an electronic record is deemed to be despatched at the place where the originator has his place of the place where the originator has his place of business,business,

An electronic record is deemed to be received at the An electronic record is deemed to be received at the place where the addressee has his place of businessplace where the addressee has his place of business..

JURISDICTIONAL ISSUES

Depends on Depends on where the contract has where the contract has been formed (place of contract)been formed (place of contract)

Difficult and Uncertain to determineDifficult and Uncertain to determine Cross-Border TransactionsCross-Border Transactions Different National RulesDifferent National Rules EmailEmail Websites having multiple servers in Websites having multiple servers in

different jurisdictionsdifferent jurisdictions Mirror WebsitesMirror Websites

INCOPORATING CONTRACTUAL TERMS

Incorporating Express TermsIncorporating Express Terms

Incorporating Terms by ReferenceIncorporating Terms by Reference

Implied TermsImplied Terms

TYPES OF ELECTRONIC CONTRACT

There are several types of contracts that persons There are several types of contracts that persons engaged in the business of manufacture of engaged in the business of manufacture of software or hardware would, in course of their software or hardware would, in course of their business, be required to enter into. These are:business, be required to enter into. These are:

Click Wrap ContractClick Wrap Contract Source Code Escrow AgreementsSource Code Escrow Agreements Software Development & Licensing AgreementsSoftware Development & Licensing Agreements Shrink Wrap Contract Shrink Wrap Contract Employment ContractsEmployment Contracts Consultant AgreementsConsultant Agreements Contractor AgreementsContractor Agreements Sales, Re-Seller & Distributor AgreementsSales, Re-Seller & Distributor Agreements Non-disclosure AgreementsNon-disclosure Agreements

CLICK WRAP CONTRACT

A "click-wrap agreement" is a Web version of the A "click-wrap agreement" is a Web version of the shrink-wrap licensing agreement. It comes into shrink-wrap licensing agreement. It comes into force when an online buyer or user clicks on the force when an online buyer or user clicks on the 'I Agree' button on the webpage to purchase or 'I Agree' button on the webpage to purchase or download a program. The term "click-wrap" is download a program. The term "click-wrap" is derived from the fact that such online derived from the fact that such online agreements often require clicking with a mouse agreements often require clicking with a mouse on an on-screen icon or button to signal a party's on an on-screen icon or button to signal a party's acceptance of the contract. Among other acceptance of the contract. Among other things, click-wrap agreements are used to: things, click-wrap agreements are used to: establish the terms for the download and use of establish the terms for the download and use of

software over the Internet; software over the Internet; set forth a Web site's Terms of Service, set forth a Web site's Terms of Service, i.e.,i.e., the rules by the rules by

which users may access the Web site or a portion of which users may access the Web site or a portion of the Web site such as a chat or message service; and the Web site such as a chat or message service; and

establish the terms for the sale of goods and services establish the terms for the sale of goods and services online.online.

CLICK WRAP CONTRACT

Type and ClickType and Click where the user must type where the user must type "I accept" or other specified words in an "I accept" or other specified words in an on-screen box and then click a "Submit" on-screen box and then click a "Submit" or similar button. This displays or similar button. This displays acceptance of the terms of the acceptance of the terms of the contract. A user cannot proceed to contract. A user cannot proceed to download or view the target information download or view the target information without following these steps.without following these steps.

Icon ClickingIcon Clicking where the user must click where the user must click on an "OK" or "I agree“ button on a on an "OK" or "I agree“ button on a dialog box or pop-up window. A user dialog box or pop-up window. A user indicates rejection by clicking “Cancel” indicates rejection by clicking “Cancel” or closing the window.or closing the window.

SOURCE CODE ESCROW AGREEMENTS

A Source Code Escrow Agreement is an A Source Code Escrow Agreement is an agreement between agreement between the software owner, the software owner, the party receiving the license and the party receiving the license and the escrow agent. the escrow agent.

It is for the deposit of the source code of a It is for the deposit of the source code of a software with a third party escrow agent. software with a third party escrow agent.

Escrow is typically requested by a party licensing Escrow is typically requested by a party licensing software (the licensee), to ensure maintenance software (the licensee), to ensure maintenance of the software. of the software.

The software source code is released to the The software source code is released to the licensee if the licensor files for bankruptcy or licensee if the licensor files for bankruptcy or otherwise fails to maintain and update the otherwise fails to maintain and update the software as promised in the software license software as promised in the software license agreement.agreement.

SOFTWARE DEVELOPMENT & LICENSING AGREEMENTS

It is also known as It is also known as End-User License End-User License Agreement.Agreement.

An End User License Agreement is a An End User License Agreement is a legal contract between the legal contract between the manufacturer and/or the author and the manufacturer and/or the author and the end user of an application. end user of an application.

The End User License Agreement details The End User License Agreement details how the software can and cannot be how the software can and cannot be used and any restrictions that the used and any restrictions that the manufacturer imposesmanufacturer imposes

For example, most such agreements of For example, most such agreements of proprietary software prohibit the user proprietary software prohibit the user from sharing the software with anyone from sharing the software with anyone else. else.

SHRINK WRAP CONTRACT

The term "shrink wrap agreement" refers to the The term "shrink wrap agreement" refers to the purchase agreements that are attached to purchase agreements that are attached to shipped products, usually bound by shrink wrap shipped products, usually bound by shrink wrap (plastic wrapping) that contain terms and (plastic wrapping) that contain terms and conditions. Shrink wrap agreements can include conditions. Shrink wrap agreements can include the following terms:the following terms: licenseslicenses rights of userights of use fees and paymentsfees and payments forum clauses forum clauses warranties and warranties and limitations of liability. limitations of liability.

Are Shrink Wrap Agreements Enforceable???Are Shrink Wrap Agreements Enforceable???

EMPLOYMENT CONTRACTS

The employment contracts are made for the purpose of governing the relationship between the management and the employees of the company. There contracts are need to be drafted carefully, keeping in mind the interest of the company, as well as the law relating to the enforcement of such contract.

CONSULTANT AGREEMENTS

There is a fast growing trend, to hire persons as There is a fast growing trend, to hire persons as consultants rather than take them on the roll of the consultants rather than take them on the roll of the company. In such case it would be necessary to company. In such case it would be necessary to execute a ‘Consultant contract’. It is very similar to the execute a ‘Consultant contract’. It is very similar to the employee agreement.employee agreement.

CONTRACTOR AGREEMENTS

Similar to the consultant contract the companies Similar to the consultant contract the companies prefer to enter into contractor agreement in case of prefer to enter into contractor agreement in case of the smaller companies. Care must be taken in regard the smaller companies. Care must be taken in regard to the maintainance of the confidentiality of the to the maintainance of the confidentiality of the imformation that such contract employees would be imformation that such contract employees would be exposed to, as well as standard protection of the exposed to, as well as standard protection of the proprietary information.proprietary information.

SALES, RE-SELLER & DISTRIBUTOR AGREEMENTS

In addition to the employees hired for In addition to the employees hired for the development of its products, the development of its products, imformation technology companies also imformation technology companies also engage personnel for the sales and engage personnel for the sales and marketing of the products development marketing of the products development in such companies. The company would in such companies. The company would enter into re-seller and distribution enter into re-seller and distribution agreement with those persons. Care agreement with those persons. Care must be take to ensure that restrictions must be take to ensure that restrictions on territory, price, classes of persons for on territory, price, classes of persons for whom goods are bought and sold.whom goods are bought and sold.

NON-DISCLOSURE AGREEMENTS

Under certain circumstances, software companies Under certain circumstances, software companies working on a specific project, would be required working on a specific project, would be required to obtain employee non-discloser agreements from to obtain employee non-discloser agreements from their employees, in respect of the project upon their employees, in respect of the project upon workingworking

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