LEGAL ASPECTS OF E-
COMMERCE
Legal Aspects
The world is used to conducting business and commerce on signed
paper documents. Two millennia of commerce has been based on
the written document with its value ‘authorized’ by the signature of
a duly authorized officer. The current legal practice has paper
documents and signatures affixed thereon as its foundation.
Electronic documents and messages, without the familiar
signatures and marks, have changes the scene. However, trade still
wants to be assured that the electronic world is safe. The EC system
must, therefore, offer at least the same level of reliability as that
which obtains in the paper world notwithstanding the significant
difference between the concepts embodied in electronic messages
and paper documents. It is well known that frauds do take place in
the traditional paper based commercial transaction. Signatures can
be forged, paper document can be tampered with, and even the
most secure marks, impression, emblems and seals can be forge.
But then these are known, and trade as well as the legal community
knows how to deal with these problems. Companies set aside
funds to take care of losses due to such frauds. For example, credit-
cards companies do know that a very small percentage of
transactions is fraudulent in nature. The world is comfortable with
these problems, since they have been there for as long as we have
been trading.
The EC world, on the other hand, exposes us to issues, which
were hitherto unknown, since they are directly the outcome of
creating documents electronically, transmitting them over world wide
computer communication networks. Trading partners exchange
documents electronically. They need to convince themselves that
such documents are authentic when received over networks, and
that their authentication can be established in case of dispute.
Transactions may be electronic, but the key concept of admissibility
of evidence and evidential value of electronic documents, which are
central to the law, remain the same. There must be a way to prove
that a message existed, that it was sent, was received, was not
changed between the sending and receiving, and that it could not be
read and interpreted by any third party intercepting or deliberately
receiving it. The security of an electronic message, legal
requirement, thus gets directly linked to the technical methods for
security of computers and networks. From the legal angle, there is a
further complication because the electronic message is independent
of the actual medium used for storage transmission. The message
can be stored on a floppy, a magnetic disk, or an optical disk.
Likewise, it may be transmitted over a Local Area Network, a Wide
Area Network, a private Value Added Network or the Internet. The
physical medium could be coaxial cable, radio link, optical fiber or a
satellite communication channel.
The legal issues of EC have generated tremendous interest among
technologists, traders and legal experts. Many of the early EDI
experiments, and even production systems went into
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operation without any legal interchange agreement between trading
partners, between VANs and their customers. No laws for EC
existed; in fact they are still in the making. In India, too the Indian
Customs EDI system (ICES) Project got off the ground in 1995
without any EC/EDI law in existence, or even a proper
interchange agreement.
e-Commerce’s Law
As discussed earlier, the legal requirement is to establish the
authenticity of an electronic message or document. This includes
integrity, confidentiality, and non-repudiation of origin and receipt
of an electronic document in case of dispute. The UNCITRAL
model EDI/EC Law defines an electronic data message as
follows:
“2a Data message means information generated, stored or
communicated by electronic, optical or analogous means including
but not limited to, electronic data interchange (ED!), electronic
mail, telegram, telex or telecopy”.
This law proposes legal recognition of data messages, and defines
‘writing’, ‘signature’ and their admissibility and evidential value.
Individual countries have been advised to enact this law with suitable
modification that may be necessary in the national context.
In order to prevent fraudulent changes of electronic records, civil
and criminal liabilities for misconduct are necessary to deter
criminals, whether corporate insiders or hawkers, through
appropriate promulgation of the computer Misuse Act or
amendment of the existing criminal code. This would help protect
against unauthorized use of, or access to computers, as well as
unauthorized alteration or destruction of data. Likewise, the Digital
Signature Act has also to be enacted to give sanctity to digital
signatures, which is central to authenticating electronic documents.
Alongside the law or rules for the establishment of Certification
Authorities, Electronic Notaries would also be essential to permit
the states to have access to keys for deciphering and tapping
messages over the network to keep criminals under check and
surveillance. This is necessary for national security, as also for
preventing the use of this technology by smugglers, drugs peddlers
and other criminals.
EC on the Internet will soon far surpass commerce conducted over
private VANs. The use of the Internet for commerce opens up a
Pandora’s box of problems that come with it. The legal issues
revolve around protection of copyrights, trademarks, patents and
electronic controls on the Web. The privacy of individual stands
threatened, since data could be downloaded from various sites and
collated. In case of dispute, procedural issues related to
jurisdiction, venue, date and time rear their ugly heads, since it is
difficult to define where the transaction has taken place and on
what date time, for purpose of attributing responsibility.
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EdI lnterchange Agreement
It is a known fact that a certain discipline is required in the
conduct of commerce in the paper world. Simple activities such
as preparation of invoices, drawing up commercial contracts,
signing, despatch, receipts etc. have to follow certain protocols
agreed to by trading partners. These may be formal or in formal.
In addition, acceptable rules of conduct are also necessary to
achieve the kind of discipline required for smooth and effective
trade and commerce. In the EDI world of electronic
documents, this kind of discipline has been created through a
set of rules that have developed in the form of interchange
agreements within a number of user groups, national
organization, and regions. At the international level, the UN has
adopted the Model Interchange Agreement for the
International Commercial Use of Electronic Data Interchange,
which applies to the interchange of data and not to the
underlying commercial contracts between the parties. It
addresses the need for uniformity of agreement so that there
are no barriers to international trade on account of different
solutions for various problems being adopted by countries.
The UN has recommended that the member countries should
take into account the terms and provisions of the Model
Interchange Agreement when framing their own laws on EC.
An interchange agreement may be made between trading
partners. It establishes the rules they will adopt for using EDII
ED transaction. It establishes the rules they will adopt for using
EDI/EC transactions. It details the individual roles and legal
responsibilities of trading partners for transmitting, receiving,
and storing electronic messages. The signing of an interchange
agreement signifies that the parties intend to be bound by it,
and that they desire to operate within a legal framework. This
can help reduce legal uncertainty in the electronic environment.
Many of the conventions and agreements relating to interna-
tional trade do not anticipate the use of EDIIEC. Many
national laws, as noted above, also introduce uncertainty
regarding the legal validity of electronic document. There are still
very few national and international judgments ruling” on the
validity of electronic documents, messages or signatures. It” is
precisely in this kind of a scenario where clear legal rules and
principles are absent ,that an interchange agreement provides
trading partners with readily available solutions the EDI/EC
relationship between them. It provides a strong legal frame-
work for ensuring that electronic documents will have a legal
binding effect, subject to national laws and regulations.
The issues, which were addressed by the working party, which
prepared this model Interchange Agreement, are as follows:
1.Selection of EDI messages, standards and the methods of
communication.
2.Responsibilities for ensuring that the equipment, software and
services are operated and maintained effectively;
3.Procedures for making any systems changes which may impair
the ability of the trading partners to communicate. .
4.Security procedures and services;
5.The points at which EDI messages have legal effect;
6.The roles and contracts of any third-party service providers;
7.Procedures for dealing with technical errors;
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8.The need (if any) for confidentiality;
9.Liabilities in the event of any delay or failure to meet agreed
EDI communications requirement;
10.The laws governing the interchange of EDI messages and
the arrangements of the parties.
11.Methods for resolving any possible disputes.
The interchange agreement is flexible enough to meet the
requirement of all business sectors involved in international
trade. Trading partners can feel confident that it addresses the
recoginsed legal issues arising from commercial use of EDI in
international trade, and provides a strong legal and practical
framework for considering and recording the necessary business
decisions.
Legal Issues for Internet Commerce
Internet commerce raises legal issues through the provision of
the following services:
· Online marketing
· Online retailing ordering of products and services
· Financial services such as banking and trading in securities.
· Exchange of electronic messages and documents
· EDI, electronic filing, remote employee access, electronic
transactions.
· Trade and commerce over the Internet give rise to several
legal issues as given below.
Copyright and the Internet
Copyright developed in the printed world to protect the
economic interests of creative writers. Copyright law protects
only the expression of an idea and idea itself. In due course it
protect the originality of artists and innovators too. In recent
times, however, the subject matter of copyright has further
expanded. For example, the Copyright Designs and Patent Act,
1988 in the UK, allows protection of the following subject
matter:
Original literary, dramatic, musical and artistic works;the
typographical arrangement of published editions of literary,
dramatic or musical works; sound recordings;broadcasts; cable
programs
These have been broadly classified into two groups as ‘author
works’ and ‘media works’ by Hector L. Macqueen. The multi-
media capability of websites enables all types of work to be
‘published’ on the Internet in the sense that copies can be
distributed to users/customers. The problems, however, is that
unlike a paper copy, this copy can be readily duplicated and
distributed further by the recipient. If the material is in the
public domain there are no difficulties. But the copyright law
applies to the downloaded matter, much the same way it
applies to physical copies.
Issues Related to Jurisdicary
The Internet allows anyone to set up a Website anywhere in the
world. Its location could, however, be interpreted to decide the
jurisdiction of disputes especially in EC. A Website may accept
orders from visitors to the site as part of an Internet store or a
shopping mall. For example, amazon.com is a bookstore
retailing books. A court law may rule that the location of the
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Website determines the jurisdiction for that business. This is based
on accepted legal practice. Jurisdiction determines which laws would
be acceptable. EC on the Internet will grow if the parties doing
business know what rules will govern what rules govern their
activities.
Service Provider liability
Many ISPs provide users access to shared websites, Usenet news, E-
mail distribution list etc. These facilities can because by their users to
upload unlawful, defamatory, copyright or trademarks infringing
material. Unlawful material includes banned publications, hate
propaganda, pornography and obscene material, without ISP having
chance to review it. Liability for materials distributed in the Internet
may be different for the Website operators, and the ISPs. AN ISP
could be held liable for the bulletin boards, and for aiding and
abetting the commission of an offence such as the distribution of
photography. Similarly, third-party liability for defamation,-web
sites, etc: “Thus the concerns include libel and defamation, liability
for infringement of third-party rights, liability for hosting of
unlawful materials.
Formation of an Enforceable Online Contract
The growth of EC on the Internet depends to a large extent on the
confidence of traders in forming legally enforceable contracts online.
The key activities associated with the formation of an enforceable
contract do take place on the Internet, viz. offer is communicated by
the acceptor and acceptance is received by the offer or from the
acceptor. An offer can be communicated orally or in writing; and in
the EC environment through E-mail, E-form is valid, much the
same way a fax message is. The offer or can display terms and
conditions as a legal notice, on his website. Visitor to the site, who
choose to proceed further, even after reading the notice may be
constructed as accepting the conditions imposed by it. However,
the timing of the acceptance offer determines when the contract is
formed. In this case the E-mail of acceptance has to reach the offer or
who may say that the contract will be legal only after its receipt (in
his notice placed on the Website).
Legal issues are manifold. Whether it is EDI over VANs, or EC
over the Internet the primary concern of users is the existence, and
enforceability of appropriate laws for EC. ‘n case of dispute,
electronic document must be acceptable as legal evidence in courts
of law. While the problems of acceptance of and confidence in
electronic transactions are there, they are not insurmountable. There
is sufficient awareness in, and synergy of action among trade, legal
and EC technology communities to make EC happen through
appropriate developments in their respective areas.
Notes

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