consumer protection in e-commerce
TRANSCRIPT
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Project Report
On
CONSUMER PROTECTION IN E-COMMERCE
Submitted by Niharika Swaroop
Under the guidance of Dr. Dipa Dube
Rajiv Gandhi School of Intellectual Property Law
IIT Kharagpur
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Table of Contents
Who is a Consumer? .........................................................................................................................................2
Consumer Protection Act, 1986 .......................................................................................... 2
Scope and Objective of Act........................................................................................................ 3
What is E-Commerce? ................................................................................................................ 4
Challenges faced by E-
Commerce……………………………………………………………………………………………………….…7
Consumer Concerns................................................................................................................ 8
Legal and Consumer Issues related to E-Commerce…………………………………………10
E-Contract and Consumer Fraud Cases………………………………………………………… ………17
Consumer Dispute Redressal
Agencies…………………………………………………………………………………………………………….…..20
Conclusion…………………………………………………………………………………………………………….24
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1. Introduction E-Business links employees and internal business processes through intranets,
the business relations with suppliers, customers through extranets and finally
exchanging goods/services for a value. Goods/services can be directly delivered
on the net or by conventional mode and similarly payment can be effected
through electronic means or by conventional mode. Indeed, designing the
effective and secured payment system is one of the roadblocks to the full-fledged
growth of e-commerce. The importance of trust will likely increase as more
websites move toward transaction processing with identifiable partners. While
consumer trust of websites has received attention in the literature, little
attention has been paid to the trust and security concerns of the businesses that
are implementing the websites.
Methodology
Finding primary authority (cases, statutes, regulations)
Locating the primary authority- Landmark Cases.
Finding secondary authority about a specific legal topic (opinions, maxims)
Finding non-legal sources for supporting information.
Evaluation of the research
Re-evaluation of the research
Present Status
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2. Who is a Consumer? A consumer means any person who—
i. Buys any goods for a consideration which has been paid or promised or partly
paid and partly promised, or under any system of deferred payment, and
includes any user of such goods other than the person who buys such goods for
consideration paid or promised or partly paid or partly promised, or under any
system of deferred payment when such use is made with the approval of such
person, but does not include a person who obtains such goods for resale or for
any commercial purpose; or
ii. Hires or avails of any services for a consideration which has been paid or
promised or partly paid and partly promised, or under any system of deferred
payment, and includes any beneficiary of such services other than the person
who hires or avails of the services for consideration paid or promised, or partly
paid and partly promised, or under any system of deferred payment, when such
services are availed of with the approval of the first mentioned person;
Explanation.—For the purposes of the sub-clause (i.), “commercial purpose”
does not include use by a consumer of goods bought and used by him
exclusively for the purpose of earning his livelihood, by means of self-
employment.1
1.1 Consumer Protection Act, 1986
According to the Preamble, which can provide useful assistance to ascertain the
legislative intention of the Consumer Protection Act, the Act was enacted , to
provide for the protection of the interest of consumers. Use of the word
‘protection’ furnishes key to the minds of makers of the Act.
The importance of the Act lies in promoting welfare of the society by enabling
the Consumer to participate directly in market economy. It attempts to remove
the helplessness of a consumer which he faces against powerful business,
described as ‘a network of rackets’ or a society in which, producers have secured
power to rob the rest and the might of public bodies which are degenerating into
storehouses of inaction where papers do not move from one desk to another as
a matter of duty and responsibility leaving the common man helpless,
bewildered and shocked.
1 Section 2(d), Consumer Protection Act,1986 as mentioned in Justice D.P Wadhwa, N.I Rajah, “The law of
Consumer Protection” ,LexisNexis Butterworth Wadhwa
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The legislature has taken precaution not only to define ‘complaint’,
‘complainant’, ‘consumer’ but even to mention in detail what would amount to
unfair trade practice by giving and elaborate definition in clause (r) and even to
define ‘defect’ and ‘deficiency’ by clauses (f) and (g) for which a consumer can
approach the Commission. The Act thus aims to protect the economic interest of
a consumer as understood in the commercial sense, as a purchaser of goods and
in the larger sense user of service. It is a milestone in history of socio-economic
legislation and is directed toward achieving public benefit.
The Act has to be construed in favour of the consumer to achieve the purpose of
enactment as it is a social benefit oriented legislation. The primary duty of the
court while construing the provision of such an act is to adopt a constructive
approach subject to that it should not do violence to the language of the
provisions and is not contrary to the attempted objective of the enactment.2
The Consumer Protection Act is one the benevolent pieces of legislation
intended to protect a large body of consumers from exploitation. The Act
provides for an alternative system of consumer justice by summary trial. The
authorities under the Act exercise quasi-judicial powers for redressal of
consumer disputes and it is one of the postulates of such a body that is should
arrive at a conclusion by such a forum. The necessity to provide reasons,
howsoever, brief in support of its conclusion by such a forum, is too obvious to
be re-iterated and needs no emphasising. Obligation to give reasons not only
introduces clarity but it also excludes, or at any rate minimises, the chances of
arbitrariness and the higher forum can test the correctness of those reasons.3
1.2 Scope and Object of Consumer Protection Act, 1986
The scope and object of the said legislation came up for the consideration before
this court in Common cause, A registered society v Union of India4 it was held : The object of the legislation, as the preamble of the Act proclaims, is ‘for better
protection of the interests of consumers’. During the last few years in this
country preceding the enactment there was in this country a marked awareness
among the consumers of goods that they were not getting their money’s worth
and were being exploited by both traders and manufacturers of consumer goods.
The need for consumer redressal fora was, therefore, increasingly felt.
Understandably, therefore, legislation was introduced and enacted with
2 Lucknow Development Authority v M.K Gupta, (1994) 1 SCC 243 : AIR 1994 SC 787 : (1994) 80 Comp Cas 714 :
(1994) 13 CLA 20 : (1994) 1 CLC 1 : (1994) 1 CPR 569 3 Charan Singh v Healing Touch Hospital, (ANAND C.J) AIR 2000 SC 3138 : 2000 (7) SCC 668, 673
4 (2002) 6 SCC para 2, 730 : 1993 (1) CPJ (SC) 1
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considerable enthusiasm and fanfare as a path-breaking benevolent legislation
intended to protect the consumer from exploitation by unscrupulous
manufacturers and traders of consumer goods. A three-tier for a comprising the
District forum, the State Commission and the National Commission came to be
envisaged under the act for redressal of grievances of consumers.
The object and purpose of enacting the Act is to render simple, inexpensive and
speedy remedy to the consumers with complaints against defective goods and
deficient services. Prior to the Act, consumers were required to approach the
civil court for securing justice for the wrong done to them and it is a known fact
that decision in a suit takes years.5
1. What is E-Commerce?
To many people, the term electronic commerce (sometimes shortened to e-
commerce) (Kalakota & Whinston 1999) means shopping in the part of the
internet called the World Wide Web. However, e-commerce has a much broader
scope and encompasses many more business activities other than just web
shopping. Some people and businesses use the term electronic business (or e-
business) when they are talking about e-commerce in this broader sense. In this
paper, we will use the term e-commerce in its broadest definition. Although the
web has made online shopping possible for many businesses and individuals, in a
broader sense, e-commerce has existed for many years. For decades, banks have
been A glossary of technical terms in e-commerce is given at the end of the paper
using electronic funds transfers (EFTs) (Schneider & Perry 2001), which are
electronic transmissions of account exchange information over private
communications networks.
Businesses also have been engaging in a form of e-commerce, known as
electronic data Inter-change (EDI), for many years. EDI occurs when one
business transmits computer readable data in standard format to another
business. In the 1960s, businesses realized that many of the documents they
exchanged related to the shipping of goods – such as invoices, purchase orders,
and bills of lading – and included the same set of information for almost every
transaction6. They also realized that they were spending a good deal of time and
money entering these data into their computers, printing paper forms, and then
re-entering the data on the other side of the transaction. Although the purchase
order, invoice, and bill of lading for each transaction contained much of the same
5 J.J Merchant (Dr) v. Shrinath Chaturvedi, (2002) 6 SCC 635 ; AIR 2002 SC 2931
6 Bergeron, F. and Raymond, L. (1997). “Managing EDI for Corporate Advantage: A Longitudinal Study,” Information & Management, vol. 31, no. 6, pp. 319-333.
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information, each paper form had its own unique format for presenting that
information7.
By creating a set of standard formats for transmitting that information
electronically, businesses were able to reduce errors, avoid printing and mailing
costs, and eliminate the need to re-enter data. Businesses that engage in EDI with
each other are called trading partners. The standard formats used in EDI contain
the same information that businesses have always included in their standard
paper invoices, purchase orders, and shipping documents8. A good definition of
e-commerce would mention the use of electronic data transmission to
implement or enhance any business process. Some people use the term “internet
commerce” to mean e-commerce that specifically uses the internet or the web as
its data transmission medium9. IBM has defined electronic business to be “the
transformation of key business processes through the use of Internet
technologies”.
2.1 Advantages of e-commerce
The main opportunities of e-commerce to businesses and corresponding benefits
to consumers include:
Worldwide access and greater choice
Enhanced competitiveness and quality of service
Mass customization and personalized products and services.
New business opportunities and new products and services
E-commerce can increase sales and decrease costs. A virtual community is a
gathering of people who share a common interest, but, instead of this gathering
occurring in the physical world, it takes place on the internet10.
Businesses can use e-commerce in their purchasing processes to identify new
suppliers and business partners. Negotiating price and delivery terms is easier in
e-commerce, because the web can provide competitive bid information very
efficiently. E-Commerce increases the speed and accuracy with which businesses
can exchange information, which reduces costs on both sides of transactions11. E-
7 The house of secure e-commerce http://www.istart.co.nz/index/HM20/PC0/PV21902/EX24014/AR25056 Last Visited 2:38pm , 26TH October, 2011. 8 E-Commerce security. www.upu.int/security/en/e-commerce-securityen.pdf Last Visited 2:50pm, 26th October, 2011. 9 The state of e-commerce security. http://www.newsfactor.com/perl/story/19462.html Last Visited
3:45pm, 26th October, 2011. 10 Kalakota R, Whinston A B 1999 Frontiers of e-commerce (Reading, MA: Addison-Wesley/Longman) 11Schneider G P, Perry J T 2001 Electronic commerce. Course Technology, Cambridge, MA
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Commerce provides buyers with a wider range of choices than traditional
commerce, because they can consider many different products and services from
a wider variety of sellers. The benefits of e-commerce also extend to the general
welfare of society. For example, distance education is making it possible for
people to learn skills and earn degrees no matter where they live or what hours
of the day they have available for study12.
2.2 Disadvantages of e-commerce
E-Commerce also has its disadvantages. Most of the disadvantages of e-
commerce today are due to the newness and rapidly developing pace of the
underlying technologies13.
Return on investment numbers is difficult to compute for investments in e-
commerce, because the costs and benefits are hard to quantify. Costs, which are a
function of technology, can change dramatically during even short-lived e-
commerce implementation projects, because the underlying technologies change
rapidly. In addition to technology issues, many businesses face cultural and legal
impediments to e-commerce. Some consumers are still somewhat fearful of
sending their credit card numbers over the Internet14. The legal environment in
which e-commerce is conducted is full of unclear and conflicting laws. In many
cases, government regulators have not kept up with technologies. As more
businesses and individuals find the benefits of e-commerce compelling, many of
these technology- and culture-related disadvantages will disappear.
Another important issue is security. Transactions between buyers and sellers in
e-commerce include requests for information, quotation of prices, placement of
orders and payment, and after sales services. The high degree of confidence
needed in the authenticity, confidentiality, and timely delivery of such
transactions can be difficult to maintain where they are exchanged over the
Internet. The interception of transactions, and in particular credit card details,
during transmission over the Internet is often a major obstacle to public
confidence in e-commerce.
12 Mahathir Mohamad. Global Bridges to the Information Age. A speech delivered at the Conference
for Investors in the Multimedia Super Corridor at the University of California, Los Angeles, on January 15, 1997. 13 Baldwin. L. P and Currie, W. L. (2000), “Key Issues in Electronic Commerce in Today’s Global Information, Infrastructure,” Cognition, Technology & Work, vol 2. pp. 27-34 14 Ho, J. (1997). “Evaluating the World Wide Web: A Global Study of Commercial Sites,” Journal of Com- puter-Mediated Communication (JCMC), Vol. 3, No. 1, June, http://www.ascusc.org/jcmc/vol3/issue1/ ho.html (Accessed May 8, 2000).
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2.3 Challenges for E-commerce :
Internet based e-commerce has besides, great advantages, posed many threats because
of its being what is popularly called faceless and borderless. Some examples of ethical
issues that have emerged as a result of electronic commerce. All of the following
examples are both ethical issues and issues that are uniquely related to electronic
commerce15.
Ethical issues:
Jackie Gilbert Bette Ann Stead (2001),reported the following ethical issues
related to e-commerce.
a) Privacy
Privacy has been and continues to be a significant issue of concern for both
current and prospective electronic commerce customers. With regard to web
interactions and e- commerce, Privacy consists of not being interfered with,
having the power to exclude; individual privacy is a moral right. Privacy is "a
desirable condition with respect to possession of information by other
persons about him/herself on the observation/perceiving of him/herself by
other persons".
b) Security concerns
In addition to privacy concerns, other ethical issues are involved with
electronic commerce. The Internet offers unprecedented ease of access to a
vast array of goods and services. The rapidly expanding arena of "click and
mortar" and the largely unregulated cyberspace medium have however
prompted concerns about both privacy and data security.
c) Other ethical issues
Manufacturers Competing with Intermediaries Online "Disintermediation," a
means eliminating the intermediary such as retailers, wholesalers, outside
sales reps by setting up a Website to sell directly to customers.
Disintermediation include (1) music being downloaded directly from
producers (2) authors distributing their work from their own Web sites or
through writer co-operatives.
Perceptions of risk in e-service encounters
Mauricio S. Featherman, Joseph S. Valacich & John D. Wells(2006) reported that
as companies race to digitize physical-based service processes repackaging them
15
Andrew D. Mitchell(2001);Towards compability: The future of e-commerce within the global trading system; Journal of International Economic law; 2001; pp.683-723
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as online e-services, it becomes increasingly important to understand how
consumers perceive the digitized e-service alternative. E-service replacements
may seem unfamiliar, artificial and non-authentic in comparison to traditional
service processing methods. Consumers may believe that new internet-based
processing methods expose them to new potential risks the dangers of online
fraud , identity theft and phishing swindles means schemes to steal confidential
information using spoofed web sites, have become commonplace, and are likely
to cause alarm and fear within consumers16.
E-commerce Integration
Beside many an advantages offered by the education a no. of challenges have
been posed to the recent education system. Zabihollah Rezaee, Kenneth R.
Lambert and W. Ken Harmon(2006) reported that E-commerce Integration
assures coverage of all critical aspects of e-commerce, but it also has several
obstacles. First, adding e-commerce materials to existing business courses can
overburden faculty and students alike trying to cope with additional subject
matter in courses already saturated with required information. Second, many
business faculty members may not wish to add e-commerce topics to their
courses primarily because of their own lack of comfort with technology-related
subjects. Third and finally, this approach requires a great deal of coordination
among faculty and disciplines in business schools to ensure proper coverage of e-
commerce education17.
IT Act 2000 and legal system
Beside many an advantages offered by the IT a no. of challenges have been posed
to the legal system. The information transferred by electronic means which
culminates into a contract raises many legal issues which cannot be answered
within the existing provisions of the contract act. The IT act does not form a
complete code for the electronic contracts. Farooq Ahmed(2001) reported that
Some of the multifaceted issues raised are summarized in following manner.
1. Formation of e-contracts
a) Contracts by e-data interchange
b) Cyber contracts
2. Validity of e-transactions.
3. Dichotomy of offer and invitation to treat.
16
Mauricio S. Featherman, Joseph S. Valacich & John D. Wells (2006); Is that authentic or artificial? Understanding consumer perceptions of risk in e-service encounters; Inforamtion System Journal; Vol.16, 2006; pp. 107-134 17
Richard T. Watson and George M. Zinkhan(1997); Electronic commerce strategy: addressing the key questions; Journal Of Strategic Marketing; Vol.5, pp.189-209
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4. Communication of offer and acceptance
5. Mistake in e-commerce
a) Mutual mistake
b) Unilateral mistake
6. Jurisdiction: cyber space transactions know no national and international
boundaries and are not analogous to 3- dimensional world in which common
law principles involved.
7. Identity of parties
The issues of jurisdiction, applicable law and enforcement of the judgments
are not confined to only national boundaries. The problems raised are global
in nature and need global resolution.
Human skills required for E-Commerce:
It's not just about E-commerce; It's about redefining business models,
reinventing business processes, changing corporate cultures, and raising
relationships with customers and suppliers to unprecedented levels of intimacy.
Internet-enabled Electronic Commerce:
1. Web site development
2. Web Server technologies
3. Security
4. Integration with existing applications and processes
Developing Electronic Commerce solutions successfully across the Organization
means building reliable, scalable systems for
1. Security
2. E- commerce payments
3. Supply- chain management
4. Sales force, data warehousing, customer relations
5. Integrating all of this existing back-end operation.
Consumer concerns
The primary concerns for the consumer include:
a) Consumer’s exposure to unfair marketing practices
b) Insufficient information disclosure, for example, refund policies, cancellation
terms, warranty information, Contract terms, for example, their
enforceability
c) Merchandise and delivery practices, for example, failure to perform and
lateness.
d) Payment, for example, recovering fraudulent charges if credit card
information falls into criminal hands.
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e) Transaction confirmation and cancellation policies, for example, consumer’s
lack of knowledge on cancellation rights for online transactions, including for
mistakenly made purchases18.
f) Fraud and deception, for example, lack means to authenticate merchandise
purchased online.
g) Unsafe products.
h) Insecure payment methods
i) Loss of personal privacy
j) Risk misuse of personal information
k) Other concerns include computer fraud, hacking, virus, interception and
alteration of financial data, and misuse of personal information19.
2. E-Commerce : Legal and Consumer Issues
At the heart of e-commerce is the need for parties to be able to form valid and
legally binding contracts online. Basic questions relate to how e-contracts can be
formed, performed, and enforced as parties replace paper documents with
electronic equivalents.
Offer and Acceptance:
The Information Technology Act, 2000 (“IT Act”) deals with contractual aspects
of use of electronic records, such as attribution, acknowledgement, time and
place of dispatch and receipt. However, since the IT Act is only an enabling Act, it
is to be read in conjunction with the Indian Contracts Act, 1872 ("Contract Act").
Formation of any contract, under the Contract Act, would involve three main
ingredients. There has to be an offer, there has to be an acceptance of the said
offer without modification and there has to be some consideration for the
contract. These arises: How do we know whether the offeree has ACCEPTED the
offer?
Additionally, Internet communication does not consist of a direct line of
communication between the sender and receiver of e-mail as in ordinary means
of communication. The message is broken into chunks in the process of delivery.
This raises issues of the exact time of communication of acceptance of the
contract as such a time is critical for determination of the rights of the parties.
The IT Act has laid down certain methods for determining the exact time and
place of despatch and receipt of the e-mail.
18 Ding, Julian. 1999. E-Commerce: Law and Practice. Kuala Lumpur: Sweet and Maxwell Asia. 19 Finnis, John A. 2003. The Internet and its likely Impact upon Society, Business and the Economy.
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Clickwrap contracts:
Further, various issues arise whether a person would be bound by the terms of a
contract without even reading it or without being able to negotiate the terms.
For e.g., website XYZ.com offers its newsletters by simply filling in the name and
e-mail address on the form provided and then clicking the 'SUBSCRIBE' button
after reading and agreeing to the terms and conditions in the Subscriber’s
Contract. If Mr. A fills in his name and e-mail address and clicks SUBSCRIBE, but
actually does not take the time to look at, let alone read, the Subscriber's
Contract. Would this amount to a contract with XYZ? This is an example of a
"clickwrap contract" which is legally enforceable. But in such a case, some of the
issues that would need to be addressed are as to what would be the terms of the
contract and would the acceptance of the Subscriber’s Contract without even
reading it be classified as deemed acceptance?
Online Identity:
Transactions on the Internet, particularly consumer-related transactions, often
occur between parties who have no pre-existing relationship, which may raise
concerns of the person’s identity with respect to issues of the person’s capacity,
authority and legitimacy to enter the contract. Digital signatures, is one of the
methods used to determine the identity of the person. The regulatory framework
with respect to digital signatures is governed by the provisions of the IT Act.
However, various countries have different legislations regulating digital
signatures20 under the “Authentication” section.
Security over the Internet is of immense importance to promote e-commerce.
Companies that keep sensitive information on their websites must ensure that
they have adequate security measures to safeguard their websites from any
unauthorised intrusion. A company could face security threats externally as well
as internally. Externally, the company could face problems from hackers, viruses
and trojan horses. Internally, the company must ensure security against its
technical staff and employees. For example, a company could have an adequate
security policy that would bind the all people working in and with the company.
Moreover, a company could also be held liable for inadequate security
procedures on its website. For example, last year, a person decided to sue Nike
because the Nike’s website was hacked and the contents of the domain were re-
directed through the person’s web servers in the U.K., bogging them down and
20 ProCD v. Zeidenberg, available at http://www.law.emory.edu/7circuit/june96/96-1139.html (Last Accessed 4:00pm. 27th October,2011)
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costing the web hosting company time and money. Though the Internet
eliminates the need for physical contact, it does not do away with the fact that
any form of contract or transaction would have to be authenticated.
Digital Signatures to be used as authentication tools:
The IT Act stipulates that digital signatures should be used for the purposes of
authenticating an electronic contract. The digital signature must follow the
Public Key infrastructure (“PKI”). This acts as a limitation on the use of any other
technology for authentication purposes. If Indian ecommerce companies use
some other form of authentication technology, it could be said that there has
been no authentication at all.
3. Privacy and Data Protection
An important consideration for every e-commerce website is to maintain the
privacy of its users. Use of innovative technologies and lack of secure systems
makes it easy to obtain personal and confidential information about individuals
and organisations. In July 2001, a dozen privacy groups filed a complaint in the
US about the privacy issues in Microsoft’s Windows XP operating system. Some
features of the Operating System store personal information such as passwords
and credit card data so that users are not required to constantly re-enter this
information as they surf through websites. However, though the Operating
System was launched successfully on October 25, 2001, privacy groups have still
have criticised the Federal Trade Commission of not taking any action on the
complaint:
a) dissemination of sensitive and confidential medical, financial and personal
records of individuals and organisations;
b) sending spam (unsolicited) e-mails;
c) tracking activities of consumers by using web cookies; and unreasonable check
and scrutiny on an employee’s activities, including their email correspondence.
Presently there exists no legislation in India that upholds the privacy rights of an
individual or organisation against private parties. While the Constitution of India
upholds the right to privacy as a fundamental right of every citizen21, the right is
exercisable only against a State action. Even the IT Act addresses the issue of
protecting privacy rights only from Government action22.
21 Article 19 (1)(a) and Article 21 of the Constitution. Refer to Unni Krishnan, J.P. v. State of AP (1993) 1
SCC 645, Kharak Singh v. State of U.P AIR 1963 SC 1295, Gobind v. State of Madhya Pradesh (1975) SCC
(Cri) 468. & People's Union of Civil Liberties v. the Union of India (1997) 1 SCC 318. 22 Section 69 and Section 72 of the Information Technology Act, 2000
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Nevertheless, in order to gain the confidence of a wary consumer, protecting
their privacy rights is a critical concern. For example, if an e-commerce website
seeks information from a user and disseminates this information to third parties,
it would amount to a violation of the privacy rights of the user and this may turn
away existing and potential users from accessing the site in the future.
Moreover, when an e-commerce company caters to consumers in foreign
jurisdictions, the foreign jurisdictions may have laws that could make the e-
commerce company liable for violating the foreign consumer’s privacy rights.
For example, Company A in India, that receives some personal data from a
consumer in the European Union, and disseminates the information to
companies in the US, may be liable for invasion of privacy rights of the consumer.
Intellectual Property Rights
One of the foremost considerations that any company intending to commence
ecommerce activities Should bear in mind is the protection of its intellectual
assets. The Internet is a boundless and unregulated medium and therefore the
protection of intellectual Property rights ("IPRs") is a challenge and a growing
concern amongst most e-businesses. While there exist law in India that protect
IPRs in the physical world, the efficacy of these laws to safeguard these rights in
e-commerce is uncertain. Some of the significant issues that arise with respect
protecting IPRs in e-commerce are discussed hereunder.
a) Determining the subject matter of protection:
With the advent of new technologies, new forms of IPRs are evolving and the
challenge for any business would be in identifying how best its intellectual assets
can be protected. For example, a software company would have to keep in mind
that in order to patent its software, the software may have to be combined with
physical objects for it to obtain a patent.
b) Ascertaining novelty I originality:
Most intellectual property laws require that the work / mark / invention must be
novel or original. However, the issue is whether publication or use of a work I
invention I mark in electronic form on the Internet would hinder a subsequent
novelty or originality claim in an IPR application for the work / invention / mark.
c) Enforcing IPRs
If ‘Company A’ has a trademark registered in India for software products, but a
web portal based in the US uses the same trademark for marketing either
software products or for marketing some other goods, it may become difficult for
Company A to sue for infringement. Moreover, due to differences in laws of
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different nations, what constitutes infringement in one country may not
constitute infringement in another. Further, even if Company A succeeds in
proving an infringement action, since the IPR that it owns is only valid for India,
the scope of remedies that may be available to Company A would be territorial
and not global. Thus, the web-portal may be restrained from displaying its site in
India or may have to put sufficient disclaimer’s on its website. In order to
restrain infringement in other countries, Company A may need to file
proceedings those countries also. This process may prove to be time-consuming
and expensive for the aggrieved Company.
a) Protection against unfair competition:
Protection against unfair competition coverse a broad scope of issues relevant
for electronic commerce. So far, electronic commerce has not been subject to
specific regulations dealing with matters of unfair competition. Companies on
the Internet, have to constantly adapt to and use the particular technical features
of the Internet, such as its interactivity and support of multimedia applications,
for their marketing practices. Problems may arise with regard to the use of
certain marketing practices such as (i) Interactive marketing practices (ii)
spamming (discussed under theb“Privacy and Data Protection” section) and
(iii) immersive marketing. Further, questions regarding the territorial
applicability of such standards would also arise.
b) Domain Names
A company that commences e-commerce activities would at first have to get its
domain name registered. While registering domain names, if the company
chooses a domain name that is similar to some domain name or some existing
trademark of a third party, the company could be held liable for cybersquatting.
Over the past few years, domestic and international fora have handled and
decided numerous cyber-squatting disputes. Recently the “.info” top-level
domain was opened for registration and within no time the WIPO has already
received two cases for dispute settlement23.
Jurisdiction
In addition to the nature of corporate structure, decisions will also have to be
taken with respect to the jurisdiction in which the corporate structure should be
situated, as it will determine the extent of any liability that may arise against the
23 http://www.it.mycareer.com.au/breaking/2001/10/22/FFX18I063TC.html (Last Accessed 4:50pm October 30th.2011),
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website. According to the traditional rules of private international law, the
jurisdiction of a nation only extends to individuals who are within the country or
to the transactions and events that occur within the natural borders of the
nation24. However, in e-commerce transactions, if a business derives customers
from a particular country as a result of their website, it may be required to
defend any litigation that may result in that country. As a result, any content
placed on a website should be reviewed for compliance with the laws of any
jurisdiction where an organisation wishes to market, promote or sell its products
or services as it may run the risk of being sued in any jurisdiction where the
goods are bought or where the services are availed of.
The fact that parties to a contract formed through the Internet may be located in
different jurisdictions may have implications for the interpretation and
enforcement of the contract. For example, XYZ, a company in London, having its
server in USA, may sell its products to customers in India or other countries. In
such a situation, if you receive defective goods or if you regret having made the
purchase, the question would arise as to which jurisdiction can you sue the
company or claim damages or withdrawal respectively. The company, on the
other hand, might find itself confronted with foreign laws, which he may not be
aware of. For example, the US courts have in numerous cases have held a
company in X state liable in Y state on the basis that the website could be
accessed in Y state25.
Action, against the host company, may be by way of a civil law suit, criminal
prosecution or an action by regulators. The US courts have developed the
“minimum contacts” theory whereby the courts may exercise personal jurisdiction
over persons who have sufficient minimum contacts with the forum state. These
"minimum contacts" may consist of physical presence, financial gain, stream of
commerce, and election of the appropriate court via contract. Various courts have
held that statements purposely directed at the forum may create sufficient
contacts for jurisdiction. This would mean that even if you are not physically
present in a nation, you can be sued in that foreign court as long as your website
has minimum contacts with that nation. Therefore, a company should insert
appropriate choice of law and choice of forum clauses in its online contract, which
should specify the jurisdiction to which the parties to the contract would be
subject to. Such clauses have been held by courts to be binding upon the parties.
24
Private International Law”, Cheshire and North, 11 Ed. pg. 188 25 California Software Incorporated v. Reliability Research, Inc., 631 F. Supp. 1356 (C.D. Cal. 1986) cited from Julian S. Millstein et al Doing Business on the Internet: Forms and Analysis (1999)
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Liability
Owners of websites should guard against the potential sources of liability which
could lead to legal claims against them. Since the Internet knows no boundaries,
the owner of a website could be confronted with legal liability for non-
compliance or violation of laws of almost any country. Liability may arise due to
various activities inter alia due to hyperlinking (inserting a clickable link to
another site) and framing (incorporating another website into a frame or
window appearing within a webpage on the linking site)26, Fraud, libel and
defamation27, invasion of privacy, trademark and copyright infringement.
a) Contractual Liability:
A website that offers goods or services should contain an online contract to which
the customer must assent. The contract needs to be carefully drafted to protect the
website owner from liability and should address the key terms and conditions for
the provisions of goods or services. The contract should clearly establish the exact
time and manner of acceptance of the contract. In the event of dispute or breach of
contract, the liability of the owner of the website would be limited only to the
extent of the terms of the contract.
b) Statutory liability
Depending on the type of business, a website would have to comply with the
provisions of the law, central or state, in that jurisdiction. But various nations
differ with respect to statutory compliances and permitted activities. The
website would therefore, in addition to the state laws, be required to comply
with the provisions of the statutes of the countries in which the website would
be vastly accessed. Failure to comply with such foreign laws may lead to liability
under such law. For example, an Indian company using comparative advertising
on the worldwide web, not knowing that such practices are prohibited in
Germany and France may be liable for violation of the laws of Germany or
France.
26 Washington Post Co. v TotalNews, 97 Civ. 1190 cited from Richard D. Harroch, Esq. Start-up and Emerging Companies: Planning, Financing, and Operating the Successful Business (Vol 2 Revised Ed.) 27 New York Times Co. v Sulllivan, 376 US 254 (1964) cited from Richard D. Harroch, Esq. Start-up and Emerging Companies: Planning, Financing, and Operating the Successful Business (Vol 2 Revised Ed.)
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c) Tortuous Liability:
Liability under tort may arise due to wrongful interference with the business or
wrongful defamation or any remark or action that may cause injury to one’s
property or reputation. Thus, although no contractual relationship may exist as
well as where the interference or damage is unintentional, the website owner
may be liable for wrongful injury. The law of torts lays down a duty on every
man to take reasonable care to avoid any harm to nay person. The owner of the
website also owes a duty to the user and is bound to take reasonable care to
avoid any harm that may be done.
The massive growth of e-commerce business has not gone unseen by the tax
authorities. Realising the potential of earning tax revenue from such sources, tax
authorities world over are examining the tax implications of e-commerce
transactions and resolving mechanisms to tax such transactions. In India the
High Powered Committee was constituted by the Central Board of Direct Taxes,
which submitted its report in September 2001.
4. E-Contract and Consumer Fraud Cases
As electronic commerce has grown, the inevitable fallout from failed transactions
and business relationships has resulted in a developing body of case law. In some
cases, the legal issues governing the analysis of electronic commercial
transactions are no different from those applied in a more traditional
commercial setting. In other areas, however, the law has had to adapt to take into
account the new and different realities created by e-commerce.
Hotmail Corporation v. Van$ Money Pie Inc28.
Summary - This is the first case implicitly holding that a clickwrap contract,
specifically a "terms of service" e-mail agreement, is valid.
Analysis- While this case does not contain any real discussion of the
enforceability of "clickwrap" agreements, it is the first decision to implicitly
uphold the validity of these agreements by finding that the plaintiff was likely to
prevail on its claim that the defendant breached a contract - here, the "Terms of
Service" to which every user of the plaintiff's e-mail services agreed. The
plaintiff, a provider of e-mail services on the Internet, required that subscribers
28 47 U.S.P.Q. 2d 1020, 1998 WL 388389 (April 1998, N.D.Cal.)
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to its service agree to abide by its "Terms of Service" which prohibited using a
Hotmail account for the purposes of sending spam and/or pornography. In
granting the plaintiff's request for a preliminary injunction, the court held that
the evidence supported a finding that plaintiff would likely prevail on its breach
of contract claim by demonstrating that the defendants obtained a number of
Hotmail mailboxes and access to Hotmail's services, that "in doing so defendants
agreed to abide by Hotmail's Terms of Service, and that they breached that
agreement by using Hotmail's services to facilitate sending spam and/or
pornography."
ProCD Inc. v. Zeidenberg29,
Summary - In this case, rejecting the buyer's claim that he could not be bound by
the terms of a shrinkwrap license that were not displayed on the outside of a
software box the court determined that the terms of the shrinkwrap license which were not unconscionable, were enforceable because no contract was formed until the buyer "accepted" the terms of the license by electing to keep the software.
Analysis - In ProCD, the Seventh Circuit addressed the issue of whether a
shrinkwrap license that was included with computer software was an
enforceable contract. The lower court had held that because the shrinkwrap
license was inside the box, rather than printed on the outside, it was not
enforceable because the contract was formed when the buyer purchased the
goods, and could therefore not contain "hidden terms" that were not even
disclosed until the box was later opened. The appellate court rejected this
analysis under traditional contract principles and Article 2 of the UCC, holding
that "shrinkwrap licenses are enforceable unless their terms are objectionable
on grounds applicable to contracts in general (for example, if they violate a rule
of positive law, or if they are unconscionable.)" In so holding, the court
concluded that no contract was formed by the parties until the buyer "accepted"
the seller's terms by either returning the software after reading the license
agreement or electing to keep the goods. In support of its conclusion that the
contract was not formed until after the license terms were reviewed, the court
observed that "[t]ransactions in which the exchange of money precedes the
communication of detailed terms are common" not only within the software
industry but in the purchase of a wide variety of services such as insurance,
airline tickets and theater concert tickets. The court also focused on the practical
difficulty of informing every customer of all of the terms contained in an
information license before money changed hands and concluded that a
purchaser could prevent formation of the contract simply by returning the
goods.
29 86 F.3d 1447 (7th Cir. 1996)
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Consumer fraud on the Internet is a natural outgrowth of the recent explosion in
the use of the Internet to conduct consumer transactions and the number of
people on-line. To date, prosecutions for consumer fraud, including claims for
false advertising, unfair and deceptive trade practices, and investment fraud,
have largely been initiated by governmental agencies, including the Federal
Trade Commission, the Securities and Exchange Commission, and the state
Attorneys General. These cases not only discuss tradtional fraud principles in the
context of promotions and "commerce" on-line but often raise issues
concerning personal jurisdiction.
People v. Lipsitz30,
Summary - In this case, a New York court held that the defendant was subject to
personal jurisdiction and liable for violating New York consumer protection
laws, even though the defendant conducted its magazine subscription business
globally over the Internet.
Analysis - In a case characterized by the court as one "apparently [of] . . .
nationwide impression" the Attorney General of New York brought suit to
enforce consumer fraud and false advertising laws under New York's consumer
protection statute, similar to consumer protection laws of other states, and
section 5 of the FTC Act, 15 U.S.C.A.§ 45 against a business physically located
within New York, but using the Internet to conduct its business more globally.
The complaint alleged that the defendant had engaged in fraudulent and
deceptive trade practices on the Internet by using and mis-using e-mail under
various assumed names to sell magazine subscriptions that never arrived or
were only delivered for a portion of the paid subscription period. In granting
relief, the court first ruled that it had personal jurisdiction over the defendant
because the defendants were located in New York, did business in New York and
the acts complained of occurred within the state, notwithstanding the fact that
the magazine subscriptions were offered for sale to a far greater geographic
basis. Nor did prosecution offend the Commerce Clause as the consumer
protection statute under which relief was granted was neither designed nor
aimed at regulating conduct outside New York's borders. The court then
analyzed the defendants' conduct under traditional consumer protection law,
and held that the conduct violated New York laws.
Minnesota v. Granite Gate Resorts, Inc31,
30 663 N.Y.S.2d 468 (N.Y. Sup. Ct. June 23, 1997)
31 569 N.W.2d 715(Mn. App. Ct. 1997)
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In this case, the Minnesota Attorney General brought suit under the state
consumer protection statute alleging that the defendant, a Nevada resident, was
liable for deceptive trade practices, false advertising and consumer fraud on the
Internet by advertising that gambling on the Internet is legal even though the
specific on-line gambling service associated with the defendant was not yet
operational. While the decision is limited to the defendant's unsuccessful
argument that, as a Nevada resident, he was not subject to personal jurisdiction
by the Minnesota courts, it illustrates the extent to which consumer protection
laws are being used by the states to prosecute fraud - even prospective fraud - on
the Internet. On October 31, 1998 the Minnesota Supreme Court agreed to
review the case.
Juno Online Services, L.P. v. Juno Lighting, Inc32
In this dispute over the use of Internet domain names, the court held that the
mere registration of a domain name, without setting up a web site or e-mail
service, does not constitute "trade or commerce" or amount to "deception" as
required by the Illinois consumer fraud and deceptive business practice
statute.
5. Consumer Disputes Redressal Agencies
Redressal Forums have been established at three different levels :-
"District Forum" by State Government. At least one in each district or in
certain cases one District Forum may cover 2 or more districts.
"State Commission" by State Government.
"National Commission" (National Consumer Disputes Redressal
Commission ) by Central Government.
District Forum - This shall consist of :
1. a person who is, or has been, or is qualified to be a District Judge, its President
2. two other members shall be persons of ability, integrity and standing and have
adequate knowledge or experience or have shown capacity, in dealing with
problems relating to economics, law, commerce,accountancy, industry, public
affairs or administration,one of whom shall be a woman.
32 979 F.Supp. 684 (N.D. Ill. 1997)
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Jurisdiction of the District Forum
The District Forum shall have jurisdiction to entertain complaints where the value of
services and compensation claimed does not exceed Rupees Five Lakhs. Manner in
which complaint shall be made
A complaint may be filed with a District Forum by -
1. The consumer to whom such service is provided or is agreed to be provided;
2. Any recognised consumer association, whether the consumer to whom the
service is provided or is agreed to be provided is a member of such association
or not
3. One or more consumers, where there are numerous consumers having the same
interest, with the permission of the district forum, on behalf of or for the benefit
of all consumers so interested
4. The Central or the State Government.
Procedure on receipt of Complaint
The District Forum shall on receipt of a complaint -
1. refer a copy of such complaint to the opposite party directing him to give his version
of the case within a period of 30 days or such extended period not exceeding 15 days as
may be granted by the District Forum ;
2. Where the opposite party, on receipt of a copy of the complaint, denies or disputes
the allegations contained in the complaint, or omits or fails to take any action to
represent his case within the time given by the District Forum, the District Forum shall
proceed to settle the consumer dispute,
(i) On the basis of evidence brought to his notice by the complainant and the opposite
party, where the opposite denies or disputes the allegations contained in the complaint ;
or
(ii) On the basis of evidence brought to its notice by the complainant where the opposite
party omits or fails to take any action to represent his case within the time given by the
Forum ;
(iii) Where the complainant or his authorised agent fails to appear before the District
Forum on such day, the District Forum may in its discretion either dismiss the
complaint in default or if a substantial portion of the evidence of the complainant has
already been recorded, decide it on merits. Where the opposite party or its authorised
agent fails to appear on the day of hearing, the District Forum may decide the complaint
ex-parte.
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(iv) Where any party to a complaint to whom time has been granted fails to produce his
evidence or to cause the attendance of his witnesses or to perform any other act
necessary to the further progress of the complaint, for which time has been allowed, the
District Forum may notwithstanding such default :-
(a) If the parties are present, proceed to decide the complaint forthwith ; or
(b) if the parties or any of them is absent, proceed as mentioned above in (b) (iii) ;
(v) The District Forum may, on such terms as it may think fit at any stage, adjourn the
hearing of the complaint but not more than one adjournment shall ordinarily be given
and the complaint should be decided within 90 days from the date of notice received by
the opposite party where complaint does not require analysis or testing of the goods
and within 150 days if it requires analysis or testing of the goods.
Findings of the District Forum
If, after the proceedings, the District Forum is satisfied that any of the allegations
contained in the complaint about the services are proved, it shall issue an order to the
opposite party directing him to do one or more of the following things :
1. To return to the complainant the charges paid.
2. Pay such amount as may be awarded by it as compensation to the consumer for
any loss or injury suffered by the consumer due to the negligence of the opposite
party.
3. To remove the deficiency in the services in question.
4. To provide for adequate costs to parties.
Appeal against orders of the Dist. Forum
Any person aggrieved by an order made by the District Forum may appeal against such
order to the State Commission within a period of 30 days from the date of the order. The
State Commission may entertain an appeal after 30 days if it is satisfied that there was
sufficient cause for not filing it within that period.
State Commission
1. a person who is or has been a Judge of a High Court , who shall be its President ;
2. two other members ( as for District Forum).
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Jurisdiction of the State Commission
The State Commission has jurisdiction to entertain -
1. Complaints where the value of services and compensation claimed exceeds
rupees 5 lakhs but does not exceed rupees 20 lakhs;
2. appeals against the orders of any District Forum within the state ;
3. revision petitions against the District Forum.
Procedure to be followed by State Commission- Same as for District Forum.
Procedure for hearing appeals
The State Commission may, on such terms as it may think fit and at any stage, adjourn
the hearing of appeal, but not more than one adjournment shall ordinarily be given and
the appeal should be decided within 90 days from the first date of hearing.
Appeals against orders of State Commission
Any person aggrieved by an order made by the State Commission may appeal against
such order to the National Commission within a period of 30 days. The National
Commission may entertain an appeal after 30 days if it is satisfied that there was
sufficient cause for not filing it within that period
National Commission
This shall consist of -
1. a person who is or has been a Judge of the Supreme Court, who shall be its
President. (No appointment under this clause shall be made except after
consultation with the Chief Justice of India)
2. 4 other members ( qualifications : As for District Forum /State Commission ).
Jurisdiction of the National Commission
The National Commission shall have jurisdiction -
(a) to entertain
(i) complaints where the value of services and compensation claimed exceeds rupees 20
lakhs ; and
(ii) appeals against the orders of any State Commission.
(b) to entertain revision petition against the State Commission.
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Procedure to be followed by the National Commission
A complaint containing the following particulars shall be presented by the complainant
in person or by his agent to the National Commission or be sent by registered post,
addressed to the National Commission :-
1. The name, description and the address of the complainant;
2. The name, description and address of the opposite party or parties, as the case
may be, so far as they can be ascertained ;
3. The facts relating to the complaint and when and where it arose ;
4. Documents in support of the allegations contained in the complaint ;
5. The relief which the complainant claims.
The remaining procedure and the procedure for hearing the appeal is similar to that for
State Commission.
Appeal against orders of the National Commission
Any person, aggrieved by an order made by the National Commission, may appeal
against such order to the Supreme Court within a period of 30 days from the date of the
order. The Supreme Court may entertain an appeal after 30 days if it is satisfied that
there was sufficient cause for not filing it within that period.
Limitation Period
The District Forum , the State Commission or the National Commission shall not admit a
complaint unless it is filed within 2 years from the date on which the cause of action has
arisen. In case there are sufficient grounds for not filing the complaint within such
period, extension may be granted.
Dismissal of frivolous or vexatious complaints
Where a complaint instituted before the District Forum, the State Commission or the
National Commission, as the case may be, is found to be frivolous or vexatious, it shall,
for reasons to be recorded in writing, dismiss the complaint and make an order that the
complainant shall pay to the opposite party such cost, not exceeding 10,000 rupees, as
may be specified in the order.
Penalties
Where a person against whom a complaint is made or the complainant fails or omits to
comply with any order made by the District Forum, the State Commission or the
National Commission, as the case may be, such person or complainant shall be
punishable with imprisonment for a term which shall not be less than one month but
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which may extend to three years, or with fine which shall not be less than 2,000 rupees
but which may extend to 10,000 rupees or with both. In exceptional circumstances the
penalties may be reduced further
6. Conclusion
There has been a concern that some of the issues must be addressed.
1. One matter of resolving problems is enacting legislations. The problem with
legislation is that it is rigid and reactive, technologically obsolete by the time it
has been enacted, and often yields unwanted and unanticipated results.
2. Also, in this rapidly changing arena, by the time a final decision is made, the
technology and the economy has probably so changed that this final &
expensive resolution may no longer be relevant.
3. The entire business of e-commerce evolves, so does its sensitivity to ethical
considerations. To those who do business, It is increasingly apparent on the
web that there is an over whelming need to instill ethical values into this
industry. By doing so, dot-coms will not only promote consumer and investor
confidence but ultimately will also benefit.