Let us talk about E-Contracts (II): E-Commerce Business Models

Without any argument, new communication systems, especially digital payment technologies, have supplanted the snail-paced conventional systems of communication and transactions. Business communities and consumers are increasingly using digital means to send and receive information in electronic form. The reason is that the information technology (IT) has abridged the time and distance factor in transacting business. Nowadays, inflow and outflow of information have become instant and momentary. Therefore, one principal contribution of IT is in the field of contract-formation.

Electronic contracts (e-contracts) are born out of the need for speed, convenience and effectiveness. The law has already recognised contract-formation using facsimile, telex and other similar technologies.

Let us envision a contract between an Indian businessman and an English businessman. Away from digital means, one option is that one party first draws up two copies of the contract, signs them and sends (through postal or courier service) them to the other, who, in turn, signs both copies and sends one copy back. The other option would be that the two parties meet somewhere and sign the contract. However, within the digital world, the whole process can be completed in seconds, with both parties simply affixing their electronic signatures to the electronic copy of their contract. There is, thus, no need for tardy dispatching mechanism (postal or courier services) and/or supplementary travelling costs in such a situation.

Before proceeding with the E-Contracts, let us have a brief look at the basics of the business model and kinds of transactions under which e-contracts are mostly used.

E-Commerce Business Models

Electronic commerce (e-commerce), in a very general sense, refers to buying and selling products and services over the internet and the World Wide Web (www). E-commerce, however, in actuality, includes all forms of commercial transactions involving both—organisations and individuals—that are based upon the electronic processing and transmission of data including text, sound, and visual images; and involves transactions over the internet as well. In addition, e-commerce also refers to the effect that the electronic exchange of commercial information may have on the institutions and processes that support and govern commercial activities.

There are several ways of looking at e-commerce:

(1) From a communications perspective, it is the ability to deliver products, services, information, or payments via networks like the internet.

(2) From an interface view, it means information and transaction exchanges: business-to-business (B2B), business-to-consumer (B2C), consumer-to-consumer (C2C), and business-to-government (B2G).

(3) As a business process, e-commerce means activities that support commerce electronically by networked connections. For example, business processes like manufacturing and inventory and business-to-business processes, like supply chain management is managed by the same networks as business-to-consumer processes.

(4) From an online perspective, e-commerce is an electronic environment that allows sellers to buy and sell products, services, and information on the internet. The products may be physical, like cars; or services, like news or consulting, etc.

(5) As a structure, e-commerce deals with various media: data, text, web pages, internet telephony, and internet desktop video.

(6) As a market, e-commerce is a worldwide network. A local store can open a web storefront and find the world at its doorstep—customers, suppliers, competitors, and payment services. Of course, an advertising presence is essential.

Types of Online Transaction

Online transactions can be recognised and categorised in four ways:

Business to Customer (B2C)

It is the transaction where a business entity on one side and an individual customer, on the other hand, conduct business. The expression B2C has been commonly used to refer to a sale by a business enterprise or retailer to a person or ‘consumer’ conducted through the internet. For instance, Flipkart.com which provides facilities for customers to buy goods from the website—is an example of a B2C e-business. In this situation, the website itself serves the purpose of a shop. The B2C transactions can be in relation to both—tangible and intangible products. The focal point of this e-commerce application is on the consumer’s use of a merchant’s web storefront or website. Consumers from any place can browse and order for goods and services online at any time. B2C is an electronic equivalent of the conventional mail-order or telephone-based ordering system.

Business to Business (B2B)

It is the type of e-commerce where there is an exchange of products, services, or information between businesses using the internet, rather than between businesses and consumers. Alibaba.com is the prominent example of B2B model.

Customer to Business (C2B)

Customer to Business (C2B), also known as Consumer to Business, is the most recent e-commerce business model, where individual customers offer to sell products and services to companies that are prepared to purchase them. It is the opposite of the traditional B2C model. Example of this model is blogs or internet forums where the author offers a link back to an online business facilitating the purchase of some product (like a book on Amazon.com), and the author might receive affiliate revenue from a successful sale.

Customer to Customer (C2C)

It is the transaction which involves two or more customers with business entity merely providing a web-based interface to facilitate the consumer to consumer transactions (B2C). The expression C2C generally refers to the sale of a product pertaining to a consumer to another consumer either directly or through an intermediary exclusively dedicated for this activity. One best example of C2C website is Ebay.com, which is an online auction site, where any person can buy and sell, and exchange goods and articles using this website. This website provides the web-based interface (i.e. the website with its database and other functions) and users can transact freely with each other. Another example is Amazon, which in fact, acts as both a B2C and a C2C marketplace.

Recommended Readings

  • Alan Davidson, The Law of Electronic Commerce, Cambridge University Press, (2009).
  • R K Singh, Law Relating To Electronic Contracts (2017)

A Step Ahead: Analysing Indian Arbitration Law in the Context of International Technology Disputes

[This article was first published on the Mapping ADR Blog as authored by Aryan Babele,  you can read this article at http://mappingadr.in/a-step-ahead-analysing-indian-arbitration-law-in-the-context-of-international-technology-disputes/]

Technology-based enterprises are becoming the leaders of the global market in its every aspect. No industry has experienced such explosive growth as has been experienced by the industry of technology-based enterprises; especially in the context of globalization of the economy and the complementary expansion in international trade in recent years. The technology industry is indeed an international sphere due to its components, viz international supplying and distributing networks that have enabled manufacturers to provide their technology products/services to consumers at a global scale. For instance, Biotechnology is high in demand at global scale due to its influence in multiple spheres- medical, environmental, industrial etc., which are facilitated by processes like manufacturing, licensing and distributing. The global economy has given a significant boost to the demands on flexible dispute resolution, including international arbitration, as a means for resolving technology business disputes. This characteristic of technology business has become one of the main driving forces to the fact that the technology industry is progressively adopting arbitration as a dispute resolution method for international transactions where the base of its customers, suppliers and resources is established across multiple jurisdictions. As the competition to become a leader for the proper seat of technology-arbitration is becoming stiffer among nations, it is interesting to note that why arbitration is better than litigation for technology disputes. Further, considering India’s huge Information Technology industry, it is important to analyse the preparedness of the arbitration law of India to handle the international technology arbitrations.

In the technology industry, the contracts between two parties are most often based on the objective to provide services such as to acquire, sell or finance a high-tech business or project; manufacture, distribute and/or deliver; license patents or other intellectual property rights (IPRs); and purchase insurance policies covering risks associated with the production or operation of high-tech assets.[1] Therefore, difficulty with litigation in technology disputes, that arises out of a contract is that it involves multi-faceted issues related to different rights- acquisition, patent, know-how, trade secrets, etc. Fulfilment of liabilities established by such rights needs certain assurances from the national law regarding neutrality, speedy and flexible procedures, fulfilment of intentions and needs of the parties, confidentiality protection, experts’ decision etc.

DISADVANTAGES OF LITIGATION IN INTERNATIONAL TECHNOLOGY DISPUTES

In litigation, the major disadvantage to the parties in a technology dispute is the decision by an inexpert who is not able to appreciate the technicalities of a scientific testimony with little or no knowledge of relevant legislation and regulations. Players in fast-paced technology markets cannot afford to have progress stalled for lengthy and expensive litigation due to unexpected adjournments and options of appeal to higher courts.[2] Public nature of judicial proceedings makes the preservation of confidentiality a problematic task in litigation, which is extremely significant for technology-based enterprises. In litigation there arises a situation where legal actions for a dispute are submitted across multiple jurisdictions simultaneously, leading to uncertain and risky results. In such a scenario, even the litigators find it very uncomfortable to litigate abroad surrounded by unfamiliar foreign laws, regulations, customs, or language. Therefore, given the risks, it is not reasonable for technology-based enterprises to always opt for litigation in order to get resolve the international business disputes.

ARBITRATION: A SUITABLE DISPUTE RESOLUTION MECHANISM

As litigation is not always the best resolution method for the disputes which involve technology-based enterprises, there is a need to explore an alternative dispute resolution mechanism. In an international dispute, the greatest concern for both the parties is the favourability of the substantive and procedural laws of a particular jurisdiction to one or the other party. International arbitration provides the autonomy to the parties to decide the law and the forum which will govern the procedural and substantive aspects of the dispute resolution. As the pace of settling a dispute is given major consideration in commercial disputes, especially for technology business, the inherent characteristic of arbitration proceedings being a cheaper and a quicker process makes it an attractive approach to resolve disputes. As there is no appeal on the merits in arbitration, it is another reason for it being a swifter process than litigation.[3] Even if such an appeal to the Courts for the enforcement of the final award, that is too a streamlined process with time limits on the decision.[4] Arbitration, in contrast to the litigation, assures the confidentiality privilege pursuant to the agreement as it is a private procedure. Further, the availability of uniform rules for international commercial arbitration better meets the requirement of parties in the context of international technology disputes. For example, the success of the New York Convention, 1958, that has been ratified by 145 nations, boosts the confidence in the parties to afford the international arbitration as a mechanism for dispute resolution. Therefore, it is amply clear that all the usual advantages of arbitration in commercial disputes are applicable to the technology disputes making it a more efficient and effective dispute resolution alternative to litigation.

ANALYSING THE ARBITRATION AND CONCILIATION ACT, 1996 IN THE CONTEXT OF INTERNATIONAL TECHNOLOGY DISPUTES

After a lot of serious bureaucratic deliberations and political-intellectual debates, comprehensive overhauling of the Arbitration Act of 1940 resulted in the enactment of the Arbitration and Conciliation Act, 1996. With recent amendments in 2015, considering judgements of the Apex Court of India in cases of Bhatia International v. Bulk Trading[5]and BALCO v. Kaiser[6]it consolidated the domestic as well as international law of arbitration to make it suitable to the international commercial disputes in a better way than ever before. It further reflects the standards of the UNCITRAL model law on international commercial arbitration to promote the neutral and independent arbitral proceedings in India. Almost every provision of the Act 1996 takes into consideration the intent of the parties in one form or another. It also stresses the significance of arbitration agreement providing the instrument for parties to choose the expert decision makers and their powers as arbitrator in the arbitral proceedings.[7]

Privacy is a major concern for the technology disputes and constant interference of the national courts in arbitral proceedings subject it to broader public scrutiny, due to which not only confidentiality but also flexibility, procedural predictability, and informality of arbitral proceeding gets fragmented. The Act of 1996 provides a very limited number of circumstances in which national courts can intervene in arbitral proceedings, allowing arbitrations to take place according to its natural flow. The Act considers the principle of ‘party autonomy’ as the essence of the arbitration. It provides for an arbitral tribunal with power to rule on its own jurisdiction and determine the rules of proceedings[8], in order to ensure proper and expeditious conduct of the arbitration between parties, preserving the party autonomy. It further excludes the intervention from national courts by allowing the continuation of arbitral proceedings and making of final awards, thereby eliminating prospects for the delay.[9] To keep parties responsible towards the arbitral proceedings, the tribunal has powers to further delineate procedural duties on each party that comes with certain obligations such as security for costs and dismissal of the claim, in order to avoid any inordinate delay.[10]

In technology disputes, one of the most sought-after reliefs is interim reliefs as most of the international technology disputes arise from the contracts/license agreements. In such disputes, at the time of any deadlock, it is the aim of the licensor to pause the exploitation of technology and trade secrets. The Act has given the power to the tribunal to order such relief on a provisional basis but that is highly subjected to the scrutiny of national courts.[11] Also, it provides power to the tribunal to make an interim arbitral award at any time of the proceedings.[12] For technology arbitrations, there is a requirement of more specific and clearer provisions. The Act is supposed to confer such power on the arbitral tribunal with more substantiated provisions elaborating on the situations and conditions in which the tribunal can grant such injunctive reliefs.

Further, the Act is also required to make broader provisions regarding the protection of privacy and confidentiality of the details of parties and subject of the arbitral proceedings. It is certainly a big requirement for technology disputes that there be a provision related to blanket cover for issues of protecting the confidentiality. Therefore, particularly in relation to international technology disputes, the Act 1996 is needed to provide greater assurance and discretion to parties in terms of choice of arbitration institution, choice of an expert for arbitration (especially expertise in Telecommunication, Media and Technology laws), and IP infringement disputes.[13]

CONCLUSION

Technology-based enterprises drive the major transformations of the world by providing solutions to some of the greatest conventional anomalies. As there will be more and more research and development of technologies, they would result in more commercial contracts. Trodding the same path, there would soon be a separate pile-up of technology disputes in national courts. Hence, it is the need of the hour for parties to consider other dispute resolution mechanisms that are more expeditious and flexible.

Technology companies are themselves starting to anticipate this and increasingly choosing arbitration to resolve the international disputes, as stated by SVAMC as well.[14] Western nations and developed nations from Pacific Rim t have also understood the significance of resolving the technology disputes in a more speedy manner and have already taken specific actions for rectifying the concerns.

For India, there is a stiff competition ahead to stand as a centre for the arbitration in international technology disputes. There is no doubt that the Arbitration and Conciliation Act, 1996 provides an attractive framework for the resolution of international commercial disputes; but for technology disputes, there is a need to take a step ahead and to incorporate in the Act broader provisions relevant to interim reliefs, more flexible confidentiality clauses, e-case management, efficient e-disclosure review etc. Given India’s established law of arbitration in place and booming IT industry, there is a great opportunity for India to play a leader’s role in resolving international technology disputes.

 

 

[1] Raymond G. Bender, Arbitration- An Ideal Way to Resolve High-Tech Industry Disputes, Dispute Resolution Journal Vol. 65 (4), https://svamc.org/wp-content/uploads/2015/08/Arbitration-An-Ideal-Way-to-Resolve-High-Tech-Industry-Disputes.pdf.

[2] Sandra J. Franklin, “Arbitrating Technology Cases—Why Arbitration May Be More Effective than Litigation When Dealing with Technology Issues,” Mich. Bar J. 31, 32 (July 2001).

[3]Supra note 1.

[4]§34, The Indian Arbitration and Conciliation Act, 1996, Act no. 26 of 1996, Acts of Parliament. (India). https://indiankanoon.org/doc/536284/

[5] (2002) 4 SCC 105. https://indiankanoon.org/doc/110552/

[6] (2012) 9 SCC 552.https://indiankanoon.org/doc/173015163/

[7]§§ 7, 11, Supra note 5.

[8] §§ 16, 19, id.

[9] § 16(5), id.

[10] §§ 9(ii)(b), 4(b), id.

[11] §17, id.

[12] § 31(6), id.

[13] Norton Rose Fulbright, Arbitration in technology disputes, International Law Office, (Nov. 9, 2017), https://www.internationallawoffice.com/Newsletters/Arbitration-ADR/International/Norton-Rose-Fulbright-US-LLP/Arbitration-in-technology-disputes

[14] Gary L. Benton, Technology Dispute Resolution Survey Highlights US and International Arbitration Perceptions, Misperceptions and Opportunities, Kluwer-Arbitration Blog, http://arbitrationblog.kluwerarbitration.com/2017/10/28/technology-dispute-resolution-survey-highlights-us-international-arbitration-perceptions-misperceptions-opportunities/

The Road to GDPR: Historical Context behind the European Data-Protection Laws

Since the last few months, internet users are receiving hundreds of emails or pop-ups from different websites regarding the frequent updates in their privacy policies. It is a formal process that most of the Europe based firms and service providers are completing, in order to become compliant with the most-debated General Data Protection Regulations (GDPR). It was on 25th May 2018, that the European Union’s GDPR came into force, providing significant upgrades to the E.U. data protection regulatory framework. It is a regulatory policy enhancement over the EU Directives 95/46/EC on Data Protection, adopted 20 years ago, which was centered on the protection of personal data of individuals in the era of early users of Internet that were engaged in processing and free movement of such data situated in various cyber-cafes. The directives later became the in-hand limitations that directed the internet service providers with a procedure that is to be adopted before handling data-processing of personal information of users. After 20 years, the Internet is ubiquitous in our lives as its application is prevalent around us everywhere. Therefore, recent GDPR requirements are going to massively impact the data-usage practices of both the consumers and the companies.

2016-01-30_GDPR_history

GDPR is a very much talked about topic these days as there is a lot of confusion surrounding that what is covered by GDPR and what not. The debate on the acceptance of GDPR became more heated as a string of Small and Medium Enterprises withdrawn from the EU market or shut down operations entirely in order to avoid the hefty costs of compliance. Such events itself tells that the GDPR is a strict law. GDPR is a far-reaching and multifaceted regulation, requiring the companies to provide significant control to consumers over their personal-data including establishing new rights for the individual (right of data portability, right to be forgotten, data localisation etc.). Another stringent check on companies is the debated-introduction of fines up to €20 million or 4 percent of the company’s turnover in case of breach of data-privacy by the company. Unarguably this makes EU a regulatory superpower, leading the pack of stricter regulations, on data-protection. Why EU is so adamant to afford such stricter regulations that can break up the global internet into regional or national chunks? The seriousness of the penalties reflects a European approach to privacy that can be traced back, in large part, to the history of its members’ experiences with personal data being used for certainly wrong purposes. To have a clear focus on GDPR and European approach to data protection, it is important to explore the dark past related to data protection in Europe.

The causes for adopting a very strict approach can be traced back to the Europe of World War II era, during which the Nazis in Germany consistently abused private data and personal information in order to create profiles of citizens and identify Jews and other minority groups. During the Nazi regime, the state’s control of market brought with it control of information technology as well. The access to such information-data also provided a door to the census information that indicated residents’ nationalities, native languages, religion, and profession. The punch cards that were used to feed in this information are the early data processors known as Hollerith machines, allegedly manufactured by IBM’s German subsidiary at the time Deutsche Hollerith Maschinen GmbH (Dehomag), as also mentioned in the book titled IBM and the Holocaust: The Strategic Alliance between Nazi Germany and America’s most powerful Corporation. The use of census data to create a database of personal profiles according to which a broad level of discriminatory policies can be imposed- is a disturbing fact related to dark past of free movement of data.

Exploitation of private data didn’t end in Germany with the WWII coming to the end, but it was continued in the East German state as to keep in track the pro-Nazi agenda and later, in cold war era, spies of West German states. This was the first kind of mass surveillance by any state in the history through screening of private communications, periodical searching of houses, etc. The state kept the details of each and every personal data in their database from people’s friends to their sexual habits. Stasi, East German secret police force became most famous due to carrying out of such practices. As the Stasi started cross-border surveillance, in response, in 1970 West Germany approved what’s considered the country’s first modern data privacy legal framework concerning public sector data in the West German state of Hesse. This was followed by a 1977 Federal Data Protection Act designed to protect resident “against abuse in their storage, transmission, modification, and deletion.” West Europe’s push on privacy-related matters rendered the right to privacy a legal imperative in the Data Protection Convention (Treaty 108), as adopted by the Council of Europe.

Such concerns related to the exploitation of census data led to a landmark German Federal Constitutional Court’s judgment that the right of “self-determination over personal data” is a fundamental right. Later, this became the cornerstone of the EU’s view today. With the wave of European countries debating on the issue of the importance of personal information-data of citizens, the first data protection legislation was introduced into the Irish domestic law was the Data Protection Act of 1988, along with many commonwealth countries adopting such comprehensive legislation into their domestic law. The end of Cold War coincided with the rise in data transfers throughout Europe in the ‘90s. This is how migrating market throughout the European continent became a threat to the personal data of citizens of individual European states. Therefore, in order to establish a single market EU also included a 1995 E.U. data protection regulation, and cautious attitudes about privacy became a European norm. The European Data Protection Directive is created, reflecting technological advances and introducing new terms including processing, sensitive personal data, and consent, among others.

The 1995 Directive was implemented as EU further adopted the Directive on Privacy and Electronic Communications in 2002. In 2006, the EU Directive on the retention of data generated or processed in connection with the provision of publicly available electronic communications services or of public communications networks is adopted. Although it was declared invalid by a Court of Justice ruling in 2014 for violating fundamental rights. By 2009, the EU Electronic Communications Regulations in response to email addresses and mobile numbers evolved as becoming prime currency in conducting marketing and sales campaigns. Perhaps most famously, in 2014 Europe’s top court, the Court of Justice of the European Union, affirmed the so-called right to be forgotten and ruled that Google has to abide by user requests to take down “data that appear to be inadequate, irrelevant or no longer relevant” — and since then, Google has received 655,000 requests to remove about 2.5 million links, and complied with 43.3% of those requests. (Google Spain SL, Google Inc. v Agencia Española de Protección de Datos (es), Mario Costeja González, ECLI:EU:C:2014:317)

Given such a complex historical backdrop, the European data-protection legislations are intuitively more appealing and less subject to resistance. Europe has been always the most active regime in terms of enactments related to protections on privacy that tend to apply all sectors of the economy. To this legacy, GDPR is just a significant upgrade to that 1995 law. In the light of Cambridge Analytica’s Facebook data breach and the Equifax hack, such upgrade is being considered as a step that will reinforce consumer confidence with an assurance of protection of their personal data. Other regulations will require an update in alignment with GDPR, such as the ePrivacy Directive and Regulation 45/2001, which applies to the EU institutions when they process personal data. Member states are entitled to provide specific rules or derogations to the GDPR, where freedom of expression and information is concerned, or in the context of employment law or the preservation of scientific or historical research.

Understanding the ‘Technology of Regulation’: Regulating the Scientific Advancements

Regulations are most often considered as adversaries of technological changes. The position of technology is to stimulate the growth of the enterprises, markets, and industries, while the periodical regulations as issued by the government, represents the limits that are imposed on this growth. This is the general conception of regulations that is no doubt everyone has regarding the regulation of technology since the 1970s when the debate started which was focused on controlling the nation-states expedition of nuclear energy, supersonic transport, and food additives. Today, the debate continues as the fears of technologies such as dark web, genetically modified foods etc. calling for regulations as precautionary measures. And to an extent, the conflict is unavoidable.

The dynamics that are induced by the technology revolution are credited with half or more productivity growth. The process of ‘creative destruction’ by entrepreneurs who devise new ways of producing goods and services is potentially a far more potent source of progress that is short-term price competition, as pointed out by Schumpeter. However, regulation can retard all of Schumpeter’s three stages of technological change: invention, innovation, and diffusion.

Every negative in the whole story is just not about the regulations. An anxiety amounts when there is talk about driverless cars, artificial intelligence, and social media, regulation is the only way to relax the stress of uncertainties that these technological changes will bring in lives of humans. These are not the views of legislators only, but also from the people who are driving these technologies and people who are driven by these technologies.

Is there a way to balance regulation and technology? The way seems to be accepting the change in the technology of regulation. Regulations are being imposed in traditional ways only such that considered to be of one type and of effecting in one way only. However, there is a way to explore more in this regard, just as there are many different types of technologies, there are many different types of regulations. Different technology instruments, such as technical requirements, performance standards, taxes, allowances, and information disclosure, can have very different effects on technological change and other important consequences.

One of the main reasons that the present regulatory technology is not rendering desired results is that the state regulators are not dedicating the time, energy, or funding to the regulations in the way the technology is developed. The key to bringing in the same creativity and inspiration into the regulations, such that the incentivized-approach must be followed, is to allow the private regulators to build the regulatory systems of the digital age.

The drivers of this shift are often ultimately regulated companies themselves- looking to define a reasonably reliable playing field on which they and their competitors meet. Private regulators are already regulating to a certain extent by having autonomy over the governance of choosing their terms and conditions of the ‘agreement’ which is the main source of the entire corporate control. Another compelling reason for bringing up the private regulators in the game is that the private entities are closer to what is happening, at increasingly high speed, on the ground, and in the cloud is not going to go away till the time they are responsible for developing new technologies.

It is very important to create a supervised cohort of private regulators. This gets the best of both worlds: the regulations that follow the incentivized approach and being accountable to the government and the understanding of these regulations to the market players in very clear terms. The question of arbitrariness because of these regulators cannot creep in as the licenses to regulate will always be in the hands of the government. Further, they have to keep their regulatory clients happy by developing easier, less costly and more flexible ways of implementing regulatory controls.

The sooner we adopt the new technology of regulation and move beyond the idea that conventional regulation can handle the challenges of our powerful new technologies, the better. The idea to regulate the innovative and disruptive technologies is a useless idea unless we figure out how to harness the power of markets, and new approaches to government accountability, to that task.

(This blog series will explore and cover all the areas of regulations that are present and required for adjusting the balance with certain scientific advancements. Suggestions and Improvements are invited from readers)