Commerce and Cyberspace

E-Commerce

Electronic commerce (E-Commerce ) is a process, which is happening with the help of Information and Communication Technologies.

It is important to note that phrases, like ‘e-business’, ‘ ‘e-commerce’, Internet business, Net commerce etc. are commonly being used these days.

Thus for the sake of clarity e-commerce should be distinguished from e-business.

In fact, e-commerce is a subset of e-business

E-COMMERCE EVOLUTION For over a century these telecommunication devices

became an integral part of the commercial enterprises all over the world. Later, in the early 1960s, computers were increasingly used to disseminate information across geographical space.

Though telegraph, telephones, telex and facsimile were still the relied upon options, nevertheless the big corporations opted for Electronic Data Interchange (EDI).

EDI saves money because the computer, and not an office staff, submits and processes orders, claims, and other routine tasks. EDI began in the 1960s as a computer-to-computer means of managing inventory, bill presentment, shipment, orders, product specifications, and payment.

TYPES OF E-COMMERCE

E-commerce occurs in various forms and between various entities in the market. It is necessary to consider the various forms that Internet commerce embodies in order to understand the implications for taxation.

E-commerce can be categorised in four ways:

1. Business to Business (B2B)2. Business to Consumer (B2C)3. Consumer to Business (C2B)4. Consumer to Consumer (C2C)

Types of E-Commerce

Business to Business (B2B)

It is a new name given to EDI. As the name suggests, it is a business platform involving two independent or even dependent business entities.

In B2B version of online transaction(s) the manufacturing organization takes a lead in setting up a business platform.

Example B2B:

Business-to-Consumer (B2C)

It refers to a business platform, involving a business entity and consumers.

It is a retail version of e-commerce known as e-tailing. Selling goods or services through web based shops. Example B2C:

Consumer-to-Business (C2B)

It is an innovative retail-marketing platform, where a business entity offers a variety of packages or options to entice the online customer

example:

It represents a consumer business platform, which is for the consumer, by the consumer. It is referred to as online ‘consumer-to-consumer’ auctions. Almost anything can be offered on such online platforms.

example:

Consumer-to-Consumer (C2C)

PAYMENT MECHANISM IN CYBERSPACE

Payment mechanism in cyberspace is all about paying for goods and/or servicesordered or consumed using modern means of information technology.

ELECTRONIC FUND TRANSFER (EFT) Electronic Fund Transfer means transferring

money from one bank account to another in the same (intra bank) or different bank branches (inter bank).

EFT has been in use since 1960s when banks first started using proprietary EDI network to share banking information.

The Electronic Clearing Services (ECS) The Electronic Clearing Services (ECS) ‘credit

scheme’ and the Electronic Clearing Services (ECS) ‘debit scheme’ are two activity lines, which have become important vehicles for furthering improvements in customer services.

In ECS – credit, a series of electronic payment instructions are generated to replace the paper instruments.

The system works on the basis of a single debit transaction triggering a large number of credit entries.

Electronic Cash E-cash is a pre-paid system. Consumers buy electronic tokens

and build up electronic funds for use over the Internet. It is stored in an electronic device such as a chip card or computer memory.

Electronic Wallets E-wallets can be useful for making a series of micro payments

online for example, downloading MP3 music file, paying for an online article etc.

Smart Card Smart cards use a micro controller chip embedded in the card.

The cards can be purchased and reloaded again and again. Digital Cheques It is a cheque in the electronic form. Here, the consumer uses

his digital signatures to sign an e-cheque. The consumer fills in the cheque online and then sends it via a secure server to the recipient.

ONLINE PAYMENTS AND THE INFORMATIONTECHNOLOGY ACT, 2000

When the Information Technology Act, 2000 came into effect on October 17, 2000 it was non-applicable to the negotiable instruments, like promissory note, cheque and bill of exchange but subsequently to facilitate e-commerce related transactions.

The Central Government amended the Negotiable Instruments Act, 1881 and brought in forth the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 to recognise “a cheque in the electronic form” (e-cheque) and “a truncated cheque”.

Advertising On the Web

Online Ads: Banner Ads, Sponsored Search Ads, Pay-per-Sale

ads. Targeting:

Show to particular set of viewers. Measurement:

Accurate Metrics: Clicks, Tracked Purchases. What is being Sold:

Pay-per-Click, Pay-per-Action, Pay-per-Impression Pricing:

Auctions

History of Online Advertising

1994: Banner ads, pay-per-impressionBanner ads for Zima and AT&T appear on hotwired.com.

1998: Sponsored search, pay-per-click 1st-price auctionGoTo.com develops keyword-based advertising with pay-per-click sales. 2002: Sponsored

search, pay-per-click 2nd-price auctionGoogle introduces AdWords, a second-price keyword auction with a number of innovations.

1996: Affiliate marketing, pay-per-acquisitionAmazon/EPage/CDNow pay hosts for sales generated through ads on their sites.

Banner Ads

Pay-Per-Impression

Pay-per-1000 impressions (PPM): advertiser pays each time ad is displayed Models existing standards from magazine, radio, television Main business model for banner ads to date Corresponds to inventory host sells

Exposes advertiser to risk of fluctuations in market Banner blindness: effectiveness drops with user

experience Barrier to entry for small advertisers

Contracts negotiated on a case-by-case basis with large minimums (typically, a few thousand dollars per month)

Pay-per-click (PPC):

Pay-per-click (PPC): advertiser pays only when user clicks on ad Common in search advertising Middle ground between PPM and PPA

Does not require host to trust advertiser Provides incentives for host to improve ad displays

CONSUMER PROTECTION IN CYBERSPACE

E- CONSUMER SUPPORT AND SERVICE E-commerce is more about personalised support and

service. E-consumer is a seeker of information before he

makes a buy decision. Hence, the ability to collect product information and make comparisons between the different product offerings from different providers is often viewed as one of the main competitive challenges of shopping and is therefore a key aspect of the online shopping experience Significantly, at e-marketplace, an e-consumer is not alone.

E-mail Support E-mails are the best means of communication

between the consumer and the Organization Newsgroups, Chat Rooms, Message Boards, Blogs These services allow consumers to communicate

with one another. These are often being used to share knowledge and create a self-help group. In the present day environment, such services help in creating awareness among consumers.

FAQs Frequently Asked Questions are common consumer-service

resources. Consumer Service Information It provides relevant information to the consumer, which may

include product specifications, compatibility charts, pricing, warranty details.

Feedback Forms These are the forms through which

customers can complain or provide valuable comments about the service and the products provided by the organization.

Help Desk Help desk support system in a form of toll free number,

provides real time help to consumers. It works 24×7, wherein call center executives listen to complaints and grievances and try to solve problems

ONLINE CONTRACTS

An online contract is formed over the Internet when an offer is made and an acceptance is received. The offer could be made by a seller (service provider) using an e-mail or a website.

The buyer on receipt of an offer, places an order and the seller confirms receipt of the order. In fact, it was the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce, which for the first time articulated about the nature of online contract mechanism in terms of its formation and validity.

FORMS OF ONLINE CONTRACTS

Online contracts cover the gamut of online business behaviour, whether it is business-to-business (B2B) or business-to-consumer (B2C).

These contracts may exist in various forms, like EDI contracts, access contracts, click-wrap contracts and web-wrap contract

Electronic Data Interchange (EDI) Contracts EDI refers to the process by which goods are

ordered, shipped, and tracked computer -to-computer using standardised protocol.

It permits the “electronic settlement and reconciliation of the flow of goods and services between companies and consumers”

Access Contract Internet service providers like Satyam, VSNL,

and MTNL etc. provide facility of Internet access, but others like Rediff, Sify and Yahoo provide web mail services and proprietary content to their subscribers.

Click-wrap Contracts Click-wrap contracts are commonly used in connection

with e-business transactions. It is being used to bind the user to ‘terms of use’

contract facilitating online sale or purchase of goods and services. The goods can be tangible or intangible (digital).

Web-wrap Contracts It represents purported contract terms in a separate link

but does not require the reader to click to indicate agreement.

It is also being referred to as “browsewrap” contract. It is typically structured as a license agreement.

FEATURES OF ONLINE CONTRACTS

The Indian Contract Act, 1872 lays down that for a contract to exist there has to be a proposal, and an assent to the proposal, which transforms into a promise. A promise supported by consideration becomes an agreement and an agreement enforceable by law is a contract

ESSENTIAL FEATURES OF A CONTRACT Under the Indian Contract Act, 1872 the formation of a

contract is a two-limb process, involving firstly, a communication of proposal from first party to the second and secondly, a communication of acceptance from the second party to the first.

Pre-requisites of a Valid Contract In order to have a valid contract there should be a proper

offer/proposal by an offeror [section 2(a)] and its acceptance by an offeree [section 2(b)]. Proposal must be supported by consideration [Section 2(d)] and the agreement must be made by free consent of the parties [sections 13-22].

ISSUES EMERGING FROM ONLINE CONTRACTING:

Electronic contracts, by their very nature, are dynamic and often multi layered transactions. With a layered contract, agreement to a contract may not occur at a single point in time.

There exist a chain of successive events – e-offer, eacceptance, consideration etc., combination of which may lead to electronic contract formation

Capacity to Contract To rely on an electronic message, the parties should take

steps to make sure the contract is binding, e.g., that the essential terms of the contract are manifested, agreed upon, and that the persons who are parties to the electronic “contract” have the legal competence and capacity to enter into an agreement.

E-mail Box Rule Traditional contract law (common law) does not permit

silence or inaction to constitute acceptance. Acceptance requires that an offeree communicate his assent to the terms of the offer.

Electronic Authentication The common law of contract has evolved over a period

of many centuries. It has crystallized the concept of “pen-paper-and-signature” as physical means of authenticating a contract.

Choice of Law Courts will apply the law of the jurisdiction that has the

most points of contact with the contractual relationship.