Intellectual property rights & e-commerce: The legal perspective

As the Internet continues its remarkable expansion, its capacity to disseminate information, knowledge and content has propelled the intellectual property system to the center of an unending debate over the future shape of the online world. In this new and rapidly changing environment, information and knowledge are increasingly the source of value; hence the intellectual property system - the body of law protecting creations of the mind is crucial in maintaining a stable and equitable foundation for the development of the ever-expanding digital society. While the intellectual property system will play a critical role in shaping the digital world, the Internet will have a profound effect on the system itself. The long-term influences are as yet unclear. What is immediately apparent, however, is that this new medium presents a host of complex opportunities and challenges for the intellectual property community.

This article seeks to highlight and examine the evolving relationship between electronic commerce and intellectual property.  Electronic commerce is very much in its early stages of evolution but is characterized by rapid change.  The evaluation of electronic commerce and its relationship with, and effect upon, intellectual property is therefore likely to be an intensive and ongoing process, which will require vigilant monitoring of developments in order to assess whether action is necessary or appropriate to preserve and enhance the effectiveness of intellectual property in this new digital environment.

Intellectual property both affects and is affected by electronic commerce in a multiplicity of ways. Defining the proper scope of intellectual property rights in relation to the new and rapidly evolving digital technologies and content, and devising means for the protection of those rights that are appropriate in light of the international dimensions of electronic commerce and its constant state of flux, is an issue that will engage the intellectual property discipline for years to come. Electronic Commerce for the purposes of the article has been explained by addressing separately the two words, “electronic” and “commerce.”

Electronic.  The term “electronic” can be taken to refer to the global infrastructure of computer and telecommunication technologies and networks upon which the processing and transmission of digitized data take place. At the same time, this open network is providing access to a digital medium in which multiple perfect copies of text, images, and sounds can be easily made and transmitted, and trademarks easily misused, posing new challenges for intellectual property owners.

Commerce.  The word “commerce” in this context refers to an expanding array of activities taking place on the open networks – buying, selling, trading, advertising and transactions of all kinds – that lead to an exchange of value between two parties.  Some common examples include on-line auctions, banking and other financial services, sales of software, and an ever-increasing diversity of Internet sites offering a broad range of consumer goods or services. 

There are at least two defining characteristics of this commerce taking place over the digital networks. First, there is the international character of electronic commerce.  The electronic means described above have created a global, borderless medium, such that any business offering goods or services on the Internet need not target a specific geographical market.  The second characteristic is the interdisciplinary nature of electronic commerce, and the corresponding impact that this element brings to the forces of convergence

Within the commercial sphere, issues of intellectual property that have had such relevance in the physical (off-line) world, involving rights in respect of patents, trademarks and copyrights, among others, also arise in relation to electronic commerce, but with different aspects to be addressed and, in many cases, shorter timeframes.  Trademarks, for example, which provide consumers with an accessible symbol associated with the goodwill of an enterprise, are playing an important role in the electronic commercial environment where in-person dealings are infrequent.  With respect to patents, the creative business methods that are being developed to conduct commerce over the digital networks raise new questions of patentability.  Further, the shorter life cycles of many of the products and services associated with the Internet and digital technologies call for the timely acquisition and enforcement of such intellectual property rights.

For commerce involving physical products, the Internet functions as a global system facilitating sales, in which the placing of an order and the making of payment can (but does not necessarily have to) take place online, while the goods themselves are delivered separately through a postal or other delivery service.  For commerce involving intangible products, the Internet serves not only as a system to promote sales, but also as a system to effectuate the delivery of the intangible product itself, such as a piece of music or software, a film or a publication.  This distribution can take place almost instantaneously, and the intangible product may travel virtually without restriction across national borders.  At the same time, however, there is a need for effective intellectual property protection that can address the international dimensions of this commerce.

Already, the largest segment of business-to-consumer electronic commerce involves intangible products that can be delivered directly over the network to the consumer’s computer. This commerce in intangible products raises a number of issues for intellectual property, in addition to those that would arise in respect of physical goods.  For example, there is a growing role to be played by technological measures in protecting the rights of intellectual property owners.  In addition, questions of the scope of rights and how existing law applies, jurisdiction, applicable law, validity of contracts and enforcement become more complex when the products offered have no necessary, physical manifestation. 

In an early initiative to introduce certainty with respect to the legal environment for electronic contracts, the United Nations Commission on International Trade Law (UNCITRAL) completed work on a Model Law on Electronic Commerce in 1996. As stated in the Recitals to the Model Law, UNCITRAL recognized that “an increasing number of transactions in international trade are carried out by means of electronic data interchange and other means of communication, commonly referred to as ‘electronic commerce,’ which involve the use of alternatives to paper-based methods of communication and storage of information.” UNCITRAL furthermore indicated that its decision “to formulate model legislation on electronic commerce was taken in response to the fact that in a number of countries the existing legislation governing communication and storage of information is inadequate or outdated because it does not contemplate the use of electronic commerce.”1   The Model Law aimed to establish equal treatment under the law for online and off-line contracts (i.e., a “media neutral environment”), by providing norms and rules that serve to validate contracts formed through electronic means, define the characteristics of a valid electronic writing and signature, and provide guidance on the legal recognition of data messages (i.e., the admissibility and evidential weight to be given to data messages).

The Model Law’s Guide to Enactment notes that the Model Law “is not intended to interfere with the law on formation of contracts, but rather to promote international trade by providing increased legal certainty as to the conclusion of contracts by electronic means.”

As the following sections of this article explain, questions of jurisdiction, applicable law and enforcement should be carefully considered – at the time of contracting – to bring added certainty, and where possible limit potential exposure, for businesses and consumers engaging in electronic commerce on global networks. 

THE INTERNET—JURISDICTION AND APPLICABLE LAW

The Internet is multi-jurisdictional.  Users can access the Internet from almost any place on Earth.  Because of technology, digitized information may travel through various countries and jurisdictions, each with its own legal system, in order to reach its destination. In light of the impact of this international medium on a world the jurisdictional issues loom large, especially in the context of intellectual property.  These issues, however, extend beyond the precincts of intellectual property to implicate other areas, such as contracts (discussed above), fraud and tortious behavior of all kinds, consumer protection, taxation, and the regulation of online content relating to obscenity and criminal law.  The following cross-cutting issues arise in the context of private international law:

1.      jurisdiction to adjudicate a dispute at a particular location (i.e., the forum or situs);

2.      the law applicable to the dispute (also referred to as choice of law or conflicts of law);  and

3.      the recognition and enforcement of judgments in courts in foreign jurisdictions. 

In electronic commerce, these issues are complicated by the fact that one or more of the parties involved may be located in different countries.  The activities themselves can have intended and unintended consequences all over the globe, resulting in uncertainty when it comes to questions of localizing the dispute, determining the applicable law, and the practicalities of pursuing enforcement or adequate dispute-settlement alternatives.  Owners of intellectual property seeking enforce them against infringement, are confronted with complex issues.  In the case of a license to cover rights on the Internet, one must consider which laws in which countries may have a bearing on the agreement, including laws addressing electronic contracts, consumer protection, intellectual property, disclaimers and privacy aspects.  In the case of rights holders seeking to enforce their rights, they will need to decide not only who (or what) to proceed against, but also the proper forum, and under which applicable laws.

It has become very important for individuals and companies using the internet as a medium to transact business to be aware of Cyber Laws. Cyber Contracts are the foundation and mainstay of any E-Business. As various kinds of cyber crimes and frauds are being perpetuated everyday one has to take sufficient safeguards and the laws need to keep abreast to tackle this issue. Potential business partners especially those from overseas are insisting on standards and benchmarks in quality of services and transactions. Digital Signatures have become so fundamental that no Company can afford not to be prepared to use them in day-to-day activity. Thus, as we move from the paper-based society to the Digital Era, the need to know the laws that govern this era has become imperative. 

The passage of the Information Technology Act 2000 in India with effect from 17th October 2000, has created a legal recognition for Electronic Documents. In the light of this provision, every act of a Company on the Internet, Intranet or Extranet may now be legally binding on the Company. Companies having websites should watch out whether any of the web pages constitute an ‘Offer” or a “Warranty” on any of their product or service. More importantly, every e-mail received and replied by the Company executives, may actually create liabilities on the Company at some point of time in the future if handled without care.

It is now time for Companies dealing with Cyber transactions to guard against unintended violations of law and exploitation by unscrupulous elements. Companies need to periodically undertake a “Cyber Law Compliancy Check” both on their web presence and in the Corporate environment and introduce systems to ensure continuous compliancy.

The essence of the Information Technology Act, 2000 is the enablement of digital contracts through digital signatures. This Act aims to provide the legal infrastructure for e-commerce in India. And the cyber laws have a major impact for e-businesses and the new economy in India. The Information Technology Act, 2000 also aims to provide for the legal framework so that legal sanctity is accorded to all electronic records and other activities carried out by electronic means. The Act states that unless otherwise agreed, an acceptance of contract may be expressed by electronic means of communication and the same shall have legal validity and enforceability. Some highlights of the Act are listed below:

From the perspective of e-commerce in India, the Act and its provisions contain many positive aspects. Firstly, the implications of these provisions for the e-businesses would be that email would now be a valid and legal form of communication in our country that can be duly produced and approved in a court of law. Companies shall now be able to carry out electronic commerce using the legal infrastructure provided by the Act. Digital signatures have been given legal validity and sanction in the Act. The Act throws open the doors for the entry of corporate companies in the business of being Certifying Authorities for issuing Digital Signatures Certificates.

The Act now allows Government to issue notification on the web thus heralding e-governance. The Act enables the companies to file any form, application or any other document with any office, authority, body or agency owned or controlled by the appropriate Government in electronic form by means of such electronic form as may be prescribed by the appropriate Government. The IT Act also addresses the important issues of security, which are so critical to the success of electronic transactions. The Act has given a legal definition to the concept of secure digital signatures that would be required to have been passed through a system of a security procedure, as stipulated by the Government at a later date. Under the IT Act, 2000, it shall now be possible for corporates to have a statutory remedy in case if anyone breaks into their computer systems or network and causes damages or copies data. The remedy provided by the Act is in the form of monetary damages, not exceeding Rs. 1 crore.

As has been briefly pointed out in this article the nature and scope of the businesses transacted over the net as a medium of business brings with it a host of issues related to contract, torts, criminal acts, jurisdictional issues, taxation, private international issues and the like in determining the manner is which the business is transacted and the resolution of any dispute in the event of a dispute. A right vested in a person in any country may a right denied in another. In the light of this several world bodies including WIPO and its members states have been actively involved in trying to set standards and lay down the guidelines that will be uniformly applicable to users of the internet as a medium for transacting their businesses or those engaged in e-commerce in any form. Various conventions like the Berne convention have spelt out the framework for such transactions. It is to be seen how these recommendations are adopted by the member states and how dispute resolution can be attended in cyber space.

(Chandrapal Singh, a leading legal consultant based out of Bangalore contributed the article. Feedback can be mailed to legal@businessgyan.com. For a related ready reckonner on Specific highlights of IT act 2000 send a mail to itact2000@businessgyan.com )

Issue BG15 June2002