PAYMENT LAW



Table of Contents

Preface i

Summary of Contents iii

Table of Contents v

Introduction 1

Part I. The Context of Electronic Commerce

Chapter One: Setting Up Shop in Cyberspace 23

Assignment 1. The Basics of Domain Names 23

A. Trademarks and Trademark Infringement 24

B. Initial Interest Confusion 25

Brookfield Communications, Inc. v. West Coast Entertainment

Corp 26

C. Trademark Dilution 39

D. Personal Jurisdiction 40

Problem Set 1 41

Assignment 2. Cybersquatting 42

A Private Responses: NSI and ICANN Dispute-Resolution Policies 42

Hewlett-Packard Company v. Burgar 44

B. Federal Response: The Anticybersquatting Consumer

Act 50

Shields v. Zuccarini 51

Problem Set 2 59

Assignment 3. Web-Site Development and Outsourcing 62

A. What Will the Web Site Do 63

1. Informational Sites 63

2. Simple Storefronts 64

3. Complex Sites 66

B. Web-Site Development Contracts 66

C. Intellectual-Property Issues 68

1. Ownership of the Site 68

2. Infringement 70

D. Web-Site Hosting and Other IT Outsourcing 71

Problem Set 3 75

Assignment 4. Computer Security 78

A. The Challenge of Information Systems 78

1. Problems of Corporate Organization and Resources 78

2. Challenge of System Integration 79

3. Social Context of Information Systems 80

B. Vulnerabilities, Threats and Safeguards 81

1. Threats 82

a. Persons Who Threaten Security 82

b. Malicious Code 84

c. Network Security 85

d. Low-Tech Threats 86

2. Safeguards 86

3. Security Technologies 87

C. Industry Best Practices and Technical Standards 88

Problem Set 4 92

Assignment 5. Records Management, Company

Policies & Electronic Evidence 95

A. Records Management 95

B. Information-Technology Policies 98

C. Electronic Evidence 99

1. Discovery of Electronic Evidence 100

a. Obtaining Electronic Evidence 100

b. Spoliation of Evidence 102

2. Admissibility of Electronic Evidence 104

a. Authentication 104

b. Best-Evidence Rule 105

c. Business-Records Exception to the Hearsay Rule 105

Problem Set 5 106

Assignment 6. Controlling Access to a Web Site 109

A. Trespass to Chattels 111

eBay, Inc. v. Bidder's Edge, Inc 111

B. Misappropriation 119

C. Other Causes of action for Unauthorized Access:

Breach of Contract and the Computer Fraud and Abuse Act 119

, Inc. v. Verio, Inc. 120

D. Unsolicited Commercial Email 128

Problem Set 6 129

Assignment 7. Liability for Web Site Content 132

A. Web Site Operator as Publisher 132

1. Defamation and the Communications Decency Act 133

Zeran v. America Online, Inc. 133

2. Copyright Infringement and the Digital Millennium Copyright

Act 140

Hendrickson v. eBay Inc. 142

B. Linking and Framing 149

Problem Set 7 150

Chapter Two: Rights in Personal Information 153

Assignment 8. The Basics of Information Privacy 153

A. Early Development of Privacy Law 154

B. Fair Information Practices & Information Privacy Law 155

C. Fair Credit Reporting Act 158

1. Access Restrictions 159

2. Erroneous Information 160

3. Use by Potential Employers 162

4. Credit Header Information 162

5. Credit Scoring 162

Problem Set 8 164

Assignment 9. The Electronic Communications Privacy Act 167

A. Electronic Communications Privacy Act 167

In re DoubleClick, Inc. Privacy Litigation 169

B. USA Patriot Act of 2001 181

Problem Set 9 182

Assignment 10. Information Privacy Law Reform 185

A. Clickstream Data, Online Profiling, and Data Warehousing 186

B. Financial Information Privacy Provisions

in the Gramm-Leach-Bliley Act 190

1. Obligations Under GLB 191

2. Enforcement of GLB 194

3. Criticisms of GLB 194

C. Children's Online Privacy Protection Act 195

D. Privacy of Health Records Under the Health Insurance

Portability and Accountability Act 199

Problem Set 10 201

Assignment 11. Internet Privacy Policies 205

A. Privacy Policies 206

1. Online Privacy Practices 206

2. Developing a Privacy Policy 207

3. Revising an Existing Privacy Policy 210

B. Self-Regulation 212

1. Seal Programs 213

2. Privacy Enhancing Technologies 214

C. Enforcement of Privacy Policies 216

1. FTC Enforcement Actions 216

2. Class-Action Law Suits 217

Problem Set 11 219

Assignment 12. Transborder Flows of Personal Information 222

A. OECD Guidelines 224

B. EU Data Protection Directive 225

C. UK Data Protection Act of 1998 228

D. US-EU Safe Harbor 231

E. EU Standard Contractual Clauses 233

Problem Set 12 234

Chapter Three: Sales of Goods

Assignment 13. Remote Contracting 236

A. Delayed Presentation of Terms (“Shrinkwrap”) 236

Brower v. Gateway 2000, Inc. 237

B. Electronic Presentation of Terms (“Clickwrap” and “Browsewrap”) 243

Rudder v. Microsoft Corp. 244

Specht v. Netscape Communications Corp. 249

C. Mail-Order Rule 258

Problem Set 13 258

Assignment 14. Electronic Contracting 261

A. Eliminating Paper Documents 261

B. Attribution 264

1. Robotic Devices 265

2. Signatures 266

C. Mailbox Rule 267

D. Mistake 268

Problem Set 14 269

Assignment 15. Digital Signatures 272

A. What is a Digital Signature? 273

1. Symmetric and Asymmetric Cryptography 274

Figure 15.1 – Conventional Cryptography 274

2. Digital Signatures 275

Figure 15.2 – Asymmetric Cryptography 276

Figure 15.3 – Message Digest 277

Figure 15.4 – Digitally Signed Document 278

3. Public Key Infrastructure and Certificate Authorities 279

Figure 15.5 – Certificate Authority 280

B. Digital Signatures in Electronic Commerce 282

1. Authentication of Network Users and Cross Certification 282

2. Closed-Network Applications 284

3. Open-System Applications 285

4. Communications Security Protocols 286

Figure 15.6 – SSL 287

C. Digital Signature Legislation 288

1. Technology-Specific Legislation 289

2. Technology-Neutral Legislation 291

3. EU Electronic-Signatures Directive 291

Problem Set 15 293

Assignment 16. B2B Commerce: Electronic Data Interchange and

Trading-Partner Agreements 296

A. Electronic Data Interchange Overview 297

1. The History of EDI 297

2. EDI Technology 300

Figure 16.1 Traditional and EDI Invoices 302

3. EDI Applications 303

4. Business-Process Reengineering 308

B. Trading-Partner Agreements 310

1. Writings and Records 310

2. Contract Formation and Message Acknowledgements 312

3. Security Procedures and Message Authentication 313

4. Terms and Conditions 314

5. Value-Added Networks 315

Problem Set 16 315

Assignment 17. B2B Commerce: Internet Exchanges 318

A. B2B Internet Exchanges: An Overview 318

B. Structure of a B2B Internet Exchange 320

1. Market Models 320

2. Technology of a B2B Internet Exchange 322

3. Legal Form: Exchange Members Versus Owners 325

4. Antitrust Considerations 327

C. Terms and Conditions of Exchange Transactions 328

1. Exchange Membership 329

2. Terms and Conditions 330

3. Payment 331

4. Information Practices 332

Problem Set 17 333

Assignment 18. Internet Auctions 336

A. Auctions & Auctioneers 336

1. Traditional Auctions 336

2. Licensing of Auctioneers 339

3. Non-Auction Remedies for Fraud 341

B. Online Auctions 343

C. Online Reverse Auctions 347

Problem Set 18 348

Assignment 19. Cross-Border Sale Transactions 351

A. The Basic Transactions 351

1. Documentary-Draft Transactions 351

a. Delivering the Goods to the Carrier 352

b. Issuing the Draft 352

Figure 19.1 – Sight Draft for Documentary Collection 352

c. Processing by the Seller's Bank 353

d. Processing by the Buyer's Bank 354

Figure 19.2 – Documentary-Draft Transaction 355

2. Letter-of-Credit Transactions 355

Figure 19.3 – Issuing the Letter of Credit 356

Figure 19.4 – Payment by Letter of Credit 357

B. Electronic Advances 358

1. Bolero 359

2. The eUCP 361

Problem Set 19 363

Assignment 20. Taxing the Internet 366

A. Taxation by Local Jurisdictions 366

Quill Corporation v. North Dakota 367

B. Taxation by National Jurisdictions 376

Problem Set 20 378

Chapter Four: Licensing

Assignment 21. The Basics of Licensing 380

A. The Concept of a License 381

B. Scope 383

Boosey & Hawkes Music Publishers, Ltd. v. The Walt Disney Co. 383

C. Warranties and Other Obligations of the Seller 390

1. Noninfringement 390

2. System Integration 391

D. Termination and Remedies 392

1. Licensor Default 392

2. Licensee Default 392

Problem Set 21 396

Appendix: XYZ Enterprise Service Agreement 398

Assignment 22. Preemption Issues in Licensing Transaction 406

A. Two Paradigms 406

1. The Distinction Between Fact and Expression 406

2. First-Sale Doctrine 407

Bobbs-Merrill Co. v. Straus 407

3. Fair Use 410

B. Efforts to Enhance Control 411

1. Technological Restrictions 412

2. Restrictions by Transactional Design 412

DSC Communications Corp. v. Pulse Communications, Inc. 413

National Car Rental System, Inc. v. Computer Associates

International, Inc. 421

3. Can the Licensor Prohibit Assignment by the Licensee? 427

Problem Set 22 428

Assignment 23. Custom Development, Mass Market, and General Public Licenses 430

A. Software Development: Source and Object Code 430

B. Custom Software Development Agreements 431

1. Product Specifications and Delivery Schedules 431

2. Acceptance Testing 431

Rocky Mountain Microsystems, Inc. v.

Public Safety Systems, Inc. 432

3. Source Code Escrow 438

C. Mass-Market Software Licenses 439

D. General Public Licenses and Open Source Software 441

1. GNU Gneral Public License 441

2. Mozilla Public License 443

3. Open Source Initiative 443

Problem Set 23 445

Assignment 24. Information Licensing 448

A. Information as Commercial Property 448

1. Special Characteristics of Information 448

2. Information in Internet Commerce 449

B. Legal Protections for Information 450

1. Copyright 450

2. Trade Secret 451

3. Misappropriation 452

National Basketball Association v. Motorola, Inc. 452

4. Contract 456

5. Trespass to Chattels 457

C. EU Sui Generis Right in Databases 457

British Horseracing Board Ltd. v. William Hill Organisation, Ltd. 457

Problem Set 24 467

Assignment 25. Antitrust Issues in Licensing Transactions 470

A. The Basics of Antitrust Law 470

1. Unreasonable Restraints of Trade 470

2. Monopolization 471

B. The Players 471

C. Antitrust and Intellectual Property 472

Image Technical Services, Inc. v. Eastman Kodak Co. 475

Problem Set 25 481

Assignment 26. Microsoft 483

United States v. Microsoft Corporation 483

I. Introduction 484

A. Background 484

B. Overview 486

II. Monopolization 488

A. Monopoly Power 488

1. Market Structure 489

a. Market definition 489

b. Market power 489

2. Direct Proof 490

B. Anticompetitive Conduct 491

1. Licenses Issued to Original Equipment Manufacturers 492

a. Anticompetitive effect of the license restrictions 493

b. Microsoft’s justifications for the license restrictions 495

2. Integration of IE and Windows 496

a. Anticompetitive effect of integration 497

b. Microsoft’s justifications for integration 498

3. Agreements with Internet Access Providers 498

4. Dealings with Internet Content Providers, Independent

Software Vendors, and Apple Computer 501

5. Java 504

a. The Incompatible JVM 504

b. The First Wave Agreements 505

c. Deception of Java Developers 506

d. The Threat to Intel 506

6. Course of Conduct 507

C. Causation 507

III. Attempted Monopolization 508

IV. Tying 509

A. Separate-Products Inquiry Under the Per Se Test 510

B. Per Se Analysis Inappropriate for this Case 513

C. On Remand 515

Problem Set 26 516

Chapter Five: Electronic Payments

Section A: Electronic Technology and the Checking System 518

Assignment 27. The Road to Truncation 518

A. The Basics of Check Collection 520

1. Direct Presentment 520

Figure 27.1 – Direct Presentment 521

2. Indirect Collection 521

a. Clearinghouse Collection 521

Figure 27.2 – Clearinghouse Collection 522

b. Direct-Send Collection 523

Figure 27.3 – Direct-Send Collection 524

c. Federal-Reserve Collection 524

Figure 27.4 – Federal-Reserve Collection 525

Figure 27.5 – MICR Line 526

B. Allocation of Loss in the Checking System 527

1. The General Rules 527

2. Special Liability Rules (Negligence and the Like) 528

C. Payor-Bank Truncation 529

D. Depositary-BankTruncation 533

1. Factual Summary 533

2. Legal and Practical Issues 534

a. Fractionated Check Processing 535

b. The Need for a Tangible Image 535

c. A Middle Ground for Now: Recovering the Originals 536

Problem Set 27 537

Assignment 28. Electronic Checks 540

A. POS Conversion 540

Figure 28.1 – POS Conversion 541

B. ACH “Checks” 546

Figure 28.2 – ACH “Checks” 547

C. True Electronic Checks 548

Problem Set 28 552

Section B: Internet Payments and Emerging Payment Systems 554

Assignment 29. Paying for Retail Internet Purchases 554

A. Credit Cards 554

1. Fraud 555

2. Privacy 559

3. Micropayments 560

B. Debit Cards 562

Problem Set 29 564

Assignment 30. Person-to-Person Payments 566

A. Providing Funds for Payment 567

B. Making Payments 570

C. Collecting Payments 572

Problem Set 30 573

Assignment 31. Electronic Bill Presentment and Payment 576

A. How it Works 576

1. Biller Websites 576

2. Bill Aggregators 577

Figure 31.1 – Bill Aggregators 579

B. Errors 580

1. Customer Errors 580

2. Bank and Intermediary Errors 581

a. Bill-Distribution Errors 581

b. Excessive and Duplicative Payments 583

3. Biller Errors 584

C. Fraud 584

1. Interloping Bills 584

2. Interloping Payments 585

Problem Set 31 585

Assignment 32. Electronic Money 588

A. Portability: Stored-Value Cards 589

1. History and Basic Concepts 589

2. Using Stored-Value Cards 592

a. Storing Value on the Card 592

b. Spending the Value from the Card 593

c. Obtaining Payment from the System 594

Figure 32.1 – Using Stored-Value Cards 595

3. Error and Fraud in Stored-Value Card Systems 596

B. Remote Transactions: Internet-Capable Electronic Money 598

1. Obtaining E-Money 599

2. Spending E-money 600

3. Clearing and Settling E-money Transactions 600

Figure 32.2 – Using Electronic Money 602

4. Problems with E-money Systems 602

a. Privacy 602

b. Duplicate Spending 603

c. Forged Ecoins 604

Problem Set 32 606

Chapter Six: Lending in the Information Age

Section A: Lending Against Intellectual Property 609

Assignment 33. Lending Against Copyrights 609

A. The Basics of Secured Lending 609

B. The Copyright Act 612

1. The Basics of Copyright 612

2. Perfecting Security Interests in Copyrightable Materials 613

National Peregrine, Inc. v. Capitol Federal Savings

& Loan Ass'n (In re Peregrine Entertainment, Ltd) 614

Aerocon Entineering, Inc. v. Silicon Valley Bank

(In re World Auxiliary Power Co.) 621

Problem Set 33 627

Assignment 34. Financing the Acquisition of Software 630

A. Software Leases 630

Figure 34.1 – Software Leasing 631

Figure 34.2 – Article 9 View of General Intangibles 634

B. Finance Licenses 637

Figure 34.3 – Finance Licensing 637

Problem Set 34 639

Assignment 35. Lending Against Patents 641

A. The Basics of Patent law 641

B. Perfecting Security Interests in Patents 642

Moldo v. Matsco, Inc. (In re Cybernetic Services, Inc.) 643

Problem Set 35 657

Assignment 36. Lending Against Other Forms of Intellectual Property 660

A. Trademarks 660

In re Together Development Corporation 660

B. Trade Secrets 665

C. Web Sites and Domain Names 666

Network Solutions, Inc. v. Umbro International, Inc. 667

Problem Set 36 677

Section B: Electronic Enhancements of Lending Transactions 680

Assignment 37. Registry Systems – Electronic Filing 680

A. The Basics of Loan-Supporting Filing Systems 680

B. Updating Personal-Property Filing Systems 683

C. Updating Real-Property Filing Systems 687

1. The Existing Mortgage Filing Systems 687

2. E-SIGN and Electronic Mortgage Filings 689

D. The Dark Side 691

Problem Set 37 693

Assignment 38. Account Systems – Financial Assets 695

A. Account-Based Lending Systems 695

Figure 38.1 – Account-Based Lending Systems 695

B. The Article 8 System 697

1. The Indirect Holding System 697

a. The Basic Framework 699

Figure 38.2 – The Indirect Holding System 701

b. Rights Against the Intermediary 702

Powers v. American Express Financial Advisors, Inc. 703

c. Rights Against Third Parties 708

2. Lending Against Securities Entitlements 710

C. Lending Against Deposit Accounts 711

Problem Set 38 712

Assignment 39. Token Systems – Electronic Notes 714

A. Transferable Records Under E-SIGN and the UETA 714

1. The Basics of Negotiability 714

2. Negotiability Under E-SIGN and the UETA 718

3. Implementation for Real-Estate Notes 720

B. Electronic Chattel paper Under Article 9 721

Problem Set 39 722

Chapter Seven: Problems of Cross-Border Dispute Resolution

Assignment 40. Jurisdiction and Conflict of Law 724

A. Jurisdiction and Interstate Internet Commerce 724

1. Minimum Contacts and Internet Commerce 724

Zippo Manufacturing Company v. Zippo Dot Com, Inc. 724

2. Judgment Enforcement 733

B. Conflict of Laws and Interstate Internet Commerce 734

CAT Internet Services v. Inc. 735

C. Jurisdiction and Cross-Border Internet Disputes 738

1. Jurisdiction to Prescribe and Adjudicate 738

2. Jurisdiction to Enforce 740

D. Conflict of Laws and Cross-Border Internet Disputes 743

E. Jurisdiction Avoidance 743

Problem Set 40 745

Assignment 41. Contractual Choice of Law and Forum 748

A. Contractual Choice of Law 748

1. Choice-of-Law Terms and Interstate Commerce 748

2. Choice of Law and Cross-border Internet Commerce 751

B. Choice of Forum 751

1. Choice of Forum and Interstate Commerce 751

Carnival Cruise Lines, Inc. v. Shute 752

Gross v. America Online, Inc. 758

Mark Williams v. America Online, Inc. 762

2. Choice-of-Forum Terms in Cross-Border Internet Disputes 765

Problem Set 41 766

Assignment 42. Online Dispute Resolution 769

A. Alternative Dispute Resolution 769

1. Arbitration 769

Green Tree Financial Corp.-Alabama v. Randolph 770

Brower v. Gateway 2000, Inc. 777

2. Mediation 779

B. Online Dispute Resolution 779

1. ICANN Uniform Dispute Resolution Procedure 780

2. Digital Millennium Copyright Act Take-Down Procedures 781

3. Spam and the Realtime Blackhole List 782

4. eBay and SquareTrade Mediation Service 783

5. Automated Settlement Systems 783

C. EU Regulation of ADR 784

1. Arbitration Agreements in Consumer Transactions 784

2. EU Regulation of Online Dispute Resolution 786

Problem Set 42 787

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