Electronic Commerce on the Internet: What Is Still Missing?
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Electronic Commerce on Internet:What is Missing? Proc. INET ’95 Z.Milosevic, A.Bond
Electronic Commerce on the Internet: What Is Still Missing?
Zoran Milosevic
Andy Bond
Abstract Consequently, it can be said that electronic com-
In this paper we investigate those aspects of merce includes EDI, but also mechanisms to support
electronic commerce which can be used to facilitate inter-personal (human to human) communications,
inter-organisational business dealings. The Internet the transfer of moneys, and the sharing of common
has substantially promoted different aspects of data bases as additional activities that aid in the effi-
electronic commerce such as electronic ordering and cient conduct of business [1].
shopping: electronic malls are increasingly While the Internet has substantially promoted dif-
becoming part of the modern information society. ferent (though simple) aspects of electronic com-
However, the pace of adoption of emerging merce, the rate with which electronic commerce has
computing and communication technologies for been adopted within inter-organisation business deal-
electronic business dealings between enterprises is ings is relatively slow. Yet, today’s trend toward
much slower. We argue that, among other reasons, increased global interdependencies between busi-
two major factors for this are: i) an inadequate nesses requires a modern electronic infrastructure to
representation of the semantics of business activities support these transactions. It is intuitively clear that
and ii) the lack of a sound legal support for the latter issues involve higher complexity, more
electronic interactions. We propose a general uncertainty and thus potentially increased economic
framework for business contracts that addresses both losses; unless there are assurances for a more coher-
of these issues and investigate how this framework ent and, from the legal point of view, valid electronic
can be used in the context of the Internet. business dealings. This paper can be regarded as an
attempt to provide a basis for establishing those
assurances, related to the operations associated with
1 Introduction business contracts. We develop a general business
contract framework, which can be applied to any
Electronic commerce is a broad term which cov- business setting, or to any specific IT scenario. This
ers a wide range of commercial activities that are model is then used in the context of the Internet.
performed by means of an electronic web that can In section 2, we outline different stages in the evo-
connect trading partners. Until recently electronic lution of electronic commerce. The aim of this is to
interactions have been the privilege of large compa- highlight the role of EDI, the emerging trend towards
nies which had the knowledge, technology and suffi- using EDI over the Internet and those concerns
cient capital to invest in an electronic infrastructure which still need to be addressed in order to provide a
that supports electronic business transactions. Exam- basis for a more rapid adoption of electronic com-
ples are financial institutions (e.g. banks), airline car- merce within electronic dealings between enter-
riers, some manufacturing companies and large retail prises. In section 3, we develop a generic business
distributors. Additional impetus for increased elec- contract framework, based on the understanding of
tronic business transactions over the last several contracts from economics, legal and business per-
years have come from the Electronic Data Inter- spectives. This will be then applied to the specifics of
change (EDI) standards. These standards cover the the Internet environment (section 4). Conclusions
communication of business information in a stand- and future research are outlined in section 5.
ardised electronic form.
The increased penetration of the Internet, its 2 Evolution of electronic commerce
accessibility to a wider user community, and the
applications such as WWW browsers (e.g. NCSA It is recognised that a coherent support for elec-
Mosaic) have provided an impetus towards an tronic commerce requires three fundamental sets of
increased inroad of electronic commerce into the technological components (Fig.1), as stated in [2].
community at large. The emerging electronic com- • Underlying computing and communications plat-
merce activities on the Internet such as advertising of forms - as a basis for end-to-end electronic trans-
products and services, electronic shopping, elec- fer of messages. This includes networks such as
tronic malls and many other services that appear value added networks (VANs) and the Internet,
almost daily on the Internet, are the best indicator and communication protocols such as those based
that doing electronic commerce on the Internet on X.400 and X.500 standards.
proves attractive and reveals new opportunities for • Established EDI structures and protocols - pro-
individuals and businesses. vides a common understanding of elementaryElectronic Commerce on Internet:What is Missing? Proc. INET ’95 Z.Milosevic, A.Bond
messages which are used to facilitate exchange of tems and VANs, can bring further advantages if
business information between enterprises. implemented via the Internet. The wide penetration
• Enterprise model - reflects typical business activ- of the Internet enables a broader range of businesses
ities and relationships among organisations. This which can utilise networking technology for their
includes a number of common (standardised) business dealings. This includes small and medium
procedures, but also business specific details. size companies, as opposed to the scenario of the
We study the evolution of electronic commerce in past whereby only large corporations could afford
terms of these three elements, with the aim of identi- such as facility. It also provides a cheaper transport
fying those components that are still missing for inte- facility to companies who have already been
grated electronic commerce activities; in particular involved in EDI and who might have been using
those that refer to a use of electronic commerce for expensive dedicated VPN resources.
electronic business dealings between firms. In addition to the increased types of business on
the net, the Internet can provide more flexibility in
Enterprise modelling terms of i) locating suitable and competent business
Value added services (yellow pages, browsers) partners and ii) establishing short-term business rela-
Business process modelling tools tionships between enterprises (due to large costs of
Open-EDI
setting up a VAN for traditional EDI only long-term
Standard EDI documents and protocols relationships could be justified).
EDIFACT, X.12 These factors have contributed to an initial work
Technology domain for facilitating traditional EDI over the Internet. For
VANs, Internet example, work has recently started to permit format-
X.400, X.500 ted business interchanges to be encapsulated within
Figure 1. Electronic commerce components MIME1 messages [5]. In the case of EDI, a message
formatted according to the MIME-EDI specification
could be automatically transferred to an EDI process-
2.1 Past: beginnings and first EDI
ing program [1].
standards
It can be said that the first electronic commerce 2.3 Future: semantic and legal issues
attempts have been made within the transportation
The support for EDI over the Internet can be
(e.g. ocean, motor, air and rail) carriers and the asso-
regarded as a short-term goal of electronic commerce
ciated shippers, brokers, customs, freight forwarders
over the Internet. A longer term goal would involve
and bankers [3]. In fact, these were the first EDI sys-
support for the semantics of business scenarios,
tems, based on the use of VANs.
many of which are also standardised (for cost rea-
The strategic importance of EDI has been recog-
sons, as in the case of standardised contracts) as well
nised from the early days. This refers not only to
support for legally valid business transactions.
operational issues such as reducing paper flow and
For example, in setting up EDI relationships,
shortening times needed for execution of transac-
companies presently still use paper documents. This
tions, but also extending the business scope of enter-
frequently involves a lengthy process of agreement
prises [2]. This lead to the standardisation of EDI. At
on several issues such as the EDI messages to be
the international level, such a standard is set under
used. As a result, entry barriers for use of EDI are
the auspices of the United Nations, and is called
still high [6]. Some attempts have been made to
EDIFACT: EDI for Administration, Commerce and
assist the negotiation of EDI rules (e.g. Uniform
Trade [4]. In the United States, the EDI standard is
Rules of Conduct for Interchange of Data by Tele-
developed by American National Standards Institute
transmission, UNCID, developed through the coop-
(ANSI) within the task group X.12. These two stand-
eration of many organisations). Another important
ards have contributed to the significant number (30-
effort in this direction is an ISO initiative, known as
40 thousands) of organisations that presently use EDI
open-edi [7]. It has initiated work on specifying
[1]. Examples abound where companies have gained
standard business scenarios that can be employed
new business opportunities through EDI. These ben-
without prior trader partner agreements [6].
efits include an increase in operation efficiency (both
These issues belong to the enterprise model of
intra and inter-organisational) and the business scope
electronic business dealings. In this paper we make
expansion.
an initial attempt to address one such enterprise
issue; a support for the operations associated with
2.2 Present: wider scope and use of
establishing business contracts and monitoring and
Internet
It is now recognised that EDI systems, which are 1.Multipurpose
Internet Mail Extensions standard permits identifi-
predominantly based on proprietary information sys- cation/concatenation of message ‘body’ into a single message [1].Electronic Commerce on Internet:What is Missing? Proc. INET ’95 Z.Milosevic, A.Bond
enforcing behaviour of the parties to contracts. This form statute adopted in whole or in part by each state
will be done by applying a generic business contract legislature in the US to govern specified fields of
framework developed in [8] to the specifics of inter- commerce.
organisational electronic business dealings over the According to the above, an architectural notion of
Internet. contract domain must include:
• a set of contract validity rules
3 Generic business contract • a procedure to arbitrate contract disputes
framework • a procedure to enforce contract behaviour.
In our previous work we have extensively studied 3.2 Contract template
the roles and main principles associated with con-
tracts, by taking into account economic, legal and While there is a variety of different types of con-
business viewpoints. This work lead to the develop- tracts that govern specific relationships between trad-
ment of a generic business contract framework ing partners (and which reflect different economic
(BCF) which can be applied to any business or IT and legal factors [11]), a large class of contracts are
scenario [8]. In the following subsections, we will also standardised to reduce the cost of setting up the
summarise the main points related to the operations contract agreement. This, along the fact that there are
of contracts in the real world and the associated con- a number of elements which are common to many
cepts of our BCF. contracts, served as our motivation to introduce the
Contracts involve a relationship between two or concept of contract template in our BCF. The con-
more parties, representing an agreement that govern tract template defines a particular class of contracts.
their interactions. From an economic standpoint, a Generally, it specifies:
contract arises as a result of efficiency-seeking • the roles of the parties
behaviour in a world of limited information [9]. • the period of the contract (the times at which the
From a legal standpoint, a contract serves to alleviate contract is in force)
mistrust in a world of uncertainty, e.g. by constrain- • the nature of consideration (what is given or
ing the unpredictable activities of the other autono- received), e.g. actions or items
mous parties. In the world of business, a contract is a • the obligations associated with each role,
major concept of business law2. A contract is a mutu- expressed in terms of criteria over the considera-
ally binding agreement between two or more parties tions, e.g. quality, quantity, cost and time
to perform or not perform certain acts. • the domain of the contract (which determines the
rules under which the validity, correctness, and
3.1 Contract domain enforcement of the contract will operate).
A contract template thus contains certain seman-
In the real world, various legislative bodies place tics of a business contract. These semantics can rep-
restrictions on the contracts that can be made within resent different scenarios associated with business
their boundaries which define the contract domain. contracting. Additionally, there can be certain rela-
The contract domain can be determined on a regional tionships between different types of contracts. For
basis (e.g. by the legislative bodies of countries or example, a general contract template may require
states), but also based on other criteria. For example, further refinement to specialise the template into a
these can be related to a particular industry such as a specific business contract.
specific field of trade (e.g. as defined by the interna- To store different contract types within a BCF,
tional bodies which prescribe stock market trading and represent different relationships between them
rules), or to a particular profession (e.g. as defined by (e.g. subtype or substitutability), an appropriate
certain professional bodies3). The rules and policies repository is needed. In addition to being a storing
of a particular business contract domain normally facility, such a repository should also provide opera-
emanate from statutory or administrative law. tions to manipulate contract templates. This can be
Interactions between parties belonging to differ- particularly useful in selecting contract templates and
ent contract domains are normally governed by a set supporting contract negotiation, as will be shown in
of policies which apply across domains, and thus the following sections. One example of how this can
define a higher-level domain. An example of a set of be realised in the context of open distributed systems
rules and policies which define such a domain is the (based on the use of a binding4 types) has been pre-
United States Uniform Commercial Code, i.e. a uni- sented in [8].
2.Some
other concepts of business law are: agency, negotiable
instruments, tort, property etc. [10]. 4.In
general, a binding is defined as a relationship between a set of
3.
These are responsible for maintaining a register of licensed objects that defines the interaction that can occur amongst the
practitioners in their profession. objects during the relationship [8].Electronic Commerce on Internet:What is Missing? Proc. INET ’95 Z.Milosevic, A.Bond
3.3 Contract negotiation words, a contract’s purpose or object must com-
ply with law. One party cannot bring suit against
Contract negotiation is a multistep process (of the other for breach of the contract if the act
offers and counter-offers), in which parties with con- required by the agreement is illegal.
flicting interests come to a mutual assent, regarding A court will enforce a contract if it meets the four
the terms and conditions of the contract. Once a con- requirements [10]. In general, enforcement of con-
tract is successfully negotiated, it can be submitted tracts will only occur if the contract is breached by a
by any party (or parties) to a legal expert or authority party to that contract.
for validation. When translating these concepts into the concepts
In terms of our BCF, contract negotiation of a BCF, contract validation can be defined as the
involves interaction between the potential parties to process of ensuring that a contract satisfies the above
the contract. This process is influenced by the char- contract validity rules of the nominated contract
acteristics of the parties and their environment. For domain. This process involves a number of steps as
example, the negotiation can be performed either will be shown in the example below. The contract
directly by the parties or via a third party (e.g. a bro- validity rules can require that the parties must be
ker). While in the former case, negotiation proce- members of the domain (i.e. the domain administra-
dures are part of an application domain, in the latter tion has some control over the activities of parties).
case, an architectural component, a trusted broker It is worth noting that contract validation does not
can be used. Since, like in real life, brokers can have need to be used at each contract establishment proce-
more information about other parties and the envi- dure. For example, once the parties to the contract
ronment, they can reduce uncertainty about the out- have established a contractual relationship, they both
come of the negotiation and provide a more efficient deal with legally valid contracts. This may be
negotiation process. exploited in subsequent contract negotiations/rene-
In relation to the concept of contract templates, gotiations (a cache mechanism can be used to store
negotiation can be regarded as the refinement of a such validated contract instances).
contract template into a (mutually agreeable) con-
tract. Once an agreed upon contract is checked for 3.5 Contract monitoring
validity, it may be stored in a notary, for use as evi-
dence of agreement in the contract validation and Contract monitoring is the process of observing
enforcement activities. the activities of the parties that are governed by a
contract, with the aim of ensuring that those activi-
3.4 Contract validity ties correspond to the contract.
Contract monitoring can be performed by:
In the real world, the legal system determines the • the parties themselves
validity of contracts by identifying the mandatory • third-party agents acting on behalf of individual
elements. Typically these include [10]: parties
• An agreement: an offer seriously and clearly • trusted third-party agents acting on behalf of all
made by one party to another party, who must participants in the contract.
accept it seriously and clearly and without reser- Contract monitoring can be a continual process or
vation. Additionally, both parties make the agree- it might occur only from time to time (e.g. customer
ment voluntarily, without restraint or influence, satisfaction surveys).
acting of their own free will. Since quality can represent an important element
• Consideration: This is something of value that of a contract, some mechanisms for the monitoring
each party gets or gives. Each party thus estab- of quality of service specified in contracts need to be
lishes obligation to each other. Typically, it must employed. We assume that such mechanisms will be
be shown that both parties intended to bargain available and can be used to support the behaviour of
and have actually exchanged something for a the parties to the contract.
contract to be enforceable by a court. Considera-
tion can take the form of money, act performed or 3.6 Contract enforcement
withheld, services rendered, other property or
individual rights. In general, it need not be tangi- If contract monitoring indicates that the contract
ble or possess an economic value. has not been honoured by another party, the damaged
• Competence (or capacity): The ability to incur party might wish to take corrective action. This proc-
liability or to gain legal rights (e.g. whether an ess of contract enforcement can take many forms
individual has the authority to represent their (possibly more than one):
organisation in contract establishment). • to require the other party to conform in the future
• A legal purpose: A contract cannot be enforced to the contract (e.g. to ensure that goods are
unless the actions agreed upon are legal in the delivered on-time)
jurisdiction where the contract is made; in otherElectronic Commerce on Internet:What is Missing? Proc. INET ’95 Z.Milosevic, A.Bond
• to require the other party to correct the previous The performance of the parties to the contract
problems (e.g. to replace damaged merchandise) involves monitoring of their activities and enforcing
• to demand compensation for past problems (e.g. decisions if there is non-performance to the contract
to pay interest on outstanding balances) (Fig.2.). After the expiry of the contract some enforc-
• to terminate the contract. ing decisions still can be done, as also depicted in the
Contract enforcement might occur through direct figure.
discussion between the contract participants. If this Having explained the main steps involved, we
does not produce a satisfactory resolution, the dis- now turn to the description of the roles and the rela-
pute can escalate through various levels of mediation tionships between the components of the BCF as
or arbitration, ultimately leading to a court case. shown in Fig. 3. It is assumed that each of the con-
In terms of a BCF, contract enforcement can be cepts identified so far is assigned the roles of the cor-
pro-active, ensuring that actual behaviour conforms responding BCF component, irrespective of
to the contract, or reactive, ensuring corrective implementation details (e.g. whether these compo-
actions to minimise the deviation from the contract. nents are centralised or distributed). It is also
Corrective actions might be performed by the parties assumed that an architecture which would be based
of the contract, or by some external component on such a BCF will be built on a set of security com-
within the contract domain. ponents which provide support for procedures such
The effectiveness of contract enforcement might as authentication, authorisation and encryption.
be limited if some of the parties are outside the con-
tract domain (which is why domain membership 3.7 BCF components: roles and
might be required for a valid contract). If a party out- relationships
side the domain does not comply with the enforce-
ment, then the ultimate sanction of the domain is to The rules and policies of a particular legislative
exclude that party from the domain or from contracts domain can be stored in a repository, which we term
within the domain in future. a legal rules repository (LRR), Fig. 3.
The relationship 1, between a party to the contract
An example: typical contract operations and a contract validator (CV) component involves a
We will now turn to illustrate the operations of the contract validity checking procedure, in which a
BCF identified so far with an example which closely potential party to a contract expresses its willingness
resembles the typical contract operations within a to enter into a contractual relationship (at some stage
legally valid contract framework. The aims of this in future). Thus the competence aspect of a contract
example are to i) illustrate a temporal order of these should be first checked during the contract establish-
operations and ii) the parties involved. Note that the ment phase.
Relationship (2) represents a set of contract nego-
order of steps in this example reflects one of many
tiation operations between the parties to the contract.
possible scenarios.
During this stage the parties can exchange several
During the contract establishment phase (Fig. 2),
contract templates, which represent a set of offers
it may be required that the checking of the own com-
and counter-offers, as depicted in Fig. 3. Contract
petence of the parties be done before contract negoti-
negotiation can be supported by a contract negotia-
ation commences (step a). This is similar to the real
tor (CN) component (relationship 2’). It has a media-
world scenarios, whereby often certain assurance
tion (brokerage) role, as discussed in subsection 3.3.
credentials (e.g. licensing and endorsement) are
During the negotiation phase, the negotiated con-
required as the first element in a contract establish-
tract template can be submitted for further validity
ment. This normally means that the party has entered
checking, as also discussed in the previous example.
the contract domain.
This is depicted by relationship 3 between a party to
The negotiation process starts with say party2
the contract and the CV and involves one or more of
offering an initial contract offer (step b). Before the
the following procedures.
party1 seriously considers the offer, it may want to
check the competence of the party2 (step c). If suc-
• Checking the clarity aspect of a contract template
(relationship 3a). To check this aspect of the con-
cessful, the party1 can either accept the offer or sub-
tract the CV can contact that component of the
mit a counter-offer (step d). The negotiation process
BCF, which has the role of providing common
can proceed for example with the party2 checking
understanding of contractual types (e.g. checking
the validity of the counter-offer (e.g. legal validity
whether a contract type/contract element types
and consideration elements, as depicted in the fig-
are known to the system).
ure), step e. If successful, party2 can then submit a
final offer. If checked for legality (step f) and
• Checking of the legal purpose element of a con-
tract (relationship 3b), based on the information
accepted by party1 (step g), this contract will have a
in the legal rules repository. For example, check-
legally valid status.
ing whether a contract explicitly states that anElectronic Commerce on Internet:What is Missing? Proc. INET ’95 Z.Milosevic, A.Bond
illegal behaviour (e.g. selling stollen goods, or 4 Support for contracts on the
reselling services without the owner’s permis- Internet
sion) is prohibited. This is done through the con-
tract legality (CL) object. This section demonstrates how each concept of
After the contract element types are checked for our contract framework can be applied to the Internet
the validity, during contract establishment (and with the aim of assisting in the promotion of elec-
stored in notary, if required), either party may request tronic commerce.
to check whether the contractual obligations have A party to a contract is represented by a trading
been met during the contract performance. This rep- partner. This can include both the computer applica-
resents checking whether the consideration validity tions (e.g. EDI software at the sending or receiving
element of contract is met; this deals with values that side) and also individual users (e.g. buyers and sell-
one party gives/takes and thus there should be a ers on the Internet).
means to monitor these parties’ contract perform- While standardised EDI messages can facilitate
ances (relationship 4). A corresponding contract interoperability between the trading partners, it is
monitor (CM) component5 can be used to monitor recognised that these are not sufficient for more com-
the activities of the parties to the contract. This plex business scenarios to be modelled [2]: those that
includes recording the actions and measuring the per- require the incorporation of certain semantic aspects
formance of the parties to the contract (relationship (e.g. of business contracts to provide support for a
4) and dealing with non-performance of parties, e.g. more rapid contract setting procedures).
signalling this to the contract enforcer (CE) (relation-
ship 5). 4.1 Business contract domain
Once the CE has been notified by the CM, it
should make an enforcing decision. The enforcing In terms of the Internet, a business contract
can be done pro-actively, upon the actual behaviour domain can be defined as a boundary within which
of the parties (relationship 6a), or reactively, by the activities of trading partners are governed by the
incorporating the decision into the CV (relationship rules and policies of a particular business contract
6b) to prevent further access to the system by non- law. These rules are prescribed by the corresponding
conforming parties. legislative authority6 (e.g. of a state or a country).
We note that this analysis deals with explicit con- This includes the rules and policies within the
tracts: those that are applicable to situations in which domain as well as those which govern interactions
there is some crossing of administrative boundaries between domains.
and in which the trust among parties involved is such Initially, such a domain can be determined by a
that contracts need to be established. These are gov- state, national or other regional boundaries. It can be
erned by a set of rules emanating from a particular expected that with an increased acceptance of elec-
business law. tronic contracting, certain bodies, such as national
On the other hand, implicit contracts are the mat- and international standardisation organisations (or
ter of parties to the contract themselves and are commercial companies such as credit card providers)
within the scope of an application domain. In this could describe (or prescribe) rules that would com-
case only a relevant contractual component which prise a specific domain of electronic interactions.
provides a common understanding of contract ele- These rules and policies can be stored in the cor-
ment types needs to be involved. This for example responding legal rules repository (LRR), which
may apply to a situation in which there is full trust should be accessible by the CL component. This
between parties (as can be the case in network organ- component could be implemented as a single object
isations) or when contracts are enforced by some or a set of cooperating objects.
indirect mechanism (e.g an authority mechanisms A contract domain can be realised in a variety of
within a company’s hierarchy). ways. Two examples are: i) a scenario in which the
In certain situations (referred to as neo-classical domain’s LRR completely and solely controls a
contracting [11]), it is beneficial to use a trusted number of nodes and the networks between them or
third-party arbitrator which we call contract arbitra- ii) a situation in which parties and contracts within
tor (CA). CA has the role of evaluating the parties’ the domain are distributed throughout the Internet
performance, similarly to the CM, and also resolving where the authority of the jurisdiction over its mem-
disputes. This is an alternative to a costly litigation bers is retained.
process.
5.This
component may not be needed since some monitoring
6.The
mechanisms can be done by parties themselves (and possibly veri- activities of legislative authorities are outside the scope of
fied later by courts if needed). this framework.Electronic Commerce on Internet:What is Missing? Proc. INET ’95 Z.Milosevic, A.Bond
Establishment Post-
Performance contract
a b
Party 2
Checking
its own Initial Final
e
competence contract Performance
offer
offer
Others
Validation Validation
(competence) (legal validity & consideration) Monitoring Enforcement
f
c d g
a
Party 1
Checking Checking Initial Checking Performance
its own legal Accept
Party2 counter the final
competence competence purpose
offer offer
Negotiation Contract Contract
Starts becomes terminates
valid
Figure 2. A possible sequence of contract operations
Time
It is worth noting that the paradigm of domains • specify the roles of the trading partners (which
developed for management purposes in [12,13] can include their particular behaviour related to busi-
be adapted to further refine operations and relation- ness contract interactions)
ships associated with business contract domains. In • specify contract semantics, including business
particular, there may be different relations between contract validity rules.
domains (e.g. hierarchical or peer-to-peer), which
reflect relationships between different legal authori- We envisage that a repository, which can be made
ties and this can be included in a LRR. This will be accessible via the Internet (according to particular
investigated in future work. permission rules), can be used to store:
• Some general contract element types (e.g. the
4.2 Contract templates date of the contract agreement, duration of the
contract, parties to the contracts, etc.). This can,
Presently, the users of EDI use bilateral (or multi- for example be based on established EDI mes-
lateral) paper contracts, which govern the rules of sages and documents.
their relationship. These are referred to as ‘trading • Different types of contracts. These can range
partner agreements’ [14]. The establishment of such from very simple contracts (e.g. house purchase
agreements involves substantial costs as they typi- contracts), in which there is no ongoing relation-
cally specify in detail business practices and techni- ship between parties (i.e. a very short contract
cal requirements; effectively, the contracts performance period), the items being traded (real
semantics. estate) are well defined and have minimal com-
Few research attempts have been made to address plexity; to very complex contracts such as those
this concern. For example, an approach which governing many inter-organisational interactions
includes an AI technique and CASE tools, reported including international contracts.
in [15], and an approach based on use of Petri Nets
[6]. There are presently many examples of repositor-
The concept of contract templates within our ies (both general and specific) available over the
generic BCF can be used in the context of electronic Internet, e.g. gopher, archie, veronica. A contract
commerce on the Internet, as an electronic represen- repository can be implemented as a separate reposi-
tation of such agreements. Such a mechanism can be tory or as a part of a repository which can store other
a suitable means to model business contracts since it types of information (e.g. based on type management
can be used to:Electronic Commerce on Internet:What is Missing? Proc. INET ’95 Z.Milosevic, A.Bond
systems, commonly used in open distributed systems 4.3 Contract negotiation
[8]).
In addition to providing a storage function, such a Contract negotiation can be realised as the refine-
repository should provide related management oper- ment of contract templates by the selection of con-
ations, to support the creation of the storage structure tract subtypes and actualisation of contract element
and the definition of relationships between contract types.
types. For example, this should support addition of This reflects the fact that negotiation often
new contract types, specialisation of contract types involves one party which submits a contract template
from existing types and establishing other possible offer, which the other party should either accept
relationships between contract types. immediately or make a counter-offer. The subtype
hierarchy can be used to determine the substitutabil-
ity of contract templates. Substitutability can be used
Legal Rules
Repository as the basis for acceptance of counter-offers.
Other
parties
4.4 Contract validation
contract performance
2’ Contract validation is an optional step performed
7 individually or collectively by trading partners which
CE are creating the contract. As described in 3.4, there
CN CA contract are four elements of a legally valid contract. The
validity realisation of these elements in the Internet environ-
2 6a 5 CL ment occurs as follows:
6b • An agreement. The existence of an agreement is
7
2’ 4 CM proven by the record of negotiation kept by a
3b
notary as described in 4.3. Clarity is implied by a
3
Party CV common understanding of the types associated
1 with the contract. This common understanding
3a
can be realised by using standard EDI messages
(we note that there is currently work towards
Contract repository aligning two major standards, viz X.12 and EDI-
- contract element FACT).
types
- contract types • Consideration. The existence of consideration is
ensured by requiring that contract templates
include a description of what is exchanged by the
Technology parties to the contract. The legislative bodies pre-
domain scribe what exchanges are considered acceptable
consideration through definition of contract ele-
ment types in the contract repository. In the
exchanges over the Internet, the most common
Figure 3. A business contract framework forms of consideration are services, information
and currency.
A similar concept to contract templates can be • Competence. Competence is assessed through
seen in a use of document templates. For example, certification authorities that can assess the com-
document templates accessible over the Internet, petence of parties to fulfil particular roles, e.g. a
which contain a set of different types of standard credit rating agency can assess the ability of a
paper formats (e.g. in PostScript, FrameMaker, Latex company to meet financial obligations of a con-
etc.) for this conference [16]. We anticipate that these tract. Typically trading partners demonstrate their
will be defined by the emerging EDI standards, and competence to such certification authorities in
in particular open-edi standard efforts [7]. Some of advance to streamline the checking of their com-
these templates can be further specialised to address petence when establishing contracts. We do not
the specifics of a particular business relationship. constrain the establishment or operation of these
The dashed line in Fig. 3 (between a party to the authorities. In the general case this checking
contract and contract repository) reflects the fact that involves some form of authentication of parties.
trading partners will typically access this repository We assume that such a security procedure is
before being involved in contractual operations. This established and concentrate on contract specific
will be normally done when searching for a desired issues.
contract type. • Legal purpose. Legal purpose can only be deter-
mined through interpretation of the laws of the
contract domain, say of a business contract law,Electronic Commerce on Internet:What is Missing? Proc. INET ’95 Z.Milosevic, A.Bond
which are stored in the LRR. In the electronic service characteristics (e.g. transmission time of e-
commerce on the Internet, the legal purpose con- mail messages) can be monitored.
strains the actions that may be performed by trad-
ing partners to the contract. Such constraints can 4.6 Contract enforcement
be implemented by requiring that all contract
templates satisfy constraints specified within con- Contract enforcement should ensure that the
tract types of the contract repository. Formulation actual behaviour conforms to the contract. This can
of these types is a responsibility of the jurisdic- be done in either of the following ways.
tion. However, the interpretation of law requires • Pro-actively through constraints implemented
either human intervention or an AI approach such within the contract template. This can potentially
as that suggested in [15]. be implemented through dynamic type checking
To summarise, contract validation can be realised of interactions between objects.
by using rules and policies of the underlying business • Reactively, via auxiliary components, which
contract domain (possibly incorporated in the con- might or might not be part of the contract, taking
tract repository) and through implementation of corrective action to minimise the deviation from
appropriate supporting services to facilitate validity the contract
checking. • During the post-contract period, by constraining
future activities within the contract domain for
4.5 Contract monitoring parties that have violated contracts.
We note that the pro-active approach to contract
After the contract element types are checked for enforcement is not widely used in business contracts.
validity and the contract is accepted by all trading We envisage, however that a system of electronic
partners the interactions governed by the contract can commerce can effectively support pro-active
proceed. In the course of this, either trading partner enforcement, since a business law is normally less
may check whether the contractual obligations have ambiguous than common law and direct interpreta-
been met during the contract realisation, i.e. the con- tion is possible. Additionally, reactive and post-con-
sideration element of the contract is being fulfilled. tract enforcement will usually require arbitration and
More specifically, this requires recording of the possibly human intervention in determining the
actions and measurement of the performance of par- appropriate (corrective or punitive) actions.
ties, ensuring that they comply with the contract Several mechanisms are currently available on the
specification. Internet which can support contract enforcing. For
Contract monitoring can be done by parties them- example, it is possible (by a controlling node on the
selves and possibly verified later by contract enforce- message path) to restrict transmission of news and e-
ment activity if needed; similar to maintaining mail messages to or from certain parties. This can be
diaries which can be regarded as some sort of legal adapted to the specifics of the contract enforcement
documents. in the context of electronic commerce on the Inter-
Alternatively, a trusted third-party contract moni- net.
tor (CM) can be used by one or more parties to the
contract. The parties employing the CM specify the 5 Conclusion
actions required upon detection of contract non-per-
formance, e.g. it can notify an appropriate contract In this paper we identified a number of problems
enforcement component. which currently represent an obstacle for the wider
Hence, the CM has the following roles: use of electronic commerce mechanisms over the
• monitoring activities of parties Internet, in particular for inter-organisational busi-
• recording actions and measuring performance ness dealings. While there are a variety of technolog-
• dealing with non-performance of parties. ical problems currently being addressed in the
Contract monitoring can be implemented either research community (e.g. those related to security,
within the software of individual trading partners or availability and reliability issues), we have high-
by the auxiliary components which will monitor the lighted additional problems. These arise from the
interactions between the representative objects. current lack of a suitable semantic representation of
There are presently various mechanisms within typical business scenarios and the absence of a
the Internet which can be used to perform some mon- legally valid framework for the support of electronic
itoring functions. For example, news and e-mail commerce on the Internet.
services provide means for monitoring both the This paper can be regarded as an initial attempt to
transmission path and status of messages. These can address these issues: we focused on one important
be extended with specific requirements related to class of business operations associated with estab-
electronic commerce. Additionally, some quality of lishing contracts and monitoring and enforcing
behaviour governed by these contracts. The generic
framework previously developed has been used toElectronic Commerce on Internet:What is Missing? Proc. INET ’95 Z.Milosevic, A.Bond
provide an initial framework for the support of inter- [14] Wright B., The Law of Electronic Commerce, EDI,
organisational business dealings over the Internet. Fax and E-mail: Technology, Proof, and Liability,
Little Brown and Company, 1991.
We believe that this work, along with other contribu-
[15] Lee, R.M, Dewitz, S.D., Facilitating International
tions, especially [17], can provide an increased confi-
Contracting: AI Extensions to EDI, International
dence in using electronic commerce features. Information Systems, January 1992.
However, we also note the complexity of these [16] Chon K., Kinman K., INET’95 Information for
issues, which makes it hard to expect that all interac- Authors, 1995.Available from http://www-scli.stan-
tions can be automated. A number of activities will ford.edu/inet95/author.info.html.
still require human intervention, e.g. interpretation of [17] Lai C., Medvinsky G., Neuman B.C, Endorsements,
law and subjective judgements such as “intent”, Licensing, and Insurance for Distributed System
Services, Proceedings of the 2nd ACM Conference
“negligence” and the ultimate authority of society’s
on Computer and Communications Security,
legal system. November 1994.
Acknowledgments
References The work reported in this paper has been funded
in part by the Cooperative Research Centres Program
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