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A paradigm shift is occurring in today’s business world, which will undoubtedly lead to major changes in several different areas of law. The catalyst for this revolution in business processes and protocol is what is known as “Supply Chain Management” (SCM). SCM is defined as the direction and oversight of physical and intangible resources as they progress from supplier to manufacturer to wholesaler to retailer (and finally) to end-user. In addition to inventory management, SCM also encompasses software integration, raw materials and component sourcing, product design and manufacture, fulfillment and delivery, financing, and contract management. In light of the stagnant U.S. economy — which has been further jolted by the recent terrorist attacks — enterprises of all size are turning toward SCM to curb expenses and increase cash flow. The ubiquitousness of SCM in today’s business world compels lawyers to become knowledgeable about it. According to Michael O’Rourke, Senior Vice President and General Counsel of Covisint, the principal ebusiness exchange for the auto industry, automation has transformed procurement from a relationship-based function to one centered on transactions. “Therefore,” says O’Rourke, “these seismic changes in purchasing methods require lawyers to play an active role in coordinating and monitoring numerous third-party supplier relationships — as well as to enforce the terms of each agreement that governs such partnerships.” Moreover, O’Rourke rightly points out that proprietary rights issues, which often arise in the context of joint development agreements between supply chain partners, must be carefully examined by counsel prior to execution. As businesses of all types increasingly focus on their core-competencies, lawyers must also be prepared to monitor the global reputation and financial condition of their clients’ key subcontractors (e.g., suppliers, distributors and consultants). Each third-party vendor agreement has its own choice-of-law and choice-of-venue provision therein; which, in the event that litigation ensues, could require counsel to litigate in foreign forums. One key component of SCM — contract management — may ultimately have an enormous impact upon the role that lawyers play in everyday transactions: and may soon render obsolete many of the more mundane paralegal activities. An increasing number of corporations now rely upon software to assist them with contract management. Technical solutions, like Ozro Negotiate�, are designed to minimize the need for human intervention in the contract negotiations process. Companies such as I-Many� (http://www.i-many.com) and DiCarta� (http://www.dicarta.com) offer turnkey solutions designed to automate contract management and administration. At the heart of many of the best-of-breed SCM solutions — particularly those that facilitate E-Procurement — lie electronic agents or “bots.” A bot can be loosely defined as an autonomous software agent that performs repetitive tasks in accordance with its pre-programmed instructions. Electronic agents are recursive in nature; that is, they are capable of carrying out a particular task repeatedly. Since today’s bot programs are still written by human beings, there are (of course) inherent risks associated with using them to assist with SCM. A multimillion-dollar agreement could be inadvertently consummated, or a lawyer’s work product in a major antitrust case could be publicly disseminated if a bot went haywire. Artificial neural networks may one-day eliminate such risk by programming electronic agents themselves, which are 100 percent reliable. For now, however, lawyers must recognize — and in turn, must make their clients recognize — that things can go wrong in the world of the automated supply chain. KEY SUPPLY CHAIN DEFINITIONS Business and technology lawyers must become familiar with some of the common phrases and acronyms associated with SCM. Some of the more widely used SCM-related terms include: Customer Relationship Management (CRM) — software applications and/or systems that enable enterprises to more effectively manage their relationships with intermediate and end-users of their products and services. Enterprise Resource Planning (ERP) — software applications and/or systems that enable enterprises to optimize and prioritize their deployment of financial, physical and human resources. Enterprise Application Integration (EAI) — the process of seamlessly migrating and effectively integrating legacy systems with newer software systems and applications. E-Procurement — the online sourcing and/or purchasing of goods and services. Fulfillment Service Provider (FSP) — an enterprise selected by a manufacturer or supplier, whose role is to ensure that end-users receive timely delivery of products and/or services in accordance with the terms of an order. Request for Proposal (RFP)/ Request for Quote (RFQ) — an Internet deployed invitation to contract for goods or services, wherein a buyer seeks acceptance of predefined contractual terms and conditions from one or more suppliers. THE LAW OF BOT-BASED CONTRACTING AND SCM Numerous legal issues should be considered before an enterprise is willing to rely on bot-based SCM solutions. To begin with, lawyers should be thoroughly familiar with the general principals of agency law in the context of automated contract negotiations and/or administration processes. It is foreseeable that a court could hold a bot deployer liable on an agreement that was negotiated by a “rogue” electronic agent, if someone in the plaintiff’s position reasonably believed that the bot was cloaked (by the defendant) with apparent authority. In such situations, the deployer will naturally be unable to obtain indemnification from the software robot — or probably its programmer, for that matter. Thus, the principal/deployer will probably be compelled to shoulder the entire burden of liability imposed upon it for the alleged breach caused by the actions of the “rogue” bot. Another relevant legal issue pertaining to the actions of electronic agents — and one that has already been addressed by U.S. courts — is the tort of Web site trespass. See EBAY v. Bidder’s Edge, 2000 U.S. Dist. LEXIS 7287, No. C-99-21200, 54 U.S. P.Q.2D (BNA) 1798 (N.D. Cal. 2000); and Register.com v. Verio, 2000 U.S. Dist. LEXIS 18846, 00 CIV. 5747, 126 F. Supp.2d 238 (S.D.N.Y. 2000). Plaintiffs generally interpose claims for Web site trespass for two main reasons: first, the plaintiff believes that the bot’s constant or intermittent presence on their Web site constitutes a nuisance; and secondly, the bot’s recursive activity while on the Web site has unnecessarily utilized scarce bandwidth resources. However, in the realm of consent-based contracting via electronic agents, the trespass issue is most likely to be raised either as a defense or as a counter-claim by defendants who seek to escape from the consequences of the broken promises they have made to their trading partners. Using electronic agents to deliver RFPs or RFQs for E-Procurement raises several substantive contract law issues. Does presenting either an RFP or RFQ actually constitute a legally binding offer, or are they merely invitations to make offers? The offeror can likely resolve this question by using digital rights management (DRM) software to specially encrypt their RFQ/RFP; which would thereby require the offeree to intentionally make use of a compatible decryption key in order to objectively manifest their acceptance. What about the mental capacity of bots (or lack thereof)? The law has traditionally required that parties to a contract understand the consequences of their actions in order to be held bound. At this point in the timeline of artificial intelligence (AI) research, there is no reason to believe that courts would place the mental aptitude of an electronic agent on par with that of a human being. In fact, there is precedent to support the notion that non-humans actors altogether lack genuine intellectual capacity in the eyes of the law. In one recent case that involved an insurance claim for property damage caused by a wildcat, the Court of Appeals of New Mexico ruled that animals lack the mental capacity to understand the nature of their actions. See Montgomery v. United Services Automobile Association, No. 15786, 1994 N.M. App. LEXIS 132 (N.M. Ct. App. October 28, 1994). Other cases have reached similar conclusions with respect to the mental capacity of animals. See also Roselli v. Royal Insurance Co. of America, 538 N.Y.S.2d 898; 142 Misc.2d 857 (N.Y. Sup. Ct., 1989); Stack v. Hanover Ins. Co., 57 Ala. Civ. App. 504, 329 So.2d 561, 562. Until AI researchers can prove that a computer can successfully impersonate a human being during a free-form exchange of text messages (i.e., pass the so-called “Turing Test”), courts will probably treat electronic agents like animals. It should be noted, however, that scientists, like Dr. Richard Wallace of the A.L.I.C.E. AI Foundation, have already created chatterbots that are capable of fooling people into thinking that they’re human ( seehttp://www.alicebot.org ). Such advances in artificial intelligence research may ultimately have a profound affect on how judges evaluate the intellectual capacity of bots. Notably, however, both the Uniform Computer Information Transactions Act (UCITA) and Uniform Electronic Transactions Act (UETA) — each of which ratifies transactions consummated by means of electronic agents — purposely focus on the actions of bots, rather than on their mental capacity; thereby perpetuating the notion that bots are very likely to remain dumb for the foreseeable future. Federal, state and foreign laws related to jurisdiction and taxation could be rendered impotent once geographically dispersed trading partners leave behind B2B trading hubs and migrate to the “peer-to-peer” (P2P) model. Using a combination of DRM and digital signatures in conjunction with a P2P trading model can make everyday transactions between global trading partners invisible to Big Brother. Sales and ad valorem taxes may one day become impossible to collect from multinationals that trade with each other via P2P systems. Once transaction-invisibility becomes commonplace in the global trading arena, does anyone really expect an Italian eyewear manufacturer to voluntarily remit sales taxes to the Ohio Department of Taxation? Not likely. And locating defendants who transact through a peer-based system in order to serve them with a complaint, may soon become an arduous task — and in some cases, downright impossible. This is because of the fact that trading partners using P2P for E-Procurement may chose to encrypt their identities by means of a “block cipher” (i.e., a method of coding text in blocks of data, which can only be deciphered by means of a cryptographic key). Law firms may soon need the assistance of companies that specialize in decryption, merely to identify prospective defendants — let alone, locate them. There are, of course, many other areas of law that will undoubtedly be shaped by (as well as shape) the use of electronic agents in conjunction with SCM. Some of the areas of law to keep an eye on include the following: Trade Secrets; Industrial Espionage; Unfair Competition; Privacy; Security; Intentional Interference with Contractual Relations; and the Uniform Commercial Code. CURRENT AND FUTURE TRADING PLATFORMS Automating the entire supply chain is the Holy Grail for both multinationals and small-to-medium enterprises (SME), alike. This lofty objective can only be achieved if timely and relevant information is made visible and freely available to all participants in the supply chain — including, and especially, with respect to contracts. For the past quarter century, trading partners have relied on electronic data interchange (EDI) to exchange information and facilitate trade with each other. EDI is still very much alive in the global trading arena, primarily due to the enormous investments that have been made in these legacy systems since the mid-1970s. Today’s business-to-business (B2B) platforms have empowered enterprises of all sizes to trade with one another, and to do so far more efficiently than earlier generations could have ever dreamed possible. Three primary B2B models exist today. The first model is referred to as the “Public Exchange.” Most of last year’s hype surrounding the B2B revolution referred to this particular trading model. Unfortunately, many of the earliest public exchange hubs and software-solutions providers have either merged with their competitors or filed for bankruptcy. Examples of some of the lone survivors in the public category include, FoodTrader.com, PlasticsNet.com and ChemCross.com. Another B2B model is referred to as the “Private Exchange.” Unlike the public model, these private trading hubs allow for greater intimacy between members. Boeing’s private exchange site, located at http://myboeingfleet.com, exemplifies a cutting-edge model for Web based information delivery and processing. The Boeing site allows customers to file warranty claims, procure parts, and view aircraft engineering drawings. Moreover, this new hub constitutes a strategic shift for Boeing, from an EDI-based system, to one entirely dependent upon XML (extensible markup language). The third major B2B model is known as the “Industry-Sponsored Trading Hub.” Industry Sponsored Trading Hubs are generally created by the dominant players in a particular industry. An excellent example of this type of B2B model is a site that was funded and established by the Big Three automakers in February 2000, called Covisint (http://www.covisint.com ). According to Dan Jankowski, the company’s Vice President of Global Communications, Covisint’s primary purpose is to increase transactions efficiency between auto industry participants via the establishment of a central hub, which is built on a common communications standard. In order to help it achieve this goal, Covisint has selected ebXML (Electronic Business Extensible Markup Language) as its technical standard-of-choice (see http://www.ebxml.org ). Each of these B2B models has its strengths and weaknesses when examined from a member’s perspective. Moreover, all three have something else in common: they could be completely transformed — or in some cases, obsolete — in the near future thanks to something known as “Agent-Mediated Electronic Commerce” (AmEC). AmEC refers to the use of electronic agents (aka software robots or bots) by trading partners, for purposes of contract negotiation and/or execution. What is truly unique about AmEC is that the electronic agents are specifically deployed over the Internet to strike deals with each other (i.e., no human intervention is needed during the transaction). An example of how AmEC could radically transform current trading methods in the not-too-distant future can be described as follows: Boris Buyer needs 500 tons of “post-consumer” scrap plastic shipped to St. Petersburg, Russia by November 25, 2001, at a cost of no more than $350.00 per ton. Sally Seller expects to have 500 tons of “post-consumer” scrap plastic available for shipment to any location by October 15, 2001, for an FOB price of $325.00 per ton. Boris deploys his contract bot over the Internet carrying an RFQ written in XML, which contains all the necessary contractual terms and conditions. Sally deploys her own contract bot over the Internet, which immediately locates Boris’ bot at one of thousands of preauthorized IP (Internet Protocol) addresses. Sally’s bot scans the terms of Boris’ RFQ in real-time, then subsequently concludes that they fit within the acceptable range of predefined trading parameters. The terms of the RFQ are found acceptable by Sally’s bot, and are accepted. Within seconds, each bot notifies its respective deployer that an agreement for 500 tons of scrap plastic was consummated at 14:01:57 Greenwich Mean Time. There are still several outstanding issues that must be resolved before this trading scenario becomes a reality (e.g., interoperability standards). But those in-the-know agree that this scenario isn’t very far off. In fact, some organizations already exist whose work is essentially devoted to making this type of bot-to-bot trading scenario a reality. For example, the Foundation for Intelligent Physical Agents (“FIPA”) is a non-profit organization founded in 1996, whose primary purpose is to develop interoperability standards for electronic agents. According to their Web site, FIPA’s official mission is to “promote � technologies and interoperability specifications that facilitate the end-to-end interworking of intelligent agent systems in modern commercial and industrial settings.” Some FIPA member-companies — like Emorphia, based in the U.K. (http://www.emorphia.com ) — have recently made huge progress in their efforts to develop bots that negotiate with each other; so called, “negotiating agents.” The many legal and business issues associated with using electronic agents in SCM should keep lawyers busy for a long time to come. In 1776 Adam Smith propounded the concept of labor specialization in his now-famous “Wealth of Nations.” Numerous benefits associated with Smith’s concept of labor specialization can be realized once modern software solutions are used to achieve supply chain optimization. Smith’s principles are as relevant today as they were more than two centuries ago. The only difference between 1776 and 2001 is that some of today’s most productive laborers aren’t human; they’re bots. Gene J. Riccoboni is an associate with Grimes & Battersbybased in Stamford, Connecticut, and serves as a member of the Board of Trustees for the A.L.I.C.E. AI Foundation based in San Francisco, California. Gene can be reached by e-mail at [email protected]. The author wishes to thank the following individuals for their invaluable insights, without which, this article couldn’t have been completed: Dr. Richard Wallace, Noel Bush, Philip Buckle, Michael Calder and Dan Jankowski. The views expressed in this article are those of the author and not necessarily those of Grimes & Battersby. This article is intended for informational purposes only and in no way constitutes legal advice.

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