WHEN CODE MEETS CONSENT: NFTS, CLICKWRAP AGREEMENTS AND THE FUTURE OF DIGITAL CONTRACTING

Imagine buying a piece of digital art. You connect your wallet, click “Accept”, and the blockchain records the transaction. But have you bought copyright, or only a token? Did you know the terms? If the code is doing something that it’s supposed to do, which you weren’t aware of, does that constitute consent? Online commerce is moving toward an interface becoming the agreement: a click, signing of the wallet or automatic transaction. But contract law demands more than that the person made an external action; it demands that the parties made a legally recognised agreement. NFTs, clickwrap agreements and smart contracts test traditional consent online.

I. THE CLICK THAT BECOMES A CONTRACT

Clickwrap agreements require that the user agree to the terms by clicking a button like “I Agree”. Browsewrap agreements are designed to have users accept them through website usage without a separate step of acceptance. The click after receiving proper notice is better evidence of consent than the term tucked under a link. In Specht v. Netscape Communications Corp., the United States Court of Appeals for the Second Circuit analysed whether it was reasonable to provide notice to users about terms placed under the button. The analysis made by the court shows that an individual’s assent to contractual terms should not be presumed just because the person used the website, since the terms have not been presented in a clear manner. Indian law recognises electronic contracting. Section 10A of the Information Technology Act, 2000, states that the use of electronic means in making a contract shall not render a contract unenforceable. However, such a provision does not necessarily mean that all clicks are enforceable. Agreement, lawful consideration, and free consent, amongst other requirements of law, still apply under the Indian Contract Act, 1872. Sections 10, 13 and 14 of the Indian Contract Act lay the foundation: agreements are contracts when made by free consent of the component parties for a lawful consideration and object; the meeting of minds; free consent must not be impaired by specified factors. In a digital environment, what is more important is not whether the user clicked, but whether the relevant terms have been communicated in such a way as to facilitate consent.

II. WHAT DOES OWNERSHIP ACTUALLY MEAN?

An NFT is a unique blockchain token that is linked to either a digital or physical object such as artwork or music. The token, however, is not the same thing as the intellectual property rights of the underlying object. A blockchain entry showing a transfer does not establish that copyright moved with it. Imagine an artist sells an NFT associated with the illustration. The buyer will get the token and permission to exhibit the picture, whereas the artist will keep copyright. It would be unwise for the purchaser to presume that the rights to reproduce the image, manufacture goods, and exploit them commercially are included as part of the sale. Under section 19 of the Copyright Act, 1957, an assignment of copyright must be in writing and signed by the assignor, so a token transfer alone does not pass copyright. This will vary based on local law and the agreement. An NFT could be sold under the guise of ownership, but real rights are distributed among platform terms, seller conditions, metadata and licenses. When such information is difficult to find or interpret, buyers could know about the technology but not about its legal implications.

III. SMART CONTRACTS: CODE IS NOT THE WHOLE AGREEMENT

Smart contracts are blockchain software which performs tasks based on predefined requirements. In NFTs, such software might perform the transfer of tokens after receiving payment or giving out royalties. However, the code is not capable of evaluating fairness, intentions or misunderstandings. Let us assume that the buyer is not aware of some royalty clause or some transfer restriction. The software will still work correctly, but there still might be legal issues regarding disclosure and understanding. Performance tells us what the system has done but not if the obligation is valid at all. In Trimex International FZE Ltd. v. Vedanta Aluminium Ltd., the Supreme Court of India noted that an agreement may be made via electronic communication where the important details have been agreed upon and there has been clear consent. This case highlights the idea of medium neutrality in that the fact that electronic communication has been used is not important. Likewise, in  blockchain transactions, a wallet signature is merely evidence and not proof that all terms were known.

IV. CONSENT, MISTAKE AND PLATFORM POWER

Digital transactions also involve unequal availability of information, in which the platform controls the terms whereas the developers control the coding. This means that the purchasers are not knowledgeable enough about both, and the formal consent becomes meaningless. The Indian Contract Act offers some mechanisms for interpreting consent and mistake; however, the decision is based on the facts. An error in coding will not necessarily invalidate the contract, and the inability of the user to go through the terms will not necessarily affect its validity. Terms, presentation of the terms, the conduct of the parties and the appropriate doctrine should be considered by the courts. The danger lies in the fact that the platform may simplify the complex legal transaction into one procedure. If important limitations are in technical documents, the illusion of choice may mean a lack of understanding. The principle established in  Central Inland Water Transport Corp. v. Brojo Nath Ganguly, regarding unconscionability in contracts where there is unequal bargaining power, serves as a wider warning regarding the problem with taking the giving of consent as the final piece of fairness.

V. CAN BLOCKCHAIN RECORDS PROVE CONSENT?

Blockchains create transaction hashes, wallet addresses and timestamps. Such information may help to prove that the transaction was recorded and might be used to describe the timing of the transfer. However, it does not mean that it will identify the owner of the wallet or his intentions or prove the acceptance of all terms of the platform. It is important to distinguish between these concepts. In Anvar P.V. v. P.K. Basheer and Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal, the Supreme Court looked into issues that arise when electronic evidence is being admitted under the old Indian Evidence Act, such as  Section 65B. India’s Bharatiya Sakshya Adhiniyam, 2023, supplanted that one from 1 July 2024, according to the relevant transitional provisions. Section 63 of the BSA now carries the certificate requirement previously found in Section 65B. In effect, practitioners will have to determine which evidential statute governs the process rather than automatically relying on the prior provision in every new case. The message is clear in practice: electronic evidence needs legal grounding. The party might be required to link the wallet, the person, the terms and the transactions. There are some useful hybrid models that include an agreement written in layman’s terms accompanying the code, recording which version was presented to the user and how different parts of the code relate to various contractual provisions.

VI. WHAT BETTER DIGITAL CONTRACTING COULD LOOK LIKE?

Platforms are required to make their terms clearly visible. Copyright issues, license limitations, royalty payments, fees and transfer restrictions must be made known before commitment. Smart contracts must also include an explanation of what they do and whether things are reversible.

It is important for developers and marketplaces to look into security audits and ways to report errors. Audits will not be able to ensure justice, but may minimise technological flaws. It is also important for platforms to keep records of the terms that were presented, the time of acceptance and the smart contract version used. Dispute resolution needs to be practical. Transfer of assets may prove difficult, but the fact remains that there is always a way to obtain legal recourse. Depending on the facts, there might be available damages or any other remedy provided by the contract.

CONCLUSION: BEYOND THE “I AGREE” BUTTON

NFTs show that token ownership and copyright ownership are not the same thing. Smart contracts show how performance is possible without necessarily solving all issues of intention and equity. The example of a clickwrap agreement shows how consent can be turned into a process devoid of real consideration. It is not an excuse for abandoning digital commerce; it is rather a reason to understand it better legally. This will entail developing a regime whereby law and code supplement each other. Notice, terms that can be understood, proper documentation and remedies will ensure efficiency in digital transactions and the autonomy of the users of the transaction. Clicking on something to accept the terms, signing a wallet to transfer funds, and a blockchain entry may each record the occurrence of the event. Not one of these facts in particular provides all the answers to the question of informed consent. The future of e-contracting must not pit innovation against law in an impossible either/or scenario. Instead, it must demand that innovation operate within a context in which individuals can understand the commitment that they have made.