This digital watermarking protocol is basically applied to preserve the rights for both parties involving in E-commerce i.e. buyer and seller. Principal component analysis is used to reduce the correlation coefficient. This protocol uses wavelet transform with principal component analysis and integrates digital watermarking techniques and public key cryptosystem for proving the ownership of digital content. In this paper a watermark image that i.e. baby image is inserted into selected high frequency sub-bands of discrete wavelet transformed. Then we have applied the principal component analysis transformation for selecting the blocks. The process for selecting the blocks are depends by calculating the energy of every block and then the maximum energy blocks were selected. We have calculated parameters such as PSNR and NCC for checking the imperceptibility and robustness of the proposed approach.