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9781423903055 ppt ch07

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  • 1. Electronic Commerce Eighth Edition Chapter 7 The Environment of Electronic Commerce: Legal, Ethical, and Tax Issues
  • 2. Learning Objectives
    • In this chapter, you will learn about:
    • Laws that govern electronic commerce activities
    • Laws that govern the use of intellectual property by online businesses
    • Online crime, terrorism, and warfare
    Electronic Commerce, Eighth Edition
  • 3. Learning Objectives (cont’d.)
    • Ethics issues that arise for companies conducting electronic commerce
    • Conflicts between companies’ desire to collect and use data about their customers and the privacy rights of those customers
    • Taxes that are levied on electronic commerce activities
    Electronic Commerce, Eighth Edition
  • 4. The Legal Environment of Electronic Commerce
    • All businesses:
      • Must comply with same laws and regulations
      • Face same set of penalties
    • Web businesses: two additional complicating factors
      • Web extends reach beyond traditional boundaries
        • Subject to more laws more quickly
      • Web increases communications speed and efficiency
        • More interactive and complex customer relationships
    Electronic Commerce, Eighth Edition
  • 5. The Legal Environment of Electronic Commerce (cont’d.)
    • Web creates network of customers
      • Significant levels of interaction (with each other)
    • Implications of interaction for Web businesses
      • Violating law or breaching ethical standards
        • Face rapid and intense reactions from many customers
    Electronic Commerce, Eighth Edition
  • 6. Borders and Jurisdiction
    • Physical world of traditional commerce
      • Territorial borders clearly:
        • Mark range of culture
        • Mark reach of applicable laws
    • Physical travel across international borders
      • People made aware of transition:
        • Through formal document examination
        • Through language and currency change
    Electronic Commerce, Eighth Edition
  • 7.
    • Geographic influences of area’s dominant culture
      • Limit acceptable ethical behavior and laws adopted
    • Culture affects laws directly and indirectly
      • Through its effect on ethical standards
    Electronic Commerce, Eighth Edition
  • 8. Borders and Jurisdiction (cont’d.)
    • Geographic boundaries on culture
      • Historically: defined by lack of ability to travel great distances
      • Today: people travel easily between countries
        • Free EU member country citizen movement
        • European Money Union (euro common currency)
    • Relationship of geographic and legal boundaries
      • Four elements
        • Power, effects, legitimacy, notice
    Electronic Commerce, Eighth Edition
  • 9. Borders and Jurisdiction (cont’d.)
    • Power
      • Form of control over physical space
        • People and objects residing in physical space
      • Defining characteristic of statehood
      • Effective enforcement
        • Required for effective laws
        • Requires power to:
          • Exercise physical control over residents
          • Impose sanctions on violators
    Electronic Commerce, Eighth Edition
  • 10. Borders and Jurisdiction (cont’d.)
    • Power (cont’d.)
      • Jurisdiction
        • Government’s ability to exert control over person or corporation
      • Physical world laws do not apply to people:
        • Not located in or not owning assets in geographic area that created laws
      • Asserted government power level limitation
        • Acceptance by existing culture
      • Geographic boundaries, cultural groupings, legal structures all coincide
    Electronic Commerce, Eighth Edition
  • 11. Borders and Jurisdiction (cont’d.)
    • Effects
      • Laws in the physical world
        • Grounded in relationship between physical proximity and effects (impact) of person’s behavior
      • Diminish as geographic distance increases
      • Local culture’s acceptance or rejection of various kinds of effects:
        • Determines characteristics of laws
      • For online businesses:
        • Traditional measures, resulting laws do not work well
        • Example: online Nazi memorabilia sales
    Electronic Commerce, Eighth Edition
  • 12. Borders and Jurisdiction (cont’d.)
    • Legitimacy
      • 1970 United Nations resolution
        • Affirmed idea of governmental legitimacy
      • Legitimacy (idea)
        • Those subject to laws should have role in formulating them
      • Countries and governments
        • Operate with varying levels of authority and autonomy
        • Example: China and Singapore versus Scandinavian countries
    Electronic Commerce, Eighth Edition
  • 13. Borders and Jurisdiction (cont’d.)
    • Notice
      • Physical boundaries provide notice (when crossed)
        • One rule set replaced by different rule set
      • Expression of such a change in rules
      • Constructive notice
        • People informed of subjection to new laws and cultural norms: crossing international border
        • Ignorance of law: not sustainable defense
        • Creates problems for online businesses: unknown customers from another country accessing Web sites
    Electronic Commerce, Eighth Edition
  • 14. Electronic Commerce, Eighth Edition
  • 15. Jurisdiction on the Internet
    • Jurisdiction is difficult on the Internet
      • No geographic boundaries
      • Four physical world considerations
        • Do not translate well (power, effects, legitimacy, notice)
    • Governments enforcing Internet business conduct laws:
      • Must establish jurisdiction over conduct
    • Contract: promise between two or more legal entities
      • Provides for exchange of value between them
        • Goods, services, money
    Electronic Commerce, Eighth Edition
  • 16. Jurisdiction on the Internet (cont’d.)
    • Breach of contract: if either party does not comply with contract terms, other party can sue (failure to comply)
    • Tort: intentional (negligent) action taken by a legal entity causing harm to another legal entity
      • Other than breach of contract
    • Contract or tort law claims
      • Must be filed in courts with jurisdiction
    • Court jurisdiction requires:
      • Subject-matter jurisdiction and personal jurisdiction
    Electronic Commerce, Eighth Edition
  • 17. Jurisdiction on the Internet (cont’d.)
    • Subject-matter jurisdiction
      • Court’s authority to decide particular type of dispute
      • United States examples
        • Federal courts: subject-matter jurisdiction over issues governed by federal laws
        • State courts: subject-matter jurisdiction over issues governed by state laws
      • Rules determining subject-matter jurisdiction
        • Clear and easy to apply (few disputes)
    Electronic Commerce, Eighth Edition
  • 18.
    • Personal jurisdiction
      • Determined by residence of parties
      • Defendant: state resident where court is located
        • Straightforward determination
      • Out-of-state person can voluntarily submit to a jurisdiction
        • Signing contract including forum selection clause
        • Contract enforced according to particular state laws
    Electronic Commerce, Eighth Edition
  • 19. Jurisdiction on the Internet (cont’d.)
    • Personal jurisdiction (cont’d.)
      • Long-arm statutes: state laws creating personal jurisdiction (details vary)
        • Create personal jurisdiction over nonresidents committing tortious acts
      • Businesses conducting e-commerce over state and international lines
        • Be aware of jurisdictional considerations
      • Extent to which these laws apply: unclear
        • Procedural laws written before electronic commerce existed
    Electronic Commerce, Eighth Edition
  • 20. Jurisdiction on the Internet (cont’d.)
    • Personal jurisdiction (cont’d.)
      • Tortious act
        • An exception to general rule determining personal jurisdiction
      • Commit tortious act by:
        • Selling product causing harm to buyer
        • Negligent or intentional
        • Defamation, misrepresentation, fraud, trade secret theft
      • Long-arm statutes invoked more readily for tortious acts
        • Compared to breach of contract
    Electronic Commerce, Eighth Edition
  • 21. Jurisdiction on the Internet (cont’d.)
    • Jurisdiction in international commerce
      • Governed by treaties between countries
      • U.S. determines personal jurisdiction for foreigners
        • Same manner as in domestic long-arm statutes
      • Non-U.S. corporations, individuals
        • Can be sued in U.S. courts
        • Foreign courts can enforce U.S. court system decisions against U.S. corporations, individuals
      • Judicial comity: voluntarily enforce other countries’ laws
        • Out of sense of comity, friendly civility
    Electronic Commerce, Eighth Edition
  • 22. Jurisdiction on the Internet (cont’d.)
    • Jurisdiction in international commerce (cont’d.)
      • Courts reluctant to serve as forums for international disputes
        • Not designed for diplomacy, cost-benefit evaluations
        • Prefer government executive branch to negotiate international agreements, resolve international disputes
      • Example: eBay in China
        • Chinese government made it difficult
      • Online resources
        • Berkman Center for Internet & Society
        • UCLA Online Institute for Cyberspace Law and Policy
    Electronic Commerce, Eighth Edition
  • 23. Conflict of Laws
    • Business governed by various laws
      • Federal laws, state laws, local laws
    • Conflict of laws: laws address same issues in different ways
    • Online businesses
      • Look to federal laws for guidance
        • May lead to problems with state and local laws
    • Example: direct wine sales industry
      • U.S. Constitution’s Commerce Clause versus states’ right to regulate matters pertaining to citizens health, welfare
    Electronic Commerce, Eighth Edition
  • 24. Contracting and Contract Enforcement in Electronic Commerce
    • Three essential contract elements
      • An offer, an acceptance, consideration
    • Contract formed when one party accepts offer of another party
    • Offer: commitment (with terms)
      • Made to another party
      • Declaration of willingness to buy, sell product, service
      • Can be revoked
    • Acceptance: expression of willingness to take offer
      • Including all stated terms
    Electronic Commerce, Eighth Edition
  • 25. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
    • Consideration: agreed upon exchange of something valuable
      • Money, property, future services
    • Implied contract: formed by two or more parties
      • Act as if contract exists
        • Even if no written and signed contract
    • Contract
      • Every agreement or exchange between parties
        • No matter how simple
      • Important on the Internet
    Electronic Commerce, Eighth Edition
  • 26. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
    • With Internet communications:
      • Offers and acceptances occur
        • Exchange e-mail, engage in electronic data interchange, fill out Web page forms
        • Can be combined with traditional methods
      • Example: end-user license agreements (EULAs)
        • Contract user must accept before installing software
    • Excellent contract law resource
      • Contracts Uniform Commercial Code (UCC)
        • Cornell Law School Web site
    Electronic Commerce, Eighth Edition
  • 27. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
    • Web site seller advertising goods for sale
      • Inviting offer from potential buyers (not making offer)
        • Prevents seller liability to deliver more goods than available
    • Legal offer acceptance: usually quite easy
    • Courts view of offers and acceptances
      • Actions occurring within particular context
    • If actions considered reasonable under the circumstances:
      • Courts interpret actions as offers and acceptances
    Electronic Commerce, Eighth Edition
  • 28. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
    • Written contracts on the Web
      • Statute of Frauds (state laws)
        • Categories of contracts not enforceable unless terms put into writing and signed
        • Sale of goods worth more than $500
        • Actions cannot complete within one year
      • Electronic commerce writing
        • Pen or paper not required (fortunately)
      • Writing exists
        • When contract terms reduced to tangible form
    Electronic Commerce, Eighth Edition
  • 29. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
    • Written contracts on the Web (cont’d.)
      • Electronic commerce contract
        • Easy to satisfy writing requirement
      • Signature: any symbol executed or adopted for the purpose of authenticating a writing
        • Names on telegrams, telexes, faxes, Western Union Mailgrams, typed names or printed letterhead names
        • Symbol or code included in electronic file, digital signatures
    Electronic Commerce, Eighth Edition
  • 30. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
    • Written contracts on the Web (cont’d.)
      • Article 11 of the United Nations Convention on Contracts for the International Sale of Goods (CISG)
        • Requires neither writing nor a signature to create a legally binding acceptance
      • Information on CISG and related topics in international commercial law
        • Pace Law School CISG Database Web site
    Electronic Commerce, Eighth Edition
  • 31. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
    • Warranties on the Web
      • Implied warranties
        • Included in any contract for sale of goods
      • Seller implicitly warrants goods offered for sale
        • Fit for purposes normally used
      • Additional implied warranty of fitness
        • Seller knows specific buyer’s requirements information
        • Seller provides specific description of additional warranty terms
        • Seller makes general statements in brochures or other advertising materials
    Electronic Commerce, Eighth Edition
  • 32. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
    • Warranties on the Web (cont’d.)
      • Seller: avoid implied warranty liability
        • Provide warranty disclaimer: statement declaring seller will not honor some or all implied warranties
      • Warranty disclaimer: conspicuously made in writing
        • Put in larger type, bold font, or contrasting color
        • State it obviously
        • Make it easy to find by buyer on Web site
    Electronic Commerce, Eighth Edition
  • 33. Electronic Commerce, Eighth Edition
  • 34. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
    • Authority to form contracts
      • Contract formed when offer accepted for consideration
      • Problems with acceptance
        • Issued by imposter (forgery)
        • Person does not have authority to bind company to a contract
      • Electronic commerce technology
        • Makes forged identities easy to create
        • Provides the means to avoid being deceived
      • Prevent forgery: use digital signatures
    Electronic Commerce, Eighth Edition
  • 35. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
    • Authority to form contracts (cont’d.)
      • Authority to bind
        • Authority to commit company to online contract
        • Employee accepts contract, company later asserts employee not authorized
      • Avoid
        • Check public information on file
        • Obtain copies of corporate certificates or resolutions
      • Can be time consuming and awkward
    Electronic Commerce, Eighth Edition
  • 36. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
    • Terms of service agreements
      • Site visitors must follow stated rules
        • Most visitors not aware of rules
      • Terms of service (ToS) agreements
        • Detailed rules and regulations
        • Intended to limit Web site owner’s liability for what one might do with information obtained from site
      • Site visitor held to terms of service by simply using site
        • Even if text not read, button indicating agreement not clicked
    Electronic Commerce, Eighth Edition
  • 37. Electronic Commerce, Eighth Edition
  • 38. Use and Protection of Intellectual Property in Online Business
    • Intellectual property (general term) includes:
      • All products of the human mind
        • Tangible or intangible
      • Protections afforded by copyrights and patents, trademarks registration, service marks
      • Right of publicity
        • Limited right to control others’ commercial use of an individual’s name, image, likeness, identifying aspect of identity
        • Limited by U.S. First Amendment provisions
    Electronic Commerce, Eighth Edition
  • 39. Use and Protection of Intellectual Property in Online Business (cont’d.)
    • Online businesses must avoid:
      • Deceptive trade practices
      • False advertising claims
      • Defamation or product disparagement
      • Infringements of intellectual property rights
        • By using unauthorized content
    Electronic Commerce, Eighth Edition
  • 40. Web Site Content Issues
    • Legal issues with e-commerce Web page content
      • Common concerns
        • Use of intellectual property protected by other parties’ copyrights, patents, trademarks, service marks
    • Copyright infringement
      • Copyright: right granted by government to the author (creator) of literary or artistic work
        • Specific time length provided in copyright law
        • Gives author (creator) sole and exclusive right to the work (print, publish, sell)
        • Includes virtually all forms of artistic or intellectual expression
    Electronic Commerce, Eighth Edition
  • 41. Web Site Content Issues (cont’d.)
    • Copyright infringement (cont’d.)
      • Idea contained in expression cannot be copyrighted
      • Work cannot be copyrighted if idea cannot be separated from expression
        • Example: mathematical calculations
      • Collection of facts can be copyrighted
        • Example: Yahoo! Web Directory
    Electronic Commerce, Eighth Edition
  • 42. Web Site Content Issues (cont’d.)
    • Copyright infringement (cont’d.)
      • U.S. law still allows registration (no longer required)
      • Work created after 1989
        • Copyrighted automatically by virtue of copyright law
      • Most U.S. Web pages protected by automatic copyright provision
      • Web client computer copy of HTML file
        • Fair use: includes copying it for use in criticism, comment, news reporting, teaching, scholarship, or research
    Electronic Commerce, Eighth Edition
  • 43.
    • Nonprofit educational uses get better chance than commercial uses
    • Court may consider painting using different standards than sound recording
    • Small sections qualify when entire work might not
    • Court may consider amount of damage caused to value of copyrighted work
    Electronic Commerce, Eighth Edition
  • 44. Web Site Content Issues (cont’d.)
    • Copyright infringement (cont’d.)
      • Copyright law difficult to apply
        • Due to elements such as fair use
      • Vicarious copyright infringement
        • Entity capable of supervising infringing activity
        • Obtains a financial benefit from infringing activity
      • Example: Napster
        • Failed to monitor its network (could have)
        • Profited indirectly from the infringement
      • Music downloads, copying
        • Legality unclear in may cases
    Electronic Commerce, Eighth Edition
  • 45. Web Site Content Issues (cont’d.)
    • Patent infringement
      • Patent
        • Exclusive right granted by government to an individual
        • Make, use, sell invention
      • Invention: must be genuine, novel, useful, and not obvious given current technology state
      • 1980s: companies started obtaining software patents
        • Not useful for Web site software
        • Technology obsolete before patent protection secured (rely on copyright protection)
    Electronic Commerce, Eighth Edition
  • 46. Web Site Content Issues (cont’d.)
    • Patent infringement (cont’d.)
      • Business process patent
        • Protects specific set of procedures for conducting a particular business activity
      • Business process patents are controversial
        • Grant recipients unfair monopoly power
        • Inappropriate patent law extension
      • Examples
        • Amazon.com sued Barnes & Noble (process similar to 1-Click method)
        • MercExchange sued eBay (fixed price sales option)
    Electronic Commerce, Eighth Edition
  • 47. Web Site Content Issues (cont’d.)
    • Trademark infringement
      • Trademark
        • Distinctive mark, device, motto, implement company affixes to goods it produces
        • Identification purposes
      • Service mark
        • Similar to trademark, identifies services provided
      • Both registered with governments (state, federal)
      • Trade name
        • Name business uses to identify itself
        • Protected under common law
    Electronic Commerce, Eighth Edition
  • 48. Web Site Content Issues (cont’d.)
    • Trademark infringement (cont’d.)
      • Common Law
        • Law established by history of court decisions
      • Statutory law
        • Elected legislative bodies pass laws (statutes)
    • Web site designers must not use:
      • Any trademarked name, logo, other identifying mark
        • Without express permission of trademark owner
    Electronic Commerce, Eighth Edition
  • 49. Domain Names and Intellectual Property Issues
    • Cybersquatting
      • Registering trademarked domain name
      • Hope that owner will pay huge amounts of money to acquire URL
        • Registering generic name is not cybersquatting
    • Name changing (typosquatting)
      • Purposely registering misspelled variations of well-known domain names
    Electronic Commerce, Eighth Edition
  • 50. Domain Names and Intellectual Property Issues (cont’d.)
    • U.S. Anticybersquatting Consumer Protection Act
    • World Intellectual Property Organization (WIPO)
      • Uniform Domain Name Dispute Resolution Policy (UDRP)
        • Handles disputes of trademarked domain names
        • Arise when business has common term trademark
      • Example: Sting musician case (www.sting.com)
      • Critics of WIPO UDRP: enforced unevenly
    Electronic Commerce, Eighth Edition
  • 51. Domain Names and Intellectual Property Issues (cont’d.)
    • Name stealing
      • Someone other than domain name’s owner changes ownership of domain name
    • Domain name ownership change
      • Information maintained by public domain registrar changed in registrar’s database
        • Reflects new owner’s name and business address
    • Occurs when safeguards not in place
    • Main purpose: harass site owner
    Electronic Commerce, Eighth Edition
  • 52. Protecting Intellectual Property Online
    • Digital watermark
      • Digital code or stream embedded undetectably in digital image or audio file
        • Can be encrypted to protect contents
      • Example: Verance (digital audio system)
        • Audio watermarks do not alter audio fidelity
    • Copy control
      • Electronic mechanism: limiting number of copies
        • Example: Blue Spike (Giovanni system)
    • Digimarc
      • Tracks works protected by Digimarc system
    Electronic Commerce, Eighth Edition
  • 53. Defamation
    • Defamatory statement
      • False and injures reputation of another person or company
    • Product disparagement
      • When statement injures product or service reputation
    • Web sites must consider specific laws:
      • Before making negative, evaluative statements about persons or products
    • Designers must avoid potential defamation liability:
      • By altering person’s photo or image depicting person unfavorably
    Electronic Commerce, Eighth Edition
  • 54. Defamation (cont’d.)
    • Important exception in U.S. law
      • Defamatory statements about public figures
      • Allows considerable leeway for:
        • Satirical statements
        • Valid expressions of personal opinion
    • Other countries do not offer same protections
      • Web site operators with international audiences need to be careful
    Electronic Commerce, Eighth Edition
  • 55. Deceptive Trade Practices
    • Trademarked object manipulation
      • Constitutes infringement of trademark holder’s rights
    • Personal Web pages include unauthorized cartoon characters, celebrity photographs
      • Still illegal even if altered
    • Web sites linking to other sites
      • Risk implying non-existent relationship
    • Trademark protection
      • Prevents firm from using same (similar) name, logo, other identifying characteristic in a way that would cause potential buyers confusion
    Electronic Commerce, Eighth Edition
  • 56. Advertising Regulation
    • Federal Trade Commission (FTC) (United States)
      • Regulates advertising, publishes regulations, investigates false advertising claims
    • FTC Web site
      • Includes information releases
        • Useful to businesses and consumers
    • FTC business education campaign publications
      • Available on Advertising Guidance page
      • Help businesses comply with law
      • See Figure 7-7
    Electronic Commerce, Eighth Edition
  • 57. Electronic Commerce, Eighth Edition
  • 58. Advertising Regulation (cont’d.)
    • Illegal under U.S. law
      • Advertising claim misleading substantial number of consumers in a material way
    • FTC accepts referred investigations
      • Better Business Bureau
    • FTC provides policy statements for e-commerce Web site designers
      • Information on:
        • Permitted advertisements
        • Policy statements
    Electronic Commerce, Eighth Edition
  • 59. Advertising Regulation (cont’d.)
    • Policy statements cover specific areas
      • Bait advertising
      • Consumer lending and leasing
      • Endorsements and testimonials
      • Energy consumption statements for home appliances
      • Guarantees and warranties
      • Prices
    • Other regulatory agencies
      • Food and Drug Administration (FDA); Bureau of Alcohol, Tobacco, and Firearms (BATF); Department of Transportation (DOT)
    Electronic Commerce, Eighth Edition
  • 60. Online Crime, Terrorism, and Warfare
    • Internet
      • Opened up possibilities for people to communicate
        • Worldwide
      • Opened doors for businesses
        • Reach new markets
        • Create opportunities for economic growth
      • Useful tool for perpetrating crimes, conducting terrorism, waging war
    Electronic Commerce, Eighth Edition
  • 61. Online Crime
    • Online versions of physical world crimes
      • Theft, stalking, pornography distribution, gambling
    • New online crime
      • Commandeering computer to attack other computers
    • Law enforcement obstacles
      • Jurisdiction issues
      • Prosecuting across international boundaries
      • Distribution of pornographic material
      • Online gambling
      • Applying laws written before Internet prevalence
    Electronic Commerce, Eighth Edition
  • 62. Online Crime (cont’d.)
    • Advance fee fraud
      • Perpetrator offers to share large payoff with victim
        • Victim must make “good faith” deposit, provide funding
      • Perpetrator disappears with deposit
    • Nigerian scam ( 419 scam )
      • Victim receives e-mail from Nigerian government official requesting assistance in moving money to a foreign bank account
        • Perpetrator asks for identity information
        • Information used to steal advance fee
    Electronic Commerce, Eighth Edition
  • 63. Online Crime (cont’d.)
    • Pornographic material
      • Subjective distinction between legal and illegal adult material
    • Gambling
      • Sites located outside United States
      • State laws specifically outlaw Internet gambling
        • Jurisdiction not clear
    • Stalking (online)
      • Few states have passed Internet laws
    • Cyberbullying: using technology to harass, humiliate, threaten, or embarrass another
    Electronic Commerce, Eighth Edition
  • 64. Online Crime (cont’d.)
    • Infiltrating computer systems with intent of stealing data, creating operational disruptions
      • Smaller companies are easier targets
      • Criminal extortion
        • Myron Tereshchuk: threatened MicroPatent with confidential client information disclosure
    • Internet can help law enforcement
      • Track perpetrators of crime
        • Criminals brag on social networking sites
        • Criminals leave clues in online profiles
    Electronic Commerce, Eighth Edition
  • 65. Online Warfare and Terrorism
    • New age of terrorism and warfare
      • Carried out or coordinated through the Internet
    • Web sites (considerable number)
      • Operated by hate groups and terrorist organizations
      • Contain detailed instructions for creating biological weapons, other poisons
      • Contain discussion boards
        • Help terrorist groups recruit new members online
      • Offer downloadable terrorist training films (thousands)
    Electronic Commerce, Eighth Edition
  • 66. Online Warfare and Terrorism (cont’d.)
    • Agencies devote considerable resources to monitoring terrorist activities online
      • U.S. Department of Homeland Security, Interpol
      • Historically: difficulty in coordinating activities
    • Interpol has been motivated to:
      • Update, expand computer network monitoring skills
      • Coordinate global antiterrorism efforts
    • Sustained terrorist effort could slow down major transaction-processing center processing
      • More Internet business communications traffic:
        • Provides more potential damage
    Electronic Commerce, Eighth Edition
  • 67. Ethical Issues
    • Companies conducting Web site electronic commerce:
      • Adhere to same ethical standards of other businesses
    • Consequences all companies suffer
      • Damaged reputation, long-term loss of trust, loss of business
    • Web advertising or promotion
      • Include true statements, omit misleading information
        • Misleading when ad omits important related facts
      • Products supported by verifiable information
    Electronic Commerce, Eighth Edition
  • 68. Ethics and Web Business Policies
    • Ethical lapse rapidly passed among customers
      • Can seriously affect company’s reputation
      • Example: New York Times Amazon.com report
        • Arrangements with publishers for book promotions
      • Example: eBay
        • Newspaper stories about illegal items sales
    • Important ethical issue organizations face
      • Limiting use of collected e-mail addresses, related information
      • Lack of government regulation
        • Most organizations state their policy
    Electronic Commerce, Eighth Edition
  • 69. Privacy Rights and Obligations
    • Online privacy is evolving
      • Hotly debated in various forums
    • Electronic Communications Privacy Act of 1986
      • Main law governing privacy on the Internet today
      • Written to deal with leased telephone lines interceptions
    • Legislative proposals
      • Not withstanding constitutional challenges
    • July 1999 FTC report
      • Concluded no federal laws regarding privacy required
    Electronic Commerce, Eighth Edition
  • 70. Privacy Rights and Obligations (cont’d.)
    • Near-term future privacy United States regulation
      • Unclear
      • Direct Marketing Association (DMA)
        • Established set of privacy standards
        • Critics note member activity regulation is less than successful
    • Ethics issues
      • Significant in area of online privacy
        • Laws not keeping pace with Internet, Web growth
      • Nature and degree of personal information recorded
        • Threaten visitors privacy rights
    Electronic Commerce, Eighth Edition
  • 71. Privacy Rights and Obligations (cont’d.)
    • Ethics issues (cont’d.)
      • Companies may lose control of personal information
      • Companies may lose track of shipments containing computer backup tapes
      • Stolen laptops with personal data
      • People have access to data once impossible to obtain
        • Real estate transaction information; privacy reduced
    • Worldwide cultural differences provide different electronic commerce privacy expectations
      • European Union adopted Directive on the Protection of Personal Data
    Electronic Commerce, Eighth Edition
  • 72.
    • Major United States privacy controversies
      • Opt-in versus opt-out
        • No law limiting companies’ use of gathered information
        • Companies free to sell, rent customer information
    Electronic Commerce, Eighth Edition
  • 73. Privacy Rights and Obligations (cont’d.)
    • Opt-out approach
      • Assumes customer does not object to company’s use of information
        • Unless customer specifically denies permission
    • Opt-in approach
      • Company collecting information does not use it for any other purpose
        • Unless customer specifically chooses to allow use
    Electronic Commerce, Eighth Edition
  • 74. Privacy Rights and Obligations (cont’d.)
    • Another opt-out approach
      • Page includes checked boxes
        • Instructs visitor: “uncheck the boxes of the items you do not wish to receive”
    • Opt-in approach more preferable
      • Gives customer privacy protection
        • Unless customer specifically elects to give up rights
    Electronic Commerce, Eighth Edition
  • 75. Privacy Rights and Obligations (cont’d.)
    • Electronic commerce Web sites
      • Be conservative in customer data collection and use
      • Use four principles for handling customer data
        • Use data collected for improved customer service
        • Do not share customer data with others outside your company without customer’s permission
        • Tell customers what data you are collecting and what you are doing with it
        • Give customers the right to have you delete any data collected about them
      • Keep data secure
    Electronic Commerce, Eighth Edition
  • 76. Communications with Children
    • Privacy considerations when Web sites attract children
    • Children less capable of evaluating information sharing and transaction risks
      • Concern
        • Children’s ability to read, evaluate privacy statements
        • Consent to providing personal information to Web sites
    Electronic Commerce, Eighth Edition
  • 77. Communications with Children (cont’d.)
    • MySpace
      • 2006: former federal prosecutor (site security officer)
      • Software looks for sex offenders
    • 1998: Children’s Online Protection Act (COPA)
      • Unconstitutional: restricted lawful material access
    • Children’s Online Privacy Protection Act of 1998
      • Successful: COPPA does not regulate content
    • 2001: Children’s Internet Protection Act (CIPA)
      • Federally funded schools install filtering software
    Electronic Commerce, Eighth Edition
  • 78.
    • Disney Online
      • Offers three registration choices (adult, teen, kids)
      • Refuses to enroll child under age 13
      • Meets COPPA law requirements
    • Sanrio
      • Asks for birth date before allowing access to English-language site
      • Encourages visitors to notify company of child gaining site access in violation of COPPA
    Electronic Commerce, Eighth Edition
  • 79. Taxation and Electronic Commerce
    • Web businesses must comply with multiple tax laws
    • Several types of taxes
      • Income taxes: levied on net income
      • Transaction taxes: levied on products or services company sells or uses
        • Sales taxes, use taxes, excise taxes, customs duties
      • Customs duties: levied on imports into the country
      • Property taxes: levied on personal property, real estate
    • Web businesses’ greatest concern
      • Income and sales taxes
    Electronic Commerce, Eighth Edition
  • 80. Nexus
    • Connection between tax-paying entity and government
      • Similar concept as personal jurisdiction
    • Activities creating nexus (United States)
      • Determined by state law, vary from state to state
    • Determining nexus: difficult
      • Company conducts few activities in the state
    • National nexus issues
      • Business conducted in more than one country
        • Establish nexus with a country
        • Liable for filing tax returns in that country
    Electronic Commerce, Eighth Edition
  • 81. U.S. Income Taxes
    • Internal Revenue Service (IRS)
      • Charged with administering tax laws
    • Basic principle
      • Any verifiable increase in company wealth:
        • Subject to federal taxation
    • Pay U.S. federal income tax if:
      • U.S.-based Web site generating income
      • Web site maintained by U.S. company
    • Credit given for taxes paid to foreign countries
      • Reduces double taxation of foreign earnings
    Electronic Commerce, Eighth Edition
  • 82. Electronic Commerce, Eighth Edition
  • 83. U.S. Income Taxes (cont’d.)
    • States levy income tax on business earnings
      • Must file tax returns in all states
      • Apportion earnings in accordance with each state
    • Others with power to levy income taxes
      • Cities, counties, other political subdivisions
        • Must apportion income, file tax returns in each locality
    • Companies selling through Web site
      • Do not establish nexus everywhere goods delivered to customers (in general)
        • Avoid nexus by using a contract carrier
    Electronic Commerce, Eighth Edition
  • 84. U.S. State Sales Taxes
    • Transaction tax on goods sold to consumers
    • Businesses establishing nexus with a state
      • Must file sales tax returns and remit sales tax collected from customers
      • Business not required to collect taxes from out-of-state customers unless nexus has been established
    • Use tax levy
      • Property used in that state
        • Not purchased in that state
      • Property not “purchased” at all (leases)
    Electronic Commerce, Eighth Edition
  • 85. U.S. State Sales Taxes (cont’d.)
    • Large companies
      • Use complex sales tax management software
    • Purchasers exempt from sales tax
      • Charitable organizations, businesses buying items for resale
    • Sales tax collection problem
      • Confusing; no new laws
      • Some businesses collect tax on all sales
    • Streamlined Sales and Use Tax Agreement
      • Simplifies state sales taxes
    Electronic Commerce, Eighth Edition
  • 86. Import Tariffs
    • Countries regulate import and export of goods
      • Goods imported: only if tariff paid
    • Tariff ( customs duty , duty )
      • Tax levied on products as they enter country
    • Many reasons for imposing tariffs
      • Beyond scope of this book
    • Goods ordered online: subject to tariffs
      • When crossing international borders
    • Products delivered online: subject to tariffs
      • Downloaded software
    Electronic Commerce, Eighth Edition
  • 87. European Union Value Added Taxes
    • European Union
      • Transfer taxes generate revenues
      • Value Added Tax (VAT)
        • Most common transfer tax
    • Mid-2003: VAT applied to sales of digital goods
      • EU-based companies
        • Must collect VAT on digital good sales
      • Non-EU companies must register with EU tax authorities, levy, collect, remit VAT
        • If sales include digital goods delivered into EU
    Electronic Commerce, Eighth Edition
  • 88. Summary
    • Issues of borders, jurisdiction, Web site content
      • How these factors affect company’s ability to conduct electronic commerce
    • Avoiding deceptive trade practices, false advertising claims, defamation or product disparagement, intellectual property rights infringement
    • Legal issues when Web used in commission of crimes, terrorist acts, conduct of war
    • Role of ethics in formulating Web business policies
    • Various forms of taxation
    Electronic Commerce, Eighth Edition