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