This chapter discusses various public policy issues related to electronic commerce including legal issues, privacy, intellectual property, ethics, free speech, taxation, and consumer protection. It covers topics such as protecting privacy and intellectual property, debates around free speech and censorship, approaches to protecting children online, controlling spam, and taxation policies for e-commerce. The chapter provides an overview of the key considerations and challenges around these important policy areas.

1. Chapter 10
Public Policy:
From Legal Issues to Privacy
© Prentice Hall, 2000 1

2. Learning Objectives
List and describe the major legal issues related
to electronic commerce
Understand the difficulties of protecting privacy
and describe the measures taken by companies
and individuals to protect it
Describe the intellectual property issues in EC
and the measures provided for its protection
Describe some of the ethical issues in EC and
the measures taken by organizations to improve
ethics
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3. Learning Objectives (cont.)
Understand the conflict between Internet
indecency and free speech, and the attempts to
resolve the conflict
Describe the issues involved in imposing sales
tax on the Internet
Discuss the controls over exporting encryption
software and the issues of government policies
Differentiate between contracts online and
offline
Describe the measures available to protect
buyers and sellers on the Internet
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4. Legal and Ethical Issues: an Overview
Privacy
Intellectual Property
Difficult to protect since it is easy and inexpensive to
copy and disseminate digitized information
Free Speech
Internet provides the largest opportunity for free speech
Taxation
Illegal to impose new sales taxes on Internet business
at the present time
Consumer Protection
Many legal issues are related to electronic trade
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5. Ethical Issues
What is considered to be right and wrong?
What is unethical is not necessarily illegal.
Whether these actions are considered
unethical depends on the organization,
country, and the specific circumstances
surrounding the scenarios.
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6. Ethical Issues (cont.)
Code of Ethics
Many companies and professional
organizations develop their own codes of
ethics
A collection of principles intended as a
guide for its members
A guide for members of a company or an
association
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7. Organize IT Ethical Issues into a
Framework
Privacy Property
Collection, storage, Ownership and value of
information and
and dissemination of intellectual property
information about
individuals
Accuracy Accessibility
Authenticity, fidelity, and accuracy of
information collected and processed
Right to access information and
payment of fees to access it
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8. Protecting Privacy
Privacy
The right to be left alone and the right to
be free of unreasonable personal
intrusions
Information Privacy
The “claim of individuals, groups, or
institutions to determine for themselves
when, and to what extent, information
about them is communicated to others”
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9. Protecting Privacy (cont.)
Two rules
The right of privacy is not absolute.
Privacy must be balanced against
the needs of society.
The public’s right to know is
superior to the individual’s right of
privacy.
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10. How is Private Information
Collected?
Reading your newsgroups’ postings
Finding you in the Internet Directory
Making your browser record information
about you
Recording what your browsers say about
you
Reading your e-mail
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11. Web-Site Self-Registration
Registration Questionnaires
type in private information in order to
receive a password to participate in a
lottery, to receive information, or to play
a game
Uses of the Private Information
collected for planning the business
may be sold to a third party
used in an inappropriate manner
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12. From the Eighth User Survey by
GVU (1988)
40% of all users have falsified information
when registering online
66% of all U.S. and European respondents
don’t register as they don’t know how the
information is going to be used
63% don’t feel that registration is worthwhile
considering the content of the sites
58% don’t trust the sites collecting this
information from them
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13. Cookies
Piece of information that allows a Web site
to record one’s comings and goings
Web sites can ‘remember’ information about
users and respond to their preferences on a
particular site, process is transparent to users
Web sites can maintain information on a
particular user across HTTP connections
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14. Cookies (cont.)
Cook
Reasons for using cookies
to personalize information
to improve online sales/services
to simplify tracking of popular links or demographics
to keep sites fresh and relevant to the user’s interests
to enable subscribers to log in without having to enter a password
every visit
to keep track of a customer’s search preferences
personal profiles created are more accurate than self-registration
Solutions to cookies
users can delete cookie files stored in their computer
use of anti-cookie software (e.g. Cookie Cutter and Anonymous
Cookie)
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15. Privacy Protection
5 basic principles
Notice/Awareness— Customers must be given notice and be
able to make informed decisions.
Choice/Consent— Customers must be made aware of their
options as to how their personal information may be used.
Consent may be granted through ‘opt-Out’ clauses requiring
steps.
Access/Participation— Consumers must be able to access
their personal information and challenge the validity of the data.
Integrity/security— Consumers must be assured that the data
is secure and accurate.
Enforcement/Redress— There must always exist a method of
enforcement and remedy. The alternatives are government
intervention, legislation for private remedies, or self-regulation.
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16. Protecting Your Privacy
Think before you give out personal information
on a site
Track the use of your name and information
Keep your newsgroups’ posts out of archives
Use the Anonymizer when browsing
Live without cookies
Use anonymous remailers
Use encryption
Reroute your mail away form your office
Ask your ISP or employer about a privacy policy
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17. Legislation
The Consumer Internet Privacy Act
The Federal Internet Privacy Protection
Act
The Communications Privacy and
Consumer Empowerment Act
The Data Privacy Act
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18. Electronic Surveillance - Monitoring
Computer Users
Tens of millions of computer users are
monitored, many without their knowledge
Employees have very limited protection
against employers’ surveillance
Personal Information in Databases
Databases of banks and financial institutions; cable
TV; telephone ; employers; schools; insurance
companies; and online vendors
Concerns
Under what circumstances will personal data be released?
Do you know where the records are?
How are the data used?
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19. Privacy Policy Basics
Data Collection Data Accuracy Data Confidentiality
Sensitive data gathered on
Data should be Computer security procedures
individuals should be verified
collected on individuals should be implemented to provide
before it is entered into the
only to accomplish a reasonable assurance against
database.
legitimate business unauthorized disclosure of data.
Data should be accurate
objective. Third parties should not be
and, where and when
Data should be given access to data without the
necessary, kept current.
adequate, relevant, and individual’s knowledge or
The file should be made
not excessive in relation permission, except as required by
available so the individual can
to the business objective. law.
ensure that the data are
Individuals must give Disclosures of data, other than
correct.
their consent before data the most routine, should be noted
If there is disagreement
pertaining to them can be and maintained for as long as the
about the accuracy of the
gathered. data are maintained.
data, the individual’s version
Data should not be disclosed
should be noted and included
for reasons incompatible with the
with any disclosure of the
business objective for which they
file.
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are collected. 19

20. Protecting Intellectual Property
Copyright
A statutory grant that provides the creators of
intellectual property with ownership of it for 28
years
Trade Secret
Intellectual work such as a business plan, which
is a company secret and is not based on public
information
Patent
A document that grants the holder exclusive
rights on an invention for 17 years
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21. Copyright Protection Techniques
Digital watermarks
embedding of invisible marks
can be represented by bits in digital
content
hidden in the source data, becoming
inseparable from such data
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22. Legal Perspectives
Electronic Theft (NET) Act
imposed criminal liability for individuals who reproduce
or distribute copies of copyrighted works even if no
commercial advantage or financial gain exists
Digital Copyright Clarification and Technology
Education Act
limits the scope of digital copyright infringement by
allowing distance learning exemptions
Online Copyright Liability Limitation Act
seeks to protect Internet access providers from liability
for direct and vicarious liability under specific
circumstances where they have no control or
knowledge of infringement
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23. Legal Perspectives (cont.)
Digital Millennium Copyright Act
reasserts copyright in cyberspace
makes illegal most attempts to defeat anti-copying
technology
requires the National Telecommunications and Information
Administration to review the effect the bill would have on the
free flow of information and makes recommendations for any
changes two years after it is signed into law
lets companies and common citizens circumvent anti-
copying technology when necessary to make software or
hardware compatible with other products, to conduct
encryption research or to keep personal information from
being spread via Internet “cookies” or other copy-protection
tools
forbids excessive copying of databases, even when those
databases contain information already in the public domain
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24. International Aspects of Intellectual
Property
The World Intellectual Property
Organization
more than 60 member countries to come
up with an international treaty
part of the agreement is called the
‘database treaty’
its aim is to protect the investment of firms
that collect and arrange information
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25. Domain Names
Two controversies
Whether top-level domain names
(similar to com, org and gov) should
be added
The use of trademark names by
companies for domain names that
belong to other companies
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26. Domain Names (cont.)
Network Solutions Inc.
Contracted by the government to assign domain
addresses
Increase Top Level Names
Idea is that an adult only top-level name will be created to
prevent pornographic material getting into the hands of
children
Trade Name Disputes
Companies are using trade names of other
companies as their domain address to help
attract traffic to their Web site
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27. Defining Freedom of Speech
The Bill of Rights First Amendment to the
Constitution of the U.S. of America reads
“Congress shall make no law respecting an
establishment of religion, or prohibiting the free
exercise thereof; or abridging the freedom of
speech, or of the press; or the right of the people
peaceably to assemble, and to petition the
government for a redress of grievances.”
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28. Defining Freedom of Speech
(cont.)
The united nations Universal Declaration of
Human Rights in 1948 addresses the right of
freedom of expression
“Everyone has the right to freedom of opinion
and expression; this right includes freedom to
hold opinions without interference and to seek,
receive, and impart information and ideas
through any media and regardless of frontiers.”
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29. The Debate about Free Speech
on the Internet
Free speech debate
“Most citizens are implacably opposed to censorship in
any form — except censorship of whatever they
personally happen to find offensive.”
What the boundaries are, and how they
should be enforced
Governments protective of their Citizen action groups desiring to
role in society, parents protect every ounce of their
concerned about exposing their freedom to speak, individuals
children to inappropriate Web concerned about their right to
pages and chat rooms, and information on the Internet, and
federal agencies attempting to organizations seeking to empower
deal with illegal actions the citizens of the earth
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30. The Debate about Free Speech
on the Internet (cont.)
Provisions in law for 2 cases that limit free
speech
obscene material
compelling government interest
“Indecency”
“any comment, request, suggestion, proposal, image, or
other communication that, in context, depicts or describes,
in terms patently offensive as measured by contemporary
community standards, sexual or excretory activities or
organs”
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31. Protecting Children
3 approaches (regarding the protection of children
from inappropriate material on the Internet)
No information should be held back and parents
should be responsible for monitoring their own
children
The government is the only one who can truly
protect children from this material
To hold the Internet providers responsible for all
the material and information they provide
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32. Protecting Children (cont.)
Parents Governing Their Own Children
Government Protecting the Children
Responsibility for the Internet Providers
Forcing Internet Providers to be Accountable
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33. Legal Perspectives in the USA
Child Online Protection Act
Internet Tax Freedom Act
Family Friendly Internet Access Act
Internet Protection Act
Internet School Filtering Act
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34. Controlling Spamming
What is spamming, why is it bad?
Spamming
“the practice of indiscriminate distribution of messages (for
example junk mail) without permission of the receiver and
without consideration for the messages’ appropriateness”
Spamming’s negative impacts
Spam comprised 30% of all mail sent on America Online
slowing the Internet in general
shutting ISPs down completely
now less than 10%
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35. Controlling Spamming (cont.)
Legislation, Legal
The Electronic Mailbox Protection Act
The Unsolicited Commercial Electronic Mail Act
The Netizens Protection Act
The Telephone Consumer Protection Act
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36. Controlling Spamming (cont.)
How to cut spamming
Tell users not to validate their addresses by
answering spam requests for replies if they want
to be taken off mailing lists
Disable the relay feature on SMTP (mail) servers
so mail cannot be bounced off the server
Delete spam and forget it— it’s a fact of life and
not worth wasting time over
Use software packages, e.g. www.getlost.com
and www.junkbusters.com
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37. Taxation Policies
The Taxation Exemption Debate
Internet Tax Freedom Act (8 Oct,98)
promotes electronic commerce through tax incentives by
barring any new state or local sales taxes on Internet
transactions during the next three years
Electronic commerce industries Non-electronic commerce industries
Applying existing law to new The Internet businesses must pay its fair
mediums of exchange is far more share of the bill for the nation’s social
difficult than ever imagined. The and physical infrastructure. They feel
global nature of business today that the Internet industries are not pulling
suggests that cyberspace be their own weight. These companies are
considered a distinct tax zone unto screaming that the same situation exists
itself with unique rules and in the mail order business and that there
considerations befitting the stature are sufficient parallels to warrant similar
of the environment. legal considerations.
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38. Taxation Policies (cont.)
Proposed Taxation Solutions in the USA
The Internal Revenue
Service might “come to the
rescue” with a single and
simplified national sales tax.
This will reduce 30,000
different tax codes to ‘no
more than 50”.
Net sales would be taxed at
the same rate as mail order or
Main Street transactions.
While states could set their
one rate, each sale could be
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taxed only once.
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© Prentice Hall, 2000

39. Encryption Policy
The 128-BIT Encryption Debate
Export 128-bit encryption is 3.09X10 to the 26th
power times more difficult to decipher than the
preceding legally exportable technology.
Secure e-commerce Government’s legal requirements
For the past 20 years Recent legislation
there was a limitation allows 128 bit in
on exported encryption specific circumstances
devices of 56 bit codes thus paving the way for
the Compaq permit
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40. Encryption Policy (cont.)
Data Encryption Standard (DES)
A published federal encryption standard created to
protect unclassified computer data and communications
Law Enforcement’s Plea
Cryptographers would follow an audit trail to ensure that keys
haven’t been released improperly, however, law enforcement
does not trust that process
First Amendment Right
Technology can encrypt so thoroughly, that every computer on
earth, working in tandem, would take trillions of years to decode
the encryption
Business View
EFF (Electronic Frontier Foundation) believes that
software, networked communications and cryptography
industries are suffering
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41. Other Legal Issues
What are the rules of electronic contracting, and whose jurisdiction
prevails when buyers, brokers, and sellers are in different states
and/or countries?
How can gambling be controlled on the Internet? Gambling is legal
in Nevada and other states. How can the winner’s tax be
collected?
When are electronic documents admissible evidence in the courts
of law? What do you do if they are not?
Time and place can carry different dates for the buyers and sellers
when they are across the ocean.
Is a digital signature legal?
The use of multiple networks and trading partners makes the
documentation of responsibility difficult. How is such a problem
overcome? © Prentice Hall, 2000 41

42. Electronic Contracts
Uniform Electronic Transactions Act
Provides the means to effectuate transactions
accomplished through an electronic medium
Uniform Commercial Code (UCC)
Provides a government code that supports
existing and future electronic technologies in the
exchange of goods or of services related to
exchange of goods
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43. Electronic Contracts (cont.)
Shrink-wrap agreements (or box top licenses)
The user is bound to the license by opening the package
This has been a point of contention for some time
The court felt that more information would provide more
benefit to the consumer given the limited space available on
the exterior of the package
Click-wrap contracts
The software vendor offers to sell or license the use of the
software according to the terms accompanying the software
The buyer agrees to be bound by the terms based on
certain conduct
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44. Fraud on the Internet
Internet Stocks Fraud
SEC brought charges against 44 companies and individuals
who illegally promoted stocks on computer bulletin boards,
online newsletters and investment Web sites
Other Financial Fraud
Selling bogus investments, phantom business opportunities,
and other fraud schemes
Other Fraud in EC
Customers may
receive poor quality products and services
not get products in time
be asked to pay for things they assume will be paid for by sellers
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45. Federal Trade Commission (FTC)
Consumer Alerts
The “Dirty Dozen”
Business opportunities Free goods
Bulk mail solicitors Chain letters
Investment opportunities Cable descrambler kits
Work-at-home schemes Credit repair
Health and diet schemes Vacation prize
Effortless income promotions
Guaranteed loans or credit,
on easy terms
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46. Buyer Protection
Tips for safe electronic shopping
Look for reliable brand names at sites.
Search any unfamiliar site for address and
phone and fax number. Call up and quiz a person
about the sellers.
Check the seller with the local Chamber of
Commerce, Better Business Bureau, or TRUSTe
as described later.
Investigate how secure the seller’s site is and
how well it is organized.
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47. Buyer Protection
Examine the money-back guarantees,
warranties, and service agreements.
Compare prices to those in regular stores; too-
low prices may be too good to be true.
Ask friends what they know. Find testimonials
and endorsements.
Find out what you can do in case of a dispute.
Consult the National Fraud Information Center.
Check www.consumerworld.org
Do not forget the you have shopper’s rights.
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48. Third Party Service
Public organizations and private companies
attempt to protect consumers
TRUSTe’s “Trustmark”
non-profit group
to build user’s trust and confidence in the Internet by
promoting the polices of disclosure and informed consent
BBB (Better Business Bureau)
private non-profit organizations supported largely by
membership
to provide reports on business firms that are helpful to
consumers before making a purchase
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49. Authentication
If authentication can be solved …..
students will be able to take exams online
fraud of recipients of government entitlements and
other payments will be reduced to a bare minimum
buyers will be assured who the sellers are and
sellers will know who the buyers are with a very high
degree of confidence
arrangements will be made so that only authorized
people in companies can place purchasing orders
interviews for employment, possible marriage, and
other matching applications will be accurate
trust in your partners and in EC in general will
increase significantly
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50. Biometrics Controls
Photo of face
Fingerprints
Hand geometry
Blood vessel pattern in the retina of a
person’s eye
Voice
Signature
Keystroke dynamics y.
ath C
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51. Seller Protection
Sellers must be protected against:
Use of their names by others
Use of their unique words and phrases, names, and
slogans and their web addresses
Dealing with customers that deny that they placed an
order
Several other potential legal issues are related to
sellers’ protection
Customers downloading copyrighted software and/or
knowledge and selling it to others
Not being properly paid for products and services
provided
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52. Managerial Issues
Multinational corporations face different cultures in the
different countries in which they are doing business
Issues of privacy, ethics, and so on may seem to be
tangential to running a business, but ignoring them
may hinder the operation of many organizations
The impact of electronic commerce and the Internet
can be so strong that the entire manner in which
companies do business will be changed, with
significant impacts on procedures, people,
organizational structure, management, and business
processes
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