This document discusses several legal, ethical and social issues related to electronic commerce (EC). It covers topics such as privacy and protecting personal information, intellectual property rights, unsolicited electronic ads/spam, free speech vs censorship, taxation of online businesses, and how laws and regulations are still developing to address challenges from EC. The key issues involve balancing consumer protection vs business interests, as well as countries establishing consistent privacy, IP and other legal frameworks for digital/online activities.

1. Chapter 17
Legal, Ethical, and Social Impacts of EC

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Learning Objectives
1. Describe the differences between legal and
ethical issues in EC.
2. Understand the difficulties of protecting privacy
in EC.
3. Discuss issues of intellectual property rights in
EC.
4. Describe unsolicited ad problems and remedies.
5. Understand the conflict between free speech
and censorship on the Internet.

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Learning Objectives
6. Describe major legal issues in EC.
7. Describe the types of fraud on the Internet and
how to protect against them.
8. Describe representative societal issues in EC.
9. Describe the role and impact of virtual
communities on EC.
10. Describe the future of EC.

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Legal Issues Versus Ethical Issues
ethics
The branch of philosophy that deals with what is
considered to be right and wrong

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Legal Issues Versus Ethical Issues
• The Major Ethical and Legal Issues Discussed in
this Chapter
– Privacy
– Intellectual property rights and online piracy
– Unsolicited electronic ads and spamming
– Free speech versus censorship
– Consumer and merchant protection against fraud

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Legal Issues Versus Ethical Issues
• EC Ethical Issues
– Non-Work-Related Use of the Internet
• Employees are tempted to use e-mail and the Web for
non-work-related purposes
• In some companies, this use is tremendously out of
proportion with its work-related use
• The utility of monitoring employee usage can be
considered “one of the most controversial EC issues”

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Legal Issues Versus Ethical Issues
– Codes of Ethics: Useful guidelines for a corporate
Web policy:
• Issue written policy guidelines about employee use of the
Internet
• Make it clear to employees that they cannot use
copyrighted trademarked material without permission
• Post disclaimers concerning content, such as sample
code, that the company does not support
• Post disclaimers of responsibility concerning content of
online forums and chat sessions

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Legal Issues Versus Ethical Issues
• Codes of Ethics: Useful guidelines for a corporate Web
policy:
– Make sure that Web content and activity comply with the laws in
other countries
– Make sure that Web content and activity comply with the laws in
other countries
– Make sure that the company’s Web content policy is consistent
with other company policies
– Appoint someone to monitor Internet legal and liability issues.
– Have attorneys review Web content to make sure that there is
nothing unethical, or illegal, on the company’s Web site

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Privacy
privacy
The right to be left alone and the right to be free of
unreasonable personal intrusions
• Collecting Information about Individuals
– Web Site Registration
– Cookies
– Spyware and Similar Methods
– RFID’s Threat to Privacy
– Privacy of Employees
– Privacy of Patients

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• Protection of Privacy
– Notice/awareness
– Choice/consent
opt-out clause
Agreement that requires computer users to take
specific steps to prevent the collection of personal
information
opt-in clause
Agreement that requires computer users to take
specific steps to allow the collection of personal
information

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Privacy
• Protection of Privacy
– Access/participation
– Integrity/security
– Enforcement/redress

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Privacy
• The USA Patriot Act
– E-mail and Internet searches
– Nationwide roving wiretaps
– Requirement that ISPs hand over more user
information
– Expanded scope of surveillance based on new
definitions of terrorism
– Government spying on suspected computer
trespassers with no need for court order
– Wiretaps for suspected violations of the Computer
Fraud and Abuse Act

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Privacy
• The USA Patriot Act
– Dramatic increases in the scope and penalties of the
Computer Fraud and Abuse Act
– General expansion of Foreign Intelligence
Surveillance Act (FISA) authority
– Increased information sharing between domestic law
enforcement and intelligence
– FISA detours around federal domestic surveillance
limitations; domestic surveillance detours around
FISA limitations

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Privacy
• Privacy Protection in Other Countries
– In 1998, the European Union passed a privacy
directive (EU Data Protection Directive) reaffirming
the principles of personal data protection in the
Internet age
– The directive aims to regulate the activities of any
person or company that controls the collection,
storage, processing, or use of personal data on the
Internet

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Intellectual Property Rights
intellectual property
Creations of the mind, such as inventions,
literary and artistic works, and symbols, names,
images, and designs, used in commerce

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Intellectual Property Rights
copyright
An exclusive grant from the government that allows the
owner to reproduce a work, in whole or in part, and to
distribute, perform, or display it to the public in any form
or manner, including over Internet
• Literary works
• Musical works
• Dramatic works
• Artistic works
• Sound recordings, films, broadcasts, cable programs

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Intellectual Property Rights
• Copyrights
– Piracy of Software, Music, and Other Digitizable
Material
– Copyright Protection Approaches
digital watermarks
Unique identifiers embedded in digital content that
make it possible to identify pirated works
– Digital Rights Management

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Intellectual Property Rights
trademark
A symbol used by businesses to identify their
goods and services; government registration of
the trademark confers exclusive legal right to its
use
– Domain Name Disputes and Resolutions
cybersquatting
The practice of registering domain names in order
to sell them later at a higher price

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Intellectual Property Rights
patent
A document that grants the holder exclusive
rights to an invention for a fixed number of years
• Fan and Hate Sites
cyberbashing
The registration of a domain name that criticizes an
organization or person

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Unsolicited Electronic Ads:
Problems and Solutions
• E-Mail Spamming
unsolicited commercial e-mail (UCE)
The use of e-mail to send unwanted ads or
correspondence
– What Drives UCE?
Many spammers are just trying to get people’s financial
information

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Unsolicited Electronic Ads:
Problems and Solutions
– Why It Is Difficult to Control Spamming
• Spammers send millions of e-mails, shifting Internet
accounts to avoid detection
• Spammers use different methods to find their victims
– Solutions to Spamming
• Junk-mail filters
• Automatic junk-mail deleters
• Blocking certain URLs and e-mail addresses

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Exhibit 17.1 How Spam Blockers Work

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Unsolicited Electronic Ads:
Problems and Solutions
• E-Mail Spamming
– Anti-spam Legislation
• Do-not-spam lists
• Protecting employees

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Unsolicited Electronic Ads:
Problems and Solutions
• Protecting against Pop-Up Ads
– Pop-Up stoppers
• Concluding Remarks
– The spam situation has not yet been resolved.
However, it seems that both e-mail spamming and
pop-ups are not increasing, and they may even be
declining

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Free Speech Versus Censorship
and Other Legal Issues
• On the Internet, censorship refers to
government’s attempt to control, in one way or
another, the material that is presented
• “Donham’s First Law of Censorship.” This
semiserious precept states: “Most citizens are
implacably opposed to censorship in any form—
except censorship of whatever they personally
happen to find offensive.”
• Children’s Online Protection Act (COPA)
exemplifies the protective approach

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Free Speech Versus Censorship
and Other Legal Issues
– Other Legal Issues
– Electronic Contracts
• A legally binding contract requires a few basic elements:
an offer, acceptance, and consideration
• These requirements are difficult to establish when the
human element in the processing of the transaction is
removed and the contracting is performed electronically
• Intelligent Agents and Contracts
Uniform Computer Information Transactions Act ( 2000), makes
clear that contracts can be formed even when a human is not
directly involved

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Free Speech Versus Censorship
and Other Legal Issues
• Taxing Business on the Internet
This issue is extremely important because it is related
to global EC, as well as to fairness in competition
when EC competes with off-line marketing channels,
which requires the collection of taxes

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Free Speech Versus Censorship
and Other Legal Issues
• The Tax-Exemption Debate
– The Internet Tax Freedom Act 1(998) sought to
promote e-commerce through tax incentives, by
barring any new state or local sales taxes on Internet
transactions until October 2001
– The U.S. Congress extended the tax moratorium until
2006, giving it time to digest the contents of the report
and hash out contentious tax issues

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Free Speech Versus Censorship
and Other Legal Issues
• The Tax-Exemption Debate
– Proposed Taxation in the United States
• The National Governors’ Association, the National League
of Cities, and the U.S. Conference of Mayors fought the
Tax Free Bill for the Internet
• The U.S. Congress blocked state and local governments
from taxing connections that link consumers to the
Internet, at least until November 2007

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EC Fraud and
Consumer and Seller Protection
• Fraud on the Internet
– Online Auction Fraud
– Internet Stock Fraud
– Other Financial Fraud

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EC Fraud and
Consumer and Seller Protection
• Fraud on the Internet
– Identity Theft and Phishing
identity theft
A criminal act in which someone presents himself
(herself) as another person and uses that person’s
social security number, bank account numbers,
and so on, to obtain loans, purchase items, make
obligations, sell stocks, etc.

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EC Fraud and
Consumer and Seller Protection
• Consumer Protection
– Third-Party Assurance Services
• TRUSTe’s “Trustmark”
• Better Business Bureau
• WHICHonline
• Web Trust Seal and Others
• Online Privacy Alliance
• Evaluation by Consumers
– Authentication and Biometric Controls

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EC Fraud and
Consumer and Seller Protection
• Seller Protection
– Customers who deny that they placed an order
– Customers who download copyrighted software
and/or knowledge and sell it to others
– Customers who give false payment (credit card or bad
checks) information in payment for products and
services provided
– Use of their name by others
– Use of their unique words and phrases, names, and
slogans and their Web addresses by others

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EC Fraud and
Consumer and Seller Protection
• What can Sellers Do?
– Use intelligent software to identify possibly
questionable customers
– Identify warning signals for possibly fraudulent
transactions
– Ask customers whose billing address is different from
the shipping address to call their bank and have the
alternate address added to their bank account

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Societal Issues
digital divide
The gap between those who have and those
who do not have the ability to access electronic
technology in general, and the Internet and EC
in particular
• Other Societal Issues
– Education
– Public safety, criminal justice, and homeland security
– Health aspects

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Virtual (Internet) Communities
virtual (Internet) community
A group of people with similar interests who
interact with one another using the Internet
• Characteristics of Communities
One possibility is to classify members as traders,
players, just friends, enthusiasts, or friends in need

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Virtual (Internet) Communities
1. Search communities
2. Trading communities
3. Education
communities
4. Scheduled events
communities
5. Subscriber-based
communities
6. Community consulting
firms
7. E-mail-based
communities
8. Advocacy communities
9. CRM communities
10.Mergers and
acquisitions activities
Commercial Aspects of Communities

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Virtual (Internet) Communities
• Types of Virtual Communities
– Transaction
– Purpose or interest
– Relations or practice
– Fantasy
• Financial Viability of Communities: Revenue model of
communities can be based on:
– Sponsorship
– Membership fees
– Sales commissions
– Advertising
– Combination of these

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Exhibit 17.5 Value Creation in
Electronic Communities

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Virtual (Internet) Communities
1. Increase traffic and
participation in the community
2. Focus on the needs of the
members; use facilitators and
coordinators
3. Encourage free sharing of
opinions and information—no
controls
4. Obtain financial sponsorship.
This factor is a must.
Significant investment is
required
5. Consider the cultural
environment
6. Provide several tools and
activities for member use;
communities are not just
discussion groups
7. Involve community members in
activities and recruiting
8. Guide discussions, provoke
controversy, and raise sticky
issues. This keeps interest high
Eight critical factors for community success:

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Virtual (Internet) Communities
Key Strategies for Successful Online Communities
1. Handle member data sensitively
2. Maintain stability of the Web site with respect to the
consistency of content, services, and types of
information offered
3. Provide fast reaction time of the Web site
4. Offer up-to-date content
5. Offer continuous community control with regard to
member satisfaction
6. Establish codes of behavior (netiquette/guidelines) to
contain conflict potential

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The Future of EC
• Nontechnological Success Factors
– Internet Usage
– Opportunities for Buying
– M-Commerce
– Purchasing Incentives
– Increased Security and Trust
– Efficient Information Handling
– Innovative Organizations
– Virtual Communities

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The Future of EC
• Nontechnological Success Factors
– Payment Systems
– B2B EC
– B2B Exchanges
– Auctions
– Going Global
– E-Government
– Intra-business EC
– E-Learning
– EC Legislation

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The Future of EC
• EC Technology Trends
– Clients
– Embedded Clients
– Wireless Communications and M-Commerce
– Pervasive Computing
– Wearable Devices
– RFID
– Servers and Operating Systems
– Networks

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The Future of EC
• EC Technology Trends
– EC Software and Services
– Search Engines
– Peer-to-Peer Technology
– Integration
– Web Services
– Software Agents
– Interactive TV
– Tomorrow’s Internet

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The Future of EC
• EC Technology Trends
utility computing
Computing resources that flow like electricity on demand
from virtual utilities around the globe—always on and
highly available, secure, efficiently metered, priced on a
pay-as-you-use basis, dynamically scaled, self-healing,
and easy to manage
– Grid Computing coordinates the use of a large
number of servers and storage, acting as one
computer

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The Future of EC
• Integrating the Marketplace with Marketspace
– Probably the most noticeable integration of the two
concepts is in the click-and-mortar organization
– A major problem with the click-and-mortar approach is
how the two outlets can cooperate in planning,
advertising, logistics, resource allocation, and so on
and how the strategic plans of the marketspace and
marketplace can be aligned
– The impact of EC on our lives will be as much as, and
possibly more profound than, that of the Industrial
Revolution

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Managerial Issues
1. What sorts of legal and ethical issues should be
of major concern to an EC enterprise?
2. What are the most critical ethical issues?
3. Should we obtain patents?
4. What impacts on business is EC expected to
make?
5. Do we have a community?

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Summary
1. Differences between legal and ethical issues.
2. Protecting privacy in EC.
3. Intellectual property rights in EC.
4. Unsolicited ads and spamming.
5. Conflict between free speech and censorship.

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Summary
6. Legal issues.
7. Protecting buyers and sellers online.
8. Societal issues and EC.
9. The role of virtual communities.
10.The future of EC.