Ethical Issues1

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Introduction to Electronic Commerce

The Environment ofElectronic Commerce: Legal,

Ethical, and Tax Issues

Winter 85, 2An Introduction to E-Commerce

Objectives

In this chapter, you will learn about:

Laws that govern electronic commerce activities

Laws that govern the use of intellectual property byonline businesses

Online crime, terrorism, and warfare

Ethics issues that arise for companies conductingelectronic commerce




Objectives (continued)Conflicts between companies’ desire tocollect and use data about their customersand the privacy rights of those customers

Taxes that are levied on electronic commerceactivities


The Legal Environment ofElectronic Commerce

Online businessesMust comply with the same laws and regulationsthat govern the operations of all businessesFace complicating factors

Web extends a company’s reach beyond traditional boundariesWeb increases speed and efficiency of businesscommunicationsWeb creates a network of customers




Borders and JurisdictionTerritorial borders in the physical worldmark the range of culture and reach ofapplicable laws very clearly

European Union (EU)

Allows free movement within the EU for citizensof member countries

Adopted a common currency


Culture Helps Determine Lawsand Ethical Standards




Borders and Jurisdiction(continued)

PowerA form of control over physical space and the

people and objects that reside in that spaceA defining characteristic of statehood

JurisdictionAbility of a government to exert control over a

person or corporationEffects

Impact of a person’s behavior


Borders and Jurisdiction(continued)

LegitimacyIdea that those subject to laws should have somerole in formulating them

NoticeThe expression of a change in rules

Constructive noticeIndividuals become subject to new laws andcultural norms when they cross an international

border




Jurisdiction on the InternetPower, effects, legitimacy, and notice do nottranslate well to the virtual world ofelectronic commerceGovernments that want to enforce laws mustestablish jurisdiction over business conduct

ContractPromise or set of promises between two or morelegal entities


Jurisdiction on the Internet(continued)

Tort

Intentional or negligent action taken by a legalentity that causes harm to another legal entity

Court has sufficient jurisdiction in a matter ifit has both subject matter jurisdiction and

personal jurisdiction




Subject-matter Jurisdiction

Court’s authority to decide a type of disputePersonal jurisdiction

Determined by the residence of the parties

Forum selection clauseStates that a contract will be enforced according tolaws of a particular state

Long-arm statutesCreate personal jurisdiction over nonresidents whotransact business in the state


Forum Selection Clause on theQpass Web Site




Contracting and ContractEnforcement in Electronic Commerce

ContractIncludes three essential elements

An offer, an acceptance, and consideration

Formed when one party accepts the offer ofanother party

Offer Commitment with certain terms made to another

partyAcceptance

Expression of willingness to take an offer


Contracting and Contract Enforcementin Electronic Commerce (continued)

Consideration

Agreed upon exchange of something valuable

Implied contract

Formed by two or more parties that act as if acontract exists




Contracting and Contract Enforcement inElectronic Commerce (continued)

Statute of Frauds

Following must be created by a signed writing

Contracts for sale of goods worth over $500

Contracts requiring actions that cannot be completed

within one year



A writingExists when the terms of a contract have beenreduced to some tangible form

SignatureAny symbol executed or adopted for the purpose

of authenticating a writingWarranties on the Web

Any contract for the sale of goods includesimplied warranties





Warranty disclaimer Statement declaring that the seller will not honorsome or all implied warranties

Authority to bind Determining whether an individual has theauthority to commit a company to an online

contractTerms of service (ToS)Intended to limit a Web site owner’s liability


Use and Protection of IntellectualProperty in Online Business

Intellectual property

Includes all products of the human mind

Products can be tangible or intangible

Intellectual property rights

Include protections by governments through

Granting of copyrights and patents

Registration of trademarks and service marks





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Patent InfringementPatent

Exclusive right granted by a government to anindividual to make, use, and sell an invention

To be patentable the invention must begenuine, novel, useful, and not obvious,given the current state of technology

Business process patentProtects specific set of procedures for conductinga particular business activity


Trademark Infringement

Trademark Distinctive mark, device, motto, or implementthat a company affixes to goods it produces

Service mark Used to identify services provided

Trade name Name that a business uses to identify itself

Common lawPart of British and U.S. law established by thehistory of court decisions



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Domain Names, Cybersquatting,and Name Stealing

CybersquattingRegistering a trademark domain name

Name changingRegistering misspelled variations of well-knowndomain names

Name stealingOwnership of a site’s assigned domain name ischanged to another site and owner


Domain Names, Cybersquatting,and Name Stealing (continued)

U.S. Anticybersquatting ConsumerProtection Act (ACPA)

Protects trademarked names from beingregistered as domain names by other parties

Parties found guilty of cybersquatting can beheld liable for damages of up to $100,000 pertrademark



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Name Changing and NameStealing

Name stealing

Someone other than a domain name’s ownerchanges ownership of the domain name

Domain name ownership change

Owner information is changed in registrar’sdatabase to reflect a new owner’s name and

business address


Protecting Intellectual PropertyOnline

Proposed solutions to problems in digitalcopyright protection

Host name blocking

Packet filtering

Proxy servers



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DefamationDefamatory statement

Statement that is false and injures the reputationof another person or company

Product disparagementIf a defamatory statement injures the reputationof a product or service instead of a person

Per se defamationCourt deems some types of statements to be sonegative that injury is assumed


Deceptive Trade Practices

Federal Trade CommissionRegulates advertising in the United StatesPublishes regulations and investigates claims offalse advertisingProvides policy statementsPolicies cover specific areas such as

Bait advertisingConsumer lending and leasingEndorsements and testimonials



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U.S. Federal Trade CommissionAdvertising Guidance page


Online Crime, Terrorism, andWarfare

Online crimeObstacles faced by law enforcement

Jurisdiction

Difficulty applying laws written before the Internet became prevalent to criminal actions

Online warfare and terrorismSustained effort by a well-financed terroristgroup could slow down operation of majortransaction-processing centers



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Ethical IssuesWeb businesses find ethical issues are importantto consider when making policy decisions

Electronic Communications Privacy Act of 1986Main law governing privacy on the Internet today

Differences in cultures throughout the world haveresulted in different expectations about privacy inelectronic commerce


Ethical Issues (continued)

Principles for handling customer dataUse data collected to provide improved customer serviceDo not share customer data with others outside yourcompany without the customer’s permissionTell customers what data you are collecting and what you

are doing with itGive customers the right to have you delete any of thedata you have collected about them



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Communications with Children

Children’s Online Privacy Protection Act of1998 (COPPA)

Provides restrictions on data collection that must be followed by electronic commerce sites aimedat children

Requires schools that receive federal funds toinstall filtering software on computers


Sanrio’s Approach to COPPACompliance



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Taxation and Electronic

CommerceIncome taxes

Levied by national, state, and local governmentson net income generated by business activities

Transaction taxesLevied on products or services that a companysells

Property taxesLevied by states and local governments on

personal property and real estate used in business


Nexus

Connection between a taxpaying entity and agovernment

Activities that create nexus in the United

States are determined by state law and thusvary from state to state



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U.S. Income TaxesInternal Revenue Service (IRS)

U.S. government agency charged withadministering the country’s tax laws

Basic principle of the U.S. tax systemAny verifiable increase in a company’s wealth issubject to federal taxation

Subject to U.S. federal income taxAny company whose U.S.-based Web sitegenerates income


Internal Revenue Service HomePage



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U.S. State Sales TaxesUse tax

Levied by a state on property used in that statethat was not purchased in that state

In most states use tax rates are identical tosales tax rates

Purchasers exempt from sales tax includecertain charitable organizations and

businesses buying items for resale


European Union (EU) Value Added Taxes

Value Added Tax

Most common transfer tax used in the EU

Assessed on the amount of value added at eachstage of production

EU enacted legislation

Companies based in EU countries must collectVAT on digital goods



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