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Chapter 7: The Environment of Electronic Commerce: Legal, Ethical, and Tax Issues.

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1 Chapter 7: The Environment of Electronic Commerce: Legal, Ethical, and Tax Issues

2 The Legal Environment of Electronic Commerce Online businesses: äMust comply with the same laws and regulations that govern the operations of all businesses äFace complicating factors äThe Web extends a company’s reach beyond traditional boundaries äThe Web increases the speed and efficiency of business communications äThe Web creates a network of customers

3 Borders and Jurisdiction Territorial borders in the physical world mark the range of culture and reach of applicable laws very clearly Power äA form of control over physical space and the people and objects that reside in that space äA defining characteristic of statehood Jurisdiction äAbility of a government to exert control over a person or corporation Legitimacy äIdea that those subject to laws should have some role in formulating them Notice äThe expression of a change in rules Constructive notice äIndividuals become subject to new laws and cultural norms when they cross an international border äImpact of a person’s behavior

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5 Jurisdiction on the Internet Power, effects, legitimacy, and notice do not translate well to the virtual e-commerce world To enforce laws governments must establish jurisdiction over business conduct Contract äPromise or set of promises between two or more legal entities Tort äIntentional or negligent action taken by a legal entity that causes harm to another legal entity A court has sufficient jurisdiction in a matter if: äit has both subject matter jurisdiction äa court’s authority to decide a type of dispute äpersonal jurisdiction äDetermined by the residence of the parties Forum selection clause äStates that a contract will be enforced according to the laws of a particular state Long-arm statutes äCreate personal jurisdiction over nonresidents who transact business in the state

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7 Use and Protection of Intellectual Property in Online Business Intellectual property äIncludes all products of the human mind äProducts can be tangible or intangible Intellectual property rights äInclude protections by governments through: äGranting of copyrights and patents äRegistration of trademarks and service marks

8 Web Site Content Issues Copyright äRight granted by a government to an author or creator of a literary or artistic work äCreations that can be copyrighted include all forms of artistic or intellectual expression äWorks copyrighted by corporations or not-for- profit organizations are protected for 95 years Fair use of a copyrighted work äIncludes copying it for use in criticism, comment, news reporting, teaching, or research YouTube Deletes 30,000 Files After a Copyright Complaint TOKYO, Oct. 20 (AP) — The popular video-sharing site YouTube deleted nearly 30,000 files after a Japanese entertainment group complained of copyright infringement. (NY Times 10/23/06)

9 Patent Infringement Patent äExclusive right granted by a government to an individual to make, use, and sell an invention äTo be patentable the invention must be genuine, novel, useful, and not obvious, given the current state of technology Business process patent äProtects a specific set of procedures for conducting a particular business activity Business methods must be: Useful New Non-obvious

10 Trademark Infringement Trademark äDistinctive mark, device, motto, or implement that a company affixes to goods it produces Service mark äUsed to identify services provided Trade name äName that a business uses to identify itself Common law äPart of British and U.S. law established by the history of court decisions

11 Domain Names, Cybersquatting, and Name Stealing Cybersquatting äRegistering a domain name that is the trademark of a person or company and hoping to sell it to that person or company for money Name changing äRegistering misspelled variations of well-known domain names Name stealing äOwnership of a site’s assigned domain name is changed to another site and owner Act äProtects trademarked names from being registered as domain names by other parties äParties found guilty of cybersquatting can be held liable for damages of up to $100,000 per trademark

12 Defamation Defamatory statement äStatement that is false and injures the reputation of another person or company Product disparagement äIf a defamatory statement injures the reputation of a product or service instead of a person Per se defamation äCourt deems some types of statements to be so negative that injury is assumed See:

13 Advertising Regulation Federal Trade Commission äRegulates advertising in the United States äPublishes regulations and investigates claims of false advertising äProvides policy statements äPolicies cover specific areas such as: äBait advertising äConsumer lending and leasing äEndorsements and testimonials

14 Online Crime, Terrorism, and Warfare Online crime äObstacles faced by law enforcement: äJurisdiction äDifficulty applying laws written before the Internet became prone to criminal actions Online warfare and terrorism äSustained effort by a well-financed terrorist group could slow down operation of major transaction-processing centers

15 Ethical Issues Web businesses find ethical issues are important to consider when making policy decisions Electronic Communications Privacy Act of 1986 äMain law governing privacy on the Internet today Differences in cultures throughout the world have resulted in different expectations about privacy in electronic commerce Principles for handling customer data: äUse data collected to provide improved customer service äDo not share customer data with others outside your company without the customer’s permission äTell customers what data you are collecting and what you are doing with it äGive customers the right to have you delete any of the data you have collected about them

16 Under what conditions should the privacy of others be invaded? What legitimizes intruding into others’ lives through unobtrusive surveillance, through market research, or by whatever means? Do we have to inform people that we are eavesdropping? Do we have to inform people that we are using credit history information for employment screening purposes? Some Examples of Ethical Issues

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18 Go to a Web site of your choice Read the Privacy Policy of the site Do they have an Opt Out or Opt In policy? How easy can you do this? If you were a customer of this site, what concerns would you have regarding your information? Under what conditions should the privacy of others be invaded? Exercise

19 Analyzing Ethical Dilemmas Dilemma äa situation is which there are at least two diametrically opposed actions, each of which supports a desirable outcome Can use a five-step process to analyze a dilemma

20 Analyzing Ethical Dilemmas 1. Identify and describe clearly the facts  Find out who did what to whom, and where, when, and how. 2.Define the conflict or dilemma and identify the higher-order values  Ethical, social, and political issues always reference higher values 3.Identify the stakeholders äParties with an interest in the outcome, who have invested in the situation, and have vocal opinions 4.Identify the options that you can reasonably take  None of the options may satisfy all interests involved 5.Identify the potential consequences of your options -- and choose  Some options may be ethically correct but disastrous from other points of view  Some options might work once but not over time

21 Candidate Ethical Principles The Golden Rule äDo unto others as you would have them do unto you Universalism äIf an action is not right for all situations, then it is not right for any specific situation Slippery Slopes äIf an action cannot be taken repeatedly, then it is not right to take at all Collective Utilitarian Principle äTake the action that achieves the greater value for all of society

22 Candidate Ethical Principles Risk Aversion äTake the action that produces the least harm, or the least potential cost. ächoose actions whose consequences would not be catastrophic, even if there were a failure No Free Lunch äAssume that virtually all tangible and intangible objects are owned by someone else unless there is a specific declaration otherwise The New York Times Test (Perfect Information Rule) äAssume that the results of you decision will be the lead article in the New York Times - will the reaction of readers be positive or negative? The Social Contract Rule äWould you like to live in a society where the principle you are supporting would become an organizing principle of the entire society?

23 Use the above rules for analysis and principles to analyze (choose one or two and discuss in your group): äDownloading music äAdvertising networks (like DoubleClick) who track wWeb surfing behavior äDatamining by retail stores and credit card companies äUsing opt out vs. opt in policies äAnother issue of your choice Exercise

24 Communications with Children Children’s Online Privacy Protection Act of 1998 (COPPA) äProvides restrictions on data collection that must be followed by electronic commerce sites aimed at children Children’s Internet Protection Act (CIPA) äRequires schools that receive federal funds to install filtering software on computers

25 Taxation and Electronic Commerce Income taxes äLevied by national, state, and local governments on net income generated by business activities Transaction taxes äLevied on products or services that a company sells Property taxes äLevied by states and local governments on personal property and real estate used in business Nexus is the connection between a taxpaying entity and a government äActivities that create nexus in the United States are determined by state law and thus vary from state to state

26 Taxes U. S. Income taxes Internal Revenue Service (IRS) äU.S. government agency charged with administering the country’s tax laws Basic principle of the U.S. tax system äAny verifiable increase in a company’s wealth is subject to federal taxation Any company whose U.S.-based Web site generates income is subject to U.S. federal income tax U. S. Sales taxes Use tax äLevied by a state on property used in that state that was not purchased in that state In most states use tax rates are identical to sales tax rates Purchasers exempt from sales tax include certain charitable organizations and European Union Value Added Tax äMost common transfer tax used in the EU äAssessed on the amount of value added at each stage of production äCompanies based in EU countries must collect VAT on digital goods


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