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

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

2 © Prentice Hall 20042, Napster, and Intellectual Property Rights The Problem Before the advent of the Web, people made audiotape copies of music and videos to give to friends and family or used them for their own personal enjoyment Such activities were ignored by the producers, distributors, and artists who had the legal rights to the content

3 © Prentice Hall 20043, Napster, and Intellectual Property Rights (cont.) enabled users to listen to music from any computer with an Internet connection without paying royalties Using peer-to-peer (P2P) technology, Napster supported the distribution of music and other digitized content among millions of users

4 © Prentice Hall 20044, Napster, and Intellectual Property Rights (cont.) MP3 and Napster claimed to be supporting what had been done for years and were not charging for their services Popularity of and P2P services was too great for the content creators and owners to ignore

5 © Prentice Hall 20045, Napster, and Intellectual Property Rights (cont.) To the creators and owners, the Web was becoming a vast copying machine’s and Napster’s services could result in the destruction of many thousands of jobs and millions of dollars in revenue

6 © Prentice Hall 20046, Napster, and Intellectual Property Rights (cont.) The Solution December 2000, EMusic ( filed a copyright infringement lawsuit against In 2001, Napster faced similar legal claims, lost the legal battle, and was forced to pay royalties for each piece of music it supported—Napster collapsed—in October 2003 it reopened as “for fee only”

7 © Prentice Hall 20047, Napster, and Intellectual Property Rights (cont.) Existing copyright laws were written for physical, not digital, content The Copyright Infringement Act states, “the defendant must have willfully infringed the copyright and gained financially” The “no financial gain” loophole in the Act was later closed

8 © Prentice Hall 20048, Napster, and Intellectual Property Rights (cont.) The Results In 1997, the No Electronic Theft Act (NET) was passed, making it a crime for anyone to reproduce and distribute copyrighted works applied to reproduction or distribution accomplished by electronic means even if copyrighted products are distributed without charge, financial harm is experienced by the authors or creators of a copyrighted work

9 © Prentice Hall 20049, Napster, and Intellectual Property Rights (cont.) suspended operations in April 2000 and settled the lawsuit Napster suspended service and settled its lawsuits tried to resurrect itself as an online music subscription service with the backing of Bertelsmann AG filed for bankruptcy in June 2002 purchased by Roxio with plans to revive Napster into a royalty-paying framework

10 © Prentice Hall 200410, Napster, and Intellectual Property Rights (cont.) What we can learn… All commerce involves a number of legal, ethical, and regulatory issues EC adds to the scope and scale of these issue What constitutes illegal behavior versus unethical, intrusive, or undesirable behavior?

11 © Prentice Hall 200411 Legal Issues Versus Ethical Issues Ethics: The branch of philosophy that deals with what is considered to be right and wrong What is unethical is not necessarily illegal Ethics are supported by common agreement in a society as to what is right and wrong, but they are not subject to legal sanctions

12 © Prentice Hall 200412 Legal Issues Versus Ethical Issues (cont.) EC ethical issues Non-work-related use of the Internet Employees use e-mail and the Web for non-work-related purposes The time employees waste while surfing non-work-related Web sites during working hours is a concern

13 © Prentice Hall 200413 Legal Issues Versus Ethical Issues (cont.) Corporate code of ethics Issue written policy guidelines cannot be used without permission Copyrighted trademarked material cannot be used without permission Post disclaimers concerning content Post disclaimers of responsibility concerning content of online forums and chat sessions

14 © Prentice Hall 200414 Legal Issues Versus Ethical Issues (cont.) 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

15 © Prentice Hall 200415 Legal Issues Versus Ethical Issues (cont.) Major ethical/legal issues Privacy Intellectual property rights Free speech versus censorship Consumer and merchant protection against fraud

16 © Prentice Hall 200416 Legal Issues Versus Ethical Issues (cont.) Privacy: The right to be left alone and the right to be free of unreasonable personal intrusions 1. 1.The right of privacy is not absolute. Privacy must be balanced against the needs of society 2. 2.The public’s right to know is superior to the individual’s right of privacy

17 © Prentice Hall 200417 Legal Issues Versus Ethical Issues (cont.) Collecting information about individuals over the Internet: By reading an individual’s newsgroup postings By looking up an individual’s name and identity in an Internet directory By reading an individual’s e-mail

18 © Prentice Hall 200418 Legal Issues Versus Ethical Issues (cont.) By conducting surveillance on employees By wiretapping wireline and wireless communication lines and listening to employees By asking an individual to complete a Web site registration By recording an individual’s actions as they navigate the Web with a browser, usually using cookies

19 © Prentice Hall 200419 Legal Issues Versus Ethical Issues (cont.) Web site registration Most B2C and marketing Web sites ask visitors to fill out registration forms including: names addresses phone numbers e-mail addresses hobbies, etc.

20 © Prentice Hall 200420 Legal Issues Versus Ethical Issues (cont.) There are few restraints on the ways in which the site can use this information Use it to improve customer service or its own business Or sell the information to another company that could use it in an inappropriate or intrusive manner

21 © Prentice Hall 200421 Legal Issues Versus Ethical Issues (cont.) Cookie: A small piece of data that is passed back and forth between a Web site and an end user’s browser as the user navigates the site; enables sites to keep track of users’ activities without asking for identification

22 © Prentice Hall 200422 Legal Issues Versus Ethical Issues (cont.) Users can protect themselves against cookies: delete them from their computers use anticookie software Microsoft Passport lets consumers permanently enter a profile of information along with a password and use this information and password repeatedly to access services at multiple sites—affords opportunities to invade privacy

23 © Prentice Hall 200423 Legal Issues Versus Ethical Issues (cont.) Privacy of employees Monitoring employees’ e-mail and Web activities wasting time may disclose trade secrets 77% of companies monitor their employees’ communications

24 © Prentice Hall 200424 Legal Issues Versus Ethical Issues (cont.) Protection of privacy Notice/awareness Choice/consent Access/participation Integrity/security Enforcement/redress

25 © Prentice Hall 200425 Legal Issues Versus Ethical Issues (cont.) Opt-out clause: Agreement that requires computer users to take specific steps to prevent collection of information Opt-in clause: Agreement that requires computer users to take specific steps to allow collection of information

26 © Prentice Hall 200426 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

27 © Prentice Hall 200427 Copyrights 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 the Internet

28 © Prentice Hall 200428 Copyrights (cont.) Copyright protection approaches Using software to produce digital content that cannot be copied Cryptography Tracking copyright violations Digital watermarks: Unique identifiers imbedded in digital content that make it possible to identify pirated works

29 © Prentice Hall 200429 Intellectual Property Rights (cont.) Trademark: A symbol used by businesses to identify their goods and services; government registration of the trademark confers exclusive legal right to its use

30 © Prentice Hall 200430 Intellectual Property Rights (cont.) The owner of a registered trademark has exclusive rights to: Use the trademark on goods and services for which the trademark is registered Take legal action to prevent anyone else from using the trademark without consent on goods and services (identical or similar) for which the trademark is registered

31 © Prentice Hall 200431 Domain Names Domain name Domain name refers to the upper category of an Internet address (URL) Should additional (new) top-level domain names be added? The use of trademarked names that belong to other companies as domain names

32 © Prentice Hall 200432 Domain Names (cont.) Network Solutions, Inc.—U.S. subsidiary of Verisign was the sole assigner of domain names until 1998 ICANN, an international nonprofit corporation, took over assignment of domain names on a global basis— allowing competition in the registration system and the price of registration has dropped

33 © Prentice Hall 200433 Domain Names (cont.) Council of Registrars (CORE) (European group) and the Global Internet Project (U.S. group) want to increase the number of top-level names One objectives is to create an adult-only top-level name that will keep pornographic material away from children

34 © Prentice Hall 200434 Domain Names (cont.) Domain name disputes and resolutions Major disputes are international in scope, because the same corporate name may be used in different countries by different corporations Internet community now quickly resolves domain name disputes using arbitration Consortium, the National Arbitration Forum WIPO

35 © Prentice Hall 200435 Intellectual Property Rights (cont.) Cybersquatting: The practice of registering domain names in order to sell them later at a higher price Anticybersquatting Consumer Protection Act of 1999 allows trademark owners sue for statutory damages

36 © Prentice Hall 200436 Intellectual Property Rights (cont.) Patent: A document that grants the holder exclusive rights on an invention for a fixed number of years Patents serve to protect tangible technological inventions Patents are not designed to protect artistic or literary creativity Patents confer monopoly rights to an idea or an invention, regardless of how it may be expressed

37 © Prentice Hall 200437 Intellectual Property Rights (cont.) Fan and hate sites cyberbashing: The registration of a domain name that criticizes an organization or person May violate the copyrights of the creators or distributors of intellectual property This issue shows the potential collision between protection of intellectual property and free speech

38 © Prentice Hall 200438 Free Speech Versus Censorship and Other Legal Issues One of the most important issues of Web surfers (as per surveys) is censorship Censorship—governmental attempts to control broadcasted material

39 © Prentice Hall 200439 Free Speech Versus Censorship and Other Legal Issues (cont.) “Donham’s First Law of Censorship” “Most citizens are implacably opposed to censorship in any form— except censorship of whatever they personally happen to find offensive”

40 © Prentice Hall 200440 Free Speech Versus Censorship and Other Legal Issues (cont.) 1998 Children’s Online Protection Act (COPA) required: companies verify a viewer’s age before showing online material that is deemed “harmful to minors” parental consent is required before personal information can be collected from a minor Was ruled unconstitutional in Pennsylvania in 2001, is now in the hands of the U.S. Supreme Court

41 © Prentice Hall 200441 Free Speech Versus Censorship and Other Legal Issues (cont.) Controlling spam Spamming: The practice of indiscriminately broadcasting messages over the Internet (e.g.,., junk mail) Spam comprises 25 to 50% of all e- mail

42 © Prentice Hall 200442 Free Speech Versus Censorship and Other Legal Issues (cont.) Electronic Mailbox Protection Act requires those sending spam to indicate the name of the sender prominently and include valid routing information Recipients may waive the right to receive such information

43 © Prentice Hall 200443 Free Speech Versus Censorship and Other Legal Issues (cont.) ISPs are required to offer spam- blocking software Recipients have the right to request termination of future spam from the same sender and to bring civil action if necessary

44 © Prentice Hall 200444 Free Speech Versus Censorship and Other Legal Issues (cont.) Other legal issues Electronic contracts Uniform Electronic Transactions Act of 1999 establishes uniform and consistent definitions for electronic records, digital signatures, and other electronic communications Shrink-wrap agreements or box-top licenses Click-wrap contracts

45 © Prentice Hall 200445 Free Speech Versus Censorship and Other Legal Issues (cont.) Intelligent agents and contracts Contracts can be formed even when no human involvement is present A contract can be made by interaction between an individual and an electronic agent, or even between two electronic agents

46 © Prentice Hall 200446 Free Speech Versus Censorship and Other Legal Issues (cont.) Uniform Electronic Transactions Act (UETA) includes the following two provisions: Electronic records do satisfy the requirement for a contract Electronic signature is enforceable equal to a written signature on a paper contract

47 © Prentice Hall 200447 Free Speech Versus Censorship and Other Legal Issues (cont.) Gambling Internet Gambling Prohibition Act of 1999 Online wagering illegal except for minimal amounts Provides criminal and civil remedies against individuals making online bets or wagers and those in the business of offering online betting or wagering venues

48 © Prentice Hall 200448 Free Speech Versus Censorship and Other Legal Issues (cont.) Taxing business on the Internet Internet Tax Freedom Act passed the U.S. Senate on October 8, 1998 Barred any new state or local sales taxes on Internet transactions until October 2001 (extended by US Congress to 2006) Created a special commission to Created a special commission to study Internet taxation issues and recommend new policies

49 © Prentice Hall 200449 Free Speech Versus Censorship and Other Legal Issues (cont.) The global nature of business today suggests that Cyberspace be considered: A distinct tax zone unto itself Unique rules and considerations befitting the stature of the online environment

50 © Prentice Hall 200450 Free Speech Versus Censorship and Other Legal Issues (cont.) Tax-free policies may give online businesses an unfair advantage— Internet businesses should pay their fair share of the tax bill for the nation’s social and physical infrastructure

51 © Prentice Hall 200451 EC Fraud and Consumer and Seller Protection Fraud on the Internet Online auction fraud—87% of online crime Internet stock fraud—spread false positive rumors about the prospects of companies

52 © Prentice Hall 200452 EC Fraud and Consumer and Seller Protection (cont.) Other financial fraud Bogus investments Phantom business opportunities Other schemes Other fraud in EC—nonfinancial fraud Customers receive poor-quality products and services Customers do not get products in time Customers are asked to pay for things they assume will be paid for by sellers

53 © Prentice Hall 200453 EC Fraud and Consumer and Seller Protection (cont.) Consumer protection—tips Consumer protection—tips for safe electronic shopping Make sure that they enter the real Web site of well-known companies Search any unfamiliar site for an address and telephone and fax numbers and call Check out the seller with the local chamber of commerce, BBB, or TRUSTe

54 © Prentice Hall 200454 EC Fraud and Consumer and Seller Protection (cont.) Investigate how secure and organized the seller’s site is Examine the money-back guarantees, warranties, etc. Compare prices online to those in regular stores Ask friends what they know, look for testimonials and endorsements

55 © Prentice Hall 200455 EC Fraud and Consumer and Seller Protection (cont.) Find out what redress is available in case of a dispute Consult the National Fraud Information Center ( Check the resources available at

56 © Prentice Hall 200456 EC Fraud and Consumer and Seller Protection (cont.) Third-party assurance services TRUSTe ( Better Business Bureau ( WHICHonline ( Web Trust seal (TRUSTe,, Online Privacy Alliance

57 © Prentice Hall 200457 EC Fraud and Consumer and Seller Protection (cont.) Evaluation by consumers— Evaluation by consumers—product and vendor evaluations,

58 © Prentice Hall 200458 EC Fraud and Consumer and Seller Protection (cont.) Authentication and biometric controls provide Access procedures that match every valid user with a unique user identifier (UID) Authentication method that verifies that users requesting access to the computer system are really who they claim to be Are valid for both consumer and merchant protection

59 © Prentice Hall 200459 EC Fraud and Consumer and Seller Protection (cont.) Seller protection against: Customers who deny that they placed an order Customers who download copyrighted software, etc. and sell it to others Customers who give false payment information Use of their name by others Trademark protection

60 © Prentice Hall 200460 EC Fraud and Consumer and Seller Protection (cont.) 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

61 © Prentice Hall 200461 Virtual (Internet) Communities Virtual (Internet) community: A group of people with similar interests who interact with one another using the Internet

62 © Prentice Hall 200462 Virtual (Internet) Communities (cont.) Characteristics of virtual communities Internet communities may have thousands or even millions of members Online communities are geographically confined

63 © Prentice Hall 200463 Virtual (Internet) Communities (cont.) Classify members as: Traders Players Just friends Enthusiasts Friends in need The gathering of needs in one place enables vendors to sell more and community members to get discounts

64 © Prentice Hall 200464 Virtual (Internet) Communities (cont.) Examples of online communities: Associations Ethnic communities Gender communities Affinity portals Catering to young people Mega communities B2B online communities

65 © Prentice Hall 200465 Virtual (Internet) Communities (cont.) Types of virtual communities: Transaction Purpose or interest Relations or practice Fantasy

66 © Prentice Hall 200466 Virtual (Internet) Communities (cont.) How to transform a community site to a commercial site: Understand a particular niche industry, Build a site that provides that information, Set up the site to mirror the steps a user goes through in the information-gathering and decision- making process

67 © Prentice Hall 200467 Virtual (Internet) Communities (cont.) Set up the site to mirror the steps a user goes through in the information-gathering and decision- making process Start selling products and services that fit into the decision-support process

68 © Prentice Hall 200468 Virtual (Internet) Communities (cont.)

69 © Prentice Hall 200469 Virtual (Internet) Communities (cont.) Financial viability of communities Revenue model of communities can be based on: Sponsorship Membership fees Sales commissions Advertising

70 © Prentice Hall 200470 Virtual (Internet) Communities (cont.) The operating expenses for communities are very high due to the need to provide fresh content and free services Most communities initially provide free membership The objective is to have as many registered members as possible and to build a strong brand in order to attract advertisers

71 © Prentice Hall 200471 Virtual (Internet) Communities (cont.) Key strategies for successful online communities: 1. 1.Increase traffic and participation in the community 2. 2.Focus on the needs of the members; use facilitators and coordinators

72 © Prentice Hall 200472 Virtual (Internet) Communities (cont.) 3. 3.Encourage free sharing of opinions and information—no controls 4. 4.Obtain financial sponsorship. This factor is a must. Significant investment is required 5. 5.Consider the cultural environment

73 © Prentice Hall 200473 Virtual (Internet) Communities (cont.) 6. 6.Provide several tools and activities for member use; communities are not just discussion groups 7. 7.Involve community members in activities and recruiting 8. 8.Guide discussions, provoke controversy, and raise sticky issues. This keeps interest high

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