1. ISMT 520 Lecture #4: Kira Davis v. WJN Case and E-Commerce Legal Issues Dr. Theodore H. K. Clark Associate Professor and Academic Director of MSc Programs in IS Management and E-Commerce Management Department of Information & Systems Management Hong Kong University of Science & Technology and Visiting Associate Professor of Operations & Information Management (Information Economics and Strategy Group) 1998 - 2001 The Wharton School of the University of Pennsylvania

2. HKUST Business School 2 Individual Assignment: Due NOW Any assignment handed in after start of class will be LATE with “significant” discount for late assignments Exact percent reduction not yet determined, and may be based partly on justification for late submission, but it will be sufficient for you to have been better off submitting on time Internet email attachments accepted or in class now After class, or during break is too late, so do it now If you have not already turned in during class or emailed your individual assignment submission, leave now and do it. This assignment is important for grading if you will not be taking the final exam, as only individual grade

3. HKUST Business School 3 Review and Discussion of Cases Sony Betamax case – what did we learn? VCR claimed to be contributory infringement End user non-profit “fair use” accepted by court Taping of shows available for free on TV only No reduction in TV watching shown (but, bias?) General questions to also ask or consider What jurisdiction? To whom does this apply? Minority or dissenting opinions? Other cases? Unresolved issues left open in this case?

4. HKUST Business School 4 Review and Discussion of Cases Kalem case (within Sony) – what learned? Book copyright extends to rights for movies, etc. Supplying “means” of infringement & encouraging infringement sufficient for contributory liability Authorized versus non-authorized usage in mix General questions to also ask or consider What jurisdiction? To whom does this apply? Minority or dissenting opinions? Other cases? Unresolved issues left open in this case?

5. HKUST Business School 5 Review and Discussion of Cases Campbell case – what did we learn? Pretty Woman song parody gets fair use exception Goal of Copyright furthered by use of Parody Issue becomes one balancing various interests and issues and of “where to draw the line” General questions to also ask or consider What jurisdiction? To whom does this apply? Minority or dissenting opinions? Other cases? Unresolved issues left open in this case?

6. HKUST Business School 6 Review and Discussion of Cases Harper & Row case – what did we learn? Quote of unpublished manuscript may be fair use “Time” cancelled contract, so economic harm Free speech issues – importance of news / politics Excessive copying, and harm, overcomes fair use General questions to also ask or consider What jurisdiction? To whom does this apply? Minority or dissenting opinions? Other cases? Unresolved issues left open in this case?

7. HKUST Business School 7 Review and Discussion of Cases New Era Publications case – what learned? Criticism typically allowed as fair use exception However, excessive use of copying a concern Fair use as mixed question of law and fact Balancing test for all four factors applied General questions to also ask or consider What jurisdiction? To whom does this apply? Minority or dissenting opinions? Other cases? Unresolved issues left open in this case?

8. HKUST Business School 8 Review and Discussion of Cases Hustler case – what did we learn? Copied 100% of the parody “ad” from Hustler Motivation was profit (contributions) Criticism and political commentary as fair use Defendants profiting from activity Hustler can’t do General questions to also ask or consider What jurisdiction? To whom does this apply? Minority or dissenting opinions? Other cases? Unresolved issues left open in this case?

9. HKUST Business School 9 Review and Discussion of Cases Columbia Law Review Article Proposes fair use exception for “market failure” Good review of fair use legal issues and decisions Law Review Articles ARE NOT LAW OR POLICY … but MIGHT suggest some policy considerations General questions to also ask or consider What jurisdiction? To whom does this apply? Minority or dissenting opinions? Other cases? Unresolved issues left open in this case?

10. HKUST Business School 10 Fair Use Balancing Tests Determination of whether or not Fair Use exception to copyright should apply requires a “balancing test” of the interests of society (e.g., public policy) versus need to protect individual rights of the copyright holder. No single test dominates, but any one of these tests may be determinative, and any one could be sufficient to show fair use. However, most cases consider multiple factors and balance tradeoffs across all.

11. HKUST Business School 11 Fair Use: Summary Balancing Act Weighing Multiple Factors Difficult to Clearly Determine Outcome in Advance for Fair Use Exception Claims Copyright Law is simple, other than Fair Use Different courts MIGHT reach different opinions on the same fact pattern and laws Presenting facts effectively using prior case examples and persuading Judge is critical

12. HKUST Business School 12 Contract Law and the Internet Terms of use important for eCommerce Make choice of law and venue clear in contract Require action to affirm customer has read terms Inconsistent or unclear terms favor customers Warrantees trump disclaimers Be careful about express or implied warrantees Make terms clear of any intended guarantees Make disclaimers clear and consistent everywhere Puffing allowed, but be careful about bounds

13. HKUST Business School 13 E-commerce and Contract Law Offer, acceptance, and consideration Does website make an offer, or invitation for offers? Advertisement, or commitment? When we have a contract? Is electronic acceptance valid? (It depends …) Meeting of minds requirement of acceptance? Confirmation of receipt of order not acceptance Void and voidable contracts – big difference You could be locked in but partner not! Look to contract terms and details

14. HKUST Business School 14 Contract created by Offer, Acceptance, and Consideration? Offer – when is an offer not legally an offer? Advertisements? Website? B2B E-Commerce and EDI? Revocation of offers? Unilateral offers and contracts Bilateral offers Acceptance What is required for acceptance? What if acceptance is partial? Can acceptance be by actions instead? Can acceptance be revoked?

15. HKUST Business School 15 E-Commerce and Jurisdiction Where is the contract enforceable? Contract is only a right to sue for legal enforcement in civil action Police will not make sure the contract is honored Threat of legal action encourages compliance Contract also is a way to clarify agreement Honor and relationship may be all that is needed EDI and contracts – no cases ever get to court. Why? Relationship and the basis for long-term contracts Dispute resolution outside court under contracts

16. HKUST Business School 16 Battle of the Forms Purchase order states some terms E.g., warrantee for 5 years against all defects Confirmation of order states other terms E.g., sold as-is, where-is, with no warrantee Goods shipped by producer and accepted What terms are in the contract? Is there a contract at all? (Meeting of minds?) Payment made on invoice and accepted Invoice reiterates no warrantee condition Payment reiterates requirement for warrantee

17. HKUST Business School 17 License Agreements and Related Contract Law Rights and Issues Many things can be included in a license agreement, including many restrictions Not the same as sale, so some fair use exceptions or FIRST SALE DOCTRINE rights need not apply Right to modify code is First Sale Doctrine right, so may not be included in rights of licensee, but always available with sale Some terms MIGHT be excluded and the contract “reformed” by the court as matter of public policy Contracts may not include terms which are illegal, impossible, unconscionable, or against public policy Unless reformed, license contract sets the terms

18. HKUST Business School 18 Computer Crimes Most computer crimes involve insiders Hacking happens, but generally with inside help Increasing computer crime and associated costs More than 30% and possibly more than 50% of major firms experience computer crime Why are reported statistics much lower? Computer crime analogy to sexual assault Cost of prevention versus cost of recovery

19. HKUST Business School 19 Hackers, Crackers, and Phrackers Hackers are intentional criminals Breaking in systems with intent to steal or harm Crackers are motivated by fun & challenge Beating the system to prove it can be done However, harm often results unintentionally Regardless of intent, unauthorized intrusion is criminal in most jurisdiction, but penalties vary Phraker is hacker or cracker of phone networks, often for free calling access

20. HKUST Business School 20 Group Project: Start NOW!!! Group assignments made for those who have not yet selected groups for their project Individual assignment helps to prepare you for group project, as questions overlap some Start working on Group project soon, as time will fly fast and be gone before you realize it! Bonus incentive: Turn in DRAFT of Group project before December 2, and free review