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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
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Winter 85, 3An Introduction to E-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
Winter 85, 4An Introduction to E-Commerce
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
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Winter 85, 5An Introduction to E-Commerce
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
Winter 85, 6An Introduction to E-Commerce
Culture Helps Determine Lawsand Ethical Standards
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Winter 85, 7An Introduction to E-Commerce
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
Winter 85, 8An Introduction to E-Commerce
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
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Winter 85, 9An Introduction to E-Commerce
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
Winter 85, 10An Introduction to E-Commerce
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
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Winter 85, 11An Introduction to E-Commerce
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
Winter 85, 12An Introduction to E-Commerce
Forum Selection Clause on theQpass Web Site
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Winter 85, 13An Introduction to E-Commerce
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
Winter 85, 14An Introduction to E-Commerce
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
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Winter 85, 15An Introduction to E-Commerce
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
Winter 85, 16An Introduction to E-Commerce
Contracting and Contract Enforcementin Electronic Commerce (continued)
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
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Winter 85, 17An Introduction to E-Commerce
Contracting and Contract Enforcementin Electronic Commerce (continued)
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
Winter 85, 18An Introduction to E-Commerce
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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Winter 85, 21An Introduction to E-Commerce
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
Winter 85, 22An Introduction to E-Commerce
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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Winter 85, 23An Introduction to E-Commerce
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
Winter 85, 24An Introduction to E-Commerce
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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Winter 85, 25An Introduction to E-Commerce
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
Winter 85, 26An Introduction to E-Commerce
Protecting Intellectual PropertyOnline
Proposed solutions to problems in digitalcopyright protection
Host name blocking
Packet filtering
Proxy servers
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Winter 85, 27An Introduction to E-Commerce
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
Winter 85, 28An Introduction to E-Commerce
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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Winter 85, 29An Introduction to E-Commerce
U.S. Federal Trade CommissionAdvertising Guidance page
Winter 85, 30An Introduction to E-Commerce
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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Winter 85, 31An Introduction to E-Commerce
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
Winter 85, 32An Introduction to E-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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Winter 85, 33An Introduction to E-Commerce
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
Winter 85, 34An Introduction to E-Commerce
Sanrio’s Approach to COPPACompliance
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Winter 85, 35An Introduction to E-Commerce
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
Winter 85, 36An Introduction to E-Commerce
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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Winter 85, 37An Introduction to E-Commerce
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
Winter 85, 38An Introduction to E-Commerce
Internal Revenue Service HomePage
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Winter 85, 39An Introduction to E-Commerce
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
Winter 85, 40An Introduction to E-Commerce
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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