Download Learning Objectives (cont’d.)

Electronic Commerce
Tenth Edition
Chapter 7
The Environment of Electronic
Commerce: Legal, Ethical, and Tax
Issues
Learning Objectives
In this chapter, you will learn:
• How the legal environment affects electronic
commerce activities
• What elements combine to form an online business
contract
• How copyright, patent, and trademark laws govern
the use of intellectual property online
• That the Internet has opened doors for online crime,
terrorism, and warfare
Electronic Commerce, Tenth Edition
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Learning Objectives (cont’d.)
• How ethics issues arise for companies conducting
electronic commerce
• Ways to resolve conflicts between companies’
desire to collect and use their customers’ data and
the privacy rights of those customers
• What taxes are levied on electronic commerce
activities
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The Legal Environment of Electronic
Commerce
• All businesses:
– Must comply with the same laws and regulations
– Face the same set of penalties
• Web businesses face additional complicating factors
– Web extends reach beyond traditional boundaries
• Subject to more laws more quickly than brick-andmortar business
– More interactive and complex customer relationships
• Due to increased communications speed and efficiency
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The Legal Environment of Electronic
Commerce (cont’d.)
• Online communications
– Facilitate strategic alliances and supply web
relationships
• Web creates network of customers
– Significant levels of interaction (with each other)
• Implications of violating law or breaching ethical
standards
– Web businesses face rapid, intense reactions from
customers and stakeholders
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Borders and Jurisdiction
• Physical world of traditional commerce
– Territorial borders clearly:
• Mark range of culture
• Mark reach of applicable laws
• Physical travel across international borders
– People made aware of transition through:
• Formal document examination
• Language and currency change
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© Cengage Learning 2013
FIGURE 7-1 Culture helps determine laws and ethical standards
• Geographic influences of area’s dominant culture
– Limit acceptable ethical behavior and laws adopted
• Culture affects laws directly and indirectly
– Through its effect on ethical standards
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Borders and Jurisdiction (cont’d.)
• Geographic boundaries on culture
– Historically defined by lack of distant travel
– Today people travel easily between countries
• Example: European Union citizen movement and use of
common currency (the euro)
• Relationship between geographic and legal
boundaries
– Defined by four elements
• Power, effects, legitimacy, notice
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Borders and Jurisdiction (cont’d.)
• Power
– Form of control over:
• Physical space
• People and objects residing in physical space
– Defining characteristic of statehood
– Effective laws require effective enforcement
– Effective enforcement requires ability to:
• Exercise physical control over residents
• Impose sanctions on violators
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Borders and Jurisdiction (cont’d.)
– Jurisdiction
• Government’s ability to exert control over a person or
corporation
– Physical world laws do not apply to people:
• Not located in or not owning assets in geographic area
that created laws
– Asserted government power level
• Limited by existing culture acceptance
– Ideally
• Geographic boundaries, cultural groupings, legal
structures all coincide
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Borders and Jurisdiction (cont’d.)
• Effects
– Physical world laws
• Grounded in relationship between physical proximity
and effects (impact) of person’s behavior
– Diminish as geographic distance increases
– Local culture’s acceptance or rejection of various
kinds of effects:
• Determines characteristics of laws
– For online businesses:
• Traditional measures, resulting laws do not work well
• Example: online Nazi memorabilia sales
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Borders and Jurisdiction (cont’d.)
• Legitimacy
– 1970 United Nations resolution
• Affirmed idea of governmental legitimacy
– Legitimacy
• Idea that those subject to laws should have some role
in formulating them
– Countries and governments
• Operate with varying levels of authority and autonomy
• Example: China and Singapore versus Scandinavian
countries
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Borders and Jurisdiction (cont’d.)
• Notice
– Physical boundaries provide notice (when crossed)
• One rule set replaced by different rule set
– Expression of such a change in rules
– Constructive notice
• People informed of subjection to new laws and cultural
norms: crossing international border
• Ignorance of law: not sustainable defense
• Creates problems for online businesses: unknown
customers from another country accessing Web sites
• Poor translation to online business
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© Cengage Learning 2013
FIGURE 7-2 Physical geographic boundaries lead to legal boundaries
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Jurisdiction on the Internet
• Difficult
– No geographic boundaries
– Power, effects, legitimacy, and notice
• Do not translate well to e-commerce
• Governments enforcing Internet business conduct
laws:
– Must establish jurisdiction over conduct
• Contract
– Promise between two or more legal entities
• Provides for exchange of value between them
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Jurisdiction on the Internet (cont’d.)
• Breach of contract
– Occurs if either party does not comply with contract
terms
• Other party can sue (failure to comply)
• Tort
– Intentional (negligent) action taken by a legal entity
• Causing harm to another legal entity
• Other than breach of contract
• Sufficient jurisdiction requires:
– Subject-matter jurisdiction and personal jurisdiction
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Jurisdiction on the Internet (cont’d.)
• Subject-matter jurisdiction
– Court’s authority to decide particular dispute type
– United States examples
• Federal courts: subject-matter jurisdiction over issues
governed by federal laws
• State courts: subject-matter jurisdiction over issues
governed by state laws
– Rules determining subject-matter jurisdiction
• Clear and easy to apply (few disputes)
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Jurisdiction on the Internet (cont’d.)
• Personal jurisdiction
– Determined by residence of parties
– If defendant is a state resident where court located
• Straightforward determination
– An out-of-state person or corporation can voluntarily
submit to a state court jurisdiction
– Forum selection clause
• Statement included in a signed contract
• Indicates contract enforced according to particular state
laws
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FIGURE 7-3 A typical forum selection clause
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Jurisdiction on the Internet (cont’d.)
– Long-arm statutes: state laws creating personal
jurisdiction (details vary)
• Create personal jurisdiction over nonresidents
committing tortious acts
– Businesses conducting e-commerce over state and
international lines
• Be aware of jurisdictional considerations
– Extent to which these laws apply: unclear
• Procedural laws written prior to electronic commerce
• Continue to evolve as electronic commerce disputes
arise
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Jurisdiction on the Internet (cont’d.)
– Tortious acts
• Represent exceptions to general rule determining
personal jurisdiction
• Committed by selling product causing harm to buyer
– Negligent tort
• Seller unintentionally provides a harmful product
– Intentional tort
• Seller knowingly or recklessly causes injury to buyer
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Jurisdiction on the Internet (cont’d.)
– Most common business-related intentional torts
• Defamation, misrepresentation, fraud, trade secret theft
– Long-arm statutes
• Invoked more readily for tortious acts compared to
breach of contract
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Jurisdiction on the Internet (cont’d.)
• Jurisdiction in international commerce
– Governed by treaties between countries
– U.S. determines personal jurisdiction for foreigners
• Same manner as in domestic long-arm statutes
– Non-U.S. corporations and individuals
• Can be sued in U.S. courts
• Foreign courts can enforce U.S. court system decisions
against U.S. corporations, individuals
– Judicial comity
• Voluntarily enforce other countries’ laws out of sense of
comity (friendly civility)
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Jurisdiction on the Internet (cont’d.)
– Courts reluctant to serve as forums for international
disputes
• Not designed for diplomacy, cost-benefit evaluations
• Prefer government executive branch to negotiate
international agreements, resolve international disputes
– Examples: eBay and Google in China
• Some assert Chinese government involved in failures
– Online resources
• Berkman Center for Internet & Society
• UCLA Online Institute for Cyberspace Law and Policy
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Conflict of Laws
• Business governed by various laws
– Federal laws, state laws, local laws
• Conflict of laws
– When laws address same issues in different ways
• Online businesses span many localities, states
– Look to federal laws for guidance
• May lead to problems with state and local laws
• Example: direct wine sales industry
• More information: Free the Grapes
– Web site of a wine industry trade association
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Contracting and Contract Enforcement
in Electronic Commerce
• Three essential contract elements
– An offer, an acceptance, consideration
• Contract formed when one party accepts offer of
another party
• Offer
– Commitment with certain terms made to another party
• Can be revoked
• Acceptance
– Expression of willingness to take offer including all
stated terms
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Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Consideration
– Agreed-upon exchange of something valuable
• Money, property, and future services
• Implied contract
– Formed by two or more parties acting as if contract
exists
• Even if no written and signed contract
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Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Creating contracts: offers and acceptances
– Contract
• Exists for every kind of agreement or exchange
between parties (no matter how simple)
• Example: consumer buying an item at the supermarket
• Key element of traditional and Internet business
– Internet communication offers and acceptances
• Occur by exchanging e-mail, engaging in EDI, and
filling out Web page forms
• Can be combined with traditional methods
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Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Creating contracts: offers and acceptances (cont’d.)
– Consumer’s contract to buy goods
• Same basic elements: in-person and online
– Resource
• Cornell Law School Web site
– Contains Contracts Uniform Commercial Code (UCC)
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© Cengage Learning 2013
FIGURE 7-4 Contracting process in an online sale
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Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Click-wrap and Web-wrap contract acceptances
– End-user license agreements (EULAs)
• Contract user must accept before installing software
– Shrink-wrap acceptance
• Accepting a contract by removing plastic shrink wrap
– Click-wrap acceptance
• Agree to site’s EULA or its terms and conditions by
clicking a button on the Web site
– Web-wrap acceptance or browser-wrap
acceptance
• Accept by simply using the Web site
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Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Creating written contracts on the Web
– Contracts valid even if not in writing or signed
• May not be enforceable in certain categories
– Statute of Frauds (state laws)
• Categories of contracts not enforceable unless terms
put into writing and signed
• Applies to sale of goods worth more than $500
• Requires that actions not completed within one year
must be created by a signed writing
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Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Creating written contracts on the Web (cont’d.)
– Forming contracts using electronic commerce
• Pen or paper not required (fortunately)
– Writing exists:
• When contract terms reduced to tangible form
– Signature
• Any symbol executed or adopted for the purpose of
authenticating a writing
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Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Creating written contracts on the Web (cont’d.)
– Article 11 of the United Nations Convention on
Contracts for the International Sale of Goods (CISG)
• Requires neither writing nor a signature to create a
legally binding acceptance
– Information on CISG and related topics in
international commercial law
• Pace Law School CISG Database Web site
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Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Implied warranties and warranty disclaimers on the
Web
– Implied warranty
• Promise to which the seller can be held even though
the seller did not make an explicit statement of that
promise
– Law establishes these basic elements of a transaction
in any contract to sell goods or services
– Warranty disclaimer
• Statement declaring that the seller will not honor some
or all implied warranties
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Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Implied warranties and warranty disclaimers on the
Web (cont’d.)
– Warranty disclaimer must be conspicuously made in
writing
• Put in larger type, bold font, or contrasting color
• State it obviously
• Make it easy for buyer to find on Web site
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FIGURE 7-5 A Web site warranty disclaimer
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Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Authority to form contracts
– Contract formed when offer accepted for
consideration
– Problems with acceptance
• Issued by imposter (forgery)
• Improper authority to bind company to a contract
– Electronic commerce technology
• Makes forged identities easy to create
• Also provides means to avoid deception
– Establish identity in online transactions
• Use digital signatures
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Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Authority to form contracts (cont’d.)
– Authority to bind
• Authority to commit company to online contract
• Example: employee accepts contract, company later
asserts employee not authorized
– In physical world transactions:
• Check public information on file
• Obtain copies of corporate certificates or resolutions
– In online transactions:
• Physical world methods can be time consuming and
awkward
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Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Terms of service agreements
– Site visitors must follow stated rules
• Most visitors not aware of rules
– Terms of service (ToS) agreements
• Detailed rules and regulations
• Limit Web site owner’s liability for what one might do
with site information
– Site visitor held to terms of service by simply using
site
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Copyright © 2012 Yahoo! Inc. All rights reserved
FIGURE 7-6 Yahoo! Terms of Service agreement
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Use and Protection of Intellectual
Property in Online Business
• Intellectual property (general term) includes:
– All products of the human mind
• Tangible or intangible
– Protections afforded by copyrights and patents,
trademarks registration, service marks
• Right of publicity
– Limited right to control others’ commercial use of an
individual’s name, image, likeness, identifying aspect
of identity
– Limited by U.S. First Amendment provisions
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Use and Protection of Intellectual
Property in Online Business (cont’d.)
• Online businesses must avoid:
–
–
–
–
Deceptive trade practices
False advertising claims
Defamation or product disparagement
Infringements of intellectual property rights
• By using unauthorized content
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Copyright Issues
• Copyright
– Right granted by government to the author (creator)
of literary or artistic work
• Specific time length provided in copyright law
– Gives author (creator) sole and exclusive right to the
work (print, publish, sell)
– Includes virtually all forms of artistic or intellectual
expression
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Copyright Issues (cont’d.)
• Idea contained in an expression
– Cannot be copyrighted
• Requirement
– Idea must be separate from expression
– Example: mathematical calculations
• Collection of facts
– Can be copyrighted
– Example: Yahoo! Web Directory
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Copyright Issues (cont’d.)
• U.S. law still allows registration (no longer required)
• Work created after 1989
– Copyrighted automatically by virtue of copyright law
• Most U.S. Web pages protected by automatic
copyright provision
• Web client computer copy of HTML file
– Acceptable under fair use
• Includes copying it for use in criticism, comment, news
reporting, teaching, scholarship, or research
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FIGURE 7-7 U.S. law governing the fair-use exception
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Copyright Issues (cont’d.)
• Fair use specific factors
– Nonprofit educational uses have better chance of
qualifying than commercial uses
– Court may consider painting using different standards
than sound recording
– Small sections qualify when entire work might not
– Court may consider amount of damage caused to
value of copyrighted work
• Fair-use Web site sources:
– University of Texas Copyright Crash Course
– Stanford Copyright & Fair Use
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Copyright Issues (cont’d.)
• Copyright law difficult to apply
– Due to elements such as fair use
• Vicarious copyright infringement
– Entity capable of supervising infringing activity
– Obtains a financial benefit from infringing activity
• Example: Napster
– Failed to monitor its network
– Profited indirectly from the infringement
• Music downloads, copying
– Legality unclear in many cases
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Patent Issues
• Patent
– Exclusive right granted by government to an
individual
• Make, use, sell invention
– Invention must be:
• Genuine, novel, useful
• Not obvious given current technology state
– 1980s: companies started obtaining software patents
• Not useful for Web site software
• Technology obsolete before patent protection secured
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Patent Issues (cont’d.)
• Business process patent
– Protects specific set of procedures for conducting a
particular business activity
• Enforcing rights under business process patent
– Not yet clear
– Examples:
• Amazon.com sued Barnes & Noble for process similar
to 1-Click method
• MercExchange sued eBay over fixed price sales option
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Trademark Issues
• Trademark
– Distinctive mark, device, motto, implement company
affixes to goods it produces
– Identification purposes
• Service mark
– Similar to trademark, identifies services provided
• Both registered with governments (state, federal)
• Trade name
– Name business uses to identify itself
– Protected under common law
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Trademark Issues (cont’d.)
• Common Law
– Law established by history of court decisions
• Statutory law
– Elected legislative bodies pass laws (statutes)
• Web site designers must not use:
– Any trademarked name, logo, other identifying mark
• Without express trademark owner permission
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Domain Names and Intellectual
Property Issues
• Cybersquatting
– Registering trademarked domain name
– Hope owner will pay money to acquire URL
• Name changing (typosquatting)
– Purposely registering misspelled variations of
well-known domain names
• Registering a generic name
– Not cybersquatting
• U.S. Anticybersquatting Consumer Protection Act
– Provides protection
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Domain Names and Intellectual
Property Issues (cont’d.)
• World Intellectual Property Organization (WIPO)
– Uniform Domain Name Dispute Resolution Policy
(UDRP)
• Handles trademark domain name disputes
– Example: Barry Diller versus cybersquatters owning
URL barrydiller.com
– Example: Sting musician case
– WIPO criticism: UDRP enforced unevenly
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Electronic Commerce, Tenth Edition
© United Nations
FIGURE 7-8 WIPO Domain Name Dispute Resolution information page
56
Domain Names and Intellectual
Property Issues (cont’d.)
• Name stealing
– Unauthorized changes to domain name ownership
• Domain name ownership change
– Information maintained by public domain registrar
changed in registrar’s database
• Reflects new owner’s name and business address
• Occurs when safeguards not in place
• Main purpose: harass site owner
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Protecting Intellectual Property Online
• Digital watermark
– Digital code or stream embedded undetectably in
digital image or audio file
• Can be encrypted to protect contents
– Example: Verance
• Provides digital audio watermarking systems
– Example: Digimarc
• Provides watermark protection systems and software
• Copy control
– Electronic mechanism limiting number of copies
– Example: Blue Spike
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Defamation
• Defamatory statement
– False and injures reputation of another person or
company
• Product disparagement
– When statement injures product or service reputation
• Web sites must consider specific laws:
– Before making negative, evaluative statements
• Designers must avoid potential defamation liability
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Defamation (cont’d.)
• Per se defamation
– Statements so negative that injury assumed
• Important exception in U.S. law
– Defamatory statements about public figures
– Allows considerable leeway for:
• Satirical statements
• Valid expressions of personal opinion
– Other countries do not offer same protections
• Web site operators with international audiences need to
be careful
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Deceptive Trade Practices
• Trademarked object manipulation
– Constitutes infringement of trademark holder’s rights
• Personal Web pages
– Cannot include unauthorized Web sites links
– Risk implying nonexistent relationship
• Trademark protection prevents buyer confusion
• Trademark dilution
– Reduction of distinctive trademark quality by
alternative uses
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Advertising Regulation
• Federal Trade Commission (FTC) (United States)
– Regulates advertising, publishes regulations,
investigates false advertising claims
• FTC Web site
– Includes links to advertising regulations
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Electronic Commerce, Tenth Edition
Source: United States Federal Trade Commission, www.ftc.gov
FIGURE 7-9 U.S. Federal Trade Commission Bureau of Consumer
Protection Business Center page
63
Advertising Regulation (cont’d.)
• Illegal under U.S. law
– Advertising claim misleading substantial number of
consumers in a material way
• FTC accepts referred investigations
– Better Business Bureau
• FTC provides policy statements
– Useful for e-commerce Web site designers
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Advertising Regulation (cont’d.)
• Policy statements cover specific areas
–
–
–
–
–
–
Bait advertising
Consumer lending and leasing
Endorsements and testimonials
Energy consumption statements for home appliances
Guarantees and warranties
Prices
• Other regulatory agencies
– Food and Drug Administration (FDA); Bureau of
Alcohol, Tobacco, and Firearms (BATF); Department
of Transportation (DOT)
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Online Crime, Terrorism, and Warfare
• Internet
– Opened up worldwide possibilities for people to
communicate
– Opened doors for businesses to:
• Reach new markets
• Create opportunities for economic growth
– Tool for some for perpetrating crimes, conducting
terrorism, and waging war
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Online Crime: Jurisdiction Issues
• Online versions of physical world crimes
– Theft, stalking, pornography distribution, gambling
• New online crime
– Commandeering computer to attack other computers
• Law enforcement obstacles
– Jurisdiction issues
• Tricky to determine
– Prosecuting across international boundaries
• Internet provides new life to old fraud scams
– Advance fee fraud
– Nigerian scam (419 scam)
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Online Crime: Jurisdiction Issues
(cont’d.)
• Distribution of pornographic material
– Jurisdiction issues
– Subjective distinction between legal and illegal adult
material
• Online gambling
–
–
–
–
Sites located outside United States
State laws specifically outlaw Internet gambling
Jurisdiction not clear
Unlawful Internet Gambling Enforcement Act (UIGEA)
of 2006 provides clearer jurisdiction
– Other countries’ laws challenged as discriminatory
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New Types of Crime Online
• Difficulty applying pre-Internet era laws
– Example: online stalking
– Few states have passed Internet laws
• Cyberbullying
– Using technology to harass, humiliate, threaten, or
embarrass another
– Laws lag behind technology
• Sexting
– Sending sexually explicit messages or photos using a
mobile phone
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New Types of Crime Online (cont’d.)
• Infiltrating computer systems with intent of stealing
data, creating operational disruptions
– Smaller companies: easier targets
– Criminal extortion example:
• Myron Tereshchuk threatened MicroPatent with
confidential client information disclosure
• National Retail Federation partnered with eBay and
FBI
– Combat cases of items stolen from physical stores
and then sold online
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New Types of Crime Online (cont’d.)
• Internet can help law enforcement
– Track perpetrators of crime
• Criminals brag on social networking sites
• Criminals leave clues in online profiles
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Online Warfare and Terrorism
• New age of terrorism and warfare
– Carried out or coordinated through the Internet
• Web sites (considerable number)
– Operated by hate groups and terrorist organizations
– Contain detailed instructions for creating biological
weapons and other poisons
– Contain discussion boards
• Help terrorist groups recruit new members online
– Offer downloadable terrorist training films (thousands)
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Online Warfare and Terrorism (cont’d.)
• Agencies devoting resources to monitoring terrorist
activities online
– U.S. Department of Homeland Security, Interpol
– Historically: faced difficulty in coordinating activities
• Interpol motivations:
– Update and expand computer network monitoring
skills
– Coordinate global antiterrorism efforts
• Sustained terrorist effort could slow down major
transaction-processing center processing
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73
Ethical Issues
• Web electronic commerce sites:
– Adhere to same ethical standards of other businesses
• Consequences all companies suffer
– Damaged reputation, long-term loss of trust, and loss
of business
• Web advertising or promotion
– Include true statements; omit misleading information
– Ensure products supported by verifiable information
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Ethics and Online Business Practices
• Ethical lapse rapidly passed among customers
– Can seriously affect company’s reputation
– Examples
• Amazon.com arrangements with publishers for book
promotions
• eBay firearm sales
• 2009 Apple Apps store software approval time
• Important ethical issues that organizations face
– Limiting use of collected e-mail addresses; related
information
– Lack of government regulation protecting site visitor
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Privacy Rights and Obligations
• Online privacy: evolving
– Hotly debated in various forums
• Electronic Communications Privacy Act of 1986
– Main law governing privacy on the Internet today
– Deals with leased telephone line interceptions
• Legislative proposals
– None have survived constitutional challenges
• 1999 FTC report
– Concluded no federal laws regarding privacy required
– Created privacy advocacy group outrage
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Privacy Rights and Obligations (cont’d.)
• Direct Marketing Association (DMA)
– Established set of privacy standards
– Member activity regulation: less than successful
• Ethics issues
– Significant in online privacy area
• Laws not keeping pace with Internet, Web growth
– Nature and degree of personal information recorded
• Threaten visitors privacy rights
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Privacy Rights and Obligations (cont’d.)
• Ethics issues (cont’d.)
– Companies may lose control of data collected
– Companies may release confidential information
about individuals:
• Without the individual’s permission
– Internet has changed traditional assumptions about
privacy
– Worldwide cultural differences provide different
electronic commerce privacy expectations
• European Union adopted Directive on the Protection of
Personal Data
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FIGURE 7-10 Example Web page showing opt-in choices
FIGURE 7-11 Example Web page showing opt-out choices
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Privacy Rights and Obligations (cont’d.)
• Major United States privacy controversies
– Opt-in versus opt-out
• No law limiting companies’ use of gathered information
• Opt-out approach
– Assumes customer does not object to company’s use
of information
• Unless customer specifically denies permission
• Opt-in approach
– Company collecting information does not use it for
any other purpose
• Unless customer specifically chooses to allow use
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Privacy Rights and Obligations (cont’d.)
• Another opt-out approach
– Page includes checked boxes
• Instructs visitor: “uncheck the boxes of the items you do
not wish to receive”
• Opt-in approach more preferable
– Gives customer privacy protection
• Unless customer specifically elects to give up rights
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Privacy Rights and Obligations (cont’d.)
• Electronic commerce Web sites
– Be conservative in customer data collection and use
– Principles for handling customer data
• Use data collected for improved customer service
• Do not share customer data with others outside your
company without customer’s permission
• Tell customers what data you are collecting and what
you are doing with it
• Give customers the right to have you delete any data
collected about them
• Keep data secure
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82
Communications with Children
• Additional privacy considerations arise:
– When Web sites attract children
• Children are less capable of evaluating information
sharing and transaction risks
– Concerns
• Children’s ability to read, evaluate privacy statements
• Consent to providing personal information to sites
– MySpace
• 2006: former federal prosecutor (site security officer)
• Software looks for sex offenders
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Communications with Children (cont’d.)
• Most countries
– People under 18 or 21: not considered adults
• Specific laws for children’s privacy rights
– Define a child as person below the age of 12 or 13
• 1998: Children’s Online Protection Act (COPA)
– Unconstitutional: restricted lawful material access
• Children’s Online Privacy Protection Act of 1998
– Successful: COPPA does not regulate content
• 2001: Children’s Internet Protection Act (CIPA)
– Federally funded schools install filtering software
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Communications with Children (cont’d.)
• Disney Online
– Offers three registration choices (adult, teen, kids)
– Refuses to enroll child under age 13 without parent’s
consent
– Meets COPPA law requirements
• Sanrio
– Requires birth date before allowing access
– Encourages notification of COPPA site violations
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FIGURE 7-12 Sanrio’s approach to COPPA compliance
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86
Taxation and Electronic Commerce
• Web businesses must comply with multiple tax laws
• Several types of taxes
– Income taxes: levied on net income
– Transaction taxes (transfer taxes): levied on
products or services company sells or uses
• Sales taxes, use taxes, excise taxes
– Property taxes: levied on personal property, real
estate
• Greatest concern: income and sales taxes
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Nexus
• Connection between tax-paying entity and
government
– Similar concept: personal jurisdiction
• Activities creating nexus (United States)
– Determined by state law; vary from state to state
• Determining nexus:
– Difficult if company conducts few activities in the state
• National nexus issues
– Business conducted in more than one country
• Establish nexus with a country
• Liable for filing tax returns in that country
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U.S. Income Taxes
• Internal Revenue Service (IRS)
– Charged with administering tax laws
• Basic principle
– Any verifiable increase in company wealth:
• Subject to federal taxation
• Pay U.S. federal income tax if:
– U.S.-based Web site generating income
– Web site maintained by U.S. company
• Credit given for taxes paid to foreign countries
– Reduces double taxation of foreign earnings
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© 2011 IRS
FIGURE 7-13 Internal Revenue Service home page
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U.S. Income Taxes (cont’d.)
• States levy income tax on business earnings
– Must file tax returns in all states
– Apportion earnings in accordance with each state
• Others with power to levy income taxes
– Cities, counties, other political subdivisions
• Must apportion income, file tax returns in each locality
• Companies selling through Web site
– Do not establish nexus everywhere goods delivered
to customers (in general)
• Avoid nexus by using a contract carrier
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U.S. State Sales Taxes
• Transaction tax on goods sold to consumers
• Businesses establishing nexus with a state
– Must file sales tax returns and remit sales tax
collected from customers
• Business not required to collect taxes from
out-of-state customers
– Unless nexus established
• Use tax
– Tax levied by a state on property used in that state
• Not purchased in that state
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U.S. State Sales Taxes (cont’d.)
• Large companies
– Use complex sales tax management software
• Purchasers exempt from sales tax
– Charitable organizations, businesses buying items for
resale
• Sales tax collection problem
– Confusing; no new laws
• Amazon laws require online retailers to collect taxes
• Streamlined Sales and Use Tax Agreement
(SSUTA): Simplifies state sales taxes
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Import Tariffs
• Countries regulate import and export of goods
– Goods imported: only if tariff paid
• Tariff (customs duty, duty)
– Tax levied on products as they enter country
• Many reasons for imposing tariffs
– Beyond scope of this book
• Goods ordered online: subject to tariffs
– When crossing international borders
• Products delivered online: subject to tariffs
– Example: downloaded software
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European Union Value Added Taxes
• European Union (EU)
– Transfer taxes generate revenues
– Value Added Tax (VAT): most common
• 2003: VAT applied to sales of digital goods
– EU-based companies
• Must collect VAT on digital good sales
– Non-EU companies
• Must register with EU tax authorities, levy, collect, remit
VAT if sales include digital goods delivered into EU
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Summary
• Concept of jurisdiction on Internet: still unclear
• Contracts are part of doing business on the Web
• Web businesses must avoid:
–
–
–
–
Deceptive trade practices
False advertising claims
Defamation or product disparagement
Intellectual property rights infringement
• Law enforcement agencies face difficulty combating
online crimes, terrorist acts, conduct of war
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Summary (cont’d.)
• Online privacy
– Collection and use of consumer information
– Opt-in and opt-out methods used
– Special rules for communicating with children
• Ethics issues can shape Web business policies
• Various forms of taxation apply to e-commerce
– National, international, state and local
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