Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
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 2 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 Electronic Commerce, Tenth Edition 3 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 Electronic Commerce, Tenth Edition 4 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 Electronic Commerce, Tenth Edition 5 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 Electronic Commerce, Tenth Edition 6 © 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 Electronic Commerce, Tenth Edition 7 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 Electronic Commerce, Tenth Edition 8 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 Electronic Commerce, Tenth Edition 9 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 Electronic Commerce, Tenth Edition 10 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 Electronic Commerce, Tenth Edition 11 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 Electronic Commerce, Tenth Edition 12 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 Electronic Commerce, Tenth Edition 13 © Cengage Learning 2013 FIGURE 7-2 Physical geographic boundaries lead to legal boundaries Electronic Commerce, Tenth Edition 14 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 Electronic Commerce, Tenth Edition 15 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 Electronic Commerce, Tenth Edition 16 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) Electronic Commerce, Tenth Edition 17 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 Electronic Commerce, Tenth Edition 18 FIGURE 7-3 A typical forum selection clause Electronic Commerce, Tenth Edition 19 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 Electronic Commerce, Tenth Edition 20 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 Electronic Commerce, Tenth Edition 21 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 Electronic Commerce, Tenth Edition 22 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) Electronic Commerce, Tenth Edition 23 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 Electronic Commerce, Tenth Edition 24 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 Electronic Commerce, Tenth Edition 25 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 Electronic Commerce, Tenth Edition 26 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 Electronic Commerce, Tenth Edition 27 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 Electronic Commerce, Tenth Edition 28 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) Electronic Commerce, Tenth Edition 29 © Cengage Learning 2013 FIGURE 7-4 Contracting process in an online sale Electronic Commerce, Tenth Edition 30 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 Electronic Commerce, Tenth Edition 31 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 Electronic Commerce, Tenth Edition 32 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 Electronic Commerce, Tenth Edition 33 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 Electronic Commerce, Tenth Edition 34 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 Electronic Commerce, Tenth Edition 35 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 Electronic Commerce, Tenth Edition 36 FIGURE 7-5 A Web site warranty disclaimer Electronic Commerce, Tenth Edition 37 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 Electronic Commerce, Tenth Edition 38 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 Electronic Commerce, Tenth Edition 39 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 Electronic Commerce, Tenth Edition 40 Copyright © 2012 Yahoo! Inc. All rights reserved FIGURE 7-6 Yahoo! Terms of Service agreement Electronic Commerce, Tenth Edition 41 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 Electronic Commerce, Tenth Edition 42 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 Electronic Commerce, Tenth Edition 43 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 Electronic Commerce, Tenth Edition 44 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 Electronic Commerce, Tenth Edition 45 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 Electronic Commerce, Tenth Edition 46 FIGURE 7-7 U.S. law governing the fair-use exception Electronic Commerce, Tenth Edition 47 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 Electronic Commerce, Tenth Edition 48 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 Electronic Commerce, Tenth Edition 49 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 Electronic Commerce, Tenth Edition 50 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 Electronic Commerce, Tenth Edition 51 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 Electronic Commerce, Tenth Edition 52 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 Electronic Commerce, Tenth Edition 53 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 Electronic Commerce, Tenth Edition 54 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 Electronic Commerce, Tenth Edition 55 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 Electronic Commerce, Tenth Edition 57 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 Electronic Commerce, Tenth Edition 58 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 Electronic Commerce, Tenth Edition 59 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 Electronic Commerce, Tenth Edition 60 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 Electronic Commerce, Tenth Edition 61 Advertising Regulation • Federal Trade Commission (FTC) (United States) – Regulates advertising, publishes regulations, investigates false advertising claims • FTC Web site – Includes links to advertising regulations Electronic Commerce, Tenth Edition 62 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 Electronic Commerce, Tenth Edition 64 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) Electronic Commerce, Tenth Edition 65 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 Electronic Commerce, Tenth Edition 66 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) Electronic Commerce, Tenth Edition 67 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 Electronic Commerce, Tenth Edition 68 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 Electronic Commerce, Tenth Edition 69 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 Electronic Commerce, Tenth Edition 70 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 Electronic Commerce, Tenth Edition 71 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) Electronic Commerce, Tenth Edition 72 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 Electronic Commerce, Tenth Edition 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 Electronic Commerce, Tenth Edition 74 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 Electronic Commerce, Tenth Edition 75 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 Electronic Commerce, Tenth Edition 76 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 Electronic Commerce, Tenth Edition 77 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 Electronic Commerce, Tenth Edition 78 FIGURE 7-10 Example Web page showing opt-in choices FIGURE 7-11 Example Web page showing opt-out choices Electronic Commerce, Tenth Edition 79 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 Electronic Commerce, Tenth Edition 80 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 Electronic Commerce, Tenth Edition 81 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 Electronic Commerce, Tenth Edition 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 Electronic Commerce, Tenth Edition 83 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 Electronic Commerce, Tenth Edition 84 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 Electronic Commerce, Tenth Edition 85 FIGURE 7-12 Sanrio’s approach to COPPA compliance Electronic Commerce, Tenth Edition 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 Electronic Commerce, Tenth Edition 87 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 Electronic Commerce, Tenth Edition 88 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 Electronic Commerce, Tenth Edition 89 © 2011 IRS FIGURE 7-13 Internal Revenue Service home page Electronic Commerce, Tenth Edition 90 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 Electronic Commerce, Tenth Edition 91 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 Electronic Commerce, Tenth Edition 92 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 Electronic Commerce, Tenth Edition 93 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 Electronic Commerce, Tenth Edition 94 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 Electronic Commerce, Tenth Edition 95 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 Electronic Commerce, Tenth Edition 96 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 Electronic Commerce, Tenth Edition 97