Chapter 7 - SaigonTech

Eighth Edition
Chapter 7
The Environment of Electronic
Commerce: Legal, Ethical, and Tax
Learning Objectives
In this chapter, you will learn about:
• Laws that govern electronic commerce activities
• Laws that govern the use of intellectual property by
online businesses
• Online crime, terrorism, and warfare
E-Business, Eighth Edition
Learning Objectives (cont’d.)
• Ethics issues that arise for companies conducting
electronic commerce
• Conflicts between companies’ desire to collect and
use data about their customers and the privacy
rights of those customers
• Taxes that are levied on electronic commerce
E-Business, Eighth Edition
The Legal Environment of Electronic
• All businesses:
– Must comply with same laws and regulations
– Face same set of penalties
• Web businesses: two additional complicating factors
– Web extends reach beyond traditional boundaries
• Subject to more laws more quickly
– Web increases communications speed and efficiency
• More interactive and complex customer relationships
E-Business, Eighth Edition
The Legal Environment of Electronic
Commerce (cont’d.)
• Web creates network of customers
– Significant levels of interaction (with each other)
• Implications of interaction for Web businesses
– Violating law or breaching ethical standards
• Face rapid and intense reactions from many customers
E-Business, Eighth Edition
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
• Through language and currency change
E-Business, Eighth Edition
• 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
E-Business, Eighth Edition
Borders and Jurisdiction (cont’d.)
• Geographic boundaries on culture
– Historically: defined by lack of ability to travel great
– Today: people travel easily between countries
• Free EU member country citizen movement
• European Money Union (euro common currency)
• Relationship of geographic and legal boundaries
– Four elements
• Power, effects, legitimacy, notice
E-Business, Eighth Edition
Borders and Jurisdiction (cont’d.)
• Power
– Form of control over physical space
• People and objects residing in physical space
– Defining characteristic of statehood
– Effective enforcement
• Required for effective laws
• Requires power to:
– Exercise physical control over residents
– Impose sanctions on violators
E-Business, Eighth Edition
Borders and Jurisdiction (cont’d.)
• Power (cont’d.)
– Jurisdiction
• Government’s ability to exert control over person or
– 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 limitation
• Acceptance by existing culture
– Geographic boundaries, cultural groupings, legal
structures all coincide
E-Business, Eighth Edition
Borders and Jurisdiction (cont’d.)
• Effects
– Laws in the physical world
• 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
E-Business, Eighth Edition
Borders and Jurisdiction (cont’d.)
• Legitimacy
– 1970 United Nations resolution
• Affirmed idea of governmental legitimacy
– Legitimacy (idea)
• Those subject to laws should have role in formulating
– Countries and governments
• Operate with varying levels of authority and autonomy
• Example: China and Singapore versus Scandinavian
E-Business, Eighth Edition
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
E-Business, Eighth Edition
E-Business, Eighth Edition
Jurisdiction on the Internet
• Jurisdiction is difficult on the Internet
– No geographic boundaries
– Four physical world considerations
• Do not translate well (power, effects, legitimacy, notice)
• Governments enforcing Internet business conduct
– Must establish jurisdiction over conduct
• Contract: promise between two or more legal
– Provides for exchange of value between them
• Goods, services, money
E-Business, Eighth Edition
Jurisdiction on the Internet (cont’d.)
• Breach of contract: if either party does not comply
with contract terms, other party can sue (failure to
• Tort: intentional (negligent) action taken by a legal
entity causing harm to another legal entity
– Other than breach of contract
• Contract or tort law claims
– Must be filed in courts with jurisdiction
• Court jurisdiction requires:
– Subject-matter jurisdiction and personal jurisdiction
E-Business, Eighth Edition
Jurisdiction on the Internet (cont’d.)
• Subject-matter jurisdiction
– Court’s authority to decide particular type of dispute
– 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)
E-Business, Eighth Edition
• Personal jurisdiction
– Determined by residence of parties
– Defendant: state resident where court is located
• Straightforward determination
– Out-of-state person can voluntarily submit to a
• Signing contract including forum selection clause
• Contract enforced according to particular state laws
E-Business, Eighth Edition
Jurisdiction on the Internet (cont’d.)
• Personal jurisdiction (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 before electronic commerce
E-Business, Eighth Edition
Jurisdiction on the Internet (cont’d.)
• Personal jurisdiction (cont’d.)
– Tortious act
• An exception to general rule determining personal
– Commit tortious act by:
• Selling product causing harm to buyer
• Negligent or intentional
• Defamation, misrepresentation, fraud, trade secret theft
– Long-arm statutes invoked more readily for tortious
• Compared to breach of contract
E-Business, Eighth Edition
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, 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’
• Out of sense of comity, friendly civility
E-Business, Eighth Edition
Jurisdiction on the Internet (cont’d.)
• Jurisdiction in international commerce (cont’d.)
– Courts reluctant to serve as forums for international
• Not designed for diplomacy, cost-benefit evaluations
• Prefer government executive branch to negotiate
international agreements, resolve international disputes
– Example: eBay in China
• Chinese government made it difficult
– Online resources
• Berkman Center for Internet & Society
• UCLA Online Institute for Cyberspace Law and Policy
E-Business, Eighth Edition
Conflict of Laws
• Business governed by various laws
– Federal laws, state laws, local laws
• Conflict of laws: laws address same issues in
different ways
• Online businesses
– Look to federal laws for guidance
• May lead to problems with state and local laws
• Example: direct wine sales industry
– U.S. Constitution’s Commerce Clause versus states’
right to regulate matters pertaining to citizens health,
E-Business, Eighth Edition
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 terms)
– Made to another party
– Declaration of willingness to buy, sell product, service
– Can be revoked
• Acceptance: expression of willingness to take offer
– Including all stated terms
E-Business, Eighth Edition
Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Consideration: agreed upon exchange of
something valuable
– Money, property, future services
• Implied contract: formed by two or more parties
– Act as if contract exists
• Even if no written and signed contract
• Contract
– Every agreement or exchange between parties
• No matter how simple
– Important on the Internet
E-Business, Eighth Edition
Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• With Internet communications:
– Offers and acceptances occur
• Exchange e-mail, engage in electronic data
interchange, fill out Web page forms
• Can be combined with traditional methods
– Example: end-user license agreements (EULAs)
• Contract user must accept before installing software
• Excellent contract law resource
– Contracts Uniform Commercial Code (UCC)
• Cornell Law School Web site
E-Business, Eighth Edition
Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Web site seller advertising goods for sale
– Inviting offer from potential buyers (not making offer)
• Prevents seller liability to deliver more goods than
• Legal offer acceptance: usually quite easy
• Courts view of offers and acceptances
– Actions occurring within particular context
• If actions considered reasonable under the
– Courts interpret actions as offers and acceptances
E-Business, Eighth Edition
Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Written contracts on the Web
– Statute of Frauds (state laws)
• Categories of contracts not enforceable unless terms
put into writing and signed
• Sale of goods worth more than $500
• Actions cannot complete within one year
– Electronic commerce writing
• Pen or paper not required (fortunately)
– Writing exists
• When contract terms reduced to tangible form
E-Business, Eighth Edition
Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Written contracts on the Web (cont’d.)
– Electronic commerce contract
• Easy to satisfy writing requirement
– Signature: any symbol executed or adopted for the
purpose of authenticating a writing
• Names on telegrams, telexes, faxes, Western Union
Mailgrams, typed names or printed letterhead names
• Symbol or code included in electronic file, digital
E-Business, Eighth Edition
Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• 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
E-Business, Eighth Edition
Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Warranties on the Web
– Implied warranties
• Included in any contract for sale of goods
– Seller implicitly warrants goods offered for sale
• Fit for purposes normally used
– Additional implied warranty of fitness
• Seller knows specific buyer’s requirements information
• Seller provides specific description of additional
warranty terms
• Seller makes general statements in brochures or other
advertising materials
E-Business, Eighth Edition
Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Warranties on the Web (cont’d.)
– Seller: avoid implied warranty liability
• Provide warranty disclaimer: statement declaring
seller will not honor some or all implied warranties
– Warranty disclaimer: conspicuously made in writing
• Put in larger type, bold font, or contrasting color
• State it obviously
• Make it easy to find by buyer on Web site
E-Business, Eighth Edition
E-Business, Eighth Edition
Contracting and Contract Enforcement
in Electronic Commerce (cont’d.)
• Authority to form contracts
– Contract formed when offer accepted for
– Problems with acceptance
• Issued by imposter (forgery)
• Person does not have authority to bind company to a
– Electronic commerce technology
• Makes forged identities easy to create
• Provides the means to avoid being deceived
– Prevent forgery: use digital signatures
E-Business, Eighth Edition
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
• Employee accepts contract, company later asserts
employee not authorized
– Avoid
• Check public information on file
• Obtain copies of corporate certificates or resolutions
– Can be time consuming and awkward
E-Business, Eighth Edition
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
• Intended to limit Web site owner’s liability for what one
might do with information obtained from site
– Site visitor held to terms of service by simply using
• Even if text not read, button indicating agreement not
E-Business, Eighth Edition
E-Business, Eighth Edition
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
• Limited by U.S. First Amendment provisions
E-Business, Eighth Edition
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
E-Business, Eighth Edition
Web Site Content Issues
• Legal issues with e-commerce Web page content
– Common concerns
• Use of intellectual property protected by other parties’
copyrights, patents, trademarks, service marks
• Copyright infringement
– 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
E-Business, Eighth Edition
Web Site Content Issues (cont’d.)
• Copyright infringement (cont’d.)
– Idea contained in expression cannot be copyrighted
– Work cannot be copyrighted if idea cannot be
separated from expression
• Example: mathematical calculations
– Collection of facts can be copyrighted
• Example: Yahoo! Web Directory
E-Business, Eighth Edition
Web Site Content Issues (cont’d.)
• Copyright infringement (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
• Fair use: includes copying it for use in criticism,
comment, news reporting, teaching, scholarship, or
E-Business, Eighth Edition
• Nonprofit educational uses get better chance 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
E-Business, Eighth Edition
Web Site Content Issues (cont’d.)
• Copyright infringement (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 (could have)
• Profited indirectly from the infringement
– Music downloads, copying
• Legality unclear in may cases
E-Business, Eighth Edition
Web Site Content Issues (cont’d.)
• Patent infringement
– Patent
• Exclusive right granted by government to an individual
• Make, use, sell invention
– Invention: must be genuine, novel, useful, and not
obvious given current technology state
– 1980s: companies started obtaining software patents
• Not useful for Web site software
• Technology obsolete before patent protection secured
(rely on copyright protection)
E-Business, Eighth Edition
Web Site Content Issues (cont’d.)
• Patent infringement (cont’d.)
– Business process patent
• Protects specific set of procedures for conducting a
particular business activity
– Business process patents are controversial
• Grant recipients unfair monopoly power
• Inappropriate patent law extension
– Examples
• sued Barnes & Noble (process similar to
1-Click method)
• MercExchange sued eBay (fixed price sales option)
E-Business, Eighth Edition
Web Site Content Issues (cont’d.)
• Trademark infringement
– 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
E-Business, Eighth Edition
Web Site Content Issues (cont’d.)
• Trademark infringement (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 permission of trademark owner
E-Business, Eighth Edition
Domain Names and Intellectual
Property Issues
• Cybersquatting
– Registering trademarked domain name
– Hope that owner will pay huge amounts of money to
acquire URL
• Registering generic name is not cybersquatting
• Name changing (typosquatting)
– Purposely registering misspelled variations of wellknown domain names
E-Business, Eighth Edition
Domain Names and Intellectual
Property Issues (cont’d.)
• U.S. Anticybersquatting Consumer Protection Act
• World Intellectual Property Organization (WIPO)
– Uniform Domain Name Dispute Resolution Policy
• Handles disputes of trademarked domain names
• Arise when business has common term trademark
– Example: Sting musician case (
– Critics of WIPO UDRP: enforced unevenly
E-Business, Eighth Edition
Domain Names and Intellectual
Property Issues (cont’d.)
• Name stealing
– Someone other than domain name’s owner changes
ownership of domain name
• 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
E-Business, Eighth Edition
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 (digital audio system)
• Audio watermarks do not alter audio fidelity
• Copy control
– Electronic mechanism: limiting number of copies
• Example: Blue Spike (Giovanni system)
• Digimarc
– Tracks works protected by Digimarc system
E-Business, Eighth Edition
• Defamatory statement
– False and injures reputation of another person or
• Product disparagement
– When statement injures product or service reputation
• Web sites must consider specific laws:
– Before making negative, evaluative statements about
persons or products
• Designers must avoid potential defamation liability:
– By altering person’s photo or image depicting person
E-Business, Eighth Edition
Defamation (cont’d.)
• 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
E-Business, Eighth Edition
Deceptive Trade Practices
• Trademarked object manipulation
– Constitutes infringement of trademark holder’s rights
• Personal Web pages include unauthorized cartoon
characters, celebrity photographs
– Still illegal even if altered
• Web sites linking to other sites
– Risk implying non-existent relationship
• Trademark protection
– Prevents firm from using same (similar) name, logo,
other identifying characteristic in a way that would
cause potential buyers confusion
E-Business, Eighth Edition
Advertising Regulation
• Federal Trade Commission (FTC) (United States)
– Regulates advertising, publishes regulations,
investigates false advertising claims
• FTC Web site
– Includes information releases
• Useful to businesses and consumers
• FTC business education campaign publications
– Available on Advertising Guidance page
– Help businesses comply with law
– See Figure 7-7
E-Business, Eighth Edition
E-Business, Eighth Edition
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 for e-commerce
Web site designers
– Information on:
• Permitted advertisements
• Policy statements
E-Business, Eighth Edition
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
• Other regulatory agencies
– Food and Drug Administration (FDA); Bureau of
Alcohol, Tobacco, and Firearms (BATF); Department
of Transportation (DOT)
E-Business, Eighth Edition
Online Crime, Terrorism, and Warfare
• Internet
– Opened up possibilities for people to communicate
• Worldwide
– Opened doors for businesses
• Reach new markets
• Create opportunities for economic growth
– Useful tool for perpetrating crimes, conducting
terrorism, waging war
E-Business, Eighth Edition
Online Crime
• 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
Prosecuting across international boundaries
Distribution of pornographic material
Online gambling
Applying laws written before Internet prevalence
E-Business, Eighth Edition
Online Crime (cont’d.)
• Advance fee fraud
– Perpetrator offers to share large payoff with victim
• Victim must make “good faith” deposit, provide funding
– Perpetrator disappears with deposit
• Nigerian scam (419 scam)
– Victim receives e-mail from Nigerian government
official requesting assistance in moving money to a
foreign bank account
• Perpetrator asks for identity information
• Information used to steal advance fee
E-Business, Eighth Edition
Online Crime (cont’d.)
• Pornographic material
– Subjective distinction between legal and illegal adult
• Gambling
– Sites located outside United States
– State laws specifically outlaw Internet gambling
• Jurisdiction not clear
• Stalking (online)
– Few states have passed Internet laws
• Cyberbullying: using technology to harass,
humiliate, threaten, or embarrass another
E-Business, Eighth Edition
Online Crime (cont’d.)
• Infiltrating computer systems with intent of stealing
data, creating operational disruptions
– Smaller companies are easier targets
– Criminal extortion
• Myron Tereshchuk: threatened MicroPatent with
confidential client information disclosure
• Internet can help law enforcement
– Track perpetrators of crime
• Criminals brag on social networking sites
• Criminals leave clues in online profiles
E-Business, Eighth Edition
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, other poisons
– Contain discussion boards
• Help terrorist groups recruit new members online
– Offer downloadable terrorist training films (thousands)
E-Business, Eighth Edition
Online Warfare and Terrorism (cont’d.)
• Agencies devote considerable resources to
monitoring terrorist activities online
– U.S. Department of Homeland Security, Interpol
– Historically: difficulty in coordinating activities
• Interpol has been motivated to:
– Update, expand computer network monitoring skills
– Coordinate global antiterrorism efforts
• Sustained terrorist effort could slow down major
transaction-processing center processing
– More Internet business communications traffic:
• Provides more potential damage
E-Business, Eighth Edition
Ethical Issues
• Companies conducting Web site electronic
– Adhere to same ethical standards of other businesses
• Consequences all companies suffer
– Damaged reputation, long-term loss of trust, loss of
• Web advertising or promotion
– Include true statements, omit misleading information
• Misleading when ad omits important related facts
– Products supported by verifiable information
E-Business, Eighth Edition
Ethics and Web Business Policies
• Ethical lapse rapidly passed among customers
– Can seriously affect company’s reputation
– Example: New York Times report
• Arrangements with publishers for book promotions
– Example: eBay
• Newspaper stories about illegal items sales
• Important ethical issue organizations face
– Limiting use of collected e-mail addresses, related
– Lack of government regulation
• Most organizations state their policy
E-Business, Eighth Edition
Privacy Rights and Obligations
• Online privacy is evolving
– Hotly debated in various forums
• Electronic Communications Privacy Act of 1986
– Main law governing privacy on the Internet today
– Written to deal with leased telephone lines
• Legislative proposals
– Not withstanding constitutional challenges
• July 1999 FTC report
– Concluded no federal laws regarding privacy required
E-Business, Eighth Edition
Privacy Rights and Obligations (cont’d.)
• Near-term future privacy United States regulation
– Unclear
– Direct Marketing Association (DMA)
• Established set of privacy standards
• Critics note member activity regulation is less than
• Ethics issues
– Significant in area of online privacy
• Laws not keeping pace with Internet, Web growth
– Nature and degree of personal information recorded
• Threaten visitors privacy rights
E-Business, Eighth Edition
Privacy Rights and Obligations (cont’d.)
• Ethics issues (cont’d.)
– Companies may lose control of personal information
– Companies may lose track of shipments containing
computer backup tapes
– Stolen laptops with personal data
– People have access to data once impossible to obtain
• Real estate transaction information; privacy reduced
• Worldwide cultural differences provide different
electronic commerce privacy expectations
– European Union adopted Directive on the Protection
of Personal Data
E-Business, Eighth Edition
• Major United States privacy controversies
– Opt-in versus opt-out
• No law limiting companies’ use of gathered information
• Companies free to sell, rent customer information
E-Business, Eighth Edition
Privacy Rights and Obligations (cont’d.)
• 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
E-Business, Eighth Edition
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
E-Business, Eighth Edition
Privacy Rights and Obligations (cont’d.)
• Electronic commerce Web sites
– Be conservative in customer data collection and use
– Use four 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
E-Business, Eighth Edition
Communications with Children
• Privacy considerations when Web sites attract
• Children less capable of evaluating information
sharing and transaction risks
– Concern
• Children’s ability to read, evaluate privacy statements
• Consent to providing personal information to Web sites
E-Business, Eighth Edition
Communications with Children (cont’d.)
• MySpace
– 2006: former federal prosecutor (site security officer)
– Software looks for sex offenders
• 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
E-Business, Eighth Edition
• Disney Online
– Offers three registration choices (adult, teen, kids)
– Refuses to enroll child under age 13
– Meets COPPA law requirements
• Sanrio
– Asks for birth date before allowing access to Englishlanguage site
– Encourages visitors to notify company of child gaining
site access in violation of COPPA
E-Business, Eighth Edition
Taxation and Electronic Commerce
• Web businesses must comply with multiple tax laws
• Several types of taxes
– Income taxes: levied on net income
– Transaction taxes: levied on products or services
company sells or uses
• Sales taxes, use taxes, excise taxes, customs duties
– Customs duties: levied on imports into the country
– Property taxes: levied on personal property, real
• Web businesses’ greatest concern
– Income and sales taxes
E-Business, Eighth Edition
• Connection between tax-paying entity and
– Similar concept as personal jurisdiction
• Activities creating nexus (United States)
– Determined by state law, vary from state to state
• Determining nexus: difficult
– 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
E-Business, Eighth Edition
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
E-Business, Eighth Edition
E-Business, Eighth Edition
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
E-Business, Eighth Edition
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-ofstate customers unless nexus has been established
• Use tax levy
– Property used in that state
• Not purchased in that state
– Property not “purchased” at all (leases)
E-Business, Eighth Edition
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
• Sales tax collection problem
– Confusing; no new laws
– Some businesses collect tax on all sales
• Streamlined Sales and Use Tax Agreement
– Simplifies state sales taxes
E-Business, Eighth Edition
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
– Downloaded software
E-Business, Eighth Edition
European Union Value Added Taxes
• European Union
– Transfer taxes generate revenues
– Value Added Tax (VAT)
• Most common transfer tax
• Mid-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
E-Business, Eighth Edition
• Issues of borders, jurisdiction, Web site content
– How these factors affect company’s ability to conduct
electronic commerce
• Avoiding deceptive trade practices, false advertising
claims, defamation or product disparagement,
intellectual property rights infringement
• Legal issues when Web used in commission of
crimes, terrorist acts, conduct of war
• Role of ethics in formulating Web business policies
• Various forms of taxation
E-Business, Eighth Edition

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