Lecture E-commerce and e-business for managers - Chapter 11: Legal and ethical issues; internet taxation

Chapter 11 - Legal and ethical issues; internet taxation. This chapter includes contents: Right to privacy, internet and the right to privacy, network advertising initiative, employer and employee, protecting yourself as a user, protecting your business: privacy issues, defamation, sexually explicit speech, children and the internet, alternative methods of regulation.

11.2.5 Protecting Yourself as a User 11.2.6 Protecting Your Business: Privacy Issues 11.3 Legal Issues: Other Areas of Concern

11.3.1 Defamation 11.3.2 Sexually Explicit Speech 11.3.3 Children and the Internet 11.3.4 Alternative Methods of Regulation 11.3.5 Intellectual Property: Copyrights and Patents 11.3.6 Trademark and Domain Name Registration

11.5  Internet Taxation

• Implicit in the First, Fourth, Ninth and Fourteenth  Amendments

• Olmstead vs. United States

– Telecommunication of alcohol sales during Prohibition era– New application of the Fourth Amendment

• Translation

– Interpreting the Constitution to protect the greater good

Privacy

• Self-regulated medium

– The Internet industry governs itself

• Many Internet companies collect users’ personal information

– Privacy advocates argue that these efforts violate individuals’ privacy rights

– Online marketers and advertisers suggest that online companies can better serve their users by recording the likes and dislikes of online consumers

• Financial Services Modernization Act of 1999

– Establishes a set of regulations concerning the management

of consumer information

• Prohibits the collection of consumer data from 

medical and financial sites

• Allows the combination of Web­collected data and  personal information  

Personal Information Feature

• Regulation of the Internet could limit a company’s  efforts to buy and sell advertising

• DoubleClick 

– Advertising network of over 1,500 sites and 11,000 clients

• Abacus Direct Corp

– Names, addresses, telephone numbers, age, gender, income levels and a history of purchases at retail, catalog and online stores 

• Digital redlining

– Skewing of an individual’s knowledge of available products 

by basing the advertisements the user sees on past behavior 

• Keystroke cop

– Registers each keystroke before it appears on the screen 

• Company time and company equipment vs. the  rights of employees

• Notice of Electronic Monitoring Act

– Proposed in 2000

– Would require employers to notify employees of telephone, e­mail and Internet surveillance 

– Annual updates or when policy changes are made

– The frequency of surveillance, the type of information 

collected and the method of collection would also be disclosed 

• Anonimity and pseudonimity

– PrivacyX.com

• Platform for Privacy Preferences Project (P3P)

– Browser complies in accordance with users’ privacy preferences by allowing them to interact in specific ways

• Privacy services and software

– Junkbusters.com

– PrivacyChoices.org

– Center for Democracy and Technology

– Electronic Frontier Foundation

– Electronic Privacy Information Center

– PrivacyRights org

Privacy Issues

• Core Fair Information Practices 

– Consumers should be made aware that personal information will be collected

– The consumer should have a say in how this information will 

be used– The consumer should have the ability to check the 

information collected to ensure that it is complete and accurate

– The information collected should be secured

– The Web site should be responsible for seeing that these 

practices are followed 

Privacy Issues

PrivacyBot.com. (Courtesy of Invisible Hand Software, LLC.)

Concern

• Defamation

• Sexually explicit speech

• Copyright and patents

• Trademarks

• Unsolicited e-mail

• First Amendment

– "Congress shall make no law respecting an establishment of

religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right

of the people peaceably to assemble and to petition the Government for a redress of grievances"

• Defamation

– The act of injuring another’s reputation, honor or good name through false written or oral communication

• Libel 

– Defamatory statements written or spoken in a context in 

which they have longevity and pervasiveness that exceed slander

– The statement must be defamatory

– There must be fault

– There must be evidence of injury

11.3.1 Cubby vs. Compuserve and  Stratton Oakmont vs. Prodigy Feature

• Stratton Oakmont vs. Prodigy

– Claimed responsibility to remove potentially defamatory or otherwise questionable material

– Prodigy served as a publisher of the content

• Miller vs. California (1973)

– The Miller Test identifies the criteria used to distinguish 

between obscenity and pornography– Must appeal to the prurient interest, according to 

contemporary community standards– When taken as a whole, lacks serious literary, artistic, 

political or scientific value

• Challenge of community standards in cyberspace  

Feature

• Thomas

– Internet business owner in California, owner of pornographic Web site from which merchandise could be ordered

– Accessible by password

– Acceptable by California community standards

– Sold pornographic material to Tennessee resident (opposing community standards)

• Thomas found guilty

• Non­content related means

– Effort to control the audience rather than controlling the 

material 

• Accessibility of information

• Decency Act of 1996 (CDA) and Children’s

Online Protection Act of 1998 (COPA)

– Designed to restrict pornography on the Internet, particularly

in the interest of children– Overbroad

– “Patently offensive,” “indecent” and “harmful to minors”

• Chilling effect

– Limiting speech to avoid a lawsuit

• Children’s Online Privacy Protection Act of 2000

(COPPA)

– Prohibits Web sites from collecting personal information

from children under the age of 13

Regulation

• Blocking and filtering

– Allows users to select what kinds of information can and cannot be received through their browsers 

Regulation

Net Nanny home page. (Courtesy of Net Nanny Software

– Whether the work has been published or not 

– Protects only the expression or form of an idea and not the idea itself

– Provides incentive to the creators of original material

– Guaranteed for the life of the author plus seventy years

– Makes it illegal to delete or otherwise alter the identifying information of the copyright owner

– Prevents the circumvention of protection mechanisms and/or the sale of such circumvention mechanisms

– Protects the fair use of copyrighted material 

– The purpose of the copyrighted work is examined

– The nature of the copyrighted work is taken into account

– The amount of the material that has been reproduced is reviewed

– The effect is taken into consideration

and Copyright

• Patent

– Grants the creator sole rights to the use of a new discovery – Protection for 20 years

censorship– If copyrighted works are distributed over the system, 

creators will have less incentive to continue generating original works 

• Sony Betamax (1984) 

– Courts awarded the victory to Sony, suggesting that the 

Betamax provided other uses (recording for personal viewing) that justified its existence 

• LaMachhia did not profit from the copyright 

violations

• LaMacchia was not convicted for his actions 

Registration

• Parasite

– Selects a domain name based on common typos made when entering a popular domain name 

• Cybersquatter

– Buys an assortment of domain names that are obvious 

representations of a brick­and­mortar company 

– Persons registering domain names are protected from 

prosecution if they have a legitimate claim to the domain name 

– Domain names cannot be registered with the intention of 

resale to the rightful trademark owner

mail (Spam)

• Cost is primarily incurred by the receiver and the  ISP

• Organizations distributing spam

– Maintain anonymity and receivers cannot request to be taken off the organization’s mailing list

– Present themselves as a legitimate company and damage the legitimate company’s reputation

• Unsolicited Electronic Mail Act 

– Mandates that the nature of the e­mail be made clear 

– Would require online marketers to know the policy of every ISP they encounter on the Web

• Question of government regulation

• International regulation of auctions

• Copyright infringement and auction aggregation  services

• The Collections of Information Antipiracy Act 

(CIAA) 

– Makes it easier to prosecute any group which takes listings from one organization and, in doing so, harms the original business

• Shill bidding

– Sellers bid for their own items to increase the bid price

• Requires users to agree to certain terms regarding  the service or product provided by the site before  entering 

• Shrink­wrap agreement 

– An agreement printed on the outside of the package holding the product that becomes binding when the consumer opens the package 

• Click­through agreement

– A pop­up screen to which users must agree before they can continue

• Depending on their presentation, these types of  agreements can be considered valid by the U. S.  courts  

• Stock scams

– Crimes in which individuals purchase stocks, then present false claims about the value of that stock in chat rooms or on bulletin boards to sell them back at a higher price

• Web page hijacking

– Web page is  used as a gateway (the intermediary between one site and another) to another site 

FTC “dummy” site for NordiCaLite. (Courtesy of Federal

11.4 Cybercrime

– If the vendor and the consumer are not located in the same state, then the sale is subject to a use tax 

– If the vendor has a physical presence, or nexus, then it is 

required to collect the tax; otherwise the vendor must assess the tax and pay it directly to the state

• Problems with Internet taxation

– The definition of physical presence (location of the ISP, the location of the server or the location of the home page)

– States vary according to what transactions are subject to 

taxation – Sales tax revenues are the largest single source of a state’s revenue and are used to fund government­subsidized 

programs, including the fire department, the police and the public education systems 

– State and local governments further argue that removing 

taxation methods from their jurisdiction infringes upon state 

sovereignty, an element of the checks­and­balances system 

maintained by the United States Constitution 

• Problems with Internet taxation

– To meet the taxation requirements of all parties in online transactions, e­businesses would be required to know and understand all these methods

• Internet Tax Commission

– Reviewed the issue of Internet taxation 

– Revision of state and local taxes to make taxing a feasible process for Internet businesses

– Establish clearer definitions on the meaning of  “physical presence”

– Define universal taxation exemptions