THE ENVIRONMENT OF ELECTRONIC COMMERCE:
LEGAL, ETHICAL, & TAX ISSUES
Objectives
*Laws that govern electronic commerce activities
*Laws that govern the use of intellectual property by online businesses
*Online crime, terrorism, and warfare
The Legal Environment of Electronic Commerce
Online businesses:
– Must comply with the same laws & regulations that govern the operations of all businesses
– Face complicating factors
*The Web extends a company’s reach beyond traditional boundaries
*The Web increases the speed and efficiency of business communications
*The Web creates a network of customers
Borders & Jurisdiction
*Territorial borders in the physical world mark the range of culture & reach of applicable laws very clearly
*European Union (EU)
– Allows free movement within the EU for citizens of member countries
– Adopted a common currency
*Power
– A form of control over physical space and the people and objects that reside in that space
– A defining characteristic of statehood
*Jurisdiction
– Ability of a government to exert control over a person or corporation
*Effects
– Impact of a person’s behavior
*Legitimacy
– Idea that those subject to laws should have some role in formulating them
*Notice
– The expression of a change in rules
*Constructive notice
– Individuals become subject to new laws & cultural norms when they cross an international border
Jurisdiction on the Internet
*Power, effects, legitimacy, and notice do not translate well to the virtual world of electronic commerce
*Governments that want to enforce laws must establish jurisdiction over business conduct
*Contract
– Promise or set of promises between two or more legal entities
*Tort
– Intentional or negligent action taken by a legal entity that causes harm to another legal entity
*A court has sufficient jurisdiction in a matter if it has both subject matter jurisdiction & personal jurisdiction
Subject-Matter Jurisdiction
*Subject-matter jurisdiction– is a court’s authority to decide a type of dispute
*Personal jurisdiction
– Determined by the residence of the parties
*Forum selection clause
– States that a contract will be enforced according to the laws of a particular state
*Long-arm statutes
– Create personal jurisdiction over nonresidents who transact business in the state
Contracting & Contract Enforcement in E-Commerce
A contract includes three essential elements:
1. An offer
2. An acceptance
3. A consideration
*Contract– Formed when one party accepts the offer of another party
*Offer
– Commitment with certain terms made to another party
*Acceptance
– Expression of willingness to take an offer
*Consideration
– Agreed upon exchange of something valuable
*Implied contract
– Formed by two or more parties that act as if a contract exists
*Statute of Frauds
The following must be created by a signed writing:
– Contracts for the sale of goods worth over $500
– Contracts requiring actions that cannot be completed within one year
*A writing
– Exists when the terms of a contract have been reduced to some tangible form
*Signature
– Any symbol executed or adopted for the purpose of authenticating a writing
*Warranties on the Web
– Any contract for the sale of goods includes implied warranties
*Warranty disclaimer
– Statement declaring that the seller will not honor some or all implied warranties
*Authority to bind
– Determining whether an individual has the authority to commit a company to an online contract
*Terms of service (ToS)
– Intended to limit a Web site owner’s liability
Use & Protection of Intellectual Property in Online Business
*Intellectual property
– Includes all products of the human mind
– Products can be tangible or intangible
Intellectual property rights include protections by governments
through:
• Granting of copyrights and patents
• Registration of trademarks and service marks
Web Site Content Issues
*Copyright
– Right granted by a government to an author or creator of a literary or artistic work
Creations that can be copyrighted include:
– All forms of artistic or intellectual expression
– Works copyrighted by corporations or not for- profit organizations are protected for 95 years
Fair use of a copyrighted work:
– Includes copying it for use in criticism, comment, news reporting, teaching, or research
*Vicarious copyright infringement
Entity becomes liable if:
– It is capable of supervising infringing activity
– It obtains financial benefit from infringing activity
Patent Infringement
*Patent
– Exclusive right granted by a government to an individual to make, use, and sell an
invention
*To be patentable the invention must be genuine, novel, useful, and not obvious, given the current state of technology
*Business process patent
– Protects a specific set of procedures for conducting a particular business activity
Trademark Infringement
*Trademark
– Distinctive mark, device, motto, or implement that a company affixes to goods it produces
*Service mark
– Used to identify services provided
*Trade name
– Name that a business uses to identify itself
*Common law
– Part of British and U.S. law established by the history of court decisions
Domain Names, Cybersquatting, & Name Stealing
*Cybersquatting
– Registering a domain name that is the trademark of a person or company and hoping to sell it to that person or company for money
*Name changing
– Registering misspelled variations of well known domain names
*Name stealing
– Ownership of a site’s assigned domain name is changed to another site and owner
*U.S. Anti cybersquatting Consumer Protection Act
– Protects trademarked names from being registered as domain names by other parties
*Parties found guilty of cybersquatting can be held liable for damages of up to $100,000 per trademark
Protecting Intellectual Property Online
Proposed solutions to problems in digital copyright protection include:
– Host name blocking
– Packet filtering
– Proxy servers
Defamation
*Defamatory statement
– Statement that is false and injures the reputation of another person or company
*Product disparagement
– If a defamatory statement injures the reputation of a product or service instead of a person
*Per se defamation
– Court deems some types of statements to be so negative that injury is assumed
Advertising Regulation
*Federal Trade Commission
– Regulates advertising in the United States
– Publishes regulations and investigates claims of false advertising
– Provides policy statements
Policies cover specific areas such as:
– Bait advertising
– Consumer lending and leasing
– Endorsements and testimonials
Online Crime, Terrorism, and Warfare
*Online crime
Obstacles faced by law enforcement:
– Jurisdiction
– Difficulty applying laws written before the Internet became prone to criminal actions
*Online warfare and terrorism
– Sustained effort by a well-financed terrorist group could slow down operation of major
transaction-processing centers
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