Transcript The Legal Environment of Electronic Commerce

Chapter 7
The environment of electronic
commerce: legal, ethical, and tax
issues
Joseph Mitchum and TsunSheng, Tao
The Legal Environment of
Electronic Commerce
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Any business on the web is an
international business and is subject to
international laws
Borders and Jurisdictions
Traditionally when a person travels from
one country to another, they are made
aware that certain laws are expected to be
followed
 On the internet however, it is difficult to
make people aware of every law that they
are to be responsible for following
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Jurisdiction on the internet
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Lines are not clearly drawn as to what kind
of jurisdiction can be exercised regarding
doing business on the web
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Courts prefer to have executive branch of
the government handle international
diputes
Contract enforcement in electronic
commerce
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A written agreement on the web does not
have to involve paper or pen to be
considered a legally binding contract

“Terms of service” serve as rules that the
website visitor must follow
Use and protection of intellectual
property in online business
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Websites are subject to laws governing
intellectual property rights that may be
displayed on their website such as
unauthorized content
Web site content issues
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Most common concerns are patents,
trademarks, and copyrights.
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Napster is probably most well known for
the issue of copyrights as far as music and
file sharing over the web
Cyber squatting
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Cyber squatting is the most problematic on
the web and occurs when someone uses
current trademark in hopes that the owner
will pay large sums of money for the
domain. Additionally the squatter uses that
recognizable name so to drive traffic to the
site and receives compensation for
advertisement
Intellectual property online

Although it is difficult to guarantee
protection of intellectual property online,
several methods are being developed to
protect digital works

Digimarc is one company that offers a
digital watermark that can be tracked
across the web
Defamation
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While the US allows considerable leniency
when it comes to satirical or expressions
of opinions, many other countries do not.
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Operators of websites with international
audiences must be aware of the law as it
applies to them
Deceptive trade practices
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Companies that have links on their
website to other site must not imply that
there is a relationship between that site
unless a relationship actually exists.
Advertising regulation
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The FDA is in charge of Regulation of
advertising tobacco and alcoholic
beverages in the United States.

However, this also gets more complicates
as we move across international borders
ONLINE CRIME, TERRORISM, AND
WARFARE
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Some people have used the Internet as tool
for perpetrating crimes, conducting terrorism,
and waging war.
ONLINE CRIME
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Types:
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Law enforcement: difficult
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Theft
Stalking
Distribution of pornography
Gambling
Commandeering one PC to attack other PCs
The issue of jurisdiction
Laws were written before the Internet became prevalent
U.S. Department of Justice Cybercrime
http://www.cybercrime.gov/
TERRORISM AND WARFARE
Many Internet security experts believe we are at the
dawn of a new age of terrorism and warfare.
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Factors:
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The Internet is an effective tool for communicating
worldwide, but it is not easy to be monitored and
secured.
Since more business communication traffic moves to
the Internet, the major transaction-processing center
might be attacked by terrorist group.
ETHICAL ISSUES

Companies using Web sites to conduct electronic
commerce should follow the same ethical standards
that other businesses follow.
ETHICAL ISSUES
Ethics and web business policies
Ethical issues are important to be considered
when businesses are making policy decision.
 How organizations limit the use of information
collected from their Web site visitors.
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ETHICAL ISSUES
Privacy rights and obligations
Ethics issues are significant in the area of online
privacy because laws have not kept pace with
the growth of the Internet and the Web.
 The Electronic Communications Privacy Act of
1986 is the main law governing policy on the
Internet today.
 No U.S. law currently places limits on companies’
use of the information collected from its
customers.
 One of the major privacy controversies in U.S.
today is the opt-in vs. opt-out issue.
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ETHICAL ISSUES
The opt-in vs. opt-out issue
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The most common policy used in U.S. is an optout approach.
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The company assumes the customer does not object
to the company’s use of the information unless the
customer chooses to deny permission.
The less common policy is an opt-in approach.
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The company does not use the information for any
other purpose unless the customer chooses to allow
that use.
ETHICAL ISSUES
Mark Van Name and Bill Catching outlined four
principles for handling customer data in 1998.
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Use the data collected to provide improved customer
service.
Do not share customer data with others outside your
company without the 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 of
the data you have collected about them.
ETHICAL ISSUES
Communication with children
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Children are less capable than adults in evaluating
information sharing and transaction risks and to
make decision.
In 1998, U.S. Congress enacted the Children’s
Online Protection Act (COPA) to protect children
from “material harmful to minors”.
Children’s Online Privacy Protection Act of 1998
(COPPA) provides restriction on data collection
from children.
In 2001, U.S. Congress enacted the Children’s
Internet Protection Act (CIPA) which requires
school to install filtering software on computers.
TAXATION AND ELECTRONIC
COMMERCE
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Companies that do business on the Web are
subject to the same taxes as any other
company.
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An online business can subject to:
 Income
taxes
 Transaction taxes
 Property taxes
TAXATION AND ELECTRONIC
COMMERCE
Nexus
The connection between taxpaying entity and
a government is called nexus.
 The activities that create nexus in U.S. are
determined by state law and vary from state to
state.
 Companies that do business in more than one
country face national nexus issues.
 A company can void nexus by using a contract
such as FedEx to deliver goods.
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TAXATION AND ELECTRONIC
COMMERCE
U.S. Income Taxes
Any company whose U.S.-based Web site
generates net income is subject to U.S.
federal income tax.
 A Web site maintained by a company in U.S.
must pay federal income tax on income
generated outside of United States
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TAXATION AND ELECTRONIC
COMMERCE
U.S. State Sales Taxes
If a business ships goods to customers in
other state, it is not required to collect sales
tax from those customers unless the business
has established nexus with the customer’s
state.
 The sales tax collection process in U.S. is
regarded as a serious problem.
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 Some
large online retailers have announced they
will begin collecting and remitting sales tax on all
sales.
TAXATION AND ELECTRONIC
COMMERCE
European union value added taxes (VAT)
The VAT is the most common transfer tax used
in EU.
 A VAT is assessed on the amount of value
added at each stage of production.
 VAT is collected by the seller at each stage of
transaction.
 After mid-2003, non-EU companies that sell
digital goods into the EU must levy, collect, and
remit VAT.
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