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Chapter 11

The Environment of Electronic Commerce: International, Legal,

Ethics, and Tax Issues

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Learning Objectives

In this chapter, you will learn about:• International electronic commerce• Laws that govern electronic commerce

activities• Ethics issues that arise for companies

conducting electronic commerce• Taxes that are levied on electronic

commerce

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International Nature of Electronic Commerce

• Any business that engages in electronic commerce instantly becomes an international business.

• Customers’ lack of inherent in ‘strangers’ on the Web is logical and to be expected.

• Business trust is an important successful factor of attracting customers.

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International Nature of Electronic Commerce

• Businesses engaging in electronic commerce must be aware of the differences in language and customs that make up the culture of any region in which they do business.

• The barriers to international electronic commerce include language, culture, and infrastructure issues.

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Language Issues

• Only way to do business effectively in other cultures is to adapt to those cultures.

• The first step to reach foreign customers is to provide local language versions of its Web site.

• This may mean translating the Web site into another language or regional dialect.

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Language Issues (Cont.)

• About 80% of the content available on the Internet today is in English.

• More than 40% of current Internet users do not read English.

• The most-used non-English languages for U.S. companies are Spanish, German, Japanese, French, and Chinese.

• Global Reach offers Web site globalization service, and maintains current information about languages on the Web.

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Language Issues (Cont.)

• One Approach is to have a Web server that can detect the default language setting of the browser and automatically redirect the browser to the set of Web pages created in that language.

• Another approach is to include links to multiple language versions on the home page.

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Language Issues (Cont.)

• Firms that provide Web page translation services include Alis Technologies, Berlitz, LexFusion, Rubric, Ltd., Transparent Language, and Worldpoint Interactive.

• Idiom Technologies sells software that automates the process of maintaining Web pages in multiple language versions.

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Culture Issues

• The combination of language and customs is often called culture.

• Some errors stemming from subtle language and cultural standards are culture issues.

• On the Web, designers must be very careful when choosing icons that represent common actions.

• Even colors or Web page design elements can be troublesome.

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Culture Issues (Cont.)

• A site that strongly reflects a cultural design preference is the Swedish home page of Bokus.com.

• Softbank has devised a way to introduce electronic commerce to a reluctant Japanese population.

• Nike realized that it had to create special Web pages to foreign customers.

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Culture Issues (Cont.)

• Some part of the world have cultural environments that are extremely inhospitable to electronic commerce initiatives.

• People’s Republic of China and Singapore are wrestling with the issues presented by the growth of the Internet as a vehicle for doing business.

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Infrastructure Issues

• Internet infrastructure includes the computers and software connected to the Internet and the communications networks over which message packets travel.

• Regulations in some countries have inhibited the development of the telecommunications infrastructure or limited the expansion of that infrastructure.

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Infrastructure Issues (Cont.)

• Local connection costs through the existing telephone networks in many countries are very high.

• This can have a profound effect o the behavior of electronic commerce participants.

• The OECD statements have provided guidance for businesses and government to support international electronic commerce.

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Infrastructure Issues (Cont.)

• In 1998, business and government leaders in several European countries began pushing for flat-rate telephone line Internet access charges.

• The information flows can be very complex for an international trade transaction.

• Companies such as NextLinx, Syntra, and Vastera sell software designed to automate much of the international trade process.

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The Legal Environment of Electronic Commerce

• Businesses that operate on the Web must comply with the same laws and regulations that govern the operations of all businesses.

• The Web extends a company’s reach beyond traditional boundaries, thus it faces many more laws than before.

• The Web increases the speed and efficiency of business communications.

• Web businesses that violate the laws can face rapid and intense reactions from many customers.

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Borders and Jurisdiction

• Territorial borders in the physical world serve a useful purpose in traditional commerce.

• In the physical world, geographic boundaries almost always coincide with legal and cultural boundaries.

• The relationship between geographical boundaries and legal boundaries can be discussed in terms of four elements: power, effects, legitimacy, and notice.

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Power

• Power, in the form of control over physical space and the people and objects that reside in that space, is a defining characteristic of statehood.

• Effective law enforcement requires power.• The ability of a government to exert control over a

person or corporation is called jurisdiction.• The level of power asserted by a government is

limited to that which is accepted by the culture that exists within its geographic boundaries.

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Effects

• Laws in the physical world are grounded in the relationship between physical proximity and the effects of a person’s behavior.

• Government-provided trademark protection is a good example.

• The characteristics of laws are determined by the local culture’s acceptance of or reluctance to various kinds of effects.

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Legitimacy

• Most people agree that the legitimacy right to create and enforce laws derives from the mandate of those who are subject to those laws.

• Legitimacy is the idea that those subject to laws should have some role in formulating them.

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Notice

• The physical boundary, when crossed, provides notice that one set of rules has been replaced by a different set of rules.

• Borders provide this notice in the physical world.

• The legal systems of most countries include a concept called constructive notice.

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Jurisdiction on the Internet

• Jurisdiction is more difficult on the Internet because traditional geographic boundaries do not exist.

• Thus, power, effects, legitimacy, and notice do not translate very well to the virtual world of electronic commerce.

• People or corporations that wish to enforce their rights based on either contract or tort law must file their claims in courts with jurisdiction to hear their case.

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Subject-Matter Jurisdiction

• Subject-matter jurisdiction is a court’s authority to decide a particular type of dispute.

• In the U.S., federal courts have subject-matter jurisdiction over issues governed by federal law.

• State courts have subject-matter jurisdiction over issues governed by state laws.

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Personal Jurisdiction

• Personal jurisdiction is determined by the residence of the parties.

• One way that people voluntarily submit to a jurisdiction is by signing a contract that includes a statement known as a forum selection clause.

• Businesses should be aware of jurisdictional considerations when conducting electronic commerce over state and international lines.

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Jurisdiction in International Commerce

• The exercise of jurisdiction across international borders is governed by treaties between the countries engaged in the dispute.

• Jurisdictional issues are complex and change rapidly.

• The John Marshall Law School’s Center for Information Technology and Privacy Law Web site is a good source of cyberspace law.

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Contract Enforcement in Electronic Commerce

• Any contract includes three essential elements: an offer, an acceptance, and consideration.

• The contract is formed when one party accepts the offer of another party.

• Contracts are a key element of traditional business practice and they are equally important on the Internet, they can occur when parties exchange e-mail messages, engage in EDI, or fill out forms on Web pages.

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Written Contracts on the Web

• In general, contracts are valid even if they are not in writing or signed.

• A signature is any symbol executed or adopted for the purpose of authenticating a writing.

• It is reasonable to assume that a symbol or code included in an electronic file would constitute a signature.

• The U.S. now has a law that explicitly makes digital signatures legally valid for contract purposes.

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Warranties

• Any contract for the sale of goods includes implied warranties.

• Most firms conducting electronic commerce have little trouble fulfilling warranties.

• Sellers can avoid some implied warranty liability by making a warranty disclaimer.

• To be legally effective, the warranty disclaimer must be stated obviously and must be easy for a buyer to find on the Web site.

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Authority to Form Contracts

• A contract is formed when an offer is accepted for consideration.

• Problems can arise in electronic commerce since the online nature of acceptance can make it relatively easy for identity forgers to pose as others.

• Digital signatures, however, are an excellent way to establish identity in online transactions.

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Web Site Content

• A number of other legal issues can arise regarding the Web page content of electronic commerce sites, including:– Trademark infringement– Deceptive trade practices– Regulation of advertising claims– defamation

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Trademark Infringement

• The owner of registered trademarks have often invested and developed their trademarks.

• Web site designers must be very careful not to use any trademarked name, logo, or other identifying mark without the permission.

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Deceptive Trade Practices

• If the Web page objects being manipulated are trademarked, these manipulations can violate the trademark holder’s right.

• Trademark protection prevents another firm from using the same or a similar name, logo, or other identifying characteristic in a way that would cause confusion.

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Advertising Regulation

• In the U.S., advertising is primarily regulated by the Federal Trade Commission.

• Any advertising claim that can mislead a substantial number of consumers in a material way is illegal under U.S. law.

• Other federal agencies have the power to regulate online advertising in the U.S., including FDA, BATF, and DOT.

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Ethics Issues

• Companies using Web sites to conduct electronic commerce should adhere to the same ethical standards that other businesses follow.

• In general, advertising on the Web should include only true statements.

• Ethical considerations are important in determining advertising policy on the Web.

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Defamation

• A defamatory statement is a statement that is false and that injures the reputation of another person or company.

• Commercial Web sites should avoid making negative evaluative statements about other persons or products.

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Privacy Rights and Obligations

• The issue of online privacy is continuing to evolve.

• The Electronic Communications Privacy Act of 1986 is the main law governing privacy on the Internet today.

• A more recent law is the Children’s Online Privacy Protection Act of 1998.

• 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.

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Taxation and Electronic Commerce

• Companies that do business on the Web are subject to the same taxes as any other company.

• A Web site maintained by a company in the U.S. must pay federal income tax on income generated inside and outside of the U.S.

• Most states levy a sale tax on goods sold to consumers. A sale tax is subject to where the customer is located, the law of jurisdiction and tax rate, and the taxable status of the customer.