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International, Legal, and Ethics Issues

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Objectives• International E-commerce• Laws that govern E-commerce activities• Ethics issues that arise for companies

conducting E-commerce• Conflicts between a company’s desire

to collect and use data about their customers and the privacy rights of those customers

• Taxes that are levied on E-commerce

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International Nature of E-Commerce

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

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

• Businesses on the Web must find ways to overcome this well-founded tradition of distrusting strangers.Business trust is an important success factor in attracting customers.

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• 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.

International Nature of E-Commerce

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Language Issues

• The 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 a Web site.– 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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Culture Issues• The combination of language and

customs is often called culture.

• 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• A site that strongly reflects a cultural

design preference is the Bol.com, which is an online bookstore for several different countries.

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

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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• Local connection costs through the existing

telephone networks of many countries are very high.

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

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

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Legal Environment of E-Commerce

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

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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.

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Jurisdiction on the Internet

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

• 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.

• 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.

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Contracting and Contract Enforcement in E-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 on the Web• 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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Terms of Service Agreements

• Most Web sites have stated rules that visitors must follow, although few visitors are aware of these rules.

• If you examine the home page of a Web site, you will often find a link to a page titled “Terms of Service”, “Conditions of Use”, “User Agreement” or something similar.

• These contracts are often called terms of service (ToS) agreements.

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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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Copyright Infringement• A copyright is a right granted by a

government to the author or creator of a literary or artistic work.

• Creations that can be copyrighted include virtually all forms of artistic or intellectual expression: books, music, artworks, recordings (audio and video), architectural drawings, choreographic works, product packaging, and computer software.

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Patent Infringement

• A patent is an exclusive right to make, use, and sell an invention that a government grants to the inventor.

• To be patentable, an invention must be genuine, novel, useful, and not obvious given the current state of technology.

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Trademark Infringement

• The owners 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 permission.

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Defamation

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

• If the statement injures the reputation of a product, it is called product disparagement.

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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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Web-based Crime, Terrorism,

and Warfare• The Internet has opened up many

possibilities for people to communicate and get to know each other better.

• The Internet has also opened doors for businesses to reach new markets and to create opportunities for economic growth.

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Web-based Crime, Terrorism,

and Warfare• Crimes on the Internet includes online

versions of crimes, including theft, stalking, distribution of pornography, and gambling.

• A considerable number of Web sites exist today that openly support or are operated by hate groups and terrorist organizations.

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Ethical Issues

• Companies using Web sites to conduct E- 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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Ethics and Web Business Policies

• Often times legal practices on the Web can be perceived as unethical.

• For example, eBay removed the sale of firearms from its site, even though it was legal, in an effort to present a better overall image to its customers.

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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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Communications with Children

• A special set of privacy considerations arise when Web sites attract children.

• Countries define “child” differently from others – there are many classes of “non-adults”.

• The complicated nature of age-appropriateness confuses laws and ethics for Web sites that aim to interact with children, such as Disney.com.

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Taxation and E-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 both inside and outside of the U.S.

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

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Income Taxes• The Internal Revenue Service is the U.S.

government agency charged with administering the country’s tax laws.

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