1 Chapter 11 The Environment of Electronic Commerce: International, Legal, Ethics, and Tax Issues

2 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

3 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.

4 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.

5 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.

6 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.

7 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.

8 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.

9 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.

10 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.

11 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.

12 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.

13 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.

14 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.

15 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.

16 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.

17 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.

18 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.

19 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.

20 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.

21 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.

22 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.

23 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.

24 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.

25 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.

26 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.

27 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.

28 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.

29 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

30 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.

31 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.

32 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.

33 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.

34 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.

35 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 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.

36 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.