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13-2 Chapter 13 Public Policy McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

13-3 Chapter 13. Public Policy  Questions Answered in this Chapter: –How is the Internet currently regulated? –What are the challenges the Internet has brought to regulation? –What are the main regulation issues on the Internet today?

13-4Introduction  Overview –Countries must decide how to regulate, how much to regulate, and who should regulate the Internet within their boundaries and with other countries –Governments are trying to regulate the Internet without hurting their economies, but also without infringing on the rights of citizens and existing business –So far, few laws intended to regulate the Internet have been passed  Regulation challenges posed by the internet: –Access (physical layer) –Taxation (business-logic layer) –Privacy/security (business-logic layer) –Copyright (content layer) –Free Speech (content layer)

13-5 Exhibit 13-1: Elements of Internet Regulation Physical level Access regulations Business logic or code level Taxation Privacy & security Content level Copyright Free speech Government agency actions Court cases Laws

13-6 The Digital Divide The gap between the people who are on the Internet and the people who are not on the Internet. The digital divide is closing across educational levels and race, but it remains significant among low income households and individuals over the age of 65. The significance of the digital divide will become more prevalent as the Internet becomes a more prominent component of society.

13-7 Exhibit 13-2: Access—Notable Regulatory Events Communications Act (1934) Carterfone Decision (1968) FCC First Computer Inquiry (1971) Breakup of AT&T ( ) European Memo of Understanding on Unified Wireless Standard (1987) Telecommunications Act (1996) AT&T v. Portland (1998)

13-8 Exhibit 13-3: Effect of Sales Tax on Online Purchasing Source: UCLA Internet Report 2001: Surveying the Digital Future Percent of Respondents

13-9Taxation  Overview –The existing tax system for offline stores is extremely complex –e-commerce companies benefit from current tax laws in two ways: They attract customers who do not want to pay taxes They do not have to pay the high costs associated with collecting sales tax  Current Status –The Internet Tax Freedom Act (enacted in 1998) restricts changes to current laws and limits new taxes from being imposed on e-commerce purchases –Offline stores have begun to protest that their online competitors do not have to charge sales tax as they do –Governments are generally against extending the tax moratorium because of the lost tax revenue

13-10 Exhibit 13-4: Effect of Sales Tax on Consumers Source: Jupiter Communications, as cited in The Industry Standard, “Execs Say No Net Taxes”, July 3, Percent of Consumers Who Are Affected by Sales Tax

13-11 Taxation (Cont’d)  Proposed Legislation –The House Committee studying the problem recommended that the Internet Tax Freedom Act be extended until 2005 –Whether or not that occurs remains to be seen  Impact –Preliminary evidence suggests that the Internet sales tax would have minimal impact on consumption –The biggest impact would be felt by those States who stand to loose considerable amounts of money if sales tax law is not passed

13-12 Exhibit 13 -5: Sales Tax Losses – Top Ten States

13-13 Exhibit 13-6: Taxation & Commerce —Notable Regulatory Events Internet Tax Freedom Act (1998) Uniform Electronic Transactions Act, UETA (1999) 2000/31/EC, EC Directive on Electronic Commerce (2000) Electronic Signatures in Global and National Commerce Act, e-Sign (2000) Uniform Computer Information Transactions Act, UCITA (2000) EU Internet V.A.T. Directive (2002)

13-14Privacy  Overview –The Code of Fair Information Practices, drafted by the Nixon administration, was never enacted –The government originally expected the industry to regulate itself, but dot-coms are using their customer databases as tradable assets  Current Status –So far, only the Children’s Online Privacy Protection Act (COPPA) has been passed –States have the latitude to enact tough financial privacy laws –The public is overwhelmingly concerned about privacy on the internet –Privacy advocates are unsatisfied with the government’s lack of involvement, while Internet executives worry that strict privacy regulations could mean the end of the Internet

13-15 Privacy (Cont’d)  Proposed Legislation –Over 100 bills regarding privacy on the Internet are currently in Congress –Proposed legislation ranges from requiring websites to have a ‘clear’ privacy policy to requiring websites to obtain permission from visitors (opt-in) before collecting any personal data  Impact –While many Internet companies fear government regulation, they might actually suffer more if the government does not get involved –Government privacy regulation will have an impact on how Internet companies generate revenue

13-16 Exhibit 13-7 : Private Activities Americans Do Online Source: The America Online / Roper Starch Worldwide Adult 2000 Cyberstudy N/A

13-17 Exhibit 13-8: Privacy and Security —Notable Regulatory Events European Parliament Directive 95/46/EC on personal data (1995) Child Online Privacy Protection Act, COPPA (1998) UK Data Protection Act (2002) USA Patriot Act (2001) Children’s Internet Protection Act, CIPA (2001) Gramm-Leach-Bliley Act (2000) Implementation of US Safe Harbor Provisions (2000)

13-18Copyright  Overview –Copyright law has been the biggest and most immediate challenge for Internet businesses and consumers –Copyright is intended to strike a balance between protecting a creator’s work and letting the public use it. It is NOT intended to give ownership to the creator  Current Status –Three main aspects of copyright laws affect the Internet: The Copyright Act of Gives owner of the copyright the ability to replicate & distribute the work The Fair Use Doctrine - Gives the public the right to fair use of the work The Digital Millennium Copyright Act –Prohibits the circumvention of copyright protection system –Protects ISPs from being liable if subscribers infringe copyright laws

13-19 Copyright (Cont’d)  Proposed Legislation –Since courts have generally sided with copyright holders, much of the proposed legislation is intended to protect the Internet users  Impact –The impact of copyright law on the Internet has yet to be fully felt –Studies suggest that record companies would be hurt, rather than helped, by file-swapping sites

13-20 Exhibit 13-9: Copyright— Notable Regulatory Events World Intellectual Property Organization Treaty presented to UN (1996) (35 countries, including U.S., ratified treaty as of March 2002) Digital Millennium Copyright Act, DMCA (1998) Universal City Studios, Inc., et. al. v. Corley (2001) Court-ordered shutdown of Napster (2002)

13-21 Free Speech  Overview –Free speech is one of the most protected rights is the U.S. –Individuals must face the consequences of how their opinions are received by others –The lack of borders makes it difficult to determine whose free speech rules to use  Current Status –Courts use the offline free speech test for Internet free speech issues: Is the speech a direct, credible threat against a specific target, or a direct incitement to imminent illegal action? –People must first sue the ISP for the identities of offenders before they can sue the offenders themselves –Web filters to restrict access to inappropriate sites are being criticized by freedom of speech activists

13-22 Free Speech (Cont’d)  Proposed Legislation –Courts will determine not only who can sue whom for slanderous remarks, but also when ISPs have to disclose the names of their users  Impact –Freedom of speech legislation will have a chilling effect on people who feel that they can be taken to court for what they say on the Internet –On the other hand, if people are not held responsible for what they say, it will have a detrimental effect on the perceived veracity of the Internet content –In contrast to Newspaper journalists, Internet journalists often publish stories without getting confirmation on the accuracy of the story

13-23 Exhibit 13-10: Free Speech— Notable Regulatory Events Reno v. ACLU, CDA Case (1997) Yahoo, Inc., v. La Ligue Contre le Racisme, et. al. (2001) Ashcroft v. Free Speech Coalition (2002) Ascroft v. ACLU (2002)