1. E-Business Eighth Edition
Chapter 7 The Environment of Electronic Commerce: Legal, Ethical, and Tax Issues 1 1

2. Learning Objectives In this chapter, you will learn about:
Laws that govern electronic commerce activities
Laws that govern the use of intellectual property by online businesses
Online crime, terrorism, and warfare
E-Business, Eighth Edition 2 2

3. Learning Objectives (cont’d.)
Ethics issues that arise for companies conducting electronic commerce
Conflicts between companies’ desire to collect and use data about their customers and the privacy rights of those customers
Taxes that are levied on electronic commerce activities
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4. The Legal Environment of Electronic Commerce
All businesses:
Must comply with same laws and regulations
Face same set of penalties
Web businesses: two additional complicating factors
Web extends reach beyond traditional boundaries
Subject to more laws more quickly
Web increases communications speed and efficiency
More interactive and complex customer relationships
E-Business, Eighth Edition

5. The Legal Environment of Electronic Commerce (cont’d.)
Web creates network of customers
Significant levels of interaction (with each other)
Implications of interaction for Web businesses
Violating law or breaching ethical standards
Face rapid and intense reactions from many customers
E-Business, Eighth Edition

6. Borders and Jurisdiction
Physical world of traditional commerce
Territorial borders clearly:
Mark range of culture
Mark reach of applicable laws
Physical travel across international borders
People made aware of transition:
Through formal document examination
Through language and currency change
E-Business, Eighth Edition

7. Geographic influences of area’s dominant culture
Limit acceptable ethical behavior and laws adopted
Culture affects laws directly and indirectly
Through its effect on ethical standards
E-Business, Eighth Edition

8. Borders and Jurisdiction (cont’d.)
Geographic boundaries on culture
Historically: defined by lack of ability to travel great distances
Today: people travel easily between countries
Free EU member country citizen movement
European Money Union (euro common currency)
Relationship of geographic and legal boundaries
Four elements
Power, effects, legitimacy, notice
E-Business, Eighth Edition

9. Borders and Jurisdiction (cont’d.)
Power
Form of control over physical space
People and objects residing in physical space
Defining characteristic of statehood
Effective enforcement
Required for effective laws
Requires power to:
Exercise physical control over residents
Impose sanctions on violators
E-Business, Eighth Edition

10. Borders and Jurisdiction (cont’d.)
Power (cont’d.)
Jurisdiction
Government’s ability to exert control over person or corporation
Physical world laws do not apply to people:
Not located in or not owning assets in geographic area that created laws
Asserted government power level limitation
Acceptance by existing culture
Geographic boundaries, cultural groupings, legal structures all coincide
E-Business, Eighth Edition

11. Borders and Jurisdiction (cont’d.)
Effects
Laws in the physical world
Grounded in relationship between physical proximity and effects (impact) of person’s behavior
Diminish as geographic distance increases
Local culture’s acceptance or rejection of various kinds of effects:
Determines characteristics of laws
For online businesses:
Traditional measures, resulting laws do not work well
Example: online Nazi memorabilia sales
E-Business, Eighth Edition

12. Borders and Jurisdiction (cont’d.)
Legitimacy
1970 United Nations resolution
Affirmed idea of governmental legitimacy
Legitimacy (idea)
Those subject to laws should have role in formulating them
Countries and governments
Operate with varying levels of authority and autonomy
Example: China and Singapore versus Scandinavian countries
E-Business, Eighth Edition

13. Borders and Jurisdiction (cont’d.)
Notice
Physical boundaries provide notice (when crossed)
One rule set replaced by different rule set
Expression of such a change in rules
Constructive notice
People informed of subjection to new laws and cultural norms: crossing international border
Ignorance of law: not sustainable defense
Creates problems for online businesses: unknown customers from another country accessing Web sites
E-Business, Eighth Edition

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15. Jurisdiction on the Internet
Jurisdiction is difficult on the Internet
No geographic boundaries
Four physical world considerations
Do not translate well (power, effects, legitimacy, notice)
Governments enforcing Internet business conduct laws:
Must establish jurisdiction over conduct
Contract: promise between two or more legal entities
Provides for exchange of value between them
Goods, services, money
E-Business, Eighth Edition

16. Jurisdiction on the Internet (cont’d.)
Breach of contract: if either party does not comply with contract terms, other party can sue (failure to comply)
Tort: intentional (negligent) action taken by a legal entity causing harm to another legal entity
Other than breach of contract
Contract or tort law claims
Must be filed in courts with jurisdiction
Court jurisdiction requires:
Subject-matter jurisdiction and personal jurisdiction
E-Business, Eighth Edition

17. Jurisdiction on the Internet (cont’d.)
Subject-matter jurisdiction
Court’s authority to decide particular type of dispute
United States examples
Federal courts: subject-matter jurisdiction over issues governed by federal laws
State courts: subject-matter jurisdiction over issues governed by state laws
Rules determining subject-matter jurisdiction
Clear and easy to apply (few disputes)
E-Business, Eighth Edition

18. Personal jurisdiction
Determined by residence of parties
Defendant: state resident where court is located
Straightforward determination
Out-of-state person can voluntarily submit to a jurisdiction
Signing contract including forum selection clause
Contract enforced according to particular state laws
E-Business, Eighth Edition

19. Jurisdiction on the Internet (cont’d.)
Personal jurisdiction (cont’d.)
Long-arm statutes: state laws creating personal jurisdiction (details vary)
Create personal jurisdiction over nonresidents committing tortious acts
Businesses conducting e-commerce over state and international lines
Be aware of jurisdictional considerations
Extent to which these laws apply: unclear
Procedural laws written before electronic commerce existed
E-Business, Eighth Edition

20. Jurisdiction on the Internet (cont’d.)
Personal jurisdiction (cont’d.)
Tortious act
An exception to general rule determining personal jurisdiction
Commit tortious act by:
Selling product causing harm to buyer
Negligent or intentional
Defamation, misrepresentation, fraud, trade secret theft
Long-arm statutes invoked more readily for tortious acts
Compared to breach of contract
E-Business, Eighth Edition

21. Jurisdiction on the Internet (cont’d.)
Jurisdiction in international commerce
Governed by treaties between countries
U.S. determines personal jurisdiction for foreigners
Same manner as in domestic long-arm statutes
Non-U.S. corporations, individuals
Can be sued in U.S. courts
Foreign courts can enforce U.S. court system decisions against U.S. corporations, individuals
Judicial comity: voluntarily enforce other countries’ laws
Out of sense of comity, friendly civility
E-Business, Eighth Edition

22. Jurisdiction on the Internet (cont’d.)
Jurisdiction in international commerce (cont’d.)
Courts reluctant to serve as forums for international disputes
Not designed for diplomacy, cost-benefit evaluations
Prefer government executive branch to negotiate international agreements, resolve international disputes
Example: eBay in China
Chinese government made it difficult
Online resources
Berkman Center for Internet & Society
UCLA Online Institute for Cyberspace Law and Policy
E-Business, Eighth Edition

23. Conflict of Laws Business governed by various laws
Federal laws, state laws, local laws
Conflict of laws: laws address same issues in different ways
Online businesses
Look to federal laws for guidance
May lead to problems with state and local laws
Example: direct wine sales industry
U.S. Constitution’s Commerce Clause versus states’ right to regulate matters pertaining to citizens health, welfare
E-Business, Eighth Edition

24. Contracting and Contract Enforcement in Electronic Commerce
Three essential contract elements
An offer, an acceptance, consideration
Contract formed when one party accepts offer of another party
Offer: commitment (with terms)
Made to another party
Declaration of willingness to buy, sell product, service
Can be revoked
Acceptance: expression of willingness to take offer
Including all stated terms
E-Business, Eighth Edition

25. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Consideration: agreed upon exchange of something valuable
Money, property, future services
Implied contract: formed by two or more parties
Act as if contract exists
Even if no written and signed contract
Contract
Every agreement or exchange between parties
No matter how simple
Important on the Internet
E-Business, Eighth Edition

26. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
With Internet communications:
Offers and acceptances occur
Exchange , engage in electronic data interchange, fill out Web page forms
Can be combined with traditional methods
Example: end-user license agreements (EULAs)
Contract user must accept before installing software
Excellent contract law resource
Contracts Uniform Commercial Code (UCC)
Cornell Law School Web site
E-Business, Eighth Edition

27. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Web site seller advertising goods for sale
Inviting offer from potential buyers (not making offer)
Prevents seller liability to deliver more goods than available
Legal offer acceptance: usually quite easy
Courts view of offers and acceptances
Actions occurring within particular context
If actions considered reasonable under the circumstances:
Courts interpret actions as offers and acceptances
E-Business, Eighth Edition

28. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Written contracts on the Web
Statute of Frauds (state laws)
Categories of contracts not enforceable unless terms put into writing and signed
Sale of goods worth more than $500
Actions cannot complete within one year
Electronic commerce writing
Pen or paper not required (fortunately)
Writing exists
When contract terms reduced to tangible form
E-Business, Eighth Edition

29. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Written contracts on the Web (cont’d.)
Electronic commerce contract
Easy to satisfy writing requirement
Signature: any symbol executed or adopted for the purpose of authenticating a writing
Names on telegrams, telexes, faxes, Western Union Mailgrams, typed names or printed letterhead names
Symbol or code included in electronic file, digital signatures
E-Business, Eighth Edition

30. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Written contracts on the Web (cont’d.)
Article 11 of the United Nations Convention on Contracts for the International Sale of Goods (CISG)
Requires neither writing nor a signature to create a legally binding acceptance
Information on CISG and related topics in international commercial law
Pace Law School CISG Database Web site
E-Business, Eighth Edition

31. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Warranties on the Web
Implied warranties
Included in any contract for sale of goods
Seller implicitly warrants goods offered for sale
Fit for purposes normally used
Additional implied warranty of fitness
Seller knows specific buyer’s requirements information
Seller provides specific description of additional warranty terms
Seller makes general statements in brochures or other advertising materials
E-Business, Eighth Edition

32. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Warranties on the Web (cont’d.)
Seller: avoid implied warranty liability
Provide warranty disclaimer: statement declaring seller will not honor some or all implied warranties
Warranty disclaimer: conspicuously made in writing
Put in larger type, bold font, or contrasting color
State it obviously
Make it easy to find by buyer on Web site
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34. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Authority to form contracts
Contract formed when offer accepted for consideration
Problems with acceptance
Issued by imposter (forgery)
Person does not have authority to bind company to a contract
Electronic commerce technology
Makes forged identities easy to create
Provides the means to avoid being deceived
Prevent forgery: use digital signatures
E-Business, Eighth Edition

35. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Authority to form contracts (cont’d.)
Authority to bind
Authority to commit company to online contract
Employee accepts contract, company later asserts employee not authorized
Avoid
Check public information on file
Obtain copies of corporate certificates or resolutions
Can be time consuming and awkward
E-Business, Eighth Edition

36. Contracting and Contract Enforcement in Electronic Commerce (cont’d.)
Terms of service agreements
Site visitors must follow stated rules
Most visitors not aware of rules
Terms of service (ToS) agreements
Detailed rules and regulations
Intended to limit Web site owner’s liability for what one might do with information obtained from site
Site visitor held to terms of service by simply using site
Even if text not read, button indicating agreement not clicked
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38. Use and Protection of Intellectual Property in Online Business
Intellectual property (general term) includes:
All products of the human mind
Tangible or intangible
Protections afforded by copyrights and patents, trademarks registration, service marks
Right of publicity
Limited right to control others’ commercial use of an individual’s name, image, likeness, identifying aspect of identity
Limited by U.S. First Amendment provisions
E-Business, Eighth Edition

39. Use and Protection of Intellectual Property in Online Business (cont’d
Online businesses must avoid:
Deceptive trade practices
False advertising claims
Defamation or product disparagement
Infringements of intellectual property rights
By using unauthorized content
E-Business, Eighth Edition

40. Web Site Content Issues
Legal issues with e-commerce Web page content
Common concerns
Use of intellectual property protected by other parties’ copyrights, patents, trademarks, service marks
Copyright infringement
Copyright: right granted by government to the author (creator) of literary or artistic work
Specific time length provided in copyright law
Gives author (creator) sole and exclusive right to the work (print, publish, sell)
Includes virtually all forms of artistic or intellectual expression
E-Business, Eighth Edition

41. Web Site Content Issues (cont’d.)
Copyright infringement (cont’d.)
Idea contained in expression cannot be copyrighted
Work cannot be copyrighted if idea cannot be separated from expression
Example: mathematical calculations
Collection of facts can be copyrighted
Example: Yahoo! Web Directory
E-Business, Eighth Edition

42. Web Site Content Issues (cont’d.)
Copyright infringement (cont’d.)
U.S. law still allows registration (no longer required)
Work created after 1989
Copyrighted automatically by virtue of copyright law
Most U.S. Web pages protected by automatic copyright provision
Web client computer copy of HTML file
Fair use: includes copying it for use in criticism, comment, news reporting, teaching, scholarship, or research
E-Business, Eighth Edition

43. Nonprofit educational uses get better chance than commercial uses
Court may consider painting using different standards than sound recording
Small sections qualify when entire work might not
Court may consider amount of damage caused to value of copyrighted work
E-Business, Eighth Edition

44. Web Site Content Issues (cont’d.)
Copyright infringement (cont’d.)
Copyright law difficult to apply
Due to elements such as fair use
Vicarious copyright infringement
Entity capable of supervising infringing activity
Obtains a financial benefit from infringing activity
Example: Napster
Failed to monitor its network (could have)
Profited indirectly from the infringement
Music downloads, copying
Legality unclear in may cases
E-Business, Eighth Edition

45. Web Site Content Issues (cont’d.)
Patent infringement
Patent
Exclusive right granted by government to an individual
Make, use, sell invention
Invention: must be genuine, novel, useful, and not obvious given current technology state
1980s: companies started obtaining software patents
Not useful for Web site software
Technology obsolete before patent protection secured (rely on copyright protection)
E-Business, Eighth Edition

46. Web Site Content Issues (cont’d.)
Patent infringement (cont’d.)
Business process patent
Protects specific set of procedures for conducting a particular business activity
Business process patents are controversial
Grant recipients unfair monopoly power
Inappropriate patent law extension
Examples
Amazon.com sued Barnes & Noble (process similar to 1-Click method)
MercExchange sued eBay (fixed price sales option)
E-Business, Eighth Edition

47. Web Site Content Issues (cont’d.)
Trademark infringement
Trademark
Distinctive mark, device, motto, implement company affixes to goods it produces
Identification purposes
Service mark
Similar to trademark, identifies services provided
Both registered with governments (state, federal)
Trade name
Name business uses to identify itself
Protected under common law
E-Business, Eighth Edition

48. Web Site Content Issues (cont’d.)
Trademark infringement (cont’d.)
Common Law
Law established by history of court decisions
Statutory law
Elected legislative bodies pass laws (statutes)
Web site designers must not use:
Any trademarked name, logo, other identifying mark
Without express permission of trademark owner
E-Business, Eighth Edition

49. Domain Names and Intellectual Property Issues
Cybersquatting
Registering trademarked domain name
Hope that owner will pay huge amounts of money to acquire URL
Registering generic name is not cybersquatting
Name changing (typosquatting)
Purposely registering misspelled variations of well-known domain names
E-Business, Eighth Edition

50. Domain Names and Intellectual Property Issues (cont’d.)
U.S. Anticybersquatting Consumer Protection Act
World Intellectual Property Organization (WIPO)
Uniform Domain Name Dispute Resolution Policy (UDRP)
Handles disputes of trademarked domain names
Arise when business has common term trademark
Example: Sting musician case (
Critics of WIPO UDRP: enforced unevenly
E-Business, Eighth Edition

51. Domain Names and Intellectual Property Issues (cont’d.)
Name stealing
Someone other than domain name’s owner changes ownership of domain name
Domain name ownership change
Information maintained by public domain registrar changed in registrar’s database
Reflects new owner’s name and business address
Occurs when safeguards not in place
Main purpose: harass site owner
E-Business, Eighth Edition

52. Protecting Intellectual Property Online
Digital watermark
Digital code or stream embedded undetectably in digital image or audio file
Can be encrypted to protect contents
Example: Verance (digital audio system)
Audio watermarks do not alter audio fidelity
Copy control
Electronic mechanism: limiting number of copies
Example: Blue Spike (Giovanni system)
Digimarc
Tracks works protected by Digimarc system
E-Business, Eighth Edition

53. Defamation Defamatory statement Product disparagement
False and injures reputation of another person or company
Product disparagement
When statement injures product or service reputation
Web sites must consider specific laws:
Before making negative, evaluative statements about persons or products
Designers must avoid potential defamation liability:
By altering person’s photo or image depicting person unfavorably
E-Business, Eighth Edition

54. Defamation (cont’d.) Important exception in U.S. law
Defamatory statements about public figures
Allows considerable leeway for:
Satirical statements
Valid expressions of personal opinion
Other countries do not offer same protections
Web site operators with international audiences need to be careful
E-Business, Eighth Edition

55. Deceptive Trade Practices
Trademarked object manipulation
Constitutes infringement of trademark holder’s rights
Personal Web pages include unauthorized cartoon characters, celebrity photographs
Still illegal even if altered
Web sites linking to other sites
Risk implying non-existent relationship
Trademark protection
Prevents firm from using same (similar) name, logo, other identifying characteristic in a way that would cause potential buyers confusion
E-Business, Eighth Edition

56. Advertising Regulation
Federal Trade Commission (FTC) (United States)
Regulates advertising, publishes regulations, investigates false advertising claims
FTC Web site
Includes information releases
Useful to businesses and consumers
FTC business education campaign publications
Available on Advertising Guidance page
Help businesses comply with law
See Figure 7-7
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58. Advertising Regulation (cont’d.)
Illegal under U.S. law
Advertising claim misleading substantial number of consumers in a material way
FTC accepts referred investigations
Better Business Bureau
FTC provides policy statements for e-commerce Web site designers
Information on:
Permitted advertisements
Policy statements
E-Business, Eighth Edition

59. Advertising Regulation (cont’d.)
Policy statements cover specific areas
Bait advertising
Consumer lending and leasing
Endorsements and testimonials
Energy consumption statements for home appliances
Guarantees and warranties
Prices
Other regulatory agencies
Food and Drug Administration (FDA); Bureau of Alcohol, Tobacco, and Firearms (BATF); Department of Transportation (DOT)
E-Business, Eighth Edition

60. Online Crime, Terrorism, and Warfare
Internet
Opened up possibilities for people to communicate
Worldwide
Opened doors for businesses
Reach new markets
Create opportunities for economic growth
Useful tool for perpetrating crimes, conducting terrorism, waging war
E-Business, Eighth Edition

61. Online Crime Online versions of physical world crimes New online crime
Theft, stalking, pornography distribution, gambling
New online crime
Commandeering computer to attack other computers
Law enforcement obstacles
Jurisdiction issues
Prosecuting across international boundaries
Distribution of pornographic material
Online gambling
Applying laws written before Internet prevalence
E-Business, Eighth Edition

62. Online Crime (cont’d.) Advance fee fraud Nigerian scam (419 scam)
Perpetrator offers to share large payoff with victim
Victim must make “good faith” deposit, provide funding
Perpetrator disappears with deposit
Nigerian scam (419 scam)
Victim receives from Nigerian government official requesting assistance in moving money to a foreign bank account
Perpetrator asks for identity information
Information used to steal advance fee
E-Business, Eighth Edition

63. Online Crime (cont’d.) Pornographic material Gambling
Subjective distinction between legal and illegal adult material
Gambling
Sites located outside United States
State laws specifically outlaw Internet gambling
Jurisdiction not clear
Stalking (online)
Few states have passed Internet laws
Cyberbullying: using technology to harass, humiliate, threaten, or embarrass another
E-Business, Eighth Edition

64. Online Crime (cont’d.)
Infiltrating computer systems with intent of stealing data, creating operational disruptions
Smaller companies are easier targets
Criminal extortion
Myron Tereshchuk: threatened MicroPatent with confidential client information disclosure
Internet can help law enforcement
Track perpetrators of crime
Criminals brag on social networking sites
Criminals leave clues in online profiles
E-Business, Eighth Edition

65. Online Warfare and Terrorism
New age of terrorism and warfare
Carried out or coordinated through the Internet
Web sites (considerable number)
Operated by hate groups and terrorist organizations
Contain detailed instructions for creating biological weapons, other poisons
Contain discussion boards
Help terrorist groups recruit new members online
Offer downloadable terrorist training films (thousands)
E-Business, Eighth Edition

66. Online Warfare and Terrorism (cont’d.)
Agencies devote considerable resources to monitoring terrorist activities online
U.S. Department of Homeland Security, Interpol
Historically: difficulty in coordinating activities
Interpol has been motivated to:
Update, expand computer network monitoring skills
Coordinate global antiterrorism efforts
Sustained terrorist effort could slow down major transaction-processing center processing
More Internet business communications traffic:
Provides more potential damage
E-Business, Eighth Edition

67. Ethical Issues Companies conducting Web site electronic commerce:
Adhere to same ethical standards of other businesses
Consequences all companies suffer
Damaged reputation, long-term loss of trust, loss of business
Web advertising or promotion
Include true statements, omit misleading information
Misleading when ad omits important related facts
Products supported by verifiable information
E-Business, Eighth Edition

68. Ethics and Web Business Policies
Ethical lapse rapidly passed among customers
Can seriously affect company’s reputation
Example: New York Times Amazon.com report
Arrangements with publishers for book promotions
Example: eBay
Newspaper stories about illegal items sales
Important ethical issue organizations face
Limiting use of collected addresses, related information
Lack of government regulation
Most organizations state their policy
E-Business, Eighth Edition

69. Privacy Rights and Obligations
Online privacy is evolving
Hotly debated in various forums
Electronic Communications Privacy Act of 1986
Main law governing privacy on the Internet today
Written to deal with leased telephone lines interceptions
Legislative proposals
Not withstanding constitutional challenges
July 1999 FTC report
Concluded no federal laws regarding privacy required
E-Business, Eighth Edition

70. Privacy Rights and Obligations (cont’d.)
Near-term future privacy United States regulation
Unclear
Direct Marketing Association (DMA)
Established set of privacy standards
Critics note member activity regulation is less than successful
Ethics issues
Significant in area of online privacy
Laws not keeping pace with Internet, Web growth
Nature and degree of personal information recorded
Threaten visitors privacy rights
E-Business, Eighth Edition

71. Privacy Rights and Obligations (cont’d.)
Ethics issues (cont’d.)
Companies may lose control of personal information
Companies may lose track of shipments containing computer backup tapes
Stolen laptops with personal data
People have access to data once impossible to obtain
Real estate transaction information; privacy reduced
Worldwide cultural differences provide different electronic commerce privacy expectations
European Union adopted Directive on the Protection of Personal Data
E-Business, Eighth Edition

72. Major United States privacy controversies
Opt-in versus opt-out
No law limiting companies’ use of gathered information
Companies free to sell, rent customer information
E-Business, Eighth Edition

73. Privacy Rights and Obligations (cont’d.)
Opt-out approach
Assumes customer does not object to company’s use of information
Unless customer specifically denies permission
Opt-in approach
Company collecting information does not use it for any other purpose
Unless customer specifically chooses to allow use
E-Business, Eighth Edition

74. Privacy Rights and Obligations (cont’d.)
Another opt-out approach
Page includes checked boxes
Instructs visitor: “uncheck the boxes of the items you do not wish to receive”
Opt-in approach more preferable
Gives customer privacy protection
Unless customer specifically elects to give up rights
E-Business, Eighth Edition

75. Privacy Rights and Obligations (cont’d.)
Electronic commerce Web sites
Be conservative in customer data collection and use
Use four principles for handling customer data
Use data collected for improved customer service
Do not share customer data with others outside your company without 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 data collected about them
Keep data secure
E-Business, Eighth Edition

76. Communications with Children
Privacy considerations when Web sites attract children
Children less capable of evaluating information sharing and transaction risks
Concern
Children’s ability to read, evaluate privacy statements
Consent to providing personal information to Web sites
E-Business, Eighth Edition

77. Communications with Children (cont’d.)
MySpace
2006: former federal prosecutor (site security officer)
Software looks for sex offenders
1998: Children’s Online Protection Act (COPA)
Unconstitutional: restricted lawful material access
Children’s Online Privacy Protection Act of 1998
Successful: COPPA does not regulate content
2001: Children’s Internet Protection Act (CIPA)
Federally funded schools install filtering software
E-Business, Eighth Edition

78. Disney Online
Offers three registration choices (adult, teen, kids)
Refuses to enroll child under age 13
Meets COPPA law requirements
Sanrio
Asks for birth date before allowing access to English-language site
Encourages visitors to notify company of child gaining site access in violation of COPPA
E-Business, Eighth Edition

79. Taxation and Electronic Commerce
Web businesses must comply with multiple tax laws
Several types of taxes
Income taxes: levied on net income
Transaction taxes: levied on products or services company sells or uses
Sales taxes, use taxes, excise taxes, customs duties
Customs duties: levied on imports into the country
Property taxes: levied on personal property, real estate
Web businesses’ greatest concern
Income and sales taxes
E-Business, Eighth Edition

80. Nexus Connection between tax-paying entity and government
Similar concept as personal jurisdiction
Activities creating nexus (United States)
Determined by state law, vary from state to state
Determining nexus: difficult
Company conducts few activities in the state
National nexus issues
Business conducted in more than one country
Establish nexus with a country
Liable for filing tax returns in that country
E-Business, Eighth Edition

81. U.S. Income Taxes Internal Revenue Service (IRS) Basic principle
Charged with administering tax laws
Basic principle
Any verifiable increase in company wealth:
Subject to federal taxation
Pay U.S. federal income tax if:
U.S.-based Web site generating income
Web site maintained by U.S. company
Credit given for taxes paid to foreign countries
Reduces double taxation of foreign earnings
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83. U.S. Income Taxes (cont’d.)
States levy income tax on business earnings
Must file tax returns in all states
Apportion earnings in accordance with each state
Others with power to levy income taxes
Cities, counties, other political subdivisions
Must apportion income, file tax returns in each locality
Companies selling through Web site
Do not establish nexus everywhere goods delivered to customers (in general)
Avoid nexus by using a contract carrier
E-Business, Eighth Edition

84. U.S. State Sales Taxes Transaction tax on goods sold to consumers
Businesses establishing nexus with a state
Must file sales tax returns and remit sales tax collected from customers
Business not required to collect taxes from out-of-state customers unless nexus has been established
Use tax levy
Property used in that state
Not purchased in that state
Property not “purchased” at all (leases)
E-Business, Eighth Edition

85. U.S. State Sales Taxes (cont’d.)
Large companies
Use complex sales tax management software
Purchasers exempt from sales tax
Charitable organizations, businesses buying items for resale
Sales tax collection problem
Confusing; no new laws
Some businesses collect tax on all sales
Streamlined Sales and Use Tax Agreement
Simplifies state sales taxes
E-Business, Eighth Edition

86. Import Tariffs Countries regulate import and export of goods
Goods imported: only if tariff paid
Tariff (customs duty, duty)
Tax levied on products as they enter country
Many reasons for imposing tariffs
Beyond scope of this book
Goods ordered online: subject to tariffs
When crossing international borders
Products delivered online: subject to tariffs
Downloaded software
E-Business, Eighth Edition

87. European Union Value Added Taxes
Transfer taxes generate revenues
Value Added Tax (VAT)
Most common transfer tax
Mid-2003: VAT applied to sales of digital goods
EU-based companies
Must collect VAT on digital good sales
Non-EU companies must register with EU tax authorities, levy, collect, remit VAT
If sales include digital goods delivered into EU
E-Business, Eighth Edition

88. Summary Issues of borders, jurisdiction, Web site content
How these factors affect company’s ability to conduct electronic commerce
Avoiding deceptive trade practices, false advertising claims, defamation or product disparagement, intellectual property rights infringement
Legal issues when Web used in commission of crimes, terrorist acts, conduct of war
Role of ethics in formulating Web business policies
Various forms of taxation
E-Business, Eighth Edition