Chapter 11, Legal and Ethical Issues; Internet Taxation

Outline 11.1 Introduction 11.2 Legal Issues: Privacy on the Internet 11.2.1 Right to Privacy 11.2.2 Internet and the Right to Privacy 11.2.3 Network Advertising Initiative 11.2.4 Employer and Employee 11.2.5 Protecting Yourself as a User 11.2.6 Protecting Your Business: Privacy Issues 11.3 Legal Issues: Other Areas of Concern 11.3.1 Defamation 11.3.2 Sexually Explicit Speech 11.3.3 Children and the Internet 11.3.4 Alternative Methods of Regulation 11.3.5 Intellectual Property: Copyrights and Patents 11.3.6 Trademark and Domain Name Registration

2001 Prentice Hall, Inc. All rights reserved.

Chapter 11, Legal and Ethical Issues; Internet Taxation

Outline 11.3.7 Unsolicited Commercial E-mail (Spam) 11.3.8 Online Auctions 11.3.9 Online Contracts 11.3.10 Online User Agreements Cybercrime Internet Taxation

11.4 11.5

2001 Prentice Hall, Inc. All rights reserved.

11.1 Introduction
Real space
Our physical environment consisting of temporal and geographic boundaries

Cyberspace
The realm of digital transmission not limited by geography

2001 Prentice Hall, Inc. All rights reserved.

11.2 Legal Issues: Privacy on the Internet

Difficulty of applying traditional law to the Internet Technology and the issue of privacy

2001 Prentice Hall, Inc. All rights reserved.

11.2.1 Right to Privacy

Implicit in the First, Fourth, Ninth and Fourteenth Amendments Olmstead vs. United States
Telecommunication of alcohol sales during Prohibition era New application of the Fourth Amendment

Translation
Interpreting the Constitution to protect the greater good

2001 Prentice Hall, Inc. All rights reserved.

11.2.2 Internet and the Right to Privacy

Self-regulated medium
The Internet industry governs itself

Many Internet companies collect users personal information

Privacy advocates argue that these efforts violate individuals privacy rights Online marketers and advertisers suggest that online companies can better serve their users by recording the likes and dislikes of online consumers

Financial Services Modernization Act of 1999

Establishes a set of regulations concerning the management of consumer information
2001 Prentice Hall, Inc. All rights reserved.

11.2.3 Network Advertising Initiative

Network Advertising Initiative (NAI)
Approved by the FTC in July 1999 to support self regulation

NAI currently represents 90 percent of Web advertisers Determines the proper protocols for managing a Web users personal information on the Internet Prohibits the collection of consumer data from medical and financial sites Allows the combination of Web-collected data and personal information
2001 Prentice Hall, Inc. All rights reserved.

11.2.3 DoubleClick: Marketing with Personal Information Feature

Regulation of the Internet could limit a companys efforts to buy and sell advertising DoubleClick
Advertising network of over 1,500 sites and 11,000 clients

Abacus Direct Corp

Names, addresses, telephone numbers, age, gender, income levels and a history of purchases at retail, catalog and online stores

Digital redlining
Skewing of an individuals knowledge of available products by basing the advertisements the user sees on past behavior

2001 Prentice Hall, Inc. All rights reserved.

11.2.4 Employer and Employee

Keystroke cop
Registers each keystroke before it appears on the screen

Company time and company equipment vs. the rights of employees Determining factors
Reasonable expectation of privacy Legitimate business interests

Reasons for surveillance

Slower transmission times Harassment suits Low productivity
2001 Prentice Hall, Inc. All rights reserved.

11.2.4 Employer and Employee

Notice of Electronic Monitoring Act
Proposed in 2000 Would require employers to notify employees of telephone, e-mail and Internet surveillance Annual updates or when policy changes are made The frequency of surveillance, the type of information collected and the method of collection would also be disclosed

2001 Prentice Hall, Inc. All rights reserved.

11.2.4 Michael A. Smyth vs. The Pillsbury Company Feature

Dismissed as regional operations manager Questionable material in e-mail Pennsylvania law
An employer may discharge an employee with or without cause, at pleasure, unless restrained by some contract"

Public policy
Reprimanding an employee called for jury duty Denial of employment as a result of previous convictions

Verdict awarded to Pillsbury

No reasonable expectation of privacy Legitimate business interests
2001 Prentice Hall, Inc. All rights reserved.

11.2.5 Protecting Yourself as a User

Anonimity and pseudonimity
PrivacyX.com

Platform for Privacy Preferences Project (P3P)

Browser complies in accordance with users privacy preferences by allowing them to interact in specific ways

Privacy services and software

Junkbusters.com PrivacyChoices.org Center for Democracy and Technology Electronic Frontier Foundation Electronic Privacy Information Center PrivacyRights. org

2001 Prentice Hall, Inc. All rights reserved.

11.2.6 Protecting Your Business: Privacy Issues

Privacy policy
The stated policy regarding the collection and use of visitors personal information

Privacy policy services and software

PrivacyBot.com

TRUSTe

2001 Prentice Hall, Inc. All rights reserved.

11.2.6 Protecting Your Business: Privacy Issues

Core Fair Information Practices
Consumers should be made aware that personal information will be collected The consumer should have a say in how this information will be used The consumer should have the ability to check the information collected to ensure that it is complete and accurate The information collected should be secured The Web site should be responsible for seeing that these practices are followed

2001 Prentice Hall, Inc. All rights reserved.

11.2.6 Protecting Your Business: Privacy Issues

PrivacyBot.com. (Courtesy of Invisible Hand Software, LLC.)

2001 Prentice Hall, Inc. All rights reserved.

11.3 Legal Issues: Other Areas of Concern

Defamation Sexually explicit speech Copyright and patents Trademarks Unsolicited e-mail First Amendment
"Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble and to petition the Government for a redress of grievances"
2001 Prentice Hall, Inc. All rights reserved.

11.3.1 Defamation
Defamation
The act of injuring anothers reputation, honor or good name through false written or oral communication

Libel
Defamatory statements written or spoken in a context in which they have longevity and pervasiveness that exceed slander

2001 Prentice Hall, Inc. All rights reserved.

11.3.1 Defamation
Slander
Spoken defamation

Proving defamation
The statement must have been published, spoken or broadcast There must be identification of the individual(s) through name or reasonable association The statement must be defamatory There must be fault There must be evidence of injury

2001 Prentice Hall, Inc. All rights reserved.

11.3.1 Defamation
Good Samaritan provision, Section 230 of the Telecommunications Act
Protects ISPs from defamation lawsuits when the ISPs attempt to control potentially damaging postings Obscene, lewd, lascivious, filthy, excessively violent, harassing or otherwise objectionable"

2001 Prentice Hall, Inc. All rights reserved.

11.3.1 Cubby vs. Compuserve and Stratton Oakmont vs. Prodigy Feature
Cubby vs. Compuserve
Anonymous individual used a news service hosted by Compuserve to post an allegedly defamatory statement

Distributor vs. publisher

A distributor cannot be held liable for a defamatory statement unless the distributor has knowledge of the content Compuserve was a distributor of content

Stratton Oakmont vs. Prodigy

Claimed responsibility to remove potentially defamatory or otherwise questionable material Prodigy served as a publisher of the content

2001 Prentice Hall, Inc. All rights reserved.

11.3.2 Sexually Explicit Speech

Miller vs. California (1973)
The Miller Test identifies the criteria used to distinguish between obscenity and pornography Must appeal to the prurient interest, according to contemporary community standards When taken as a whole, lacks serious literary, artistic, political or scientific value

Challenge of community standards in cyberspace

2001 Prentice Hall, Inc. All rights reserved.

11.3.2 United States vs. Thomas Feature

Thomas
Internet business owner in California, owner of pornographic Web site from which merchandise could be ordered Accessible by password Acceptable by California community standards Sold pornographic material to Tennessee resident (opposing community standards)

Thomas found guilty Non-content related means

Effort to control the audience rather than controlling the material

2001 Prentice Hall, Inc. All rights reserved.

11.3.3 Children and the Internet

Accessibility of information Decency Act of 1996 (CDA) and Childrens Online Protection Act of 1998 (COPA)
Designed to restrict pornography on the Internet, particularly in the interest of children Overbroad Patently offensive, indecent and harmful to minors

Chilling effect
Limiting speech to avoid a lawsuit

Childrens Online Privacy Protection Act of 2000 (COPPA)

Prohibits Web sites from collecting personal information from children under the age of 13
2001 Prentice Hall, Inc. All rights reserved.

11.3.4 Alternatives Methods of Regulation

Blocking and filtering
Allows users to select what kinds of information can and cannot be received through their browsers

Blocking and filtering software and services

Surfwatch.com Cybersitter.com NetNanny.com

Infringement of First Amendment rights Parents counsel

CyberAngels.com GetNetWise.com Parentsoup.com
2001 Prentice Hall, Inc. All rights reserved.

11.3.4 Alternatives Methods of Regulation

Net Nanny home page. (Courtesy of Net Nanny Software International, Inc.)
2001 Prentice Hall, Inc. All rights reserved.

11.3.5 Intellectual Property: Patents and Copyright

Copyright
The protection given to the author of an original piece, including literary, dramatic, musical, artistic and certain other intellectual works Whether the work has been published or not Protects only the expression or form of an idea and not the idea itself Provides incentive to the creators of original material Guaranteed for the life of the author plus seventy years

2001 Prentice Hall, Inc. All rights reserved.

11.3.5 Intellectual Property: Patents and Copyrights

Digital Millennium Copyright Act of 1998 (DMCA)
Represents the rights of creative bodies to protect their work as well as the rights of educators and resource providers to receive access to this work Makes it illegal to delete or otherwise alter the identifying information of the copyright owner Prevents the circumvention of protection mechanisms and/or the sale of such circumvention mechanisms Protects the fair use of copyrighted material

2001 Prentice Hall, Inc. All rights reserved.

11.3.5 Intellectual Property: Patents and Copyright

Fair use
The use of a copyrighted work for education, research, criticism The purpose of the copyrighted work is examined The nature of the copyrighted work is taken into account The amount of the material that has been reproduced is reviewed The effect is taken into consideration

2001 Prentice Hall, Inc. All rights reserved.

11.3.5 Intellectual Property: Patents and Copyright

Patent
Grants the creator sole rights to the use of a new discovery Protection for 20 years

Opposing the length of a patent

Does not foster the creation of new material

Includes methods of doing business since 1998

Idea must be new and not obvious to a skilled person

Amazons 1-Click patent

September, 1999 Huge advantage over competitors, as 65% of shopping carts are abandoned before purchase is complete Barnesandnoble.com Express Lane violated patent
2001 Prentice Hall, Inc. All rights reserved.

11.3.5 File Sharing and the Copyright Debate Feature

Present significant challenges to the traditional treatment of copyright protection MP3
A compression method used to substantially reduce the size of audio files, with no significant reduction in sound quality

Napster
Operates as a centralized service Offers software that allows users to download MP3 files from the hard drives of other members

Gnutella
Operates as a decentralized service Individuals with Gnutella software installed on their computers operate as both a client and a server
2001 Prentice Hall, Inc. All rights reserved.

11.3.5 File Sharing and the Copyright Debate Feature

Legal issues
Freedom of exchange (enabled by technological advancements) vs. copyright infringement Ability to voice ones opinion and circumvent efforts of censorship If copyrighted works are distributed over the system, creators will have less incentive to continue generating original works

Sony Betamax (1984)

Courts awarded the victory to Sony, suggesting that the Betamax provided other uses (recording for personal viewing) that justified its existence

2001 Prentice Hall, Inc. All rights reserved.

11.3.5 United States vs. Lamacchia Feature

Changed the face of copyright protection (1994) Posting of copyrighted material Not guilty under the Copyright Act of 1976
The violation must have been conducted "willfully and for purposes of commercial advantage or private financial gain

LaMachhia did not profit from the copyright violations LaMacchia was not convicted for his actions

2001 Prentice Hall, Inc. All rights reserved.

11.3.6 Trademark and Domain Name Registration

Parasite
Selects a domain name based on common typos made when entering a popular domain name

Cybersquatter
Buys an assortment of domain names that are obvious representations of a brick-and-mortar company

2001 Prentice Hall, Inc. All rights reserved.

11.3.6 Trademark and Domain Name Registration

Anticybersquatting Consumer Protection Act of 1999 (ACPA)
Protects traditional trademarking in cyberspace Protects trademarks belonging to a person or entity other than the person or entity registering or using the domain name Persons registering domain names are protected from prosecution if they have a legitimate claim to the domain name Domain names cannot be registered with the intention of resale to the rightful trademark owner

2001 Prentice Hall, Inc. All rights reserved.

11.3.7 Unsolicited Commercial mail (Spam)

E-

Cost is primarily incurred by the receiver and the ISP Organizations distributing spam
Maintain anonymity and receivers cannot request to be taken off the organizations mailing list Present themselves as a legitimate company and damage the legitimate companys reputation

Unsolicited Electronic Mail Act

Mandates that the nature of the e-mail be made clear Would require online marketers to know the policy of every ISP they encounter on the Web

2001 Prentice Hall, Inc. All rights reserved.

11.3.8 Online Auctions

Question of government regulation International regulation of auctions Copyright infringement and auction aggregation services The Collections of Information Antipiracy Act (CIAA)
Makes it easier to prosecute any group which takes listings from one organization and, in doing so, harms the original business

Shill bidding
Sellers bid for their own items to increase the bid price
2001 Prentice Hall, Inc. All rights reserved.

11.3.9 Online Contracts

Electronic Signatures in Global and National Commerce Act of 2000 (E-Sign Bill)
Designed to promote online commerce by legitimizing online contractual agreements Digital agreements will receive the same level of validity as hard-copy counterparts Allows cooperating parties to establish their own contracts

2001 Prentice Hall, Inc. All rights reserved.

11.3.10 User Agreements

Requires users to agree to certain terms regarding the service or product provided by the site before entering Shrink-wrap agreement
An agreement printed on the outside of the package holding the product that becomes binding when the consumer opens the package

Click-through agreement
A pop-up screen to which users must agree before they can continue

Depending on their presentation, these types of agreements can be considered valid by the U. S. courts
2001 Prentice Hall, Inc. All rights reserved.

11.4 Cybercrime
Auctions, chat rooms and bulletin boards are among the most popular forums for illegal activities Viruses, which often lead to denial of service or a loss of stored information, are among the most common cybercrimes Stock scams
Crimes in which individuals purchase stocks, then present false claims about the value of that stock in chat rooms or on bulletin boards to sell them back at a higher price

Web page hijacking

Web page is used as a gateway (the intermediary between one site and another) to another site
2001 Prentice Hall, Inc. All rights reserved.

11.4 Cybercrime

FTC dummy site for NordiCaLite. (Courtesy of Federal Trade Commission.)

2001 Prentice Hall, Inc. All rights reserved.

11.4 Cybercrime

FTC warning page. (Courtesy of Federal Trade Commission.)

2001 Prentice Hall, Inc. All rights reserved.

11.5 Internet Taxation

The opposing arguments
Permanent ban on Internet taxation Fair taxation of Internet sales

Taxation methods
If both a vendor and a consumer are located in the same state sales tax is applied If the vendor and the consumer are not located in the same state, then the sale is subject to a use tax If the vendor has a physical presence, or nexus, then it is required to collect the tax; otherwise the vendor must assess the tax and pay it directly to the state

2001 Prentice Hall, Inc. All rights reserved.

11.5 Internet Taxation

Problems with Internet taxation
The definition of physical presence (location of the ISP, the location of the server or the location of the home page) States vary according to what transactions are subject to taxation Sales tax revenues are the largest single source of a states revenue and are used to fund government-subsidized programs, including the fire department, the police and the public education systems State and local governments further argue that removing taxation methods from their jurisdiction infringes upon state sovereignty, an element of the checks-and-balances system maintained by the United States Constitution
2001 Prentice Hall, Inc. All rights reserved.

11.5 Internet Taxation

Problems with Internet taxation
To meet the taxation requirements of all parties in online transactions, e-businesses would be required to know and understand all these methods

Internet Tax Commission

Reviewed the issue of Internet taxation Revision of state and local taxes to make taxing a feasible process for Internet businesses Establish clearer definitions on the meaning of physical presence Define universal taxation exemptions

2001 Prentice Hall, Inc. All rights reserved.