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Chapter 11

The Environment of

Electronic Commerce:

International, Legal, Ethical,

and Tax Issues

Electronic Commerce

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Objectives

International electronic commerce Laws that govern electronic commerce

activities Ethics issues that arise for companies

engaged in electronic commerce Taxes that are levied on electronic

commerce

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International Nature ofElectronic Commerce

Language issues “Think globally, act locally” by establishing

local language versions of the Web site By 2001, 60% of Web use and 40% of

e-commerce sales will involve at least one party outside the United States

The most used non-English languages for U.S. companies are Spanish, German, Japanese, French, and Chinese

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Europages Home PageFigure 11-1

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International Nature ofElectronic Commerce

Culture issues Errors can stem from subtle language and

cultural standards General Motor’s Nova Pepsi’s “come alive” campaign Baby food jars in Africa Cartoon cows in India White-colored elements in Japan

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International Nature ofElectronic Commerce

Culture issues Unwillingness to allow citizens free access

to the Internet Proxy servers that filter content Laws to prohibit publications that conflict

with governmental or religious views, or must conform to the local language and customs

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International Nature ofElectronic Commerce

Infrastructure issues Variations and inadequacies of computers

and software connected to the Internet Heavy government-regulated

telecommunications limit support of Internet availability

Inadequate bandwidth available for Internet data packets

Complex flow of information for international transactions

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A Typical International Trade TransactionFigure 11-2

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The Legal Environment ofElectronic Commerce

Businesses operating on the Web face two complicating factors The Web extends a company’s reach

beyond traditional boundaries The speed and efficiency of

communications on the Web

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The Legal Environment ofElectronic Commerce

Borders and jurisdiction Geographic boundaries on culture have

historically been set by the distances involved

The relationship between geographic and legal boundaries include

power

effects

legitimacy

notice

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Culture Determines Laws and Ethical StandardsFigure 11-3

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The Legal Environment ofElectronic Commerce

Power Control over physical space The ability of a government to exert control

over a person or corporation is called jurisdiction

Level of power asserted by a government is limited to that which is accepted by the culture within its geographic boundaries

Strife can erupt when geographic, cultural, and legal structures do not coincide

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The Legal Environment ofElectronic Commerce

Effects Personal or corporate actions have stronger

effects on people and things that are nearby than on those that are far away

Legitimacy The legitimate right to create and enforce laws

derives from the mandate of those who will be subject to those laws

Notice Physical boundaries, when crossed, provides

notice that a set of rules have changed

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Jurisdiction on the Internet

Governments that want to enforce laws regarding business conducted on the Internet must establish jurisdiction over that conduct

A court has sufficient jurisdiction if it has both subject-matter and personal jurisdiction

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Jurisdiction on the Internet

Subject-matter jurisdiction The court’s authority to decide the type of

dispute Rules of subject-matter jurisdiction are

very clear and easy to apply Very few disputes arise over subject-

matter jurisdiction

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Jurisdiction on the Internet

Personal jurisdiction Determined by the residence of the parties A “forum selection clause” in a contract

dictates that the contract will be enforced according to the laws of a particular state or government

Tortious acts are an exception, such as cases of defamation, fraud, and theft of trade secrets

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Jurisdiction on the Internet

John Marshall Law School’s Center for Information Technology and Privacy Law’s Web site includes links to current cases, law review articles, and other updated resources

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John Marshall Law School Cyberspace Law SiteFigure 11-4

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Contracting and Contract Enforcement in Electronic Commerce

A contract has two elements Offer – declaration of willingness to buy or sell

a product or service Sufficient details to be firm, precise, and

unambiguous Can be revoked as long as no consideration has

been accepted

Acceptance – expression of willingness to take an offer

When one party makes an offer that is accepted, a contract is created

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Written Contracts on the Web

In general, contracts are valid even if they are not in writing or signed

Contracts for the sale of goods worth over $500 and for actions to be performed that cannot be completed within one year must be created by a signed writing

Writing does not require pen or paper

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Written Contracts on the Web

Writing exists on many tangible forms Tape recordings of spoken words Computer files on disks or tape Faxed copies of written documents

Signatures are any symbol executed or adopted for the purpose of authenticating a writing Names on telegrams, telexes, faxes, letterhead are

all considered signatures

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Written Contracts on the Web

Warranties Any contract for the sale of goods includes

implied warranties Product is fit for the purposes for which it is

intended

Explicit warranties can be created by the seller in general statements in advertising materials

A warranty disclaimer, conspicuously stated, states that the seller will not honor some or all implied warranties

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Written Contracts on the Web

Digital IDs are often used to verify the identity of a person or corporation when entering into a contract

Digital signatures and certificates can attest to the title and capacity of a person holding a particular public key

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Web Site Content

Trademark infringement occurs when a Web site designer uses any trademarked name, logo, or other identifying mark without the express permission to do so

Deceptive trade practices can lead to trademark dilution, a reduction of the distinctive quality of a trademark by alternative uses

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Advertising RegulationFigure 11-5

In the U.S., advertising is primarily regulated by the Federal Trade Commission (FTC)

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FTC Policy Statements

Bait advertising Consumer lending and leasing Endorsements and testimonials Energy consumption statements for

home appliances Guarantees and warranties Prices

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Ethical Issues in Electronic Commerce

Defamatory statements are statements that are false and injure the reputation of another person or company, are highly subjective and hard to distinguish from justifiable criticism

Online statements about competitors should always be carefully reviewed for elements of defamation before published on the Web

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Privacy Rights and Obligations

Rights to privacy can vary greatly from one country to another

Principles for Web site administrators to adhere to include Use personal data to improve customer service Do not share customer data without permission Tell customers what data is collected and how it is

to be used Give customers the right to delete any information

collected about them

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Taxation and Electronic Commerce

Online businesses are potentially subject to several types of taxes Income taxes

Levied by national, state, and local governments on the net income generated

Transaction taxes Includes sales taxes, use taxes, and customs duties

Property taxes Levied by state and local governments on the

personal property and real estate used by the business