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E-Core Values: Ethical, Legal, Taxation, and International

Issues

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The focus of this chapter is on several learning objectives

• Ethical issues and how to improve the ethical climate in e-commerce

• Legal issues in terms of liability, warranties, copyrights, trademarks, and trade names

• Taxation issues, legal disputes, and domain name disputes

• Encryption laws and what they mean

• International issues, especially with regard to intellectual property and developing countries

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Issues• People don’t operate by the Golden Rule

• The computer does not need ethics; it is the user who needs ethics

• The legal, moral, and ethical implications raised by the Internet are attracting a lot of attention among industries and governments around the world

• There is no doubt the Internet has promoted tax evasion and privacy issues that are causing a nightmare for the law

• No single jurisdiction “owns” the Internet, but every state and country wants to control it

• Today, any e-business can move beyond the jurisdiction of any given authority

• E-commerce often operates in a legal vacuum

• The bottom line: legal, moral, and ethical issues raised by the Internet are dynamic and duanting

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Ethics• Ethics involves systematizing, defending, and

recommending concepts of right and wrong behavior. • Ethical theories often are classified into one of three

categories: – Metaethics: Where do our ethical principles come

from and what do they mean?” Are they merely social inventions? Questions include are there universal truths, do they come from God, and what is the role of reason?

– Normative ethics: Derived from social norms of behavior. We do the right thing because society has certain constructed rules about how we should behave

– Applied ethics: involves examining specific controversial issues where people are evenly divided.

Source:: http://www.iep.utm.edu/e/ethics.htm#H3

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Factors Influencing Ethical Decision Making

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Code of Ethics

• A declaration of the principles and beliefs that govern how employees of a corporation or an association are expected to behave– ACM Code of Ethics and Professional Conduct

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What Is Computer Ethics?• Computer ethics is that branch of applied ethics that looks

at the social and ethical impact of information technology

• One view suggests that ethics means acceptance that the Internet is not a value-free zone or something apart from civil society

• Topics in computer ethics:– Computer crime– Privacy– Intellectual property– Globalization– Computers in the workplace– Security

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Major Threats to Ethics• Faster computers and more advanced networks

• Sophisticated global telecommunications

• Massive distributed databases

• Ease of access to information and knowledge bases

• Transparency of software

• The idea that captured information can be used as a competitive weapon

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Improving the Ethical Climate• Top managers should act as role models

• Firms should establish a code of ethics

• Unethical behavior should be dealt with promptly according to criteria and procedures set in advance

• Set up and support a strong ethics training program for all new employees and reinforce training on a regular basis

• Motivate employees to focus on honesty, integrity, fairness, and justice as goals

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Five Principles of Privacy Protection

• Notice

• Choice

• Access

• Security/Integrity

• Enforcement

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Categories of Information Privacy Concern

• Who owns electronic data that businesses store about consumers?

• Security of electronic data transmissions

• Unauthorized reading of personal data files

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Chief Privacy Officer?

• Privacy regulations

– HIPAA– Sarbanes-Oxley Act– Gramm-Leach-Billey Act

• Legal compliance is the number one priority in running an online business

• The Chief Privacy Officer (CPO) is a compliance job

• http://www.privacyassociation.org

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The Legal Question of Liability

• Product liability - tort that makes a manufacturer liable if its product has a defective condition that makes it unreasonably dangerous to the user or consumer

• Strict liability - a seller is liable for any defective or hazardous products that unduly threaten a user’s safety

• Companies may be liable if employees using mobile tools are involved in accidents

• The application of the negligence doctrine to today’s technological society

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Tort Law on the Internet

• Tort: a wrongful act subject to civil action

• Tort Law: a special area of law focused on remedying wrongs between parties

• Fraud: the intent to deceive

• Negligence: failing to take a certain action, which in turn causes injury or material loss to another

• False Advertising: advertising the availability of a product or a service when no such thing is available

• Misrepresentation: claiming a product will perform certain functions when in fact it cannot

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Warranties• Uniform Commercial Code (UCC): a law drafted

by the National Conference of Commissioners on Uniform State Laws, which governs commercial transactions

• Warranty: an assurance made by the seller about the goods sold

• Express Warranty: a warranty offered orally or in writing by the maker of the product

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Warranties (Cont’d)

• Implied Warranty: a warranty that arises automatically from the fact that a sale has been made and the assumption that the product will do what it is supposed to do

• Disclaimer: evidence of the seller’s intention to protect the business from unwanted liability

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Liability

• Designer’s Liability

– Out-of-bounds error: an error that occurs because either the software did not have the expertise to address the particular problem or the designer improperly condensed the technology

– Nontrivial error: an error that triggers other areas in the software to malfunction and is difficult to correct

– Doctrine of respondent superior

• User’s Liability– Passive negligence: negligent by omission– Affirmative duty

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Copyrights, Trademarks, and Trade Names

• Intellectual property: includes software, books, music, videos, trademarks, copyrights, and Web pages

• Copyright: ownership of an original work created by an author– Copyright law is a law that gives the author or creator of a

tangible product the right to exclude others from using the finished work

– Protected works include:• Graphic works• Web sites

– Good for the life of its author plus an additional 70 years after the author’s death

– The Digital Millennium Copyright Act (DMCA)

• Trademark: registration of a company’s trade name so that others cannot use it; a word or a symbol that distinguishes a good from other goods in the market

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Taxation Issues

• Sales tax is a very controversial issue

• On the Internet, tax collection is not easy

• The rules for taxation differ by country

• All indicators suggest that sales-tax revenue loss is projected to increase exponentially unless something is done to collect the tax

• Internet Tax Freedom Act

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Jurisdiction

• The legitimate scope of government power

• Whose laws apply?

• State and federal laws limit a court’s jurisdiction over a defendant from another state

• International jurisdiction is especially complex and controversial– In an international dispute over e-commerce,

whose laws apply?– Violations of IP

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Guidelines Regarding Domain Names and Trademarks

• Find out whether the proposed domain name infringes on any trademarks

• Secure federal trademark registration of the proposed name

• Register the proposed domain name with InterNIC, http://www.internic.net

• In the event of a poached domain name, bring a lawsuit to force InterNIC to reassign the name to the original owner

• Get permission before linking to other Web sites

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International Issues• What right does any one country have to determine the

materials that should be available on the Internet?

• Can a country regulate an entity in cyberspace, but not on the soil of that country?

• World Intellectual Property Organization (WIPO) succeeded in two treaties to adapt copyright rules for e-commerce

• EU’s Electronic Commerce Directive gave online business firms assurance, in 2000, that the firms would have to comply with laws only where the firms are based, not in any other country in the union

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International Issues (Cont’d)

• Digital Millennium Copyright Act of 1998

• EU’s Rome II Directive hopes to allow consumers to sue e-businesses in their home country

• Hague Convention drafted a treaty in 1992 designed to set global standards for defamation, copyright, and libel on the Internet

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Intellectual Property

• Intellectual property describes the ideas, inventions, technologies, music, and literature that are intangible when created and are converted into tangible products for market consumption

• IP laws and cultural norms vary from country to country

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Management Implications• Legal rules that define the Internet are yet to be clarified

• Long-range effect of Internet patents, especially those held by e-companies like Amazon.com that cover fundamental online business practices

• Ultimate goal in doing business on the Internet is to promote standards that everyone can accept or adopt

• Management must focus on legal and consumer protection issues surrounding B2C e-commerce

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Chapter Summary

• Legal and ethical implications of the Internet are attracting attention in industries and governments around the world

• Question of ethics in e-commerce is the current challenge confronting U.S. organizations

• Several threats to ethics

• Privacy is a basic American value

• Many of the legal questions that arise in e-commerce are not settled due to lack of specific laws or legal guidelines

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Chapter Summary (Cont’d)

• Internet copyright and trademark violations fall under intellectual property laws

• The question of whether a Web site is a product or a service elicits varied opinions

• One the Internet, tax collection is not easy

• The ultimate goal of doing business on the Internet is to promote ethics through standards that everyone can accept or adopt