Legal and Ethical Issues Internet Taxation

Introduction

• Real space– Our physical environment consisting of temporal and

geographic boundaries

• Cyberspace– The realm of digital transmission not limited by geography

Legal Issues: Privacy on the Internet

• Difficulty of applying traditional law to the Internet

• Technology and the issue of privacy

Right to Privacy

• Implicit in the First, Fourth, Ninth and Fourteenth Amendments

• Olmstead vs. United States– Telecommunication of alcohol sales over the phone during

Prohibition era

– New application of the Fourth Amendment

• Translation– Interpreting the Constitution to protect the greater good

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

Internet and the Right to Privacy

• FTC (Federal Trade Commission) found that – 97% of web sites studied collected personal information– Only 62% of those sites gave any indication to the consumer

that information was being collected.– 57% of studied sites contained third-party tracking devices.

• 90% of customers say that online security is a major concern.

• 50% are hesitant to use credit-card numbers for online transactions.

• Only 3.5% of 30,000 web sites studied earned a four-star rating (out of four stars) on their privacy polocies.

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 user’s 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

Employer and Employee

• Keystroke cop– Monitor employee activities– Registers each keystroke before it appears on the screen

• Company time and company equipment vs. the rights of employees

• Determining factors– Did the employee have a reasonable expectation of privacy?– Does the business have the legitimate business interests that

would reasonably justify the intrusion of an employee privacy?

Employer and Employee

• Reasons for surveillance– Slower transmission times– Harassment suits– Low productivity

• 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

11.2.4 Michael A. Smyth vs. The Pillsbury Company Feature

• Dismissed as regional operations manager because of unprofessional email messages transmitted to his supervisor.

• 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

11.2.5 Protecting Yourself as a User

• Anonymity and pseudonymity– PrivacyX.com – digital certificate for new users when they

register

• Platform for Privacy Preferences Project (P3P)– Browser complies in accordance with users’ privacy preferences

by allowing them to interact in specific ways– XML-based applications

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

11.2.6 Protecting Your Business: Privacy Issues

• Privacy policy– The stated policy regarding the collection and use of

visitor’s personal information

• It is important to include a privacy policy on your web site.

• Privacy policy services and software– PrivacyBot.com– TRUSTe

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

11.2.6 Protecting Your Business: Privacy Issues

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

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"

11.3.1 Defamation

• Defamation– The act of injuring another’s reputation, honor or good name

through false written or oral communication

– Contain libel and slander

• Libel – Defamatory statements written or spoken in a context in

which they have longevity and pervasiveness that exceed slander

Defamation

• Slander– Spoken defamation

• Proving defamation, need to meet 5 requirements– 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 • Public reason – statement is actual malice

• Private reason – statement need only negligent (or published, spoken, broadcast) when known to be false

– There must be evidence of injury

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"

Sexually Explicit Speech

• Miller vs. California (1973)– The Miller Test identifies the criteria used to distinguish

between obscenity and pornography

– Prove to be obscene• 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– For example, different states have different views and

tolerance for pornography

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

Children and the Internet

• Accessibility of information• Decency Act of 1996 (CDA) and Children’s

Online Protection Act of 1998 (COPA) – Designed to restrict pornography on the Internet, particularly

in the interest of children– Accused of being “Overbroad”

• Reach beyond the group they intended to protect– “Patently offensive,” “indecent” and “harmful to minors”

• Chilling effect– Limiting speech to avoid a lawsuit

• Children’s Online Privacy Protection Act of 2000 (COPPA)– Prohibits Web sites from collecting personal information

from children under the age of 13

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• Parent’s counsel

– CyberAngels.com– GetNetWise.com– Parentsoup.com

Alternatives Methods of Regulation

Net Nanny home page. (Courtesy of Net Nanny SoftwareInternational, Inc.)

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

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

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

• Not for commercial use

– The nature of the copyrighted work is taken into account• Make sure it is the expression of ideas, not the ideas

themselves

– The amount of the material that has been reproduced is reviewed

• How crucial was the piece of information to the whole work?

– The effect is taken into consideration• How does the reproduction of the copyrighted material affect

the potential market?

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

• Amazon’s 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

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

File Sharing and the Copyright Debate Feature

• Legal issues– Freedom of exchange (enabled by technological

advancements) vs. copyright infringement

– Ability to voice one’s 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

Trademark and Domain Name Registration

• Parasite– Selects a domain name based on common typos made when

entering a popular domain name

– e.g., www.whitehouse.com instead of www.whitehouse.org

• Cybersquatter– Buys an assortment of domain names that are obvious

representations of a brick-and-mortar company

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

Unsolicited Commercial E-mail (Spam)

• Cost is primarily incurred by the receiver and the ISP

• Organizations distributing spam– Maintain anonymity and receivers cannot request to be taken

off the organization’s mailing list

– Present themselves as a legitimate company and damage the legitimate company’s 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

Unsolicited Commercial E-mail (Spam)

• Mail Abuse Prevention System (MAPS)– Protect uses against spam

– It receives consumer complains regarding the distribution of unsolicited e-mail.

– After as few as three complains about an address, MAPS places the address on its list of offenders.

– MAPS then provides a blocking services based on this list.

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

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

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

Cybercrime

FTC “dummy” site for NordiCaLite. (Courtesy of FederalTrade Commission.)

Cybercrime

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

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

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 state’s 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

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

– Define universal taxation exemptions