legal, ethical, and social impacts of ec. © prentice hall 20042 mp3.com, napster, and intellectual...

Legal, Ethical, and SocialLegal, Ethical, and SocialImpacts of ECImpacts of EC

© Prentice Hall 2004© Prentice Hall 2004 22

MP3.com, Napster, andMP3.com, Napster, andIntellectual Property Intellectual Property

RightsRightsThe ProblemThe Problem

Before the advent of the Web, Before the advent of the Web, people made audiotape copies of people made audiotape copies of music and videos to give to music and videos to give to friends and family or used them friends and family or used them for their own personal enjoyment for their own personal enjoyment Such activities were ignored by Such activities were ignored by the producers, distributors, and the producers, distributors, and artists who had the legal rights to artists who had the legal rights to the content the content


MP3.com, Napster, andMP3.com, Napster, andIntellectual Property Rights Intellectual Property Rights

(cont.)(cont.)

MP3.com enabled users to listen MP3.com enabled users to listen to music from any computer to music from any computer with an Internet connection with an Internet connection without paying royalties without paying royalties

Using peer-to-peer (P2P) Using peer-to-peer (P2P) technology, Napster supported technology, Napster supported the distribution of music and the distribution of music and other digitized content among other digitized content among millions of users millions of users



(cont.)(cont.)

MP3 and Napster claimed to be MP3 and Napster claimed to be supporting what had been done supporting what had been done for years and were not charging for years and were not charging for their servicesfor their services

Popularity of MP3.com and P2P Popularity of MP3.com and P2P services was too great for the services was too great for the content creators and owners to content creators and owners to ignoreignore



(cont.)(cont.)

To the creators and owners, the To the creators and owners, the Web was becoming a vast Web was becoming a vast copying machinecopying machine

MP3.com’s and Napster’s MP3.com’s and Napster’s services could result in the services could result in the destruction of many thousands destruction of many thousands of jobs and millions of dollars in of jobs and millions of dollars in revenuerevenue



(cont.)(cont.)

The SolutionThe SolutionDecember 2000, EMusic (December 2000, EMusic (emusic.comemusic.com) ) filed a copyright infringement lawsuit filed a copyright infringement lawsuit against MP3.com against MP3.com

In 2001, Napster faced similar legal In 2001, Napster faced similar legal claims, lost the legal battle, and was claims, lost the legal battle, and was forced to pay royalties for each piece forced to pay royalties for each piece of music it supported—Napster of music it supported—Napster collapsed—in October 2003 it collapsed—in October 2003 it reopened as “for fee only”reopened as “for fee only”



(cont.)(cont.)

Existing copyright laws were Existing copyright laws were written for physical, not digital, written for physical, not digital, content content

The Copyright Infringement Act The Copyright Infringement Act states, “the defendant must states, “the defendant must have willfully infringed the have willfully infringed the copyright and gained financially” copyright and gained financially”

The “no financial gain” loophole The “no financial gain” loophole in the Act was later closedin the Act was later closed



(cont.)(cont.)

The ResultsThe ResultsIn 1997, the No Electronic Theft In 1997, the No Electronic Theft Act (NET) was passed, making it a Act (NET) was passed, making it a crime for anyone to reproduce and crime for anyone to reproduce and distribute copyrighted works distribute copyrighted works

applied to reproduction or applied to reproduction or distribution accomplished by distribution accomplished by electronic means electronic means even if copyrighted products are even if copyrighted products are distributed without charge, financial distributed without charge, financial harm is experienced by the authors or harm is experienced by the authors or creators of a copyrighted work creators of a copyrighted work



(cont.)(cont.)

MP3.com suspended operations in MP3.com suspended operations in April 2000 and settled the lawsuit April 2000 and settled the lawsuit

Napster suspended service and Napster suspended service and settled its lawsuits settled its lawsuits

tried to resurrect itself as an online tried to resurrect itself as an online music subscription service with the music subscription service with the backing of Bertelsmann AG backing of Bertelsmann AG

filed for bankruptcy in June 2002 filed for bankruptcy in June 2002

purchased by Roxio with plans to revive purchased by Roxio with plans to revive Napster into a royalty-paying Napster into a royalty-paying framework framework



(cont.)(cont.)

What we can learn…What we can learn…All commerce involves a number All commerce involves a number of legal, ethical, and regulatory of legal, ethical, and regulatory issues issues

EC adds to the scope and scale of EC adds to the scope and scale of these issue these issue

What constitutes illegal behavior What constitutes illegal behavior versus unethical, intrusive, or versus unethical, intrusive, or undesirable behavior?undesirable behavior?


Legal Issues Versus Legal Issues Versus Ethical IssuesEthical Issues

Ethics:Ethics: The branch of philosophy The branch of philosophy that deals with what is considered that deals with what is considered to be right and wrongto be right and wrong

What is unethical is not necessarily illegalEthics are supported by common agreement in a society as to what is right and wrong, but they are not subject to legal sanctions


Legal Issues Versus Legal Issues Versus Ethical Issues Ethical Issues (cont.)(cont.)

EC ethical issuesEC ethical issuesNon-work-related use of the Internet

Employees use e-mail and the Web for non-work-related purposesThe time employees waste while surfing non-work-related Web sites during working hours is a concern



Corporate code of ethicsCorporate code of ethicsIssue written policy guidelinesCopyrighted trademarked material cannot be used without cannot be used without permissionpermissionPost disclaimers concerning contentPost disclaimers of responsibility concerning content of online forums and chat sessions



Make sure that Web content and activity comply with the laws in other countriesMake sure that the company’s Web content policy is consistent with other company policiesAppoint someone to monitor Internet legal and liability issuesHave attorneys review Web content to make sure that there is nothing unethical, or illegal, on the company’s Web site



Major ethical/legal issuesMajor ethical/legal issuesPrivacyIntellectual property rightsFree speech versus censorshipConsumer and merchant protection against fraud



Privacy:Privacy: The right to be left alone The right to be left alone and the right to be free of and the right to be free of unreasonable personal intrusionsunreasonable personal intrusions

1. The right of privacy is not absolute. Privacy must be balanced against the needs of society

2. The public’s right to know is superior to the individual’s right of privacy



Collecting information about Collecting information about individuals over the Internet:individuals over the Internet:

By reading an individual’s newsgroup postingsBy looking up an individual’s name and identity in an Internet directoryBy reading an individual’s e-mail



By conducting surveillance on employees By wiretapping wireline and wireless communication lines and listening to employeesBy asking an individual to complete a Web site registrationBy recording an individual’s actions as they navigate the Web with a browser, usually using cookies



Web site registrationWeb site registrationMost B2C and marketing Web sites ask visitors to fill out registration forms including:

namesaddressesphone numberse-mail addresseshobbies, etc.



There are few restraints on the ways in which the site can use this information

Use it to improve customer service or its own business Or sell the information to another company that could use it in an inappropriate or intrusive manner



Cookie:Cookie: A small piece of data A small piece of data that is passed back and forth that is passed back and forth between a Web site and an end between a Web site and an end user’s browser as the user user’s browser as the user navigates the site; enables sites navigates the site; enables sites to keep track of users’ activities to keep track of users’ activities without asking for identificationwithout asking for identification



Users can protect themselves against cookies:

delete them from their computers use anticookie software

Microsoft Passport lets consumers permanently enter a profile of information along with a password and use this information and password repeatedly to access services at multiple sites—affords opportunities to invade privacy



Privacy of employeesPrivacy of employeesMonitoring employees’ e-mail and Web activities

wasting timemay disclose trade secrets

77% of companies monitor their employees’ communications



Protection of privacyProtection of privacyNotice/awarenessChoice/consentAccess/participationIntegrity/securityEnforcement/redress



Opt-out clause:Opt-out clause: Agreement that Agreement that requires computer users to take requires computer users to take specific steps to specific steps to prevent prevent collection of informationcollection of information

Opt-in clause:Opt-in clause: Agreement that Agreement that requires computer users to take requires computer users to take specific steps to specific steps to allow allow collection collection of information of information


Intellectual Property RightsIntellectual Property Rights

Intellectual Intellectual property:property: Creations of the Creations of the mind, such as mind, such as inventions, inventions, literary and literary and artistic works, artistic works, and symbols, and symbols, names, images, names, images, and designs used and designs used in commercein commerce


CopyrightsCopyrights

Copyright:Copyright: An exclusive An exclusive grant from the grant from the government that allows government that allows the owner to reproduce the owner to reproduce a work, in whole or in a work, in whole or in part, and to distribute, part, and to distribute, perform, or display it to perform, or display it to the public in any form or the public in any form or manner, including the manner, including the InternetInternet


Copyrights Copyrights (cont.)(cont.)

Copyright protection approachesCopyright protection approachesUsing software to produce digital content that cannot be copied

Cryptography Tracking copyright violations

Digital watermarks:Digital watermarks: Unique Unique identifiers imbedded in digital identifiers imbedded in digital content that make it possible to content that make it possible to identify pirated worksidentify pirated works


Intellectual Property Rights Intellectual Property Rights (cont.)(cont.)

Trademark:Trademark: A symbol used by A symbol used by businesses to identify their goods businesses to identify their goods and services; government and services; government registration of the trademark registration of the trademark confers exclusive legal right to its confers exclusive legal right to its useuse



The owner of a registered trademark has exclusive rights to:

Use the trademark on goods and services for which the trademark is registeredTake legal action to prevent anyone else from using the trademark without consent on goods and services (identical or similar) for which the trademark is registered


Domain NamesDomain Names

Domain name Domain name refers to the upper category of an Internet address (URL)

Should additional (new) top-level domain names be added?The use of trademarked names that belong to other companies as domain names


Domain Names Domain Names (cont.)(cont.)

Network Solutions, Inc.—U.S. subsidiary of Verisign was the sole assigner of domain names until 1998ICANN, an international nonprofit corporation, took over assignment of domain names on a global basis—allowing competition in the registration system and the price of registration has dropped



Council of Registrars (CORE) (European group) and the Global Internet Project (U.S. group) want to increase the number of top-level names

One objectives is to create an adult-only top-level name that will keep pornographic material away from children



Domain name disputes and resolutions

Major disputes are international in scope, because the same corporate name may be used in different countries by different corporationsInternet community now quickly resolves domain name disputes using arbitration

Disputes.org Consortium, the National Arbitration ForumWIPO



Cybersquatting:Cybersquatting: The practice of The practice of registering domain names in order registering domain names in order to sell them later at a higher priceto sell them later at a higher priceAnticybersquatting Consumer Protection Act of 1999 allows trademark owners sue for statutory damages

Juliaroberts.comMadonna.com



Patent:Patent: A document that grants the A document that grants the holder exclusive rights on an invention holder exclusive rights on an invention for a fixed number of yearsfor a fixed number of years

Patents serve to protect tangible Patents serve to protect tangible technological inventionstechnological inventionsPatents are not designed to protect Patents are not designed to protect artistic or literary creativityartistic or literary creativityPatents confer monopoly rights to an Patents confer monopoly rights to an idea or an invention, regardless of idea or an invention, regardless of how it may be expressedhow it may be expressed



Fan and hate sitesFan and hate sitescyberbashing:cyberbashing: The registration of The registration of a domain name that criticizes an a domain name that criticizes an organization or personorganization or person May violate the copyrights of the creators or distributors of intellectual propertyThis issue shows the potential collision between protection of intellectual property and free speech


Free Speech Versus Free Speech Versus Censorship and Other Legal Censorship and Other Legal

IssuesIssuesOne of the most important issues One of the most important issues of Web surfers (as per surveys) is of Web surfers (as per surveys) is censorshipcensorship

Censorship—governmental Censorship—governmental attempts to control broadcasted attempts to control broadcasted materialmaterial



Issues Issues (cont.)(cont.)“Donham’s First Law of Censorship” “Most citizens are implacably opposed to censorship in any form—except censorship of whatever they personally happen to find offensive”



Issues Issues (cont.)(cont.)1998 Children’s Online Protection Act (COPA) required:

companies verify a viewer’s age before showing online material that is deemed “harmful to minors” parental consent is required before personal information can be collected from a minor

Was ruled unconstitutional in Pennsylvania in 2001, is now in the hands of the U.S. Supreme Court



Issues Issues (cont.)(cont.)Controlling spamControlling spam

Spamming:Spamming: The practice of The practice of indiscriminately broadcasting indiscriminately broadcasting messages over the Internet messages over the Internet (e.g., ., junk mail)(e.g., ., junk mail)Spam comprises 25 to 50% of all e-mail



Issues Issues (cont.)(cont.)Electronic Mailbox Protection Act requires those sending spam to indicate the name of the sender prominently and include valid routing information

Recipients may waive the right to receive such information



Issues Issues (cont.)(cont.)ISPs are required to offer spam-blocking software

Recipients have the right to request termination of future spam from the same sender and to bring civil action if necessary



Issues Issues (cont.)(cont.)Other legal issuesOther legal issues

Electronic contractsElectronic contractsUniform Electronic Transactions Act of 1999 establishes uniform and consistent definitions for electronic records, digital signatures, and other electronic communications

Shrink-wrap agreements or box-top licensesClick-wrap contracts



Issues Issues (cont.)(cont.)Intelligent agents and contracts

Contracts can be formed even when no human involvement is presentA contract can be made by interaction between an individual and an electronic agent, or even between two electronic agents



Issues Issues (cont.)(cont.)Uniform Electronic Transactions Act (UETA) includes the following two provisions:

Electronic records do satisfy the requirement for a contract Electronic signature is enforceable equal to a written signature on a paper contract



Issues Issues (cont.)(cont.)GamblingGambling

Internet Gambling Prohibition Act of 1999

Online wagering illegal except for minimal amountsProvides criminal and civil remedies against individuals making online bets or wagers and those in the business of offering online betting or wagering venues



Issues Issues (cont.)(cont.)Taxing business on the InternetTaxing business on the Internet

Internet Tax Freedom Act passed the U.S. Senate on October 8, 1998

Barred any new state or local sales taxes on Internet transactions until October 2001 (extended by US Congress to 2006)Created a special commission to Created a special commission to study Internet taxation issues and recommend new policies



Issues Issues (cont.)(cont.)The global nature of business today suggests that Cyberspace be considered:

A distinct tax zone unto itselfUnique rules and considerations befitting the stature of the online environment



Issues Issues (cont.)(cont.)Tax-free policies may give online businesses an unfair advantage—Internet businesses should pay their fair share of the tax bill for the nation’s social and physical infrastructure


EC Fraud and Consumer EC Fraud and Consumer and Seller Protectionand Seller Protection

Fraud on the InternetFraud on the InternetOnline auction fraud—87% of online crimeInternet stock fraud—spread false positive rumors about the prospects of companies


EC Fraud and Consumer EC Fraud and Consumer and Seller Protection and Seller Protection

(cont.)(cont.)Other financial fraud

Bogus investmentsPhantom business opportunitiesOther schemes

Other fraud in EC—nonfinancial fraud

Customers receive poor-quality products and servicesCustomers do not get products in timeCustomers are asked to pay for things they assume will be paid for by sellers



(cont.)(cont.)Consumer protection—tips Consumer protection—tips for safe electronic shopping

Make sure that they enter the real Web site of well-known companiesSearch any unfamiliar site for an address and telephone and fax numbers and callCheck out the seller with the local chamber of commerce, BBB, or TRUSTe



(cont.)(cont.)Investigate how secure and organized the seller’s site isExamine the money-back guarantees, warranties, etc.Compare prices online to those in regular storesAsk friends what they know, look for testimonials and endorsements



(cont.)(cont.)Find out what redress is available in case of a disputeConsult the National Fraud Information Center (fraud.org)Check the resources available at consumerworld.org



(cont.)(cont.)Third-party assurance servicesThird-party assurance services

TRUSTe (truste.org)TRUSTe (truste.org)Better Business Bureau (bbbonline.com)WHICHonline (which.net)Web Trust seal (TRUSTe, cpawebtrust.org, Gomez.com)Online Privacy Alliance



(cont.)(cont.)Evaluation by consumers—Evaluation by consumers—product and vendor evaluations

groups.google.com, epubliceye.com



(cont.)(cont.)Authentication and biometric controls provide

Access procedures that match every valid user with a unique user identifier (UID)Authentication method that verifies that users requesting access to the computer system are really who they claim to beAre valid for both consumer and merchant protection



(cont.)(cont.)Seller protection against:Seller protection against:

Customers who deny that they placed an orderCustomers who download copyrighted software, etc. and sell it to othersCustomers who give false payment informationUse of their name by othersTrademark protection



(cont.)(cont.)What can sellers do?What can sellers do?

Use intelligent software to identify possibly questionable customersIdentify warning signals for possibly fraudulent transactionsAsk customers whose billing address is different from the shipping address to call their bank and have the alternate address added to their bank account


Societal IssuesSocietal Issues

Digital divide:Digital divide: The gap between The gap between those who have and those who do those who have and those who do not have the ability to access not have the ability to access electronic technology in general, electronic technology in general, and the Internet and EC in and the Internet and EC in particularparticular


Societal Issues Societal Issues (cont.)(cont.)

Other societal issuesOther societal issuesEducationEducation

Virtual universitiesCompanies use the Internet to retrain employeesHome-bound individuals can get degrees



Public safety and criminal justicee-911 systemscollaborative commercee-procuremente-government—coordinating, information sharing, and expediting legal work and cases intelligent homes, offices, and public buildingse-training of law enforcement officers



Health aspectsHealth aspectssafer and healthier to shop from home than to shop in a physical storesome believe that exposure to cellular mobile communication radiation may cause health problemscollaborative commerce can help improve health care


Virtual (Internet) Virtual (Internet) CommunitiesCommunities

Virtual (Internet) community:Virtual (Internet) community: A A group of people with similar group of people with similar interests who interact with one interests who interact with one another using the Internetanother using the Internet


Virtual (Internet) Virtual (Internet) Communities Communities (cont.)(cont.)

Characteristics of virtual Characteristics of virtual communitiescommunities

Internet communities may have thousands or even millions of membersOnline communities are geographically confined



Classify members as:TradersPlayersJust friendsEnthusiastsFriends in need

The gathering of needs in one place enables vendors to sell more and community members to get discounts



Examples of online communities:Examples of online communities:AssociationsEthnic communitiesGender communitiesAffinity portalsCatering to young peopleMega communitiesB2B online communities



Types of virtual Types of virtual communities:communities:

TransactionPurpose or interestRelations or practiceFantasy



How to transform a community How to transform a community site to a commercial site:site to a commercial site:

Understand a particular niche industry,Build a site that provides that information,Set up the site to mirror the steps a user goes through in the information-gathering and decision-making process



Set up the site to mirror the steps a user goes through in the information-gathering and decision-making processStart selling products and services that fit into the decision-support process



Financial viability of communitiesFinancial viability of communitiesRevenue model of communities can be based on:

SponsorshipMembership feesSales commissionsAdvertising



The operating expenses for communities are very high due to the need to provide fresh content and free servicesMost communities initially provide free membershipThe objective is to have as many registered members as possible and to build a strong brand in order to attract advertisers



Key strategies for successful Key strategies for successful online communities:online communities:

1. Increase traffic and participation in the community

2. Focus on the needs of the members; use facilitators and coordinators



3. Encourage free sharing of opinions and information—no controls

4. Obtain financial sponsorship. This factor is a must. Significant investment is required

5. Consider the cultural environment



6. Provide several tools and activities for member use; communities are not just discussion groups

7. Involve community members in activities and recruiting

8. Guide discussions, provoke controversy, and raise sticky issues. This keeps interest high


The Future of ECThe Future of EC

Nontechnological success factors:Nontechnological success factors:Internet usageOpportunities for buyingM-commercePurchasing incentivesIncreased security and trust


The Future of EC The Future of EC (cont.)(cont.)

Efficient information handlingInnovative organizationsVirtual communitiesPayment systemsB2B ECB2B exchanges



AuctionsGoing globalE-governmentIntrabusiness ECE-learningEC legislation



EC technology trends:EC technology trends:ClientsEmbedded clientsPervasive computingWireless communications and m-commerceWearable devicesServers and operating systemsNetworks



EC software and servicesSearch enginesPeer-to-peer technologyIntegrationWeb servicesSoftware agentsInteractive TVTomorrow’s Internet



Integrating the marketplace and Integrating the marketplace and marketspace:marketspace:

The most noticeable integration of the two concepts is in the click-and-mortar organization

Some organizations will use EC as just another selling channelOthers will use EC for only some products and services



A major problem in the click-and-mortar approach is how the two outlets can cooperate in:

PlanningAdvertisingLogisticsResource allocationAlignment of strategic plans of the marketspace and marketplace



Conflict with existing distribution channelsCoexistence in B2C ordering systemsThe impact of EC on our lives may be as much or more profound than that of the Industrial Revolution


Managerial IssuesManagerial Issues

1. What sorts of legal and ethical issues should be of major concern to an EC enterprise?

2. What are the most critical ethical issues?


Managerial Issues Managerial Issues (cont.)(cont.)

3. Should we obtain patents?4. What impacts on business is EC

expected to make?5. Do we have a community?


SummarySummary

1. Differences between legal and ethical issues.

2. Protecting privacy in EC.3. Intellectual property rights in EC.4. Conflict between free speech and

censorship.5. Legal issues.


Summary Summary (cont.)(cont.)

6. Protecting buyers and sellers online.

7. Societal issues and EC.8. The role of virtual communities.9. The future of EC.

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