WEBD 321 AMU Business Law The Laws of The Internet & E Commerce Essay

Explaining the laws of the internet has a benefit or limited E-commerce. Provide specific examples.

2Lesson 2:
Law and the Internet
Objectives
By the end of this lesson, you will be able to:

3.1.3: Establish and protect a brand (includes trademark registration).

3.2.1: Identify legal and governmental aspects of e-commerce (includes legal
precedent, liability concepts, international issues, ethics, jurisdiction, copyright,
patents).

3.2.2: Identify and protect intellectual property.

3.2.3: Identify e-commerce taxation issues.

3.2.4: Avoid questionable practices (includes spam, spyware, selling user
information).

3.2.5: Identify international trade laws.
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Pre-Assessment Questions
1.
Which of the following terms pertains to products such as written materials, musical
compositions and trademarks that are protected by law?
a.
b.
c.
d.
2.
David distributes pirated software from his personal Web site. Which law is he
violating?
a.
b.
c.
d.
3.
Artistic representations
Electronic publishing
Intellectual property
Copyrighted material
Internet Software Piracy Act
North American Free Trade Agreement
Although software piracy is highly unethical, it is not in violation of any law.
Digital Millennium Copyright Act
What is the term used to refer to unsolicited e-mail messages used to advertise a
product or service?
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Note: Internet-related law is an emerging discipline. It constantly changes and incorporates
elements of several other legal areas. Laws relating to the Internet and specifically to
e-commerce are subject to change without notice. This lesson is designed to introduce you
to basic legal concepts, but is not meant as a substitute for sound legal counsel in
establishing and maintaining your e-commerce business.
Introduction to Internet Legal Issues
More than five centuries ago, the invention of the printing press changed the world. The
printing press helped make information more widely available. Today, the Internet is a
modern version of the same revolution. If information is power, no medium offers this
power to more people than the Internet.
The Internet is supplementing (and in some cases replacing) such societal hallmarks as
libraries and town halls. Online services such as America Online and Microsoft’s MSN are
becoming popular sources of entertainment and information. Print and broadcast media
companies around the world now use the Internet as a major part of their delivery
network. Internet addresses and e-mail addresses have become a requirement for
professional and commercial credibility. Magazines, books and music are published and
disseminated electronically, with many published in electronic format only.
These advances present disadvantages as well. Besides creating societies with artificial
classes, the Internet is, ironically, affecting the companies that do the most to advance it:
software companies. These companies claim to be losing money because of the Internet.
Many software products are becoming commodities because they can be easily
duplicated, thereby depressing prices. Various elements of intellectual property have
vague boundaries that can be crossed with hazy justifications.
OBJECTIVE:
3.2.1: Legal and
governmental
aspects
In the first days of the Internet and during the earliest stages of e-commerce, many
individuals and businesses imagined the Internet as a vast, uncontrolled wilderness.
However, taking commerce into an electronic virtual environment did not mean leaving
legal requirements and governmental controls behind. Instead, it meant that you often
needed an even better understanding of international law than you did for a traditional
business. The Internet makes crossing international boundaries easier; in fact, they are
often crossed without your knowledge.
In general, the same business law and international commerce precedents apply across
the Internet as in any other business. In many cases, precedent is specific to the
jurisdiction in which the decision is made. The jurisdiction is typically determined by the
physical location or address of record of the business and the customer, not necessarily
that of the Web site hosting the business; this fact makes it more difficult to predict
which country’s regulations might apply to a business over time.
The same issues arise regarding ownership and control. Bypassing physical boundaries
does not mean that you can avoid concerns about brand ownership, copyrights and
patents. The Internet does not provide a mask of anonymity, hiding illegal or unethical
behavior. You are likely to find that complaints by customers who feel they have been
mistreated or misinformed can be distributed wider and faster than ever before,
sometimes causing irrecoverable damage to a business.
This lesson will discuss many of the complex issues surrounding law on the Internet. It
will also address issues relating to ethical business practices in the electronic
community. Such issues consist of approaches, challenges, technologies, intellectual
property, protection, security and the law.
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Movie Time!
Go to CIW Online to view a movie about this topic.
Legal Issues (approx. playing time: 04:30)
All movie clips are © 2011 LearnKey, Inc.
Electronic Publishing
Electronic publishing (EP) is the use of computers rather than traditional print
mechanisms to distribute information. The term electronic publishing as used in this
lesson is not limited to publishing only. It also encompasses other fields that benefit from
digital technology: music, movies and video games.
narrowcast
advertising
Advertising that is
designed to target
a specific, typically
small demographic
group.
EP is becoming more popular because of the savings it offers over paper publishing. A
CD-ROM holding more than 150,000 pages of information can be produced for less than
U.S. $1, significantly less when self-publishing. Compare this amount with U.S. $1,300
or more, which is the cost of producing the same information using traditional print
methods. EP is also making it easier for publishers to reach specific markets, allowing
them to target particular groups within those markets. Instead of a broadcast advertising
medium such as television, publishers can do narrowcast advertising (which targets a
specific, typically small demographic group) on a specific Web site that is routinely
accessed by certain people.
One drawback of EP is that as more documents and more media such as music, movies
and games are being placed on the Internet, intellectual property rights may be at risk of
being violated. Computer-based theft is rising, as are the lawsuits against companies for
violating patents and copyrights. Intellectual property is closely guarded in today’s digital
age, and has become a controversial topic in the age of EP. Consider the examples
discussed in the following sections.
Example 1: Sending copyrighted material to others
Graphics
Interchange Format
(GIF)
A graphics image
file format
commonly used in
HTML documents;
designated by the
file name extension
.gif.
A little girl named Sedona loves Barbie dolls. For her birthday, her father visits
www.mattel.com looking for the perfect gift. After downloading images of a custom Barbie
for Sedona, he saves the Graphics Interchange Format (GIF) image of Barbie on his
computer to show his wife. His wife then sends the image to a friend who is also
considering a Barbie for her daughter. Can she legally send that image to a friend? Is the
friend who unwittingly accepts this image of Barbie participating in a copyright violation?
If so, who can be considered liable: Sedona’s parents, the recipient friend, or the ISP that
provided the medium for the information dissemination?
Example 2: Newsgroups and message boards
newsgroup
On Usenet, a
subject or other
topical interest
group whose
members exchange
and distribute mail
messages.
An Internet user downloads a game from a newsgroup or message board. The game
belongs to another subscriber who has uploaded it there, presumably for his friends to
use. One Internet user downloads the game and finds it so fascinating that she
immediately sends it to a dozen friends. Is this distribution an intellectual property
violation? Did the first Internet user have the right to distribute the game without
consulting the author? Is the newsgroup or message board liable for posting a private
game to the rest of the world?
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Example 3: Artistic representations
A user digitizes songs from an album (or clips from a movie) as a backup for personal
use, and to place on a Web site later. The original user plays the songs on a computer,
and copies them to portable devices. What are the limits on how the music can be copied
and used? Are users who (unwittingly or not) download the songs and save them on their
computers violating copyright laws? Is the Web site itself in violation?
Example 4: Defamatory information
An ISP hosts a Web page on a subscriber’s behalf. This page has a defamatory quality to
it that offends other subscribers and users of the ISP. Is the ISP responsible for the
content of the defamatory information? Or is it simply a conduit and not obligated to
analyze the information it disseminates?
The same questions apply to universities and corporations. Is a university or
corporation liable if one of its members creates a page that offends others?
These are some issues that lead many corporations, universities and ISPs to
initiate strict monitoring and usage policies.
Intellectual Property Issues
OBJECTIVE:
3.2.2: Intellectual
property
The preceding examples demonstrate that intellectual property has become a
controversial topic in the age of EP. As more material is published through electronic
media, issues such as copyright, trademark and patent infringement often arise. The
speed of these technical advancements has exceeded the legal system’s capacity to stay
current. The U.S. legal system obviously was not developed with the digital age in mind.
Increasingly, the juxtaposition of digital technology with these older laws has made
interpretation necessary.
Rapid computer transmission, electronic reproduction, and text and image manipulation
are destined to change how the ownership of information is treated under the law.
Technology threatens something with a long history of legal protection and which
computers made much easier to challenge: the ownership of an idea or of information.
Two branches of intellectual property
The two types of intellectual property are industrial property and copyrighted material.
Industrial property covers inventions, trademarks and industrial designs.
Industrial property
Protection is granted for industrial property in the form of exclusive rights of exploitation.

Industrial designs — To be covered for industrial property protection, industrial
designs must be original or novel and must be registered by a recognized
governmental office, often the same office that registers patents. Essentially, such
protection prevents any third party from using the design without consent of the
rightful owner.

Inventions — An invention is a novel idea that permits in practice the solution of a
specific problem in the field of technology. Again, the protection is to prevent
unauthorized persons from using, producing or profiting from the invention without
consent.

Trademarks and service marks — A mark is a sign, or a combination of signs,
capable of distinguishing the goods or services of one undertaking from those of other
undertakings. It may consist of distinctive words, letters, numbers, drawings or
pictures, and can also include containers or packages.
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
International protection — Laws of a particular country are generally only of
concern to or enforceable by that country. However, many countries are signatories
(signed in agreement) to various international treaties designed to provide reciprocal
protection.
Copyrighted material
Copyright covers literary, musical, artistic, photographic, audiovisual and software
works. Copyright protection generally means that certain uses of the work are lawful only
with the authorization of the copyright owner. The subject matter of copyright is usually
described as “literary and artistic works” — that is, original creations in literature and the
arts. The form in which such works are expressed may be words, symbols, music,
pictures, three-dimensional objects or combinations thereof (as in the case of an opera or
a motion picture). Copyright laws protect the following items:

Literary works — novels, short stories, poems, computer programs, other written
works

Musical works — songs, choruses, operas, musicals

Artistic works — drawings, paintings, etchings

Photographic works — portraits, landscapes, photos of news events

Audiovisual works — television broadcasting, film dramas, documentaries

Software — computer programs
Copyright protection is limited in time. Many countries have adopted, as a general rule, a
term of protection that starts at the time of the work’s creation and ends 50 years later.
The United States has modified time limits over the years but laws are based on dates of
creation and copyright registration, and generally set terms for the life of the author plus
a specified number of years. For specific information about U.S. copyrights, visit
www.copyright.gov/faq.html or www.loc.gov/copyright. Examples of indictments for
copyright violation can be found at www.cybercrime.gov/.
The laws of a country relating to copyright are generally concerned only with acts
accomplished or committed in that country. However, many countries have agreed to
treaties designed to provide reciprocal protection in the international arena.
Because computers quicken the pace of copying, transmitting and disseminating
information, and because asserting ownership of something so easily transferable is
difficult, computers challenge the entire idea of ownership of intellectual property. The
following list enumerates some significant intellectual property issues.

Copyright, trademark and patent law
—
What constitutes transmission of an electronic document?
—
How should patents be granted for algorithms and techniques?
—
Which aspects of a user interface or program controls can be patented?
—
How should domain names be allocated?

Lawsuits, including future litigation

New laws
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Some people have characterized intellectual property law as an obsolete device suited
only to protecting tangible goods. To varying degrees, information is intangible, so how
can it be protected? Recent legislation has sought to modify existing laws to cover online
media and other intangible goods. Because these laws are written and applied,
considerable ambiguity is expected in defining intellectual property infringements. After
the laws are established and understood uniformly, protection will be more easily granted
to, and guarded by, the rightful owners. However, this remains a rapidly changing area of
international law, often making it difficult to fully enforce current protections.
Areas of Liability
Areas of liability in EP can be divided into the following categories, all of which affect the
Internet:

Copyright, trademark and patent issues

Privacy and confidentiality issues

Jurisdictional issues
You will look at each of these categories in some detail. The following lab directs you to
some available information about legal issues relating to e-commerce, specifically
information available through Yahoo.com directory links. Suppose your employer wanted
to post a short business article on the company Web site, and you were asked to verify
the legality of posting the article. You would want to research legal and regulatory issues
relating to e-commerce in general, as well as any that apply directly to your particular
business segment.
Lab 2-1: Examining electronic commerce law
In this lab, you will examine some legal aspects of electronic commerce on the Web. You
will learn about and use some public sources for this information.
1.
Open your browser.
2.
Browser: In the Address field, enter dir.yahoo.com.
3.
Browser: The Yahoo! home page appears. Click the Computers & Internet link, as
shown in Figure 2-1.
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Figure 2-1: Yahoo! Search Directory
4.
Click the Internet link.
5.
Click the Law@ link, as shown in Figure 2-2.
Figure 2-2: Yahoo! Law@ link
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Scroll down and view the links on this page (Figure 2-3). These sites can provide
additional information about legal issues in the electronic commerce environment.
Figure 2-3: Yahoo! links
Copyright, Trademark and Patent Issues
Copyright, trademark and patent laws address the issue of ownership of intellectual
property.
Copyright in the United States
OBJECTIVE:
3.2.1: Legal and
governmental
aspects
Article 1, Section 8 of the United States Constitution gives authors exclusive rights to
their own works for a limited time. Congress later enacted the 1976 Copyright Act, which
protects “original works of authorship,” including literary works. The term “literary works”
has been held to include computer software. Section 103 of the Copyright Act protects
“compilations,” which are defined as works “formed by the collection and assembling of
pre-existing materials or of data that are selected, coordinated or arranged in such a way
that the resulting work as a whole constitutes an original work of authorship.”
To promote creative expression, copyright protection prevents anyone but the rightful
owner from copying, distributing, displaying or making derivative works from a
copyrighted work. Authors may transfer their copyrights to others, such as publishing
companies, if they want. Copyright law does not protect others from independently
creating the same idea or concept. A copyright usually lasts for the life of the author plus
a number of years, depending on its dates of creation and registration. For example, for
works published in the United States after March 1, 1989, the copyright term is
described as follows:
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
For works by private authors, 70 years after the death of the author

For works produced through corporate authors, 95 years after first publication or
120 years after creation (whichever is shorter)
Information about other copyright terms is available at the following page:
www.copyright.cornell.edu/training/Hirtle_Public_Domain.htm.
Works protected include literary works (including computer programs); musical works;
pantomimes and choreographic works; pictorial, graphic and sculptural works; motion
pictures and other audiovisual works; sound recordings; and architectural works.
Although registering a copyright is not mandatory, it is advisable because legal owners of
copyrights can more easily prove authorship if they hold registered copyrights, and can
seek legal remedies more easily.
The basic elements of a work are:
OBJECTIVE:
3.2.2: Intellectual
property

Expression.

Originality.
For copyright purposes, the work is considered original if it was independently created
and not copied from others. Further, originality does not require novelty; that is, a work
will not be denied copyright protection merely because it is similar to a work previously
produced by someone else. Copyright protection does not extend to an idea or fact.
Many Internet users wonder: What can copyright mean when millions of people are
accessing the Internet and downloading any information they can find on any subject
they desire? Some of the following issues might arise in Internet-related situations.

The author of a message posted to a newsgroup is entitled to copyright protection.
Although reposting the message is common, it will generally constitute a copyright
violation unless the author has relinquished rights to the message or has given
permission for it to be circulated. However, many newsgroups require such
permission as a condition of membership.

Digitized images are often transmitted and distributed on the Internet. The original
creators of the digital image are protected by copyright law, assuming the original
material was not in the public domain already. Beyond the initial creators, any
individuals copying or scanning the image are duplicating someone else’s work in
violation of copyright law.

A copyright violation may occur when copying software and transmitting it over the
Internet.

Authors of e-mail messages own the copyrights to their work in most circumstances.
Third parties cannot use the e-mail message without the owner’s consent.
However, copyright law is still very unclear with respect to certain portions of the
Internet. For instance, is the store-and-forward function of a mail transfer agent (or a
router) owned by an ISP a form of copyright infringement?
OBJECTIVE:
3.2.1: Legal and
governmental
aspects
In general, intellectual property is considered copyrighted when it is produced. Problems
arise in proving who produced the property and when. Even so-called hidden properties
of electronic files, such as the file creation timestamp, can be manipulated. Several
service businesses specialize in helping you understand and protect your intellectual
property rights. A broad-based reference site is located at www.bitlaw.com.
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The courts are attempting to settle these issues. Following are three precedent-setting
cases that have been decided in the digital arena.
Sega Enterprises Ltd. vs. MAPHIA
The courts decided in favor of Sega Enterprises, which brought suit against MAPHIA, an
electronic bulletin board service (BBS). Sega Enterprises claimed that MAPHIA copied a
Sega game to its BBS and made the game available for user downloads. The courts found
that MAPHIA sometimes charged the users a direct fee for downloading privileges, or
bartered for the privilege of downloading the Sega Enterprises game. Because the Sega
Enterprises game was protected by copyright, MAPHIA violated Sega’s copyright by
obtaining unauthorized copies of the game and placing them on the BBS storage
medium.
Napster vs. the Recording Industry Association of America (RIAA)
MPEG-1 Audio
Layer-3 (MP3)
Popular
compression
standard for audio
files; retains most of
the sound quality of
the source.
Napster Inc. was sued in 2000 by the Recording Industry Association of America (RIAA)
for allowing the free distribution of copyright-protected music through the use of peer-topeer (P2P) file-sharing software. Using the Napster software, users could search and
download almost any song title in MPEG-1 Audio Layer-3 (MP3) and other formats,
allowing unlimited use and redistribution on computers, CD players and MP3 players.
The RIAA claimed that Napster was promoting copyright infringement by allowing users
to freely distribute and use the material without paying royalties. Napster claimed it was
only providing the service and that end users ultimately decided whether or not to use,
download or distribute music, for which Napster received no fees or royalties.
In June 2001, the U.S. Ninth Circuit Court of Appeals upheld a lower court’s findings
that Napster was in copyright violation and must remove all titles requested by the RIAA
from user access.
Napster continues as an Internet music distributor, but under a radically changed
business model. Napster still provides music downloads, but only as a fee-based
subscription service. In addition, Napster also provides commercial-free Internet radio
stations, enabling users to listen to preference-targeted music playlists.
Feist Publications Inc. vs. Rural Telephone Service Company
In 1991 the U.S. Supreme Court heard the case of Feist Publications Inc. vs. Rural
Telephone Service Company. In that case, Feist and Rural Telephone both published
telephone directories that competed for advertising space. The Feist telephone directory
covered 15 counties, one of which included the Rural Telephone Service area. Rural
refused to license its telephone directory information to Feist; therefore Feist copied the
Rural Telephone directory information. The court sided with Feist, and held that
copyright protection afforded to databases (which was how Rural presented its directory
information to the court) was limited, extending only to the author’s selection and
arrangement of the data. The court also held that listing the names and numbers of all
subscribers in a telephone service area in alphabetical order does not satisfy the
minimum “original work of authorship” requirement for copyright protection.
As a consequence of the Feist decision, businesses that create and maintain
databases currently have very limited protection under United States copyright
laws. That protection now covers only the original selection, coordination and
arrangement of data, but not the data itself. Furthermore, selection,
coordination and arrangement are protected only to the extent that they satisfy
the creativity requirement of being an “original work of authorship.”
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Information Infrastructure Task Force (IITF)
President Clinton formed the Information Infrastructure Task Force (IITF) in 1993. The
IITF established a working group on intellectual property rights to examine the
intellectual property implications of electronic publishing. In July 1994, the group
published the “Green Paper,” a preliminary draft report on intellectual property rights.
The working group has recognized the need to review current copyright laws in light of
the fact that copying and disseminating information are easy with electronic media. The
organization has been relatively inactive since 1997.
Trademarks in the United States
Lanham Act
A 1964 law that was
an important early
step toward U.S.
trademark
legislation.
Trademark law is another area of interest in EP. Under common law and the U.S.
Lanham Act, a trademark is “any word, name, symbol or device, or any combination
thereof, adopted and used by a manufacturer or merchant to identify his goods and
distinguish them from those manufactured or sold by others.”
OBJECTIVE:
3.1.3: Brands and
trademarks
Many people are familiar with the golden arches of McDonald’s and the wave design on a
Coca-Cola bottle. Each of these identifying symbols is a form of property owned by the
company that uses it. Besides symbols, a brand name or a company name is also one of
the most common trademarks: Campbell’s Chicken Noodle Soup, Heinz Tomato Ketchup
or IBM Personal Computers.
Trademarks originate from the rule that no one has the right to sell products that belong
to another person or company. The law recognizes trademarks as property and grants to
the trader an exclusive right to use an individual mark. One way to lose the right to a
trademark is by abandoning its use or by failing to renew registration. Loss of a
trademark right can also occur when it is transformed or when a term degenerates into a
household term, as happened with such well-known former trademark names as aspirin,
cellophane, dry ice, shredded wheat, thermos and others.
A direct contribution of EP to trademark law concerns domain names. A domain name is
a company’s logical address or source identifier on the Internet. The holder of a domain
name may be entitled to protection from the U.S. Patent and Trademark Office (PTO) if
the domain name also functions as a trademark or service mark. The Lanham Act defines
a service mark as one “used in the sale or advertising of service to identify the services of
one person and distinguish them from the services of another.” The PTO may deny federal
registration of a domain name if the mark is likely to be confused with a previously
registered trademark or service mark. The test for confusion is based on the likelihood
with which an average consumer in a similar marketplace would confuse the source of
the product or service given similarities in sound, appearance, meaning or connotation of
the two marks.
Porsche Cars North America Inc. vs. Porsch.com
In January 1999, the Porsche automobile company brought a trademark infringement
suit against the owners of 130 domain names for allegedly infringing or diluting the
Porsche trademark. Porsche’s attorneys argued that many domain name registrants use
fictitious names, addresses and other false information in registering domain names to
insulate themselves from service of process (in other words, to avoid prosecution).
Porsche has since lost the suit and is now buying all the domain names from their
owners.
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Internet Corporation
for Assigned Names
and Numbers
(ICANN)
The international
organization
responsible for
domain name
registration. In 1998,
inherited
responsibilities
originally performed
by InterNIC.
Performs Internet
address space
allocation, protocol
parameter
assignment and root
server
management.
2-13
The Internet agency that assigns domain names does so on a first-come, first-served
basis without examining whether the proposed name would violate anyone else’s
proprietary rights. The problem with the first-to-file approach is that the domain name
may also function as a trademark or service mark, potentially subjecting the new user to
infringement proceedings under the Lanham Act. If a domain name is challenged by
another individual or organization as an infringement under trademark or service mark
law, the Internet Corporation for Assigned Names and Numbers (ICANN) will place the
domain name “on hold” to make the domain name unusable by anyone until the matter is
resolved.
Several domain name infringement suits have been brought to the courts in the United
States, including the following.
Intermatic Inc. vs. Toeppen
Intermatic Inc. sued Dennis Toeppen to cease and desist using the domain name
intermatic.com. The court ruled in 1996 that Toeppen, “by registering intermatic.com as a
domain name and attempting to sell or license the name to the owner of the famous
Intermatic trademark, diluted that mark under the law, since traditional trademark law
applies even though the Internet is a new medium of communication.”
Kaplan vs. Princeton Review
Stanley Kaplan, the owner of various standardized testing preparation courses, sued
competitor Princeton Review over Princeton’s use of the domain name kaplan.com.
Kaplan alleged that such “bait-and-switch” tactics appropriated the goodwill and
recognition associated with Kaplan’s trademark, service mark and trade name. The
dispute eventually led to an out-of-court settlement and a change of domain name by
Princeton.
Patents in the United States
OBJECTIVE:
3.2.1: Legal and
governmental
aspects
Patents are another area of interest in EP. A patent, in law, is a document issued by a
government conferring some special right or privilege. In the United States, the term is
restricted to patents for inventions granted under federal statute. The specific attributes
of novelty for which a patent is sought are called claims; thus, a patent can have several
claims. The patent gives the inventor the exclusive right to use a certain process, or to
make, use or sell a specific product or device for a specified time.
After a patent is granted, issues of infringement or scope, or other questions related to
the grant, are within the jurisdiction of the U.S. district courts. Infringement consists of
knowingly and wrongfully making, using or selling someone else’s patented invention. In
general, a patent protects against infringement only within the jurisdiction of the
government by which it is issued. Therefore, inventors should secure a patent in all
countries in which they want protection. Patent laws have been enacted in most
countries. The most important applicable international treaty is the International
Convention for the Protection of Industrial Property.
An important issue in EP-related patent law is software, and the exact determination of
what should and should not be patented. Generally, software patents do not cover the
entire program; they cover only algorithms and techniques. A problem may arise when
the algorithms and techniques mentioned in a patent application are formulated and
used independently by other programmers from when the application was filed. Much of
the legal precedence applying to software patent laws was established during the early
days of the personal computer revolution in the 1980s and 1990s.
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Some argue that the patent system opposes the nature of software development. Present
computer programs contain thousands of algorithms and techniques; each could be
considered patentable, and some are patented. For example, Apple Computer was sued
because its HyperCard program was alleged to violate U.S. Patent number 4,736,308. In
simplified terms, that patent protects a product that entails scrolling through a database
displaying selected parts of each line of text. Separately, scrolling and display functions
are ubiquitous parts of graphical programming, but the particular combination was the
subject of the infringement action. Apple itself has sued Microsoft for allegedly infringing
on the look and feel of what it claims is its invention of graphical rendering of information
on a computer display.
Diamond vs. Diehr
The judicial basis for software patent eligibility is found in the 1981 case of Diamond vs.
Diehr, in which the court said that “a patent could be granted for an industrial process
that was controlled by certain computer algorithms.” Consequently, the U.S. PTO has
used this case as a precedent for allowing patents on algorithms and techniques. The
PTO’s stance on patents for algorithms and techniques has increased the granting of
software patents in the United States.
International intellectual property law
OBJECTIVE:
3.2.2: Intellectual
property
Concerns relating to EP are in no way limited to the United States. In addition to
concerns about protections, another serious issue is whether or not a country enforces
its own EP-related laws.
The general guidelines are typically similar for international intellectual property law to
the United States. Specific details, such as copyright terms, requirements for registering
trademarks, and the patent process, are specific to international jurisdictions. Patent
issues can be particularly difficult because a patent is recognized only in the country in
which it is issued. International patent protection requires having to apply for a patent in
each applicable jurisdiction.
Trade agreements between international entities typically include mutual recognition of
copyright and intellectual property protections. Despite this, intellectual property
continues to be a confusing and sometimes contentious area in trade relations. Charges
are sometimes made of countries vigorously protecting local property while willfully
ignoring violations of international copyrights, trademarks and patents.
The European Union (EU) is attempting to coordinate copyright protections for its
member countries. A key part of this is the EU’s Directive 2001/29/EC, the EU Copyright
Directory (EUCD).
Efforts are also under way through the World Intellectual Property Organization (WIPO) to
coordinate international copyright protections. WIPO administers 23 international
treaties relating to intellectual property protection. Information about WIPO and its
efforts is available at www.wipo.int.
Pending or current United States legislation
OBJECTIVE:
3.2.1: Legal and
governmental
aspects
As mentioned earlier, the legal reach of any copyright or patent extends only as far as the
government that recognizes that particular ownership. In an effort to set forth guidelines
to determine the direction of EP, certain pieces of legislation have been introduced to help
enforce and protect intellectual property.
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On-Line Copyright Infringement Liability Limitation Act
The On-Line Copyright Infringement Liability Limitation Act amends U.S. copyright law to
exempt an online provider, such as an ISP, from liability for direct infringement, based on
the intermediate storage and transmission of material over the provider’s network. The
On-Line Copyright Infringement Liability Limitation Act is actually Title II of the Digital
Millennium Copyright Act. This protection is valid if someone else (such as a subscriber)
initiated the transmission, if the storage and transmission are automatic, and if the
provider does not retain a copy for longer than necessary to perform the transmission.
The Act also protects the provider from financial liability if the provider did not know that
the material was infringed, and did not receive a direct financial benefit as a result of the
transmission. The following activities are covered by the act:

Intermediate and transient storage of materials (such as Web pages or chat room
discussions)

System caching

Putting information on a system at the direction of users

Using information-location tools (such as directories, indexes and hypertext links)
The provider is exempt from claims based on the provider’s removing or disabling online
access to the material when he or she learns that an infringement may have occurred,
whether or not such material is in fact an infringement.
Under the Act, anyone who knowingly misrepresents that online material is infringed is
liable.
No Electronic Theft (NET) Act
The No Electronic Theft (NET) Act amends U.S. copyright law so that “financial gain”
includes the receipt of anything of value, including other copyrighted works.
The NET Act establishes penalties for willfully infringing on someone else’s copyrightprotected material. To view a summary of the NET Act, visit the following page:
www.usdoj.gov/criminal/cybercrime/netsum.htm.
Digital Millennium Copyright Act (DMCA)
The Digital Millennium Copyright Act (DMCA) was created to allow U.S. copyright laws to
conform to WIPO treaties for international copyright standards. The DMCA has the
following four main parts:

Anti-Circumvention Provision — makes it illegal to manufacture, import, distribute
or provide products designed to circumvent encryption, scrambling or other
technologies used to prevent piracy.

Integrity of Copyright Management Information (CMI) — outlaws the knowing
falsification of data identifying works, copyright owners, key facts and payment
royalties.

Service Provider Liability — defines situations in which a service provider may be
immune from damages.

Webcasting — provides for the licensing of sound recordings for Webcasters and
other digital audio services.
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Privacy and Confidentiality
Discussing privacy and confidentiality appears paradoxical when information about
anyone can often be obtained with a few keystrokes. This section discusses some ways in
which some loss of privacy and confidentiality is the tradeoff required for more advanced
technology.
Easy access to public information
As more information about individuals is collected and becomes available through the
Internet, you will often hear concerns that privacy is becoming more a historical memory
and less a modern reality. Individuals are concerned about the amount of information
available on the Internet and to whom the information might be available. As instances of
identity theft and other forms of cybercrime increase, protecting any personal information
provided by your customers remains a critical issue.
Several easily accessible Web sites (for example, www.switchboard.com and
www.411.com) provide directory listings allowing visitors to search for any publicly listed
information (name, address, phone number). Some argue that finding such information
does not hurt the subscriber because it is public. However, the point is not that the
information can be found, but that it can be so readily and easily found. Before the
Internet was widely used, finding public information took time and effort because
physical access to a telephone directory was needed. This requirement no longer exists. A
browser and a connection to the Internet are all that is needed. Some services go beyond
information that is generally considered publicly available. In addition to basic contact
information (address, e-mail and telephone), these fee-based services will provide you
with all the information they can locate about the person. The business practices of some
of these services are considered questionable, and possibly illegal, and investigations are
being performed into the information sources used and how the sources are accessed.
Another area in which privacy and confidentiality impose on public information is court
documents. Many courts have discovered that they can scan legal documents pertaining
to divorces, trials, felonies and misdemeanors, and store them digitally. Besides easy
retrieval and low maintenance costs, such documents can be easily indexed and
searched. The disadvantage is that anyone with a browser can access these documents
from anywhere in the world. Again, the crux of the matter is not that the information can
be accessed, but the ease with which it can be accessed. The chances of this information
being used for malicious purposes rise as it becomes available to more people.
Commercial search engines and related services were developed to make it easier to find
goods, services and information on the Internet. They are now increasingly used to find
personal information with the amount of data recovered by a Web search of an
individual’s name becoming something of a point of pride in some user communities. The
popularity of this activity in the United States is demonstrated by the shift of the term
“Google” from simply the name of a search engine service to a verb used to refer to the act
of searching the Internet.
One controversial topic that relates to accessibility of private information is the issue of
wireless location privacy. On June 19, 2001, the U.S. Congressional Internet Caucus (a
bipartisan group of members of the House of Representatives and the Senate working to
teach their colleagues about the advantages and disadvantages of the Internet) convened
a panel of experts to discuss issues of wireless location privacy. Privacy groups and
members of the wireless communications industry have urged the Federal
Communications Commission (FCC) to set rules for commercial use and disclosure of
location information provided by cell phones and other wireless communications devices.
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Resources on electronic privacy, including proposed privacy legislation, include the
Center for Democracy and Technology (www.cdt.org), the Computer Security Resource
Center (http://csrc.nist.gov) and the Electronic Privacy Information Center
(www.epic.org).
The following lab demonstrates the ease with which you can locate information, including
what you might consider personal information, on the Internet. Often, this information
becomes available through questionable practices by businesses, such as selling (or not
protecting) user information. Suppose you are a small-business owner and you need to
find current information about customers in an outdated database. You would want to
use various tools available on the Internet that could help you find updated or current
information about these customers.
Lab 2-2: Searching for personal information on the Internet
In this lab, you will search for and view information on the Internet.
1.
Open your browser.
2.
Browser: In the Address field, enter people.yahoo.com to access Yahoo! People
Search, as shown in Figure 2-4.
Figure 2-4: Yahoo! People Search
3.
Enter your first and last names in the US Phone And Address Search text area. To
narrow the search, you can enter a city and state. Click the Phone And Address
Search button. If you are prompted that information sent over the Internet might be
seen by other users, select In The Future, Do Not Show This Message, then click
Yes.
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4.
Record any information you located about yourself in the space provided.
5.
Try searching for information on someone else. Record the information in the space
provided.
Note: You can also use a number of other free sites, including Google.com,
Switchboard.com and Bigfoot.com, to locate information on individuals. For more
specific information, several fee-based sites exist, such as LexisNexis
(www.lexis.com/).
6.
If Time Permits: Go to www.ask.com and search for Internet Privacy Law.
7.
Navigate through some of the links, and look for current and relevant information.
Marketing and databases
Marketers can track almost anything. Do you travel often? Airlines will send you frequent
flier deals. Do you own a personal computer? Circulars from computer warehouses will
appear in your mailbox. Are you a member of a music club? You will receive offers to join
video clubs, book clubs and other music clubs. Every vendor is vying for your
discretionary income, and technology enables merchants to track, index and analyze your
purchases.
Given the enormous appetite of marketers and the equally enormous databases that hold
consumer information, privacy is rapidly disappearing. As soon as you fill out a product
registration card, the vendor has learned some information about you, and can then use
that information digitally. Firms that analyze purchase data sometimes sell such
information.
OBJECTIVE:
3.2.4: Questionable
practices
Some consumers might excuse the data analysis if it were used only for targeted
advertising. Someone who recently bought a Bose audio system could be reasonably
assumed to have an interest in the latest Harman Kardon digital receiver. But customers
will probably perceive a misuse of data if they are suddenly swamped with sales pitches
from BMW or Condé Nast as a result of their Bose purchases. However, targeted
advertising works this way in some cases. Unrelated items are somehow linked together,
leaving the consumer with a mailbox full of junk, either paper or digital. Concerns about
identity theft and other privacy issues have caused many consumers to view the practice
of selling contact information as ethically questionable. Most reputable businesses will
either ask customers’ permission before sharing private information or will use the fact
that the business does not share its customer information as a selling point.
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Misuse of sensitive information
In 1997, the U.S. Social Security Administration (SSA) decided to allow citizens to access
their retirement projections on the Web. The user had only to enter his or her Social
Security number and birth date. However, the SSA soon discovered that malicious
individuals who had access to both pieces of information could get other people’s
projections. Many such individuals were caught accessing other accounts. The SSA
promptly closed the site.
As a service to Social Security participants, the SSA site was a good idea. However, the
required information to access the site was not difficult enough to deter imposters.
Anyone with someone else’s Social Security number and date of birth could masquerade
as that person. How did malicious individuals get the Social Security numbers? From
several possible sources: access to Internal Revenue Service (IRS) documents, registration
information, and even underground Web sites that trade in pirated Social Security
numbers.
A new law intended to protect children from pornography and privacy violations on the
Internet was part of a recent United States $500 billion spending bill. The Commission on
Online Child Protection passed the Children’s Online Privacy Protection Act (COPPA),
effective April 21, 2000. The privacy measures prevent Web sites from collecting
information about children 13 years of age and younger without a parent’s verifiable
permission. The law also requires Web site operators to block access by anyone 17 or
younger to materials deemed “harmful to minors” by requiring all users to provide a
credit card or personal ID number. You can view the text of COPPA at
www.ftc.gov/opa/2000/04/coppa1.htm.
As is often the case, however, there have been unseen consequences. The exact scope of
the act continues to be defined through ongoing court cases, with some providers left
wondering what information and images they can or cannot supply. Some organizations
are concerned about their liability in providing information, for which a minor might have
a valid need for access for research projects — for example, medical reference information
or works of art. The Act has also helped to drive the development and distribution of
applications that screen and block access to inappropriate Web sites. These applications
help to protect organizations that provide free public Internet access, such as libraries,
from prosecution.
Jurisdiction and Electronic Publishing
OBJECTIVE:
3.2.1: Legal and
governmental
aspects
Jurisdictional issues are another legal area for EP. Some estimates contend that U.S.based corporations are losing $60 billion annually because of intellectual property
infringement. As a result, the U.S. government is trying to achieve a global standard for
intellectual property law.
As computer crime proliferates, computer thieves disperse around the globe. To cause
harm to a computer, the perpetrator need not be physically near the target. On the
Internet, criminals can attack U.S. targets from outside the country. The task of catching
these thieves is often thwarted by international borders. Laws are territorial; they can be
applied only within the jurisdiction of the body that issued them.
The Web uses Uniform Resource Locator (URL) addresses and Hypertext Transfer Protocol
(HTTP) to link computers from many countries, with no regard for national or
international boundaries. The same advancements in telecommunications have allowed
information to be shared worldwide. This sharing creates a problem because of different
intellectual property laws. For example, users in the United States can access
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information in other sovereign countries that, if obtained in the United States, would
violate intellectual property rights. These foreign sites often provide the same information
at a lower price, so the U.S. user would naturally be attracted to them. Jurisdictional
issues are difficult to resolve among the various states, and more difficult across
international borders.
cracker
A person who
locates and exploits
a vulnerability in a
system in order to
do harm.
In some celebrated cases about crackers breaking into commercial and government
computers, the crackers were coming in from Europe. U.S. authorities could monitor
their activities but could not apprehend them because U.S. jurisdiction did not extend to
the European countries. Finally, the crackers were apprehended (with the cooperation of
U.S. authorities) in their home countries, and stood trial on the grounds of conducting
unwarranted and malicious espionage on foreign soil.
Internet jurisdictional issues raise interesting problems. For example, gambling in most
U.S. states is illegal unless conducted on American Indian-owned lands or on a riverboat.
Yet dozens of online gambling sites are available. Are these legal? The U.S. Congress is
considering two bills that would outlaw online gambling in the United States. In
traditional commerce (even over the phone), both parties have some contact (physical or
verbal) before a transaction is completed. Most electronic commerce scenarios do not offer
this contact. If anything is wrong with the goods or services exchanged over the Internet,
either of the parties can be sued.
The U.S. Constitution requires that for one state’s court to have jurisdiction over a nonresident party, that party must have had “minimum contacts” with the court’s state. An
important element of “minimum contacts” is that the non-resident “purposely
established” contacts and “created continuing relationships and obligations with the
citizens of another state.” How do these jurisdictional issues work on the Internet, where
the participating parties may never have physical contact? Interestingly, the courts have
held that physical presence is not a prerequisite for jurisdiction. That is, under particular
circumstances, Internet presence alone can be sufficient to grant jurisdiction over a nonresident.
Several cases have established jurisdictional precedent, including the following:

In State of Minnesota vs. Granite Gate Resorts, the state attorney general in
Minnesota, where gambling is illegal, successfully sued Granite Gate Resorts, a
sports betting service contracting out of Nevada.

A Connecticut company successfully sued a Massachusetts company in Connecticut
for using an Internet domain name that it claimed infringed on its trademark.
However, the cost of conducting electronic commerce should not include lawsuits.
Following are some methods for protecting a site against lawsuits from other states.

Do not advertise that products are available nationwide if some jurisdictions could be
expected to consider them illegal. In State of Minnesota vs. Granite Gate Resorts, if the
online betting page had carried a disclaimer stating “Not valid in Minnesota” and the
company had attempted to exclude Minnesota residents, the state’s cause for action
would have been diminished.

Keep “interactivity” to a minimum. Some courts have found that when a site includes
a toll-free telephone number, which presumably encourages contact (or interactivity)
from out of state, jurisdictional precedence applies.
Jurisdictional restrictions do not protect patents. Under international laws, a patent
must be secured in every country in which the patent holder intends to do business. As
mentioned earlier, WIPO attempts to promote technology sharing among member
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countries. Included in the treaties administered by WIPO are the Berne Treaty and the
Paris Convention, both of which are multinational agreements governing the management
of intellectual property.
The following lab introduces some potential issues you might encounter as you move
from selling in one country or geographical area into international sales. It also
introduces a Web site that can help you to localize your Web site. Suppose you decide to
begin selling your business products overseas, using your e-commerce site to take orders.
You need to understand the issues relating to localizing your Web site to make it
accessible to your customers, as well as legal and regulatory information.
Lab 2-3: Selling Habitat For Humanity products in Europe
In this lab, you will explore the various issues involved in selling your e-commerce
business’s products overseas.
The Habitat For Humanity Gift Shop would like to sell its products in France, the United
Kingdom, Germany and Italy. If this project moves forward, the Web site will need to be
translated into French, German and Italian. You will also need to determine how you will
accept payment from overseas customers, and how the Habitat For Humanity Gift Shop
will handle customs and import restrictions.
1.
In your browser, enter www.welocalize.com, then select the appropriate language
(see the Welocalize Web site in Figure 2-5). Review the information. In the space
provided, list target languages supported.
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Figure 2-5: Welocalize Web site
2.
Visit http://babelfish.altavista.com/ to access translation features. Compare this
site with the Welocalize site. In the space provided, identify the company providing
the best value and explain your choice.
3.
Because Habitat For Humanity has previously sold products only in the United
States, it has offered standard shipping times and prices. Discuss how you would
adjust these times and prices for European customers.
4.
You need to learn about trade policies and restrictions in your new target markets. In
your browser, enter http://europa.eu.int/comm/trade/index_en.htm for
information about trade with the European Union (EU). See Figure 2-6.
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Figure 2-6: EU External Trade policy information
5.
What payment options do you plan to offer international customers? Must they pay
in U.S. dollars, or will you accept foreign currencies? In your browser, enter
http://quote.yahoo.com/m3 to view a free currency conversion service offered by
Yahoo! See Figure 2-7.
Figure 2-7: Yahoo! Currency Conversion site
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In this lab, you examined various issues that confront business owners hoping to expand
their e-commerce presence internationally. You visited Web translation sites, considered
import restrictions and explored currency conversion considerations for your business.
Internet Taxation
OBJECTIVE:
3.2.3: E-commerce
taxation
The U.S. Constitution currently prevents states from taxing transactions beyond their
borders. The Supreme Court has ruled that states cannot require out-of-state companies
to collect sales taxes unless Congress passes a law allowing them to do so.
In 1998, the Commerce Committee of the U.S. House of Representatives passed, and the
president signed, the Internet Tax Freedom Act (ITFA), which imposed a three-year
moratorium on new Internet taxation. As part of the Act, Congress established the
Advisory Commission on Electronic Commerce to address the issues related to Internet
taxation. The Congressionally appointed members of the Commission include the
following:

Three representatives from the federal government — the secretary of commerce, the
secretary of the treasury, and the U.S. trade representative (or delegates).

Eight representatives from state and local governments (including at least one
representative from a state or local government that does not impose a sales tax and
one from a state that does not impose an income tax).

Eight representatives of the electronic commerce industry (including small business),
telecommunications carriers, local retail businesses and consumer groups.
The Advisory Commission conducted a thorough study of federal, state, local and
international taxation and tariff treatment of transactions using the Internet and Internet
access, and other comparable intrastate, interstate or international sales activities. The
Commission was assigned to produce an important policy initiative.
The ITFA initially placed a three-year moratorium, due to expire October 2001, on various
taxes on Internet access and e-commerce so the Commission would have time to review
the issues before making recommendations.
Central to the examination of these issues is the fact that the Internet is not constrained
by geographical boundaries and by its very nature violates geographical boundaries that
hinder other forms of commerce. The Commission analyzed the implications of personal
privacy on the taxation of Internet purchases.
Some of the key issues, at least with certain states, concern their inability to collect sales
tax revenue from Web businesses. Businesses collect sales tax only from customers in
states where they have physical presence. Many state officials are worried that as
electronic commerce grows, local sales tax revenue will decline and basic services will be
hurt. Many states have made efforts to limit the scope of the ITFA or to find ways around
its imposed moratorium.
The Advisory Commission on Electronic Commerce finished its work as of April 2000 and
was dissolved. Its report recommended to Congress that the Internet tax moratorium be
extended for five more years, until 2006. In 2000, the U.S. House of Representatives
approved the recommendation. Final approval of the extension was announced in June
2001. During the extension period, lawmakers will develop a simplified tax plan. The
commission’s report can be found at www.ecommercecommission.org.
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The act was further amended in 2004 through the Internet Tax Nondiscrimination Act,
extending the moratorium through 2007 with recommendations to make the moratorium
permanent.
Bit tax
bit tax
A tax based on
data transfer by
volume or volume
over time.
This new area of taxation has spawned the term bit tax. A bit tax is any tax on electronic
commerce expressly imposed on or measured by the volume of digital information
transmitted electronically, or by the volume of digital information per unit of time
transmitted electronically. It does not include taxes on the provision of
telecommunications services. A bit tax proposal recommendation issued by the United
Nations in 1999 immediately generated published articles from both advocates and
opponents of the proposal. A major complaint is one that surfaces any time a
recommendation is made to tax Internet commercial activities — that it will stifle
development and slow the growth of business.
International Tax and the Internet
OBJECTIVE:
3.2.3: E-commerce
taxation
The Internet Tax Freedom Act calls for a declaration that the Internet should be free of
foreign tariffs, trade barriers and other restrictions.
It describes the view of the U.S. Congress that the president should seek bilateral,
regional and multilateral agreements to remove barriers to global electronic commerce
through the World Trade Organization, the Organization for Economic Cooperation and
Development, the Trans-Atlantic Economic Partnership, the Asia Pacific Economic
Cooperation forum, the Free Trade Area of the Americas, the North American Free Trade
Agreement (NAFTA) and other appropriate venues. This ongoing effort continues to be
supported by the U.S. Congress.
Customs and E-Commerce
OBJECTIVE:
3.2.5: International
trade laws
A growing concern of e-commerce is the importance of customs. In many cases, Web
shoppers can now purchase products from anyone and have the products shipped
directly to them. The traditional process of importing and exporting goods has been
largely regulated by customs services. These services help ensure legal compliance, and
protect goods entering and leaving a country.
Intentional illegal importing and exporting will always occur, but its ramifications are
beyond the scope of this course. Instead, we will explore unintentional illegal activity.
Many regulations and restrictions for importing and exporting can be easily overlooked in
the e-commerce business. An e-commerce site could be offering goods that may have
restrictions on exporting from the state of origin or restrictions at the state of entry. This
discussion will not include obviously illegal items.
For example, an e-commerce site that sells technical books is required to have special
documentation and additional taxes when shipping to Canada. If the e-commerce retailer
is not aware of these restrictions, legal difficulties could result.
A software company that sells an application with high encryption capabilities could also
be violating import/export and customs laws.
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The following sites contain information about various aspects of importing and exporting
for different countries:

Imex Exchange (www.imex.com)

Federation of International Trade Associations (www.fita.org)

Asia-Pacific Economic Cooperation (www.apecsec.org.sg)

World Customs Organization (www.wcoomd.org)

United States Customs and Border Protection (www.customs.ustreas.gov)
Tariffs and E-Commerce
OBJECTIVE:
3.2.3: E-commerce
taxation
In shipping goods across international borders, each jurisdiction has its own set of taxes
called tariffs. Tariffs can be very difficult to determine. Online services are available to
help international marketers know and understand them. The following sites provide
some of this information:

FedEx Trade Networks (World Tariff) (www.worldtariff.com)

USAExportImport (www.usaexportimport.com)
World Tariff is a subscription-based service requiring a one-year subscription. Tariffic is
based on a pay-per-trade model and offers a free demonstration. In the pay-per-trade
model, you are charged per trade transaction, facilitated by World Tariff.
USAExportImport is a B2B portal that also operates a tariff subscription-based service.
The service also provides applications not only to assist with tariff calculations but also to
help in preparing items for shipment.
You can view customs value information, review remedy investigations and download
official Harmonized Tariff Schedule (HTS) information from the United States
International Trade Commission (USITC) at www.usitc.gov. Information is provided by
the USITC at no charge.
Tariffs and trade practices and regulations are sometimes the cause of disputes. The
World Trade Organization (WTO) has provided an international forum for resolving these
disputes since its foundation. The WTO grew out of the General Agreement on Tariffs and
Trade (GATT), replacing that body in 1995. Despite an announcement in 2002 that the
WTO has plans to disband and reintegrate into a new organization, it continues to be the
primary body resolving complaints about international trade practices with no obvious
signs of ceasing or even reducing its operations.
International tariff information can be confusing, but is critical to selling internationally.
In addition, tariffs are somewhat volatile. Keeping up with tariff regulations without some
assistance is nearly impossible. The following lab is designed to provide an introduction
to some of the information about tariffs that is readily available on the Internet. Suppose
you were planning to sell products in a neighboring country, using your e-commerce site.
How would you know about the tax rates on imported and exported goods? You could use
the U.S. International Trade Commission Web site to research this information for free.
(Most tariff services charge fees for their assistance.)
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Lab 2-4: Researching tariff data on the Internet
In this lab, you will visit the United States International Trade Commission (USITC) Web
site, a free service, and research customs values and a sample tariff code.
1.
In your browser, enter http://dataweb.usitc.gov/scripts/tariff_current.asp to
access tariff and trade data on the USITC Web site, as shown in Figure 2-8.
Figure 2-8: USITC tariff and trade data
2.
Type Fish and click the List Items button, as shown in the previous figure.
3.
Select 03011000 — Live Ornamental Fish – 01/01/1990 and click the Detail
button.
4.
Review the information provided (Figure 2-9).
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Figure 2-9: Tariff and trade data for specific products
5.
Click the Imports By Source Country link, shown circled in the previous figure.
6.
Review the detailed customs value information, as shown in Figure 2-10.
Figure 2-10: Trade database import values
7.
If Time Permits: Navigate to www.usitc.gov/tata/hts/index.htm and review some
of the tools provided by the USITC.
In this lab, you visited the USITC Web site and viewed U.S. import tariff information.
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Protecting a Brand
OBJECTIVE:
3.1.3: Brands and
trademarks
After a brand has been established, it becomes a potential victim for others to unfairly
capitalize on its success. Some analysts estimate that more than U.S. $20 billion are lost
each year in e-commerce. These losses occur in the form of counterfeiting, unauthorized
use of logos, domain name parodies, misinformation, rumors and impostors.
Common places for misinformation and rumors are electronic bulletin boards and chat
rooms. In these places, companies can be slandered with anonymity and the reputations
of companies can be damaged. For example, during an 18-month period beginning in
1998, Callaway Golf, which manufactures golf clubs, was experiencing false and
damaging posts on a Yahoo! message board. Through a series of legal maneuvers, the
source was eventually tracked to a competitor; but as a result, Callaway’s stock price fell
more than 50 percent during the period.
Some multinational companies have employees specifically assigned to surf the Web and
find those who are defacing or illegally using their brand. Other companies offer
employees rewards if they report any infringement they encounter. For most companies,
awareness of brand infringement comes from employees who report the incident because
they are proud of their company and the brand they have helped to create.
Another possible solution is to outsource brand infringement trackers. Companies
offering assistance in this area include the following:

GenuOne (part of www.opsecsecurity.com)

eWatch (www.ewatch.com)

Cyveillance (www.cyveillance.com)
A company can also lose exclusive use of a brand if it becomes too popular and too
commonplace. Companies must try to ensure that product names are used to describe a
specific brand item, not a product category. Otherwise, the brand can fall into the public
domain, leaving the original owner with no control over the name or its use. Companies
with brands that are considered household names often monitor print and electronic
media to ensure that their brand names are used properly. A portion of the advertising
budget for these products is dedicated to continuing education, reminding authors and
other information producers of the difference between branded product names and
generic descriptions.
OBJECTIVE:
3.2.4: Questionable
practices
spyware
A software
application secretly
placed on a user’s
system to gather
information and
relay it to outside
parties, usually for
advertising
purposes.
spam
Unsolicited and
unwanted e-mail
messages; the
online equivalent of
junk mail.
Ethical Business Practices
In addition to concerns about legal requirements, e-commerce businesses must also
seriously consider the issue of ethical business practices, which is often difficult to
define. The fact that an activity is not specifically illegal does not necessarily imply that it
is right. By their nature, ethical business practices are sometimes harder to define as to
what should or should not be allowed. Questionable practices include selling customer
information without the customer’s knowledge or permission, spamming and using
spyware.
E-commerce is often an arena for new types of unethical practices, though many of these
have their roots in traditional business. Some businesses see the practice of selling
customer information as a natural extension of the practice of selling customer mailing
lists by traditional businesses. Spam is seen as the next generation of junk mailing, and
unwanted catalogs and product flyers often fill consumers’ mailboxes.
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blog
A collection of
personal thoughts
posted on a public
Web site. Blogging is
the act of adding
entries to a blog.
E-Commerce Specialist
The electronic community has proven very resourceful in combating some types of
unethical practices. Questionable businesses can expect to find themselves identified on
Web sites and Web logs (or blogs) throughout the Internet. Spammers who use valid email return addresses find their own mailbox flooded with unwanted responses. Several
products and Web-based services will scan your computer for signs of spyware with
applications available to help block future infestations.
Governmental agencies are also taking part in the fight against some of these practices.
One draft regulation in the U.S. Congress would require all businesses to provide a valid
“From” address on all e-mail correspondence, making it easy to identify and respond to
the source. Reviews of business practices are ongoing; one issue of special interest is
whether spyware, which is already generally considered unethical, should be made
illegal.
Reputation is key in any business. Because of the speed of communication and ease of
reaching a wide audience, it is often even more important to avoid not only unethical
business practices themselves but even the appearance of unethical practices.
Case Study
Books in a Bind
All Things Text is an on-demand publishing house that specializes in e-books and shortrun traditional soft-cover print books. Contact with customers is through the Internet
only. The business maintains a database of print-ready works and pays the author a persale royalty. The author retains ownership of the works.
Tony is the owner and only full-time employee of All Things Text. He is concerned about
protecting the intellectual property of all the authors, but also wants to ensure that he
does not leave himself open to liability suits or inadvertently violate copyright restrictions.
Tony develops a standard author’s contract to be used by All Things Text. By signing this
contract, the author grants Tony’s business the right to publish his or her work for sale,
the right to publish a small number of copies for promotional purposes, and the right to
quote up to one page of text for promotional purposes. The number of copies that can be
printed for promotional purposes is not specified.
*
*
*
As a class, discuss the following issues with regard to All Things Text.

Who is responsible for protecting the integrity of the copyright of materials in the
business content database?

Consider a possible situation. A customer purchases an e-book. The book does not
have any copy protection notice and the customer uploads it to a public Web site for
distribution. What entities can be held at fault for violating the author’s copyright
and why?

What is the potential effect if Tony chooses to sell his customer list to other book
distributors? Consider both legal and customer relations issues.

Who is responsible for registering international copyrights for stored content?

How can Tony use the materials in the content database for advertising and
promotion without first getting additional permission from the author?
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Lesson Summary
Application project
The digital revolution has created many new legal issues, most of which have yet to be
formally addressed. With the ease of digital reproduction, many laws are being violated.
In many cases, these violations are committed out of ignorance and a lack of
understanding about the rights of others and their work.
Have you or has someone you know had ownership rights infringed upon or violated by
the use of some electronic means? Do you fear that something you own may be in
jeopardy of infringement? What steps, if any, could you take to prevent such
infringement. Visit some of the sites mentioned in this lesson to further research
information about copyright violations.
Skills review
In this lesson, you learned that Internet law is a growing area. You saw examples of how
the United States and other countries are addressing Internet-based business regulations
and controls. You also considered taxation issues and the possible consequences of
violating customs laws. In addition, you learned about establishing and protecting a
brand, you identified legal aspects of e-commerce and you identified intellectual property
and learned how to protect it. Finally, you learned how to avoid questionable business
practices, and identified applicable international trade laws.
Now that you have completed this lesson, you should be able to:

3.1.3: Establish and protect a brand (includes trademark registration).

3.2.1: Identify legal and governmental aspects of e-commerce (includes legal
precedent, liability concepts, international issues, ethics, jurisdiction, copyright,
patents).

3.2.2: Identify and protect intellectual property.

3.2.3: Identify e-commerce taxation issues.

3.2.4: Avoid questionable practices (includes spam, spyware, selling user
information).

3.2.5: Identify international trade laws.
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Lesson 2 Review
1.
What are the two branches of intellectual property and what do they cover?
2.
How does copyright law apply to material published on the Internet?
3.
In what way does trademark law apply to the Internet and electronic publishing in
the United States?
4.
In what way does patent law apply to software, including applications distributed
through the Internet?
5.
In what way can an online provider be exempted from liability for copyright
infringement?
6.
What is the current legal situation in the United States regarding taxes being levied
on interstate Internet purchases?
7.
In the United States, what is the requirement for a state court to have jurisdiction
over a non-resident party?
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1Lesson 1:
Electronic Commerce
Foundations
Objectives
By the end of this lesson, you will be able to:

1.1.1: Identify specific business-to-business (B2B) and business-to-consumer (B2C)
issues in developing an e-commerce site.

1.2.1: Distinguish between in-house and online instant storefront options for creating
an e-commerce site.

1.2.2: Evaluate the advantages and disadvantages of using third-party instant
storefronts.

1.2.3: Evaluate the advantages and disadvantages of using e-commerce storefront
software.

1.5.3: Choose an appropriate payment method.

1.5.8: Identify and implement microcommerce concepts (includes micropayments,
microtransactions).

3.1.1: Compare the advantages and disadvantages of e-commerce and traditional
sales methods.

3.1.2: Identify business growth drivers and barriers.
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Pre-Assessment Questions
1.
Identify three guidelines for developing an effective ordering infrastructure.
2.
Which of the following statistics is true?
a.
b.
c.
d.
3.
In the United States and Canada, 51 percent of online users are between the
ages of 18 and 21.
Approximately 65 percent of American Internet users purchase goods on the
Internet.
Females outnumber males two to one in Internet use.
Web users have advanced educational degrees, with 90 percent having at
least a bachelor’s degree.
Which type of Web storefront requires the most significant investment in
hardware?
a.
b.
c.
d.
Online instant storefront
In-house storefront
Offline storefront
Hybrid storefront
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Introduction to Web Commerce
During the past several years, large companies and small businesses have increased their
presence on the World Wide Web. Web technology has grown tremendously since the
mid-1990s, when Mosaic, the first graphical browser, was introduced. By the time
Netscape released its browser, home computers were expected to access the Web in even
greater numbers. Home computer users grew increasingly sophisticated, and the Web
evolved from an academic curiosity into a mainstream necessity.
By 1996, the Web was firmly entrenched in popular culture. E-mail and Web site
addresses were traded as status symbols, and organizations rushed to register domain
names and set up Web servers. Company Web servers promoted company goods in a
primitive form of electronic commerce. In the new century, Web commerce has grown
considerably.
This lesson will introduce the fundamental background for understanding the Web
commerce model and exploring the advantages of deploying a Web commerce
infrastructure.
To meet these goals, you will focus on several operational electronic commerce sites, one
of which you will build during this course. The list of companies will include the
following:

Travelocity.com (www.travelocity.com) — a travel-planning site that allows users to
search schedules, compare prices and purchase tickets for travel.

Dell Inc. (www.dell.com) — a major corporate site that allows individuals and
businesses to purchase computers and computer peripherals.

Barnes & Noble (www.barnesandnoble.com) — a popular online vendor site that
allows users to search, sample and purchase books, music CDs, tapes and other
products.

Habitat For Humanity Gift Shop (www.habitatstoreonline.com) — an e-commerce
site that sells merchandise that promotes Habitat For Humanity. Throughout the
class, you will use a version of the Habitat For Humanity Gift Shop Web site to help
you understand various aspects of electronic commerce.
Impetus for Web Commerce
Some experts believe that Web commerce will soon be a requirement for most businesses.
According to Internet World Stats (www.internetworldstats.com), there were more than
812 million Internet users worldwide by September 2004. This number represents a
growth of 125 percent from 2000 to 2004. These figures indicate that the Web is
continuing to grow and that Web presence can help businesses reach customers around
the world.
Other statistics that support this assertion include the following:

As of September 2004, 31.7 percent of Internet users were located in Asia, 28.4
percent were located in Europe, and 27.3 percent were located in North America,
according to Global Reach (http://glreach.com/globstats/).

As of the end of the third quarter of 2004, 66.3 million domain names were registered
worldwide, according to VeriSign’s Domain Name Industry Brief
(www.verisign.com/Resources/Naming_Services_Resources/Domain_Name_Industry_
Brief/index.html).
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
By January 2004, the Internet consisted of an estimated 300 million hosts, according
to Internet Systems Consortium Inc. (www.isc.org/index.pl?/ops/ds/).

By December 2007, 74 percent of women and 76 percent of men in the United States
used the Internet, according to the Pew Internet and American Life Project
(www.pewinternet.org/trends.asp#demographics).

At the end of the third quarter of 2004, there were 54.6 million Digital Subscriber
Line (DSL) subscribers. This figure represents a 56 percent growth rate over the
previous year, according to ClickZ Network (www.clickz.com).

By 2002, an estimated 140 million Internet appliances were in use worldwide. An
Internet appliance is a limited-use computer that accesses the Internet for browsing
and e-mail.

By December 2007, 92 percent of people in the United States surveyed between the
ages of 18 and 29 used the Internet, according to the Pew Internet and American Life
Project (www.pewinternet.org/trends.asp#demographics).

English is still the leading language on the Internet, with 295 million Englishspeaking users as of September 2004. This figure represents 35.2 percent of Web
users. The next most prevalent language is Chinese, with 110 million Chinesespeaking users on the Internet.

By 2007, 72 percent of Americans who accessed the Internet spent an average of at
least one hour per day online. Eighteen (18) percent of users spent an average of
three to six hours per day online.

Web users are well-educated: By December 2007, 93 percent of people with a college
degree used the Internet, compared with 38 percent of people who did not graduate
high school, according to the Pew Internet and American Life Project
(www.pewinternet.org/trends.asp#demographics).

Web users are upscale: In the United States, 93 percent of people with an income
higher than $75,000 per year used the Internet by December 2007, compared with
61 percent of those with an annual income lower than $30,000, according to Pew
Internet and American Life Project (www.pewinternet.org/trends.asp#demographics).

Approximately 67 percent of Americans with Web access have used the Internet to
purchase products, according to the Pew Internet and American Life Project
(www.pewinternet.org/trends.asp#demographics).

More than 110,000 companies have used the Internet to distribute critical company
information, such as press releases.
Business owners, aware of the increasing number of potential customers using the Web,
are responding by making their products and services available to these online users with
Web technology.
Electronic Commerce Defined
Commerce is the exchange of goods and services for money. Historically, commerce has
been accomplished when the buying party exchanges a fee with the selling party for the
goods purchased or services rendered. Barter systems notwithstanding, the fee
traditionally has been paper money, checks, bank drafts, credit cards or other
representations of paper money.
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Lesson 1: Electronic Commerce Foundations
OBJECTIVE:
3.1.1: E-commerce
vs. traditional sales
methods
1-5
Data management for traditional transactions was limited to manual or, more recently,
computer-based bookkeeping. Security was largely absent in the traditional transaction
model; if the buyer had to be physically present to make a purchase, the chances of fraud
were low. This view was bolstered when Visa began issuing credit cards containing the
cardholder’s photograph.
Electronic commerce (often called e-commerce or EC) can be defined on two levels: first,
as commerce conducted via any electronic medium, such as TV, fax or the Internet. The
first two media have been in use long enough so that issues such as data management
and security are well understood. The third medium, the Internet, has changed the
nature of these issues somewhat, because it ties commerce, data management and
security capabilities together.
A second, broader definition of electronic commerce is more suitable to Internet users.
Electronic commerce is the integration of communication transport, data management
and security capabilities that allow organizations to exchange information about the sale
of goods and services. These three capabilities contribute to e-commerce as follows:

Communication transport services — support the transfer of information between
the buyer and the seller. Unlike traditional transactions, the e-commerce
communications aspects go beyond sharing a spoken language.

Data management services — define the exchange format of the information. These
services help establish a common digital language between applications to complete
electronic transactions successfully.

Security mechanisms — authenticate the source of information and guarantee its
integrity and privacy. Security mechanisms are of paramount importance to
e-commerce because unlike traditional transactions, electronic transactions do not
require physical proximity between the buyer and seller to complete a transaction.
Electronic commerce vs. traditional commerce
The preceding paragraphs touched on some aspects of how electronic commerce differs
from traditional commerce. These differences can be quantified more concretely.
OBJECTIVE:
3.1.1: E-commerce
vs. traditional sales
methods
One difference is in how information is exchanged and processed. Traditionally,
information was exchanged via person-to-person contact, or through telephone or postal
systems. In electronic commerce, information is carried through a networked computer
system.
In traditional commerce, participants act on the information that accompanies a typical
business transaction. In electronic commerce, physical presence is limited and almost the
entire transaction processing is automated. Electronic commerce pulls together a variety
of business support services, including e-mail, online directories, ordering and logistical
support systems, settlement support systems, inventory control systems, and
management information and statistical reporting systems.
In traditional commerce, the physical proximity between the participating business
entities allows nonrepudiation. It also allows a customer’s identity to be verified
(authentication) with a request for a standard identification item such as a driver’s
license or a passport. The electronic commerce infrastructure does not lend itself well to
the traditional model: Nonrepudiation and authentication must be provided digitally.
Also, that data must be kept confidential as it is passed across the Internet. Digital
signatures and encryption frameworks have been developed to address these security
issues.
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In the following lab, you will visit various Web sites to view e-commerce trends and
statistics. Suppose you plan to start your own e-commerce business and you need
information about Internet growth, demographics, consumer confidence and other data.
By tracking this information on the Internet, you will increase your understanding of
your target audience and create a more successful business plan.
Lab 1-1: Exploring e-commerce trend and statistics Web sites
In this lab, you will visit several e-commerce information and statistics Web sites to
search for data. The questions in this lab have no right or wrong answers because many
of them involve predictions or quickly changing facts.
1.
Open your browser.
2.
If you are prompted that Microsoft’s Internet Explorer’s Enhanced Security
Configuration is currently enabled, select In The Future, Do Not Show This
Message and click OK.
3.
Select Tools | Internet Options and click the Security tab.
4.
Change the security level for the Internet zone to Medium. If you receive a warning
that the recommended security level for this zone is High, click Yes to verify that you
want to change the security level.
5.
Click OK.
6.
In your browser, enter www.clickz.com. ClickZ Network (Figure 1-1) is an online
source for information about Internet demographics and trends. If you are prompted
to install Flash, click Yes.
Figure 1-1: ClickZ Network home page
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7.
ClickZ Network: Search for an article that estimates the expected growth of Internet
users older than 55 years of age. If a security warning appears about sending
information over the Internet, select the In The Future, Do Not Show This Message
check box and click Yes. Consider what these estimates mean for the future, and
record your thoughts in the following space.
8.
Enter www.ecommerce-guide.com/ in your browser. ECommerce-Guide (Figure 1-2)
provides articles and statistics for global e-commerce.
Figure 1-2: ECommerce-Guide home page
9.
In the Search ECommerce-Guide box, enter Consumer Confidence. Find the latest
statistics on consumer confidence in e-commerce. Consider how consumer
confidence might affect the success of your e-commerce site, and record your
thoughts in the following space.
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E-Commerce Specialist
10. Enter www.ecommercetimes.com in your browser. E-Commerce Times (Figure 1-3)
is a broad-based source for e-commerce news.
Figure 1-3: E-Commerce Times home page
11. Read the current headlines and notice some of the current trends in the articles. Note
some of your observations in the space provided.
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12. Enter www.internetretailer.com in your browser. If you are prompted to display the
Flash player, click Yes. Internet Retailer (Figure 1-4) provides news articles about ecommerce.
Figure 1-4: Internet Retailer home page
13. Internet Retailer: Read some of the latest headlines and discuss them.
14. Class Discussion: What are your own predictions for e-commerce based on what you
have learned?

Does e-commerce affect your daily activities?

Do you think that e-commerce is a short-term business trend or will it
permanently change business?

In your opinion, what factors will encourage or discourage e-commerce?
Applying E-Commerce Concepts to Focus
Companies
The following focus companies have been chosen because of the diverse offerings they
provide. They are categorized as either business-to-consumer (B2C) or business-tobusiness (B2B). Remember the following companies throughout the class. Compare the
key concepts presented in class with the electronic commerce experiences of these
specific companies.
Habitat For Humanity Gift Shop (B2C) — The Habitat For Humanity Gift Shop sells
merchandise that promotes Habitat For Humanity, a non-profit organization that builds
homes for underprivileged families. You will modify a version of the Habitat For Humanity
Gift Shop e-commerce site throughout the course.
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Travelocity.com (B2C) — This Web site is managed by Sabre Inc. (originally the Sabre
group and owned by AMR Corporation). In March 2000, it became an independent
company. For years the Sabre group supplied flight and travel information to travel
agencies worldwide. In “traditional commerce” terms, a retail component was accessed
th…