Topic 10

Topic X Legal, Ethical
10 and Societal
Impactof
Ecommerce
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe the differences between legal and ethical issues in
e-commerce;
2. Discuss the difficulties of protecting privacy in e-commerce;
3. Identify issues of intellectual property rights in e-commerce; and
4. Explain major legal issues in e-commerce;
X INTRODUCTION
Do you know that all commerce involves a number of legal, ethical, and
regulatory issues? Copyright, trademark and patent infringement, freedom of
thought and speech, theft of property and fraud are not new issues in the world
of commerce. However, e-commerce adds to the scale of these issues. It also
raises a number of questions about what constitutes illegal behaviour versus
unethical, intrusive or undesirable behaviour.
This topic examines some of the legal and ethical issues arising from e-commerce
and various legal and technical remedies and safeguards. This topic also examines
some social impacts of e-commerce and finally, assesses the future of e-commerce.
TOPIC 10 LEGAL, ETHICAL AND SOCIETAL IMPACT OF E-COMMERCE W 309
10.1 LEGAL ISSUES VERSUS ETHICAL ISSUES

In theory, you should be able to distinguish between legal (also addresses as law)
issues and ethical issues as shown below.
Laws are enacted by government and developed through case precedents

(common laws). Laws are strict legal rules governing the acts of all citizens
within their jurisdictions. If a person breaks the law, they have done
something illegal and can be held liable for punishment by the legal
system.
Ethics is a branch of philosophy that deals with what is considered to be

right and wrong. Over the years, philosophers have proposed many ethical
guidelines, yet what is unethical is not necessarily illegal.
Ethics is supported by common agreement in a society as to what is right

and wrong. However, they are not subject to legal sanctions (except when
they overlap with activities that are also illegal).
E-commerce opens up a new spectrum of unregulated activity, where the

definitions of right and wrong are not always clear. Business people engaged in
e-commerce need guidelines as to what behaviours are reasonable under any
given set of circumstances as portrayed in the below scenarios:
A website collects information from potential customers and sells it to its

advertisers. Consequently, the customers receive numerous pieces of
inappropriate and intrusive e-mail. Should junk e-mail of this sort be
allowed?
A company allows its employees to use the web for limited personal use.
Unknown to the employees, the employer not only monitors the
employees messages, but also examines the content. If the monitors find
objectionable content, should the company be allowed to fire the offending
employees?
Whether the above actions are considered unethical (or even illegal)
depends on the regulatory and value systems of the country in which they occur.
310 X TOPIC 10 LEGAL, ETHICAL AND SOCIETAL IMPACT OF E-COMMERCE
What is unethical in one culture may be perfectly acceptable in another. Many

Western countries, for example, have a much higher concern for individuals and
their rights for privacy than do some Asian countries. In Asia, more emphasis is
placed on the benefits to society rather than on the rights of individuals.
ACTIVITY 10.1
If an action is legal, it must also be ethical. Do you agree with this

statement? Give reasons for your answer.
We have looked at the definitions given for both legal and ethical issues and also
are able to differentiate between the two issues.
Now, let us look at the legal and ethical issues related to e-commerce which will
be discussed in the coming sections:
(a) Privacy
Internet users in many countries rate privacy as their first or second top
concern.
(b) Intellectual Property Rights

Rights to intellectual property are easy to violate on the Internet, resulting
in billions of dollars of losses to the owners of the rights.
(c) Free Speech versus Censorship

The issues of attempting to control offensive, illegal, and potentially
dangerous information on the Internet are controversial. This collides with
rights of free speech.
(d) Consumer and Merchant Protection against Fraud

It is easy to reach millions on the Internet and to conduct different types of
e-commerce related fraud. The success of e-commerce depends on the
protection provided to consumers and merchants.
(e) Internet Governance

There is this ultimate question of who will handle the laws governing the
Internet and e-commerce: state government, federal government or
international organisation.
ACTIVITY 10.2
Give an example of an e-commerce activity that is unethical but legal.
EXERCISE 10.1
1. Define ethics and distinguish it from laws.

2. List the major e-commerce ethical/legal issues presented in this
topic.
You can visit these websites to get more ideas on ethical issues in e-commerce:
(a) Legal issues, ethical issues, privacy and security:

x www.webliminal.com/Lrn-web09.html
(b) Legal aspects of e-commerce:

x www.inc.com/articles/2000/05/19706.html
10.2 PRIVACY
Privacy has long been a legal, ethical, and social issue in many countries. What
do you understand about privacy and why is it important to protect your
privacy? As you may aware, privacy means different things to different people.
The definition of privacy can be interpreted quite broadly. Let us look at the
definition provided below for privacy.
Privacy is the right to be left alone and the right to be free of unreasonable
personal intrusions.
However, the following widely-used two rules will show you of why it is
difficult to determine and enforce privacy regulations in certain situations:
(a) The right of privacy is not absolute. Privacy must be balanced against the
needs of society; and
(b) The publics right to know is superior to the individuals right of privacy.
Let us move on to look at the issues involved in online privacy; the influence of
e-commerce on privacy:
(a) Information collection;
(b) Privacy protection; and
(c) Technological solutions to privacy invasion.
10.2.1 Information Collection

In the past, the complexity of collecting, sorting, filing, and accessing
information manually from several different government agencies was, in many
cases, a built-in protection against misuse of private information. It was simply
too expensive, cumbersome, and complex to invade a persons privacy. The
Internet, in combination with large-scale databases, has created an entirely new
dimension of accessing and using data.
The inherent power in systems that can access vast amounts of data can be used
for the good of society. For example, by matching records with the aid of a
computer, it is possible to eliminate or reduce the following crimes:
(a) Fraud;
(b) Government mismanagement;
(c) Tax evasion;
(d) Welfare cheats; and
(e) Employment of illegal immigrants.
However, you must ask yourself of what price must every individual pay in
terms of loss of privacy so that the government can better apprehend these types
of crimes.
The Internet offers a number of opportunities to collect private information about

individuals. Here are some of the ways that the Internet can be used to find
information about an individual:
(a) By reading an individuals newsgroup postings;
(b) By looking up an individuals name and identity in an Internet directory;

(c) By reading an individuals e-mail;
(d) By conducting surveillance on employees;
(e) By wiretapping wire line and wireless communication lines and listening to
employees;
(f) By asking an individual to complete a website registration; and
(g) By recording an individuals actions as they navigate the web with a
browser, usually by using cookies.
Let us focus on the two most common ways of gathering information on the
Internet:
(a) Website Registration

Virtually, all B2C and marketing websites ask visitors to fill out registration
forms. During the process, customers voluntarily provide their names,
addresses, phone numbers, e-mail addresses, and sometimes their hobbies
and likes or dislikes in return for information or some other item of
exchange.
There are few restraints on the ways in which the site can use this
information. The site might use it to improve customer service or its own
business. Or, the site could just as easily sell the information to another
company, which could use it in an inappropriate or intrusive manner.
(b) Cookies
Another way that a website can gather information about an individual is by
using cookies (refer below). Cookies enable sites to keep track of the users
identity, without having to constantly ask the users to identify themselves.
In Internet terminology, a cookie is a small piece of data that is passed back

and forth between a website and an end users browser as the user
navigates the site.
Originally, cookies were designed to help with personalisation. However,

cookies also can be used to invade an individuals privacy. Cookies allow
websites to collect detailed information about a users preferences, interests,
and surfing patterns. The personal profiles created by cookies are often
more accurate than self-registration because users have a tendency to falsify
information in a registration form.
Netscape and Microsoft introduced options which enable users to block the
use of cookies. Users can protect themselves against cookies by:
(i) Deleting the Cookies

The user can delete the cookies from their computers. However, the
user will be forced to keep re-entering information and in some
instances, may be blocked from viewing particular pages.
(ii) Using Anti-Cookie Software

The user can use anti-cookie software such as Pretty Good Privacys
Cookie Cutter or Luckmans Anonymous Cookie. Anti-cookie
software disables all cookies and allows the user to surf the web
anonymously. Nevertheless, disabling the cookies will present the
same problem encountered by those who delete the cookies; need to
re-enter information and blocked from viewing.
Let us look at the Microsofts product called as Passport which

resembles some of the cookies characteristics as shown below.
Passport is an Internet strategy that lets consumers to permanently enter a

profile of information along with a password and use this information and
password repeatedly to access services at multiple sites. Critics say that
Passport has the same opportunities as cookies to invade an individuals
privacy. Critics also feel that the product gives Microsoft an unfair
competitive advantage in e-commerce.
10.2.2 Privacy Protection

The ethical principles commonly used when it comes to the collection
and use of personal information also apply to information collected in
e-commerce. These principles are summarised in Table 10.1.
Table 10.1: Ethical Principles in E-commerce
Ethical Principles Description

Notice/ Awareness Sites must disclose their information practices before collecting
data such as identification of collector, uses of data, other
recipients of data, nature of collection, voluntary of required,
consequences of refusal, and steps taken to protect the
confidentiality, integrity and quality of the data.
Choice/ There must be a choice regime in place allowing consumers to

Consent choose how their information will be used for secondary purposes
other than supporting the transaction, including internal use and
transfer to third parties. The following models must be available:
(i) Opt-in Model
This model requires an affirmative action by the consumer to
allow collection and use of information. For instance, using
opt-in, consumers would first be asked if they approved of
the collection and use of information, and directed to check
a selection box if they agreed. Otherwise, the default is not to
approve the collection of data.
(ii) Opt-out Model
In the opt-out model, the default is to collect information
unless the consumer takes an affirmative action to prevent the
collection of data by checking a box or by filling out a form.
Access/ Consumers should be able to review and contest the accuracy and
Participation completeness of data collected about them in a timely and
inexpensive process.
Security Data collectors must take reasonable steps to assure that consumers
information is accurate and secured from unauthorised used.
Enforcement A method of enforcement and remedy must be available.
Otherwise, there is no real deterrent or enforceability for privacy
issues. This can involve self-regulation, legislation giving consumers
legal remedies for violations, or federal statutes and regulation.
In many countries, the debate continues about the rights of the individual versus
the rights of society. Some feel that the Internet Service Providers (ISP) should be
the regulators; others feel that self-regulation is the best alternative. However,
some empirical data suggest that self-regulation does not work.
Research found that most of the commercial websites have poor privacy
protection and very few sites provided end users with the following privacy
protections:
(a) Details about the sites information-gathering and dissemination policies;
(b) Choice over how their personal information is used;
(c) Control over their personal information;
(d) Verification and oversight of claims made by the site; and
(e) Resource for resolving user complaints.
Fortunately, users can take steps to improve their online privacy.

10.2.3 Technological Solutions to Privacy Invasion

Privacy-enhancing technologies for protecting user privacy during interactions with
websites are being developed. Most of these tools emphasise on the ability of
individuals to protect their communications and files from illegitimate individuals or
organisations.
The creation of private and public policies that enable consumers to control the
collection and use of information that is gathered in the course of market
transaction is also in the developmental stage.
Table 10.2 describes some ways in which technology can be used to protect
privacy.
Table 10.2: Technological Protection for Online Privacy
Technology Products Protection

Secure e-mail Ziplip.com; E-mail and document
SafeMessage.com encryption
Anonymous remailers WWW Anonymous Send e-mail without trace
Remailer
Anonymous surfing Anonymizer.com Surf without a trace
Cookie managers CookieCrusher Prevent client computer

from accepting cookies
Disk/file erasing FileWiper; Eraser Completely erases hard

programmes drive and floppy files
Policy generators OECD Privacy Policy Automates the development

Generator of an OECD privacy
compliance policy
Privacy Policy Reader P3P Software for automating the

communication of privacy
policies to users
Source: Adapted from Laudon, K. C., & Traver, C. G. (2009). E-commerce:

Business, technology, society (5th e d.). Boston: Addison Wesley
Perhaps the most comprehensive technological privacy protection effort is the

Platform for Privacy Preferences Project (P3P) sponsored by the World Wide
Web Consortium (W3C), which is an international, non-profit, industry-
supported web standards group. Refer below in order to know more on P3P.
P3P is a standard designed to communicate to Internet users of a websites

privacy policy and to compare that policy to the users own preferences, or
to other standards. P3P does not establish privacy standards and basically
relies on government and industry to develop them.P3P works through a
users web browser. On the server side, P3P enables sites to translate their
privacy policies into standardised machine-readable XML format that can
be read either by the browser or by installed software plug-ins. On the user
client side, the browser automatically fetches a websites privacy policy
and informs the user.
EXERCISE 10.2
1. Define privacy.
2. What are cookies and what do they have to do with online
privacy
3. How is the opt-in model of informed consent different from
opt-out?
You can visit these websites to get more ideas on:
(a) E-commerce/Internet privacy:

x http://www.privacy.org/
x http://http://www.privacyrights.org/online-privacy-and
technology
(b) Information about cookies:
x http://www.microsoft.com/info/cookies.mspx
(c) Guide to online privacy:
x http://www.cdt.org/privacy/guide
10.3 INTELLECTUAL PROPERTY RIGHTS

According to the World Intellectual Property Organisation (WIPO), intellectual
property refers to creations of the mind such as inventions, literary and artistic
works, symbols, names, images, and designs used in commerce.
Whereas a privacy protection is the major concern for individuals, intellectual

property protection is the major concern of those who own the property itself.
Intellectual property rights are one of the foundations of modern society.
Without these rights, the movie, music, software, publishing, pharmaceutical and
biotech industries would collapse.
In Malaysia, Intellectual Property Rights are administered by Intellectual

Property Corporation of Malaysia, an agency under the Ministry of Domestic
Trade, Co-operatives and Consumerism (go to www.myipo.gov.my for further
reference).
There are three main types of intellectual property in e-commerce as shown in

Figure 10.1.
Figure10.1: Types of intellectual property in e-commerce
Let us look at the detailed explanation for each type of intellectual property in
the coming sections.
10.3.1 Copyrights
So, what is a copyright? Do you know the answer?
A copyright is an exclusive grant from the government that confers on its

owner an essentially exclusive right to:
(a) Reproduce a work in whole or in part; and
(b) Distribute, perform or display it to the public in any form or manner,
including in the Internet.
In general, the owner has an exclusive right to export the copyrighted work to
another country. Copyright does not protect ideas as it only protects their
expression in a tangible medium such as paper, cassette tape, or handwritten
notes.
Copyrights usually exist in the following works:

(a) Literary works (e.g., books and computer software);
(b) Musical works (e.g., compositions);
(c) Dramatic works (e.g., plays);
(d) Artistic works (e.g., drawings, paintings); and
(e) Sound recordings, films, broadcasts, cable programmes.
(f) Websites images, photos, logos, texts, HTML, JavaScript and other
materials.
The greatest threat to intellectual property is wide-scale individual theft. Millions

of individuals are using the Internet to illegally download music, videos, games,
software and other digital products. However, the theft of even an obscure piece
of research in which only a few are interested is still considered as a theft.
Various international treaties provide global copyright protection. Of these, the

Berne Union for the Protection of Literary and Artistic Property (Berne
Convention), which dates back to 1886, is one of the most important.. It is
administrated by the WIPO and is supported by over 90 percent of the worlds
countries.
In Malaysia, the Copyright Act 1987 confers the exclusive right to the owner of a
copyright for a specific period. The Copyright (Amendment) Act 1997 which
amended the Copyright Act 1987 came into force on 1999 to make unauthorised
transmission of copyright works over the Internet as a copyright infringement
(refer below).
Copyright infringement is the unauthorised use of copyrighted material in

a manner that violates the copyright owner's exclusive rights, such as the
right to reproduce or perform the copyrighted work.
(S
Source: http://www.copynot.com/)
A copyright owner may seek a court injunction to prevent or stop any

infringement and to claim damages. Certain kinds of copyright infringements
also incur criminal liabilities such as:
(a) Commercial production of infringed works;
(b) Selling or dealing in infringed works;
(c) Possessing infringed works for trade or business; and
(d) Manufacturing and selling technology for defeating copyright protection
systems.
In the United States, congressional legislation has proposed to make it unlawful

the act of manufacturing, importing, providing, or trafficking in any interactive
device that does not include and utilise certified security technology.
If this measure becomes law, the implication is that virtually any digital
device such as computer, laptop, MP3 player, digital camera and so on must
include government-approved copy protection that makes it impossible to
reproduce copyrighted material.
It is possible to use software to produce digital content that cannot be copied.

Two approaches are used to design effective electronic copyright management
systems:
(a) Preventing copyright violations by using cryptography (refer below); and
Cryptography can be defined as the conversion of data into a scrambled

code that can be deciphered and sent across a public or private network.
Source: http://www.barcodesinc.com/articles/cryptography2.htm)
(S
(b) Tracking copyright violations.
Visit the following sites for more information on:

(a) Preventing copyright violations
http://domino.research.ibm.com/comm/wwwr_thinkresearch.nsf/
pages/packinginfo396.html
(b) Tracking copyright violations
http://www.fourmilab.ch/documents/digital-imprimatur/
Another successful method to protect the digital content is through digital

watermarks. Similar to watermarks on fine paper, which indicate the marker
of the paper, digital watermarks are unique identifiers that are imbedded in
the digital content. Although they do not prevent an individual from making
illegal copies, they do make it possible to identify the pirated works. If a pirated
copy is placed on the Internet, then sophisticated search programmes such a
Digimarcs MarSpider, can be used to locate the illegal copies and notify the
rightful owner.
10.3.2 Trademarks
Do you know what is meant by the term trademarks? Refer below in order to
find out the meaning of the term.
Trademarks are symbols (like logos and brand names) that distinguish
goods and services in the marketplace. If someone deliberately uses your
registered trade mark, without your knowledge or consent, they may be
guilty of the crime of counterfeiting (forgery).
(S
Source: http://www.copynot.com/)
The symbol can be composed of words, designs, letters, numbers, shapes, a

combination of colours, or other such identifiers. Trademarks need to be
registered in a country in order to be protected by the countrys law (for example,
Malaysias Trade Marks Act 1976). To be eligible for registration, a trademark
must be distinctive, original, and not deceptive. Once registered, a trademark
lasts forever, as long as a periodic registration fee is paid.
The owner of a registered trademark has the exclusive rights to:

(a) Use the trademark on goods and services for which the trademark is
registered; and
(b) Take legal action to prevent anyone else from using the trademark
without consent on goods and services (identical or similar) for which the
trademark is registered.
The rapid growth and commercialisation of the Internet have provided unusual
opportunities for existing firms with distinctive and famous trademarks to
extend their brands to the Internet.
These same developments have provided malicious individuals and firms the
opportunity to:
(a) Take advantage of Internet domains built upon famous trademarks; and
(b) Confuse consumers by lessening the value of famous or distinctive
trademarks (including your name or a movie stars name).
The conflict between legitimate trademark owners and malicious firms was
allowed to grow because Network Solution Incorporation (NSI), which is the
Internets sole agency for domain name registration, for many years, had a policy
of first come, first served. This meant anyone could register any domain name
that had not already been registered, regardless of the trademark status of the
domain name.
In response to a growing number of complaints from owners of famous

trademarks who found their trademark names being appropriated by web
entrepreneurs, Congress passed the Anti-Cybersquatting Consumer Protection
Act (ACPA) in November 1999 as explained below.
The ACPA creates civil liabilities for anyone who attempts in bad faith to profit
from an existing famous or distinctive trademark by registering an Internet
domain name that is identical or confusingly similar to that particular trademark.
The ACPA does not establish criminal sanctions but proscribes the
following acts:
(a) Using bad faith domain names to extort money from the owners of
the (ccybersquatting); or
(b) Using the existing trademarks domain name to divert web traffic to
the bad faith domain (ccyberpiracy) that could create the following:
(i) Harm the good-will represented by the trademark;
(ii) Create market confusion; and
(iii) Tarnish or disparage the trademark.
(c) Using of a domain name that consists of the name of a living person,
or a name confusingly similar to an existing persons name without
the persons consent, if the registrant is registering the name with the
intent to profit by selling the domain name to that person.
In Malaysia, domain name disputes are solved through arbitration. Kuala

Lumpur National Centre for Arbitration (KLRCA) has been appointed as the .my
domain name dispute resolution service provider by the Malaysian Network
Information Centre (MYNIC), which administers the .my domain. All domain
name disputes are governed and administered in accordance with MYNICs:
(a) Domain Name Dispute Resolution Policy (MYDRP);
(b) Rules of the MYDRP; and
(c) KLRCA Supplemental Rules.
To get more information on the domain name dispute resolution, visit this website:
www.rcakl.org.my (Kuala Lumpur National Centre for Arbitration)
Trademark abuse can take in the following two ways on the web:
(a) Cybersquatting
Cybersquatting refers to the practice of registering domain names in order
to sell them later at a higher price. The Consumer Protection Act of 1999 is
aimed at cybersquatters who register Internet domain names of famous
companies or people and hold them hostage for ransom or payments from
the person or company. Companies such as Christian Dior, Nike, Deutsche
Bank, and even Microsoft had to fight or pay to get the domain name that
corresponds to their companys name.
For example, the original owner of a domain name called as tom.com

received about $8 million for the name from a large media company in
Hong Kong that changed its name to Tom.com to correspond to the URL
created by the original owners domain name. In this case, the sale was
judged as both ethical and legal. However, in other cases, cyber-squatting
can be either illegal, or at least unethical.
(b) Cyberpiracy
Cyberpiracy involves the same behaviour as cybersquatting, but with the
intent of diverting traffic from the legitimate site to an infringing site.
Let us look at the following two examples of cyberpiracy cases:
(i) Ford Motor Co. vs. Lapertosa

Lapertosa had registered and used a website called www.fordrecalls.com as
an adult entertainment website. The court ruled that www.fordrecalls.com
was in violation of the ACPA in that it was an attempt in bad faith to divert
traffic to the Lapertosa site and as a result, diluted Fords wholesome
trademark.
(ii) Paine Webber Inc. vs. Fortuny

Fortuny was ordered by the court from using the domain name
wwwpainewebber.com, which is a site that specialised in
pornographic materials, because it diluted and tarnished Paine
Webbers trademark and diverted web traffic from Paine Webber
s legitimate site www.painewebber.com.
SELF-CHECK 10.1
What are the differences between cybersquatting and cyberpiracy?
10.3.3 Patents
What is a patent? Refer below in order to seek the meaning of the term.
A patent is a document that grants the holder with the exclusive rights on
an invention for a fixed number of years.
Patents serve to protect tangible technological inventions, especially in

traditional industrial areas. They are not designed to protect artistic or literary
creativity. Patents confer monopoly rights to an idea or an invention (refer
below), regardless of how it may be expressed.
An invention may be in the form of a physical device, method or process

for making a physical device.
The Patents Act 1983, which came into force on the 1st of October 1986, provides
of a system for registration of patents and utility innovations in Malaysia. A
patent is valid for 20 years from the date of application.
Thousands of IT-related patents have been granted over the years. Examples of
European Union (EU) patents given to:
(a) Open Market Corp are Internet Server Access Control and Monitoring
(patent 5708780), Network Sales Systems (patent 5715314), and Digital
Active Advertising (patent 5724424).
(b) Juno Online Services received an interactive advertising patent (patent
5809242).
(c) IBM has many patents including a system for ordering from electronic
catalogues (patent 5870717) and a system for using intelligent agents to
perform online commerce (patent 5926798).
In order to be granted a patent, the applicant must show that the invention is
new, original, novel, non-obvious, and not evident in prior art and practice.
As with copyrights, the granting of patents has moved far beyond the original
intent of Congresss first patent statute that sought to protect industrial design
and machines. Patent protection has been extended to articles of manufacture
(1842), plants (1930), surgical and medical procedure (1950) and software (1981).
Certain patents granted in the United States deviate from established practices in
Europe as exemplified by the following two patent-related cases:
(a) Amazon. com vs. Barnes and Noble

Amazon.com has successfully obtained a U.S. patent on its One-Click
ordering procedure. By using this patent, Amazon. com sued Barnes &
Noble in 1999 and in 2000, alleging that its rival had copied its patented
technology. Barnes & Noble were enjoined by the courts from using the
ordering procedure.
(b) Priceline.com vs. Expedia.com

In 1999, Priceline.com filed a suit against Expedia.com alleging that Expedia
was using Pricelines patented reverse auction business model. The suit was
settled on January 9, 2001, when Expedia.com agreed to pay the royalties to
Priceline.com for using the model.
However, in Europe and many Asian, African, and South American

countries, it is almost impossible to obtain patents on business methods or
computer processes.
10.3.4 Fan and Hate Websites

Let us look at another aspect that is related to intellectual property: fan and hate
websites.
Fan and hate websites are part of the Internets self-publishing phenomena that
include blogging. Fan sites may interfere with intellectual property. For example,
some people get advanced copies of new movies or TV programmes and create
sites that compete with the formal sites of the movie or TV producer. Although
the producers can get a court order to close such sites, new sites can appear the
following day. Although the intention of the fans may be good, they may cause
damage to the creators of the intellectual property.
Hate websites can cause problems for corporations as well. Many hate sites are
directed against large corporations (e.g., Microsoft and Nike). Associated with
hate sites is the idea of cyberbashing which is the registration of a domain name
that criticises an organisation or person. As long as the sites contain only
legitimate gripes that are not libellous, defaming, or threatening, they are
allowed to operate.
EXERCISE 10.3
1. List three types of intellectual property.

2. What is the purpose of a digital watermark?
3. Define patents.
You can visit the following websites to get more ideas on:
x Intellectual property right : www.cybercrime.gov/ip.htm

x Information on domain names: http://www.verisign.com
x Example of cyberbashing: http://www.chasebanksucks.com
10.4 FREE SPEECH VERSUS CENSORSHIP AND

OTHER LEGAL ISSUES
Several surveys indicate that censorship (refer below) is one of the most
important issues to web surfers.
In the Internet, censorship refers to a governments attempt to control, in

one way or another, material that is broadcasted.
For example, take the question, How much access should children have to
websites, newsgroups, and chat rooms containing inappropriate or offensive
materials, and who should control this access?
This is one of the most hotly-debated issues between the advocates of censorship
and the proponents of free speech:
(a) The proponents of free speech contend that there should be no government
restrictions on Internet content and that parents should be responsible for
monitoring and controlling their childrens adventure on the web; and
(b) The advocates of censorship feel that government legislation is required to
protect children from offensive material.
In addition to concern for children, there are also concerns on hate sites,
defamation of character, and other offensive material. In a landmark case in 2002,
Australias highest court gave a businessman the right to sue in Australia for
defamation over an article published in the United States and posted on the
Internet. This reasoning basically equates the Internet to any other published
material. The publisher, Dow Jones & Co., said that it will defend those sued in a
jurisdiction (Australia) that is far removed from the country in which the article
was prepared (the United States).
The advocates from the censorship also believe that it is the responsibility of ISPs
to control the content of the data and information that flow across their networks
and computers. The difficulty is that ISPs have no easy way of monitoring the
content or determining the age of the person viewing the content. The only way
to control offensive content is to block it from children and adults alike such as
controlling spam or the act of spamming (refer below).
Spamming refers to the practice of indiscriminately broadcasting messages

over the Internet (e.g., junk mail and pop-up screens).
One major piece of U.S. legislation addressing marketing practices in e-commerce

is the Electronic Mailbox Protection Act, passed in 1997. The primary thrust of
this law is that commercial speech is subject to government regulation, and
secondly, that spamming, which can cause significant harm, expense, and
annoyance, should be controlled.
At some of the largest ISPs, spam now comprises 25 to 50 percent of all e-mail
and results in profound impacts such as:
(a) Impairing an already-limited bandwidth;
(b) Slowing down the Internet in general; and
(c) Shutting down ISPs completely.
The Electronic Mailbox Protection Act requires those sending spam to identify it
as advertising, to indicate the name of the sender prominently, and to include
valid routing information. Recipients may waive the right to receive such
information. Also, ISPs are required to offer spam-blocking software, and
recipients of the spam have the right to request termination of future spam from
the same sender and to bring civil action if necessary.
10.4.1 Other Legal Issues

Privacy, intellectual property, and censorship receive a great deal of publicity
because consumers easily understand them. However, there are numerous other
legal issues related to e-commerce and the Internet. These usually arise as new
situations come up, and they must be worked out in courts of law and in
legislatures, which is a time-consuming process. One such issue, for example, is
whether a company can link into a website without permission.
Some of these e-commerce legal issues will be discussed in detail in the following
sections.
10.4.2 Electronic Contracts

A legally binding contract requires a few basic elements: offer, acceptance, and
consideration. However, these requirements are difficult to establish when the
human element in the processing of the transaction is removed and the
contracting is performed electronically. For example, website development
agreements can be very complex.
The Uniform Electronic Transactions Act of 1999 seeks to extend existing

provisions for contact law to cyberlaw by establishing uniform and consistent
definitions for electronic records, digital signatures, and other electronic
communications. This Act is a procedural one that provides the means to effect
transactions accomplished through an electronic medium. The language
purposefully refrains from addressing questions of substantive law, leaving this
to the scope of the Uniform Commercial Code (UCC), which is explained below.
The UCC is a comprehensive body of law regarding business

conduct. An amendment to the UCC is Article 2B, which is designed to
build upon existing law by providing a government code that supports
existing and future electronic technologies in the exchange of goods or
services. This law was approved in 1999 and enacted in 2000. It is one of
the more significant e-commerce legal developments.
Let us look at the explanations of the following electronic-related contracts:

(a) Shrink-wrap agreements; and
(b) Click-wrap contracts.
Shrink-wrap agreements or box-top licenses appear in or on a package that

contains software. The user is bound to the license by opening the package,
even though the user has not yet used the product or even read the
agreement. This has been a point of contention for some time.
Click-wrap contracts are an extension of this ruling. These are contracts

derived entirely over the Internet. The software vendor offers to sell or
license the use of the software according to the terms accompanying the
software. The buyer agrees to be bound by the terms based on certain
conduct; usually that conduct is retaining the product for a sufficient time
to review the terms and return of the software if unacceptable.
In fall 2000, the Electronic Signatures in Global and National Commerce Act was
approved. This federal law gives contracts signed online the same legal status as
a contract signed with pen on paper. Similar laws have been enacted in several
European and Asian countries.
10.4.3 Electronic Agents

Article 2B of the Uniform Computer Information Transactions Act passed in
October 2000, makes clear that contracts can be formed even when no
human involvement is present. It states that a contract is formed if the interaction
of electronic agents results in operations that confirm the existence of a contract
or indicate agreement.
Further, such a contract can be made by interaction between an individual and

an electronic agent, or even between two electronic agents, even if no individual
was aware of or reviewed the actions. The Act recognises that counter offers are
ineffectual against electronic agents (which is one limitation of e-commerce).
Thus, the Act provides that a contract is formed if an individual takes action that
causes an electronic agent to perform or promise benefits to the individual. The
basic idea is that an individual is responsible for the outcome.
10.4.4 Electronic Gambling

Methods of wagering can be found all over the Internet. For example, the World
Sports Exchange (w
wsex.com) advertises, if you can use a mouse, you can place a
wager. Probably located in Antigua, which is an island nearby the Caribbean
Sea and where gambling is legal, not only has this site shown the ease of
wagering, it has made it as their ultimate slogan.
At the site, an account can be established by wiring or electronically transferring

the funds; even sending a cheque will establish an electronic gambling account.
This account is used to fund a variety of available wagers on all types of sporting
events that can be viewed and transacted online. Anyone that travels physically
to Antigua can play there legally. But what about those who travel from places
where gambling is illegal?
The ease and risk of online wagering is evidenced by many recent cases of
individuals losing their life savings without understanding the implications of
what they are doing in their home sitting before their computer.
Online casinos have all of the inherent dangers of physical gambling houses,
with the added risk of accessibility by minors or individuals of diminished
capacity who may financially injure themselves without the constraints
otherwise found in a physical environment. As is the case with most issues in
cyberspace, self-regulation may be the best policy.
However, given the sometimes addictive nature of gambling, legal steps

have also been taken. The Internet Gambling Prohibition Act of 1999 was
established to make online wagering illegal except for minimal amounts. The Act
provides criminal and civil remedies against individuals making online bets or
wagers and those in the business of offering online betting or wagering venues.
The impact of this legislation is to make ISPs as somewhat liable for illegal
currency movements and for reportable transactions requiring documentation by
the carriers.
According to the Australian Internet Industry Association (AIIA), the

Communication Ministry is looking favourably on imposing a total ban on
interactive gambling in Australia through the use of Internet filtering technology.
The attempt is to block Australian Internet users from accessing gambling sites.
In 2003, there is a moratorium or suspension on new interactive gaming only.

Although the AIIA campaigns against the ban, many politicians support it. Civil
liberties groups in Australia, as in many other countries, oppose any Internet
filtering.
ACTIVITY 10.3
Why it is difficult to control online gambling?
EXERCISE 10.4
1. What is spamming?
2. Describe the Electronic Mailbox Protection Act.
Visit the following websites to get more information on techniques to control

spam, and online gambling:
x www.ciphertrust.com/files/pdf/whitepapers/top10spamtechniques.pdf
x www.mailwasher.net
x www.gamcare.org.uk/site.builder/onlinehelp.html
x www.gambling-hall-online.com/ beginners/pros_and_cons.htm
10.5 E-COMMERCE FRAUD AND SOCIETAL

ISSUES
When buyers and sellers cannot see each other and may even be in different
countries, chances are high that dishonest people might commit all types of fraud
and other crimes over the Internet. During the first few years of e-commerce,
many types of crime came to light, ranging from manipulation of stocks on the
Internet to the creation of a virtual bank that disappeared together with the
investors deposits.
We will look into these aspects in the following sections:

(a) Internet fraud;
(b) Consumer protection; and
(c) Societal issues.
10.5.1 Internet Fraud

Internet fraud and its sophistication have grown even faster than the Internet
itself. The following examples demonstrate the scope of the problem:
(a) Online Auction Fraud

Internet auction fraud accounts for 87 percent of all incidents of online
crime, according to eMarketer.
(b) Internet Stock Fraud

In fall 1998, the U.S. Securities and Exchange Commission (SEC) brought
charges against 44 companies and individuals who illegally promoted
stocks on computer bulletin boards, online newsletters, and investment
websites.
In most cases, stock promoters spread false positive rumours about the
prospects of the companies they touted. In other cases, the information
provided might have been true, but the promoters did not disclose that
they were paid to talk up the companies. Stock promoters specifically target
small investors who are lured the promise of fast profit. Cases like this, as
well as ones involving non-registered securities, are likely to increase
because of the popularity of the Internet.
(c) Other Financial Fraud

Stocks are only one of many areas swindlers are active. Other areas include
the sale of bogus investments, phantom business opportunities, and other
schemes. With the use of the Internet, financial criminals now have access
to far more people, mainly due to the availability of e-mail. In addition,
foreign currency trading scams are increasing on the Internet because most
online currency exchange shops are not licensed.
(d) Other Fraud in E-commerce

Many non-financial types of fraud also exist on the Internet. For example,
customers may receive poor-quality products and services, may not get
products in time, may be asked to pay for things they assume will be paid
for by sellers, and much more. Buyers can protect against e-commerce
fraud in several ways. The major methods are described in the next section:
customer protection.
10.5.2 Consumer Protection

Buyer protection is critical to the success of any commerce, especially
electronic, where buyers do not see the sellers. Tips for safe electronic shopping
include the following:
(a) Users should make sure that they enter the real website of well-known
companies such as Wal-Mart Online, Disney Online, and Amazon.com by
going directly to the site, rather than through a link and shop for reliable
brand names at those sites;
(b) In any unfamiliar site, search for an address and telephone and fax
numbers. Call and quiz a person about the seller;
(c) Check out the seller with the local chamber of commerce, for example,
BetterBusiness Bureau (bbbonline.org);
(d) Investigate how secure the seller s site is and how well it is organised;
(e) Examine the money-back guarantees, warranties, and service agreements
before making a purchase;
(f) Compare prices online to those in regular stores as low prices may be too
good to be true;
(g) Ask friends what they know. Find testimonials and endorsements;
(h) Find out what remedy is available in case of a dispute;
(i) Consult the National Fraud Information Centre; and
(j) Check the resources available at consumerworld.org.
10.5.3 Societal Issues

Despite the factors and trends that contribute to future e-commerce growth, since the
inception of technology in general and the Internet and e-commerce in particular,
we have witnessed a gap between those who have and those who do not have
the ability to use the technology. This gap is referred to as the digital divide.
In 2000, about nine out of 10 of all Internet hosts were located in highly-
developed countries, where only less than a fifth of the worlds population
resides. In 2001, the city of New York, for example, had more Internet hosts than
the whole continent of Africa.
The gap exists both within and between countries. The U.S. federal and state
governments are attempting to close this gap within the country by encouraging
training and supporting education and infrastructure. The gap among countries,
however, may be widening rather than narrowing.
Many government and international organisations are trying to close the digital
divide. The government of Malaysia implemented a project called A National
Strategic Framework for Bridging the Digital Divide, under the Eight Malaysian
Plan in order to narrow the gaps of digital divide. This project was parked under
the United Nations Development Programme and was completed in December
2008.
Apart from digital divide, many other societal issues can be related to e-commerce.
The following three aspects generally derived a positive impact from e-commerce:
(a) Education
E-commerce has had major impact on education and learning. Virtual
universities are helping to reduce the digital divide. Companies can use the
Internet to retrain employees much more easily, enabling them to defer
retirement if they so choose. Home-bound individuals can get degrees from
good institutions, and many vocational professions can be learned from
home.
(b) Public Safety and Criminal Justice

With increased concerns about public safety after September 11, many
organisations and individuals have started to look at technologies that will
help to deter, prevent, or detect early criminal activities of various types.
Various e-commerce tools can help increase our safety at home and in
public:
(i) The e-911 system;
(ii) Collaborative commerce (for collaboration among national and
international law enforcement units);
(iii) E-procurement (of unique equipment to fight crime);
(iv) E-government efforts at coordinating;
(v) Information sharing;
(vi) Expediting legal work and cases;
(vii) Intelligent homes, office, and public buildings; and
(viii) E-training of law enforcement officers.
(c) Health Aspects

Is e-commerce a health risk? Generally speaking, it is probably safer nd
healthier to shop from home than to shop in a physical store.
However, some believe that exposure to cellular mobile communication radiation

may cause health problems. It may take years before the truth of this claim is
known.
Even if communication radiation does cause health problems, the damage could
be insignificant due to the small amount of time most people spend on wireless
shopping and other wireless activities. However, given the concern of some
about this issue, protective devices may soon be available that will solve this
problem.
E-commerce technologies such as collaborative commerce can help to improve

health care. For example:
(i) By using the Internet, the approval process of new drugs has been
shortened, saving lives and reducing suffering;
(ii) Pervasive computing helps in the delivery of health care;
(iii) Intelligent systems facilitate medical diagnoses;
(iv) Health-care advice can be provided from a distance; and
(v) Intelligent hospitals, doctors and other health-care facilities have been
offering improved services by using some of the tools of e-commerce.
The application of Telehealth under the seven flagships of Multimedia Super

Corridor (MSC) extends specialist care to healthcare facilities where there are
lacks of specialists. This is done by providing Teleconsultation links between
healthcare facilities which improve equity of access to quality care especially to
under-served areas and realise the goal of care closer to the home.
SELF-CHECK 10.2
Describe how e-commerce can improve education.
EXERCISE 9.5
1. What is spamming?
2. Describe the Electronic Mailbox Protection Act.
Visit the following websites to get more information on techniques to control

spam, and online gambling:
x www.securecomputing.com
x www.mailwasher.net
x www.gamcare.org.uk
x www.gambling-hall-online.com/beginners/pros_and_cons.htm
x Privacy is described as the implementation of e-commerce which

requires considerable customer information, some of which can be acquired
by tracking the customers activities on the Internet.
x The major issues are how to protect privacy and whose responsibility it is to
do so. Intellectual property rights make it extremely easy and inexpensive to
illegally copy intellectual work. (e.g., music, knowledge) and resell it or sell it
on the Internet without paying royalties to the owners.
x While the legal aspects are clear, monitoring and catching violators are
difficult.
x According to free speech versus censorship, it is easy to distribute indecent
material on the Internet, but it is very difficult to control it. Who will protect
surfers, especially children, from indecent or offending material is still
debatable. We also looked at consumer and merchant protection against
fraud.
x Protection is needed because there is no face-to-face contact, because there is
a great possibility for conducting fraud, because there are no sufficient legal
constraints, and because new issues and scams appear constantly.
x Several organisations, private and public, attempt to provide protection that
is needed to build the trust, which is essential for the success of widespread
e-commerce.
Censorship Free speech

Copyright Legals
Cyberbashing Internet fraud
Cyberpiracy Intellectual property patents
Cybersquatting Privacy
Digital divide Societal issues
Digital watermarks Spamming
Electronic agents Trademarks
Electronic contracts
Electronic gambling
Ethics

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Topic X Legal, Ethical

10.1 LEGAL ISSUES VERSUS ETHICAL ISSUES

Laws are enacted by government and developed through case precedents

Ethics is a branch of philosophy that deals with what is considered to be

Ethics is supported by common agreement in a society as to what is right

E-commerce opens up a new spectrum of unregulated activity, where the

A website collects information from potential customers and sells it to its

What is unethical in one culture may be perfectly acceptable in another. Many

If an action is legal, it must also be ethical. Do you agree with this

(b) Intellectual Property Rights

(c) Free Speech versus Censorship

(d) Consumer and Merchant Protection against Fraud

(e) Internet Governance

Give an example of an e-commerce activity that is unethical but legal.

1. Define ethics and distinguish it from laws.

(a) Legal issues, ethical issues, privacy and security:

(b) Legal aspects of e-commerce:

10.2.1 Information Collection

The Internet offers a number of opportunities to collect private information about

(b) By looking up an individuals name and identity in an Internet directory;

(a) Website Registration

In Internet terminology, a cookie is a small piece of data that is passed back

Originally, cookies were designed to help with personalisation. However,

(i) Deleting the Cookies

(ii) Using Anti-Cookie Software

Let us look at the Microsofts product called as Passport which

Passport is an Internet strategy that lets consumers to permanently enter a

10.2.2 Privacy Protection

Table 10.1: Ethical Principles in E-commerce

Ethical Principles Description

Choice/ There must be a choice regime in place allowing consumers to

Fortunately, users can take steps to improve their online privacy.

10.2.3 Technological Solutions to Privacy Invasion

Table 10.2: Technological Protection for Online Privacy

Technology Products Protection

Anonymous surfing Anonymizer.com Surf without a trace

Cookie managers CookieCrusher Prevent client computer

Disk/file erasing FileWiper; Eraser Completely erases hard

Policy generators OECD Privacy Policy Automates the development

Privacy Policy Reader P3P Software for automating the

Source: Adapted from Laudon, K. C., & Traver, C. G. (2009). E-commerce:

Perhaps the most comprehensive technological privacy protection effort is the

P3P is a standard designed to communicate to Internet users of a websites

You can visit these websites to get more ideas on:

(a) E-commerce/Internet privacy:

10.3 INTELLECTUAL PROPERTY RIGHTS

Whereas a privacy protection is the major concern for individuals, intellectual

In Malaysia, Intellectual Property Rights are administered by Intellectual

There are three main types of intellectual property in e-commerce as shown in

Figure10.1: Types of intellectual property in e-commerce

A copyright is an exclusive grant from the government that confers on its

Copyrights usually exist in the following works:

The greatest threat to intellectual property is wide-scale individual theft. Millions

Various international treaties provide global copyright protection. Of these, the

Copyright infringement is the unauthorised use of copyrighted material in

A copyright owner may seek a court injunction to prevent or stop any

In the United States, congressional legislation has proposed to make it unlawful

It is possible to use software to produce digital content that cannot be copied.

(a) Preventing copyright violations by using cryptography (refer below); and

Cryptography can be defined as the conversion of data into a scrambled

(b) Tracking copyright violations.

Visit the following sites for more information on:

Another successful method to protect the digital content is through digital