Chapter 11, Legal and Ethical Issues;

Internet Taxation
Outline
11.1 Introduction
11.2 Legal Issues: Privacy on the Internet
11.2.1 Right to Privacy
11.2.2 Internet and the Right to Privacy
11.2.3 Network Advertising Initiative
11.2.4 Employer and Employee
11.2.5 Protecting Yourself as a User
11.2.6 Protecting Your Business: Privacy Issues
11.3 Legal Issues: Other Areas of Concern
11.3.1 Defamation
11.3.2 Sexually Explicit Speech
11.3.3 Children and the Internet
11.3.4 Alternative Methods of Regulation
11.3.5 Intellectual Property: Copyrights and Patents
11.3.6 Trademark and Domain Name Registration

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 Chapter 11, Legal and Ethical Issues;
Internet Taxation
Outline
11.3.7 Unsolicited Commercial E-mail (Spam)
11.3.8 Online Auctions
11.3.9 Online Contracts
11.3.10 Online User Agreements
11.4 Cybercrime
11.5 Internet Taxation

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 11.1 Introduction
• Real space
– Our physical environment consisting of temporal and
geographic boundaries
• Cyberspace
– The realm of digital transmission not limited by geography

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 11.2 Legal Issues: Privacy on the
Internet
• Difficulty of applying traditional law to the
Internet
• Technology and the issue of privacy

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 11.2.1 Right to Privacy
• Implicit in the First, Fourth, Ninth and Fourteenth
Amendments
• Olmstead vs. United States
– Telecommunication of alcohol sales during Prohibition era
– New application of the Fourth Amendment
• Translation
– Interpreting the Constitution to protect the greater good

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 11.2.2 Internet and the Right to
Privacy
• Self-regulated medium
– The Internet industry governs itself
• Many Internet companies collect users’ personal
information
– Privacy advocates argue that these efforts violate
individuals’ privacy rights
– Online marketers and advertisers suggest that online
companies can better serve their users by recording the likes
and dislikes of online consumers
• Financial Services Modernization Act of 1999
– Establishes a set of regulations concerning the management
of consumer information

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 11.2.3 Network Advertising Initiative
• Network Advertising Initiative (NAI)
– Approved by the FTC in July 1999 to support self regulation
• NAI currently represents 90 percent of Web
advertisers
• Determines the proper protocols for managing a
Web user’s personal information on the Internet
• Prohibits the collection of consumer data from
medical and financial sites
• Allows the combination of Web-collected data and
personal information

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 11.2.3 DoubleClick: Marketing with
Personal Information Feature
• Regulation of the Internet could limit a company’s
efforts to buy and sell advertising
• DoubleClick
– Advertising network of over 1,500 sites and 11,000 clients
• Abacus Direct Corp
– Names, addresses, telephone numbers, age, gender, income
levels and a history of purchases at retail, catalog and online
stores
• Digital redlining
– Skewing of an individual’s knowledge of available products
by basing the advertisements the user sees on past behavior

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 11.2.4 Employer and Employee
• Keystroke cop
– Registers each keystroke before it appears on the screen
• Company time and company equipment vs. the
rights of employees
• Determining factors
– Reasonable expectation of privacy
– Legitimate business interests
• Reasons for surveillance
– Slower transmission times
– Harassment suits
– Low productivity

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 11.2.4 Employer and Employee
• Notice of Electronic Monitoring Act
– Proposed in 2000
– Would require employers to notify employees of telephone,
e-mail and Internet surveillance
– Annual updates or when policy changes are made
– The frequency of surveillance, the type of information
collected and the method of collection would also be
disclosed

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 11.2.4 Michael A. Smyth vs. The
Pillsbury Company Feature
• Dismissed as regional operations manager
• Questionable material in e-mail
• Pennsylvania law
– “An employer may discharge an employee with or without
cause, at pleasure, unless restrained by some contract"
• Public policy
– Reprimanding an employee called for jury duty
– Denial of employment as a result of previous convictions
• Verdict awarded to Pillsbury
– No reasonable expectation of privacy
– Legitimate business interests

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 11.2.5 Protecting Yourself as a User
• Anonimity and pseudonimity
– PrivacyX.com
• Platform for Privacy Preferences Project (P3P)
– Browser complies in accordance with users’ privacy
preferences by allowing them to interact in specific ways
• Privacy services and software
– Junkbusters.com
– PrivacyChoices.org
– Center for Democracy and Technology
– Electronic Frontier Foundation
– Electronic Privacy Information Center
– PrivacyRights. org

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 11.2.6 Protecting Your Business:
Privacy Issues
• Privacy policy
– The stated policy regarding the collection and use of
visitor’s personal information
• Privacy policy services and software
– PrivacyBot.com
– TRUSTe

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 11.2.6 Protecting Your Business:
Privacy Issues
• Core Fair Information Practices
– Consumers should be made aware that personal information
will be collected
– The consumer should have a say in how this information will
be used
– The consumer should have the ability to check the
information collected to ensure that it is complete and
accurate
– The information collected should be secured
– The Web site should be responsible for seeing that these
practices are followed

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 11.2.6 Protecting Your Business:
Privacy Issues

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

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 11.3 Legal Issues: Other Areas of
Concern
• Defamation
• Sexually explicit speech
• Copyright and patents
• Trademarks
• Unsolicited e-mail
• First Amendment
– "Congress shall make no law respecting an establishment of
religion, or prohibiting the free exercise thereof; or
abridging the freedom of speech, or of the press; or the right
of the people peaceably to assemble and to petition the
Government for a redress of grievances"

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 11.3.1 Defamation
• Defamation
– The act of injuring another’s reputation, honor or good name
through false written or oral communication
• Libel
– Defamatory statements written or spoken in a context in
which they have longevity and pervasiveness that exceed
slander

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 11.3.1 Defamation
• Slander
– Spoken defamation
• Proving defamation
– The statement must have been published, spoken or
broadcast
– There must be identification of the individual(s) through
name or reasonable association
– The statement must be defamatory
– There must be fault
– There must be evidence of injury

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 11.3.1 Defamation
• Good Samaritan provision, Section 230 of the
Telecommunications Act
– Protects ISPs from defamation lawsuits when the ISPs’
attempt to control potentially damaging postings
– “Obscene, lewd, lascivious, filthy, excessively violent,
harassing or otherwise objectionable"

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 11.3.1 Cubby vs. Compuserve and
Stratton Oakmont vs. Prodigy Feature
• Cubby vs. Compuserve
– Anonymous individual used a news service hosted by
Compuserve to post an allegedly defamatory statement
• Distributor vs. publisher
– A distributor cannot be held liable for a defamatory
statement unless the distributor has knowledge of the content
– Compuserve was a distributor of content
• Stratton Oakmont vs. Prodigy
– Claimed responsibility to remove potentially defamatory or
otherwise questionable material
– Prodigy served as a publisher of the content

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 11.3.2 Sexually Explicit Speech
• Miller vs. California (1973)
– The Miller Test identifies the criteria used to distinguish
between obscenity and pornography
– Must appeal to the prurient interest, according to
contemporary community standards
– When taken as a whole, lacks serious literary, artistic,
political or scientific value
• Challenge of community standards in cyberspace

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 11.3.2 United States vs. Thomas
Feature
• Thomas
– Internet business owner in California, owner of pornographic
Web site from which merchandise could be ordered
– Accessible by password
– Acceptable by California community standards
– Sold pornographic material to Tennessee resident (opposing
community standards)
• Thomas found guilty
• Non-content related means
– Effort to control the audience rather than controlling the
material

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 11.3.3 Children and the Internet
• Accessibility of information
• Decency Act of 1996 (CDA) and Children’s Online
Protection Act of 1998 (COPA)
– Designed to restrict pornography on the Internet, particularly
in the interest of children
– Overbroad
– “Patently offensive,” “indecent” and “harmful to minors”
• Chilling effect
– Limiting speech to avoid a lawsuit
• Children’s Online Privacy Protection Act of 2000
(COPPA)
– Prohibits Web sites from collecting personal information
from children under the age of 13

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 11.3.4 Alternatives Methods of
Regulation
• Blocking and filtering
– Allows users to select what kinds of information can and
cannot be received through their browsers
• Blocking and filtering software and services
– Surfwatch.com
– Cybersitter.com
– NetNanny.com
• Infringement of First Amendment rights
• Parent’s counsel
– CyberAngels.com
– GetNetWise.com
– Parentsoup.com
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 11.3.4 Alternatives Methods of
Regulation

Net Nanny home page. (Courtesy of Net Nanny Software

International, Inc.)
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 11.3.5 Intellectual Property: Patents
and Copyright
• Copyright
– The protection given to the author of an original piece,
including “literary, dramatic, musical, artistic and certain
other intellectual works”
– Whether the work has been published or not
– Protects only the expression or form of an idea and not the
idea itself
– Provides incentive to the creators of original material
– Guaranteed for the life of the author plus seventy years

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 11.3.5 Intellectual Property: Patents
and Copyrights
• Digital Millennium Copyright Act of 1998
(DMCA)
– Represents the rights of creative bodies to protect their work
as well as the rights of educators and resource providers to
receive access to this work
– Makes it illegal to delete or otherwise alter the identifying
information of the copyright owner
– Prevents the circumvention of protection mechanisms and/or
the sale of such circumvention mechanisms
– Protects the fair use of copyrighted material

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 11.3.5 Intellectual Property: Patents
and Copyright
• Fair use
– The use of a copyrighted work for education, research,
criticism
– The purpose of the copyrighted work is examined
– The nature of the copyrighted work is taken into account
– The amount of the material that has been reproduced is
reviewed
– The effect is taken into consideration

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 11.3.5 Intellectual Property: Patents
and Copyright
• Patent
– Grants the creator sole rights to the use of a new discovery
– Protection for 20 years
• Opposing the length of a patent
– Does not foster the creation of new material
• Includes “methods of doing business” since 1998
– Idea must be new and not obvious to a skilled person
• Amazon’s 1-Click patent
– September, 1999
– Huge advantage over competitors, as 65% of shopping carts
are abandoned before purchase is complete
– Barnesandnoble.com Express Lane violated patent
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 11.3.5 File Sharing and the Copyright
Debate Feature
• Present significant challenges to the traditional
treatment of copyright protection
• MP3
– A compression method used to substantially reduce the size
of audio files, with no significant reduction in sound quality
• Napster
– Operates as a centralized service
– Offers software that allows users to download MP3 files
from the hard drives of other members
• Gnutella
– Operates as a decentralized service
– Individuals with Gnutella software installed on their
computers operate as both a client and a server

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 11.3.5 File Sharing and the Copyright
Debate Feature
• Legal issues
– Freedom of exchange (enabled by technological
advancements) vs. copyright infringement
– Ability to voice one’s opinion and circumvent efforts of
censorship
– If copyrighted works are distributed over the system,
creators will have less incentive to continue generating
original works
• Sony Betamax (1984)
– Courts awarded the victory to Sony, suggesting that the
Betamax provided other uses (recording for personal
viewing) that justified its existence

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 11.3.5 United States vs. Lamacchia
Feature
• Changed the face of copyright protection (1994)
• Posting of copyrighted material
• Not guilty under the Copyright Act of 1976
– The violation must have been conducted "willfully and for
purposes of commercial advantage or private financial gain”
• LaMachhia did not profit from the copyright
violations
• LaMacchia was not convicted for his actions

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 11.3.6 Trademark and Domain Name
Registration
• Parasite
– Selects a domain name based on common typos made when
entering a popular domain name
• Cybersquatter
– Buys an assortment of domain names that are obvious
representations of a brick-and-mortar company

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 11.3.6 Trademark and Domain Name
Registration
• Anticybersquatting Consumer Protection Act of
1999 (ACPA)
– Protects traditional trademarking in cyberspace
– Protects trademarks belonging to a person or entity other
than the person or entity registering or using the domain
name
– Persons registering domain names are protected from
prosecution if they have a legitimate claim to the domain
name
– Domain names cannot be registered with the intention of
resale to the rightful trademark owner

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 11.3.7 Unsolicited Commercial E-
mail (Spam)
• Cost is primarily incurred by the receiver and the
ISP
• Organizations distributing spam
– Maintain anonymity and receivers cannot request to be taken
off the organization’s mailing list
– Present themselves as a legitimate company and damage the
legitimate company’s reputation
• Unsolicited Electronic Mail Act
– Mandates that the nature of the e-mail be made clear
– Would require online marketers to know the policy of every
ISP they encounter on the Web

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 11.3.8 Online Auctions
• Question of government regulation
• International regulation of auctions
• Copyright infringement and auction aggregation
services
• The Collections of Information Antipiracy Act
(CIAA)
– Makes it easier to prosecute any group which takes listings
from one organization and, in doing so, harms the original
business
• Shill bidding
– Sellers bid for their own items to increase the bid price

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 11.3.9 Online Contracts
• Electronic Signatures in Global and National
Commerce Act of 2000 (E-Sign Bill)
– Designed to promote online commerce by legitimizing
online contractual agreements
– Digital agreements will receive the same level of validity as
hard-copy counterparts
– Allows cooperating parties to establish their own contracts

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 11.3.10 User Agreements
• Requires users to agree to certain terms regarding
the service or product provided by the site before
entering
• Shrink-wrap agreement
– An agreement printed on the outside of the package holding
the product that becomes binding when the consumer opens
the package
• Click-through agreement
– A pop-up screen to which users must agree before they can
continue
• Depending on their presentation, these types of
agreements can be considered valid by the U. S.
courts
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 11.4 Cybercrime
• Auctions, chat rooms and bulletin boards are
among the most popular forums for illegal
activities
• Viruses, which often lead to denial of service or a
loss of stored information, are among the most
common cybercrimes
• Stock scams
– Crimes in which individuals purchase stocks, then present
false claims about the value of that stock in chat rooms or on
bulletin boards to sell them back at a higher price
• Web page hijacking
– Web page is used as a gateway (the intermediary between
one site and another) to another site

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 11.4 Cybercrime

FTC “dummy” site for NordiCaLite. (Courtesy of Federal

Trade Commission.)
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 11.4 Cybercrime

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

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 11.5 Internet Taxation
• The opposing arguments
– Permanent ban on Internet taxation
– Fair taxation of Internet sales
• Taxation methods
– If both a vendor and a consumer are located in the same state
sales tax is applied
– If the vendor and the consumer are not located in the same
state, then the sale is subject to a use tax
– If the vendor has a physical presence, or nexus, then it is
required to collect the tax; otherwise the vendor must assess
the tax and pay it directly to the state

 2001 Prentice Hall, Inc. All rights reserved.

 11.5 Internet Taxation
• Problems with Internet taxation
– The definition of physical presence (location of the ISP, the
location of the server or the location of the home page)
– States vary according to what transactions are subject to
taxation
– Sales tax revenues are the largest single source of a state’s
revenue and are used to fund government-subsidized
programs, including the fire department, the police and the
public education systems
– State and local governments further argue that removing
taxation methods from their jurisdiction infringes upon state
sovereignty, an element of the checks-and-balances system
maintained by the United States Constitution

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 11.5 Internet Taxation
• Problems with Internet taxation
– To meet the taxation requirements of all parties in online
transactions, e-businesses would be required to know and
understand all these methods
• Internet Tax Commission
– Reviewed the issue of Internet taxation
– Revision of state and local taxes to make taxing a feasible
process for Internet businesses
– Establish clearer definitions on the meaning of “physical
presence”
– Define universal taxation exemptions

 2001 Prentice Hall, Inc. All rights reserved.