Chapter 55 Notes

Chapter 17
Legal, Ethical, and Social Impacts of EC

Learning Objectives
1. Describe the differences between legal and

ethical issues in EC.
2. Understand the difficulties of protecting privacy
in EC.
3. Discuss issues of intellectual property rights in
EC.
4. Describe unsolicited ad problems and remedies.
5. Understand the conflict between free speech
and censorship on the Internet.
Electronic Commerce Prentice Hall © 2006 2

Learning Objectives
6. Describe major legal issues in EC.

7. Describe the types of fraud on the Internet and
how to protect against them.
8. Describe representative societal issues in EC.
9. Describe the role and impact of virtual
communities on EC.
10. Describe the future of EC.

Legal Issues Versus Ethical Issues
ethics
The branch of philosophy that deals with what is
considered to be right and wrong

• The Major Ethical and Legal Issues Discussed in

this Chapter
– Privacy
– Intellectual property rights and online piracy
– Unsolicited electronic ads and spamming
– Free speech versus censorship
– Consumer and merchant protection against fraud

• EC Ethical Issues
– Non-Work-Related Use of the Internet
• Employees are tempted to use e-mail and the Web for
non-work-related purposes
• In some companies, this use is tremendously out of
proportion with its work-related use
• The utility of monitoring employee usage can be
considered “one of the most controversial EC issues”

– Codes of Ethics: Useful guidelines for a corporate

Web policy:
• Issue written policy guidelines about employee use of the
Internet
• Make it clear to employees that they cannot use
copyrighted trademarked material without permission
• Post disclaimers concerning content, such as sample
code, that the company does not support
• Post disclaimers of responsibility concerning content of
online forums and chat sessions

• Codes of Ethics: Useful guidelines for a corporate Web

policy:
– Make sure that Web content and activity comply with the laws in
other countries
– Make sure that Web content and activity comply with the laws in
other countries
– Make sure that the company’s Web content policy is consistent
with other company policies
– Appoint someone to monitor Internet legal and liability issues.
– Have attorneys review Web content to make sure that there is
nothing unethical, or illegal, on the company’s Web site

Privacy
privacy
The right to be left alone and the right to be free of
unreasonable personal intrusions
• Collecting Information about Individuals
– Web Site Registration
– Cookies
– Spyware and Similar Methods
– RFID’s Threat to Privacy
– Privacy of Employees
– Privacy of Patients
• Protection of Privacy
– Notice/awareness
– Choice/consent
opt-out clause
Agreement that requires computer users to take
specific steps to prevent the collection of personal
information
opt-in clause
Agreement that requires computer users to take
specific steps to allow the collection of personal
information
Privacy
• Protection of Privacy
– Access/participation
– Integrity/security
– Enforcement/redress

Privacy
• The USA Patriot Act

– E-mail and Internet searches
– Nationwide roving wiretaps
– Requirement that ISPs hand over more user
information
– Expanded scope of surveillance based on new
definitions of terrorism
– Government spying on suspected computer
trespassers with no need for court order
– Wiretaps for suspected violations of the Computer
Fraud and Abuse Act
Privacy
• The USA Patriot Act

– Dramatic increases in the scope and penalties of the
Computer Fraud and Abuse Act
– General expansion of Foreign Intelligence
Surveillance Act (FISA) authority
– Increased information sharing between domestic law
enforcement and intelligence
– FISA detours around federal domestic surveillance
limitations; domestic surveillance detours around
FISA limitations

Privacy
• Privacy Protection in Other Countries

– In 1998, the European Union passed a privacy
directive (EU Data Protection Directive) reaffirming
the principles of personal data protection in the
Internet age
– The directive aims to regulate the activities of any
person or company that controls the collection,
storage, processing, or use of personal data on the
Internet

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

copyright
An exclusive grant from the government that allows the
owner to reproduce a work, in whole or in part, and to
distribute, perform, or display it to the public in any form
or manner, including over Internet
• Literary works
• Musical works
• Dramatic works
• Artistic works
• Sound recordings, films, broadcasts, cable programs

• Copyrights
– Piracy of Software, Music, and Other Digitizable
Material
– Copyright Protection Approaches
digital watermarks
Unique identifiers embedded in digital content that
make it possible to identify pirated works
– Digital Rights Management

trademark
A symbol used by businesses to identify their
goods and services; government registration of
the trademark confers exclusive legal right to its
use
– Domain Name Disputes and Resolutions
cybersquatting
The practice of registering domain names in order
to sell them later at a higher price

patent
A document that grants the holder exclusive
rights to an invention for a fixed number of years
• Fan and Hate Sites
cyberbashing
The registration of a domain name that criticizes an
organization or person

Unsolicited Electronic Ads:
Problems and Solutions
• E-Mail Spamming
unsolicited commercial e-mail (UCE)
The use of e-mail to send unwanted ads or
correspondence
– What Drives UCE?
Many spammers are just trying to get people’s financial
information

– Why It Is Difficult to Control Spamming

• Spammers send millions of e-mails, shifting Internet
accounts to avoid detection
• Spammers use different methods to find their victims
– Solutions to Spamming
• Junk-mail filters
• Automatic junk-mail deleters
• Blocking certain URLs and e-mail addresses

Exhibit 17.1 How Spam Blockers Work

• E-Mail Spamming
– Anti-spam Legislation
• Do-not-spam lists
• Protecting employees

• Protecting against Pop-Up Ads

– Pop-Up stoppers
• Concluding Remarks
– The spam situation has not yet been resolved.
However, it seems that both e-mail spamming and
pop-ups are not increasing, and they may even be
declining

Free Speech Versus Censorship
and Other Legal Issues
• On the Internet, censorship refers to

government’s attempt to control, in one way or
another, the material that is presented
• “Donham’s First Law of Censorship.” This
semiserious precept states: “Most citizens are
implacably opposed to censorship in any form—
except censorship of whatever they personally
happen to find offensive.”
• Children’s Online Protection Act (COPA)
exemplifies the protective approach
– Other Legal Issues

– Electronic Contracts
• A legally binding contract requires a few basic elements:
an offer, acceptance, and consideration
• These requirements are difficult to establish when the
human element in the processing of the transaction is
removed and the contracting is performed electronically
• Intelligent Agents and Contracts
Uniform Computer Information Transactions Act ( 2000), makes
clear that contracts can be formed even when a human is not
directly involved

• Taxing Business on the Internet

This issue is extremely important because it is related
to global EC, as well as to fairness in competition
when EC competes with off-line marketing channels,
which requires the collection of taxes

• The Tax-Exemption Debate

– The Internet Tax Freedom Act 1(998) sought to
promote e-commerce through tax incentives, by
barring any new state or local sales taxes on Internet
transactions until October 2001
– The U.S. Congress extended the tax moratorium until
2006, giving it time to digest the contents of the report
and hash out contentious tax issues

• The Tax-Exemption Debate

– Proposed Taxation in the United States
• The National Governors’ Association, the National League
of Cities, and the U.S. Conference of Mayors fought the
Tax Free Bill for the Internet
• The U.S. Congress blocked state and local governments
from taxing connections that link consumers to the
Internet, at least until November 2007

EC Fraud and
Consumer and Seller Protection
• Fraud on the Internet

– Online Auction Fraud
– Internet Stock Fraud
– Other Financial Fraud

EC Fraud and
• Fraud on the Internet

– Identity Theft and Phishing
identity theft
A criminal act in which someone presents himself
(herself) as another person and uses that person’s
social security number, bank account numbers,
and so on, to obtain loans, purchase items, make
obligations, sell stocks, etc.

EC Fraud and
• Consumer Protection
– Third-Party Assurance Services
• TRUSTe’s “Trustmark”
• Better Business Bureau
• WHICHonline
• Web Trust Seal and Others
• Online Privacy Alliance
• Evaluation by Consumers
– Authentication and Biometric Controls

EC Fraud and
• Seller Protection
– Customers who deny that they placed an order
– Customers who download copyrighted software
and/or knowledge and sell it to others
– Customers who give false payment (credit card or bad
checks) information in payment for products and
services provided
– Use of their name by others
– Use of their unique words and phrases, names, and
slogans and their Web addresses by others
EC Fraud and
• What can Sellers Do?

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

Societal Issues
digital divide
The gap between those who have and those
who do not have the ability to access electronic
technology in general, and the Internet and EC
in particular
• Other Societal Issues
– Education
– Public safety, criminal justice, and homeland security
– Health aspects
Virtual (Internet) Communities
virtual (Internet) community

A group of people with similar interests who
interact with one another using the Internet
• Characteristics of Communities
One possibility is to classify members as traders,
players, just friends, enthusiasts, or friends in need

Commercial Aspects of Communities
1. Search communities 6. Community consulting

2. Trading communities firms
3. Education 7. E-mail-based
communities communities
4. Scheduled events 8. Advocacy communities
communities 9. CRM communities
5. Subscriber-based 10.Mergers and
communities acquisitions activities
• Types of Virtual Communities

– Transaction
– Purpose or interest
– Relations or practice
– Fantasy
• Financial Viability of Communities: Revenue model of
communities can be based on:
– Sponsorship
– Membership fees
– Sales commissions
– Advertising
– Combination of these
Exhibit 17.5 Value Creation in
Electronic Communities

Eight critical factors for community success:
1. Increase traffic and 5. Consider the cultural

participation in the community environment
6. Provide several tools and
2. Focus on the needs of the activities for member use;
members; use facilitators and communities are not just
coordinators discussion groups
3. Encourage free sharing of 7. Involve community members in
opinions and information—no activities and recruiting
controls 8. Guide discussions, provoke
4. Obtain financial sponsorship. controversy, and raise sticky
This factor is a must. issues. This keeps interest high
Significant investment is
required
Key Strategies for Successful Online Communities

1. Handle member data sensitively
2. Maintain stability of the Web site with respect to the
consistency of content, services, and types of
information offered
3. Provide fast reaction time of the Web site
4. Offer up-to-date content
5. Offer continuous community control with regard to
member satisfaction
6. Establish codes of behavior (netiquette/guidelines) to
contain conflict potential
The Future of EC
• Nontechnological Success Factors

– Internet Usage
– Opportunities for Buying
– M-Commerce
– Purchasing Incentives
– Increased Security and Trust
– Efficient Information Handling
– Innovative Organizations
– Virtual Communities

The Future of EC
• Nontechnological Success Factors

– Payment Systems
– B2B EC
– B2B Exchanges
– Auctions
– Going Global
– E-Government
– Intra-business EC
– E-Learning
– EC Legislation

The Future of EC
• EC Technology Trends
– Clients
– Embedded Clients
– Wireless Communications and M-Commerce
– Pervasive Computing
– Wearable Devices
– RFID
– Servers and Operating Systems
– Networks

The Future of EC
– EC Software and Services
– Search Engines
– Peer-to-Peer Technology
– Integration
– Web Services
– Software Agents
– Interactive TV
– Tomorrow’s Internet

The Future of EC
utility computing
Computing resources that flow like electricity on demand
from virtual utilities around the globe—always on and
highly available, secure, efficiently metered, priced on a
pay-as-you-use basis, dynamically scaled, self-healing,
and easy to manage
– Grid Computing coordinates the use of a large
number of servers and storage, acting as one
computer

The Future of EC
• Integrating the Marketplace with Marketspace

– Probably the most noticeable integration of the two
concepts is in the click-and-mortar organization
– A major problem with the click-and-mortar approach is
how the two outlets can cooperate in planning,
advertising, logistics, resource allocation, and so on
and how the strategic plans of the marketspace and
marketplace can be aligned
– The impact of EC on our lives will be as much as, and
possibly more profound than, that of the Industrial
Revolution

Managerial Issues
1. What sorts of legal and ethical issues should be

of major concern to an EC enterprise?
2. What are the most critical ethical issues?
3. Should we obtain patents?
4. What impacts on business is EC expected to
make?
5. Do we have a community?

Summary
1. Differences between legal and ethical issues.

2. Protecting privacy in EC.
3. Intellectual property rights in EC.
4. Unsolicited ads and spamming.
5. Conflict between free speech and censorship.

Summary
6. Legal issues.
7. Protecting buyers and sellers online.
8. Societal issues and EC.
9. The role of virtual communities.
10. The future of EC.

Chapter 55 Notes

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Chapter 17

Legal, Ethical, and Social Impacts of EC

1. Describe the differences between legal and

Electronic Commerce Prentice Hall © 2006 2

6. Describe major legal issues in EC.

Electronic Commerce Prentice Hall © 2006 3

Electronic Commerce Prentice Hall © 2006 4

• The Major Ethical and Legal Issues Discussed in

Electronic Commerce Prentice Hall © 2006 5

Electronic Commerce Prentice Hall © 2006 6

– Codes of Ethics: Useful guidelines for a corporate

Electronic Commerce Prentice Hall © 2006 7

• Codes of Ethics: Useful guidelines for a corporate Web

Electronic Commerce Prentice Hall © 2006 8

Electronic Commerce Prentice Hall © 2006 11

• The USA Patriot Act

• The USA Patriot Act

Electronic Commerce Prentice Hall © 2006 13

• Privacy Protection in Other Countries

Electronic Commerce Prentice Hall © 2006 14

Electronic Commerce Prentice Hall © 2006 15

Electronic Commerce Prentice Hall © 2006 16

Electronic Commerce Prentice Hall © 2006 17

Electronic Commerce Prentice Hall © 2006 18

Electronic Commerce Prentice Hall © 2006 19

Electronic Commerce Prentice Hall © 2006 20

– Why It Is Difficult to Control Spamming

Electronic Commerce Prentice Hall © 2006 21

Electronic Commerce Prentice Hall © 2006 22

Electronic Commerce Prentice Hall © 2006 23

• Protecting against Pop-Up Ads

Electronic Commerce Prentice Hall © 2006 24

• On the Internet, censorship refers to

– Other Legal Issues

Electronic Commerce Prentice Hall © 2006 26

• Taxing Business on the Internet

Electronic Commerce Prentice Hall © 2006 27

• The Tax-Exemption Debate

Electronic Commerce Prentice Hall © 2006 28

• The Tax-Exemption Debate

Electronic Commerce Prentice Hall © 2006 29

• Fraud on the Internet

Electronic Commerce Prentice Hall © 2006 30

• Fraud on the Internet

Electronic Commerce Prentice Hall © 2006 31

Electronic Commerce Prentice Hall © 2006 32

• What can Sellers Do?

Electronic Commerce Prentice Hall © 2006 34

virtual (Internet) community

Electronic Commerce Prentice Hall © 2006 36

Commercial Aspects of Communities

1. Search communities 6. Community consulting

• Types of Virtual Communities

Electronic Commerce Prentice Hall © 2006 39

1. Increase traffic and 5. Consider the cultural

Key Strategies for Successful Online Communities

• Nontechnological Success Factors

Electronic Commerce Prentice Hall © 2006 42

• Nontechnological Success Factors

Electronic Commerce Prentice Hall © 2006 43

Electronic Commerce Prentice Hall © 2006 44

Electronic Commerce Prentice Hall © 2006 45

Electronic Commerce Prentice Hall © 2006 46