Many legal issues are related to e-commerce. When buyers and sellers do not
know each other and cannot even see each other (they may even be in different
countries), there is a chance that dishonest people will commit fraud
and other crimes over the Internet. During the first few years of EC, the public
witnessed many of these, ranging from the creation of a virtual bank that
disappeared along with the investors’ deposits, to manipulation of stock prices
on the Internet. Unfortunately, fraudulent activities on the Internet are increasing.
Representative examples of legal issues specific to e-commerce are discussed
below.
FRAUD ON THE INTERNET. Internet fraud and its sophistication have grown as
much as, and even faster than, the Internet itself. For example, stock promoters
falsely spread positive rumors about the prospects of the companies they
touted, to boost the stock price. 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 by the promise of fast profits.
Stocks are only one of many areas where swindlers are active. Auctions
are especially conducive to fraud, by both sellers and buyers. Other areas of
potential fraud include selling bogus investments and phantom business
opportunities. Financial criminals now have access to many more people,
mainly due to the availability of electronic mail and pop-up ads. The U.S. Federal
Trade Commission (ftc.gov) regularly publishes examples of scams most
likely to arrive via e-mail or be found on the Web. Some ways in which consumers
and sellers can protect themselves from online fraud are discussed later
in this section.
DOMAIN NAMES. Another legal issue involves competition over domain names.
Internet addresses are known as domain names. Domain names appear in
levels. A top-level name is wiley.com or stanford.edu. A second-level name will
be wiley.com/turban or ibm.com.hk (for IBM in Hong Kong). Top-level domain
names are assigned by central nonprofit organizations that check for conflicts
and possible infringement of trademarks (e.g., see networksolutions.com). Obviously,
companies who sell goods and services over the Internet want customers
to be able to find them easily, so it is best when the domain name matches the
company’s name.
Problems arise when several companies that have similar names compete
over a domain name. For example, if you want to book reservations at Holiday
Inn hotels on a cross-country trip you are planning and you go to holidayinn.com,
you get the Web site for a hotel at Niagara Falls, New York; to get to the hotel
chain’s Web site, you have to go to holiday-inn.com. Several cases of disputed
names are already in court. An international arbitration organization is available as an alternative to the courts. The problem of domain names was alleviated
somewhat in 2001 after several upper-level names were added to “com” (such
as “info” and “coop”).
Cybersquatting. Cybersquatting refers to the practice of registering
domain names in the hope of selling them later at a higher price. For example,
the original owner of tom.com received about $8 million for the name. The case
of tom.com was ethical and legal. But in other cases, cybersquatting can be illegal
or at least unethical (see Stead and Gilbert, 2001). Companies such as Christian
Dior, Nike, Deutsche Bank, and even Microsoft have had to fight or pay to get
the domain name that corresponds to their company’s name. The Anticybersquatting
Consumer Protection Act (1999) lets trademark owners in the United
States sue for statutory damages.
TAXES AND OTHER FEES. In offline sales, most states and localities tax business
done within their jurisdiction, through sales taxes and other taxes. Federal,
state, and local authorities now are scrambling to figure out how to get a
piece of the revenue created by e-business. The problem is particularly complex
for interstate and international commerce. For example, some claim that even
the state in which a server is located deserves to receive some sales tax from an
e-commerce transaction. Others say that the state in which the seller is located
deserves the entire sales tax (or in some countries, value-added tax, VAT).
In addition to sales tax, there is a question about where (and in some
cases, whether) electronic sellers should pay business license tax, franchise
fees, gross-receipts tax, excise tax, privilege tax, and utility tax. Also, there is
the issue of taxing Internet access. Currently there is no tax on fees you pay
to AOL or to DSL or Internet service providers. Furthermore, how should tax
collection be controlled? Legislative efforts to impose taxes on e-commerce are
opposed by an organization named the Internet Freedom Fighters. Their efforts
have been successful so far: At the time this edition was written (June 2004),
there was a sales tax ban on business done on the Internet in the United States
and many other countries, which could remain valid until fall 2006. At that
time also, buyers were exempt from tax on Internet access (subject to renewal
in 2004).
COPYRIGHT. Intellectual property, in its various forms, is protected by copyright
laws and cannot be used freely. In EC it is very difficult to protect intellectual
property. For example, some people mistakenly believe that if they have bought
a piece of software, they have the right to share it with others. What they have
bought is the right to use the software, not the right to distribute it—that right
remains with the copyright holder. Similarly, it violates copyright laws to copy
material from Web sites without permission. For further discussion of issues
relating to intellectual property protection.
know each other and cannot even see each other (they may even be in different
countries), there is a chance that dishonest people will commit fraud
and other crimes over the Internet. During the first few years of EC, the public
witnessed many of these, ranging from the creation of a virtual bank that
disappeared along with the investors’ deposits, to manipulation of stock prices
on the Internet. Unfortunately, fraudulent activities on the Internet are increasing.
Representative examples of legal issues specific to e-commerce are discussed
below.
FRAUD ON THE INTERNET. Internet fraud and its sophistication have grown as
much as, and even faster than, the Internet itself. For example, stock promoters
falsely spread positive rumors about the prospects of the companies they
touted, to boost the stock price. 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 by the promise of fast profits.
Stocks are only one of many areas where swindlers are active. Auctions
are especially conducive to fraud, by both sellers and buyers. Other areas of
potential fraud include selling bogus investments and phantom business
opportunities. Financial criminals now have access to many more people,
mainly due to the availability of electronic mail and pop-up ads. The U.S. Federal
Trade Commission (ftc.gov) regularly publishes examples of scams most
likely to arrive via e-mail or be found on the Web. Some ways in which consumers
and sellers can protect themselves from online fraud are discussed later
in this section.
DOMAIN NAMES. Another legal issue involves competition over domain names.
Internet addresses are known as domain names. Domain names appear in
levels. A top-level name is wiley.com or stanford.edu. A second-level name will
be wiley.com/turban or ibm.com.hk (for IBM in Hong Kong). Top-level domain
names are assigned by central nonprofit organizations that check for conflicts
and possible infringement of trademarks (e.g., see networksolutions.com). Obviously,
companies who sell goods and services over the Internet want customers
to be able to find them easily, so it is best when the domain name matches the
company’s name.
Problems arise when several companies that have similar names compete
over a domain name. For example, if you want to book reservations at Holiday
Inn hotels on a cross-country trip you are planning and you go to holidayinn.com,
you get the Web site for a hotel at Niagara Falls, New York; to get to the hotel
chain’s Web site, you have to go to holiday-inn.com. Several cases of disputed
names are already in court. An international arbitration organization is available as an alternative to the courts. The problem of domain names was alleviated
somewhat in 2001 after several upper-level names were added to “com” (such
as “info” and “coop”).
Cybersquatting. Cybersquatting refers to the practice of registering
domain names in the hope of selling them later at a higher price. For example,
the original owner of tom.com received about $8 million for the name. The case
of tom.com was ethical and legal. But in other cases, cybersquatting can be illegal
or at least unethical (see Stead and Gilbert, 2001). Companies such as Christian
Dior, Nike, Deutsche Bank, and even Microsoft have had to fight or pay to get
the domain name that corresponds to their company’s name. The Anticybersquatting
Consumer Protection Act (1999) lets trademark owners in the United
States sue for statutory damages.
TAXES AND OTHER FEES. In offline sales, most states and localities tax business
done within their jurisdiction, through sales taxes and other taxes. Federal,
state, and local authorities now are scrambling to figure out how to get a
piece of the revenue created by e-business. The problem is particularly complex
for interstate and international commerce. For example, some claim that even
the state in which a server is located deserves to receive some sales tax from an
e-commerce transaction. Others say that the state in which the seller is located
deserves the entire sales tax (or in some countries, value-added tax, VAT).
In addition to sales tax, there is a question about where (and in some
cases, whether) electronic sellers should pay business license tax, franchise
fees, gross-receipts tax, excise tax, privilege tax, and utility tax. Also, there is
the issue of taxing Internet access. Currently there is no tax on fees you pay
to AOL or to DSL or Internet service providers. Furthermore, how should tax
collection be controlled? Legislative efforts to impose taxes on e-commerce are
opposed by an organization named the Internet Freedom Fighters. Their efforts
have been successful so far: At the time this edition was written (June 2004),
there was a sales tax ban on business done on the Internet in the United States
and many other countries, which could remain valid until fall 2006. At that
time also, buyers were exempt from tax on Internet access (subject to renewal
in 2004).
COPYRIGHT. Intellectual property, in its various forms, is protected by copyright
laws and cannot be used freely. In EC it is very difficult to protect intellectual
property. For example, some people mistakenly believe that if they have bought
a piece of software, they have the right to share it with others. What they have
bought is the right to use the software, not the right to distribute it—that right
remains with the copyright holder. Similarly, it violates copyright laws to copy
material from Web sites without permission. For further discussion of issues
relating to intellectual property protection.
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