Electronic Commerce 10th Edition by

Schneider ISBN 1133526829

9781133526827
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Chapter 7: The Environment of Electronic Commerce: Legal, Ethical, and Tax Issues

TRUE/FALSE

1. Any business that uses the Web becomes an international business instantly.

ANS: T PTS: 1 REF: 283

2. Businesses that operate on the Web must comply with the same laws and regulations that govern the
operations of all businesses.

ANS: T PTS: 1 REF: 283

3. In the physical world, geographic boundaries rarely coincide with legal and cultural boundaries.

ANS: F PTS: 1 REF: 283

4. The legal systems of most countries include a concept called constructive notice.

ANS: T PTS: 1 REF: 286

5. Physical boundaries are a convenient and effective way to announce the ending of one legal or cultural
system and the beginning of another.

ANS: T PTS: 1 REF: 286

6. A business cannot commit a tortious act simply by selling a product that causes harm to a buyer.
 ANS: F PTS: 1 REF: 288

7. Non-U.S. corporations and individuals cannot be sued in U.S. courts if they conduct business or
commit tortious acts in the United States.

ANS: F PTS: 1 REF: 288

8. People enter into contracts on a daily, and often hourly, basis.

ANS: T PTS: 1 REF: 291

9. When a seller advertises goods for sale on a Web site, that seller is making an offer and inviting offers
from potential buyers.

ANS: F PTS: 1 REF: 292

10. In general, contracts are invalid if they are not in writing or signed.

ANS: F PTS: 1 REF: 293

11. The Statute of Frauds varies widely from state to state with regard to signed writings.

ANS: F PTS: 1 REF: 293

12. Any contract for the sale of goods includes implied warranties.

ANS: T PTS: 1 REF: 293

13. Digital signatures are not legally valid for contract purposes.

ANS: F PTS: 1 REF: 293

14. Click-wrap acceptance is when a Web site user agrees to that site’s EULA or its terms and conditions
by clicking a button on the Web site.

ANS: T PTS: 1 REF: 293

15. If an idea cannot be separated from its expression in a work, that idea cannot be copyrighted.

ANS: T PTS: 1 REF: 297

16. Creations that can be copyrighted include virtually all forms of artistic or intellectual expression.

ANS: T PTS: 1 REF: 297

17. Fictional characters cannot be trademarked.

ANS: F PTS: 1 REF: 304

18. In general, trademark protection prevents another firm from using the same or a similar name, logo, or
other identifying characteristics in a way that would cause confusion in the minds of potential buyers.

ANS: T PTS: 1 REF: 304

 19. Law enforcement agencies have difficulty combating many types of online crime.

ANS: T PTS: 1 REF: 306

20. Ethics issues are significant in the area of online privacy because laws have not kept pace with the
growth of the Internet and the Web.

ANS: T PTS: 1 REF: 312

21. Differences in cultures throughout the world have resulted in different expectations about privacy in
electronic commerce.

ANS: T PTS: 1 REF: 313

22. Transaction taxes are levied by the United States and other countries on certain commodities when
they are imported into the country.

ANS: F PTS: 1 REF: 317

23. The connection between a tax-paying entity and a government is called jurisdiction.

ANS: F PTS: 1 REF: 317

24. Companies that sell through their Web sites establish nexus everywhere their goods are delivered to
customers.

ANS: F PTS: 1 REF: 318

25. Most states’ use tax rates are lower than their sales tax rates.

ANS: F PTS: 1 REF: 319

MULTIPLE CHOICE

1. ____ mark the range of culture and reach of applicable laws very clearly.
a. Territorial borders c. Ethical standards
b. Culture lines d. Online borders
ANS: A PTS: 1 REF: 283

2. ____ is a form of control over physical space and the people and objects that reside in that space, and
is a defining characteristic of statehood.
a. Ethics c. Legitimacy
b. Culture d. Power
ANS: D PTS: 1 REF: 284

3. The ability of a government to exert control over a person or corporation is called ____.
a. subjugation c. legitimacy
b. jurisdiction d. notice
ANS: B PTS: 1 REF: 284
 4. The level of power asserted by a government is limited to that which is accepted by the culture that
exists within its ____ boundaries.
a. ethical c. geographic
b. cultural d. virtual
ANS: C PTS: 1 REF: 284

5. ____ is the idea that those subject to laws should have some role in formulating them.
a. Jurisdiction c. Legitimacy
b. Effect d. Notice
ANS: C PTS: 1 REF: 285

6. People receive ____ that they have become subject to new laws and cultural norms when they cross an
international border.
a. implied notice c. constructive notice
b. constructive warning d. summary notice
ANS: C PTS: 1 REF: 286

7. A ____ is an intentional or negligent action taken by a legal entity that causes harm to another legal
entity.
a. contract exception c. crime
b. tort d. deposition
ANS: B PTS: 1 REF: 287

8. ____ is a court's authority to decide a particular type of dispute.

a. Jurisdiction c. Subject-matter jurisdiction
b. Personal jurisdiction d. Notice
ANS: C PTS: 1 REF: 287

9. In the United States, federal courts have ____ over issues governed by federal law.
a. subject-matter jurisdiction c. notice
b. personal jurisdiction d. legitimacy
ANS: A PTS: 1 REF: 287

10. A ____ clause is a statement that the contract will be enforced according to the laws of a particular
state.
a. forum selection c. personal jurisdiction
b. jurisdiction d. subject-matter jurisdiction
ANS: A PTS: 1 REF: 287

11. The details of ____ vary from state to state, but generally create personal jurisdiction over
nonresidents who transact business or commit tortious acts in the state.
a. subject-matter jurisdiction c. statewide jurisdiction
b. long-arm statutes d. forum selection
ANS: B PTS: 1 REF: 288

12. A(n) ____ is a commitment with certain terms made to another party.
a. contract c. acceptance
b. offer d. consideration
 ANS: B PTS: 1 REF: 291

13. A(n) ____ is the expression of willingness to take an offer, including all of its stated terms.
a. judicial comity c. acceptance
b. tort d. consideration
ANS: C PTS: 1 REF: 291

14. A(n) ____ can be formed by two or more parties that act as if a contract exists, even if no contract has
been written and signed.
a. offer c. subordinate contract
b. implied contract d. virtual contract
ANS: B PTS: 1 REF: 291

15. A(n) ____ is any symbol executed or adopted for the purpose of authenticating a writing.
a. stamp c. mark
b. icon d. signature
ANS: D PTS: 1 REF: 293

16. A(n) ____ is a statement declaring that the seller will not honor some or all implied warranties.
a. invalid contract c. warranty disclaimer
b. unsigned warranty d. warranty negation
ANS: C PTS: 1 REF: 294

17. Disputes that arise when one person has registered a domain name that is an existing trademark or
company name are settled by the ____.
a. WIPO c. statutory law
b. common law d. ACPA
ANS: A PTS: 1 REF: 301

18. ____ occurs when owner information maintained by a public domain registrar is changed in the
registrar’s database to reflect a new owner’s name and business address.
a. Trademark infringement c. Domain name ownership change
b. Product disparagement d. Signatory change
ANS: C PTS: 1 REF: 302

19. A ____ is a digital code or stream embedded undetectably in a digital image or audio file.
a. validation code c. patent
b. watermark d. cookie
ANS: B PTS: 1 REF: 302

20. A ____ statement is a statement that is false and that injures the reputation of another person or
company.
a. defamatory c. deceptive
b. fraudulent d. critical
ANS: A PTS: 1 REF: 303

21. If a statement injures the reputation of a product or service instead of a person, it is called ____.
a. defamatory c. product disparagement
 b. product defamation d. company defamation
ANS: C PTS: 1 REF: 303

22. In a(n) ____ policy approach, the company collecting the information does not use the information for
any other purpose unless the customer specifically chooses to allow that use.
a. opt-out c. fair use
b. implied d. opt-in
ANS: D PTS: 1 REF: 313

23. If a company undertakes sufficient activities in a particular country, it establishes ____ with that
country and becomes liable for filing tax returns in that country.
a. jurisdiction c. terms of service
b. notice d. nexus
ANS: D PTS: 1 REF: 318

24. A(n) ____ tax is a tax levied by a state on property used in that state that was not purchased in that
state.
a. property c. use
b. import d. levy
ANS: C PTS: 1 REF: 319

25. A(n) ____ is assessed on the amount of value added at each stage of production.
a. VAT c. property tax
b. import tariff d. transaction tax
ANS: A PTS: 1 REF: 320

COMPLETION

1. State courts have ____________________ jurisdiction over issues governed by state laws.

ANS:
subject-matter
subject matter

PTS: 1 REF: 287

2. Governments that want to enforce laws regarding business conduct on the Internet must establish
____________________ over that conduct.

ANS: jurisdiction

PTS: 1 REF: 287

3. The most common examples of business-related intentional ____________________ involve

defamation, misrepresentation, fraud, and theft of trade secrets.

ANS: torts

PTS: 1 REF: 288

 4. Every kind of agreement or exchange between parties, no matter how simple, is a type of
____________________.

ANS: contract

PTS: 1 REF: 291

5. ____________________ can arise when an employee of a company accepts a contract and the
company later asserts that the employee did not have the authority to do so.

ANS: Authority to bind

PTS: 1 REF: 295

6. In most cases, a Web site visitor is held to the ____________________ even if that visitor has not read
the text or clicked a button to indicate agreement with the terms.

ANS:
terms of service
ToS
terms of service (ToS)

PTS: 1 REF: 295

7. _________________________ is a general term that includes all products of the human mind.

ANS: Intellectual property

PTS: 1 REF: 296

8. A(n) ____________________ is a right granted by a government to the author or creator of a literary

or artistic work.

ANS: copyright

PTS: 1 REF: 297

9. The ____________________ of a copyrighted work includes copying it for use in criticism, comment,
news reporting, teaching, scholarship, or research.

ANS: fair use

PTS: 1 REF: 297

10. An entity becomes liable for ____________________ infringement if it is capable of supervising the
infringing activity and obtains a financial benefit from the infringing activity.

ANS: vicarious copyright

PTS: 1 REF: 298

11. A(n) ____________________ is an exclusive right granted by the government to an individual to

make, use, and sell an invention.
 ANS: patent

PTS: 1 REF: 299

12. The ____________________ patent, which protects a specific set of procedures for conducting a
particular business activity, is quite controversial.

ANS: business process

PTS: 1 REF: 299

13. A(n) ____________________ is used to identify services provided.

ANS: service mark

PTS: 1 REF: 300

14. A(n) ____________________ is a distinctive mark, device, motto, or implement that a company
affixes to the goods it produces for identification purposes.

ANS: trademark

PTS: 1 REF: 300

15. The name or part of that name that a business uses to identify itself is called a(n)
____________________.

ANS: trade name

PTS: 1 REF: 300

16. ____________________ law arises when elected legislative bodies pass laws.

ANS: Statutory

PTS: 1 REF: 300

17. ____________________ is the practice of registering a domain name that is the trademark of another
person or company in the hopes that the owner will pay huge amounts of money to acquire the URL.

ANS: Cybersquatting

PTS: 1 REF: 300-301

18. ____________________ occurs when someone other than a domain name’s owner changes the
ownership of the domain name.

ANS: Name stealing

PTS: 1 REF: 302

19. The ______________________________ publishes regulations and investigates claims of false

advertising.
 ANS:
Federal Trade Commission
Federal Trade Commission (FTC)
FTC

PTS: 1 REF: 304

20. ____________________ taxes are levied by states and local governments on the personal property and
real estate used in the business.

ANS: Property

PTS: 1 REF: 317

21. ____________________ taxes are levied by national, state, and local governments on the net income
generated by business activities.

ANS: Income

PTS: 1 REF: 317

22. ____________________ taxes are levied on the products or services that the company sells or uses.

ANS: Transaction

PTS: 1 REF: 317

23. The concept of nexus is similar in many ways to the concept of ____________________ jurisdiction.

ANS: personal

PTS: 1 REF: 317

24. The ______________________________ is the U.S. government agency charged with administering
the country's tax laws.

ANS:
Internal Revenue Service
Internal Revenue Service (IRS)
IRS

PTS: 1 REF: 318

25. ____________________ laws, directed at large online retailers, are state laws that require online
retailers to collect and remit sales taxes on sales they make in their states, even though the online
retailers do not have nexus with the state.

ANS: Amazon

PTS: 1 REF: 319

ESSAY
1. What is the difference between a contract and a tort?

ANS:
A contract is a promise or set of promises between two or more legal entities—persons or
corporations—that provides for an exchange of value (goods, services, or money) between or among
them. A tort is an intentional or negligent action taken by a legal entity that causes harm to another
legal entity.

PTS: 1 REF: 287

2. What is the difference between subject-matter jurisdiction and personal jurisdiction?

ANS:
Subject-matter jurisdiction is a court’s authority to decide a particular type of dispute. For example, in
the United States, federal courts have subject-matter jurisdiction over issues governed by federal law
(such as bankruptcy, copyright, patent, and federal tax matters), and state courts have subject-matter
jurisdiction over issues governed by state laws (such as professional licensing and state tax matters). If
the parties to a contract are both located in the same state, a state court has subject-matter jurisdiction
over disputes that arise from the terms of that contract.

Personal jurisdiction is, in general, determined by the residence of the parties. A court has personal
jurisdiction over a case if the defendant is a resident of the state in which the court is located.

PTS: 1 REF: 287

3. What are the elements of the contract when a consumer buys a product at the supermarket?

ANS:
The store invites offers for an item at a stated price by placing it on a store shelf.

The consumer makes an offer by indicating a willingness to buy the product for the stated price. For
example, the consumer might take the item to a checkout station and present it to a clerk with an offer
to pay.

The store accepts the customer’s offer and exchanges its product for the consumer’s payment at the
checkout station.

PTS: 1 REF: 291

4. Mark Van Name and Bill Catchings, writing in PC Week in 1998, outlined four principles for handling
customer data. List these principles.

ANS:
These principles are as follows:
Use the data collected to provide improved customer service.
Do not share customer data with others outside your company without the customer’s permission.
Tell customers what data you are collecting and what you are doing with it.
Give customers the right to have you delete any of the data you have collected about them.

PTS: 1 REF: 314

5. Briefly discuss the application of import tariffs.

ANS:
All countries in the world regulate the import and export of goods across their borders. In many cases,
goods can only be imported into a country if a tariff is paid. A tariff, also called a customs duty or
duty, is a tax levied on products as they enter the country. Countries have many reasons for imposing
tariffs. Goods that are ordered online are subject to tariffs when they cross international borders. Even
products that are delivered online (such as downloaded software) can be subject to tariffs. Many online
shoppers have been surprised when an item they ordered from another country arrives with a bill from
their government for the tariff.

PTS: 1 REF: 320