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Werabe University
Institute of Technology
Department of Information Technology

E-commerce
Chapter 6: E-Commerce: Legal, Ethical, and Tax Issues
 International Nature of
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Electronic Commerce
 Businesses engaging in electronic commerce must
be aware of
 The differences in language and
 customs that make up the culture of any region in which they do
business.
 The barriers to international electronic commerce
include language, culture, and infrastructure
issues.
 Language Issues
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Only way to do business effectively in other cultures is to adapt to those

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cultures.

The first step to reach foreign customers is to provide local language versions of
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its Web site.

This may mean translating the Web site into another language or regional dialect


80% of the content available on the Internet today is in English.



More than 40% of current Internet users do not read English.

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 Cont….
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 Global Reach offers Web site globalization service,

maintains current information about languages on the Web
 To Web server can detect the default language setting of the
browser and
 automatically redirect the browser to the set of Web pages
created in that language.
 Another approach is to include links to multiple language
versions on the home page.
 Idiom Technologies sells software that automates the process
of maintaining Web pages in multiple language versions.
 Culture Issues
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 The combination of language and customs is often called

culture.
 Some errors stemming from subtle language and cultural
standards are culture issues.
 On the Web, designers must be very careful when choosing
icons that represent common actions.
 Even colors or Web page design elements can be
troublesome.
 Some part of the world have cultural environments that are
extremely inhospitable to electronic commerce initiatives.
 Infrastructure Issues
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 Internet infrastructure includes

 the computers and software connected to the Internet and
 the communications networks over which the message packets travel.
 Regulations in some countries have inhibited the development of
the telecommunications infrastructure or limited the expansion of
that infrastructure
 Local connection costs through the existing telephone networks in
many countries are very high.
 This can have a profound effect o the behavior of electronic
commerce participants.
 The information flows can be very complex for an international
trade transaction.
 The Legal Environment of Electronic Commerce
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 Online businesses:
 Must comply with the same laws and regulations
that govern the operations of all businesses
 Face complicating factors
 The Web extends a company’s reach beyond
traditional boundaries
 The Web increases the speed and efficiency of
business communications.
 The Web creates a network of customers
 Cont….
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 Borders and Jurisdiction

 Territorial borders in the physical world serve a useful purpose in
traditional commerce.
 They mark the range of culture and reach of applicable laws very
clearly
 In the physical world, geographic boundaries almost always
coincide with legal and cultural boundaries.
 When people travel across international borders, they are made
aware of the transition in many ways
 The relationship between geographical boundaries and legal
boundaries in terms of four elements:
 power, effects, legitimacy, and notice
 Cont…
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 Power
 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
 For laws to be effective, a government must be able
to enforce them
 The ability of a government to apply control over a
person or corporation is called jurisdiction.
 Cont……
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Effects
Laws in the physical world are grounded in the relationship between

physical proximity and the effects of a person’s behavior.

Government-provided trademark protection is a good example

The effects of another restaurant using the same name are strongest in

Rome
Legitimacy

Most people agree that the legitimacy right to create and enforce laws

derives from the mandate of those who are subject to those laws.
Legitimacy is the idea that those subject to laws should have some

role in formulating them.

 Cont…
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 Notice
 The expression of a change in rules
 Borders provide this notice in the physical world.
 Constructive notice:
 Individuals become subject to new laws and cultural norms
when they cross an international border
 The physical boundary, when crossed, provides notice that
one set of rules has been replaced by a different set of rules.
 Cont…
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 Jurisdiction on the Internet

 Jurisdiction is more difficult on the Internet because traditional
geographic boundaries do not exist.
 Thus, power, effects, legitimacy, and notice do not translate very well to the virtual world of

electronic commerce.
 Governments that want to enforce laws regarding business conduct on the Internet must

establish jurisdiction over that conduct.

 Contract

 is a 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 Law:- is an intentional or negligent action taken by a legal entity that

causes harm to another legal entity.

 Court has sufficient jurisdiction in a matter if it has both subject matter jurisdiction and

personal jurisdiction
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 Subject-matter Jurisdiction
 Subject-matter jurisdiction is a court’s authority to decide a
particular type of dispute
 federal courts have subject-matter jurisdiction over issues governed
by federal law such as bankruptcy, copyright, patent, and federal tax matters.
 Personal jurisdiction: Determined by the residence of the parties
 Businesses should be aware of jurisdictional considerations when
conducting electronic commerce over state and international lines
 The exercise of jurisdiction across international borders is governed by treaties
between the countries engaged in the dispute.
 Jurisdictional issues are complex and change rapidly.
 Contracting and Contract Enforcement in Electronic
Commerce
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 Contract
 Includes three essential elements
 An offer, an acceptance, and consideration
 Offer:- Commitment with certain terms made to another party
 Acceptance:-Expression of willingness to take an offer
 Consideration:-Agreed upon exchange of something valuable
 The contract is formed when one party accepts the offer of another
party.
 Contracts are a key element of traditional business practice and
they are equally important on the Internet,
 they can occur when parties exchange e-mail messages, engage in
EDI, or fill out forms on Web pages.
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 Written Contracts on the Web

 Exists when the terms of a contract have been reduced to some tangible form
 Signature
 Any symbol executed or adopted for the purpose of authenticating a writing
 Warranties on the Web
 Any contract for the sale of goods includes implied warranties
 To be legally effective, the warranty disclaimer must be stated obviously and must be easy
for a buyer to find on the Web site.
 Authority to bind
 Determining whether an individual has the authority to commit a company to an online
contract
 Terms of service (ToS)
 Intended to limit a Web site owner’s liability
 Use and Protection of Intellectual Property in
Online Business
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 Web Site Content

 Online businesses must be careful in their use of
intellectual property.
 Intellectual property is a general term that includes
all products of the human mind.
 Include protections by governments through:
 Granting of copyrights and patents
 Registration of trademarks and service marks
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Web Site Content

 Copyright infringement

 A copyright is a right granted by a government to the author or creator of a

literary or artistic work

 Patent infringement:

 A patent is an exclusive right granted by the government to an individual to

make, use, and sell an invention

 To be patentable the invention must be genuine, novel. useful,

 Trademark infringement

 A trademark is a distinctive mark, device, motto, or implement that

a company affixes to the goods it produces for identification purposes.

 Web site designers must be very careful not to use any trademarked

name, logo, or other identifying mark without the permission

 Ethical Issues
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 Companies using Web sites to conduct electronic commerce should

adhere to the same ethical standards that other businesses follow
 In general, advertising on the Web should include only true
statements
 Even true statements have been held to be misleading when the ad
omits important related facts.
 Any comparisons to other products should be supported by
verifiable information.
 Ethical considerations are important in determining advertising
policy on the Web
 Today, most organizations state their policy on the protection of
visitor information, but many do not.
 Privacy Rights and Obligations
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 The issue of online privacy is continuing to evolve.

 The Electronic Communications Privacy Act of 1986 is the main
law governing privacy on the Internet today.
 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.
 Principles for handling customer data:
 Use 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 sites.
 Communications with Children
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 Children’s Online Privacy Protection Act of 1998 (COPPA)

 Provides restrictions on data collection that must be followed
by electronic commerce sites aimed at children
 Children’s Internet Protection Act (CIPA)
 The CIPA requires schools that receive federal funds to install
filtering software on computers in their classrooms and
libraries
 Filtering software is used to block access to adult content Web
 Taxation an Electronic Commerce
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 Companies that do business on the Web are subject to the same

taxes as any other company.
 A Web site maintained by a company in the U.S. must pay federal
income tax on income generated inside and outside of the U.S.
 An online business can become subject to several types of taxes, including income
taxes, transaction taxes, and property taxes
 Income taxes
 Levied by national, state, and local governments on net income generated by
business activities
 Transaction taxes
 Levied on products or services that a company sells
 Property taxes
 Levied by states and local governments on personal property and real estate used in
business
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