Chapter 17
Legal, Ethical, and Social
Impacts of EC
MP3.com, Napster, and
Intellectual Property Rights
The Problem
Before the advent of the Web, people
made audiotape copies of music and
videos to give to friends and family
or used them for their own personal
enjoyment
Such activities were ignored by the
producers, distributors, and artists
who had the legal rights to the
content
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MP3.com, Napster, and
Intellectual Property Rights (cont.)
MP3.com enabled users to listen to
music from any computer with an
Internet connection without paying
royalties
Using peer-to-peer (P2P)
technology, Napster supported the
distribution of music and other
digitized content among millions of
users
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MP3.com, Napster, and
Intellectual Property Rights (cont.)
MP3 and Napster claimed to be
supporting what had been done for
years and were not charging for
their services
Popularity of MP3.com and P2P
services was too great for the
content creators and owners to
ignore
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MP3.com, Napster, and
Intellectual Property Rights (cont.)
To the creators and owners, the Web
was becoming a vast copying
machine
MP3.com’s and Napster’s services
could result in the destruction of
many thousands of jobs and millions
of dollars in revenue
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MP3.com, Napster, and
Intellectual Property Rights (cont.)
The Solution
December 2000, EMusic (emusic.com) filed
a copyright infringement lawsuit against
MP3.com
In 2001, Napster faced similar legal claims,
lost the legal battle, and was forced to pay
royalties for each piece of music it
supported—Napster collapsed—in October
2003 it reopened as “for fee only”
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MP3.com, Napster, and
Intellectual Property Rights (cont.)
Existing copyright laws were written
for physical, not digital, content
The Copyright Infringement Act
states, “the defendant must have
willfully infringed the copyright and
gained financially”
The “no financial gain” loophole in
the Act was later closed
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MP3.com, Napster, and
Intellectual Property Rights (cont.)
The Results
In 1997, the No Electronic Theft Act
(NET) was passed, making it a crime
for anyone to reproduce and
distribute copyrighted works
applied to reproduction or distribution
accomplished by electronic means
even if copyrighted products are
distributed without charge, financial
harm is experienced by the authors or
creators of a copyrighted work
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MP3.com, Napster, and
Intellectual Property Rights (cont.)
MP3.com suspended operations in April
2000 and settled the lawsuit
Napster suspended service and settled
its lawsuits
tried to resurrect itself as an online music
subscription service with the backing of
Bertelsmann AG
filed for bankruptcy in June 2002
purchased by Roxio with plans to revive
Napster into a royalty-paying framework
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MP3.com, Napster, and
Intellectual Property Rights (cont.)
What we can learn…
All commerce involves a number of
legal, ethical, and regulatory issues
EC adds to the scope and scale of
these issue
What constitutes illegal behavior
versus unethical, intrusive, or
undesirable behavior?
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Legal Issues Versus
Ethical Issues
Ethics: The branch of philosophy that
deals with what is considered to be
right and wrong
What is unethical is not necessarily
illegal
Ethics are supported by common
agreement in a society as to what is
right and wrong, but they are not
subject to legal sanctions
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Legal Issues Versus
Ethical Issues (cont.)
EC ethical issues
Non-work-related use of the
Internet
Employees use e-mail and the Web for
non-work-related purposes
The time employees waste while surfing
non-work-related Web sites during
working hours is a concern
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Legal Issues Versus
Ethical Issues (cont.)
Corporate code of ethics
Issue written policy guidelines
Copyrighted trademarked material
cannot be used without permission
Post disclaimers concerning
content
Post disclaimers of responsibility
concerning content of online
forums and chat sessions
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Legal Issues Versus
Ethical Issues (cont.)
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
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Legal Issues Versus
Ethical Issues (cont.)
Major ethical/legal issues
Privacy
Intellectual property rights
Free speech versus censorship
Consumer and merchant protection
against fraud
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Legal Issues Versus
Ethical Issues (cont.)
Privacy: The right to be left alone
and the right to be free of
unreasonable personal intrusions
1. The right of privacy is not absolute.
Privacy must be balanced against
the needs of society
2. The public’s right to know is
superior to the individual’s right of
privacy
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Legal Issues Versus
Ethical Issues (cont.)
Collecting information about
individuals over the Internet:
By reading an individual’s
newsgroup postings
By looking up an individual’s name
and identity in an Internet directory
By reading an individual’s e-mail
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Legal Issues Versus
Ethical Issues (cont.)
By conducting surveillance on
employees
By wiretapping wireline and wireless
communication lines and listening to
employees
By asking an individual to complete a
Web site registration
By recording an individual’s actions
as they navigate the Web with a
browser, usually using cookies
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Legal Issues Versus
Ethical Issues (cont.)
Web site registration
Most B2C and marketing Web sites ask
visitors to fill out registration forms
including:
names
addresses
phone numbers
e-mail addresses
hobbies, etc.
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Legal Issues Versus
Ethical Issues (cont.)
There are few restraints on the ways
in which the site can use this
information
Use it to improve customer service or its
own business
Or sell the information to another
company that could use it in an
inappropriate or intrusive manner
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Legal Issues Versus
Ethical Issues (cont.)
Cookie: A small piece of data that is
passed back and forth between a
Web site and an end user’s browser
as the user navigates the site;
enables sites to keep track of users’
activities without asking for
identification
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Legal Issues Versus
Ethical Issues (cont.)
Users can protect themselves against
cookies:
delete them from their computers
use anticookie software
Microsoft Passport lets consumers
permanently enter a profile of information
along with a password and use this
information and password repeatedly to
access services at multiple sites—affords
opportunities to invade privacy
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Legal Issues Versus
Ethical Issues (cont.)
Privacy of employees
Monitoring employees’ e-mail and
Web activities
wasting time
may disclose trade secrets
77% of companies monitor their
employees’ communications
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Legal Issues Versus
Ethical Issues (cont.)
Protection of privacy
Notice/awareness
Choice/consent
Access/participation
Integrity/security
Enforcement/redress
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Legal Issues Versus
Ethical Issues (cont.)
Opt-out clause: Agreement that
requires computer users to take
specific steps to prevent collection
of information
Opt-in clause: Agreement that
requires computer users to take
specific steps to allow collection of
information
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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
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Copyrights
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 the Internet
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Copyrights (cont.)
Copyright protection approaches
Using software to produce digital
content that cannot be copied
Cryptography
Tracking copyright violations
Digital watermarks: Unique
identifiers imbedded in digital
content that make it possible to
identify pirated works
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Intellectual Property Rights (cont.)
Trademark: A symbol used by
businesses to identify their goods and
services; government registration of
the trademark confers exclusive legal
right to its use
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Intellectual Property Rights (cont.)
The owner of a registered trademark
has exclusive rights to:
Use the trademark on goods and
services for which the trademark is
registered
Take legal action to prevent anyone
else from using the trademark
without consent on goods and
services (identical or similar) for
which the trademark is registered
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Domain Names
Domain name refers to the upper
category of an Internet address
(URL)
Should additional (new) top-level
domain names be added?
The use of trademarked names that
belong to other companies as domain
names
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Domain Names (cont.)
Network Solutions, Inc.—U.S.
subsidiary of Verisign was the sole
assigner of domain names until 1998
ICANN, an international nonprofit
corporation, took over assignment of
domain names on a global basis—
allowing competition in the
registration system and the price of
registration has dropped
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Domain Names (cont.)
Council of Registrars (CORE)
(European group) and the Global
Internet Project (U.S. group) want
to increase the number of top-level
names
One objectives is to create an adult-only
top-level name that will keep
pornographic material away from
children
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Domain Names (cont.)
Domain name disputes and
resolutions
Major disputes are international in scope,
because the same corporate name may
be used in different countries by different
corporations
Internet community now quickly resolves
domain name disputes using arbitration
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Disputes.org
Consortium, the National Arbitration Forum
WIPO
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Intellectual Property Rights (cont.)
Cybersquatting: The practice of
registering domain names in order
to sell them later at a higher price
Anticybersquatting Consumer
Protection Act of 1999 allows
trademark owners sue for statutory
damages
Juliaroberts.com
Madonna.com
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Intellectual Property Rights (cont.)
Patent: A document that grants the
holder exclusive rights on an invention
for a fixed number of years
Patents serve to protect tangible
technological inventions
Patents are not designed to protect
artistic or literary creativity
Patents confer monopoly rights to an
idea or an invention, regardless of
how it may be expressed
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Intellectual Property Rights (cont.)
Fan and hate sites
cyberbashing: The registration of a
domain name that criticizes an
organization or person
May violate the copyrights of the
creators or distributors of intellectual
property
This issue shows the potential
collision between protection of
intellectual property and free speech
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Free Speech Versus Censorship
and Other Legal Issues
One of the most important issues of
Web surfers (as per surveys) is
censorship
Censorship—governmental attempts
to control broadcasted material
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Free Speech Versus Censorship
and Other Legal Issues (cont.)
“Donham’s First Law of Censorship”
“Most citizens are implacably
opposed to censorship in any form—
except censorship of whatever they
personally happen to find offensive”
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Free Speech Versus Censorship
and Other Legal Issues (cont.)
1998 Children’s Online Protection Act
(COPA) required:
companies verify a viewer’s age before
showing online material that is deemed
“harmful to minors”
parental consent is required before
personal information can be collected
from a minor
Was ruled unconstitutional in
Pennsylvania in 2001, is now in the
hands of the U.S. Supreme Court
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Free Speech Versus Censorship
and Other Legal Issues (cont.)
Controlling spam
Spamming: The practice of
indiscriminately broadcasting
messages over the Internet (e.g., .,
junk mail)
Spam comprises 25 to 50% of all email
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Free Speech Versus Censorship
and Other Legal Issues (cont.)
Electronic Mailbox Protection Act
requires those sending spam to
indicate the name of the sender
prominently and include valid
routing information
Recipients may waive the right to
receive such information
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Free Speech Versus Censorship
and Other Legal Issues (cont.)
ISPs are required to offer spamblocking software
Recipients have the right to request
termination of future spam from the
same sender and to bring civil action if
necessary
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Free Speech Versus Censorship
and Other Legal Issues (cont.)
Other legal issues
Electronic contracts
Uniform Electronic Transactions Act of
1999 establishes uniform and consistent
definitions for electronic records, digital
signatures, and other electronic
communications
Shrink-wrap agreements or box-top licenses
Click-wrap contracts
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Free Speech Versus Censorship
and Other Legal Issues (cont.)
Intelligent agents and contracts
Contracts can be formed even when no
human involvement is present
A contract can be made by interaction
between an individual and an electronic
agent, or even between two electronic
agents
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Free Speech Versus Censorship
and Other Legal Issues (cont.)
Uniform Electronic Transactions Act
(UETA) includes the following two
provisions:
Electronic records do satisfy the requirement
for a contract
Electronic signature is enforceable equal to a
written signature on a paper contract
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Free Speech Versus Censorship
and Other Legal Issues (cont.)
Gambling
Internet Gambling Prohibition Act of
1999
Online wagering illegal except for
minimal amounts
Provides criminal and civil remedies
against individuals making online bets
or wagers and those in the business of
offering online betting or wagering
venues
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Free Speech Versus Censorship
and Other Legal Issues (cont.)
Taxing business on the Internet
Internet Tax Freedom Act passed
the U.S. Senate on October 8, 1998
Barred any new state or local sales
taxes on Internet transactions until
October 2001 (extended by US Congress
to 2006)
Created a special commission to study
Internet taxation issues and
recommend new policies
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Free Speech Versus Censorship
and Other Legal Issues (cont.)
The global nature of business today
suggests that Cyberspace be
considered:
A distinct tax zone unto itself
Unique rules and considerations
befitting the stature of the online
environment
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Free Speech Versus Censorship
and Other Legal Issues (cont.)
Tax-free policies may give online
businesses an unfair advantage—
Internet businesses should pay their
fair share of the tax bill for the
nation’s social and physical
infrastructure
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EC Fraud and Consumer and
Seller Protection
Fraud on the Internet
Online auction fraud—87% of online
crime
Internet stock fraud—spread false
positive rumors about the prospects
of companies
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EC Fraud and Consumer and
Seller Protection (cont.)
Other financial fraud
Bogus investments
Phantom business opportunities
Other schemes
Other fraud in EC—nonfinancial
fraud
Customers receive poor-quality
products and services
Customers do not get products in time
Customers are asked to pay for things
they assume will be paid for by sellers
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EC Fraud and Consumer and
Seller Protection (cont.)
Consumer protection—tips for safe
electronic shopping
Make sure that they enter the real
Web site of well-known companies
Search any unfamiliar site for an
address and telephone and fax
numbers and call
Check out the seller with the local
chamber of commerce, BBB, or
TRUSTe
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EC Fraud and Consumer and
Seller Protection (cont.)
Investigate how secure and
organized the seller’s site is
Examine the money-back
guarantees, warranties, etc.
Compare prices online to those in
regular stores
Ask friends what they know, look for
testimonials and endorsements
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EC Fraud and Consumer and
Seller Protection (cont.)
Find out what redress is available in
case of a dispute
Consult the National Fraud
Information Center (fraud.org)
Check the resources available at
consumerworld.org
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EC Fraud and Consumer and
Seller Protection (cont.)
Third-party assurance services
TRUSTe (truste.org)
Better Business Bureau
(bbbonline.com)
WHICHonline (which.net)
Web Trust seal (TRUSTe,
cpawebtrust.org, Gomez.com)
Online Privacy Alliance
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EC Fraud and Consumer and
Seller Protection (cont.)
Evaluation by consumers—product
and vendor evaluations
groups.google.com, epubliceye.com
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EC Fraud and Consumer and
Seller Protection (cont.)
Authentication and biometric
controls provide
Access procedures that match every
valid user with a unique user identifier
(UID)
Authentication method that verifies that
users requesting access to the computer
system are really who they claim to be
Are valid for both consumer and
merchant protection
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EC Fraud and Consumer and
Seller Protection (cont.)
Seller protection against:
Customers who deny that they placed an
order
Customers who download copyrighted
software, etc. and sell it to others
Customers who give false payment
information
Use of their name by others
Trademark protection
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EC Fraud and Consumer and
Seller Protection (cont.)
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
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Virtual (Internet)
Communities
Virtual (Internet) community: A group
of people with similar interests who
interact with one another using the
Internet
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Virtual (Internet)
Communities (cont.)
Characteristics of virtual communities
Internet communities may have
thousands or even millions of
members
Online communities are
geographically confined
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Virtual (Internet)
Communities (cont.)
Classify members as:
Traders
Players
Just friends
Enthusiasts
Friends in need
The gathering of needs in one place
enables vendors to sell more and
community members to get
discounts
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Virtual (Internet)
Communities (cont.)
Examples of online communities:
Associations
Ethnic communities
Gender communities
Affinity portals
Catering to young people
Mega communities
B2B online communities
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Virtual (Internet)
Communities (cont.)
Types of virtual
communities:
Transaction
Purpose or
interest
Relations or
practice
Fantasy
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Virtual (Internet)
Communities (cont.)
How to transform a community site to
a commercial site:
Understand a particular niche
industry,
Build a site that provides that
information,
Set up the site to mirror the steps a
user goes through in the
information-gathering and decisionmaking process
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Virtual (Internet)
Communities (cont.)
Set up the site to mirror the steps a
user goes through in the
information-gathering and decisionmaking process
Start selling products and services
that fit into the decision-support
process
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Virtual (Internet)
Communities (cont.)
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Virtual (Internet)
Communities (cont.)
Financial viability of communities
Revenue model of communities can
be based on:
Sponsorship
Membership fees
Sales commissions
Advertising
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Virtual (Internet)
Communities (cont.)
The operating expenses for
communities are very high due to
the need to provide fresh content
and free services
Most communities initially provide
free membership
The objective is to have as many
registered members as possible and
to build a strong brand in order to
attract advertisers
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Virtual (Internet)
Communities (cont.)
Key strategies for successful online
communities:
1. Increase traffic and participation in
the community
2. Focus on the needs of the
members; use facilitators and
coordinators
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Virtual (Internet)
Communities (cont.)
3. Encourage free sharing of opinions
and information—no controls
4. Obtain financial sponsorship. This
factor is a must. Significant
investment is required
5. Consider the cultural environment
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Virtual (Internet)
Communities (cont.)
6. Provide several tools and activities
for member use; communities are
not just discussion groups
7. Involve community members in
activities and recruiting
8. Guide discussions, provoke
controversy, and raise sticky
issues. This keeps interest high
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