Chapter 7
The Environment of Electronic
Commerce: International, Legal,
Ethical, and Tax Issues
Learning Objectives
In this chapter, you will learn about:
• International electronic commerce
• Laws that govern electronic commerce activities
• Ethics issues that arise for companies conducting
electronic commerce
• Taxes that are levied on electronic commerce
• Conflicts between a company’s desire to collect and
use data about their customers and the privacy rights
of those customers
International Nature of Electronic
Commerce
• Any business that engages in electronic commerce
instantly becomes an international business.
• When companies use the Web to create a corporate
image, or build a community, they are automatically
operating in a global environment.
International Nature
of Electronic Commerce
• Customers’ inherent lack of trust in ‘strangers’ on the
Web is logical and to be expected.
• Businesses on the Web must find ways to overcome
this well-founded tradition of distrusting strangers.
• Business trust is an important success factor in
attracting customers.
International Nature
of 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
• The only way to do business effectively in other
cultures is to adapt to those cultures.
• The first step to reach foreign customers is to provide
local language versions of its Web site.
• This may mean translating the Web site into another
language or regional dialect.
Language Issues (cont.)
• About 75% of the content available on the Internet
today is in English.
• More than 46% of current Internet users do not read
English.
• The most-used non-English languages for U.S.
companies are Spanish, German, Japanese, French,
and Chinese.
• Global Reach offers Web site globalization service,
and maintains current information about languages
on the Web.
Language Issues (cont.)
• One approach is to have a Web server that 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.
Language Issues (cont.)
• Firms that provide Web page translation services
include Alis Technologies, Berlitz, LexFusion, Rubric,
Ltd., Transparent Language, and Worldpoint
Interactive.
• Idiom Technologies sells software that automates the
process of maintaining Web pages in multiple
language versions.
Culture Issues
• 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.
Culture Issues (cont.)
• A site that strongly reflects a cultural design
preference is the Swedish home page of Bokus.com.
• Softbank has devised a way to introduce electronic
commerce to a reluctant Japanese population.
• Nike realized that it had to create special Web pages
for foreign customers.
• One such site is the Nike Football site shown in
Figure 7-4.
Culture Issues
Culture Issues (cont.)
• Some part of the world have cultural environments
that are extremely inhospitable to electronic
commerce initiatives.
• The People’s Republic of China and Singapore are
wrestling with the issues presented by the growth of
the Internet as a vehicle for doing business.
Infrastructure Issues
• Internet infrastructure includes the computers and
software connected to the Internet and the
communications networks over which message
packets travel.
• Regulations in some countries have inhibited the
development of the telecommunications
infrastructure or limited the expansion of that
infrastructure.
Infrastructure Issues (cont.)
• Local connection costs through the existing
telephone networks of many countries are very high.
• This can have a profound effect on the behavior of
electronic commerce participants.
• OECD statements have provided guidance for
businesses and government to support international
electronic commerce.
Infrastructure Issues (cont.)
• In 1998, business and government leaders in several
European countries began pushing for flat-rate
telephone line Internet access charges.
• The information flows can be very complex for an
international trade transactions.
• Companies, such as NextLinx, Syntra, and Vastera,
sell software designed to automate much of the
international trade process.
Infrastructure Issues (cont.)
The Legal Environment of Electronic
Commerce
• Businesses that operate on the Web must comply
with the same laws and regulations that govern the
operations of all businesses.
• The Web extends a company’s reach beyond
traditional boundaries, thus it faces many more laws
than before.
• The Web increases the speed and efficiency of
business communications.
• Web businesses that violate laws can face rapid and
intense reactions from many customers.
Borders and Jurisdiction
• Territorial borders in the physical world serve a useful
purpose in traditional commerce.
• In the physical world, geographic boundaries almost
always coincide with legal and cultural boundaries.
• The relationship between geographical boundaries
and legal boundaries can be discussed in terms of
four elements: power, effects, legitimacy, and notice.
Relationships Among a Society’s
Culture, Laws, and Ethical Standards
Power
• Power, in the form of control over physical space and
the people and objects that reside in that space, is a
defining characteristic of statehood.
• Effective law enforcement requires power.
• The ability of a government to exert control over a
person or corporation is called jurisdiction.
• The level of power asserted by a government is
limited to that which is accepted by the culture that
exists within its geographic boundaries.
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 characteristics of laws are determined by the
local culture’s acceptance of or reluctance to various
kinds of effects.
Legitimacy
• Most people agree that the legitimate 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.
Notice
• The physical boundary, when crossed, provides
notice that one set of rules has been replaced by a
different set of rules.
• Borders provide this notice in the physical world.
• The legal systems of most countries include a
concept called constructive notice.
Jurisdiction on the Internet
• Jurisdiction is more difficult on the Internet because
traditional geographic boundaries do not exist
• Thus, power effects legitimacy.
• People or corporations that wish to enforce their
rights based on either contract or tort law must file
their claims in courts with jurisdiction to hear their
case.
Subject-Matter Jurisdiction
• Subject-matter jurisdiction is a court’s authority to
decide a particular type of dispute.
• In the U.S., federal courts have subject-matter
jurisdiction over issues governed by federal law.
• State courts have subject-matter jurisdiction over
issues governed by state laws.
Personal Jurisdiction
• Personal jurisdiction is determined by the residence
of the parties.
• One way that people voluntarily submit to a
jurisdiction is by signing a contract that includes a
statement known as a forum selection clause.
• Businesses should be aware of jurisdictional
considerations when conducting electronic
commerce over state and international lines.
Jurisdiction in International Commerce
• 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.
• The John Marshall Law School’s Center for
Information Technology and Privacy Law Web site is a
good source of cyberspace law.
Online Resource for Cyberspace Law
Contract Enforcement
in Electronic Commerce
• Any contract includes three essential elements: an
offer, an acceptance, and consideration.
• 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.
Written Contracts on the Web
• In general, contracts are valid even if they are not in
writing or signed.
• A signature is any symbol executed or adopted for the
purpose of authenticating a writing.
• It is reasonable to assume that a symbol or code
included in an electronic file would constitute a
signature.
• The U.S. now has a law that explicitly makes digital
signatures legally valid for contract purposes.
Warranties
• Any contract for the sale of goods includes implied
warranties.
• Most firms conducting electronic commerce have
little trouble fulfilling warranties.
• Sellers can avoid some implied warranty liability by
making a warranty disclaimer.
• 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 Form Contracts
• A contract is formed when an offer is accepted for
consideration.
• Problems can arise in electronic commerce since the
online nature of acceptance can make it relatively
easy for identity forgers to pose as others.
• Digital signatures, however, are an excellent way to
establish identity in online transactions.
Terms of Service Agreements
• Most Web sites have stated rules that visitors must
follow, although few visitors are aware of these rules.
• If you examine the home page of a Web site, you will
often find a link to a page titled “Terms of Service”,
“Conditions of Use”, “User Agreement” or something
similar.
• These contracts are often called terms of service
(ToS) agreements.
Web Site Content
• A number of other legal issues can arise regarding the
Web page content of electronic commerce sites,
including:
• trademark infringement
• deceptive trade practices
• regulation of advertising claims
• defamation
Copyright Infringement
• A copyright is a right granted by a government to the
author or creator of a literary or artistic work.
• Creations that can be copyrighted include virtually all
forms of artistic or intellectual expression: books,
music, artworks, recordings (audio and video),
architectural drawings, choreographic works, product
packaging, and computer software.
Patent Infringement
• A patent is an exclusive right to make, use, and sell an
invention that a government grants to the inventor.
• To be patentable, an invention must be genuine,
novel, useful, and not obvious given the current state
of technology.
Trademark Infringement
• The owners of registered trademarks have often
invested and developed their trademarks.
• Web site designers must be very careful not to use
any trademarked name, logo, or other identifying
mark without permission.
Defamation
• A defamatory statement is a statement that is false
and that injures the reputation of another person or
company.
• If the statement injures the reputation of a product, it
is called product disparagement.
• Web site designers should be especially careful to
avoid potential defamation liability.
Deceptive Trade Practices
• If the Web page objects being manipulated are
trademarked, these manipulations can violate the
trademark holder’s right.
• Trademark protection prevents another firm from
using the same or a similar name, logo, or other
identifying characteristic in a way that would cause
confusion .
Advertising Regulation
• In the U.S., advertising is primarily regulated by the
Federal Trade Commission.
• Any advertising claim that can mislead a substantial
number of consumers in a material way is illegal
under U.S. law.
• Other federal agencies have the power to regulate
online advertising in the U.S. including FDA, BATF,
and DOT.
Web-based Crime, Terrorism,
and Warfare
• The Internet has opened up many possibilities for
people to communicate and get to know each other
better.
• The Internet has also opened doors for businesses to
reach new markets and to create opportunities for
economic growth.
• It is sad that some people in our world have found the
Internet to be a useful tool for perpetrating crimes,
advocating terrorism, and waging war.
Web-based Crime, Terrorism,
and Warfare
• Crimes on the Internet includes online versions of
crimes that have been undertaken for years in the
physical world, including theft, stalking, distribution
of pornography, and gambling.
• Many Internet security experts believe that we are at
the dawn of a new age of terrorism and warfare that
could be carried out or coordinated through the
Internet.
• A considerable number of Web sites exist today that
openly support or are operated by hate groups and
terrorist organizations.
Ethical Issues
• 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.
• Ethical considerations are important in determining
advertising policy on the Web.
Privacy Rights and Obligations
• 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.
• A more recent law is the Children’s Online Privacy
Protection Act of 1998.
• 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.
Taxation and Electronic Commerce
• 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 both
inside and outside of the U.S.
• Most states levy a sale tax on goods sold to
consumers. A sales tax is subject to where the
customer is located, the law of jurisdiction and tax
rate, and the taxable status of the customer.
Income Taxes
• The Internal Revenue Service is the U.S. government
agency charged with administering the country’s tax
laws.
• A Web site maintained by a company in the U.S. must
pay federal income tax on income generated outside
of the U.S.