Chapter 11
The Environment of Electronic
Commerce: International, Legal,
Ethics, and Tax Issues
1
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
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International Nature of Electronic
Commerce
• Any business that engages in electronic
commerce instantly becomes an
international business.
• Customers’ lack of inherent in “strangers”
on the Web is logical and to be expected.
• Business trust is an important successful
factor of attracting customers.
Click to see Figure 11-1:
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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.
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Language Issues
• 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.
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Language Issues
• About 80% of the content available on the Internet
today is in English.
• More than 40% 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, maintains current information about
languages on the Web.
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Language Issues
• 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.
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Language Issues
• 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.
Click to see Figure 11-2:
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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.
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Culture Issues
• 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 to foreign customers.
Click to see Figure 11-3:
Click to see Figure 11-4:
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Culture Issues
• Some part of the world have cultural
environments that are extremely
inhospitable to electronic commerce
initiatives.
• 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.
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Infrastructure Issues
• 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.
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Infrastructure Issues
• 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 OECD statements have provided guidance for
businesses and government to support
international electronic commerce.
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Infrastructure Issues
• In 1998, business and government leaders in
several European countries began pushing for flatrate telephone line Internet access charges.
• The information flows can be very complex for an
international trade transaction.
• Companies such as NextLinx, Syntra, and Vastera
sell software designed to automate much of the
international trade process.
Click to see Figure 11-5:
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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 the laws can face
rapid and intense reactions from many customers.
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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 in terms of four elements:
power, effects, legitimacy, and notice.
Click to see Figure 11-6:
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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 the 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.
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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 characteristics of laws are determined
by the local culture’s acceptance of or
reluctance to various kinds of effects.
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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.
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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.
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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.
• 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.
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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 subjectmatter jurisdiction over issues governed by
federal law.
• State courts have subject-matter jurisdiction
over issues governed by state laws.
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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.
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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.
Click to see Figure 11-7:
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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 email messages, engage in EDI, or fill out forms on
Web pages.
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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.
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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.
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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.
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Web Site Content
• A number of other legal issues can arise
regarding the Web page content of
electronic commerce sites, including:
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Trademark infringement
Deceptive trade practices
Regulation of advertising claims
defamation
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Trademark Infringement
• The owner 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 the permission.
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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.
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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.
Click to see Figure 11-8:
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Ethics 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.
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Defamation
• A defamatory statement is a statement that
is false and that injures the reputation of
another person or company.
• Commercial Web sites should avoid making
negative evaluative statements about other
persons or products.
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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.
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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
inside and outside of the U.S.
• Most states levy a sale tax on goods sold to
consumers. A sale tax is subject to where the
customer is located, the law of jurisdiction and tax
rate, and the taxable status of the customer.
Click to see Figure 11-9:
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