Chapter 11 Legal and Ethical Issues Internet Taxation

Chapter 11, Legal and Ethical Issues; Internet Taxation Outline 11. 1 Introduction 11. 2 Legal Issues: Privacy on the Internet 11. 2. 1 Right to Privacy 11. 2. 2 Internet and the Right to Privacy 11. 2. 3 Network Advertising Initiative 11. 2. 4 Employer and Employee 11. 2. 5 Protecting Yourself as a User 11. 2. 6 Protecting Your Business: Privacy Issues 11. 3 Legal Issues: Other Areas of Concern 11. 3. 1 Defamation 11. 3. 2 Sexually Explicit Speech 11. 3. 3 Children and the Internet 11. 3. 4 Alternative Methods of Regulation 11. 3. 5 Intellectual Property: Copyrights and Patents 11. 3. 6 Trademark and Domain Name Registration 2001 Prentice Hall, Inc. All rights reserved.

Chapter 11, Legal and Ethical Issues; Internet Taxation Outline 11. 4 11. 5 11. 3. 7 Unsolicited Commercial E-mail (Spam) 11. 3. 8 Online Auctions 11. 3. 9 Online Contracts 11. 3. 10 Online User Agreements Cybercrime Internet Taxation 2001 Prentice Hall, Inc. All rights reserved.

11. 1 Introduction • Real space – Our physical environment consisting of temporal and geographic boundaries • Cyberspace – The realm of digital transmission not limited by geography 2001 Prentice Hall, Inc. All rights reserved.

11. 2 Legal Issues: Privacy on the Internet • Difficulty of applying traditional law to the Internet • Technology and the issue of privacy 2001 Prentice Hall, Inc. All rights reserved.

11. 2. 1 Right to Privacy • Implicit in the First, Fourth, Ninth and Fourteenth Amendments • Olmstead vs. United States – Telecommunication of alcohol sales during Prohibition era – New application of the Fourth Amendment • Translation – Interpreting the Constitution to protect the greater good 2001 Prentice Hall, Inc. All rights reserved.

11. 2. 2 Internet and the Right to Privacy • Self-regulated medium – The Internet industry governs itself • Many Internet companies collect users’ personal information – Privacy advocates argue that these efforts violate individuals’ privacy rights – Online marketers and advertisers suggest that online companies can better serve their users by recording the likes and dislikes of online consumers • Financial Services Modernization Act of 1999 – Establishes a set of regulations concerning the management of consumer information 2001 Prentice Hall, Inc. All rights reserved.

11. 2. 3 Network Advertising Initiative • Network Advertising Initiative (NAI) – Approved by the FTC in July 1999 to support self regulation • NAI currently represents 90 percent of Web advertisers • Determines the proper protocols for managing a Web user’s personal information on the Internet • Prohibits the collection of consumer data from medical and financial sites • Allows the combination of Web-collected data and personal information 2001 Prentice Hall, Inc. All rights reserved.

11. 2. 3 Double. Click: Marketing with Personal Information Feature • Regulation of the Internet could limit a company’s efforts to buy and sell advertising • Double. Click – Advertising network of over 1, 500 sites and 11, 000 clients • Abacus Direct Corp – Names, addresses, telephone numbers, age, gender, income levels and a history of purchases at retail, catalog and online stores • Digital redlining – Skewing of an individual’s knowledge of available products by basing the advertisements the user sees on past behavior 2001 Prentice Hall, Inc. All rights reserved.

11. 2. 4 Employer and Employee • Keystroke cop – Registers each keystroke before it appears on the screen • Company time and company equipment vs. the rights of employees • Determining factors – Reasonable expectation of privacy – Legitimate business interests • Reasons for surveillance – Slower transmission times – Harassment suits – Low productivity 2001 Prentice Hall, Inc. All rights reserved.

11. 2. 4 Employer and Employee • Notice of Electronic Monitoring Act – Proposed in 2000 – Would require employers to notify employees of telephone, e -mail and Internet surveillance – Annual updates or when policy changes are made – The frequency of surveillance, the type of information collected and the method of collection would also be disclosed 2001 Prentice Hall, Inc. All rights reserved.

11. 2. 4 Michael A. Smyth vs. The Pillsbury Company Feature • Dismissed as regional operations manager • Questionable material in e-mail • Pennsylvania law – “An employer may discharge an employee with or without cause, at pleasure, unless restrained by some contract" • Public policy – Reprimanding an employee called for jury duty – Denial of employment as a result of previous convictions • Verdict awarded to Pillsbury – No reasonable expectation of privacy – Legitimate business interests 2001 Prentice Hall, Inc. All rights reserved.

11. 2. 5 Protecting Yourself as a User • Anonimity and pseudonimity – Privacy. X. com • Platform for Privacy Preferences Project (P 3 P) – Browser complies in accordance with users’ privacy preferences by allowing them to interact in specific ways • Privacy services and software – – – Junkbusters. com Privacy. Choices. org Center for Democracy and Technology Electronic Frontier Foundation Electronic Privacy Information Center Privacy. Rights. org 2001 Prentice Hall, Inc. All rights reserved.

11. 2. 6 Protecting Your Business: Privacy Issues • Privacy policy – The stated policy regarding the collection and use of visitor’s personal information • Privacy policy services and software – Privacy. Bot. com – TRUSTe 2001 Prentice Hall, Inc. All rights reserved.

11. 2. 6 Protecting Your Business: Privacy Issues • Core Fair Information Practices – Consumers should be made aware that personal information will be collected – The consumer should have a say in how this information will be used – The consumer should have the ability to check the information collected to ensure that it is complete and accurate – The information collected should be secured – The Web site should be responsible for seeing that these practices are followed 2001 Prentice Hall, Inc. All rights reserved.

11. 2. 6 Protecting Your Business: Privacy Issues Privacy. Bot. com. (Courtesy of Invisible Hand Software, LLC. ) 2001 Prentice Hall, Inc. All rights reserved.

11. 3 Legal Issues: Other Areas of Concern • • • Defamation Sexually explicit speech Copyright and patents Trademarks Unsolicited e-mail First Amendment – "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble and to petition the Government for a redress of grievances" 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 1 Defamation • Defamation – The act of injuring another’s reputation, honor or good name through false written or oral communication • Libel – Defamatory statements written or spoken in a context in which they have longevity and pervasiveness that exceed slander 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 1 Defamation • Slander – Spoken defamation • Proving defamation – The statement must have been published, spoken or broadcast – There must be identification of the individual(s) through name or reasonable association – The statement must be defamatory – There must be fault – There must be evidence of injury 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 1 Defamation • Good Samaritan provision, Section 230 of the Telecommunications Act – Protects ISPs from defamation lawsuits when the ISPs’ attempt to control potentially damaging postings – “Obscene, lewd, lascivious, filthy, excessively violent, harassing or otherwise objectionable" 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 1 Cubby vs. Compuserve and Stratton Oakmont vs. Prodigy Feature • Cubby vs. Compuserve – Anonymous individual used a news service hosted by Compuserve to post an allegedly defamatory statement • Distributor vs. publisher – A distributor cannot be held liable for a defamatory statement unless the distributor has knowledge of the content – Compuserve was a distributor of content • Stratton Oakmont vs. Prodigy – Claimed responsibility to remove potentially defamatory or otherwise questionable material – Prodigy served as a publisher of the content 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 2 Sexually Explicit Speech • Miller vs. California (1973) – The Miller Test identifies the criteria used to distinguish between obscenity and pornography – Must appeal to the prurient interest, according to contemporary community standards – When taken as a whole, lacks serious literary, artistic, political or scientific value • Challenge of community standards in cyberspace 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 2 United States vs. Thomas Feature • Thomas – Internet business owner in California, owner of pornographic Web site from which merchandise could be ordered – Accessible by password – Acceptable by California community standards – Sold pornographic material to Tennessee resident (opposing community standards) • Thomas found guilty • Non-content related means – Effort to control the audience rather than controlling the material 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 3 Children and the Internet • Accessibility of information • Decency Act of 1996 (CDA) and Children’s Online Protection Act of 1998 (COPA) – Designed to restrict pornography on the Internet, particularly in the interest of children – Overbroad – “Patently offensive, ” “indecent” and “harmful to minors” • Chilling effect – Limiting speech to avoid a lawsuit • Children’s Online Privacy Protection Act of 2000 (COPPA) – Prohibits Web sites from collecting personal information from children under the age of 13 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 4 Alternatives Methods of Regulation • Blocking and filtering – Allows users to select what kinds of information can and cannot be received through their browsers • Blocking and filtering software and services – Surfwatch. com – Cybersitter. com – Net. Nanny. com • Infringement of First Amendment rights • Parent’s counsel – Cyber. Angels. com – Get. Net. Wise. com – Parentsoup. com 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 4 Alternatives Methods of Regulation Net Nanny home page. (Courtesy of Net Nanny Software International, Inc. ) 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 5 Intellectual Property: Patents and Copyright • Copyright – The protection given to the author of an original piece, including “literary, dramatic, musical, artistic and certain other intellectual works” – Whether the work has been published or not – Protects only the expression or form of an idea and not the idea itself – Provides incentive to the creators of original material – Guaranteed for the life of the author plus seventy years 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 5 Intellectual Property: Patents and Copyrights • Digital Millennium Copyright Act of 1998 (DMCA) – Represents the rights of creative bodies to protect their work as well as the rights of educators and resource providers to receive access to this work – Makes it illegal to delete or otherwise alter the identifying information of the copyright owner – Prevents the circumvention of protection mechanisms and/or the sale of such circumvention mechanisms – Protects the fair use of copyrighted material 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 5 Intellectual Property: Patents and Copyright • Fair use – The use of a copyrighted work for education, research, criticism – The purpose of the copyrighted work is examined – The nature of the copyrighted work is taken into account – The amount of the material that has been reproduced is reviewed – The effect is taken into consideration 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 5 Intellectual Property: Patents and Copyright • Patent – Grants the creator sole rights to the use of a new discovery – Protection for 20 years • Opposing the length of a patent – Does not foster the creation of new material • Includes “methods of doing business” since 1998 – Idea must be new and not obvious to a skilled person • Amazon’s 1 -Click patent – September, 1999 – Huge advantage over competitors, as 65% of shopping carts are abandoned before purchase is complete – Barnesandnoble. com Express Lane violated patent 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 5 File Sharing and the Copyright Debate Feature • Present significant challenges to the traditional treatment of copyright protection • MP 3 – A compression method used to substantially reduce the size of audio files, with no significant reduction in sound quality • Napster – Operates as a centralized service – Offers software that allows users to download MP 3 files from the hard drives of other members • Gnutella – Operates as a decentralized service – Individuals with Gnutella software installed on their computers operate as both a client and a server 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 5 File Sharing and the Copyright Debate Feature • Legal issues – Freedom of exchange (enabled by technological advancements) vs. copyright infringement – Ability to voice one’s opinion and circumvent efforts of censorship – If copyrighted works are distributed over the system, creators will have less incentive to continue generating original works • Sony Betamax (1984) – Courts awarded the victory to Sony, suggesting that the Betamax provided other uses (recording for personal viewing) that justified its existence 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 5 United States vs. Lamacchia Feature • Changed the face of copyright protection (1994) • Posting of copyrighted material • Not guilty under the Copyright Act of 1976 – The violation must have been conducted "willfully and for purposes of commercial advantage or private financial gain” • La. Machhia did not profit from the copyright violations • La. Macchia was not convicted for his actions 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 6 Trademark and Domain Name Registration • Parasite – Selects a domain name based on common typos made when entering a popular domain name • Cybersquatter – Buys an assortment of domain names that are obvious representations of a brick-and-mortar company 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 6 Trademark and Domain Name Registration • Anticybersquatting Consumer Protection Act of 1999 (ACPA) – Protects traditional trademarking in cyberspace – Protects trademarks belonging to a person or entity other than the person or entity registering or using the domain name – Persons registering domain names are protected from prosecution if they have a legitimate claim to the domain name – Domain names cannot be registered with the intention of resale to the rightful trademark owner 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 7 Unsolicited Commercial mail (Spam) E- • Cost is primarily incurred by the receiver and the ISP • Organizations distributing spam – Maintain anonymity and receivers cannot request to be taken off the organization’s mailing list – Present themselves as a legitimate company and damage the legitimate company’s reputation • Unsolicited Electronic Mail Act – Mandates that the nature of the e-mail be made clear – Would require online marketers to know the policy of every ISP they encounter on the Web 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 8 Online Auctions • Question of government regulation • International regulation of auctions • Copyright infringement and auction aggregation services • The Collections of Information Antipiracy Act (CIAA) – Makes it easier to prosecute any group which takes listings from one organization and, in doing so, harms the original business • Shill bidding – Sellers bid for their own items to increase the bid price 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 9 Online Contracts • Electronic Signatures in Global and National Commerce Act of 2000 (E-Sign Bill) – Designed to promote online commerce by legitimizing online contractual agreements – Digital agreements will receive the same level of validity as hard-copy counterparts – Allows cooperating parties to establish their own contracts 2001 Prentice Hall, Inc. All rights reserved.

11. 3. 10 User Agreements • Requires users to agree to certain terms regarding the service or product provided by the site before entering • Shrink-wrap agreement – An agreement printed on the outside of the package holding the product that becomes binding when the consumer opens the package • Click-through agreement – A pop-up screen to which users must agree before they can continue • Depending on their presentation, these types of agreements can be considered valid by the U. S. courts 2001 Prentice Hall, Inc. All rights reserved.

11. 4 Cybercrime • Auctions, chat rooms and bulletin boards are among the most popular forums for illegal activities • Viruses, which often lead to denial of service or a loss of stored information, are among the most common cybercrimes • Stock scams – Crimes in which individuals purchase stocks, then present false claims about the value of that stock in chat rooms or on bulletin boards to sell them back at a higher price • Web page hijacking – Web page is used as a gateway (the intermediary between one site and another) to another site 2001 Prentice Hall, Inc. All rights reserved.

11. 4 Cybercrime FTC “dummy” site for Nordi. Ca. Lite. (Courtesy of Federal Trade Commission. ) 2001 Prentice Hall, Inc. All rights reserved.

11. 4 Cybercrime FTC warning page. (Courtesy of Federal Trade Commission. ) 2001 Prentice Hall, Inc. All rights reserved.

11. 5 Internet Taxation • The opposing arguments – Permanent ban on Internet taxation – Fair taxation of Internet sales • Taxation methods – If both a vendor and a consumer are located in the same state sales tax is applied – If the vendor and the consumer are not located in the same state, then the sale is subject to a use tax – If the vendor has a physical presence, or nexus, then it is required to collect the tax; otherwise the vendor must assess the tax and pay it directly to the state 2001 Prentice Hall, Inc. All rights reserved.

11. 5 Internet Taxation • Problems with Internet taxation – The definition of physical presence (location of the ISP, the location of the server or the location of the home page) – States vary according to what transactions are subject to taxation – Sales tax revenues are the largest single source of a state’s revenue and are used to fund government-subsidized programs, including the fire department, the police and the public education systems – State and local governments further argue that removing taxation methods from their jurisdiction infringes upon state sovereignty, an element of the checks-and-balances system maintained by the United States Constitution 2001 Prentice Hall, Inc. All rights reserved.

11. 5 Internet Taxation • Problems with Internet taxation – To meet the taxation requirements of all parties in online transactions, e-businesses would be required to know and understand all these methods • Internet Tax Commission – Reviewed the issue of Internet taxation – Revision of state and local taxes to make taxing a feasible process for Internet businesses – Establish clearer definitions on the meaning of “physical presence” – Define universal taxation exemptions 2001 Prentice Hall, Inc. All rights reserved.