Electronic Commerce COMP3210

Session 9: e-Commerce Legislation and Internet LawDr. Paul Walcott Department of Computer Science, Mathematics and PhysicsUniversity of the West Indies, Cave Hill CampusBarbados

The Department of Computer Science Mathematics and Physics, University of the West Indies, Cave Hill Campus, Barbados

© 2007 Dr. Paul Walcott

Session Objectives The objective of this session is to describe:

Borders and Jurisdiction Contracts Intellectual Property Online Crime Cybersquatting Ethical Issues

Session Objectives Describe the state of e-commerce

legislation in the Caribbean Briefly describe ethical issues in e-

commerce Briefly describe taxation in e-commerce Comprehend e-commerce legislation and

Internet law

E-Commerce and the Law1

Brick and mortar and Web businesses are governed by the same legal requirements

However, for Web businesses two additional factors exist: Traditional boundaries no longer apply With increased speed and efficiency of

modern communication, violations of the law are identified and acted on much quicker

E-Commerce and the Law Cont’dBorders and Jurisdiction Businesses contained

within a given (traditional) boundary are governed by the laws defined within the boundary

E-Commerce and the Law Cont’dBorders and Jurisdiction Cont’d Crossing a boundary is usually

characterised by passport or document control

This typically includes a change in language and culture and by extension a change in law

E-Commerce and the Law Cont’dBorders and Jurisdiction Cont’d

Culture helps to define: Laws Ethical standards

E-Commerce and the Law Cont’dGeographic and Legal Boundaries The relationship between geographic and

legal boundaries is defined by four elements: Power Effects Legitimacy Notice

E-Commerce and the Law Cont’dPower Power is a form of control over physical space, its

people and objects Governments need power to control its residence

and impose sanctions when laws are violated – This is called jurisdiction

Laws in the physical world only apply to people within the given geographic boundary

E-Commerce and the Law Cont’dEffect Laws are based on the relationship between

physical proximity and the impact (effect) of a person’s behaviour E.g. two companies with the same name, in the same

place will have a problem with trademarks, as opposed to companies in different countries E.g. Target in the UK is a package delivery company, while

in the US is a store; it is the proximity that causes the effect

E-Commerce and the Law Cont’dEffect Cont’d Effect does not work well for on-line businesses

E.g. the French government has banned the sale of Nazis memorabilia

Yahoo, a US company began selling it on-line (allowing French citizens to purchase it)

A legal battle ensued So to avoid it Yahoo stop selling it

E-Commerce and the Law Cont’dLegitimacy Those who are subject to a law should have

some role in formulating them Some countries, e.g. China and Singapore

permit government to exert high levels of unchecked authority

E-Commerce and the Law Cont’dNotice Physical boundaries give notice to a person that

the rules (laws) may change Constructive notice is given to people when they

cross international boundaries Ignorance of these laws is no excuse

Notice and constructive notice does not translate very well to Web businesses since the business may not know which country their Web sites are being accessed from

E-Commerce and the Law Cont’dJurisdiction and the Internet Since traditional geographic boundaries do not exist

on the Internet, enforcing jurisdiction is difficult E.g. a Swedish e-commerce company may have a .com

(therefore not clear that it is Swedish) Website in English which is hosted in Canada, but maintained by people in Australia

If a Mexican citizen buys a product from the company and is dissatisfied, who does he file a suit with?

Physical-border law and jurisdiction does not help

E-Commerce and the Law Cont’dJurisdiction and the Internet Cont’d For governments to enforce laws over Internet

businesses, it must establish jurisdiction over that conduct

In order for a person or corporation to file a claim, based on tort or contract law a court with the appropriate jurisdiction must be found “A contract is a promise between two or more legal

entities that provide for an exchange of value (goods, services or money) between or among them”1

E-Commerce and the Law Cont’dJurisdiction and the Internet Cont’d

“A tort is an intentional action taken by a legal entity that causes harm to another legal entity”1

For a court to have jurisdiction it must have Subject matter jurisdiction Personal jurisdiction

E-Commerce and the Law Cont’dSubject Matter Jurisdiction Refers to the court’s ability to decide a

particular type of dispute E.g. US federal court (bankruptcy, copyright

etc.); State court (state tax) Subject matter jurisdiction is usually easy

to apply

E-Commerce and the Law Cont’dPersonal Jurisdiction Determined by the residence of the people

involved The court has personal jurisdiction over a

resident of a US State Laws are unclear for online businesses

E-Commerce and the Law Cont’dPersonal Jurisdiction Cont’d A person or corporation that is not a resident of a

US State can submit (voluntarily) to the jurisdiction of the court in the State By signing a contract which includes a statement - this

is called a forum selection clause (the contract will be enforced according to State laws); an example of a forum selection clause may be found at Qpass http://www.qpass.com/us/company_terms.html

E-Commerce and the Law Cont’dQPass Forum Selection Clause These terms of use shall be governed by and construed in

accordance with the laws of the State of Washington, without regard to its conflict of laws rules. Any legal action arising out of this Agreement shall be litigated and enforced under the laws of the State of Washington. In addition, you agree to submit to the jurisdiction of the courts of the State of Washington, and that any legal action pursued by you shall be within the exclusive jurisdiction of the courts of King County in the State of Washington.

E-Commerce and the Law Cont’dQPass Forum Selection Clause Cont’d You are responsible for complying with the laws of the

jurisdiction from which you are accessing this site and you agree that you will not access or use the information on this site in violation of such laws. Unless expressly stated otherwise herein, any information submitted by you through this site shall be deemed non-confidential and non-proprietary.

E-Commerce and the Law Cont’dJurisdiction in International Commerce Jurisdiction across international borders is

governed by treaties Companies should hire an attorney if they

want to engage in international commerce

E-Commerce and the Law Cont’dContracts in E-commerce A contract comprises of

three parts: An offer An acceptance Consideration

A contract is formed when one party accepts the offer of another party

An implied contract is when two parties act as if a contract exist, even though it does not

E-Commerce and the Law Cont’dOffer An offer is

“a commitment with certain terms made to another party, such as a declaration of willingness to buy or sell a product or service.”

“An offer can be revoked as long as no payment, delivery of service, or other consideration has been accepted”

E-Commerce and the Law Cont’dAcceptance and Consideration Acceptance is

The willingness to accept the terms of an offer

Consideration is The exchange of something valuable, e.g.

property, money or a future service

E-Commerce and the Law Cont’dExample of a Contract The process of a consumer buying an item

from a supermarket The item is offered at a given price The consumer accepts the offer by indicating

a willingness to buy the product for the selected price

The consumer’s payment is exchanged for the store’s product

E-Commerce and the Law Cont’dContracts on the Web Although case law is limited, one must assume

that it is a legally binding contract if a user Clicks a button on a Web page Entered information on a Web form Downloads a file from a Web site

Also, ordinary signatures are replaced by digital signatures (to reduce forgeries)

E-Commerce and the Law Cont’dTerms of Service Sometimes called “Conditions of Use” or “User

agreement” These are rules Web sites visitors must follow The purpose is to limit the owner’s liability for

what might be done with the information In most cases the visitor is held to the terms, even

if they are not read or an accept button clicked; the visitor is bound by simply using the site

E.g. see Amazon.com “Conditions of Use”

E-Commerce and the Law Cont’dIntellectual Property This is a general term

which includes all tangible and intangible products of the mind

Intellectual property includes copyrights, patents, trademarks and service marks (similar to trademarks, used to identify services provided)

E-Commerce and the Law Cont’dCopyright The right granted by a government to the author or

creator of a literary or artistic work Includes books, music and computer software

A copyright gives sole and exclusive rights to print, publish or sell

In the US works are copyrighted for the person’s lifetime plus 70 years For corporations, copyright is for 95 years from the date

of publication or 120 years from the date of creation, whichever is earlier

E-Commerce and the Law Cont’dCopyright Cont’d In the US

In the past the creator had to register material for it to be copyrighted

Registration however is no longer required A work that does not include the word

“copyright” that was created after 1977 is copyrighted automatically unless released in the public domain

E-Commerce and the Law Cont’dCopyright Cont’d Most Web pages are protected by

copyright because graphics, words etc. are arranged in such a way to make original work

The problem with a Web server is that it sends a copy of a Web page to the client Is this copy legal?

E-Commerce and the Law Cont’dCopyright Cont’d US copyright law includes an exception from

infringement for fair use of copyrighted works This includes copying for the purpose of criticism,

comment, news, reporting, teaching, scholarship or research

The term fair use may be difficult to interpret

To avoid charges of plagiarism a citation to the original work should be included

E-Commerce and the Law Cont’dCopyright Cont’d Napster provided a network of millions with copies of

music in MP3 format Napster was sued by music recording companies

Napster argued that it only provided the machinery (VCR manufacturers do a similar thing, i.e. provide VCRs that can copy)

The US District and Federal Appellate Court held that Napster was guilty of vicarious copyright infringement; an entity is guilty of this if 1) it is capable of supervising the activity and 2) it benefited financially from it

E-Commerce and the Law Cont’dCopyright Cont’d Napster was held liable (although it did not

transfer copies of copyrighted materials) because it: Failed to monitor its network, although it could have

done so It profited by selling advertising

Napster agreed to pay $26 million in damages, filed bankruptcy in 2002 and was bought out by Roxio who now offers legal music downloads

E-Commerce and the Law Cont’dOnline Crime Online crime includes theft, stalking, distribution

of pornography, gambling as well as commandeering computers to launch attacks

Problems with law enforcement include jurisdiction E.g. if a person in California use their computer to

connect to an offshore gambling site, it is unclear where this activity occurs

E-Commerce and the Law Cont’dOnline Crime Cont’d Several sites have banned Internet gambling, but

it is unclear whether they have the jurisdiction to enforce this decision

Internet stalking (via email and chat rooms) is another online crime where traditional laws on stalking are not useful Criminal penalties are given to people who harass,

annoy, or alarm; however, it must be prompted by a physical action

E-Commerce and the Law Cont’dOnline Crime Cont’d A rogue group or terrorist can attack the

Internet and slow it down Especially major transaction-processing

Centers

E-Commerce and the Law Cont’dDomain Names and Cybersquatting Cybersquatting is the practice of registering a

domain name (that is the same as a company’s trademark) so that you can later sell it to them at for large amounts of money

In the US, the Trademark Conspiracy Prevent Act was signed in 1999 It prevents trademark names from being registered as

domain names by other people

E-Commerce and the Law Cont’dDomain Names and Cybersquatting Parties found guilty of cybersquatting can be forced to

pay up to US$100,000 per trademark E.g. three cybersquatters tried to sell the URL

barrydiller.com for US$10million Barry Diller sued and won

Registering a generic name, e.g. Wine.com is different from registering a name in bad faith

A dispute may arise if the Trademark is a common term, e.g. www.sting.com was not awarded to Sting (the singer)

E-Commerce and the Law Cont’dName Changing A similar concept is that of name changing where

a person buys a name that is a variation of the company’s trademark This increases the likelihood that the site will be visited

in error If it is true then the Anticybersquatting Consumer

Protection Act can be enforced Companies tend to register as many names as possible,

but as new high level domains are added it becomes increasingly more difficult

E-Commerce and the Law Cont’dName Stealing This occurs when someone other than the

domain’s name owner changes the ownership of the domain name Ownership information maintained by a public

registrar is changed in their database to reflect a different owner’s name and address

This can result in redirection of online customers or the posting of graffiti on the site and loss of business for a short period of time

E-Commerce and the Law Cont’dName Stealing It is actually not difficult to do:

The perpetrator simply changes the Web site’s ownership by typing in a registered administrator’s address

Register the stolen domain name with a different IP address at another registrar’s site

The name change would be noticed within a short space of time, but the damage would already be done

E-Commerce Legislation in Barbados2,3,4,5

In Barbados some important pieces of e-commerce legislation have already been enacted, namely: The Electronic Transaction Act 2000

Equates digital transactions with paper-based transactions; exceptions include wills

The Computer Misuse Act 2005 Enforces penalties for illegal computer access and

the storage and transmission of pornography

E-Commerce Legislation in Barbados2,3,4,5

Also in draft form is the Data Protection Bill

E-Commerce Legislation in the Caribbean It is left as an exercise for the reader to

determine the state of e-commerce legislation in the remaining countries of the Caribbean

Ethical Issues1

E-commerce sites should adhere to some ethical standard otherwise the company may suffer: Damaged reputation Long term loss of trust Loss of business

Advertising should include only true statements Important facts should be included so not to mislead

Ethical Issues Cont’d In 1999 eBay decided to ban all firearm

sales Since people were auctioning illegal items,

such as assault weapons and drugs Although not legally obligated, eBay began

to screen items being auctioned To see if they were illegal or violated

copyright laws

Ethical Issues Cont’d Several legislative proposal have been made with

regard to Web site’s visitors privacy, but none have been accepted

A report in 1999 stated that Although, some sites do not have posted privacy policies,

companies are developing privacy practices with sufficient speed

Privacy advocate groups were outraged and called for legislation.

The future of privacy regulation in the US is therefore unclear

Ethical Issues Cont’dPrivacy: Some Guidelines1

Bill Catchings in 1998 outlined, in PC Week, four privacy principles for Web site administrators: Use the data collected to provide improved customer

service Do not share customer data with people outside of

the company without their permission Tell customers why you are collecting the data that

you are collecting Give the customers the right to delete any data you

have collected about them

Taxation1

Online business may be subject to: Income taxes

Based on net income (levied by the government)

Transaction taxes Include sales tax, use tax, excise tax and custom

duties are levied on products and services that a company sells

Taxation Cont’d Property taxes

Levied by the State and government on property and real estate that the company uses for its business

Taxation Cont’dUS Sales Tax Most States levy a sales tax on goods sold

to consumers

European Value Added Tax In Europe a value added tax (VAT) is used It is collected by the seller It is currently 15% (food items are exempt)

References[1] Schneider, Gary, P., “Electronic Commerce: The second wave”, Thomson

Course Technology, Fifth Annual Edition, 2004[2] Walcott. Paul, “An Evaluation of E-Commerce Websites in a Developing

Country”, in proceedings of the 2007 International Conference on Internet Computing, Las Vegas, Nevada, USA, June 25-28, 2007, pp. 176-182

[3] Walcott. Paul, Evaluating the sophistication of E-Commerce Websites in Barbados”, in proceedings of the 9th WSEAS International Conference on Data Networks, Communication and Computers (DNCOCO 2007), Trinidad and Tobago, November 5-7, 2007

[4] Ministry of Commerce, Consumer Affairs and Business Development, http://www.commerce.gov.bb/Legislation/default.asp. Accessed February 15, 2007.

[5] Ministry of Commerce, Consumer Affairs and Business Development, “Commerce Today”, Bridgetown, Barbados, Volume 1, Issue II, March 2005, http://www.commerce.gov.bb/Downloads/CommerceTodayV1.2%202005.pdf. Accessed February 15, 2007