08 Ethics, Law and E-commerce

e-commerce
business. technology. society.

eighth edition

Kenneth C. Laudon
Carol Guercio Traver

Copyright © 2012 Pearson Education

Chapter 8
Ethics, Law and E-commerce

1

Discovering Law and Ethics in a Virtual World
Class Discussion

 Why is “mischief” in virtual worlds more difficult to stop?
What constitutes mischief in Second Life?
 It’s in virtual world; Selling brand-name goods, conducting gambling, selling
simulated prostitution service
 Which behaviors have been banned in Second Life?
 Intolerance, harassment, assault, disclosure of information about other people’s
real-world lives, indecency sexual behavior, and disturbing the peace
 Is there a consensus regarding whether or not in-game
gambling and other virtual crimes are also actual crimes?
What is Second Life’s stance?
 No. They prohibited all forms of gambling in July 2007
 How faithfully do you believe the law should be enforced in
virtual worlds?

Copyright © 2006
Pearson Education,
Copyright © 2012 Pearson Education SlideInc.
8-5

2

Learning Objectives
 Understand why e-commerce raises ethical, social, and political issues
 Recognize the main ethical, social, and political issues raised by e-
commerce
 Identify a process for analyzing ethical dilemmas
 Understand basic concepts related to privacy
 Identify the practices of e-commerce companies that threaten privacy
 Describe the different methods used to protect online privacy
 Understand the various forms of intellectual property and the
challenges involved in protecting it
 Understand how governance of the Internet has evolved over time
 Explain why taxation of e-commerce raises governance and
jurisdiction issues
 Identify major public safety and welfare issues raised by e-commerce


Understanding Ethical, Social, and
Political Issues in E-commerce
 Internet, like other technologies, can
(see next Fig.):
 Enable new crimes
 Affect environment
 Threaten social values

 Costs and benefits must be carefully
considered, especially when there are
no clear-cut legal or cultural guidelines
Copyright © 2012 Pearson Education Slide 8-7

3

Copyright © 2010
Pearson Education,
Copyright © 2012 Pearson Education SlideInc.
8-8

A Model for Organizing the Issues
 Issues raised by Internet and e-commerce can be
viewed at individual, social, and political levels (see
next Fig.)
 Four major categories of issues:
 Information rights– individual rights to their personal info in
public marketplace and rights to access info about business
and other organizations
 Property rights – enforcement of traditional intellectual
property rights in Internet world where perfect copies can
be made and distributed worldwide within seconds
 Governance – public laws to govern Internet and e-
commerce, and the law-making bodies (state, federal,
international) who have jurisdiction
 Public safety and welfare – to ensure equitable access to
Internet and e-commerce channels by schools and colleges,
or to determine if pornography and gambling are threat to
public safety and welfare

4

The Moral Dimensions of an
Internet Society

Figure 8.1, Page 538

Basic Ethical Concepts
 Ethics
 Study of principles used to determine right and wrong courses of
action
 Responsibility
 individuals, organizations, and societies are responsible for actions
they take
 Accountability
 individuals, organizations, and societies should be held accountable to
others for the consequences of their actions
 Liability
 Laws permitting individuals to recover damages done to them
 Due process
 Laws are known, understood
 Ability to appeal to higher authorities to ensure laws applied correctly

5

Analyzing Ethical Dilemmas
 Dilemma
 A situation where there are at least two diametrically
opposed actions, each of which supports a desirable
outcome
 Process for analyzing ethical dilemmas:
1. Identify and clearly describe the facts: Find out who
did what to whom, and where, when, and how
2. Define the conflict or dilemma and identify the higher-
order values involved: E.g., advertising networks
(DoubleClick) increases market efficiency at the price
of individual privacy
3. Identify the stakeholders
4. Identify the options that you can reasonably take
5. Identify the potential consequences of your options :
Ask yourself “What if I choose this option consistently
over time?”

Candidate Ethical Principles
 Help determine actions when confronted with an ethical
dilemma:
 Golden Rule – Do unto others as you would have them do unto you.
 Universalism – If an action is not right for all situations, then it is not
right for any certain situation.
 Slippery Slope – If an action can’t be taken repeatedly, then it is not
right to take at all.
 Collective Utilitarian Principle – Take the action that achieves the
greater value for all of society.
 Risk Aversion – Take the action that produces the least harm, or the
least potential cost.
 No Free Lunch – If something someone else has created is useful to
you, it has value and you should assume the creator wants
compensation for this work.
 The New York Times Test (Perfect Information Rule) – Given your
decision on a matter, will the reaction of readers be positive or
negative?
 The Social Contract Rule – Would you live in a society where the
principle you are supporting would become an organizing principle of
the entire society?


6

Privacy and Information Rights
 Privacy
 Moral right of individuals to be left alone, free from
surveillance, or interference from other individuals or
organizations
 Information privacy
 Subset of privacy

 Includes:
 The claim that certain information should not be collected at all
 The claim of individuals to control the use of whatever
information is collected about them


Privacy and Information Rights (cont.)
 Major ethical issue related to e-commerce
and privacy:
 Under what conditions should we invade the privacy of
others?
 Major social issue:
 Development of “expectations of privacy” and privacy
norms
 Major political issue:
 Development of statutes that govern relations between
recordkeepers and individuals


7

Information Collected at
E-commerce Sites
 Data collected includes
 Personally identifiable information (PII) - Data that can be
used to identify, locate, or contact an individual (see next
Fig.)
 Anonymous information - Demographic and behavioral
information that does not include any personal identifiers
(e.g., age, occupation, income, zip code, ethnicity)
 Types of data collected
 Name, address, phone, e-mail, social security
 Bank and credit accounts, gender, age, occupation, education
 Preference data, transaction data, clickstream data, browser
type



8



9

Social Networks and Privacy
 Social networks
 Encourage sharing personal details
 Pose unique challenge to maintaining privacy

 Facebook’s facial recognition
technology and tagging
 Personal control over personal
information vs. organization’s desire to
monetize social network

Profiling and Behavioral Targeting
 Profiling
 Creation of digital images that characterize online individual and
group behavior
 Anonymous profiles
 Identify people as belonging to very specific and targeted groups
 E.g., 20-30-yr-old males, with college degrees and income >$30,000/yr, and
interested in high-fashion clothing
 Personal profiles
 Add personal identifiers (email, postal address, phone number) to behavioral data

 Advertising networks can
 Track consumer and browsing behavior on Web
 Dynamically adjust what user sees on screen
 Build and refresh profiles of consumers
 Google’s AdWords program

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Profiling and Behavioral Targeting (cont.)
 Deep packet inspection
 Records every keystroke at ISP level of everyone and uses
information to make suggestions and target ads
 Business perspective:
 Increases effectiveness of advertising, subsidizing free content
 Enables sensing of demand for new products and services
 Critics’ perspective:
 Undermines expectation of anonymity and privacy
 Consumers
 show significant opposition to unregulated collection of
personal information


The Internet and Government
Invasions of Privacy
 Various laws strengthen ability of law enforcement
agencies to monitor Internet users without knowledge
and sometimes without judicial oversight
 CALEA, USA PATRIOT Act, Cyber Security Enhancement Act,
Homeland Security Act

 Government agencies are largest users of private sector
commercial data brokers, e.g., Experian and TransUnion
 Retention of individual’s online behavior data by ISPs
raises privacy concern


11

Legal Protections
 In United States, privacy rights explicitly
granted or derived from:
 Constitution
 First Amendment—guarantees freedom of speech
and association
 Fourth Amendment—protects against unreasonable
search and seizure of one’s personal documents or
home
 Fourteenth Amendment—guarantees due process
 Specific statutes and regulations (federal and
state)
 Common law – court decisions involving
wrongful acts or personal injuries


12



13

Informed Consent
 U.S. firms can gather and redistribute
transaction information without individual’s
informed consent
 Illegal in Europe
 Informed consent:
 Opt-in – requires affirmative action by consumer to allow
collection and use of information
 Opt-out – default to collect information unless consumer
takes affirmative action to prevent collection of data by
checking a box or filling out form
 Many U.S. e-commerce firms merely publish information
practices as part of privacy policy without providing for any
form of informed consent

The FTC’s Evolving Privacy Approach
 Fair Information Practice principles (1998)
 Notice
 Choice
 Access
 Security
 Enforcement
 Restricted collection

 New privacy framework (2010)
 Privacy by design
 Simplified choice
 Greater transparency

14

Notification and Choice
Strengthen the FIP’s
Added to
the FIP’s


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16

The European Data
Protection Directive
 Privacy protection much stronger in Europe than
United States
 European approach:
 Comprehensive and regulatory in nature
 European Commission’s Directive on Data
Protection (1998):
 Standardizes and broadens privacy protection in European Union
countries
 Department of Commerce safe harbor program:
 For U.S. firms that wish to comply with directive


Private Industry Self-Regulation
 Safe harbor programs:
 Private, self-regulating policy mechanism to meet objectives
of government regulations without government involvement
 e.g., Privacy seal programs
 Industry associations include:
 Online Privacy Alliance (OPA)
 Encourages self-regulation as a reaction to growing public
concerns
 Developed online “seals” that attest to privacy policies on a site
 E.g., privacy seal programs (TRUSTe, BBB Reliability Seal)
 Network Advertising Initiative (NAI)
 Formed by advertising network industry
 Developed privacy principles in conjunction with FTC
 Members include DoubleClick, Advertising.com, and 24/7 Real
Media
 CLEAR Ad Notice Technical Specifications

17

Private Industry Self-Regulation
 Privacy advocacy groups
 Monitor developments in privacy

 Emerging privacy protection business
 E.g., reputation.com, SocialShield, Abine

Technological Solutions
 Spyware blockers
 Pop-up blockers
 Secure e-mail
 Anonymous remailers, surfing
 Cookie managers
 Disk/file erasing programs
 Policy generators
 Privacy Policy Reader/P3P
 Public key encryption
(see next Fig.)

18


How P3P Works

Figure 8.2(A), Page 522 SOURCE: W3C Platform for Privacy Preferences Initiative, 2003.

19

Intellectual Property Rights
 Intellectual property:
 Encompasses all tangible and intangible products of
human mind
 Major ethical issue:
 How should we treat property that belongs to others?

 Major social issue:
 Is there continued value in protecting intellectual
property in the Internet age?
 Major political issue:
 How can Internet and e-commerce be regulated or
governed to protect intellectual property?

Intellectual Property Protection
 Three main types of protection:
 Copyright
 Patent
 Trademark law

 Goal of intellectual property law:
 Balance two competing interests—public and private

 Maintaining this balance of interests is
always challenged by the invention of new
technologies


20

Copyright
 Protects original forms of expression (but not ideas) from
being copied by others for a period of time
 E.g., writings, art, drawings, and music
 95-year protection for corporate-owned works, or life + 70-
year protection of individual’s works
 “Look and feel” copyright infringement lawsuits involve
distinction between an idea and its expression
 E.g., Apple sued Microsoft and HP for infringing Apple’s
copyright on Macintosh interface
 Fair use doctrine : Under certain circumstances, permits use
of copyrighted materials without permission (see next Fig.)
 Digital Millennium Copyright Act, 1998
 First major effort to adjust copyright laws to Internet age
 Implements WIPO treaty that makes it illegal to make, distribute, or
use devices that circumvent technology-based protections of
copyrighted materials


21


Patents
 Grant owner 20-year monopoly on ideas behind an
invention
 Different from copyrights since patents protect idea and not just
expression of idea
 Four types of inventions: Machines, Man-made products,
Compositions of matter, Processing methods
 Invention must be new, non-obvious, novel
 Benefits
 Encourages inventors
 Promotes dissemination of new techniques through licensing
 Danger
 Stifles competition by raising barriers to entry


22

E-commerce Patents
 1998 State Street Bank & Trust vs. Signature Financial
Group
 Business method patents
 U.S. Patent Office, European Patent Convention hold
different standards
 Most European patent laws do not recognize business
methods unless based on technology
 Patent reform
 Patent trolls: companies that buy patents on a speculative basis
and then use them to threaten other companies violating the patent
 2011 America Invents Acts
 Switch from “first-to-invent” to “first-to-file” system
 New ways to challenge patents out of court
 Allow startup firms to get fast-track consideration of their patent
applications, within 12 months, rather than 30-plus months

Internet and E-commerce Business Method Patents

Figure 8.2, Page 576 SOURCE: Based on data from United States Patent and Trademark Office, 2010.

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24

Trademarks
 Identify, distinguish goods, and indicate their source
 Purpose
 Ensure consumer gets what is paid for/expected to receive
 Protect owner against piracy and misappropriation
 Infringement
 Market confusion: creating confusion with existing marks, causes
consumers to make market mistakes
 Bad faith: intentional misuse of words and symbols to extort
revenue from legitimate trademark owners
 Dilution
 Behavior that weakens connection between trademark and product
 Blurring – weakening connection between trademark and goods
 Tarnishment – using trademark in a way that makes underlying
products appear unsavory or unwholesome

Trademarks and the Internet
 Cybersquatting
 Anticybersquatting Consumer Protection Act (ACPA)

 Cyberpiracy
 Typosquatting

 Metatagging
 Keywording
 Deep linking
 Framing


25


Governance
 Primary questions
 Who will control Internet and e-commerce?
 What elements will be controlled and how?

 Stages of governance and e-commerce
 Government Control Period (1970–1994)
 Privatization (1995–1998)
 Self-Regulation (1995–present)
 Government Regulation (1998–present)


26


Who Governs E-commerce
and the Internet?
 Currently: Mixed mode environment
 Self-regulation, through variety of Internet policy
and technical bodies, co-exists with limited
government regulation
 ICANN : Domain Name System
 Internet could be easily controlled,
monitored, and regulated from a central
location , e.g., network access points,
routers, and servers (e.g., China, Singapore,
Thailand etc.)

27

Taxation
 E-commerce taxation illustrates complexity of
governance and jurisdiction issues
 U.S. sales taxed by states and local government
 MOTO retailing
 E-commerce benefits from tax “subsidy”
 October 2007: Congress extends tax moratorium for
an additional seven years
 Unlikely that comprehensive, integrated rational
approach to taxation issue will be determined for
some time to come

Net Neutrality
 Neutrality: All Internet traffic treated
equally—all activities charged the same rate, no
preferential assignment of bandwidth
 Backbone providers vs. content providers
 December 2010 FCC approved “compromise” net
neutrality rules; prohibit ISPs from blocking traffic
such as Skype on wired networks, and prohibit
“unreasonable” discrimination on such networks
 Telecom providers adopting compromise position
between wired and mobile wireless access: maintain
existing rules for land lines, but implement
differential pricing for mobile wireless networks, e.g.,
$15/month for 200MB of data to $45/month for 4GB

28

Public Safety and Welfare
 Protection of children and strong
sentiments against pornography
 Passing legislation that will survive court
challenges has proved difficult
 Efforts to control gambling and restrict
sales of drugs and cigarettes
 Currently, mostly regulated by state law
 Unlawful Internet Gambling Enforcement Act



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08 Ethics, Law and E-commerce

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