08 Ethics, Law and E-commerce

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e-commerce

Kenneth C. LaudonCarol Guercio Traver

business. technology. society.

eighth edition

Copyright © 2012 Pearson Education

Chapter 8Ethics, Law and E-commerce

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Why is “mischief” in virtual worlds more difficult to stop? What constitutes mischief in Second Life?

Which behaviors have been banned in Second Life?

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?

How faithfully do you believe the law should be enforced in virtual worlds?

It’s in virtual world; Selling brand-name goods, conducting gambling, sellingsimulated prostitution service

Intolerance, harassment, assault, disclosure of information about other people’s real-world lives, indecency sexual behavior, and disturbing the peace

No. They prohibited all forms of gambling in July 2007

Discovering Law and Ethics in a Virtual WorldClass Discussion


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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.):EnablenewcrimesAffectenvironmentThreatensocialvalues

Costs and benefits must be carefully considered, especially when there are no clear-cut legal or cultural guidelines

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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: Informationrights– individualrightstotheirpersonalinfoinpublicmarketplaceandrightstoaccessinfoaboutbusinessandotherorganizations

Propertyrights– enforcementoftraditionalintellectualpropertyrightsinInternetworldwhereperfectcopiescanbemadeanddistributedworldwidewithinseconds

Governance– publiclawstogovernInternetande-commerce,andthelaw-makingbodies(state,federal,international)whohavejurisdiction

Publicsafetyandwelfare– toensureequitableaccesstoInternetande-commercechannelsbyschoolsandcolleges,ortodetermineifpornographyandgamblingarethreattopublicsafetyandwelfare

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The Moral Dimensions of an Internet Society

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Basic Ethical Concepts Ethics

Studyofprinciplesusedtodeterminerightandwrongcoursesofaction

Responsibility individuals,organizations,andsocietiesareresponsibleforactionstheytake

Accountability individuals,organizations,andsocietiesshouldbeheldaccountabletoothersfortheconsequencesoftheiractions

Liability Lawspermittingindividualstorecoverdamagesdonetothem

Due process Lawsareknown,understood Abilitytoappealtohigherauthoritiestoensurelawsappliedcorrectly

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Analyzing Ethical Dilemmas Dilemma

Asituationwherethereareatleasttwodiametricallyopposedactions,eachofwhichsupportsadesirableoutcome

Process for analyzing ethical dilemmas:1. Identifyandclearlydescribethefacts:Findoutwho

didwhattowhom,andwhere,when,andhow2. Definetheconflictordilemmaandidentifythehigher-

ordervaluesinvolved:E.g.,advertisingnetworks(DoubleClick)increasesmarketefficiencyatthepriceofindividualprivacy

3. Identifythestakeholders4. Identifytheoptionsthatyoucanreasonablytake5. Identifythepotentialconsequencesofyouroptions:

Askyourself“WhatifIchoosethisoptionconsistentlyovertime?”

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Help determine actions when confronted with an ethical dilemma: GoldenRule– Dountoothersasyouwouldhavethemdountoyou. Universalism– Ifanactionisnotrightforallsituations,thenitisnotrightforanycertainsituation.

SlipperySlope– Ifanactioncan’tbetakenrepeatedly,thenitisnotrighttotakeatall.

CollectiveUtilitarianPrinciple– Taketheactionthatachievesthegreatervalueforallofsociety.

RiskAversion– Taketheactionthatproducestheleastharm,ortheleastpotentialcost.

NoFreeLunch– Ifsomethingsomeoneelsehascreatedisusefultoyou,ithasvalueandyoushouldassumethecreatorwantscompensationforthiswork.

TheNewYorkTimes Test(PerfectInformationRule)– Givenyourdecisiononamatter,willthereactionofreadersbepositiveornegative?

TheSocialContractRule– Wouldyouliveinasocietywheretheprincipleyouaresupportingwouldbecomeanorganizingprincipleoftheentiresociety?

Candidate Ethical Principles

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Privacy and Information Rights

PrivacyMoralrightofindividualstobeleftalone,freefromsurveillance,orinterferencefromotherindividualsororganizations

Information privacy Subsetofprivacy Includes:

Theclaimthatcertaininformationshouldnotbecollectedatall

Theclaimofindividualstocontroltheuseofwhateverinformationiscollectedaboutthem

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Privacy and Information Rights (cont.)

Major ethical issue related to e-commerce and privacy: Underwhatconditionsshouldweinvadetheprivacyofothers?

Major social issue: Developmentof“expectationsofprivacy”andprivacynorms

Major political issue: Developmentofstatutesthatgovernrelationsbetweenrecordkeepersandindividuals

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Information Collected at E-commerce Sites

Data collected includes Personallyidentifiableinformation(PII)- Datathatcanbeusedtoidentify,locate,orcontactanindividual(seenextFig.)

Anonymousinformation- Demographicandbehavioralinformationthatdoesnotincludeanypersonalidentifiers(e.g.,age,occupation,income,zipcode,ethnicity)

Types of data collected Name,address,phone,e-mail,socialsecurity Bankandcreditaccounts,gender,age,occupation,education Preferencedata,transactiondata,clickstreamdata,browsertype

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Social Networks and Privacy

Social networksEncouragesharingpersonaldetailsPoseuniquechallengetomaintainingprivacy

Facebook’s facial recognition technology and tagging

Personal control over personal information vs. organization’s desire to monetize social network

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Profiling and Behavioral Targeting Profiling

Creationofdigitalimagesthatcharacterizeonlineindividualandgroupbehavior

Anonymousprofiles Identifypeopleasbelongingtoveryspecificandtargetedgroups E.g.,20-30-yr-oldmales,withcollegedegreesandincome>$30,000/yr,andinterestedinhigh-fashionclothing

Personalprofiles Addpersonalidentifiers(email,postaladdress,phonenumber)tobehavioraldata

Advertising networks can TrackconsumerandbrowsingbehavioronWeb Dynamicallyadjustwhatuserseesonscreen Buildandrefreshprofilesofconsumers

Google’s AdWords program

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Profiling and Behavioral Targeting (cont.)

Deep packet inspection RecordseverykeystrokeatISPlevelofeveryoneandusesinformationtomakesuggestionsandtargetads

Business perspective: Increaseseffectivenessofadvertising,subsidizingfreecontent Enablessensingofdemandfornewproductsandservices

Critics’ perspective: Underminesexpectationofanonymityandprivacy

Consumers showsignificantoppositiontounregulatedcollectionofpersonalinformation

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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,USAPATRIOTAct,CyberSecurityEnhancementAct,HomelandSecurityAct

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

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Legal Protections In United States, privacy rights explicitly

granted or derived from:Constitution

FirstAmendment—guaranteesfreedomofspeechandassociation

FourthAmendment—protectsagainstunreasonablesearchandseizureofone’spersonaldocumentsorhome

FourteenthAmendment—guaranteesdueprocessSpecificstatutesandregulations(federalandstate)

Commonlaw– courtdecisionsinvolvingwrongfulactsorpersonalinjuries

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Informed Consent U.S. firms can gather and redistribute

transaction information without individual’s informed consent IllegalinEurope

Informed consent: Opt-in– requiresaffirmativeactionbyconsumertoallowcollectionanduseofinformation

Opt-out– defaulttocollectinformationunlessconsumertakesaffirmativeactiontopreventcollectionofdatabycheckingaboxorfillingoutform

ManyU.S.e-commercefirmsmerelypublishinformationpracticesaspartofprivacypolicywithoutprovidingforanyformofinformedconsent

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The FTC’s Evolving Privacy Approach Fair Information Practice principles (1998)

Notice Choice Access Security Enforcement Restrictedcollection

New privacy framework (2010) Privacybydesign Simplifiedchoice Greatertransparency

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The European Data Protection Directive

Privacy protection much stronger in Europe than United States

European approach: Comprehensiveandregulatoryinnature

European Commission’s Directive on Data Protection (1998): StandardizesandbroadensprivacyprotectioninEuropeanUnioncountries

Department of Commerce safe harbor program: ForU.S.firmsthatwishtocomplywithdirective

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Private Industry Self-Regulation Safe harbor programs:

Private,self-regulatingpolicymechanismtomeetobjectivesofgovernmentregulationswithoutgovernmentinvolvement

e.g.,Privacysealprograms Industry associations include:

OnlinePrivacyAlliance(OPA) Encouragesself-regulationasareactiontogrowingpublicconcerns

Developedonline“seals”thatattesttoprivacypoliciesonasite E.g.,privacysealprograms(TRUSTe,BBBReliabilitySeal)

NetworkAdvertisingInitiative(NAI) Formedbyadvertisingnetworkindustry DevelopedprivacyprinciplesinconjunctionwithFTC MembersincludeDoubleClick,Advertising.com,and24/7RealMedia

CLEARAdNoticeTechnicalSpecificationsSlide 8-36

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Private Industry Self-RegulationPrivacy advocacy groupsMonitordevelopmentsinprivacy

Emerging privacy protection businessE.g.,reputation.com,SocialShield,Abine

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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

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How P3P Works

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

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Intellectual Property Rights

Intellectual property: Encompassesalltangibleandintangibleproductsofhumanmind

Major ethical issue: Howshouldwetreatpropertythatbelongstoothers?

Major social issue: IstherecontinuedvalueinprotectingintellectualpropertyintheInternetage?

Major political issue: HowcanInternetande-commerceberegulatedorgovernedtoprotectintellectualproperty?

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Intellectual Property Protection

Three main types of protection: Copyright Patent Trademarklaw

Goal of intellectual property law: Balancetwocompetinginterests—publicandprivate

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

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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.,ApplesuedMicrosoftandHPforinfringingApple’scopyrightonMacintoshinterface

Fair use doctrine : Under certain circumstances, permits use of copyrighted materials without permission (see next Fig.)

Digital Millennium Copyright Act, 1998 FirstmajorefforttoadjustcopyrightlawstoInternetage ImplementsWIPOtreatythatmakesitillegaltomake,distribute,orusedevicesthatcircumventtechnology-basedprotectionsofcopyrightedmaterials

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Patents Grant owner 20-year monopoly on ideas behind an

invention Differentfromcopyrightssincepatentsprotectideaandnotjustexpressionofidea

Fourtypesofinventions: Machines,Man-madeproducts,Compositionsofmatter,Processingmethods

Inventionmustbenew,non-obvious,novel

Benefits Encouragesinventors Promotesdisseminationofnewtechniquesthroughlicensing

Danger Stiflescompetitionbyraisingbarrierstoentry

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E-commerce Patents 1998 State Street Bank & Trust vs. Signature Financial

Group Businessmethodpatents

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 Patenttrolls:companiesthatbuypatentsonaspeculativebasisandthenusethemtothreatenothercompaniesviolatingthepatent

2011AmericaInventsActs Switchfrom“first-to-invent”to“first-to-file”system Newwaystochallengepatentsoutofcourt Allowstartupfirmstogetfast-trackconsiderationoftheirpatentapplications,within12months,ratherthan30-plusmonths

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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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Trademarks Identify, distinguish goods, and indicate their source Purpose

Ensureconsumergetswhatispaidfor/expectedtoreceive Protectowneragainstpiracyandmisappropriation

Infringement Marketconfusion:creatingconfusionwithexistingmarks,causesconsumerstomakemarketmistakes

Badfaith:intentionalmisuseofwordsandsymbolstoextortrevenuefromlegitimatetrademarkowners

Dilution Behaviorthatweakensconnectionbetweentrademarkandproduct Blurring– weakeningconnectionbetweentrademarkandgoods Tarnishment – usingtrademarkinawaythatmakesunderlyingproductsappearunsavoryorunwholesome

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Trademarks and the Internet

Cybersquatting AnticybersquattingConsumerProtectionAct(ACPA)

Cyberpiracy Typosquatting

Metatagging Keywording Deep linking Framing

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Governance

Primary questionsWhowillcontrolInternetande-commerce?Whatelementswillbecontrolledandhow?

Stages of governance and e-commerceGovernmentControlPeriod(1970–1994)Privatization(1995–1998)Self-Regulation(1995–present)GovernmentRegulation(1998–present)

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Who Governs E-commerceand the Internet?

Currently: Mixed mode environment Self-regulation,throughvarietyofInternetpolicyandtechnicalbodies,co-existswithlimitedgovernmentregulation

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.)

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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

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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

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Public Safety and Welfare

Protection of children and strong sentiments against pornographyPassinglegislationthatwillsurvivecourtchallengeshasproveddifficult

Efforts to control gambling and restrict sales of drugs and cigarettesCurrently,mostlyregulatedbystatelawUnlawfulInternetGamblingEnforcementAct

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08 Ethics, Law and E-commerce

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