Chapter 11

The Environment of Electronic

Commerce: International, Legal,
Ethics, and Tax Issues

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 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 flat-
rate 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 subject-
matter 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 e-
mail 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:
– 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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