Chapter 10: The Political, Legal, and Ethical Environment

LEARNING OBJECTIVES(1): • Explain the role that some governments are taking to foster the growth of the Internet and e-business. • List and explain the major legal issues related to e-business. • Outline the major types of fraud undertaken online and what is being done to limit fraud. • Discuss how each of the intellectual property areas are impacting e-business. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

LEARNING OBJECTIVES (2) • Explain why jurisdiction is a problem for legal authorities • List and explain the ethical considerations impacting the Internet. • Discuss why privacy is an issue in Internet use and what e-businesses can do about it. • Compare and contrast the economic welfare concerns related to the Internet. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Vignette: eBay (1) • Thinking Strategically • Consider if society is better off because of the introduction of eBay. • Discuss both sides of this economic welfare question. • Consider why a government would be interested in fostering the growth of a business like eBay. • Decide what type of government action would benefit e-businesses like eBay and what government actions would limit e-businesses. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Vignette: eBay (2) • Thinking Strategically • Discuss if it is proper for e-businesses to capture data on their customer’s shopping behavior and personal profiles. • Determine how a customer could benefit from an e-businesses use of this data and how a customer could be damaged. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Political, Legal, and Ethical Environments • The political and legal environment: • Represents the rules by which businesses and society operates. • Social goal is to increase the overall economic welfare or the net benefits an economic system provides to a society. • Ethics • The study of how individuals or businesses make decisions given the consequences of those decisions For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Political Environment • Governments serve and protect constituencies: • Constituencies are those people that are involved with or served by an organization. • To avoid regulation, the Internet industry is in favor of self-regulation and software solutions rather than government intervention. • Internet constituencies include: governments, businesses, customers, ISPs, schools, families, children, and others impacted by changes in telecommunications. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

National Telecommunications and Information Administration (1) • The U.S. NTIA has set forth five primary principles for global electronic commerce: • The private sector should take the lead in developing Internet based commerce. • Governments should avoid undue restrictions on Internet based commerce. • Governments should recognize that the Internet is a unique medium and should not have the same regulations as other media. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

National Telecommunications and Information Administration (2) • The U.S. NTIA has set forth five primary principles for global electronic commerce: • Government intervention should be focused on ensuring competition, protecting intellectual property and privacy, preventing fraud, fostering transparency, supporting commercial transactions, and facilitating dispute resolution. • Electronic commerce should be facilitated on a global basis. www.ntia.doc.gov For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Cybercrime (1) • Cybercrime: criminal activity on the Net. • Hackers are individuals who attempt to break through online firewalls for pleasure or profit. • Infrastructure attack occurs when an individual interferes with the operations of a computer system. • Economic Espionage occurs when individuals steal intellectual property. They "hack" their way into computer networks. • Companies defend against hacking by using firewalls and ethical hackers. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Case 10.1 : Fingered on the Net • Thinking Strategically • Describe some of the damage that could result from the creation of the Melissa virus. • Explain why an individual would want to create a virus and release it on the Internet. • Describe the damage the resulted from the threatening email messages sent to the high school. • Explain why an individual would want to send such an email. Explain how the publicity about the rapid capture of these individuals may effect future attacks over the Internet. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Intellectual Capital • Intellectual Capital refers to the ownership of a company's knowledge, the results of ideas and creativity, and the symbols that represent products, companies or brands. • Includes • Copyrights • Trademarks • Trade Secrets Laws • Patents For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Copyrights (1) • A copyright protects “original works of authorship” including literary, dramatic, musical, artistic, and certain other intellectual works. This protection is available to both published and unpublished works. • Internet content such as pictures and graphic files, sound files, text, or programs are likely copyrighted by other companies or individuals. • The ability to copy and transfer digital information makes copyright violations relatively simple. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Copyrights (2) • Businesses that develop Web sites must be sure that they are not violating copyrights when they develop content. • There are numerous sources of copyright free material on the Internet or material can be purchased on CDs. • They should also be concerned that they do not develop links to third party sites that engage in copyright violations. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Trademarks • A trademark or service mark refers to any word, name, symbol or device which is used to indicate the source or origin of goods or services and which distinguishes one company, goods, or services from others. • Trademark rights cover such practices as preventing others from using a confusingly similar mark, dilution of the trademark, and unfair use of the trademark. • Using non-owned trademarked names in meta tags is a trademark violation and could result in a cease-and- desist order or a lawsuit For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Trade Secrets • Trade secret laws protect non-publicly disclosed inventions, ideas, or information held in a firm that make it unique or give it an advantage over other firms. • If trade secrets are placed on a Web site they may no longer be considered as trade secrets. • Non-compete and non-competitive agreements preventing individuals from using information or working for rival firms. • Nondisclosure agreements prevent employees from spreading trade secrets. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Patents • Patents allow for individuals or firms to monopolize or gain exclusive rights to the use of an invention. • Software patents have grown from 1,300 issued in 1990 to almost 12,000 by 1997. • Patenting of business methods: (Case: State Street Bank & Trust Co. vs. Signature Financial Group) • Priceline (www.priceline.com) controls the process where consumers submit prices they are willing to pay to a business, and where the business can then accept or reject online bids. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Protecting Intellectual Property • Obtain copyright releases from all independent contractors and sub-contractors. • Place a copyright notice on the Web page such as: © 2000, South-Western Publishing. This serves as notice. • For extra protection, register the site with the Copyright Office. • Use a legal page so users see the rules for using the site. This should include notices about downloading material from the site, especially material owned by third parties. • Obtain written permission before using any other Web site's material or when developing links to those sites For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Legal Jurisdiction • Three levels of United States law: • Federal: regulations cross state borders • State: govern the actions within the state's borders. • Local: allows communities to self govern. • Problem: Enforcement of laws and regulations occur within each jurisdiction: • In some states it is legal to gamble • Australian government is moving to allow legalized online gambling sites • Some states allow sales of alcohol online. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Case 10.2: A Tail of Two Nations • Thinking Strategically • Compare and contrast the ability of U.S. businesses and European businesses to engage in e-business. • Explain why a standardized set of regulations for all nations engaging in e-business is important. • List some of the problems nations that try to limit e-business will face. • Speculate on the economic welfare implications for each economy. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Netiquette (1) • Netiquette: proper etiquette over networks. • This includes the rules for common courtesy online and the informal "rules of the road" for cyberspace. • Basic considerations of going online with email are: • Be respectful of others online. Behave as if you were having a conversation with someone in person. • The Internet is a global medium, others online may have a culture, language, and humor that is different from the sender. Jokes and sarcasm may not travel well. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Netiquette (2) • Basic considerations of going online (continued) • Respect the copyright on material reproduced. • Don't send chain letters through e-mail. Chain letters are forbidden on the Internet. • When in a chat group, observe the discussion to get a feel for the group culture before making comments. • Use mixed case. UPPER CASE LOOKS AS IF YOU'RE SHOUTING. • Keep file sizes small. • Don't send large amounts of unsolicited information to people. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Rumors • The ease of posting information over the Internet allows for the dissemination of rumors. • This could be due to the lack of research undertaken by the sender of information, or it could be purposeful sending of misinformation. • Internet users to learn to gain a critical eye for information sent over the Internet. • Consumers of Internet information learn "Net Literacy" or how to evaluate information that they find online. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Spam • Spam is the practice of sending unwanted email to a large number of individuals. • Spam is unlike postal junk mail, e-mail spammers do not need to purchase postage for every message sent and therefore are able to greatly expand the number of people they can reach. This shifts costs from the sender to the network and receiver. • Spammers believe that the more email sent, the better their chances. Mail Abuse Prevention System (MAPS) (http://maps.vix.com) For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Ethical Environment • Ethics is the study of how individuals or businesses make decisions given the consequences of those decisions. • It helps to answer the questions of: "What should I do? What should my business do?" • Ethical dilemma: "What will be the consequences of my actions?" • This is where conflicting concerns may surface such as: the action undertaken may increase the overall returns to a business, but hurt some other constituency in the process. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Privacy • In the U.S. 78 percent of individuals would use the Web more if their privacy was protected and close to 50 percent indicate that the government should pass laws protecting privacy. • U.S. consumers are willing to provide data for customizable services and for other uses where they see benefits. • European Union regulations stipulate that data on EU citizen's cannot be sent to countries that do not provide the same level of protection as EU member countries. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Developing Privacy Policies For Children Sites • Information directed toward parents should disclose: • Who is collecting the data • What information is to be collected • How will this data be disclosed to any third parties (for children sites the parent's permission must be obtained). • How can the user control the use of that information. • Do not link to other Web sites that do not comply with FTC or CARU's guidelines. http://home.snap.com/main/register/problems/0,135,home-0,00.html?st.sn.ft.0.prv For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Employee Privacy (1) • The privacy rights that an individual may enjoy in the public domain do not necessarily apply when that individual is employed at a job. • The Electronic Communications Privacy Act gave U.S. employers the right to monitor and control what employees do with private property such as computers and telephones. • An employee's Web surfing and email can be monitored by a business. Businesses should post a policy warning to avoid possible liability. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Employee Privacy (2) • Companies have options other than just posting notices of proper surfing. • Monitoring and filtering software can be used to track and block Web users in a business. • A business must balance out its desire to conserve resources with its need to treat employees as adults and with its needs to have employees learn to use the Internet as an information gathering tool. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Pornography • A number of countries have shifted the burden of censoring the Internet to the local ISPs shifting the burden of information access from the individual or family to a third party. • Filters can be used on a PC or server to block access to sites considered to be pornographic. • Filtering software uses a database of sites considered to be unacceptable or they use a rating systems to allow acceptable pages to pass. This can be a problem because only a small percentage of all Web pages have been rated. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Free Speech • Large media companies no longer control widely broadcast public speech. Small independent communications systems have shifted power. • Political elections around the world have demonstrated that candidates are able to use the Internet to spread information at a fairly low cost. • Political thoughts can also travel across borders allowing dissidents, human rights information, and alternative political parties to provide information to those who gain access to the Web. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

The Digital Divide (1) Access & Equity • Disparity of access exists along racial and income lines. • White households have greater access to phone service (96 percent for whites and 86 for non-whites) and have a 21 percent higher PC ownership than non-whites. • Grade school whites may be up to three times more likely to have Internet access at home than minority students. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

The Digital Divide (2) Access & Equity • More disparity exists between those with higher incomes using the Internet more. • The greatest disparity is age based. Only 5 percent of Americans between 55 and 64 have online services and for those over 65 less than 3 percent have access • The United States Federal Government has attempted to address this problem by implementing the E-rate program. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

ALE 10.1: Ethical Analysis • Use the following table to evaluate the ethical implications of e-business practices. List both advantages and disadvantages in each cell. Identify the ethical dilemmas that can be found when the advantages in some cells conflict with the disadvantages in others. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

ALE 10.2: Web Site Analysis • Visit a Web site and identify all of the components that have some legal aspect: • Are there links to other sites? • Are there images that may be copyrighted? • Does the site use trade names? • Does the site collect information on individuals? • Visit a Web site that has a “terms of use” section. Explain how does these statements protect the Web site. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Exercise 10.3: Privacy Policies • Visit a Web site with a privacy statement. Identify if the policy complies with the suggestions outlined in table below taken from Table 10.5. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing

Chapter 10: The Political, Legal, and Ethical Environment