GLOBAL LEGAL ISSUES OF E-COMMERCE - 2

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E-COMMERCE IT430

Lesson 45

GLOBAL LEGAL ISSUES OF E-COMMERCE

Patent infringement

A patent is an exclusive right granted by law to make, use and sell an invention. In order to be

patentable, the invention must be unique, genuine, and useful according to the prevalent technological

standards. Patenting software programs is not considered a popular option these days. Firms, which

had developed software programs for web sites, have experienced that obtaining a software patent is

expensive and quite time consuming. Therefore, registration of software programs is

considered a more feasible option. It may, however, be interesting to talk about `business process

patents' which have value for e-commerce companies. These patents are granted on `methods of doing

business', and protect a specific set of procedures for doing a certain business activity. For instance, a

famous online business has conceived a unique 1-click purchasing method. Another e-business has a

peculiar price tendering system (`name your own price' system). Similarly, an online business uses a

specific approach of aggregating information from different web sites. The aforesaid businesses have

found their respective business process patents to be quite useful. However, in the opinion of some

experts the grant of such business process patents can cause unfair monopoly of the recipients. The

courts have yet to decide complicated issues involving business process patents.

Trade mark and domain name conflicts

A trade mark is that sign/symbol that associates the manufacturer or service provider with the

manufactured goods or services, respectively. For instance, where the letter `u' is written in a particular

style (say in a circle) on the product packaging, it can be termed as a trade mark. A trade name is that

name or brand under which a business carries on its business activity to become recognizable. Often, a

trade name can be used as a part of the trade mark. A domain name is the user friendly name used to

access a web site, such as `vu.edu'. Domain names are unique and global in nature which means that

there cannot be two similar domain names. On the other hand, trade marks/trade names can be

multiple and localized. Thus, same trade mark/trade name can be used in relation to the same

product/service in different countries or geographical areas. Similarly, same trade mark/trade name can

be used in relation to different products/services within the same geographical area. Based upon this

distinction between trade marks/trade names and the domain names, the experts have identified four

areas of conflict as follows:

Cyber squatting

The act of intentionally registering domain names containing trademarks/trade names of prominent

companies to later blackmail or demand ransom from those companies is called cyber squatting. It is

regarded as an offence in most countries. Assume there is a firm `Glory Enterprise' and it wants to have

its web site. It also wants to have the word `glory' as a part of its domain name because for years it has

been recognized in the physical world through this word. However, at the time of registration of its

domain name it finds that a person Mr. `A' who has nothing to do with the business of the firm or the

word `glory' has already registered a domain name containing this word as a part of it. Since there

cannot be two similar domain names, the firm is forced to request Mr. `A' to transfer that domain name

to it. In response, if Mr. `A' blackmails or claims ransom from the said firm, he would be said to have

committed cyber squatting.

Concurrent use

This problem arises when two organizations have apparently legitimate claim to use the same domain

name but cannot do so due to the uniqueness of domain names. Suppose, there is a company

manufacturing electronic goods and another company selling French fries. Under the traditional trade

mark law both these companies can have the same trade mark/trade name such as `frys'. The problem

arises when both apply for the registration of a domain name containing the word `frys'. Here, both are

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legitimate claimants of this domain name but due to the element of uniqueness of domain names only

one of them can be assigned the desired domain name.

Parasites

Parasite domain names are variants on famous domain names, and are confusingly similar to them to

gain business advantage. For instance, a software company may intentionally register a domain name as

`macrosoft.com' (a variant of domain name of the famous company `Microsoft') to take advantage of

the reputation of `Microsoft'. The idea is that someone intending to reach the web site of `Microsoft'

may mistype or misspell and reach the web site of `Microsoft', instead. xyz.com vs. xyz.org

This problem arises due to the fact that second level domain names can be assigned to multiple top-

level domains. For example, `whitehouse.org' and `whitehouse.com' are two valid domain names. The

former may take you to the web site containing information about the residence of the American

President, whereas the later may have been deliberately registered with the same second level domain

but a different top-level domain to gain business advantage. Thus, it is quite possible that a person

wishing to know about the residence of the American President reaches an irrelevant or pornographic

web site after typing the word `Whitehouse' on a search engine.

International Corporation for Assigned Names and Numbers (ICAAN), which supervises the task of

registration of domain names worldwide, has developed and implemented a policy known as Uniform

Dispute Resolution Policy (UDRP) for deciding domain name disputes. It enables trademark holders to

claim/retrieve domain names by invoking mandatory arbitration proceedings at different arbitration

forums or service providers. Arbitration is a legal concept in which parties, through an agreement,

appoint/nominate a person or a panel to act as a judge in the matter instead of referring the dispute to

the ordinary court of law. The decision of the arbitrator is regarded as final and binding on the parties.

World Intellectual Property Organization (WIPO) based in Switzerland is one such arbitration service

provider nominated under the UDRP.

Online Defamation

A defamatory statement is a false statement that injures the reputation of on another person or

company. If a statement injures the reputation of a product or service instead of a person, it is called

product disparagement. Suppose, someone circulates a news item in the media about the reputation of a

doctor, alleging him to be professionally incompetent and negligent. This doctor may then file a lawsuit

against that person claiming that his reputation has been injured due to such an act. Often, in cases of

defamation the plea taken by the defendant is that his statement is not false. Rather, it is a `fair

comment'. In case defamation is done using the internet, it is termed as online defamation. In countries

abroad, the courts are replete with cases of online defamation, mainly, because the person causing

defamation can expect to remain anonymous due to the nature of internet technology.

It is difficult to draw a clear line between justifiable criticism and defamation. So, commercial web sites

should avoid making negative or critical statements about other persons or products. Similarly, web site

designers should avoid any defamation liability when indulged in the alteration or modification of a

picture or image of a person. They should not depict such person in derogatory or negative sense.

Moreover, any online statement about the competitors must be carefully reviewed before posting it on

the web, lest it contains any element of defamation.

Closely connected with online defamation is the issue of liability of the internet service providers (ISPs).

ISPs provide the channel for communication. An ISP may be accused of aiding in the commission of

online defamation where it provides hosting service to a web site containing defamatory material.

Courts have prescribed a test in determining ISP's liability in such a case. Accordingly, where the ISP

has editing control; it can review any defamatory material and take it down from the web site; it should

be treated as a publisher. In such a case the ISP can be held liable for online defamation. Conversely,

where the ISP has no editing control over the offensive material posted on a web site; it would be

merely acting as a distributor. In such a case, the ISP can escape liability for online defamation.

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Online Privacy

Issue of online privacy is constantly evolving as internet grows as a tool of communication and

commerce. Due to the nature of internet technology, it is possible for web sites to collect information

about page viewing habits of visitors, product selection and demographic information (age, sex etc.)

about the customers. This may threaten informational privacy rights of such visitors/customers.

Cultural difference in different countries is the reason why there are different levels of expectations

about privacy in different parts of the world. Many countries have, today, privacy laws such as Canada,

European Union (EU) etc. Personal Information Protection and Electronic Documents Act, 2000

(PIPEDA) is the federal law in Canada in this regard. In 1998, the EU adopted a directive on the

protection of personal data, which gave the form of law to different constitutional guarantees/rights

about privacy existing in most European countries. This is applicable to all internet activities. The

directive also prevents businesses from exporting personal data outside EU unless this data is protected

in the exporting country according to the provisions of the directive. In the Unites States of America,

the government has avoided to introduce any firm privacy regulations. Companies in the U.S.A. are

entitled to make policies or devise mechanism to regulate privacy issues themselves. The companies

have adopted two different approaches in this regard, that is, opt-out approach and opt-in approach. In

more common opt-out approach, the company collecting information assumes that the customer does

not object to a specific use of information unless the customer specifically denies the permission. Thus,

the company may use the collected information for its own purpose, as well as, sell or rent it out to

other firms or persons.

In less common opt-in approach, the company collecting information assumes that it cannot use the

information for any other purpose except the one for which it is collected. Accordingly, it cannot sell,

market, or rent out this information to other firms/persons unless the customer specifically chooses to

allow such a use. Experts have highlighted four guiding principles to form the basis of any privacy

legislation. These are as follows:

collected data may be used for improved customer service;

sharing of personal data with outside firms/persons should not be allowed unless the customer

consents to that;

customers should have the right to receive information about what type of data has been

collected from them and in what manner has it been used;

customers should have the right to ask for the deletion of any of their data collected by the

company.

Internet Taxation

Companies doing business on the web are subject to same taxes as any other business. However,

traditional businesses operating at one location are subject to only one set of tax laws, but due to the

international scope of ecommerce, e-businesses might have to comply with multiple tax laws enforced

in different countries. An online business is subject to various taxes which include income tax,

transaction taxes and property tax. Income tax is levied by the national or state or local government

(where the business is located) on the net income generated by business activities. Transaction taxes

include sales tax and custom duties which are levied on the products or services a business sells. Sales

tax is levied on goods sold to customers. Traditionally, businesses have to file sales tax return with a

competent authority and remit sales tax which they have collected from their customers on the sale of

products or services. Custom duties are taxes levied or imposed by countries on the import of goods

into the country. Property taxes are imposed by a government (including a local government) on

personal property and real estate used in the business. Among these, income tax and sales tax are more

important.

Note that a government acquires the power to tax a business when that business establishes a

connection with the area controlled by such government. Thus, connection between a tax payer and a

government is called nexus. It is necessary to understand `nexus' in order to determine where a

particular tax has to be paid by an online business. E-businesses doing business in more than one

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country have to deal with the issue of nexus to know the governments/countries entitled to

levy/receive taxes from them. Generally, the principle is that if a company undertakes sufficient

business activities in a particular country it establishes nexus with that country and becomes liable for

filing returns in that country and it must comply with its tax laws. Therefore, an e-business may be

required to separately file tax returns and pay taxes in different countries. A web site maintained by a

company in the United States must pay income tax to the American government on income generated

inside and/or outside of the U.S.A. However, to avoid the issue of double taxation, the U.S. tax law

allows credit/refund for taxes paid (if any) to the foreign countries in relation to foreign earnings. It is

important for an online seller to know where the customer is located and what the law of sales tax is in

that country or jurisdiction to determine whether or not a particular item is subject to sales tax.

Cyber Crimes

The use of internet technology has given rise to crimes which could not be conceived of a few years

ago. Such crimes more suitably called cyber crimes include online fraud, online hate (spreading hatred

against a community through internet), cyber-stalking (sending threatening messages using internet),

online terrorism, distribution of pornography, using a computer for launching attacks on other

computers etc. Today, many countries of the world are busy in either drafting new laws to deal with the

issue of cyber crimes or making suitable amendments in existing criminal code. Again, the issue of

territorial jurisdiction is critical in this behalf. For instance, where a Pakistani resident commits a cyber

crime against a Canadian resident, the question arises whether or not the Canadian court can take an

action against this Pakistani, particularly, where the act of Pakistani is not considered criminal under the

Pakistani law.

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