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, copyright 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 ‘[Link]’. 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 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 ‘[Link]’ (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.

[Link] vs. [Link]

This problem arises due to the fact that second level domain names can be assigned to
multiple top-level domains. For example, ‘[Link]’ and ‘[Link]’ 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.

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 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.