This Document Contains Chapters 6 to 7 Chapter 6 Social Networking, Mobile Commerce, and Online Auctions Review Questions 1. What is a virtual community? Answer: A virtual community is a gathering place for people and businesses that does not have a physical existence. 2. How did bulletin board systems and Usenet newsgroups provide early social networking opportunities for Internet users in the 1970s and 1980s? Answer: Bulletin board systems (BBSs) were computers that allowed users to connect using dial-up connections through telephone lines to read and post messages in a common discussion forum that resembled an electronic version of a physical bulletin board. BBSs often hosted discussions on specific topics or issues related to specific geographic regions. In the education and research communities, Usenet newsgroups were a similar form of virtual community. Started at Duke University in 1979, Usenet newsgroups were message posting areas on a set of interconnected computers devoted to storing information on specific topics. 3. Why did the social networking site Six Degrees fail? Answer: The site, which started in 1997, was unable to generate sufficient revenue to continue operations and closed in2000. 4. Name three Web sites that created virtual communities or facilitated social networking before Facebook was founded in 2006. Answer: Friendster, MySpace, and Tribe. net were all social networking sites in use before Facebook was founded. 5. What is a meetup? Answer: A meetup is an in-person meeting between people who are acquainted through a blog. 6. What is the term for the practice of online newspapers and magazines to have their readers help write their own news? Answer: Participatory journalism is the term used to describe the practice of readers help write their own news. 7. What is social shopping? Answer: Social shopping is the practice of bringing buyers and sellers together in a social network to facilitate retail sales. 8. What is a MOOC? Answer: A MOOC is a massive open online course. It is offered at no or very low cost and can attract hundreds of thousands of students. 9. What does it mean to monetize Web site visitors? Answer: Monetizing refers to the conversion of existing regular site visitors seeking free information or services into fee paying subscribers or purchasers of services. 10. What does a microlending Web site do? Answer: Microlending is the practice of lending very small amounts of money to people who are starting or operating small businesses, especially in developing countries. Microlending sites are social networking sites that bring together many small investors who lend money to groups and individuals all over the world who need loans to start or continue their small business ventures. 11. What is crowdfunding? Answer: In addition to finding a lender who can provide funds for a business idea, entrepreneurs can sell partial ownership in their ventures to investors. Social networking sites that provide exactly this opportunity, called crowdfunding, include Kickstarter and IndieGoGo. These sites allow businesses and individuals to sell equity interests in their activities to participants around the world. Most new business owners fund their new ventures with savings and credit card debt, then they raise capital from friends and family members. However, few people are able to afford the risk of making large investments in new businesses. Crowdfunding changes the combination from one of a few people each providing a lot of money to one of many people, each providing a small amount of money. Crowdfunding thus reduces the investors’ individual risk but still can provide substantial total equity funding for new ventures. 12. How can companies use social networks internally; that is, by limiting access to employees of the company? Answer: A growing number of organizations have built internal Web sites that provide opportunities for online social networking among their employees. These sites also include important information for employees. These sites run on the intranets and have saved significant amounts of money by replacing the printing and distribution of paper memos, newsletters, and other correspondence with a Web site. Internal social networking pages also provide easy access to employee handbooks, newsletters, and employee benefits information. An internal social networking Web site can become a good way of fostering working relationships among employees who are dispersed over a wide geographic area. Many service companies offer a discussion area on their internal social networks that allow service technicians to post questions that are then answered by more experienced technicians who might work anywhere in the company. Some companies create private pages on sites such as Facebook and use those as internal social networking tools. This saves the company the cost of creating the social networking site internally. 13. What is a phablet? Answer: A phablet is a very large smartphone a with high-resolution screen. 14. What does it mean to jailbreak or root a smartphone? Answer: Once a manufacturer chooses an operating system for its phones, the user cannot switch easily to a different operating system. Unlike computers, the operating system is integrated into the software the carrier uses to make the phone operate on its network. Most carriers will void the warranty on a phone if they find a user has modified the operating system in any way, although some users with technical skills do so. Modifying an Apple iPhone’s operating system is called jailbreaking the phone. Modifying an Android operating system is called rooting the phone. 15. What is a shill bidder in an online auction? Answer: In an online action a shill bidder is a person employed by the seller or the auctioneer who make bids on behalf of the seller. Shill bidders can artificially inflate the price of an item and may be prohibited from bidding by the rules of a particular auction. 16. What is a Yankee auction? Answer: A Yankee auction is an English auction that offers multiple units of an item for sale and allow bidders to specify the quantity they want to buy. When the bidding concludes in a Yankee auction, the highest bidder is allotted the quantity he or she bid. If items remain after satisfying the highest bidder, those remaining items are allocated to successive lower (next highest) bidders until all items are distributed. Although all successful bidders (except possibly the lowest successful bidder) receive the quantity of items on which they bid, they only pay the price bid by the lowest successful bidder. 17. What is a Dutch auction? Answer: The Dutch auction is a form of open auction in which bidding starts at a high price and drops until a bidder accepts the price. Because the price drops until a bidder claims the item, Dutch auctions are also called descending-price auctions. Note that a Dutch auction is often better for the seller because the bidder with the highest private valuation will not let the bid drop much below that valuation for fear of losing the item to another bidder. 18. What objective is a Vickrey auction designed to accomplish? Answer: A Vickrey auction is designed to award the item at the price bid by the second-highest bidder. It is a second-price sealed-bid auction. At first glance, one might wonder why a seller would even consider such an auction because it gives the item to the winning bidder at a lower price; however, it yields higher returns for the seller, encourages all bidders to bid the amounts of their private valuations, and reduces the tendency for bidders to collude. Because the winning bidder is protected from an erroneously high bid, all bidders tend to bid higher than they would in a first-price sealed-bid auction. 19. What is a reverse auction and when is it most likely to be used in a business-to-business setting? Answer: In a reverse auction (also called a seller-bid auction), multiple sellers submit price bids to an auctioneer who represents a single buyer. The bids are for a given amount of a specific item that the buyer wants to purchase. The prices go down as the bidding continues until no seller is willing to bid lower. Most reverse auctions involve businesses as buyers and sellers. In many business reverse auctions, the buyer acts as auctioneer and screens sellers before they can participate. 20. What is a proxy bid? Answer: A proxy bid is a predetermined maximum bid submitted by a bidder in an electronic auction. 21. What function is served by an online liquidation broker? Answer: An online liquidation broker is a firm that finds buyers for unusable inventory items. This is usually accomplished through online auctions. 22. What is the main purpose of an auction escrow service? Answer: An escrow service holds a buyer’s payment until the buyer receives the purchased item and is satisfied that the item is what the seller represented it to be. Exercises 1. Drawing on the knowledge of cultural differences you learned about in Chapter 1, write one or two paragraphs in which you explain why people who live in one country might prefer to start their own social networking sites rather than use those created by companies in other countries. Answer: Two reasons are language and culture. The first step that a Web business usually takes to reach potential customers in other countries, and thus in other cultures, is to provide local language versions of its Web site. However, some languages require multiple translations for separate dialects. For example, the Spanish spoken in Spain is different from that spoken in Mexico, which is different from that spoken elsewhere in Latin America. People in parts of Argentina and Uruguay use yet a fourth dialect of Spanish. Many of these dialect differences are spoken inflections, which are not important for Web site designers (unless, of course, their sites include audio or video elements); however, a significant number of differences occur in word meanings and spellings. Errors stemming from subtle language and cultural standards would encourage local designers to build their own social networking sites. 2. Write about 100 words in which you describe specific changes that occurred in virtual community Web sites when the bandwidths available to Internet users increased. In your answer, be sure to explain why these changes occurred. Answer: In the mid-1990s, virtual communities formed in Web chat rooms and sites devoted to specific topics or the general exchange of information. As the bandwidths available to Internet users increased, photos and video became commonplace additions to the discussions in these communities. 3. Some companies use a social networking strategy in which they avoid making direct advertising or brand statements. In about 100 words, outline the advantages and disadvantages of such a strategy. Answer: Starbucks does not use social media to broadcast information about its products or build its brand. Instead, Starbucks uses social media to learn from their customers and find new ways to engage them with the company’s brand, products, and services. By intentionally avoiding active participation in its own social media outreach, Starbucks’ social media efforts are focused on listening to its customers’ discussions with each other and learning from those discussions. By using social media to participate in the environment of an industry or product, companies can interact with their customers (or suppliers) in ways that are different from and more expansive than the roles traditionally taken in buyer–seller relationships. 4. In this and earlier chapters, you have learned that the development of open-source software has been facilitated by Internet technologies. In about 100 words, explain how a group of open-source software developers might be described as a virtual community using social networking tools to accomplish tasks related to both software creation and distribution. Answer: Some open-source software projects are devoted to the development of virtual learning communities, including Moodle and uPortal (maintained by the not-for-profit opensource software development organization, Jasig). Open-source software is developed by a community of programmers who make the software available for download at no cost. Other programmers then use the software, work with it, and improve it. Those programmers can submit their improved versions of the software back to the community. Open-source software is an early and successful example of a virtual community that we would now call a social network. Each social network is devoted to the creation, improvement, and maintenance of a particular software application. 5. In a paragraph, explain how blog sites such as Gothamist or TechCrunch generate revenue. Answer: Blogs sites such as Gothamist or TechCrunch generate revenue through advertising. The advertising revenue from the Gothamist has been sufficient to support Jake Dobkins and Jen Chung, the site’s founder cofounder, Jen Chung. Now with a staff of bloggers, editors, and ad salespeople, these entrepreneurs have expanded to nine cities in four countries. 6. A number of Web sites offer a service that allows volunteers to answer questions posted by other site visitors. Uclue provides a similar service, but allows researchers to charge fees for their answers (and takes a percentage of that fee). In about 100 words, explain why a person might use a paid site such as Uclue rather than using a free site. Answer: Responses may vary, but advocates of using paid researchers argue that the quality of the answers is higher than on free sites and that the questions tend to be more serious and better formulated. 7. In about 100 words, describe the differences between a blog and a microblog. Be sure to discuss when a company might prefer to use a microblog in its social networking efforts rather than a blog. Answer: Web logs, or blogs, are Web sites that contain commentary on current events or specific issues written by individuals. Many blogs invite visitors to add comments, which the blog owner may or may not edit. The result is a continuing discussion of the topic with the possibility that many interested persons will contribute to that discussion. Because blog sites encourage interaction among people interested in a particular topic, they are a form of a social networking site. Sites such as Twitter are considered to be microblogs because they function as a very informal blog site with entries (messages, or tweets) that are limited to 140 characters in length. Microblogs may be preferable since they are more informal and require shorter entries. 8. In a paragraph or two, outline why most mobile phones are sold today with a common operating system rather than one developed by the phone manufacturer. Answer: In the past, each phone manufacturer wrote its own operating system software. Today, most mobile phones use a common operating system (such as Android and iOS). This change occurred because the way software applications are developed and sold has changed. In the past, U. S. mobile phone companies generated revenue by controlling the application software (usually called apps) that could run on their phones. Companies would license the apps from software developers and then charge subscribers a monthly usage fee for each app. Apple turned this revenue strategy on its head when AT&T agreed to be Apple’s sole carrier for the iPhone (that is, iPhones would only operate on the AT&T network, an arrangement that lasted from the iPhone’s introduction to 2011) and agreed to allow Apple to sell apps for the phone directly. 9. In about 100 words, outline at least three ways in which a mobile phone’s GPS capabilities can be used to provide benefits to users of a social network. Answer: Virtually all mobile devices have global positioning satellite (GPS) service capabilities, which means that apps can combine the phone user’s location with the availability of retail stores and services to create mobile business opportunities. For example, some apps can direct the user to specific business locations (such as restaurants, movie theaters, or auto repair facilities), offer coupons or deals, or even let them know when friends are close by based on the user’s current location. 10. In about 100 words, describe two or three social networking apps that could use a smartphone’s GPS capability. Be sure to make clear the benefit of using the GPS in the app in each case. Answer: Responses will vary. Some examples might include: • GPS-based apps can be used in precision farming to provide field mapping, soil sampling, and tractor guidance. • GPS can also be used in apps that provide an audit trail for financial transactions. 11. In about 100 words, explain how the lock-in effect might operate in a general consumer auction. Answer: The economic structure of online markets is biased against new entrants. Because markets become more efficient as the number of buyers and sellers increases, new auction participants are inclined to patronize established marketplaces. Thus, existing auction sites, such as eBay, are inherently more valuable to customers than new auction sites. This basic economic fact, which economists call a lock-in effect, has made the creation of alternative successful general consumer Web auction sites very difficult. An example of the lock-in effect occurred in the Japanese general consumer auction market. In this market, unlike in the United States, Yahoo! was the first major company to offer online auctions. At the time (early 1999), Yahoo! did not charge fees to sellers. When eBay entered the Japanese market five months later, it charged fees and found few people interested in its services. Even later, when Yahoo! began charging fees for its auctions, the lock-in effect preserved its strong lead in Japan. Today, Yahoo! Auctions holds more than 90 percent of the Japanese online auction market, where as eBay’s market share is less than 5 percent. 12. In about 100 words, define the term reserve price and explain how the use of a reserve price can affect the progress and outcome of an auction. Answer: A minimum bid is the price at which an auction begins. If no bidders are willing to pay that price, the item is removed from the auction and not sold. In some auctions, a minimum bid is not announced, but sellers can establish a minimum acceptable price, called a reserve price, or simply reserve. If the reserve price is not exceeded, the item is withdrawn from the auction and not sold. 13. In about 200 words, explain how sniping software works and why some auction participants feel its use is unfair to other bidders. Answer: Sniping software observes auction progress until the last second or two of the auction clock. Just as the auction is about to expire, the sniping software places a bid high enough to win the auction (unless that bid exceeds a limit set by the sniping software’s owner). The act of placing a winning bid at the last second is called a snipe. Because sniping software synchronizes its internal clock to the auction site clock and executes its bid with a computer’s precision, the software almost always wins out over a human bidder which is why some auction participants feel its use is unfair. 14. Assume you work in the procurement department of a packaging machinery systems manufacturer. The parts your company buys must meet precise specifications and the parts are not generally interchangeable; that is, your company’s design engineers must work closely with your suppliers to design specific parts for particular systems. Your director of purchasing is interested in using online reverse auctions to buy these parts. In approximately200 words, outline arguments for and against using online reverse auctions in this situation and conclude with a specific recommendation. Answer: Responses will vary. Advantages: • Cost savings • Widens circle of trading partners • Streamlines buying process Disadvantages • Reverse auctions should be used in situations where relationships are not important • Suppliers will not be able to meet the same level of cost savings over time • Training issues Cases C1. Lego Mindstorms 1. Answers will vary. Elements of the company’s social networking strategy include: • Community ○ Share robots you have created ○ Message board ○ Most liked posts ○ Most liked authors • Support ○ Message board • Fun/Instructional ○ Fix the Factory – Play the game online ○ Mindstorms programming apps ○ Downloads ○ Movies 2. Responses will vary. From the Mindstorms site: • Build a Robot ○ Commanding your robot ○ Downloads ○ Robot galleries • Support ○ FAQ ○ Message board 3. Responses will vary. Ways in which Mindstorms community members create value: • Gallery/Share your robot - Provides content to inspire creativity and share ideas • Message board –User help each other to solve problems • Featured Gallery Robots ○ Featured stories are created from uploaded content ○ Users post comments ○ Users rate robots C2. Betty’s Treasures 1. Answers may vary. As eBay customers tend to be bargain hunters, some students may be concerned that offering products on the site would diminish the brand. Amazon Marketplace would therefore be recommended. Fees - Amazon Marketplace (Professional Selling Plan) • Plan on selling more than 40 items a month – $39. 99 per month • No per item fee • Referral fees(on each item sold) Fees - eBay • Subscription fees (based on yearly subscription) ○ Basic – $19. 95 per month ○ Premium – $59. 95 per month ○ Anchor $299. 95 per month • Insertion fees (applied after free listings are used) ○ Basic – $0. 25 ○ Premium –$0. 15 ○ Anchor – $0. 10 • Final value fees (based on the total value of the sale) – 9% 2. Answers may vary. As part of her social networking strategy, Betty could consider the use of Twitter, Facebook, and blogs. Strategy: • Create a Facebook Page. • Discuss pottery techniques, types of clay, making pots from scratch, etc. • Discuss popular figurines and how they are made. • Provide general tips about what to look for when buying figurines/pottery. 3. Responses will vary. Research into Etsy could include: • Fees ○ No monthly fees ○ $0. 20 listing fee ○ 3. 5% transaction fee • Tools ○ Web site creation help ○ Shop statistics • Support ○ Forums ○ Newsletter 4. Responses will vary. Etsy’s business philosophy is based on community outreach. It is an online community of designers, in over 150 countries, creating and selling a wide array of products. Elements of social networking on the site include: • A blog • Community • Request for custom items • Etsy on Twitter • Etsy on Facebook • Etsy on YouTube Chapter 7 The Environment of Electronic Commerce: Legal, Ethical, and Tax Issues Review Questions 1. Briefly explain the role borders play in determining jurisdiction. Answer: Territorial borders in the physical world serve a useful purpose in traditional commerce: They mark the range of culture and reach of applicable laws very clearly. Legal rules, languages, currency, and cultural customs differ from one country to another. In the physical world, geographic boundaries almost always coincide with legal and cultural boundaries. 2. What is jurisdiction? Answer: The ability of a government to exert control over a person or corporation is called jurisdiction. 3. Briefly explain the difference between notice and constructive notice. Answer: The physical boundary, when crossed, provides notice that one set of rules has been replaced by a different set of rules. Notice is the expression of such a change in rules. People can obey and perceive a law or cultural norm as fair only if they are notified of its existence. Borders provide this notice in the physical world. The legal systems of most countries include a concept called constructive notice. People receive constructive notice that they have become subject to new laws and cultural norms when they cross an international border, even if they are not specifically warned of the changed laws and norms by a sign or a border guard’s statement. 4. What is the difference between a breach of contract and a tort? Answer: If either party to a contract does not comply with the terms of the contract, the other party can sue for failure to comply, which is called breach of contract. A tort is an intentional or negligent action (other than breach of contract) taken by a legal entity that causes harm to another legal entity. 5. What is the difference between subject-matter jurisdiction and personal jurisdiction? Answer: Subject-matter jurisdiction is a court’s authority to decide a particular type of dispute. Personal jurisdiction is, in general, determined by the residence of the parties. A court has personal jurisdiction over a case if the defendant is a resident of the state in which the court is located. 6. What is a long-arm statute? Answer: In the United States, individual states have laws that can create personal jurisdiction for their courts. The details of these laws, called long-arm statutes, vary from state to state, but generally create personal jurisdiction over nonresidents who transact business or commit tortious acts in the state. 7. What is the difference between a negligent tort and an intentional tort? Answer: A negligent tort is a tortious act in which the seller unintentionally provides a harmful product while an intentional tort is a tortious act in which the seller knowingly or recklessly causes injury to the buyer. 8. What is judicial comity? Answer: Judicial comity is an accommodation by a court in one country in which it voluntarily enforces another country’s laws or court judgments when no strict requirement to do so exists. 9. Under what conditions might a conflict of laws occur? Answer: In the United States, business is governed by federal laws, state laws, and local laws. Sometimes, these laws address the same issues in different ways resulting in a conflict of laws. 10. What are the three key elements of a contract? Answer: Any contract includes three essential elements: an offer, an acceptance, and consideration. 11. What is an implied contract? Answer: An implied contract is an agreement between two or more parties to act as if a contract exists, even if no contract has been written and signed. 12. What is the body of U. S. law that concerns contracts called? Answer: Each state has its own body of statute and common law that governs the creation and enforcement of contractual obligations. Statute of Frauds is a state law that specifies that contracts for the sale of goods worth more than $500 and contracts that require actions that cannot be completed within one year must be created by a signed writing. 13. How do most U. S. Web sites obtain a user’s agreement to its end-user license agreement(EULA)? Answer: A Web site user can agree to that site’s EULA or its terms and conditions by clicking a button on the Web site (called a click-wrap acceptance) or by simply using the Web site (called a Web-wrap acceptance or browser-wrap acceptance). 14. What is an implied warranty? Answer: An implied warranty is a promise to which the seller can be held even though the seller did not make an explicit statement of that promise. The law establishes these basic elements of a transaction in any contract to sell goods or services. 15. What is a warranty disclaimer and when might an online business use one? Answer: A warranty disclaimer is a statement declaring that the seller will not honor some or all implied warranties. Online sellers who want to avoid some implied warranty liability can do so by making a warranty disclaimer. 16. What is a right of publicity? Answer: A right of publicity is a limited right to control others’ commercial use of an individual’s name, image, likeness, or identifying aspect of identity. 17. Briefly explain the differences between copyrights and patents. Answer: A copyright is a right granted by a government to the author or creator of a literary or artistic work while a patent is an exclusive right granted by the government to an individual to make, use, and sell an invention. 18. Briefly explain the differences among trademarks, service marks, and trade names. Answer: A trademark is a distinctive mark, device, motto, or implement that a company affixes to the goods it produces for identification purposes. A service mark is similar to a trademark, but it is used to identify services provided. In the United States, trademarks and service marks can be registered with state governments, the federal government, or both. The name (or a part of that name) that a business uses to identify itself is called a trade name. Trade names are not protected by trademark laws unless the business name is the same as the product (or service) name. They are protected, however, under common law. 19. What is fair use under U. S. copyright law? Answer: The fair use of a copyrighted work includes copying it to use in specific restricted ways in criticism, comment, news reporting, teaching, scholarship, or research. The law’s definition of fair use is intentionally broad and can be difficult to interpret. The law includes four specific factors that a court will consider in determining whether a specific use qualifies as a fair use. The first factor gives nonprofit educational uses a better chance at qualifying than commercial uses. The second factor allows the court to consider a painting using different standards than a sound recording. The third factor is often used to allow small sections of a work to qualify as fair use when the use of the entire work (or a substantial part of the work) might not qualify. The fourth factor, which is a deciding factor in most fair-use cases, allows the court to consider the amount of damage the use might cause to the value of the copyrighted work. 20. What is vicarious copyright infringement? Answer: Vicarious copyright infringement is the violation of an organization’s rights that occurs when a company capable of supervising the infringing activity fails to do so and obtains a financial benefit from the infringing activity. 21. What is a patent troll? Answer: Most companies use their patents to protect intellectual property that they use in their businesses. However, a person or company can buy patents from the original inventors and then enforce the rights granted by the patents by suing others who use the patents without permission. These persons or companies, called patent assertion entities, or patent trolls, will often purchase patents that they believe are being infringed, then threaten to sue the infringers in the hopes of extracting a cash settlement. Many of these actions have been based on business process patents. 22. What is the difference between common law and statutory law? Answer: Common law is the part of British and U. S. law established by the history of court decisions that has accumulated over many years. The other main part of British and U. S. law, called statutory law, arises when elected legislative bodies pass laws, which are also called statutes. 23. What is a digital watermark? Answer: A digital watermark, is a digital code or stream embedded undetectably in a digital image or audio file. 24. What is product disparagement? Answer: Product disparagement is a statement that is false and injures the reputation of a productor service. 25. What is cyberbullying? Answer: Cyberbullying is threats, sexual remarks, or pejorative comments transmitted on the Internet or posted on Web sites. It occurs when people use technology to harass, humiliate, threaten, and embarrass each other. 26. Briefly explain the concept of nexus as it relates to taxation generally. Answer: Nexus is the association between a taxpaying entity and a governmental taxing authority. The activities that create nexus in the United States are determined by state law and thus vary from state to state. 27. What is a use tax? Answer: A use tax is a tax levied by a state on property used in that state that was not purchased in that state. Most states’ use tax rates are identical to their sales tax rates. Exercises 1. In about 100 words, explain how the concepts of power, effects, and jurisdiction are related to each other. Answer: Power is a form of control over physical space and the people and objects that reside in that space, and is a defining characteristic of statehood. For laws to be effective, a government must be able to enforce them. Effective enforcement requires the power both to exercise physical control over residents, if necessary, and to impose sanctions on those who violate the law. The ability of a government to exert control over a person or corporation is called jurisdiction. Laws in the physical world are grounded in the relationship between physical proximity and the effects, or impact, of a person’s behavior. Personal or corporate actions have stronger effects on people and things that are nearby than on those that are far away. Government-provided trademark protection is a good example of this. 2. The levels of authority and autonomy with which governments of various countries operate vary significantly from one country to another. In about 100 words, explain how different cultures allow these variations yet still perceive their own government to be legitimate. Answer: Most people agree that the legitimate right to create and enforce laws derives from them an date of those who are subject to those laws. In 1970, the United Nations passed are solution that affirmed this idea of governmental legitimacy. The resolution made clear that the people residing within a set of recognized geographic boundaries are the ultimate source of legitimate legal authority for people and actions within those boundaries. Thus, legitimacy is the idea that those subject to laws should have some role in formulating them. Some cultures allow their governments to operate with a high degree of autonomy and unquestioned authority. China and Singapore are countries in which national culture permits the government to exert high levels of unchecked authority. Other cultures, such as those of the Scandinavian countries, place strict limits on governmental authority. 3. In about 100 words, explain why constructive notice in international transactions can often be less effective when those transactions are completed online. Answer: The legal systems of most countries include a concept called constructive notice. People receive constructive notice that they have become subject to new laws and cultural norms when they cross an international border, even if they are not specifically warned of the changed laws and norms by a sign or a border guard’s statement. Thus, ignorance of the law is not a sustainable defense, even in a new and unfamiliar jurisdiction. This concept presents particular problems for online businesses because they may not know that customers from another country are accessing their Web sites. Thus, the concept of notice—even constructive notice—does not translate very well to online business. 4. In the past, geographic borders have helped governments assert jurisdiction effectively. In about 100 words, describe one way the Internet has changed the role borders play in the determination of jurisdiction. Answer: The tasks of defining, establishing, and asserting jurisdiction are much more difficult on the Internet than they are in the physical world, mainly because traditional geographic boundaries do not exist. For example, a Swedish company that engages in electronic commerce could have a Web site that is entirely in English and a URL that ends in “. com,” thus not indicating to customers that it is a Swedish firm. The server that hosts this company’s Web page could be in Canada, and the people who maintain the Web site might work from their homes in Australia. If a Mexican citizen buys a product from the Swedish firm and is unhappy with the goods received, that person might want to file a lawsuit against the seller firm. However, the world’s physical border-based systems of law and jurisdiction do not help this Mexican citizen determine where to file the lawsuit. The Internet does not provide anything like the obvious international boundary lines in the physical world. Thus, the four considerations that work so well in the physical world – power, effects, legitimacy, and notice – do not translate very well to the virtual world of electronic commerce. 5. Online businesses are capable of committing a crime, breaching a contract, or engaging in a tortious action. In about 200 words, provide a specific example of each in an online commercial setting. In your answer, explain why each action you describe is either a crime, a breach of contract, or a tort. Answer: Responses will vary. A breach of contract case follows: • People's Liberation, Inc. , the designer and distributor of high-end casual apparel under the brand names People's Liberation[R], William Rast[R] and J. Lindeberg[R], today announced that it filed suit in Los Angeles Superior Court against Charlotte Russe Merchandising, Inc. for breach of a written contract and tort recovery seeking over $60 million in compensatory damages. The suit alleges that Charlotte Russe approached People's Liberation in 2008 to exclusively license the People's Liberation Brand in the United States and all of Central and North America. To induce People's Liberation to stop providing its premium denim, knit and accessory products to fine department stores such as Nordstrom, Saks Fifth Avenue, and Neiman Marcus, Charlotte Russe executed a multiyear contract in December 2008 that guaranteed minimum purchases of product during the first three contract years of $65 million. The complaint alleges that Charlotte Russe, without justification or legitimate reason, terminated its contract with People's Liberation within the first year of the relationship. This termination occurred shortly after Charlotte Russe was purchased by the private equity firm of Advent CR Holdings, Inc. The complaint further alleges that Advent CR Holdings, Inc. , its parent Advent International Corporation, and Charlotte Russe's management wanted to take the company in a new direction and, in doing so, they were prepared to ignore prior contractual obligations. [Source: http://www.thefreelibrary.com/People%27s+Liberation%2c+Inc. +Files+Suit+Against+Charlotte+Russe. . . -a0210701935] 6. Write a paragraph in which you outline the reasons an online business might want to use a forum selection clause in its terms of service statement. Answer: Personal jurisdiction is, in general, determined by the residence of the parties. A court has personal jurisdiction over a case if the defendant is a resident of the state in which the court is located. In such cases, the determination of personal jurisdiction is straightforward. However, an out-of-state person or corporation can also voluntarily submit to the jurisdiction of a particular state court by agreeing to do so in writing or by taking certain actions in the state. One of the most common ways that people voluntarily submit to a jurisdiction is by signing a contract that includes a statement, known as a forum selection clause, that the contract will be enforced according to the laws of a particular state. That state then has personal jurisdiction over the parties who signed the contract regarding any enforcement issue that arises from the terms of that contract. 7. To be enforceable, every contract must include an offer and an acceptance. Consider a typical online retail transaction in which an item is ordered and paid for online by a purchaser and shipped by the seller. In two or three paragraphs, identify specifically and describe the actions that constitute the offer and the acceptance. Answer: The basic elements of a consumer’s contract to buy goods are the same whether the transaction is completed in person or online. Only the form of the offer and acceptance are different in the two environments. When a seller advertises goods for sale on a Web site, that seller is not making an offer, but is inviting offers from potential buyers. When a buyer submits an order, which is the offer, the seller can accept that offer and create a contract. Acceptance happens when the seller accepts the buyer offer, processes payment and then ships the product. If the seller does not have the ordered items in stock, the seller has the option of refusing the buyer’s order outright or counteroffering with a decreased amount. The buyer then has the option to accept the seller’s counteroffer. 8. In the United States, Great Britain, and many other countries, contracts of certain types must comply with the Statute of Frauds to be enforceable. In about 100 words, describe the specific elements a contract must include to comply with the Statute of Frauds. In your answer, provide one or two examples of how each required element could be satisfied. Answer: Each Statute of Frauds specifies that contracts for the sale of goods worth more than $500 and contracts that require actions that cannot be completed within one year must be created by a signed writing. Most courts will hold that a writing exists when the terms of a contract have been reduced to some tangible form. An early court decision in the 1800s held that a telegraph transmission was a writing. Later courts have held that tape recordings of spoken words, computer files on disks, and faxes are writings. Thus, the parties to an electronic commerce contract should find it relatively easy to satisfy the writing requirement. Courts have been similarly generous in determining what constitutes a signature. A signature is any symbol executed or adopted for the purpose of authenticating a writing. Courts have held names on telegrams, telexes, faxes, and Western Union Mailgrams to be signatures. Even typed names or names printed as part of a letterhead have served as signatures. It is reasonable to assume that a symbol or code included in an electronic file would constitute a signature. Most countries now have laws that explicitly make digital signatures legally valid on contracts. 9. Assume you have downloaded an app for your smartphone. In one or two paragraphs, describe how you and the app’s seller have each obtained consideration in the completion of the transaction. Answer: Consideration is the agreed-upon exchange of something valuable, such as money, property, or future services. This is the last action in a transaction. For the example of downloading an app for your smartphone, the sequence of actions is as follows: • The store (app store) invites offers for the app at a stated price by placing it on its Web site (online app store). • The consumer makes an offer by indicating a willingness to buy the product for the stated price, by, for example, clicking an “Add to Shopping Cart” button or “Download” button on the Web page (online app store) that displays the item. • The store accepts the customer’s offer and exchanges its product for the consumer’s payment at checkout. The app’s seller obtains consideration at this point and the customer obtains consideration when the product is received (or downloaded). 10. In one or two paragraphs, outline the key factors that determine fair use of copyrighted text under U. S. law. Answer: The fair use of a copyrighted work includes copying it to use in specific restricted ways in criticism, comment, news reporting, teaching, scholarship, or research. The law’s definition of fair use is intentionally broad and can be difficult to interpret. The law includes four specific factors that a court will consider in determining whether a specific use qualifies as a fair use. The first factor gives nonprofit educational uses a better chance at qualifying than commercial uses. The second factor allows the court to consider a painting using different standards than a sound recording. The third factor is often used to allow small sections of a work to qualify as fair use when the use of the entire work (or a substantial part of the work) might not qualify. The fourth factor, which is a deciding factor in most fair-use cases, allows the court to consider the amount of damage the use might cause to the value of the copyrighted work. 11. The merits of allowing companies to patent their business processes have been debated by legal scholars and business experts. One proposed solution to this debate would allow the issuance of business patents, but restrict the patent protection period to a short time, perhaps two or three years. In about 200 words, present logical and factual arguments that support the issuance of limited-term business process patents. Conclude your arguments with a policy recommendation. Answer: Responses will vary. Business patents might be appropriate if their term is limited. There is some precedent for this position because current U. S. law includes a provision for a shorter time period in the case of design patents. Some would argue that a limited-term business process patent would be a logical extension of this policy. 12. Use your favorite Web search engine to obtain a list of Web pages that include the words “privacy statement. ” Visit the Web pages on the search results list until you find a page that includes the text of a privacy statement. Print the page and turn it in with a report of about 200 words in which you answer the following questions: a. Does the site follow an opt-in or opt-out policy (or is the policy not stated clearly in the privacy statement)? b. Does the privacy statement include a specific provision or provisions regarding the collection of information from children? c. Does the privacy statement describe what happens to the collected personal information if the company goes out of business or is sold to another company? (List these provisions, if any. ) Close your report with one paragraph in which you evaluate the overall clarity of the privacy statement. Answer: Responses will vary. Yahoo! includes a separate policy concerning children that explains how the information collected is used. The opt-in/opt-out policy is not clearly stated. 13. The Good Grow Seed Company sells vegetable and flower seeds to home gardeners online and has noticed that many of its customers order the same types of seeds each year when they plant their gardens. The company would like to send e-mails to customers who have purchased seeds in the past. These e-mails would use information about the types of seeds customers have purchased in the past and would offer them discounts on seeds for new varieties. Write a memo of about 200 words in which you attempt to convince Good Grow’s marketing manager that the company should use an opt-in statement to request permission to send such e-mails. Answer: Responses will vary. Advantages of opt-in e-mail could include: • Improves the reputation of the company • Helps to build a more targeted campaign and increases your conversion rate • Saves money, time, and effort • Allows you to foster long-term relationships with your customers • Helps to bring repeat business 14. In about 100 words, explain how a value-added tax (VAT) is calculated and collected. In your answer, contrast the use of a VAT with the use of a combined system of sales taxes and income taxes. Answer: AVAT is assessed on the amount of value added at each stage of production. For example, if a computer keyboard manufacturer purchased keyboard components for $20 and then sold finished keyboards for $50, the value added would be $30. VAT is collected by the seller at each stage of the transaction. A product that goes through five different companies on its way to the consumer would have VAT assessed on each of the five sales. In most countries, VAT is calculated at the time of each intermediate sale and remitted to the country in which that sale occurs. The United States raises most of its revenue through income taxes. Most U. S. states levy an income tax on business earnings. If a company conducts activities in several states, it must file tax returns in all of those states and apportion its earnings in accordance with each state’s tax laws. In some states, the individual cities, counties, and other political subdivisions within the state also have the power to levy income taxes on business earnings. Most U. S. states also levy a transaction tax on goods sold to consumers. This tax is usually called a sales tax. Businesses that establish nexus with a state must file sales tax returns and remit the sales tax they collect from their customers. Cases C1. Airbnb and Uber 1. Answers will vary, but possible risks to Airbnb hosts could include: • City regulations and restrictions – Some cities restrict hosting guests for any period of time. Such activities might be against the city’s zoning codes. Airbnb suggests looking into local regulations and restrictions and helps with this by posting information in a Your City's Regulations section on their Responsible Hosting page. • Tax considerations – A host may have to collect and/or pay taxes. According to Airbnb’s Web site they will take care of calculating, collecting, and remitting local occupancy tax on the host’s behalf. • Insurance considerations – A homeowner’s insurance policy may not cover damage resulting from or during a guest’s stay. Airbnb has recently added Host Protection Insurance. 2. Answers will vary, but possible risks to Airbnb guests could include: • Property does not match description – Airbnb offers profile verifications to help verify a host’s reputation. Also offers view of past reviews for each host. • Potential for fraud – Airbnb suggests that guests pay for rentals and communicate to hosts through Airbnb’s messaging system to help eliminate the possibility of fraud. • Host unresponsive to needs/emergencies – Again Airbnb suggests communicating with hosts through their messaging system. • Travel emergencies – Airbnb suggests considering buying travelers insurance. 3. Answers will vary, but protections offered to Uber riders may include: • Ride requests are blindly matched to eliminate discrimination of any kind. • Riders have access to the full driver’s profile including names, license plate number and ratings. • Fares are automatically charged so carrying cash is not needed. • Riders are able to leave anonymous feedback. • Incident response teams are available 24 hours a day. 4. Answers will vary. Some issues between Uber and NYC include: • New York’s Taxi & Limousine Commission took issue with Uber as a new competitor to traditional taxis and limousines. • Uber created the Independent Drivers Guild association for drivers in New York to establish a forum for regular dialogue and afford them some limited benefits and protections. • NYC mayor proposed a cap to new Uber licenses. Uber agreed to be conservative with its expansion in the city. C2. Ellasaurus Products Enterprises 1. From the case, the details of Ellen's contract with her publisher are unknown. Also, any contracts she may have with retailers regarding licensed products are uncertain. Answers will vary based on assumptions regarding these contracts. Rights concerning the use of illustrations, content from published books, and licensed characters can be very complicated. She must be careful in creating the Web site and its content in order to comply with any relevant terms in her publishing and licensing contracts. She may have to request the necessary permissions. 2. Answers will vary. Ellen could try to design an educational app for children. She might also want to consider buying advertisement spots in already existing apps, such as one developed for children by Disney. 3. Answers will vary. Companies with Web sites that appeal to young people must be careful to comply with the laws governing their interactions with these young visitors. Companies that present online content intended for children usually have specific safeguards in place. For example, Disney requires a parent’s (or teacher’s) e-mail address and solicits consent before allowing children 12 or under to log in to the site. Disney also builds automated filters into children’s activities that attempt to detect when a child has disclosed personal information when creating a drawing or a song or communicating with others on the site. Note that children are considered to be less able (or unable) to make informed decisions about the risks of certain activities. Similarly, many people are concerned about children’s ability to read and evaluate privacy statements and then consent to providing personal information to Web sites. 4. Answers should outline the relevant laws discussed in the chapter (page 336). To comply with these laws, the site could prohibit children under the age of 13 from registration. Alternatively, the site could require that children only register with the assistance of a parent or guardian who understands and consents to site disclosures and regulations. 5. Answers will vary but should mention that where Ellen chooses conduct international business she must be aware of the laws, ethics, privacy, culture, taxes, and customs tariffs for that particular country especially in relation to children. Solution Manual for Electronic Commerce Gary P. Schneider 9781305867819
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