Articles Posted in E-commerce

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Starting an online business requires acquiring many of the same permits and licenses that are generally required for a traditional business. Generally a business, including an “e-business” or a company that operates on the web, requires a business license before it begins to operate. When a city grants a business license, it permits the business to operate within that city. A business license also registers the business for tax purposes.

Certain cities and counties may also require additional permits to operate a business in that location. Different types of businesses also have different license and permit requirements. The California Secretary of State can provide all the requirements for starting a business. Also, certain trades require professional or occupational licenses. For example, contractors, doctors, accountants, real estate agents, and lawyers must all acquire the required license before they may begin to practice. Each occupation has specific procedures and requirements for obtaining the required licenses. The respective licensing agencies provide the standards and procedures for these requirements. Licenses may also be required based on the products the business sells. For example, selling alcohol, firearms, or gasoline requires specific licenses.

Businesses that operate on the Internet may also be required to collect sales tax if the business maintains a physical presence in the state. Without a physical presence, such as an actual store or warehouse, an e-business is not required to charge sales tax. Some states do not have a sales tax or tax exemptions for specific items such as food or clothing. Before a business can sell taxable goods on the Internet, the business must obtain a certificate allowing the business to collect sales tax. In order to properly charge sales taxes, businesses must also be familiar with the appropriate tax rates. Online businesses may use programs that calculate sales tax for each transaction based on the items and applicable rates. Examples of these licensed shopping carts, or e-commerce platforms — include Magento, LemonStand, and IBM WebSphere Commerce. In an effort to improve tax-collecting efforts for businesses, some states have passed the Streamlined Sales and Use Tax Agreement. This Agreement aims to pass federal regulations that will make tax collection across the country more uniform in order to simplify the process.

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Cloud computing offers a revolutionary new way to conduct business over the Internet. This service is a form of cyber-outsourcing where virtual servers provide certain services or applications for consumers online. Cloud computing vendors include, IBM SmartCloud, Cisco Cloud Computing, Amazon Elastic Compute Cloud (aka Amazon EC2), and various smaller vendors. These providers offer a range of services including storage services and spam filtering.

There are various forms of cloud computing available over the Internet. Managed Service Providers (“MSPs”) are the oldest form of cloud computing. A “managed service” is an application such as virus scanning for email or anti-spam services. The most common form of cloud computing is through Software as a Service (“SaaS”), which delivers an application to multiple customers through a browser using a multi-tenant architecture. Customers benefit because they do not have to invest in servers or purchase software licenses. Providers benefit because they are able to reduce costs because they only need maintain one application for their multiple customers. Salesforce.com is a well-known example of SaaS cloud computing, but Google Cloud Storage is a fast growing option as well.

Similar to SaaS computing, some providers offer Application Programming Interfaces (“APIs”), which allow developers to offer certain functions over the Internet without having to offer entire applications. These functionalities range from specific business services to wider-ranging APIs, such as Google Maps. Another version of SaaS computing allows users to develop their own application and offer the application through a provider’s infrastructure over the Internet. The developers are limited by the provider’s capabilities, but the developers benefit from the established predictability. Google App Engine is an example of such cloud computing.

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The technological advancements and the ever-expansive world of cyberspace are in a perpetual state of conflict with individual privacy concerns. For example, a recent research project by the Massachusetts Institute of Technology demonstrates that independent component analysis allows companies to track changes in pulse by the subsequent change in skin color that is readily visible through a video signal. In addition, employers, credit agencies, and health insurance providers can now purchase indexes that contain consumer profiles based on individual consumer’s browsing history, site membership, and online purchases.

The Federal Trade Commission has issued a report that proposes the steps companies can take to ensure optimal protection of consumer privacy. The report, “Protecting Consumer Privacy in an Era of Rapid Change: Recommendations for Businesses and Policymakers,” urges companies to incorporate privacy protection in every stage of their products, provide a mechanism against online activity tracking, and fully disclose what user information it shares with other entities.

The California legislature has proposed a new bill that would impose new restrictions on social networking sites, which would limit the information available about users. The proposed legislation would allow users to select privacy settings before ever using the site, which limits the sites accessibility. Social Networking sites, such as Facebook, have responded that such legislation would inappropriately burden the sites, in turn devastating cyber-business in California.

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Through globalization, outsourcing, and growing industry abroad international commerce has come to the forefront of business practices. Especially in the realm of electronic commerce, or e-commerce, where entire transactions take place online, international commerce is a major factor. Accordingly, legal considerations arise out of international business conduct, which includes questions of applicable law, jurisdictional concerns, and appropriate service of process in the case of a legal dispute.

One such applicable body of law is the United Nations Convention on Contracts for the International Sale of Goods (“CISG”). The CISG was enacted in 1980 when international business and international e-commerce were a much less prominent mode of commerce. However, a growing international business community has placed the CISG in the forefront of fundamental business legislation in the international community. The CISG is intended to establish a “uniform and fair regime” for international contracts in order to provide for certainty in international commerce.

Additionally, the Hague Conference on Private International Law is an international organization that combines different legal traditions and practices to form a comprehensive legal framework to govern international legal transactions. The various Hague Conference Conventions have established frameworks for the practice of law across international borders. For example, the 1965 Hague Convention on Service Abroad has installed a system of service for legal documents that is not only more reliable, but certainly much more efficient and simple. The United States Department of State provides the applicable guidelines for various methods of service of legal documents abroad. By offering a more streamlined process, international legislation allows parties to conduct business more efficiently and regulates international legal disputes, which in turn minimizes costs and saves time for clients.

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As online consumerism expands alongside ever-growing government deficits, legislatures look towards online transactions as a potential source of taxation revenue. Currently, there is no universal taxation on the Internet. Based on Quill Corporation v. North Dakota, a 1992 Supreme Court decision, online merchants that do not have a physical presence in a state are not required to collect sales tax from consumers for online transactions.

However, there is a rising movement towards imposing sales taxes on online transactions. For instance, the House Judiciary Committee is considering the Marketplace Equity Act of 2011, which would serve this exact purpose. Internet sales taxes could raise $20 billion for states. The National Retail Federation supports this law, explaining that the Act will help put an end to “showrooming” where customers review products in physical stores, but complete purchases online in order to save money by avoiding sales taxes.

Jeff Bezos, CEO of Amazon, has commented that although an Internet sales tax may be due, online merchants face an undue hardship because collecting taxes from different states and jurisdictions is highly complicated and involves complex calculations to abide by the various tax rates. The National Retail Federation agrees that taxation on the Internet is largely “a collection issue.”

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The list of generic top-level domains (gTLD’s), such as “.com” or “.edu,” has changed very little over the history of the internet, until recently. Between January and May of 2012, the Internet Corporation for Assigned Names and Numbers (ICANN) accepted applications for new gTLD’s. It reportedly received more than two thousand applications, many of which may go live by the start of 2013, after review by ICANN. Trademark owners should be aware of their rights, in the event that someone else attempts to register an infringing gTLD.

ICANN recognizes several different types of top-level domains, and the most well-known, and widely available, TLD’s are the generic TLD’s. Seven original gTLD’s became available in the 1980’s, .com, .edu, .gov, .int, .mil, .net, and .org. Three of these, .com, .net, and .org, have been available to registrants with no restrictions. ICANN added new gTLD’s over the years, such as .biz, .info, and the recently-added .xxx, making a current total of twenty-two. In June 2011, ICANN took an unprecedented step of allowing applications for new gTLD’s beginning in 2012. The application process requires filing a complicated packet of materials and a non-refundable fee of $185,000 payable to ICANN.

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The internet and social media have allowed people, businesses, and brands to communicate and interact more than ever before. As much benefit as that brings, it also brings significant risks to the reputation of both people and brands. The internet allows people to post using a pseudonym, or to appropriate someone else’s name. The appropriated name could be that of a prominent individual or (“public figure”), but online “persona hijacking” can affect anyone.

Generally, the motive of most persona hijacking is profit or fraud. Someone may appropriate the name or likeness of a famous person to profit from public goodwill towards that person. It could include setting up social media accounts, e-mail addresses, or websites using the person’s name, or some other effort to spoof the person’s identity. For a person who is not famous, persona hijacking may serve a function much like identity theft, using that person’s credentials to obtain, for example, fraudulent credit.

In some cases, the purpose of persona hijacking is to submit a person’s name to criticism or parody. The line between legitimate commentary and unlawful harassment, however, can be very fine, and parody can easily become a “false light” portrayal of a person. Use of a person’s name or likeness for the purpose of criticism or parody may, in certain limited circumstances, be protected by the First Amendment. In other cases, it may constitute unlawful infringement of a person’s trademark rights or right of publicity.

A person who uses their own name in commerce, usually someone prominent in business or entertainment, may obtain trademark protection. This generally prohibits others from using the name commercially. For most people, the right of publicity prohibits use of their name or likeness without their consent, especially for commercial purposes. The Fair Use doctrine, however, may allow use of a name or likeness for legitimate criticism or parody, where it is clear that the work is not originating from the person being appropriated.

You can take several steps to protect yourself from online persona hijacking:

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Copyright law, which protects a person’s rights to his or her own creative works, dates back nearly to the invention of the printing press. It protects a creator’s ownership of a creative work and the rights to use the work publicly. It also gives a creator remedies against anyone who infringes those rights. Where trademark law protects brand names, logos, and other “marks” representing a product or service, copyright law protects creative works like novels, songs, photographs, designs, or software. Computer technology, particularly the internet, has made copyright infringement quite easy and created new challenges for copyright owners.

Nearly any original creative work has copyright protection. Online, this can include graphics and designs, text, photo or video files, music, or code. A website created for a business most likely contains content subject to the protections of U.S. copyright laws. Technically speaking, copyright protection applies the moment a work is created in a physical form, which includes creation as a digital file. While copyright laws apply to a work upon its creation, enforcement is very difficult unless the creator takes additional steps to document the work’s creation and ownership with the government.

The U.S. Copyright Office allows copyright owners to formally register their works in a central location. Registration may deter others from infringing on a work, and it allows a copyright owner to effectively defend a work through the litigation process. Evidence of registration with the Copyright Office serves as prima facie evidence of ownership in a legal dispute. Most importantly, registering a work in a timely manner allows the owner to claim statutory damages in an infringement suit. Courts can award damages of up to $150,000 per act of intentional infringement, but only if the copyright owner follows the registration procedures.

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Advertising that a product is “made in America” or “made in the U.S.A.” is a very effective sales strategy, according to recent polls. An Adweek Media/Harris Poll conducted in July 2010 found substantial support for domestic-made products, with sixty-one percent of nationwide respondents saying they would be more likely to purchase a product labelled “made in the U.S.A.” Only three percent said they would be less likely to buy something. In California and the rest of the West Coast, about fifty-seven percent said they would be more likely to buy “Made in the U.S.A.” products.

Because labelling or claiming a product as “Made in the U.S.A.” makes a statement about the product’s origin or quality, the Federal Trade Commission (FTC) views it as a form of advertising. It is therefore subject to deceptive trade practice regulations. Labelling can be express, meaning an actual label appears on the product, or implied, meaning that the product’s marketing states or strongly implies U.S. origin. The rules apply not only to product labels, but to any marketing activity, such as print, television, or internet advertising.

The FTC’s rules can be complex and cumbersome, but every California business that wants to use the label needs to understand their responsibilities. Businesses that make unqualified claims that a product is “made in the U.S.A.” could face legal consequences if their claim is false or unsupportable. The federal Lanham Act allows anyone damaged by a false or misleading claim of a product’s origin, such as a competitor, to sue for damages.

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Companies cannot survive, let alone thrive, in today’s business environment without an Internet presence. Businesses and brands maintain websites and social media profiles in order to advertise and market products and services, but also to interact with customers. Social media in particular has given businesses an unprecedented ability to reach out to customers and to respond to their concerns. With this ability, however, comes the risk that unauthorized third parties will register an Internet domain with a company’s or brand’s name, or a deceptively similar name, and create a misleading or even harmful website. The practice of registering an Internet domain using the name of a trademarked brand is often known as “cyber-squatting.” Businesses and people who are the victim of cyber-squatting have remedies through a process established by several organizations that oversee and regulate Internet domain names.

The Internet Corporation for Assigned Names and Numbers (ICANN) is a private nonprofit corporation based in Los Angeles, California. It represents a collaboration between government agencies and several private organizations. ICANN has final responsibility for assignment of domain names, IP addresses, and other identifying information used by machines on the Internet.

In order to effectively handle disputes or complaints relating to domain name registrations, ICANN enacted the Uniform Domain Name Dispute Resolution Policy (UDRP). Anyone who owns or registers a domain name with a “.com,” “.org,” or “.net” top-level domain has agreed to abide by the terms of the UDRP by virtue of their agreement with their domain name registrar.

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