Legal Issues

Legal Environment

The unique nature of the Internet brings it into uncharted legal and political territory in regards to a number of different issues, among which copyright is just one. Because the Internet is not constrained by political boundaries, electronic commerce is not adequately defined by existing laws or regulated by one government entity. For example, as commerce over the Internet increases, city and state governments are seeking ways to collect and remit sales taxes on Internet transactions. But a 1992 court case held that for a state to collect taxes on sales, the vendor must have significant sales operations within the state. Because many Internet operations have highly dispersed personnel, little inventory, and no showrooms, at this time it is not clear whether states and local governments have a legal right to collect taxes on their sales. The issue regarding retail sales taxes in the electronic marketplace, while just one of many, illustrates how the legal and economic systems must evolve to accommodate the new electronic medium. Because authorities can control points of sales through requirements and permits, sales taxes are a reasonable method used to augment local revenues. But this practice becomes untenable in a boundless marketplace. The same problem is foreseen with tariffs and international trade. The question is whether governments should impose control measures such as permits, requirements, and regulations so that they can extend their locus of control over Internet commerce, or they should give special treatment to electronic commerce and look for other venues for tax. Each choice will have a substantially different effect on the future development of electronic commerce. To open a business of any kind, one needs to obtain a sales tax permit and register business names with counties in which one intends to operate. Necessary permits must be obtained depending on the type of product handled. Financial and accounting records must be kept and sales taxes must be reported periodically. To open an Internet business, however, one only needs to get an Internet account through an ISP (Internet Service Provider), and
open up a web page announcing business. Although one can register a domain name, a sort of store name, it is not required. In fact, Internet domain names have been given out on a "first-come, first-served" basis. Legal issues in terms of trademarks are just beginning to be contested. And what are the procedures for recording and reporting sales and accounting figures? How do accounting firms audit electronic transaction records? For such aspects of business, public policymaking, as well as private entrepreneurial solutions needs to be explored. The nature of Internet communication also compounds many legislative and legal efforts going on at the national and international level to adapt to the new electronic environment. The primary concern about copyrights is linked to the sellers' and buyers' access to the same production technologies that enable mass reproduction and mass distribution of any digital product without quality degradation. Prohibiting or limiting the use of the technology is clearly not the solution. Rather, every aspect of production, sales, and distribution has to be analyzed and redefined before a proper and effective legal framework can be created.