E-Commerce and Intellectual Property Essay Example for Free

E-Commerce and Intellectual space EssayIntroductionE-commerce is defined by the UNCITRAL as Transactions in international merchandise argon carried out by means of electronic selective in get toation interc give eare and other means of communication commonly referred to as electronic commerce, which involve the office of alternatives to paper-based forms of communication and storage of information. The rapid expansion of e-commerce is forcing countries to look again at how to regulate trade and noetic property.The amazing development of telecommunication devices and means, and of computers and related services, has made all these services and products available to a very large number of people in the earthly concern. In highly-developed countries, the use of computers has been highly promoted, and it is commonplace to find people who ar fully familiarized with computers and who are used to dealing with computer technologies much(prenominal)(prenominal) as the net profit .Relying On Private AgreementsAt the present time, the development of e-commerce has some(prenominal) barriers, such as the drop of security for electronic transactions, and the low purchasing power of a large part of the population, approximately of whom do not sire credit cards. Also, people prefer to buy dangerouss from real shops rather than from virtual shops due to the lack of security in electronic transactions and the increased problems relating to the falsification of credit cards, sig reputations and mail stealth among others.First of all, to login to an information network, people use several programs and devices to retrieve information. People use computers, modems, switchboards, communication devices, routers, hubs, etc, and separately ane of these products whitethorn be the subject of a patent or a copyright, and whenever in that location is an intellectual property right involved, there is the possibility of an infringement.Secondly, a ample deal of informa tion is published in the Internet, and all this information is exposed to misuse. Probably, ace of the most frequent practices on the Internet is that users take split of web pages and copy them onto their computers from indeed on, they are able to use, reproduce and modify the retrieved information to the extent they wish. This may infringe intellectual property rights such as trade marks, trade names, slogans or copyrights.Protection downstairs the IP lawLegislation modifications should be focused on trade laws and even much on international trade laws. The intellectual property laws are reasonably prepared to handle the boom of e-commerce activities in the forthcoming years, with provisions that offer the means to protect all intellectual property rights. Probably, the recent intro of the so-called domain name is the reason why it has not been implicated yet in most intellectual property laws. But, even in some countries, policies puzzle been created for the adjustmen t of domain names and if necessary, procedures for potcellation of registration in cases of infringement of intellectual property rights.More often than not, one of the most valuable assets in e-commerce and the largest potentiality source of future income is the information database created across time in the sum guess. Unfortunately, some e-commerce proposals do not even mention this. But if the information-gathering activity is not mentioned, the possibility of failure persists, to treat the wakeless rights to that information and the income it generates.Enhancing the upside of e-commerce takes narrow suffer analysis and planning. E-commerce, in general, and strategical online partnerships in particular, are inveterate to emerge and evolve in ways that are increasingly attractive to sleepers and their members. But at the very(prenominal) time that standoffs are realizing the benefits of such relationships, certain(p) new good developments require careful analysis to see to it that the association avoids potential legal and financial risk associated with its online activity.Unfortunately, the legal environment does not yet have much legal precedent on which lawyers and their clients may rely. At the same time, new legal developments are emerging. These realities pose tough challenges with adherence to minimizing the associations legal risks while maximizing its economic rewards. Consequently, forging the effective low-risk partnerships in demand(p) will be nearly impossible to do solely. Rather, the associations legal counsel will quest to catch up with particular attention to the details of the online partnerships the organization may acquireas wellhead as the needs that define them.New intelligent DevelopmentsThree of some a(prenominal) developments complicating e-commerce legal analysis are the case of United Cancer Council the Intermediate Sanctions tidy sum of the informal Revenue Code and the Uniform Computer Information Tran sactions exploit, which is currently being introduced in all state legislatures for enactment.United Cancer CouncilUCC is a spin-off of the Ameri hobo Cancer Society. The IRS retroactively revoked UCCs federal official income tax exemption for its bulky-term contract in a word surmisal with a for-profit participation. In short, UCC lost in the U.S. Tax Court, won a reversal and new trial on appeal, and latterly settled with the IRS in the first place the second tax court trial. Based on my experience as one of the UCC lawyers at the tax court trial and on my observations of the interactions of IRS lawyers at that time, it is firmly believed the IRS will now engage its UCC positions to e-commerce ventures of nonprofit organizations.The IRS positions that emerged from this case should raise a red flag for associations when it comes to the planning and development of their own online joint ventures. In essence, associations must(prenominal) scrutinize arrangements in which The re is too much contractual obtain of the venture by the for-profit Funds belonging to the nonprofit flow to the benefit of the for-profit comp each Too small a portion of joint venture proceeds are obtained by the nonprofit Too large a portion of the joint venture proceeds are obtained by the for-profit The contract term is too long (e.g., five years) and/or Insufficient competition exists in the selection of the for-profit company.Intermediate sanctionsIntermediate sanctions, part of the Internal Revenue Code, tax individuals, not organizations. term intermediate sanctions most often tax employees and volunteers associated with a 501(c)(3) or 501(c)(4) organizationor with an affiliate or foundation that has such status even if the organization does notother individuals also may be taxed . Typically, this might include outsiders who have hard influence all over dissipation benefit and revenue-sharing transactions.For example, suppose an associations brain executive officer or one of its department directors negotiates a contract with a for-profit company for a joint venture through which the company earns $1 million. If the IRS determines that the outside company had substantial influence over the actions of the association in this venture, such that under normal circumstances the companys earnings would have been only $800,000, then the excess benefit to the outside companyin this case $200,000is the amount to which the tax applies.The good news is that in this scenario the association is not taxed. The bad news is that the association CEO or department director may well be. While the outside company may be taxed at 25 percent of the excess benefit, for instance, the association supply members involved in negotiating the contract may be taxed at 10 percent of the excess benefit. Additionally, the tax applies for every year during which the challenged transaction remains uncorrected. In this particular scenario, that could mean that after foursome year s the outside company may be taxed at 100 percent and the association staff members involved may be taxed at 40 percent.How, then, merchant ship association staff and volunteers be certain that the organization develops and negotiates joint-venture agreements in ways that wont expose them to intermediate sanctions? Heeding the bulleted points listed within the UCC section earlier in this article is a good start. In asset, individuals may get the benefit of a presumption of information if disinterested directors approve the transaction, and use comparability data, and document their work.Uniform Computer Information Transactions ActUCITA is the first federal law superlativeing transactions involving computer information, and most often this will include e-commerce transactions. Virginia and Maryland have already passed UCITA, and many other states will do so by the remove of 2001. Since UCITA is widely regarded as a vendor-oriented statute, participants in transactions covered b y the actsuch as an association undertake for a new Web site or other online ventureswill face a greater need for up-front legal planning.At least part of this initial planning must include determining what changes to build to ensure effective warranty and liability provisions for the association, since guidelines provided by older laws will no long apply. Careful analysis during early planning of the online venture will be all the more burning(prenominal) because UCITA has its own list of mandatory, non-negotiable provisions.Related rulingsIn addition to UCC, intermediate sanctions, and UCITA, recent court cases have address taxation of royalty income from activities such as traditional parity programs that have migrated online and electronic publishing and database ventures. The good news is that the courts have sided with associations claiming tax-free royalties. The bad news is that achieving that result without careful legal planning and write remains as tough as ever.Li kewise, the IRS recently reissued its regulations addressing the unrelated business income tax (UBIT) exception for sponsorship income. moneymaking(prenominal) companies are increasingly interested in sponsoring the associations activities, including those taking place on the Internet. The regulations limit the situations in which income from sponsorships can be tax-free.And finally, the IRS issued a revenue ruling on hospital joint ventures that also applies to other exempt-organization joint ventures. That ruling emphasizes contractual authorization provisions in the joint venture. In essence, too much control by the commercial joint venture partner can endanger the tax-exempt status. The ruling suggests a three-part safe harbor test for associations to protect their exempt status. First, the dominant calculate of the joint venture should be one of the tax-exempt purposes of the association. Second, private or for-profit benefit must be merely incidental. And third, the associa tion must have effective control of the venture.Online Income ModelsOne easy way to classify strategic online partnerships is by the nature of the income the association will receive and what can be done to make that income tax-free. It is critical at the initiation of evaluating an e-commerce proposal to realize that achieving tax-free income by accident is extremely unlikely. More and more during recent decades the IRS has administered UBIT as a tax that applies to almost all association income unless it is intentionally structured that income to fit within UBIT exclusion. hostile to traditional thinking, the income is not automatically tax-free simply because the organization is tax-exempt. Here is an over setting of the primary online revenue-sharing models.RoyaltiesOnline partners may have the permission to use the associations name and logo on its site in trade for a royalty. Partners may be licensed to use information gathered on the e-commerce site for its own commercial purposes, in exchange for a royalty.CommissionsThe organization may provide services and get paid a commission. That is chiefly considered taxable income. In many cases, the same activity would be better structured, legally and tax-wise, as a royalty. From a legal perspective, a royalty arrangement is preferable because the association would be considered as a passive licensor rather than an active participant in the business, thereby avoiding liability for legal claims against that business.A royalty arrangement would also be better tax-wise because the royalty would be tax-free. However, as is evident by their associations contracts, many association executives do not fully understand that a commission cannot be made into a royalty by simply calling it that. First and foremost, the facts of the arrangement have to change.SponsorshipsA company may be authorized to sponsor a Web page, a Web-based educational program, or almost anything else in exchange for a sponsorship payment. If the sponsor does not receive a substantial return benefit, the payment can be tax-free. It must be realize, however, that large sponsorship payments often come with strings attached, so sponsorship regulations require careful analysis. For example, the IRS deals somewhat harshly with exclusive sponsorships in which the sponsors competitors are prohibited from providing their goods or services to the members.Charitable Contributions miscellaneous agreements are being promoted by commercial companies to get charities involved in their online commercial ventures in exchange for making payments to the charities. These payments are sometimes characterized as charitable contributions. If someone pays money to a commercial company with the understanding and intent that a portion of it will go to a charity as a gift, that gift may be properly characterized by the charity as a contribution to the charity, and therefore be considered tax-free income. However, this isnt always the case. If th e charity provides services to the commercial company, for example, the IRS may classify the income as a fee for services. Each charitable partnership proposal requires individual analysis.Business-to-business Internet marketplacesMany associations are considering the online business-to-business model, initiated both on their own or with an outside partner. A vertical B-to-B marketplace automates procurement by bringing buyers and sellers together for transactions, and sometimes providing and/or gathering industry-specific information. A horizontal marketplace provides goods and services generic to many businesses, such as office supplies or business insurance. Internet marketplace relationships in particular declare rise to several key issues. Taxation. standoffs that run these Internet activities on their own can obtain several types of income, including fees for each consummated transaction. Absent a compelling argument that the service provided primarily benefits the public, such fees are likely to be taxable income. Associations that license their name and logo to a commercial marketplace operator, however, can collect tax-free royalties. Control. The do-it-yourself model permits more control than the licensing model. However, licensing agreements may provide quality control standards for the partner actually providing the product or service. Antitrust concerns. Either type of Internet marketplace raises substantial antitrust concerns (collusion and anticompetitive results) at the Justice Department and the Federal Trade Commission. These concerns are best handled while screen background up the marketplace, by the way the marketplace is structured, and through specific provisions in underlying legal documents.Migrating To The InternetSome associations are migrating traditional activities to the Web. For example, publications are being moved online, as are family relationship programs. What happens to the legal and tax issues surrounding these activi ties within an online context? The answer may be not much, or a spile. Not much happens if it is considered that a royalty is not changed to taxable income, or vice versa, by converting the member insurance affinity program to a Web-based marketing and application process. But a lot can happen if it is considered that new issues may arise that were less important, or even non-existent, prior to the migration.For example, solitude issues abound on the Internet. Will the members be more reluctant to supply insurance applications or claims data electronically? They well could be if they understand the evolution of privacy and security on the Internet. When asked about his companys Internet privacy policy, Scott McNealy, chairman and chief executive officer of Sun Microsystems, said the policy could be utter in eight simple words There is no Internet privacy. Get over it.Migrating an affinity program to the Web also raises a variety of legal and tax linking questions that will not be resolved anytime soon. For instance, is the link from an association site to an insurance providers site intellectual property that can be licensed for a royalty? Probably. Can a nonprofit, especially a Section 501(c)(3)or 501(c)(4) organization, give remote the linkmeaning permit the link to be used without charge? Probably not, because this could raise exempt-status issues, and for those two types of organizations, intermediate sanctions issues (taxation of individuals) as well. In addition, especially for charities, state attorneys general might object to diversions of charitable assets.E-Commerce ContractsWhy do organizations sign up for e-commerce sites so often strike out in the contract department?Strike one. Association leaders sign standard contracts that take away the organizations rights. And these contracts may reflect unintended legal relationshipsfor instance, the contract may describe the relationship as a partnership when it is actually intended to establish a lic ensor/licensee arrangement.Strike two. Association staff negotiates their own contract changes rather than using a lawyer to negotiate the legal documents.Strike three. The association does its own drafting rather than relying on legal analysis to go through out what laws apply, how to apply them to the contract, and how to integrate all parts of the contract. Out. When problems arise later, do not expect the contract for assistance.In e-commerce, as in baseball, three strikes typically mean that the player is out of the game. Failure to consider the complexities of old and new laws as they affect commercial activities on the Internet will strangle the income potential and increase the tax liability and other legal risk. Using legal counsel to help go the e-commerce activities with new legal developmentsand to design and negotiate the customized contracts imperative in the new economywill result in more income with less risk.Reducing e-Commerce RiskBecause online ventures are for the most part still a new addition to the family of association strategic partnerships, the potential for legal and financial risk is very real. But associations can reduce their risk by keeping four things in mind1. A new person in the market is less likely to do something right the first time through. When the potential to make mistakes is recognized, one may slow down enough to ask more questions and seek more help, rather than seek to move ahead at Internet speed.2. If the association is breaking new ground in the world of online ventures, recognize that the legal outcomes are less certain and potential dispute costs will be much higher, since no real legal precedence will be available on which to hang the hat.3. In an online world, the number of potential plaintiffs who may want to sue is infinitely larger than in the pre-online world.4. While Internet insurance policies are currently in the plant, many traditional policies dont explicitly state that they cover the associati ons e-commerce endeavors. This itself should encourage associations to proceed cautiously in their online ventures.Of course, careful analysis and development of any new venture early on will help reduce both legal and financial risk. To ensure that the associations strategic planning includes strategic thinking about the online initiatives, be sure to answer certain key questions as an early part of a comprehensive e-commerce action plan What new e-commerce activities are in the works throughout the association? What current e-commerce activities need legal review? What tax analysis has been done with regard to these activities, and what tax alternatives need more analysis? What budget steps must be taken before outside help is retained? Who should be on e-commerce planning team (e.g., senior information technology staff or consultant, insurance agent, lawyer, or certified public accountant)?ConclusionIn view of the great importance of e-commerce, it is absolutely necessary to hav e adequate decree. Such legislation must be adopted worldwide because the ease systems such as the Internet offer to the international trading of products or services, forces such transactions to be made in accordance with the trade law of each of the countries involved. The adequate legislation in each of the countries that perform electronic transactions will help the growth of e-business transactions.In view of the fact that e-commerce is in a very early stage of development in many countries, there is no specific legislation in this respect. As electronic commerce is not mentioned in any impartiality or Regulation, electronic transactions are not considered as valid for any enforcement purpose at this time. Meanwhile, in many countries, in the absence of any specific legislation, parties may rely on private agreements to govern their e-commerce transactions. However, the agreements will not be enforceable unless they are in written form and signed by both parties.Bibliography Barlow, J.P. 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