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Legal, Ethical and Tax Issues in E-Commerce

The following is a case with four questions. Please give me a sound basis for the answer to each question.

Ellen Carson is the author and illustrator of a successful series of children's books that chronicle the adventures of Ellasaurus, a four-year-old orange dinosaur. Ellen has done well with the books, but her business advisors have told her that she could earn considerably more money by creating a merchandising business around the Ellasaurus character. Following this advice, she has created Ellasaurus Products Enterprises (EPE), a company that has begun developing and marketing Ellasaurus toys, stuffed animals, coloring books, pajamas, and Halloween costumes.

EPE has had some success in its attempts to get major retailers to stock the Ellasaurus product line, but Ellen is concerned that retailers might not be willing to take on a new and unproven product. She would like to create a Web site through which EPE could sell its merchandise directly to customers. She also sees the Web site as a way to build customer loyalty. Ellen envisions a site with a number of portal features in addition to the product sales. For example, she would like to offer online games, chat rooms, e-mail accounts, and other activities that would promote EPE products and her books.

The Ellasaurus book series appeals to children that are between four and six years old. Ellen expects the EPE product line to appeal to children in about the same age range. Ellen has visited sites such as Hello Kitty and Nick Jr., which appeal to similar age groups to get ideas for the site. She would like the site to be appealing to her main audience, but she would like to obtain registration information from site visitors so EPE can send e-mails with information about new products and Web site features to them.

Ellen plans to limit the Web site's merchandise sales to U.S. residents at first, but she hopes to begin selling internationally within a few years. The site will allow visitors from any country to register and participate in the online portal features.

My questions are:
a. Describe the Intellectual property issues that might arise in the operation of the Web site
b. The ethical issues that Ellen faces because of the ages of her intended audience members
c. The laws with which the site must comply when it registers site visitors under the age of 13 and how Ellen can best comply with those laws
d. The sales tax liabilities to which the Web site will be exposed. Assume that Ellen will operate the site from her home office in Michigan and that EPE will manufacture the merchandise in Texas. The merchandise will be warehoused at EPE distribution centers in New Jersey, Ohio, and California.

Solution Preview

(a) The Internet makes it extremely easy to copy and paste images and text from one website onto another. In the United States, "moral rights" are governed by § 106A of the Copyright Act (known as the Visual Artists' Rights Act of 1990). The Act explicitly denies moral rights protection to all forms of electronic publishing, and to works of visual art produced in quantities of more than 200. It's still debatable whether copyright and trademark law should be applied to the Internet in the same way that it is applied in traditional media, or does the ease of digital copying (and the copy-friendly culture of the Internet) call for a different standard on the Web. Copyright law applies to original works that are fixed in a tangible medium. The Internet is not completely viewed as a "tangible medium", the images and text cannot be really "fixed" on a website.
"Fair use" doctrine has also been used in other areas of intellectual property law. Trademark and trade dress law apply the "fair use" exception less generously than copyright law, but use much of the same reasoning in cases where a parody is thought to infringe upon a protected trademark. Since the many copyrighted works (such as the shape of a Barbie Doll or the appearance of a Coca-Cola logo) are also protected under trademark law, the fair use exception to trademark infringement is also applicable to artists and authors on the Internet. Perhaps the most relevant exception to copyright protection is § 107 of the Copyright Act, the "fair use" exception. Under fair use doctrine, parodies that incorporate part of a copyrighted work are protected if they are intended to criticize or comment upon that work are protected. If those who distort copyrighted works are engaging in social criticism (and perhaps even if they are not), they may be engaging in "fair use."

(b) Ethical issues that ...

Solution Summary

Over 1100 words on intellectual property, legal and ethical issues a website promoting a toy line may run into.