DISS 790 Information Policy

Task 1

What are the major differences between a copyright and a patent?

Copyrights differ from patents in several ways. These differences include the type of intellectual property protected, breadth of protection, period until protection takes effect, length of protection, cost of the application process, application time limits, right to protect improvements, and maintenance fees charged to continue coverage.

Type of Intellectual Property Protected

The basic difference between a copyright and a patent is the type of intellectual property each protects. A patent protects ideas as expressed in an invention (e.g. a machine or process) (Fishman, 2000). In contrast, a copyright protects only the words an author uses to express an idea, not the idea itself. A copyright covers only the expression of a work. It does not prevent people from appropriating ideas that the work embodies (Oppedahl & Larson, 2000b).

Immediate Protection

Another major difference is the period it takes for protection to take effect (Strong, 1999). Copyright protection begins the moment a work is created and fixed in a tangible form. In addition, copyright registration is routinely granted upon filing a simple application. Patent coverage, on the other hand, is granted only after preparing a detailed application, and then only after an examiner determines the application is allowable. In addition, the patent application process can take years to complete, and often ends with rejection.

Breadth of Protection

In addition, patents are more narrowly defined than copyrights (Karjala, 1998). Patents are narrowly claimed, and the protection afforded by a patent is limited to those claims. Copyrights, on the other hand, have no requirement for the owner to specify which aspects of a work are protected and which are not.

Length of Coverage

The length of time that a copyright remains in effect is considerably longer than that of a patent. For example, the term of a utility patent is either 17 or 20 years (Alpern, 1999). In contrast, copyright protection for works created after January 1, 1978 remains in effect for 95 years from publication or 120 years from creation, whichever is shorter.

Cost

Cost is another area in which the two are different (Oppedahl & Larson, 2000a). In addition to being complicated, the patent process is expensive and can cost $10,000 or more. In contrast, the filing fee to register a copyright is only $30.

Application Time Limits

Under U.S. patent law, a patent will not be granted unless the application is filed less than one year from the date that the invention was sold or offered for sale within the United States (Oppedahl & Larson, 2000b). In addition, the patent will be denied unless the application is filed within one year of the date the invention was described in a printed publication anywhere in the world.

In contrast, a copyright application may be filed many years after the initial publication of the work (Oppedahl & Larson, 2000a). There is no particular time limit imposed for filing a copyright registration application.

Right to Protect Improvements

Copyrights and patents also differ in the area of improvements (Karjala, 1998). A copyrighted work may not be improved without the owner’s permission. In contrast, another person may file for and receive a patent for improvements made to another invention.

Maintenance Fees

Another difference between copyrights and patents is the requirement to pay maintenance fees throughout a patent’s life (Oppedahl & Larson, 2000b). Failure to pay these fees, which add up to thousands of dollars, results in patent expiration. No maintenance fees are required for a copyright.

Conclusion

In summary, many differences exist between copyrights and patents. Major differences include the type of intellectual property protected, breadth of protection, period until protection takes effect, length of protection, cost of the application process, application time limits, right to protect improvements, and maintenance fees charged to continue coverage. Finally, the most fundamental difference is that patents protect creative, functional invention, while copyrights protect creative, nonfunctional authorship (Karjala, 1998).

References

Alpern, A. (1999). 101 Questions About Copyright Law. Mineola, New York: Dover.

Fishman, S. (2000). The Copyright Handbook: How to Protect and Use Written Works (Fifth ed.). Berkeley, CA: Nolo.

Karjala, D. (1998). The Relative Roles of Patent and Copyright in the Protection of Computer Programs. John Marshall Journal of Computer & Information Law. http://www.jmls.edu/jcil/17/karjala.html. Accessed December 6, 2000.

Oppedahl, C., & Larson, M. (2000a). General Information About Copyrights. Oppedahl & Larson LLP. http://www.patents.com/copyrigh.htm. Updated September 13, 2000. Accessed November 24, 2000.

Oppedahl, C., & Larson, M. (2000b). General Information About Patents. Oppedahl & Larson LLP. http://www.patents.com/patents.htm#compare-copyright. Updated May 13, 1997. Accessed November 24, 2000.

Strong, W. (1999). The Copyright Book: A Practical Guide (Fifth ed.). Cambridge, Massachusetts: MIT Press.

Task 2

Answer:

Name of owner

Year of first writing

A properly constituted copyright notice has all of the following elements: the C in a circle symbol, or the word copyright, or the abbreviation “Copr.”, the name of the copyright owner, and the year of first publication (Strong, 1999). The phrase “All rights reserved” is not required. In addition, filing for a copyright is not required.

Subtask b - Which of the following types of works can be copyrighted? Titles of books, Computer programs, Mathematical formulas, Musical recordings, Sculptures

Answer:

Computer programs

Musical recordings

Sculptures

Copyright protects “original works of authorship” (U.S. Copyright Office, 2000a). These works must also be fixed in a tangible form of expression. Copyright works include the following: literary, musical, dramatic, pantomimes and choreographic, pictorial, graphic, sculptural, motion pictures, sound recordings, and architectural. Titles, names, short phrases, and slogans are not protected. In addition, mathematical formulas are not protected (Strong, 1999). Mathematical equations are regarded as common property, as are scientific discoveries, and historical theories.

However, there may be a basis for copyright protection when a recipe or formula is accompanied by substantial literary expression in the form of an explanation or directions (U.S. Copyright Office, 2000c). Furthermore, there appears to be a trend in the U.S. Patent Office to grant patents to algorithms where a machine (i.e. computer) is identified as a component (Strong, 1999). For example, a patent was granted to an algorithm developed by Bell Labs. The algorithm can be used to optimally route anything from airline flights to telephone calls.

References

Strong, W. (1999). The Copyright Book: A Practical Guide (Fifth ed.). Cambridge, Massachusetts: MIT Press.

U.S. Copyright Office (2000a). Circular 1: Copyright Basics. Library of Congress. http://www.loc.gov/copyright/circs/circ1.html. Updated May, 2000. Accessed December 3, 2000.

U.S. Copyright Office (2000c). Questions Frequently Asked in the Copyright Office Public Information Section. Library of Congress. http://www.loc.gov/copyright/faq.html. Updated June 2, 2000. Accessed December 3, 2000.

Task 3

Answer the following statements concerning copyright as true or false. Several of the statements may require elaboration beyond a true/false answer.

Subtask a - "A copyrightable work first becomes protected by copyright law when it is imagined."

False, a copyrightable work first becomes protected by copyright law when it is “fixed in a tangible form” (U.S. Copyright Office, 2000a).

Subtask b - "Anything posted to newsgroups or discussion forums on the net are in the public domain."

False, a newsgroup or discussion forum posting is not in the public domain unless the author/owner of the posting has dedicated it to the public or the copyright term of the posting has expired (Oppedahl & Larson, 2000a).

Subtask c - "I can adapt another's work and seek a copyright for the resulting publication."

False, only the owner of the copyright for a work has the right to authorize someone else to adapt or create a new version of the work (U.S. Copyright Office, 2000c). In addition, an adaptation of another’s work is not original and therefore not copyrightable.

Subtask d - "I can copy anything as long as it doesn't have a copyright notice."

False, the use of a copyright notice is not required under U.S. law (optional for works published on or after March 1, 1989) (Chabrow, 1996). Copyright law protects a copyrightable work as soon as it is fixed in a tangible form (U.S. Copyright Office, 2000a). While using a copyright notice was once required by prior law, it is now optional.

Subtask e - "I can make copies of anything as long as I don't make money in doing so."

False, section 106 of the 1976 Copyright Act generally gives the owner of a copyright the exclusive right to reproduce or authorize others to reproduce the work in copies or phonorecords (U.S. Copyright Office, 2000a). This exclusive right is limited in cases in which the copying meets “fair use” factors.

Subtask f - "Copyright is simply too costly to bother."

False, copyright registration is inexpensive and offers many benefits to the owner (Oppedahl & Larson, 2000a). For example, it creates the presumption of ownership and is required in order to bring a lawsuit for infringement of a U.S. work. In addition, the filing fee to register a copyright is only $30.

Subtask g - "I can repost someone's email to me without violating copyright."

False, the instant someone finishes typing an e-mail it is protected by federal copyright law (Overly, 1999). Sending an e-mail to someone gives that person the right to make a copy of it on his/her hard disk drive. It does not give that person permission to forward the message to a wide number of people, post the message on the Internet, or incorporate it into another work. However, depending on the circumstances, the sender may have given permission to forward the message to someone else.

Subtask h - "I can't get arrested for copyright infringement as long as the value of what I am copying is $500 or less."

True, because the total retail value of the copyrighted work must be more than $1,000 for the violator to be prosecuted criminally (Fishman, 2000). In addition, copyright infringement has traditionally been dealt with in civil court and does not involve arrest.

Subtask i - "I don't have to worry about copying and distributing copyright materials for educational purposes. Such materials are exempt under U.S. copyright law's 'fair use doctrine'."

False, while “fair use” does limit the exclusive rights of a copyright owner when a work is copied and distributed for educational purposes (including multiple copies for use in the classroom), educators must consider the following factors to determine if their actions are covered by “fair use” (Fishman, 2000):

1. The purpose and character of the use – including if it is to be used for nonprofit or commercial educational purposes

2. The nature of the copyrighted work

3. The amount of the work used in relation to the work as a whole

4. The effect of the use on the value of or the potential market for the work

The above factors do not weigh equally in every case. However, the courts when deciding fair use cases consider them all. Finally, the photocopying of limited portions of written works by teachers for classroom use is considered fair use.

Subtask j - "I have placed a copyright on my name."

False, titles, names, short phrases, and slogans are generally not eligible for federal copyright protection (U.S. Copyright Office, 2000a).

Subtask k - "If you don't defend your copyright, you will lose it."

False, a work is copyright protected from the moment it is created and fixed in a tangible form (U.S. Copyright Office, 2000a). The copyright remains in force until it expires. Expiration dates are determined by factors such as the creation date of the work, the life span of the author, and if it was published or registered - not whether the copyright is defended.

Subtask l - "My use of someone else's original document is serving as a free advertisement for their publication and is not in violation of copyright laws."

False, using someone else’s original document without authorization is a violation of U.S. copyright law (U.S. Copyright Office, 2000c). There are limited circumstances, under the fair use doctrine, where a sample or quote may be used without permission. However, providing free advertisement is not one of them.

References

Chabrow, E. (1996). Five Major Myths of Copyright Law. InformationWeek. http://www.techweb.com/se/directlink.cgi?IWK19960325S0047. Updated March 25, 1996. Accessed November 24, 2000.

Fishman, S. (2000). The Copyright Handbook: How to Protect and Use Written Works (Fifth ed.). Berkeley, CA: Nolo.

Oppedahl, C., & Larson, M. (2000a). General Information About Copyrights. Oppedahl & Larson LLP. http://www.patents.com/copyrigh.htm. Updated September 13, 2000. Accessed November 24, 2000.

Overly, M. (1999). E-policy: How to develop computer, e-mail, and Internet guidelines to protect your company and its assets. New York: American Management Association.

U.S. Copyright Office (2000a). Circular 1: Copyright Basics. Library of Congress. http://www.loc.gov/copyright/circs/circ1.html. Updated May, 2000. Accessed December 3, 2000.

Task 4

What remedies are there for the problems that are seemingly plaguing the U.S. patent system?

A significant number of intellectual property experts believe that the U.S. patent system is under more strain today than during any other period in its history (Lepkowski, 2000). The problems that plague the system come from many sources and are related to developments in biotechnology, information technology, and Internet-based business processes. As a result, the intellectual property courts, along with the U.S. Patent and Trademark Office (USPTO), are overloaded with new challenges that have little or no precedent.

The following sections discuss problems the PTO must address along with possible remedies. The problems include unqualified patent examiners, lack of resources and tools, patentability of software and software-enabled business methods, low standards/overstated claims, high patent fees, and lengthy times to patent.

Problems

Unqualified Patent Examiners

In general, patent examiners are not sufficiently familiar with new technologies. Examiner inexperience often results in the issuance of patents with claims that are too broad. In addition, unqualified examiners contribute to the PTO’s biggest problem of not being able to locate “prior art” (Heckel, 1992). In addition, one of the biggest challenges facing PTO examiners is to gain experience in handling the increasing number of business method patents (Lepkowski, 2000). For example, a competent examiner could have blocked the Compton multimedia patent since the patent’s claims covered techniques that are well known to any knowledgeable computer programmer.

Lack of Resources and Tools

Not only are many of the PTO’s patent examiners unqualified, there are also not enough of them to handle the increasing workload. The shortage of examiners is primarily caused by attrition and a lack of funding. For example, the PTO encourages its examiners to take law courses to improve their job skills (Garfinkel, 1994). However, patent examiners routinely leave government service once they earn their law degrees.

In addition, current funding from Congress does not allow the PTO to issue patents in a timely manner (Fisher, 1997). The PTO’s average patent pendancy is now set at 20 months with complicated technology patents taking even longer. Lack of funding also limits the wages the PTO is able to pay examiners. Patent examiners currently earn from one quarter to one third that of an industry engineer.

A lack of tools further hinders the PTO’s inexperienced examiners (Ratliff, 2000). For example, a searchable, centralized database would enable examiners to more effectively screen out inventions that are not novel.

Patentability of Software and Software-enabled Business Methods

In recent years, the area of intellectual property related to the software programming that enables business methods has become controversial (Lepkowski, 2000). It began with the Federal court of Appeals’ 1998 decision in State Street Bank & Trust Co. versus Signature Financial Group (Bresnahan, 2000). The court found in favor of Signature and upheld its business method patent. The patent covered a data processing software system that performed a set of elaborate calculations required to maintain a complex investment portfolio.

Examples of other business method patents that have been in the courts recently are Amazon.com’s one-click ordering system and Priceline.com’s Web-based reverse auctions (Pressman, 2000). Congressional critics and patent attorneys charge that the PTO’s research methods, which rely on limited information, fail to turn up evidence of business methods that are widely in use online.

In addition to the new problems created by software-enabled business method patents, ordinary software patents present a fundamental problem because any programmer can unknowingly violate them. What may seem to be a trivial section of code to a programmer may already be a patented routine (Garfinkel, 1994). In addition, conducting a patent search is not an adequate solution since it is costly, time consuming, and does not conclusively determine if any existing patents have been violated.

Low Standards/Overstated Claims

The Compton’s patent is a classic example of overstated claims in a software patent (Ratliff, 2000). The patent covered a common CD-ROM search method, and Compton’s threatened to exact licensing fees from any company developing multimedia CDs. The controversy that followed led to the reexamination and rejection of the patent by the PTO.

High Patent Fees

High patent fees significantly limit the ability of inventors and companies, particularly the small inventor, to take part in the patent system (Fisher, 1997). For example, a patent search can cost between a few hundred and a few thousand dollars (Garfinkel, 1994). In addition, the cost of a patent lawsuit averages $1.5 million (Lepkowski, 2000).

In the future, reduced levels of Congressional funding will most likely result in even higher patent fees (Fisher, 1997). Without sustained levels of funding, the PTO will be unable to cover operating costs and will be forced to raise user fees – thereby decreasing the number of inventors able to gain access to the U.S. patent system.

Lengthy Times to Patent

The length of time to finish a patent examination is another problem. Overloaded patent examiners sometimes take years to finish the process. In industries with short innovation cycles, this can have a negative effect. For example, the software industry has only an 18-month innovation cycle (Lepkowski, 2000). Thousands of existing software patents will probably not hold up to litigation because the shorthanded PTO did not have enough time to conduct an adequate search of the prior art.

Remedies

Central Library

The ideal patent office would include a huge, centralized, and searchable database of prior art that examiners could use to review applications (Ratliff, 2000). Existing patent fees (currently being diverted by Congress to other projects) could fund this central library. The existing system gives patent examiners a limited amount of time to sort through stacks of paper and use an outdated computer system to review each patent. In the case of industries with short innovation cycles, a searchable, central library would be of even greater benefit.

Probation Period

Even with a central library, patent examiners will be unable to match the resources available to industry experts and venture capitalists. Another remedy would be to take advantage of these private sector resources to improve the quality of patents. Under one proposal, a formal opposition period would be set up before a patent is granted. During this period, “probational” patents would be posted on the Internet for the vast audience of interested parties to look over for potentially overstated claims (Ratliff, 2000). This additional opportunity to challenge the award of questionable patents (e.g. some business method patents) would simplify the whole process (Ellis, 2000).

Bonus System

In conjunction with a probationary period, another positive step would be to link the bonuses received by patent examiners with the number of issued patents that survive the formal opposition period (Ratliff, 2000).

Appropriate Levels of Public and Private Funding

Another remedy for the problems facing the PTO would be to provide adequate public and private funding (Fisher, 1997). Patent fees (currently diverted by Congress to a general fund) should be earmarked for the PTO. In addition, Congress should fully fund the PTO’s public functions, such as classifying, archiving, indexing, maintaining the patent library, and general administration. Individual users should pay reasonable fees for the PTO’s private functions, such as patent application processing and other individual requests. Additional funds could also be used to give patent examiners higher wages as well as training in areas of new technology.

Conclusion

Perhaps the greatest obstacle to change at the PTO is inertia (Ratliff, 2000). Since the first patent issued in 1790, few people have paid much attention to the patent office. Today the PTO faces numerous problems related to unqualified patent examiners, lack of resources and tools, patentability of software and software-enabled business methods, low standards/overstated claims, high patent fees, and lengthy times to patent. Remedies for these problems include a central library, a formal opposition period, an examiner bonus system, and appropriate levels of public and private funding.

References

Bresnahan, J. (2000). Choose Your Poison. CIO Magazine. http://www.cio.com/archive/041500_poison.html. Updated April 15, 2000. Accessed November 24, 2000.

Ellis, K. (2000). Net Patent Bill Introduced. WiredNews. http://www.wired.com/news/politics/0,1283,39238,00.html. Updated October 3, 2000. Accessed December 9, 2000.

Fisher, D. (1997). Statement by Daniel E. Fisher, IEEE Chair. IEEE. http://www.ieeeusa.org/documents/FORUM/LIBRARY/PAPERS/hr673.html. Updated February 26, 1997. Accessed December 7, 2000.

Garfinkel, S. (1994). Patently Absurd. WiredNews. http://www.wired.com/wired/archive/2.07/patents_pr.html. Updated July, 1994. Accessed December 7, 2000.

Heckel, P. (1992). Debunking the Software Patent Myths. ACM. http://www.heckel.org/Heckel/ACM%20Paper/acmpaper.htm. Updated June, 1992. Accessed December 7, 2000.

Lepkowski, W. (2000). Rifts in U.S. Patent System Spur National Research Council to Undertake "Most Ambitious Exam Ever". Research Technology Management. http://www.onlinejournal.net/iri/RTM/2000/43/3/html/43_3_2.html. Updated May 1, 2000. Accessed December 9, 2000.

Pressman, A. (2000). The Great Patent Giveaway. TheStandard. http://www.thestandard.com/article/display/0,1151,20543,00.html. Updated December 4, 2000. Accessed December 10, 2000.

Ratliff, E. (2000). Patent Upending. WiredNews. http://www.wired.com/wired/archive/8.06/patents_pr.html. Updated June 8, 2000. Accessed December 7, 2000.

Task 5

Briefly, outline the pros and cons of UCITA. Do you support passage of this law by state legislatures? Why/why not?

UCITA is the Uniform Computer Information Transaction Act. The National Conference of Commissioners on Uniform State Laws (NCCUSL) approved UCITA as a proposed uniform state law in July 1999 (Foster, 1999b). The proposed law governs all contracts for the development, sale, licensing, support, and maintenance of computer software (Kaner, 2000). In addition, UCITA extends to other contracts involving information and to the sales of computers, computer peripherals, and embedded software.

UCITA became law in Maryland on October 1, 2000. Software vendors, no matter where they (or their licensees) are located, are now able to cite Maryland law as their “choice of law” in a licensing contract (Thibodeau, 2000). One exception is Iowa, which recently passed legislation to protect in-state firms and residents from UCITA. Like Maryland, Virginia adopted the law but delayed implementation until next July.

Proponents of the law include the software publishing industry (Warren, 2000). In fact, several large computer companies are funding vigorous lobbying efforts to have UCITA enacted nationwide. Opposition to the legislation is extensive. A partial list includes the Attorneys General from half the states, the Federal Trade Commission (FTC), the American Association of Law Libraries, the ACM (Association for Computing Machinery), and the American Bar Associations’ Working Group on Consumer Protection.

Cons

Critics of UCITA say the law gives vendors too much control (Kaner & Pels, 1999). Under UCITA, software publishers have no duty to provide a virus free product. In fact, software vendors can avoid paying for damages caused by a virus by including a simple disclaimer of implied warranties to their licensing agreement. Critics also point out that consumers are only able to see the licensing agreement after they have bought the product. No other industry in the U.S. is allowed to enforce post-sale warranties.

Critics also cite the following:

UCITA authorizes vendors to disable automatically or “repossess” their software on a given date unless a license renewal fee is paid and registered. For example, a vendor could send a message to a computer to shut down a copy of its software. For business critical applications, this could shut down a company. This form of electronic self-help would be a “gun to the head” of corporate customers when disputes arise (Foster, 1999a).
UCITA’s endorsement of shrink-wrap licenses will make unfair terms enforceable in court.
The cost of negotiated contracts will increase because of UCITA. UCITA defaults favor software publishers. This will force corporate customers to negotiate from a weaker position.
New UCITA vendor friendly rules conflict with other state, federal, and international efforts to bring order to the Internet. The law creates less uniformity of law rather than more.
The added protection provided to the software industry by UCITA will be a disincentive to improve existing software applications and will also encourage the premature release of bug-ridden products.
UCITA could allow publishers to outlaw all forms of reverse engineering. Reverse engineering is often key to making applications interoperable.
The law redefines “material breach of contract” and makes it harder to return defective products. For example, a software publisher could include a clause in their shrink-wrap contract that stipulates the licensee cannot cancel the contract and demand a refund even if the product is worthless (Kaner & Pels, 1999).
UCITA allows vendors to charge users a non-refundable per-minute fee for technical support. This fee could apply even when the support is for a defect that was known at the time of shipment.
The law also authorizes restrictions that make it harder for consumers to obtain third-party maintenance or to transfer the software to another user.
UCITA provides loopholes that would allow software publishers to have legal actions decided in their state rather than the consumer’s state.

Finally, concerns over UCITA have been raised by half of the State Attorneys General (Spears, 2000). They argue that the pre-emptive aspects of UCITA eviscerate a variety of state consumer protection laws.

Pros

Proponents of the act argue that UCITA is needed to insure continued growth (Spears, 2000). The law they say lets end users and vendors agree to any contract terms they want. In fact, NASDAQ’s vice president and general counsel stated that UCITA would bring certainty to NASDAQ’s online contracting by providing clear guidelines.

Proponents also cite the following (Brennan & Barber, 1999):

UCITA would provide standardization. The legal standards for information contracting are currently in disarray.
Since commercial contract law is made by the states, not the federal government, UCITA would provide uniformity (i.e. provide the single set of uniform rules needed to realize the potential of e-commerce).
UCITA would also stimulate innovation by encouraging software developers to bring experimental products to market by allowing them to control their risks with disclaimers.

Finally, proponents argue that without UCITA significant problems will occur. These include the increased legal cost of having to comply with different local codes and reduced competition since small companies will not be able to afford these costs.

Conclusion

State legislatures should not pass UCITA. A cardinal rule of intelligent legislation is, “ If it ain’t broke, don’t fix it” (Spears, 2000). Software publishers and customers will be better off if the courts are allowed to decide software license issues on a case‑by‑case basis. UCITA is one-sided and heavily favors the software industry (e.g. software repossession and the enforceability of unfair contract terms).

Furthermore, UCITA would validate existing shrink-wrap licenses and protect companies from users of software that was poorly tested and debugged (Foster, 1999c). Under UCITA, a software publisher is granting the consumer a license to use its product. It is not a sale. Therefore, the user must agree to waive any and/or all rights if he/she wishes to use the software. UCITA is not needed. Proponents of the law fail to recognize that courts across the country have enforced “reasonable” shrink-wrap licenses in the past.

References

Brennan, L., & Barber, G. (1999). Why Software Professionals Should Support UCITA. Software Quality Professional. http://sqp.asq.org/vol1_issue4/sqp_v1i4_brennan.html. Updated August 1999. Accessed December 14, 2000.

Foster, E. (1999a). UCITA: Top Issues. InfoWorld. http://www.infoworld.com/cgi-bin/displayStory.pl?/features/990531ucita3.htm. Updated August 30, 1999. Accessed December 12, 2000.

Foster, E. (1999b). What is UCITA? InfoWorld. http://www.infoworld.com/cgi-bin/displayStory.pl?/features/990531ucita1.htm. Updated August 30, 1999. Accessed December 12, 2000.

Foster, E. (1999c). Why is UCITA Important? InfoWorld. http://www.infoworld.com/cgi-bin/displayStory.pl?/features/990531ucita2.htm. Updated August 30, 1999. Accessed December 12, 2000.

Kaner, C. (2000). Uniform Computer Information Transactions Act (UCITA). Badsoftware.com. http://www.badsoftware.com/uccindex.htm. Updated September 16, 2000. Accessed December 13, 2000.

Kaner, C., & Pels, D. (1999). UCITA: A Bad Law That Protects Bad Software. NetworkWorldFusion. http://www.nwfusion.com/archive/1999/64142_05-03-1999.html. Updated May 5, 1999. Accessed December 14, 2000.

Spears, M. (2000). Software Law From Hell. UpsideToday. http://www.upside.com/texis/mvm/print-it?id=38fe2a930&t=/texis/mvm/news/news. Updated May 2, 2000. Accessed November 24, 2000.

Thibodeau, P. (2000). Maryland's UCITA May Have National Reach. Computerworld. http://www.computerworld.com/cwi/story/0,1199,NAV47_STO49486,00.html. Updated September 4, 2000. Accessed September 12, 2000.

Warren, J. (2000). UCITA "Rules". Government Technology. http://www.govtech.net/publications/gt/2000/sept/eComerceSL/stateLocal.phtml. Updated September, 2000. Accessed December 2, 2000.

Task 6

Should e-commerce be exempt from sales tax? Why/why not?

In 1998, the Internet Tax Freedom Act (ITFA) became law (Pressman, 2000). ITFA defines electronic commerce (e-commerce) as “any transaction conducted over the Internet or through Internet access, comprising the sale, lease, license, offer or delivery of property, goods, services or information, whether or not for consideration, and includes the provision of Internet access” (Bartlett, 2000). The law which is set to expire in October 2001, prohibits the imposition of any sales or use taxes on Internet access or any discriminatory or multiple taxes on electronic commerce.

A grandfather clause in the act gives states that taxed Internet access on or before October 1, 1998, the right to continue the practice (Rogers, 2000). As a result, Iowa, North Dakota, South Dakota, Connecticut, New Mexico, Ohio, Tennessee, South Carolina, Texas, and Washington currently tax Internet access. However, a bill to extend the current moratorium to 2006 is currently making its way through Congress. If the moratorium becomes law, the grandfather provision will end.

Under existing tax laws that remain in effect until the federal moratorium expires, e‑commerce businesses are subject to the same guidelines that apply to catalog businesses (Tessler, 2000). Under those rules, from the 1992 Supreme Court decision in Quill Corporation versus North Dakota, merchants do not need to collect sales taxes unless they have a “nexus” (i.e. physical presence such as a store or warehouse) in the state in which a customer is located. In addition, it is important to note that e-commerce is merely an extension of mail and catalog sales and are treated the same for tax purposes.

Historically, states have had a difficult time taxing mail order sales (Bartlett, 2000). Unless the seller withholds the tax, the tax is usually not collected. In fact, several Supreme Court cases have made it difficult for states to force out-of-state sellers to withhold sales taxes. Generally, a business without a physical presence in a state is not required to withhold use taxes.

In order to avoid having to withhold sales taxes, some businesses have set up subsidiaries to handle Internet sales in order to avoid creating a nexus in a state (Bartlett, 2000). For example, Barnesandnoble.com is independent of the brick-and-mortar Barnes & Noble Bookstores. Since the majority shareholder of Barnesandnoble.com is German publisher Bertelsmann AG, the online bookseller does not withhold use taxes.

Should e-commerce be exempt from sales tax?