Before the advent of the Web, people made audiotape copies of music andÂ videos. They either gave these copies to friends and family or used them for theirÂ own personal enjoyment. Few individuals had either the interest or the meansÂ to create and distribute copies to larger populations. For the most part, theseÂ activities were ignored by the producers, distributors, and artists who had theÂ legal rights to the content.
Then came the Web and a variety of enterprising sites such as MP3.com andÂ Napster.com. MP3.com enabled users to listen to music from any computer withÂ an Internet connection, without paying royalties. Using peer-to-peer (P2P) technology,Â Napster supported the distribution of music and other digitized contentÂ among millions of users. When asked whether they were doing anything illegal,Â MP3.com and Napster claimed that they were simply supporting what had beenÂ done for years and, like most private individuals, were not charging for theirÂ services. Other companies extended the concept to other digitizable media suchÂ as videos and movies.
The popularity of MP3.com and P2P services was too great for the contentÂ creators and owners to ignore. Music sales declined. To the creators and owners, the Web was becoming a vast copyingÂ machine for pirated software, CDs, movies, and the like. If left undeterred,Â MP3.comâ€™s and Napsterâ€™s services could result in the loss of many thousands ofÂ jobs and millions of dollars in revenue.
In December 2000, EMusicÂ filed a copyright infringement lawsuitÂ against MP3.com. They claimed ownership of the digital rights to some of the musicÂ made available at MP3.com. Other companiesâ€”Warner Brothers Music Group,Â EMI Group PLC, BMG Entertainment, and Sony Music Entertainmentâ€”followedÂ suit. A year later, Napster faced similar legal claims, lost the legal battle, and wasÂ forced to pay royalties for each piece of music it supported. This resulted in its collapse. Some P2P companies moved to otherÂ countries, trying to escape U.S. copyright laws, but the legal problems follow them.
Copyright laws and copyright infringement cases have been in existence forÂ decades. However, the legal system can be picky and slow to resolve legal difficultiesÂ and close loopholes. First, existing copyright laws were written for physical,Â not digital, content. Second, the Copyright Infringement Act states, â€œthe defendantÂ must have willfully infringed the copyright and gained financially.â€ WithÂ respect to the second point, a MIT student named David LaMacchia was sued forÂ offering free copies of Excel, Word, and other software titles on the Internet. TheÂ suit was settled in his favor because there was no financial gain. (Note: ThisÂ loophole in the Copyright Infringement Act was later closed.)
In 1997, the No Electronic Theft Act (NET) was passed, making it a crime forÂ anyone, including individuals, to reproduce and distribute copyrighted works.The Act further clarified that it applies to reproduction or distribution accomplishedÂ by Â electronic means. It also stated that even if copyrighted products areÂ distributed without charge, financial harm is Â experienced by the authors or creatorsÂ of a copyrighted work.
Given the precedents and laws, MP3.com and Napster had little recourseÂ but to capitulate. MP3.com suspended operations in April 2000 and settledÂ the lawsuit against itself, paying the litigants $20 million each. Napster suspendedÂ service and settled its lawsuits for $26 million. With the backing of theÂ record company Bertelsmann AGâ€™s BMG, Napster triedâ€”with little successâ€”Â to resurrect itself as an online music subscription service. Napster eventuallyÂ filed for bankruptcy in June 2002. Its assets were purchased by RoxioÂ (roxio.com). Roxio is planning to revive Napster, in a royalty-paying framework,in early 2004.
All commerce involves a number of legal, ethical, and regulatory issues.Â Copyright, trademark, and patent infringement, freedom of thought and speech,Â theft of property, and fraud are not new issues in the world of commerce.Â However, as this opening case illustrates, e-commerce adds to the scope and scaleÂ of these issues. It also raises a number of questions about what constitutes illegalÂ behavior versus unethical, intrusive, or undesirable behavior.
E-commerce is one of many IT phenomena that have affected individuals,Â organizations, and society. This chapter examines the impacts IT has made onÂ these groups. We present some of the legal and ethical issues related to theÂ emerging electronic technologies and discuss various legal and technical remediesÂ and safeguards. The chapter also looks at the impacts of IT and the Web andÂ the growth of virtual communities.