Introduction to IT Law -- Fall 2003

E-Commerce Problems

For the class session(s) on Electronic Commerce, read the following problems. Each student will be assigned to prepare a brief presentation, individually or with a partner, on one of these problems. You need not read the materials linked from this page for problems other than the one that you are assigned to present.

  1. Affiliate Commissions:  Your company sells books and CDs via the web. Most of your business comes from "affiliates" -- other sites that have agreed to link to your web site (usually to specific product pages within your site) in exchange for a small commission on each sale. These sales are tracked by coded URLs and cookies: the affiliate site embeds its affiliate code in each URL that links to your web site. When the potential customer comes to your web site through that link, your site sends a cookie to that customer's web browser identifying the affiliate as the source of that customer, so you can credit the affiliate's account if the customer makes a purchase. (Many affiliate programs are operated by third party services like BeFree, clickXchange, Commission Junction, LinkShare, and Shareasale, although Amazon and some other companies operate such programs on their own.)

    Many of your affiliates have started to complain that their commissions are falling, and they blame the decline on three phenonena: "parasiteware," rebate portals, and coupon sites.

    "Parasiteware" refers to programs that operate within the end user's web browser to change the code in affiliate links in order to divert commissions. See E-tailers Seek to Block "Parasiteware" (ZDNet News, Oct. 1, 2002), for more information on these programs and how they work.

    Rebate portals are sites that sign up for affiliate programs themselves, and then rebate part or all of the commissions they collect back to customers. (Examples include Ebates, FatWallet.Com, NetFlip, and spree.com.) Affiliates complain that these portals are unfair competition, since potential customers who encounter an affiliate link avoid clicking on it and use a rebate portal instead.

    Coupon sites operate in much the same way as rebate portals, but instead of rebating their affiliate commissions, they attract potential customers with lists of "coupon codes" valid for discounts at various web merchants. (Examples include Happy Coupons, a2zDeals.com, and deal-finder.com.)

    What, if anything, should you do about these phenomena, and why?

  2. Disavowing P3P:  The P3P (Platform for Privacy Preferences) protocol enables web sites and browsers to negotiate privacy preferences automatically. A web site can post a "compact privacy statement" in P3P format, and web browsers that access the site can compare that statement to the user's own privacy preferences. (See P3P Public Overview for background information.)

    Microsoft's Internet Explorer 6, released in 2001, was the first major web browser to be P3P-enabled. A user who selects a high privacy setting (on the Internet Options menu) may be unable to interact with a web site that does not have its privacy policy posted in P3P format.

    Some web merchants have begun posting P3P statements so that their sites will continue to work with Internet Explorer, but also post separate notices disavowing the P3P statement. One e-commerce law expert has recommended the use of a "DSA" code (his own "extension" to P3P) as part of a site's computer-readable P3P statement, along with language like this in the site's human-readable privacy policy:

    "The DSA token in a compact P3P privacy policy means this: The P3P codes and so-called P3P privacy policies we publish have no meaning and carry no obligation or liability. They are fictitious. We disavow any significance to those codes and policies and reject all aspects of the P3P protocol. We employ P3P codes only as technical switches to enable our web site to function properly. Some Web browsers require those codes in order to trigger the function of certain cookies. Our use of P3P is completely unrelated to any privacy or data policies that we may be bound to."

    P3P-enabled web browsers apparently just ignore the "DSA" and other codes that they don't recognize, although critics of this approach say it is unethical and violates the P3P specification.

    Similarly, eBay's privacy policy used to repudiate the company's P3P statement:

    "If there is a conflict between the terms and conditions in this privacy policy and other privacy representations that may appear on our site (e.g. privacy tools, easy to read summaries, charts and P3P statements), you agree that the terms and conditions of this privacy policy shall control."

    See eBay and Privacy (Junkbusters) and eBay Reconsidering Privacy Stance (InternetNews.com, Mar. 19, 2002). EBay's current privacy policy says they "are working on privacy enhancing technology to help summarize our full privacy policy."

    What are (or should be) the legal consequences of making privacy promises in a P3P statement and simultaneously repudiating them elsewhere?

  3. Dynamic Pricing:  Merchants have known for years that they can increase profits by charging different prices to different customers. Ideally, a merchant will try to charge each customer the maximum amount that he or she is willing to pay.

    For example:  Movie theaters charge children and senior citizens less, even though they occupy the same amount of space as other customers. Car dealers charge less to customers who haggle than to those who don't, and airlines structure their fares to collect more from business travelers than leisure travelers. Videotapes and DVDs are often priced higher in the first month or so after a movie is released on video, in order to collect high prices from video rental stores, and the price is then lowered so that individual consumers will consider purchasing copies of the movie.

    Online merchants can make even more sophisticated uses of "dynamic pricing" techniques. A few years ago, Amazon tried charging different customers different prices for the same products. The company later said it was merely conducting random price tests, but it could just as easily have been using information in its database about customers' locations, prior purchases, and other characteristics in order to predict the maximum price that each customer would be willing to pay. See Amazon Charging Different Prices on Some DVDs (Computerworld, Sept. 5, 2000); MP3 Player "Sale" Exposes Amazon's Flexible Prices (News.com, May 17, 2000).

    Although antitrust laws technically prohibit price discrimination, dynamic pricing seems to be legal in most contexts, as long as it is motivated by legitimate business purposes. See Online Dynamic Pricing: Efficiency, Equity and the Future of E-Commerce (Va. J.L. & Tech., 2001). Is dynamic pricing beneficial, and what legal constraints, if any, should be imposed upon it?

informationtechnologylaw.com
2003/10/21