MBA Research

Trend #38: Changing Legal System

If you were an Ohio business owner many years ago, you only needed to know the laws affecting business in Ohio. Now, the legal environment is much more complex. The pervasiveness of the Internet and other technologies has not only added new dimensions to business law, but has also changed the way business law is carried out. While businesses have always needed to attend to the legal ramifications of their actions, it has become even more important to understand the ever-shifting legal system in today’s technological world.

One of the most prominent changes is the nature of intellectual property. Everyone has the ability to create and distribute content through social media, blogs, and personal websites. It is important to avoid using another entity’s trademarked phrases or images on the web, such as in domain names. It is also essential to identify and agree upon ownership of content on a website, especially when working with a web developer or host service. Social media users must be aware of the terms of uploading content such as images or videos. An article posted on LinkedIn, for example, can be used and distributed in any way LinkedIn sees fit.

Online communications bring a host of new legal issues that businesses should know. Defamation of companies and their employees has greatly increased and become more difficult to track. Businesses must vigilantly monitor the web for any disparaging or dishonest comments that may be detrimental to their success. Using social media as a means of providing customer service can help to resolve these issues. Marketing communications and digital advertisements, too, are subject to a world of new legal implications. Laws such as the CAN-SPAM Act place strict regulations on what can and cannot be included in promotional emails. Businesses should be aware of the FTC’s many guidelines and regulations for Internet marketing that will undoubtedly continue to change along with technological progress.

Another potential legal issue brought about by the Internet involves interstate and international commerce. In the past, most businesses were locally based, but now, businesses of any size can sell online to customers in other states and countries. Those who sell online must know the taxes and regulations in new markets. Sales taxes, which are traditionally enacted at the state level, present a problem. States have attempted to tax online retailers who sell to customers but do not have an established physical presence in that state. Legislation currently in Congress would simplify the policies, but until it is enacted, businesses need to ensure they are aware of the intricacies surrounding sales taxes and other international commerce regulations.

The nature of contracts has also evolved with technological advancements. The process of contract negotiation, traditionally lengthy and painstaking, has become instantaneous and interactive thanks to the use of electronic documents and communication. Ambiguous “back and forth” paper exchanges have been eliminated, along with timing disputes that can be easily resolved through the use of electronic records.

Despite these convenient simplifications, however, the digitalization of contracts involves some complications as well. Laws that determine what constitutes an e-signature vary across countries. Some consider simple electronic signatures to be equivalent to a handwritten signature, whereas others require encrypted digital certificates to authenticate the signer’s identity. Additionally, contract negotiators must ensure that all parties assent to the terms and conditions through electronic means. Many contracts require the reader to click a button or to scroll through the terms entirely before they can sign and indicate their agreement. It is recommended that in all cases, business contracts include consent to sign electronically, an opt-out option, an audit trail, and transparent circulation of the complete electronic document to all parties.

Data privacy law is one of the most prevalent and controversial issues brought about by the prevalence of the Internet. Governments and legal entities are struggling to determine how to handle the vast amount of personal information exchanged over the internet between individuals and customers. Businesses have a responsibility to handle customer information in the appropriate manner, which becomes further complicated when data is exchanged globally. Data protection laws differ substantially in various countries in terms of the level and nature of regulation.

One example of the complications that occur due to these discrepancies is the Safe Harbor Privacy Principles between the European Union and United States companies. The Safe Harbor Privacy Principles were designed between 1998- 2000 to manage the secure transfer of information between the EU and the United States. Because European officials felt that the privacy laws in place in the U.S. were not adequate in comparison to the EU’s stringent standards, they offered U.S. businesses a way to opt in by adhering to certain guidelines. If the businesses complied, they could receive data transferred from the EU.

In 2015, the European Court of Justice invalidated the Safe Harbor Principles, claiming that the data protection measures in place in the U.S. were still inadequate. The decision was largely influenced by the 2013 leak that revealed the NSA’s surveillance practices. US companies were faced with the task of complying with the EU’s strict regulations instead of the relatively simple guidelines of the Safe Harbor decision. Nearly a year later, a new mechanism for personal data exchanges has been implemented, called the Privacy Shield. The Privacy Shield Principles have some similarities with the Safe Harbor Principles, but they impose stricter and more specific requirements on U.S. companies.

The site “DLA Piper’s Data Protection Laws of the World Handbook” offers a comprehensive guide to world data protection laws and allows you to easily compare different types of law across the world: https://www.dlapiperdataprotection.com/#handbook/about-section

Classroom Implications

Most students can barely remember a world without the Internet’s ubiquity, so the changes in the legal system may not appear quite so drastic to them. However, they should be aware of the ways in which technology affects the legal system so they will understand the need to stay up-to-date on changes and developments. Students have probably already encountered online contracts when downloading software or signing up for social media accounts. However, they might not realize that by clicking “I Accept,” they are entering into a legally binding contract. They should be cognizant of what exactly they are accepting and should develop the practice of carefully considering terms and conditions.

Ownership of content on social media and data privacy are both legal issues to which students can relate. Students may not think twice about posting a photo on social media until they learn that the site owns that content and can use it in various ways. Increased knowledge of the laws affecting data collection can help students to stay safe online and avoid unfair marketing practices.