June 1, 2007, 12:00 AM

Ethics 101

The web means new opportunities in retail— opportunities that require a closer look at values and business practices.

BabyAge.com CEO Jack Kiefer made the difficult decision last year to settle a lawsuit for $25,000, ending a case alleging BabyAge had infringed on a patent held by EonNet LP. While conflict has long eddied around the topic of patent infringement, the rise of the web as a business channel has created a new target among retailers for what has been called “patent trolling:” basically, when the holder of a broadly written patent sues or threatens to sue retailers it alleges are using any technology that infringes on any part of the patent.

Even online retailers that firmly believe they’re in the clear, as does Kiefer, must weigh the cost of defending themselves in court against the cost of a settlement. Is it legal for patent holders to pursue reimbursement in this way? Yes, as evidenced by the settlement. But is it ethical to seek to expand the reach of patents beyond what the originators envisioned to gain settlements in a new environment? That’s an open question, but people like Kiefer don’t think so.

The online world is a terrain without much in the way of channelspecific written rules on ethics, but guidance that exists in the offline world can be applied to the online channel. One has only to look at what constitutes this guidance-best practices, copyright laws, laws relating to fraud and standards promulgated by organizations such as the Better Business Bureau-to see what’s right and wrong offline is, at the core, no different online.

“In online retailing there are ethical guidelines everyone should follow including, obviously, not breaking the law,” says Scott Silverman, executive director of Shop.org. “You can’t use copyrighted material without the owner’s permission. You can’t sell stolen products. But that’s not unique to being online. The question is what is unique about doing business on the Internet.”

And that’s exactly why eretailers should be talking about ethical practices in operating online, eretailers and consultants say. As new territory for retail, the Internet is creating opportunities for activities without a clear precedent at the same time it affords the promise of tremendous growth.

That creates a gray area, and in the quest to seize opportunity, some venture farther into it than others. In turn, that can spawn activity ranging from that which retailers such as BabyAge find themselves on the receiving end of, expedient shortcuts taken by those who figure they’re doing little real harm, to unintended blunders by those who don’t realize when they’ve crossed an ethical line.

Against that backdrop, discussions around ethics in eretailing provide a guidepost for decisions by online retailers about how they will treat consumers and other retailers, and a means of assessing risks they may face particular to the online environment.

New to the web

Ethics also provides a framework for educating those new to the online channel. Dayna Bateman, senior strategic analyst at web design, development and managed services provider Fry Inc., recalls from her time with a former employer-a retailer-a wouldbe affiliate partner who applied for affiliate status with a site that exactly replicated the retailer’s own site. Only the logo was different. “She actually thought she had done a good thing by cloning the retailer’s site,” says Bateman. “We told her we didn’t want her to be our affiliate with a clone of our site, but if she had another way of marketing our site, we could have a conversation.”

Such blunders into the unethical aren’t confined to those operating outside the corporate structure, another reason eretailers should spread their position on ethical online behavior throughout their organization.

At the same retailer, Bateman said while the web team had discussed internally how it would behave ethically on the web, it hadn’t shared that with the rest of the company because it didn’t believe it would be relevant. Later, the web team discovered company loyalists working in other departments had taken up as individuals the unethical practice of promoting the retailer and its products in online forums without disclosing they were employees-again, in the belief they were doing good.

The rapid march of technology creates new circumstances in online retail every day. Kiefer, with a background in software engineering, says his reading of the EonNet patent was it had originally covered a process in which a piece of paper was faxed to software that would pull information out and save it in a database. To the extent a business process at BabyAge accomplished a similar data transfer, BabyAge found itself vulnerable to efforts by the patent holder to broaden its scope, Kiefer says. And BabyAge’s story is not unique. EonNet is reported to be a foreignbased corporation. Attempts to reach its U.S.based attorney were unsuccessful.

“There are so many gray areas in technology,” Kiefer says. “There are old patents that are generic processes people try to say they have domain over in new interpretations of the process. They are so broadly written they are more like concepts, not patents.”

There also is uncertainty surrounding copyrighted material used on the Internet. Copyright laws prohibit one company from lifting and presenting as its own material published by another company-but it happens nevertheless, and the Internet makes it easier than ever for those so inclined. Product descriptions, product images and other content are much more easily lifted from a web site than they can be from a paper catalog.

A number of online retailers have been on the receiving end of such “borrowing” by other retailers, including some who asked to remain anonymous but say they experience such thefts of product imagery on a daily basis. Lifting images may be a function of the drive to be first to offer a new product. In the consumer electronics category, for example, manufacturers frequently release new products and online retailers compete to be first to offer them.

But some retailers have faster access to new product information from manufacturers than others. So some of the slower retailers will grab this early content from their faster competitors and put it up on their own site figuring since they sell the same product from the same manufacturer they’ve done no harm, says Joey Lechtner, director of emarketing services at Fry.

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