Publication: Sydney Morning Herald - 94-2000 Back to Editorials

Napster's awakening – SMH 2001

As the aftershock of piracy via Napster court action reverberates through the recording industry, the tangle of MP3 and IP laws still begs clarity. Meanwhile person-to-person file sharing still represents a big threat to the revenue streams of the global music business.

Napster has built a system that allows users who log onto its servers to obtain infringing MP3 music files that are stored on the computers of other users who are connected to the Napster system at the same time. The company also provides advanced search capabilities, as well as direct hyperlinks to the MP3 files housed on its users' computers.

The RIAA, (Recording Industry Association' of America) which represents the likes of Seagram Co. Ltd.'s Universal Music, Bertelsmann AG's BMG, Sony Corp.'s Sony Music and Time Warner's Warner Music Group and EMI, first sued Napster for copyright infringement in December and has since sought a preliminary injunction against the MP3 download service.

While Napster contends that file-sharing for non-commercial use is fair and legal, the music and film industries have mounted a crusade against such technologies, claiming they promote piracy and undermine their livelihoods. The RIAA?s continuing case against Napster hinges on trying to prove the service is complicit in breaking US copyright law.

Napster's existing claims, that it's users are sharing music without charging for it, so are protected by the US Home Recordings Act, and that Napster is not responsible for how what its users do with the service, a protection granted by the Digital Millennium Copyright Act, have both been rejected by US District Court Judge, Marilyn Patel..

Still, the Appeals court has given the RIAA until 8 September to respond to the new Napster brief, at which point it will presumably set a new date for the trial. At the same hearing, Napster asked the US 9th Circuit Court of Appeals to completely overturn the injunction granted against it by the US District Court under Judge Patel.

Napster's brief, filed with the Appeals Court, claims Judge Patel made a number of legal errors in coming to her decision to force Napster to block the exchange of all copyrighted songs from its MP3 sharing software. "The trial court, in its ruling, misunderstood and misinterpreted the standards for contributory and vicarious infringement," Napster lawyer Jonathan Schiller said after the brief had been filed. "What [the brief] does that is new and substantial is that it goes into detail about where the courts are in error." The appeals court overturned that judgement on the grounds that the case was a precedent-setting one - "issues of first impression", in legal speak.

Napster had 5.8 million visitors for the week when it was supposed to close down recently, with Nielsen Ratings estimating that 3 percent of all Internet users, visited  the site in the final hours before its aborted July 28 shut down, a lesson in publicity? Regardless, the significance of Napster is huge in terms of the future of the online music market; a sector set to balloon to $5.4 billion by 2005, according to Net-oriented market research company Jupiter Communications.

Sony Pictures Entertainment US senior VP Steve Heckler underscored the importance of all things Napster when he told attendees at the Americas Conference on Information Systems 2000, "Sony is going to take aggressive steps to stop this. We will develop technology that transcends the individual user. We will firewall Napster at source,  we will block it at your cable company, we will block it at your phone company, we will block it at your [ISP]. We will firewall it at your PC. ?These strategies," Heckler told conference attendees, "are being aggressively pursued because there is simply too much at stake."

Brandishing more mustachioed angst than a truckload of guitar solos, Lars Ulrich, cofounder and drummer of the heavy metal band Metallica, a key anti-Napster lobbyist, was keen to express his opposition at a recent US Senate Judiciary Committee hearing dubbed "Music on the Internet: Is There an Upside to Downloading?" "Just like a carpenter who crafts a table gets to decide whether to keep it, sell it, or give it away, shouldn't we have the same options?"  he asked.

On the local front action is speaking louder than words. In an effort to combat the Napster syndrome, Australian Internet music e-tailer ChaosMusic has made a commitment to remunerate Australian copyright holders through a 15 percent levy generated from the advertising revenue of its FreeTracks search tool. ChaosMusic CEO Rob Appel hopes the use of its tool will set a precedent for other Australian operators in the music industry.

"We're recognizing in practical terms that file swapping is going on and that this is a real opportunity to commercialize it. We see this as a starting point and we've suggested to other Web sites that it might be appropriate for them to also pass some of their advertising revenue back to artists," Appel said.

Motivated by the threat of music files being illegally downloaded online, Chaos suggests that 15 Percent of the advertising revenue generated out of each individual search be distributed to the relevant Australian copyright holder by way of a royalty collection body. Chaos is currently putting revenue aside whilst a body through which the money is distributed is identified.

Meanwhile, another Australian Digital music site, MP3.com.au is investigating methods to protect artists' rights. The first is the provision of online technology that allows individuals to compile their own CD online. The CD is then manufactured and shipped out by MP3 and artists will receive a fifty-fifty split of the proceeds.

MP3.com.au also claims its Digital Rights Management technology will protect the distribution of music over the  Internet. The technology will be used to set limits on the amount of times a track can be played. According to MP3.com.au CEO Dominic Carosa, although the music file can be swapped between friends, files onto can't be accessed until a license has been purchased.

Music mogul Glenn Wheatley is also incensed by the Napster MP3 debate, suggesting an answer in payment technology that will allow consumers to ?pay for play? when listening to MP3-formatted music downloaded from the Internet.

While unwilling to divulge the intricacies of his technology start-up, Talisman Communications, or ?secure payment technology,? Wheatley says he has been working with clients who have content to do secure transactions over the Internet. ?The technology that is available now will enable music to be transferred from record companies to consumers via MP3, and everyone will get paid down the line,? he said.

Beyond the music industry, digital downloads and the mire of copyright holds major significance for electronic publishing as a whole.  In an attempt to avoid the wrangle with legal copyright, the InterTrust Technologies Corporation has had three major announcements in recent weeks. A signing with America?s AOL, a launch with Universal Music?s ?bluematter? site; and a licensing agreement with Philips Digital Networks.

These moves will see InterTrust?s Digital Rights Management software an integral part of using PC?s, with InterTrust enabling legitimate access to and purchase of online music, e-books, video or any form of digital content. America Online have also signed an agreement with InterTrust to provide security for the copyright-protected material it intends to sell. AOL will integrate InterTrust's digital rights management system into its Winamp music player, music will be ?wrapped? in InterTrust's DigiBox containers and then ''unwrapped'' and piped through the Winamp player. InterTrust's DRM service will be incorporated in AOL's 6.0 software, expected out by the end of the year.

Talal Shamoon, senior VP media at InterTrust, says music will be the first downloadable content available, but expects ''very rapid'' deployment of video, e-books and other copyrighted content on AOL over the next year. ''We're already beginning to see an MP3-like phenomenon in video,'' says Shamoon. ''Video has always watched the music industry closely and tried not to make the same mistakes. Publishing is ready to blow open as well. In the next 12 months we'll see e-books becoming huge.''

Over at Intel, the onslaught of peer to peer downloads has morphed into the development of a  peer to peer networking strategy. According to Pat Gelsinger, Intel's chief technology officer, "the idea is that we've been, over the past five years, building our network infrastructure in a dramatic way. The spark of this is Napster, but underneath it is the network."

Gelsinger calls the network a Virtual Private Web which can consist of employees at a company, family members, a group of friends or anyone with common interests or goals. Users in the private network will be able to share spare systems resources, such as storage, or use the system to exchange files. Intel expects friends and families to set up Virtual Private Webs in order to, among other things, stay in communication and to share files, which could be anything, from pictures to vacation videos.

With all the fuss about Napster, its been easy to pass up similar offerings. Lets not forget the likes of Scour.com, a site currently being sued by the Recording Industry Association of America that actually goes beyond Napster by allowing users to search not only for MP3 files, but for other audio and video files.

Scour, like Napster, relies on a central server to co-ordinate the search processes. This leaves them vulnerable to attack, as witnessed by the two RIAA lawsuits. A program called Gnutella changes that. Gnutella runs its searches like a chain letter, one user asks two other users, each of those ask two others, and so on. As there exists no nucleus to Gnutella, it would seem highly unlikely that the service could be shut down.

One step beyond, FreeNet, an open source file-sharing system builds on the shoulders of Gnutella. FreeNet is the brainchild of 23-year-old Irish programmer Ian Clarke, who designed it as an undergraduate at the University of Edinburgh . Clarke is to soon visit Los Angeles to start work at Uprizer, a "technology accelerator" company he founded that will "derive technology from FreeNet".

FreeNet transforms a user's PC into a "node", a connection point on a PC to store content. Once content (any file) is uploaded into the system, it is distributed or "tunnelled" among other computers, automatically stored in nodes near the users who request the content. FreeNet's key innovation lies in its anonymity. As the nodes keep no logs of prior searches,  it ends up being almost impossible to trace the routing of a file and in turn trace or prevent the content being shared.

Admirable irreverence "Forcing people to pay for sharing information is an invasion of freedom," he says. "Just because you spend money producing something doesn't mean you have the right to charge people for the results of your efforts."

Craig Stephens

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On-line Shopping

Australian on-line retail is booming, with a plethora of outlets proving their worth during Christmas 99.

The performance of major players such as Yahoo, Jumbomall,Telstra,Fairfax, Nine MSN, Dstore, and CD house, ChaosMusic during the Christmas season proved that Australian consumers are no longer insecure about the stigma of on-line transactions, instead favouring the range and convenience offered by the Internet.

In tune with the wider reach of the Web as an everyday communications tool, on-line shopping is now a mainstream passtime, no longer the exclusive bastion of catalogue or "unique" purchases.

Competitive pricing has also played a key role in the growth of on line shopping. Specialist sites such as amazon.com (books), ChaosMusic (CDs) and dvdplanet.com.au (audio equipment) typify the ability of on-line retailers to offer a compared to greater range of products at better prices.

ChaosMusic, which has been selling CDs  online for 4 years saw sales for the fourth quarter of 1999 total $820,000 in online orders, compared to $37,000 for the same period a year earlier (a 2000 percent increase).

Testament to the growth of the on-line shopping sector, a range of conventional shopfront retailers are now defecting to on-line ranks , with  the likes of Yahoo having signed up 12 "old world" retailers to its  shopping-mall-styled e-commerce site.The retailers include, Amcal, Gowings, Theo's Liquor Markets ,* Britannica, Orrefors Kosta Boda(Royal Scandinavia), MaxiMusic,JV Marine,The Magazine Store (Murdoch Magazines), Vox (Chandlers/ Billy Guyatts / Archie Martin), Sock Shop, Hot Games, and Global Flowers. Of the 12 companies, seven had no e-commerce  presence before joining Yahoo.

"This year's Christmas sales were more than a one-off phenomenon," said Tony Faure, general manager, Yahoo! Australia & NZ. "This is just the start of an upward online purchasing trend by Australians. The more products and quality retailers we can offer in one  easy location, the more consumers will be inclined to use the net and Yahoo! Australia & NZ Shopping for their purchasing needs."

Asked about the key challenges faced in marketing shopping sites over  thechristmas season, David Gold, head of DSTORE highlighted the process of establishing brand personality and differentiating from competitors. "There was a lot of clutter from Internet companies pre-Christmas and it was critical to achieve cut-through quickly in a manner that created real personality".

Over at Yahoo, markeing head Anna Featherstone said the main challenge was trying to convey that the site is an integrated shopping experience, rather than just a bunch of links. "We are lucky in that we already have the brand name and the traffic and the trust, so we didn't have to spend a stack building up those areas."

As an incentive over competitors,Dstore we gave away several thousand dollars worth of gift certificates through the Austereo radio network, which was a great success. We also gave our first`1000 customers to spend $50 or more at dstore a free Pokemon Pikachu Plush normally they cost $34.95. We thought it was important to offer new online shoppers an incentive to make their first purchase.

Yahoo's summer strategy saw a guerilla marketing campaign in Sydney and Melbourne using an assortment of models sunning themselves on city streets underneath inflatable palm trees. "The idea of this was to get across the consumer message that "We've got time because we  shoppedonline,"confided Featherstone. As part of the promotion Yahoo also gave away four $1,000 shopping sprees on Yahoo! Australia & NZ Shopping.

Jumbomall's marketing head Wes Scott said the biggest challenge to marketing over Christmas was the ensuing clutter burdening both Internet and traditional shopping outlets.

"It was also a hurdle defying the bad press associated with the readiness of the site and its capacity to cope with the Christmas rush. We also had to ensure the Jumbomall product was ready and our merchants were geared up for the rush".

In terms of incentives, Scott cited the Jumbodollars loyalty scheme. "This operates much like airline Fly Buy points, whereby shoppers collect Jumbodollars after each purchase in a 'Retail' Jumbostore. These Jumbodollars are then redeemable in Jumbomall 'Retail' stores". Scott said the process also allowed an avenue for  the collection of a percentage from Jumbomall retailers.

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Streaming advances help cast a wider Web
Craig Stephens
Monday, January 15, 2001

FROM MUSIC and arts through to the corporate arena, webcasting and teleconferencing is booming - and with the upswing of broadband and increased consumption of streaming media, this continued growth looks certain. According to US-based audience measurement firm Nielsen NetRatings, November, 2000, saw more than one-third, or 36 per cent, of the 95 million active US Web surfers using streaming media, a 28 per cent increase over the previous year.

The International Webcasting Association estimates that 250 million users will view webcasts annually by 2002, with reports showing that the market for streaming media content will grow from US$78 million in 2000 to US$2.5 billion by 2004, an increase of 3200 per cent.

In the US, large media events such as the presidential election, the Super Bowl and the Olympics, which were previously limited to TV and radio, have primarily spurred this 65per cent increase to almost 35 million people accessing streaming media content, up from 21 million people.

At the recent US Streaming Media West 2000 conference, held in December, Yahoo!'s chief and cofounder, Jerry Yang, reinforced the value of streaming technology and webcasting. "Broadband is here today, it is here now,'' he said.

Meanwhile, Yahoo! and Disney have struck up a broadband relationship, seeing Yahoo! News webcast video from ABC News, World News Tonight and Good Morning America.

There have been several one-off events, including the strange combination of Yahoo! and Swatch teaming up to beam out a fashion show of watch-wearing models from the Great Wall of China.

Australia has also had a host of webcast offerings. SpikeRadio has had a varied reputation over the years, though its lengthy webcasting experience is indisputable, with SpikeRadio now offering 10 streams of music targeted at a global youth audience and assorted online audio and video services.

According to Nick Abrahams, the head of LA-based SpikeRadio, key technologies behind today's webcast miracles include Dynamic Visual Media, a desktop player using Flash animation, Interactive Webcast Applications, enabling user participation via real-time polls and online submissions and chats and Digital Lockers that enable songs from digital libraries to be streamed to assorted devices.

Asked about his predictions for future webcasting, Abrahams cited interactivity as being the key.

"The return path made available by the Internet gives users an ability to buy, chat and interact with the subjects of the webcast and with other audience members. For example, the audience can now interact with the players and coaches in sporting matches. The real killer app will be when the user can give friendly advice directly to the referee.''

Abrahams said audio would continue to dominate until broadband attains sufficient penetration.

"The establishment of the new MPEG-4 compression standard will also mean users will be able to play any format audio/video file with a single player, bringing many video-related services to the market.''

Legislation will also create opportunity, Abrahams added.

"The Copyright Office just ordered that terrestrial broadcasters must pay royalties when they put their streams out over the Web, whereas they do not have to pay royalties for music broadcast terrestrially. Those companies with legitimate business plans will survive and will no longer have to compete with companies stealing other people's copyright.''

Collaborating and conferencing online is now becoming a priority for businesses, too.

Yesterday's workhorse teleconferencing systems, which cost tens of thousands of dollars, used Integrated Services Digital Network (ISDN) lines. That picture started to change three or four years ago with the dawn of the Web and the spread of its Internet Protocol (IP).

Today, most companies have an internal IP network that can run an emerging class of low-cost IP cameras, video cards and software, with the majority of them containing vital components such as videoconferencing, application, desktop sharing, chat, whiteboarding, and file transfer.

According to John Mitchell, the head of Sydney-based teleconferencing consultancy John Mitchell and Associates, the big-budget approach is an illusion and a potential problem when it comes to teleconferencing.

"The newest generation of equipment has radically stirred up the videoconferencing industry as a whole, with strong technology available without the need for major investment,'' Mitchell said.


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A prettier picture - webcasting - 2001

From music and arts through to the corporate arena,webcasting and teleconferencing is booming, and with the upswing of broadband and increased consumption of streaming media, this continued growth looks certain.

According to US based audience measurement firm Nielsen NetRatings, November 2000 saw more than one-third, or 36 percent, of the 95 million active U.S. Web surfers using streaming media, measuring a 28 percent increase over the previous year.

Further data from assorted industry analysts confirms the strength of the streaming technology. DataMonitor says video/audio streaming currently accounts for 2% of Internet traffic today and is projected to rise to 6% in 2003. The Gartner Group  say more than 50% of all web sites will offer streaming media content by 2001 and Forrester Research join the chant with a projection that 34% of Internet users will have broadband access by 2002, up from 6% in 1999, translating to a potential broadband audience of 108 million users.

The International Webcasting Association estimate that 250 million users will view webcasts annually by 2002, with reports showing that the market for streaming media content will grow from US$78 million in 2000 to US$2.5 billion by 2004, a growth of 3200%

In the US, large media events such as the presidential election, the Super Bowl and the Olympics – previously limited to TV and radio have primarily spurred this 65 percent increase to almost 35 million people accessing streaming-media content from 21 million.

Nielsen claims the growth in streaming-media consumers has been largely propelled by women. Although there are still more male streaming-media users that female – 19 million men vs. 16 million women in November – the number of women using streaming media grew 77 percent in a year, up from 9 million in November 1999. Similarly, the number of kids and teens accessing streaming media in November surged 65 percent year-over-year, and usage by seniors over the age of 65 increased by 95 percent. At the recent US conference, Streaming Media West 2000, held on December 13, 2000, Yahoo’s Chief and Co-Founder Jerry Yang reinforced the value of streaming technology and webcasting ." broadband is here today, it is here now," he declared. Meanwhile,Yahoo! and Disney have struck up a broadband relationship, seeing Yahoo! News webcast video from ABC News, World News Tonight and Good Morning America. There have also been a series of one-time events, including the strange combination of Yahoo! and Swatch teaming up to beam out a fashion show of watch-wearing models from the Great Wall of China.

Down on the farm there have been a host of webcast offerings. SpikeRadio have had a varied reputation over the years, though their lengthy webcasting experience is undisputable, with SpikeRadio now offering 10 streams of music targeted at a global youth audience and assorted online audio and video services.

Current technology providing a platform for Australian broadband includes cable modems and DSL lines, with cable having an advantage on DSL due to its existing infrastructure. Many would argue that the Internet is too small a pipeline to handle the demands of TV-like video, despite the ambitious approach of Asynchronous Transfer Mode and frame-relay WANs. Future mechanisms showing promise for delivery include wireless WAN technology, heavily dependent on throughput and even laser beams used as carriers, technology currently being developed by Terabeam Networks and Lucent Technologies.

H.323 is another worldwide key standard currently emerging that hopes to ensure conference-capable desktops will talk to one another. The technology tells any IP device (including network routers and gateways) how to compress and transmit audio and video over a network not designed for it.

According to Nick Abrahams, head of LA based Spikeradio, key technologies behind today’s webcast miracles include Dynamic Visual Media, a desktop player using Flash animation, Interactive Webcast Applications, enabling user participation via real-time polls and online submissions and chats and Digital Lockers that enable songs from digital libraries to be streamed to assorted devices.

Asked about his predictions for future webcasting, Abrahams cited interactivity as being the key. “The return path made available by the Internet gives users an ability to buy, chat and interact with the subjects of the webcast and with other audience members. For example, the audience can now interact with the players and coaches in sporting matches. The real killer app will be when the user can give friendly advice directly to the referee”. Abrahams said audio will continue to dominate until broadband attains sufficient penetration. “The establishment of the new MPEG-4 compression standard will also mean users will be able to play any format audio/video file with a single player, bringing many video related services to the market”. “Legalization will also create opportunity, “ Abrahams added. “The Copyright Office just ordered that terrestrial broadcasters must pay royalties when they put their streams out over the web, whereas they do not have to pay royalties for music broadcast terrestrially. Those companies with legitimate business plans will survive and will no longer have to compete with companies stealing other people’s copyright”.

Collaborating and conferencing online is now becoming a priority for businesses rather than a luxury, though it was not too long ago that it was too expensive and too complicated for the ordinary user to pursue the art of broadcasting live on the Internet. Webconferencing promises steamlined communications and improved collaboration. Areas such as online shopping have been revolutionised with the transformation of GIF images into full-motion, full-screen video clips.

Yesterday’s workhorse teleconferencing systems that cost tens of thousands of dollars, used Integrated Services Digital Network (ISDN) lines. That picture started to change three or four years ago with the dawn of the Web and the spread of its Internet Protocol (IP).

Today’s cheap and effective web conferencing and collaboration tools enable the technology with only an Internet connection. Today most companies have an internal IP network that can run an emerging class of low-cost IP cameras, video cards and software, with the majority of them containing vital components such as videoconferencing, application, desktop sharing, chat, whiteboarding, and file transfer.

According to John Mitchell, head of  Sydney based teleconferencing consultancy John Mitchell and Associates, the big budget approach is an illusion and a potential problem when it comes to teleconferencing. “Businesses often make the mistake of failing to undertake adequate needs analysis and in turn understand their real needs. I am often cautioning clients about failing to properly surmise  their needs before they  puchase equipment. Expensive, high end equipment isn’t a necessity in order to achieve competent results. The newest generation of equipment has radically stirred up the videoconferencing industry as a whole, with strong technology available without the need for major investment”.

Craig Stephens

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Caveat emptor -- buyer beware

Internet scams exposed

By Craig Stephens

If you believe the hype, the Internet will revolutionise the way we consume, shop and conduct business in the future. While many people are happy to purchase goods and services online, the stories of shady characters, fly-by-nighters and unscrupulous operators using the Internet to manipulate unsuspecting consumers is – rightly – stopping a lot of people from using the full potential of the Internet.

Caution should always be applied when purchasing, online or otherwise. But when you don’t have a bricks and mortar shopfront, or a person's face to speak to, how can you tell the "real McCoy" from a shonky set-up? We look at the scams going around, tell you how to spot one, and where to go to keep abreast of online fraudsters.

Unparalleled in its reach as a communications medium, the Net creates enormous possibilities – not only for e-commerce, but also for Internet crime. There is huge scope for a barrage of frauds, scams, intrusions and piracy, including chain letters, bogus billings and non-existing investment plans.

Comprising more than 15,000 computer networks linked in more than 175 countries, the Web is in use by upwards of 170,000 companies as a business tool, with about 100 million electronic messages sent each year.

In the US, the National Consumers League has said it receives more than 100 complaints related to Web scams each month, dealing with amounts ranging from $US10 to $US10 000. The 10 most frequent fraud reports involve undelivered Internet and online services; damaged, defective, misrepresented or undelivered merchandise; auction sales; pyramid schemes and multilevel marketing; misrepresented cyberspace business opportunities and franchises; work-at-home schemes; prizes and sweepstakes; credit card offers, books and other self-help guides; and magazine subscriptions.

Several such schemes have come to the attention of US authorities including the FBI (Federal Bureau of Investigation). One Internet-based chain letter collected more than $US 6 million before intervention by US federal authorities. In another scheme given publicity by the National Consumer League of the US, promoters undertook to design Web sites or provide other services, then failed to deliver once the fee had been paid.

In an attempt to combat dubious Web activity, the International Marketing Supervision Network (IMSN) instigated an annual global Internet sweep in 1997. The Internet sweep days are co-ordinated by the Australian Competition and Consumer Commission (ACCC) and involve around 70 consumer affairs enforcement agencies from 30 countries.

In 1997 the sweep day targeted "get rich quick" schemes and in 1998 the focus was on Web sites promoting "miracle cures" and misleading health claims. Once suspicious sites are identified, the operators are e-mailed a message advising them that their activities could be in breech of the law.

The sweep results identified over 1100 suspicious Web sites in 1997 and 1400 in 1998. The results of the third sweep day (1999), which was coordinated by the ACCC in conjunction with the IMSN, are not yet available. The 1999 sweep day assessed e-commerce Web sites, with participants in the sweep day examining sites within a particular industry (e.g., books, travel, CD's, clothing). The Australian agencies which participated in the 1999 sweep included the National Office of the Information Economy (www.noie.gov.au), the ACT Consumer Affairs Bureau (www.consumer.act.gov.au), the Victorian Office of Fair Trading and Business Affairs (www.justice.vic.gov.au/oftba), the NSW Department of Fair Trading (www.fairtrading.nsw.gov.au), and the WA Ministry of Fair Trading (www.fairtrading.wa.gov.au).

For the ACCC, the issue of Internet fraud protection is essentially the same as other areas of consumer fraud.

“Any scams regarding the sale of goods and services that existed prior to the Internet have been reborn via the medium, and this could be pyramid selling, chain letters, or dubious advertisements," said Lin Enright, director of public relations for the ACCC. "Basically, we are faced with the simple challenge of protecting consumers through the proliferation of e-business and enforcing the Trade Practices Act."

Don't think that Internet scams are set in motion only overseas. Enright cites the recent example of a local ISP called Freenet 2000 that incorporated an income generation scheme via a pyramid referral process.

“The facility was designed to recruit new people to the service. The ACCC felt that this was in contravention of the Trade Practices Act and therefore decided to stop it.”

However, Paul Childs, media manager at the Department of Fair Trading, believes most of the scams currently on the Web originate outside Australia. He says the biggest problem would be spam, the Internet's version of junk mail. It is similar to the unsolicited mail received in the post every day, and most of the spam comes from North America.

“One recent scam related to a lottery, whereby people were advised by e-mail that they had won money, but in order to collect it they must send $30 to an overseas address. They certainly don’t put this money into sweepstakes; I think it actually buys someone a nice cigar or a dinner on the other side of the world," Childs said.

When it comes to the Web and e-commerce, Enright says users should first ensure they can find the physical location of the seller.

"They should make sure they have a street address and the telephone number of the person they are buying from, and make sure they are secure. They should also check the type of guarantees and warranties that are available."

Childs said the Department of Fair Trading is constantly warning consumers about the pitfalls of purchasing online.

“The Internet is a whole new way of shopping. With conventional purchasing, you can simply arrive at a shop or at a counter and request a refund. It isn’t that simple with the Internet, with a site located in North America or Thailand.

“Occasionally we talk to overseas law enforcement bodies about scams on the Web, and recently [the Department of Fair Trading] had discussions with the Mounties [Canada's federal law enforcement body] about Web scams. We recently took action against a local operator selling CD’s via the Internet. People buying CD’s from the company were being billed twice for their purchases. We are still in the process of acting against this company."

Cyberbanking has added a new dimension to Internet scams, providing the potential for Web-based financial institution fraud. According to ACCC statistics, 88 000 Australian Internet users were regular users of online banking in 1998, a number that grew to approximately 145 000 last year.

In recent years, a range of cyberbanking fraud cases was uncovered by the US FBI. As far back as 1994, a group of people in Russia gained unauthorised access to Citibank’s Cash Management System. As a result, more than $US10 million was wire transferred to pre-established accounts throughout the world, with cash moved from accounts as far away as Argentina and Indonesia to bank accounts in San Francisco, Finland, Russia, Switzerland, Germany and Israel. In the end, all monies were recovered with the exception of $US400 000 taken before monitoring began.

Banking practices differ internationally. Locally , the Code of Banking Practice relating to online banking in Australia can be accessed on the Australian Bankers' Association Web site at www.bankers.asn.au. Last year, the Australian Securities and Investment Commission (ASIC) announced the formation of a working group to ensure that consumers using electronic banking had access to adequate consumer protection.

The use of the Internet to market fraudulent investment schemes is becoming epidemic, a scheme exemplified by Netware International. The scam involved a multi-level operation believed to have approximately 2,500 members throughout the US. Netware provided false, fraudulent and misleading representations in order to solicit funds from new and existing members. The company’s promotional information indicated that Netware was forming a private bank with full services and deposits insured by the National Union Fire Insurance Company of Pittsburgh, Pennsylvania, US.

The information also indicated that the bank was expected to earn a profit of 25 per cent per year, and that members who sold two or more memberships would share in the bank's profits. The US National Union Fire Insurance Company denied any affiliation with Netware, and a resulting investigation has seen nearly $US1 million seized to date.

Last year, the Australian Securities and Investment Commission (ASIC -- www.asic.gov.au) clearly illustrated how easy it was to fool online investors with its Millennium Bug insurance site, which persuaded 233 Australians to part with more than $4 million.

As the Australian regulator of the securities and futures markets, the ASIC is responsible for consumer protection in the financial services sector. In order to educate consumers about investing on the Internet, ASIC designed and developed the Millennium Bug Insurance cyberscam on April 1 1999.

The scam site (www.smbi.com.au) offered a fake investment scheme in an effort to highlight the willingness of people to invest in companies about which they know nothing. The ASIC’s April Fools Day joke succeeded in convincing more than 1400 people to seek further investment information.

The ASIC Web site also includes “Internet Safety Checks” that highlight basic checks that can be made by consumers before investing in Internet-based schemes. These include checks to ascertain whether a company exists and whether or not it has issued a prospectus.

The ASIC electronic enforcement unit also houses programs to trawl through various Australian sites and locate offers and information related to shonky investment offerings. Continuing to highlight cyberscams, ASIC also launched the “Gull Awards”. Located on the its Web site, the Gull Awards feature precautionary tales of investment scams and how to avoid them.

According to Irene O'Brien, ASIC's national media advisor, “The most common scams currently on the Web involve people asking for sums of money and promising to bring phenomenal returns, up to around 200 per cent.

“Ultimately, from our point of view, people should treat the offers they see on the Internet the same way they would if someone walked up to them on the street and verbally announced they could double or triple their money. You would want further information, and conduct further research. There is no way that you’d hand over your money there and then.”

Internet Fraud Watch and the National Fraud Information Centre facilitate the efforts of law enforcement agencies by providing a one-stop reporting centre for consumers at www.fraud.org.

According to Internet Fraud Watch, which is operated by the US National Consumers League, complaints have increased 600 per cent since 1997. Online auction complaints were the number one subject of fraud complaints in 1998. Auctions were also first in 1997, with 26 per cent of the total frauds reported, but the figure increased to an alarming 68 per cent in 1998.

"More people are online, and more people are getting scammed," said Susan Grant, Director of the Internet Fraud Watch. "Consumers need to remember that con artists are everywhere -- even in cyberspace."

The majority of fraudulent payments -- a whopping 93 per cent -- were made "offline" by cheque or money order sent to the company. "Requesting cash is a clear sign of fraud," says Grant. "Pay the safest way. If possible, pay by credit card because you can dispute the charges if there is a problem."

Top scams

Internet ScamBusters (http://scambusters@scambusters.org) rates the top five scams.

Cramming -- Consumers are billed for optional services (such as voice mail or paging) they never ordered.

Slamming -- Slamming is the practice whereby long distance phone companies switch your phone service to their company without your permission.

Advance Fee Loans -- Many companies offer empty promises for personal or business loans, and require payment of fees in advance. They never get you the loan and your fees are down the drain.

Sweepstakes -- Phoney prize awards that require payment of fees first -- and then the "prizes" never appear.

Work-at-home scams -- These "business opportunities" include kits sold to stuff envelopes, make jewellery, or perform other work-at-home jobs, with false promises of huge profits.

Avoiding scams

The Australian Consumers' Association (ACA) -- Choice online (www.choice.com.au) recommend addressing several key areas before purchasing online. Before you order, ask:

Who am I dealing with?

Information about the trader should be clear. You should have either e-mail or phone contact details, and be able to check on the trader's reliability.

How much is it going to cost me?

The price should be clearly displayed and include all costs -- look for information about delivery charges, taxes and currency conversion.

What am I buying?

You should be able to easily identify the product. This is especially important online because you often can't see the goods themselves.

Is there stock available?

Stock availability should be clearly displayed.

What delivery methods are available? Are there different options for delivery methods and prices? Will they deliver to my country?

You should be provided with information about options and prices for different delivery methods.

How do I know when I've confirmed my order?

There should be a clearly defined ordering process for you to follow.

How can I pay for my purchase?

Payment options available should be clearly displayed. Expect the majority to accept credit cards, with some stores accepting non-Internet payment, debit card or Cash On Delivery.

What personal information are they asking for? What will they do with it?

Other handy hints for buying online:

·     Only information needed for purchase should be requested. If you're asked for personal information, there should be an explanation of how the information will be used, and to whom it will be given.

·         Don't conduct business with an anonymous user. Get the person's real name, business name (if applicable), address and phone number. Verify this information before buying. And don't send your payment to a post office box.

·         Be more cautious if the seller uses a free e-mail service, such as Hotmail, Yahoo, etc. Most people who use these free services are honest; however, most problems occur when a free service is used. After all, with a free e-mail service, it is very easy for the seller to keep his or her real identity and information hidden.

·         Save copies of all of the e-mails and other documents involved in the transaction. Then, if you discover that an item is counterfeit, you have documentation to help you deal with the problem.

·         Use common sense and trust your intuition. If you have a funny feeling about an item, don't buy it. You're very likely right that it is counterfeit.

Scam sites

Australian Consumers' Association (ACA) - Choice online

http://www.choice.com.au

Financial and Consumer Rights Council (FCRC)

http://avoca.vicnet.net.au/~fcrc/

Whistleblowers Australia

http://www.whistleblowers.com.au/

Better Business Bureau (BBB)

http://www.bbb.org/

Consumer world

http://www.consumerworld.org

Federal Trade Commission Bureau of Consumer Protection

http://www.ftc.gov/ftc/consumer.htm

Directory of US and International Consumer Agencies

http://www.consumerworld.org/pages/agencies.htm

Consumers' International home page

http://www.consumersinternational.org

Written by Craig Stephens

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