German Court Rules That Google Can Be Held Liable for Defamatory Auto-complete Search Suggestions

Anyone who has performed a Google search in the past several years will likely have noticed Google’s auto-complete function, which automatically suggests search terms as the user types. For example, when a user recently entered the terms “Brann & Isaacson,” Google suggested “Brann & Isaacson law firm.” But what happens if, instead of helpful or innocuous suggestions, Google suggests something scandalous?

Google itself has consistently maintained that it has no direct control over its results or suggestions, which are generated automatically. Because Google’s suggestion algorithm reflects the frequency with which particular search terms are entered, however, it is a natural engine for spreading and legitimizing gossip. The more a rumor is repeated, re-tweeted or re-blogged, and the more it is searched, the louder it becomes, and the more likely it is to find its way into Google’s suggested auto-complete terms. Now, a German Court has ruled that Google can be held liable if its auto-complete function suggests defamatory search results.
 
In Decision VI ZR 269/12 (May 14, 2013), The German Federal Court of Justice (Bundesgerichtshof), Germany’s highest court of ordinary jurisdiction, considered a case brought against Google by two plaintiffs, a company and the company’s chairman, who had sued to remove auto-complete suggestions the plaintiffs considered defamatory. Users who searched for plaintiffs’ names would see suggested search terms including “Scientology” and “Fraud.” The Court ruled that, while Google has no obligation to proof its auto-complete results in advance, it does have an obligation, once it has been put on notice that suggestions falsely imply a factual link between an individual or entity and terms that have negative connotations, to remove those terms from the suggestions and to prevent similar suggestions from appearing in the future.

Senate Passes Marketplace Fairness Act

By a vote of 69 to 27, the U.S. Senate on May 6 passed the Marketplace Fairness Act (“MFA”). The MFA would authorize states and other taxing jurisdictions that meet minimal tax simplification requirements to impose a sales/use tax collection obligation on Internet retailers and other remote sellers. The final version of the bill expanded the original scope of the authorization to include tribal organizations, in addition to states, US territories, and the District of Columbia. No additional simplification measures were added by the Senate, leaving a bill that does not require genuine reform of state and local sales and use tax systems. Nor did the Senate raise the threshold for the small seller exemption above $1 million in total US sales, leaving small businesses vulnerable to costly and burdensome compliance and tax administration requirements. As any business put through the rigors of even a single state’s audit process knows, the specter of more than 45 audits each year can be enough to cripple a smaller Internet or catalog vendor.

The MFA now moves to the House of Representatives, where the prospects for passage are less certain. Some Republican representatives have voiced support for the bill, however. Ecommerce sellers interested in the bill should contact their representatives to make their voices heard, before the bill becomes law. We will continue to update our readers on developments concerning the MFA.

Not So Simple–Recent Developments in Taxing the Cloud

We write frequently about developments surrounding federal tax legislation such as the Marketplace Fairness Act, which is up for a vote before the Senate on May 6. One of the major issues critics have with the Act is that despite proponents’ claims, it fails to provide for real simplification of state and local tax regimes, such as a uniform tax base among the states. Without a uniform tax base, compliance is incredibly complex for even the savviest of retailers.  The problem is much worse with respect to computing services and digital products delivered over the Internet.

For instance, cloud computing has some of the murkiest tax rules – some states have issued clear statements regarding taxability of IaaS, SaaS, or PaaS, but few have addressed all types of cloud services and many have failed to address the issue at all. Retailers are left guessing at the proper tax treatment of their sales and hoping their interpretation of tax rules is the correct one. That tax rules are ever-changing does not help matters. A uniform tax base would lessen this problem. Instead, retailers must monitor developments in myriad jurisdictions to find some clarity, although tax treatment still varies from state to state.

Idaho, for instance, recently exempted SaaS from sales and use tax by amending its statute to exclude “software accessed over the internet or through wireless media” from the definition of tangible personal property. See Idaho Code § 63-3616(b). Previously, the statute included as taxable tangible personal property any non-custom computer program “regardless of the method by which the title, possession or right to use the software is transferred.” The Idaho State Tax Commission interpreted this language as imposing tax on SaaS, although it noted in its opinion that “Due to the complexity of the business models, it is not possible to provide an all inclusive list of taxable sales transactions or taxable uses. As this technology advances, it may introduce more rather than less certainty.” Cloud Computing and Related Software Sales and Use Tax Issues (10/22/2012) (emphasis added). Even when providing some now-moot clarity to the taxability of SaaS, the state had to admit that its interpretations could not be considered definitive or final.

U.S. Senate Delays Vote on Marketplace Fairness Act until May 6

On Thursday, April 24, the U.S. Senate delayed its vote on S. 743, the “Marketplace Fairness Act,” which was originally expected as early as this week, until Monday, May 6, 2013. In the final procedural vote before the Senate takes up the bill on May 6, there was growing opposition to the fact that the bill had skipped the committee process, but there appeared to still be enough votes for passage. Earlier in the week, the vote to proceed without committee action was 74–20; on April 24 it was 63–30. More senators appeared to be concerned that careful consideration via a committee hearing is imperative before authorizing states to impose the complex existing state and local sales tax system on ecommerce and remote sellers. As we have commented before, the Marketplace Fairness Act fails to include such fundamental simplification measures as one tax rate per state, uniform tax bases and exemptions, vendor compensation requirements, and the harmonization of state sales tax holidays. Readers can learn more about true sales and use tax simplification here.

The House of Representatives has yet to take up the parallel bill (H.R. 684). We will continue to follow developments on federal legislation.

Beyond California and Massachusetts: Will Collecting Zip Codes Invite Class Actions Across the United States?

Although California and Massachusetts have stolen the spotlight with high profile cases banning zip code collection in connection with credit card purchases, thirteen other states and the District of Columbia have similar laws. With voracious class action attorneys circling, it is critical for retailers to know their legal obligations in these jurisdictions and, if necessary, adjust their privacy practices and policies.

Yet, because these statutes are to varying degrees vague, untested, and archaic, compliance can be difficult. At the same time, the risks could scarcely be higher. Hundreds of companies have already been ensnared in consumer class action lawsuits in California and Massachusetts, and the litigation floodgates may now open in other states as well.  And the math is simple. With penalties as high as $1,000 every single time a zip code, address, or telephone number is collected illegally--for periods going back as far as six years--even a relatively small company could face a liability in the millions or tens of millions of dollars.  You're also likely to be required to pay the plaintiffs' legal fees if you lose, which are often as much as one-third of the penalty calculation.

Kansas Enacts Internet Affiliate Nexus Law

On April 16, 2013, Kansas Governor Sam Brownback signed SB 83, which includes a provision patterned after the New York Internet affiliate nexus law recently upheld by the New York Court of Appeals in Overstock.com v. New York Department of Taxation and Finance. The law amends the definition of “retailer doing business in the state” in K.S. § 79-3702(h)(1) to create a presumption of nexus if a retailer enters into an agreement with one or more Kansas residents under which the resident, for a commission or other consideration, refers customers to the retailer “by a link or an Internet website, by telemarketing, by an in-person oral presentation, or otherwise.” The presumption will apply so long as the cumulative gross receipts of the retailer for sales to Kansas customers purchasing through such referrals is at least $10,000 in the preceding 12 months. The presumption may be rebutted by a retailer submitting proof that the affiliates did not engage in activity that is significantly associated with the retailer’s ability to make and maintain a market in the state. Such a rebuttal “may consist” of sworn statements obtained from all affiliates that they did not solicit sales in the state on behalf of the retailer. The law takes effect 90 days after enactment, or on July 15, 2013. Ecommerce vendors should evaluate their Kansas affiliate relationships to determine how to respond to the law.

California "Right to Know" Act Would Require Companies to Disclose Personal Information to Consumers

A California legislator recently re-introduced a bill that, if passed, would further solidify California’s place at the forefront of privacy regulation among U.S. States. AB 1291, the “Right to Know Act of 2013,” would require businesses to provide to consumers, upon request, a copy of all personal information the company has collected and retained about that consumer, as well as information about any parties with whom that information is shared.

Under California’s existing “Shine the Light” law, California consumers already have a right to request, no more than once a year, a list of third parties with whom a company has shared personal information for direct marketing purposes, and a description of the information shared. Companies may currently comply with the law by allowing consumers to opt-out of having their information shared with third parties for direct-marketing purposes.

The proposed law would broaden a consumer’s right of access considerably, giving consumers a right to obtain a copy of any personal information a company retains about that customer, regardless of whether the information is shared with third party marketers. Significantly, this includes both information a company may collect from a customer in connection with a transaction (e.g. name, email address, mailing address, order history), as well as any information purchased from third-party data brokers and incorporated into the consumer profile maintained by the company (e.g. demographic information provided by data brokers).