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).

Despite Unconstitutionality, Kentucky Enacts Consumer Use Tax Notification Requirement for Out-Of-State Retailers

On April 4, 2013, Kentucky Governor Steve Beshear signed into law HB 440. The bill includes an amendment to Kentucky’s tax code which will impose a new requirement on every retailer that makes sales into Kentucky from outside the state and that is not required to collect Kentucky use tax. The law requires that these retailers provide a notice to their customers that Kentucky purchasers are required to report and pay use tax directly to the Kentucky Department of Revenue. A similar provision enacted in Colorado in 2010 as part of a broader notification and reporting bill was declared unconstitutional by a federal judge in Direct Marketing Association v. Huber, a case now on Appeal before the 10th Circuit Court of Appeals. Brann & Isaacson is counsel to the DMA in the Colorado litigation.

While three other states—Oklahoma, South Dakota, and Vermont—have similar consumer use tax notification requirements on the books, Kentucky’s new law is more aggressive:

First, on its face, Kentucky’s law requires retailers to use “the exact required use tax notification language” set forth in the statute concerning compliance with Kentucky law, and does not include a substantial compliance provision likes other states. According to the statute, even if a seller already has a notice provision for other states, that notice provision is only adequate for purposes of Kentucky law “if the consolidated notification meets the requirements of this section.” In other words, only the “exact” language of the Kentucky law, and not something substantially similar that a retailer adopts in response to another state’s notification law, appears to be allowed.

New Best Practices for Trademark Owners in an Era of Ever Increasing gTLDs

As new domains become available, trademark owners with an internet presence should consider adopting new best practices to protect their marks.  By way of background, a generic top level domain (“gTLD”) is the alpha numeric string that appears after the “dot” in a web site URL.  The most ubiquitous such creature is the well-known “.com.” In the 1980s, the Internet Corporation for Assigned Names and Numbers (ICANN)–the mysterious not-for-profit corporation under contract with the US Department of Commerce to see to the proper functioning of the Internet’s system of addresses–created seven gTLDs: .com, .edu, .gov, .int, .mil, .net, and .org.. In years following the creation of the original gTLDs, discussions concerning additional gTLDs led to the selection in November 2000 of seven new gTLDs for introduction: .biz, .info, .name, .pro, .aero, .coop, and .museum. In 2003, ICANN initiated a process that resulted in the introduction of six new gTLDs (.asia, .cat, .jobs, .mobi, .tel and .travel).  Most recently, .xxx has been added to the mix.

At each step along the way, the introduction of new gTLDs created anxiety for trademark owners concerned that each new gTLD opened up opportunities for domain name brokers to hijack or cybersquat on second level domains consisting of valuable trademarks.  For instance, acme.com might find that there are cybersquatters hosting sites at acme.org or acme.asia.  In response to these concerns, at each launch of a new set of gTLDs, ICANN implemented a so-called “sunrise” period, enabling trademark owners to get first dibs on any new domain name consisting of a trademark owner’s trademark.

During the late 1990’s and early 2000’s, this led to a “best practices” regime of domain name management  that consisted primarily of trademark owners registering thousands of domain names consisting of their trademarks in an effort to prevent others from doing so. 

Given developments in the gTLD area in the last two years, however, this approach is no longer workable.