The Year In Review

As the year draws to a close, it’s worth looking back over a range of important legal developments in the world of electronic commerce, a number of which set the stage for fireworks in the months and years ahead.  Wishing all of our readers a wonderful holiday season, and the best and brightest New Year, we hope you enjoy our “top five” list.

Coming in at number five ...


5.  Is Everything Is Personal Information?  Reversing cogent and balanced decisions from multiple lower courts, the Supreme Court of California in 2011 opened the floodgates to class actions with its extraordinary opinion in Pineda v. Williams-Sonoma in which zip codes were deemed to be personal identification information (PII) which could not be collected in connection with credit card sales.  In 2013, Massachusetts joined the bandwagon, and, most recently, a California federal court has expanded PII to include email addresses. These cases raise class action litigation risks in a number of other states as well, so expect more decisions in 2014.  The critical lesson? Vet your information collection practices carefully with a lawyer of your choice.

4. Affiliate Nexus Anyone?  Both in terms of laws being passed and litigation being waged, the area of so-called "affiliate nexus" has boomed across the United States.  There was a time when "affiliate nexus" referred to nexus created by related corporations -- parents, affiliates, and subsidiaries -- but now it refers to nexus created by third-party websites (such as blogs) that include links to a direct marketer's website and through which payments are earned based upon click-throughs or referred sales, for example. This year's highlights include unsuccessful litigation by Amazon and Overstock seeking to overturn New York's affiliate nexus laws, and successful litigation by the Performance Marketing Association that resulted in the striking down of Illinois' affiliate marketing statute.  Generally speaking, the laws that appear most vulnerable are those that do not provide direct marketers with an opportunity to rebut a presumption of nexus.  Look for more affiliate nexus litigation in 2014.

3.  Rocky Mountain Hijinks.  Another high profile lawsuit in 2013 was the Direct Marketing Association's federal court lawsuit which sought an injunction to stop an intrusive Colorado law from requiring direct marketers to (among other things) turn over their customer lists to state tax officials. After winning an injunction from the United States District Court in 2012, the United States Court of Appeals for the Tenth Circuit overturned that decision on a technical, procedural basis, finding that the Tax Injunction Act robbed the federal courts of jurisdiction.  The DMA has now refiled its challenge in state court in Colorado, and a motion for preliminary injunction is pending with a decision likely in early 2014.

2.  A CAT of a Different of a Different Color.  If you haven't been contacted by the Ohio Department of Revenue about their Commercial Activity Tax (the "CAT"), it's only a matter of time. This tax appears to have been an attempt to sidestep the Quill physical presence requirement, while also avoiding the tax limitations of Public Law 86-272 (which places limits on the taxation of net income). The tax is identical to a sales tax -- both impose taxes on a seller's gross receipts -- but, unlike a sales tax, the incidence of the tax is on the seller, not the purchaser.  On this basis, Ohio claims that sales tax nexus cases (and their physical presence requirement) don't apply.  One slight problem, however, gets in the way of this thinking:  there are five "substantial nexus" cases from the United States Supreme Court that involve gross receipts taxes just like the CAT, and all of them require a physical presence for tax jurisdiction.  In August of this year, the Ohio Board of Tax Appeals held its first hearing on a Commerce Clause challenge to the CAT, and a decision is likely within the next six months.  Stay tuned!

And, finally ...

1.  The Marketplace Fairness Act.  The biggest question on the minds of many direct marketers was whether Congress would overturn the "physical presence" requirement of the Commerce Clause.  In 2013, the Senate did something that neither it nor the House had ever done before:  it passed just such a bill, entitled The Marketplace Fairness Act.  However, the House said, "Not so fast." What happens next is anyone's guess.