Amicus Briefs Filed in Amazon.com and Overstock.com Supreme Court Case

On September 23, 2013, several organizations and companies filed briefs as amici curiae in support of the petitions for a writ of certiorari filed by Overstock.Com, Inc., Amazon.com., Inc., and Amazon Services, LLC, requesting review by the United States Supreme Court of the New York Court of Appeals decision in Overstock.com, Inc. v. New York Department of Taxation and Finance, 20 N.Y.3d 586, 987 N.E.2d 621 (2013). Among the briefs filed was the Brief of Newegg, Inc. and the Direct Marketing Association, Inc. (the "DMA") as Amici Curiae in Support of the Petitioners. In their brief, Newegg and the DMA argue that the New York “click through affiliate nexus” statute, N.Y. Tax Law sec. 1101(b)(8)(vi), through an improper legislative presumption, narrows the zone of protected interstate advertising activity for out-of-state retailers under the Commerce Clause by shifting onto the retailers the burden of disproving “substantial nexus” with the state, in violation of the due process rights of retailers. Newegg and the DMA argue that the Constitution’s Due Process Clause prohibits states from using presumptions to interfere with matters that are removed from their authority by the Constitution, such as the regulation of interstate commerce. Brann & Isaacson partners Martin I. Eisenstein, George S. Isaacson, and Matthew P. Schaefer prepared the brief of amici on behalf of Newegg and the DMA.

Among the other organizations filing briefs were the Tax Foundation and the National Taxpayers Union, the American Legislative Exchange Council, the American Association of Attorney-Certified Public Accountants, and Scrapbook.com, Assisted Living Store, Inc., et al.

Traps For the Unwary Under the Consumer Product Safety Act: Children's Products

Nestled in the morass known as the Consumer Product Safety Act (as amended by the dubiously titled Consumer Product Safety Improvement Act of 2008 and further amended in 2011) are provisions that can wreak havoc for businesses that manage, understandably, to overlook them.  What was once a rather straightforward reporting and recall system involving a relatively small number of federal safety standards has evolved into a complex beast of certifications, third-party testing, and training programs. While it is beyond the scope of this post to identify and discuss all of the requirements of these laws, there are some provisions that our readers should know about. This article addresses one of the thorniest of all: children’s products.

A host of new requirements apply to children’s products, and the determination of what is – and what is not – a children’s product is now no easy matter.  Generally speaking, a children’s product is one designed or intended primarily for children 12 years of age or younger, but the CPSC’s own complex “interpretive guidance” on the question betrays the superficial simplicity of this inquiry.  There are almost no clear rules, and, on matters that could lend clarity to the situation, like a reliable product labeling/marking regime that would put the onus on parents and other responsible adults to keep certain products away from children, the CPSC manages to make things even murkier.

Amazon.com and Overstock.com Petition U.S. Supreme Court over New York Affiliate Nexus Law

We’ve written frequently about developments in Amazon.com and Overstock.com’s challenges to the New York State affiliate nexus law (a law which has inspired similar laws in many other states). Last spring, the New York Court of Appeals, the State’s highest court, upheld the law, stating that, in regards to the parties’ Commerce Clause claims, the “statute plainly satisfies the substantial nexus requirement. Active, in-state solicitation that produces a significant amount of revenue qualifies as ‘demonstrably more than a ‘slightest presence’’” under the Tax Appeals Tribunal’s 1995 ruling in the Orvis case. The Court continued by saying that “The bottom line is that if a vendor is paying New York residents to actively solicit business in this State, there is no reason why that vendor should not shoulder the appropriate tax burden.” The Court rejected the parties’ due process claims, as well.

Late last month, both Amazon.com and Overstock.com took their challenge to the United States Supreme Court, each filing a petition for a writ of certiorari, seeking review of the New York affiliate nexus law and of the New York Court of Appeals Decision (see status of the petitions here and here). New York has until October 23 to file a response in each case. However, as the Supreme Court’s review is discretionary, it is unclear whether the matter will be actually be heard by or decided by the Supreme Court. If not, the New York decision will stand, and other states’ versions of the affiliate nexus law will not be impacted. Meanwhile, the Marketplace Fairness Act, which could, in theory, make challenges such as these moot, remains in committee in the House of Representatives.

We will continue to track developments and keep our readers posted.

Federal Appeals Court Rules Lower Court Lacked Jurisdiction to Enjoin Colorado Notice and Reporting Law; Direct Marketing Association Will Seek Rehearing En Banc

Many of our readers have been following closely the litigation challenging the Colorado law passed in 2010, which required remote sellers to inform consumers of their obligation to self-report sales and use tax and also required direct marketers to turn over to the Colorado Department of Revenue the names of their Colorado customers along with sales transaction information. In 2012, the United States District Court in Denver declared the Colorado law unconstitutional, as a violation of the Commerce Clause. The Colorado Department of Revenue appealed the District Court decision to the Tenth Circuit Court of Appeals.

On Tuesday, August 20, 2013, the Tenth Circuit issued its decision in Direct Marketing Association v. Brohl. The three judge panel hearing the case did not reach, or address in any way, the constitutional issues in the case. Instead, the Court ruled solely on the question of whether the District Court had jurisdiction to hear the case.

Although the jurisdiction of the federal courts was not contested by the parties, the appellate court concluded that the United States District Court in Denver did not have jurisdiction because of the so-called Tax Injunction Act (28 U.S.C. sec. 1341) (“TIA”). This jurisdictional statute prevents federal courts from entering judgments that restrain the collection of state taxes, and the Tenth Circuit ruled that it applied in this case. The Court stated that the challenge to the constitutionality of the Colorado law must be filed in state court rather than federal court. Therefore, the Court of Appeals remanded the case back to the District Court and directed it to dismiss the DMA’s Commerce Clause claims and to dissolve the permanent injunction against the Department of Revenue’s enforcement of the law.

Nondisclosure Agreement Do’s and Don’ts

The nondisclosure agreement (“NDA”) is perhaps the most common single agreement that a business person is likely to run across. Virtually any preliminary business conversation, either with a potential vendor or a potential customer, is likely to be prefaced with the exchange of an NDA. In general, these documents are fairly standard and innocuous. The typical business person may feel comfortable executing and NDA without consulting counsel. If you are tempted to do so, here are five tips that can help you avoid making a mistake you may later regret.

1. Home Cooking is the Best. Have a standard form of mutual NDA that you can readily offer up. In some instances, this is a pure leverage issue, but if you are dealing with a party that does not have its own form, you can seize the initiative by providing your own.
2. What’s Sauce for the Goose is Sauce for the Gander. Some so-called “standard” NDA’s only protect the information of one party (typically the one providing the form of agreement). It is important to make sure that any NDA that you sign is mutual. Obviously, you want your confidential information to be protected to the same degree as that of the other party. In addition, a mutual NDA tends to be more even-handed than a one-way NDA.

Judge Enjoins Cook County from Enforcing Use Tax

We write frequently about the difficult task retailers face in complying with the myriad state and local tax regimes in this country. State and local tax rules are ever changing, both through legislative and regulatory efforts and also through actions of administrative bodies and even the courts. For your average retailer, keeping abreast of every change can be near impossible.

For instance, last November, Cook County, Illinois approved a use tax ordinance that went into effect April 1, 2013, and imposed tax on non-titled personal property purchased outside the county for use within the county. The Cook County use tax rate was set at 1.25%, while the County’s sales tax rate on similar purchases made inside the county was only 0.75%. The language used in adopting the use tax plainly stated the County’s purpose in adopting the new tax: “WHEREAS, it is in the interest of Cook County to take steps that will level the playing field among business interests, close tax loopholes, and incentivize the purchase of non-titled personal property within the County for use within Cook County.”

Report, Recall, or Both: Do You Know Your Obligations Under the Consumer Product Safety Act?

Manufacturers, importers, distributors, and retailers of consumer products have a legal obligation to report hazardous or dangerous products to the Consumer Product Safety Commission ("CPSC"). Failing to do so may result not only in large civil penalties, but also criminal prosecution. But, there are many common myths and misconceptions about this reporting requirement and how it relates to the separate question of whether a product recall ought to be commenced. Here are just a few:

Myth One: “I only need to report to the CPSC if someone is injured by a product I sell.”

In truth, a reporting obligation can arise if not a single consumer has been injured. The law requires the reporting of “unreasonably hazardous or dangerous” products that pose a risk to consumers—even if the risk of harm has never been realized. The possibility of harm, alone, triggers a reporting obligation.

Myth Two: “I can avoid the need to report simply by sending a communication to my customers telling them how to avoid being injured by the product.”