 Articles Found in This Issue
   Spitzer Withdraws Tax on E-Retailers
THE NEW POLICY IS ABANDONED – for now
- Only a day after announcing the new policy, Governor Spitzer abandoned his plan to require Amazon.com and other online retailers to charge state and local taxes on all purchases from New York.
- The Spitzer administration announced that it was backing down from its policy at least until after the holiday shopping season is over.
- The Governor’s budget director, Paul Francis, said “Governor Spitzer believes that now is not the right time to be increasing sales taxes on New Yorkers.”
THE PROPOSED POLICY
- The policy would have required electronic retailers to collect sales tax on all purchases from New York.
- Through the new policy, it is estimated that New York State would have received millions of dollars in revenue from unreported use taxes from New Yorkers that shop at out-of-state online retailers, such as Amazon.
THE CURRENT POLICY
- Based on a 1967 United States Supreme Court decision set for mail-order vendors: The seller needs to collect tax on purchases only in states where the vendor has a physical presence.
WHY TRY TO CHANGE THINGS?
- Governor Spitzer felt that it was appropriate because of the way many e-retailers direct traffic to their websites.
- Many e-retailers use affiliate programs to market their products and services.
- An affiliate is a website operator that provides a link to an e-retailer in return for a commission on any sale resulting from customers using its link.
- Spitzer believes that working with a New York State-based affiliate is essentially the same as having an in-state salesperson.
SUMMARY
- E-retailers and their “affiliates” should stay tuned in the coming months to see whether Governor Spitzer resurrects this tax policy.
- If he does, some e-retailers have threatened to drop their “affiliate” programs.
- Other e-retailers have voiced their intent to challenge the policy in court, where, some have indicated, New York’s new position might not be upheld.
| "...the Court balanced the State’s interest in protecting its citizens against the burden that its licensing requirements imposed on out-of-state lenders. '" |
| "...disagreed with plaintiff’s argument that because it conducted its business on the Internet, the challenged loans occurred in cyberspace..." |
Statute Regulating Internet Loans Does Not Violate
Commerce Clause
Quik Payday, Inc. v. Stork, __F. Supp.2d__, 2007 WL 2581881 (D. Kan. 2007)
FACTS
- Plaintiff is a Utah State corporation offering short-term “payday” loans nationwide via the Internet.
- Plaintiff was registered with Utah’s regulatory authorities to provide these loans in accordance with Utah law.
- Plaintiff did not have any offices, employees or any other physical presence in Kansas, but it deposited loan proceeds to various consumer bank accounts in Kansas.
- One Kansas resident complained about his experiences with plaintiff to the Kansas State Office of the State Bank Commissioner (“OSBC”).
- The OSBC imposed sanctions on plaintiff for its failure to seek a license from the OSBC prior to issuing loans to Kansas State residents.
- Plaintiff brought this action against OSBC alleging that the Kansas Uniform Consumer Credit Code (that authorized OSBC’s regulation of plaintiff) violates the Dormant Commerce Clause and the Due Process Clause of the U.S. Constitution.
COURT DECISION
- The Court upheld the constitutionality of the Kansas statute regulating consumer credit transactions. In doing so, the Court balanced the State’s interest in protecting its citizens against the burden that its licensing requirements imposed on out-of-state lenders.
- In its analysis, the Court looked to the Tenth Circuit’s decision in the Aldens case.
- The Court disagreed with plaintiff’s argument that because it conducted its business on the Internet, the challenged loans occurred in cyberspace, or at the plaintiff’s Utah headquarters, where the loans were processed.
- The Court pointed out that the statute regulates loans with Kansas residents induced by solicitation in Kansas. The statute does not seek to regulate conduct taking place wholly outside of Kansas and, therefore, does not violate the Dormant Commerce clause of the U.S. Constitution and is applicable to plaintiff’s payday loan business.
Aldens, Inc. v. Ryan, 571 F.2d 1159 (10th Cir. 1978). In the Aldens case, an Illinois mail-order company made sales to Oklahoma residents. The company did not comply with an Oklahoma statute setting permissible finance charges and interest rates. The Court applied the Supreme Court’s balancing test in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), and held that “conformance with the Oklahoma cost of credit rules would not constitute an undue burden on interstate commerce.”
Web-Based Compilation Must be at Least 70% Substantially Similar to Sustain Copyright Infringement Action
BensBargains.net, LLC v. XPBargains.com, 2007 WL 2385092
(S.D. Cal. 2007)
FACTS
- Benjamin Chui, owner of BensBargains.net, posts daily lists of deals that he compiles by searching the Internet and working with familiar vendors.
- The items featured on BensBargains.net include a wide variety of products, ranging from electronics to sporting goods.
- When visitors click on a deal on the Bensbargains website, they are directed to the applicable product vendor’s website.
- If the user makes a purchase, Bensbargains typically receives a commission from the subject product vendor.
- Chui suspected XPBargains was copying portions of his product compilations for use on the XPBargains website -- so Chui began registering his compilations with the Copyright office.
- Chui also intentionally placed misspelled words into his compilations and inserted his name “Ben” within the text.
- On October 9, 2005, seven (7) instances of the misspellings were reflected on the XPBargains website.
ALLEGATIONS
- Chui brought an action against XPBargains claiming copyright infringement.
COURT
- The Court first reviewed whether plaintiff’s compilation was entitled to copyright protection. Then it considered whether there was enough of a substantial similarity between the protected features of plaintiff’s compilations and defendant’s corresponding compilation to raise a triable issue of copyright infringement.
Entitled to Protection?
- The Court likened Chui’s compilation to the facts in Key Publications, Inc. v. Chinatown Today Publishing, pointing out that “Chui uses his individual judgment to select among a multitude of deals for various products. There is nothing automatic or obvious about his selections.”
- The Court found Chui’s compilations to be original and entitled to copyright protection.
Substantial Similarity?
- Despite evidence of “in fact” copying by defendants, plaintiff must prove the existence of a triable issue of material fact with respect to substantial similarity.
- The Court found that there is a substantial similarity between the selection of deals in a few of the copyrighted compilations and defendants’ corresponding compilations to create a triable issue as to infringement.
- Based upon previous case law, the Court decided to employ a 70% similarity threshold test.
- The Court distinguished this case from Schoolhouse Inc. v. Anderson, pointing out that “the universe of deals from which plaintiffs and defendants can select is vast.”
- The Court found that “there is insufficient similarity to survive summary judgment where either the percentage of plaintiff’s deals that were copied or the percentage of defendants' deals that were derived from plaintiff’s website is less than 70%.”
- The Court ultimately determined that only three (3) of plaintiff’s registered compilations met the 70% substantially-similar threshold.
SUMMARY
The Courts are willing to protect copyrighted compilations but only to a certain extent. Those seeking protection for a registered compilation must prove that an imitator is at least 70% substantially similar in order to survive a motion to dismiss.
945 F.2d 509 (2d Cir. 1991) (The Court held that plaintiff’s directory for New York City’s Chinese-American community was entitled to copyright protection because of plaintiff’s original selection and arrangement.)
275 F.3d 726 (8th Cir. 2002) (The Court held that even a 74% similarity between two (2) lists was not enough when the list at issue was “comprehensive,” listing nearly all potential selections.)
| "...statute requires all “producers” of any “visual representation of actual sexually explicit conduct” to maintain extensive records.... " |
| "...
the legislative purpose in enacting the statute was to protect children from abuse (and eliminate child pornography), the Court noted that the requirement affected all sexually-explicit images..." |
Record-Keeping Statute is Overbroad --
Violates First Amendment
Connection Distributing Co. v. Keisler, __F.3d__, 2007 WL 3070970
(6th Cir. 2007)
FACTS
- Connection Distributing (“Connection”) publishes and distributes “swinger” magazines.
- These magazines contain feature stories and editorials, as well as messages, submitted by people whose beliefs and philosophies embrace the “swinging” lifestyle.
- The messages often are accompanied by sexually-explicit photographs of the subscribers.
- Readers respond by writing to Connection, which charges a fee to forward the responses to the subscriber that submitted the message.
- Connection also offers 900 number voicemail services for individuals that want to respond by telephone, as well as via an Internet service.
ALLEGATIONS
- Connection brought a declaratory judgment action challenging the constitutionality of Title 18 USC § 2257, legislation that imposed record-keeping requirements upon producers of sexually-explicit images.
- The statute requires all “producers” of any “visual representation of actual sexually explicit conduct” to maintain extensive records, including the name, date of birth, and copied government ID of each individual featured in any sexually-explicit images, which must be made available for law enforcement inspection several times a year.
- Plaintiffs argued that the record-keeping requirements violated their and their advertisers’ rights to free speech.
- The Sixth Circuit Court of Appeals agreed, holding that § 2257 violates the First Amendment and is overbroad.
- The Court pointed out that while the legislative purpose in enacting the statute was to protect children from abuse (and eliminate child pornography), the Court noted that the requirement affected all sexually-explicit images, including protected speech between consenting adults.
- The Court said the statutory record-keeping requirements were “extremely broad” to the point of being “overbroad.”
WHAT DOES THIS MEAN FOR YOU?
If you are an Internet Service Provider…
The Court pointed out that Internet Service Providers, while not considered “producers” under the statute, would have been required to certify that all content posted to their servers or hosted on their websites met the record-keeping requirements.
If you are a website operator or Internet marketer…
Because the statute regulated all sexually-explicit images, even those that are considered protected speech, marketers and website operators would have been held to this overbroad standard had the statute been upheld.
Verizon Wireless Agrees to Pay $1 Million
To Settle New York Attorney General Marketing Investigation
Attorney General Investigates
- New York Attorney General Andrew M. Cuomo launched a nine (9) month investigation into the marketing of Verizon Wireless’ NationalAccess and BroadbandAccess wireless Internet plans for laptop computer users.
- Mr. Cuomo argued that Verizon Wireless called the plans “unlimited” without mentioning that common uses (such as downloading movies or playing games online) were effectively prohibited for their proportionately large use of network bandwidth. The Verizon Wireless plan terms failed to adequately alert consumers about these limitations.
Verizon’s Marketing Targeted
- Verizon Wireless sells laptop cards that can be used for wireless Internet access.
- According to Mr. Cuomo’s office, the Company misled consumers by offering an unlimited monthly usage plan for $59.99, but ultimately terminated the accounts of more than 13,000 users nationwide because of excessive network use.
The Settlement
- Verizon Wireless agreed to reimburse the consumers for the cost of wireless access cards or cell phones purchased in order to utilize its wireless Internet service.
- In addition to reimbursing customers, Verizon agreed to pay $150,000 in penalties and fees to New York State.
- Verizon also agreed to change how it advertises its wireless broadband service.
Verizon Admits to No Wrong-doing
- Verizon Wireless denied violating any laws and said it entered into the settlement to resolve the matter amicably and without litigation.
Cuomo Sends a Message
- In conducting his investigation, Mr. Cuomo stated that, “This settlement sends a message to companies, large and small, answering the growing consumer demand for wireless services. When consumers are promised an ‘unlimited’ service, they do not expect the promise to be broken by hidden limitations.”
Website Privacy Policy Applies to Telephone Sale
Greer v. 1-800-Flowers.com, Inc.,
2007 WL 3102178 (S.D. Tex. 2007)
FACTS
- Plaintiff telephoned 1-800-FLOWERS and ordered flowers for his girlfriend.
- During the telephone call, plaintiff was referred to and told that the defendant’s privacy policy located on its website applied to his transaction.
- Defendant sent a “Thank You” note for the order to plaintiff’s home address, which his wife received.
- Upon receipt of the “Thank You” note, plaintiff’s wife contacted defendant seeking proof of purchase.
- In response, defendant sent plaintiff’s wife a copy of the receipt for the flowers he had ordered for his girlfriend, her identifying information, and a copy of the message he sent with the flowers.
- Plaintiff alleged that defendant giving his wife this information breached its privacy policy.
- Defendant argued that the Texas court was not the proper venue for this action under the terms of privacy policy (which is a part of the website’s Terms of Use).
- The Terms of Use includes a forum selection clause providing that venue for all claims and disputes arising between defendant and its website users shall be the courts located in Nassau or Suffolk County in New York.
- Plaintiff argued that the forum selection clause does not apply here because this is a telephone transaction and not an Internet-based transaction. Even if it were to apply, plaintiff argued, the forum selection clause should not be enforced because he did not have adequate notice of the provision for it to “figure prominently” in the parties’ agreement.
COURT DECISION
- The Court held that the privacy policy on which plaintiff based his claims is a part of the Terms of Use that were referred to during plaintiff's Order. Plaintiff presented no legal or factual basis for not enforcing the forum selection clause.
- According to the 1-800-Flowers.com website, the privacy policy and forum selection clause applied to “any claim relating to this website or its content.”
- The Court said that plaintiff was given adequate notice of the forum selection clause; he accessed the privacy policy which was part of a broader Terms of Use which he apparently did not read.
SUMMARY
A telephone customer of an online business is bound by the terms of a website privacy policy referred to during the sales call and accessed by the customer prior to completing the transaction.
Terms of Use Sufficiently Conspicuous to be Binding on Plaintiff
Druyan v. Jagger, 2007 WL 2592352 (SDNY 2007)
FACTS
- Plaintiff purchased concert tickets online through the Ticketmaster website.
- Ticketmaster’s “Terms of Use” provides: “By using or visiting the Site, you expressly agree to be bound by these Terms and follow these Terms, and all applicable laws and regulations governing the Site.”
- At 4:00 p.m. on the date of the concert, ticket holders were notified that the event would be rescheduled to a later date due to Mr. Jagger’s sore throat.
- Ticket holders were offered either a refund of the ticket purchase price or new tickets for the rescheduled show.
- Plaintiff accepted neither, and instead instituted this lawsuit (on her own behalf and on behalf of a putative class of 12,000 purchasers of tickets to the concert) alleging breach of contract, fraud, prima facie tort, negligence and other claims.
- Plaintiff claimed that defendants did not notify the plaintiff class about the rescheduling until the last minute (4:00 p.m. the day of the show) as part of a grander scheme to “reap the profits” of the putative class members’ stay in Atlantic City.
- Plaintiff also claims that she is not bound by Ticketmaster’s Terms of Use because they were not conspicuously displayed at the time of ticket purchase.
COURT DECISION
- The Court found that the “Terms of Use” and the concert ticket itself provided the plaintiff with unequivocal notice that any concert or event was subject to the risk of rescheduling.
- The Court pointed out that in order to purchase the tickets from Ticketmaster, plaintiff was required to click on a “Look for Tickets” button. Right above that button is the statement “By clicking the ‘Look for Tickets’ button or otherwise using this website, you agree to the ‘Terms of Use.’”
- Further, clicking on the “Terms of Use” link directs the user to the full “Terms of Use,” including the “Purchase Policy” and the “Cancelled/Postponed Events” policy.
- The “Terms of Use” and the ticket itself both included statements warning customers that event dates and times were subject to change.
- The Court also stated that “the enforceability of the ‘Terms of Use’ does not depend on her actually having read them.”
- The Court reasoned that plaintiff should have known about the terms and their applicability by virtue of the fact that she had made online purchases from Ticketmaster in the past.
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