Is it a tax increase if you begin taxing something new? A number of pundits suggest the answer is “yes.” Grover Norquist, who was recently featured on 60 Minutes and has been making prominent appearances in Atlanta, believes that the subject of this post is, in fact, a tax increase. This is creating some sweat for legislators asked by Norquist’s organization, Americans for Tax Reform, to pledge that they will never raise taxes.
The Georgia House of Representatives will soon be voting on House Bill 993, which would create or enforce, depending on your viewpoint, a sales tax for Georgia residents on certain e-commerce transactions. Federal law currently permits such a tax to apply only to sellers who have some physical nexus to the jurisdiction applying the tax, and the Georgia legislation would, in part, be based on local affiliates’ relationships with the largest retailers.
Georgia Governor Nathan Deal is in favor of the measure, suggesting that it is simply the enforcement of sales tax collection that should already be taking place. Supporters also say the tax measure will not produce additional revenue for the State, but will instead be offset by reinstatement of tax-free shopping holidays.
The Georgia Retail Association estimates that uncollected sales tax from all Internet sales to Georgia residents amounts to about one-half billion dollars per year, and about $20 million of that comes from Amazon.com transactions alone. The specific transactions that are the subject of the House bill would bring in about $18 million per year to the Georgia Department of Revenue.
Traditional businesses that do not rely on e-commerce are throwing significant backing behind the proposal, with Atlanta-based Home Depot the most important proponent. Home Depot, in fact, already collects the tax in question on its Internet sales. Traditional retailers argue that they are operating from a serious disadvantage when e-commerce retailers do not charge the tax and can thus provide the lower prices consumers are increasingly seeking.
It is of note that, on a general tax policy basis, a move in favor of an Internet sales tax in Georgia would, in effect, represent a move toward consumption taxes and a retreat from what have historically been property- and income-based tax revenues. Federal legislation of a uniform Internet sales tax has gone nowhere for years. In the coming month, we will see if the current attempt in Georgia gains traction.
The use of social media is omnipresent with respect to most companies now. Whether an enterprise is savvy enough to employ social media on its own behalf for marketing purposes, or whether it has social media exposure simply by virtue of its employees’ personal use of Twitter, Facebook and other applications, there is a very tangible impact created. Not only is this impact commercial and reputational, it can be legal in nature.
Recently, the National Labor Relations Board (NLRB or the “Board”) has developed a keen interest in employers’ attempts to regulate their employees’ social media use. Its primary tool in this effort has been the National Labor Relations Act (NLRA or the “Act”), a federal law passed in 1935 to protect employees’ right to organize unions and engage in collective bargaining.
Since the applicability of the Board and the Act to social media can be difficult to ascertain on first blush, the NLRB has recently issued specific guidance about how NLRA provisions govern here.
One of the primary purposes of the NLRA is to allow workers to freely communicate with one another regarding complaints about terms and conditions of employment and perceived instances of unfair treatment. Examples of covered topics include accusations of workplace racism, departmental complaints, complaints about unfair demands and duties, and other labor disputes. The fact that this communication is now increasingly taking place via social media has created the natural tie-in between social media and the Act.
In practical effect, if a particular communication has the above subject matter, the Act is now permitting employees to make public social media posts about a company or their workplace so long as more than the singular employee is involved (i.e., the post can be construed as part of a discussion with fellow employees and a potential motion toward labor organization around a workplace issue).
Some notes on the practical implications for employers:
1. Even a “like” from a fellow employee regarding a post may be enough to constitute such collaborative employee action! However, the gripes of an individual aggrieved employee that are not in some way approved or supported by fellow workers will not generally constitute a communication subject to the NLRA.
2. Application of the Act to social media doesn’t hinge on whether the employer is unionized or non-union – the protections are universal.
3. A company must be extremely careful about terminating an employee because of any work-related social media post, whether on Facebook, Twitter or elsewhere. One major tightrope to walk here occurs if the post somehow implicates a company’s proprietary information or trade secrets. If it does, the company must protect its confidential information, but its general social media use policy cannot impede the protected flow of labor-related communication about, e.g., wages or working conditions.
4. At present, an employer can, via its social media use policy, request that employees confine their social networking to matters unrelated to the company if necessary to ensure compliance with securities regulations and other laws (see earlier post about Groupon and securities law issues). A social media use policy may also include such restrictions as are necessary, for example, to address HIPAA or security regulations.
5. In connection with (4) above, the NLRB has also ruled that, since employees do not have a protected right to disclose “embargoed” information such as trade secrets or confidential information in the first place, employees would not reasonably interpret a legitimate social media use policy with proscriptions on posts with this subject matter as disallowing communications about the terms and conditions of their employment. This, of course, weighs in favor of an employer’s right to protect its trade secrets and confidential information, so long as the employer policy is sufficiently explicit about what is off limits for social media communications.
6. Based on current litigation described in a recent post here, employer policies for social media should also address the ownership of content in social media accounts that are purposed for the benefit of the employer.
While it would have initially seemed a fairly simple task, issues like the above are the reason that legal counsel is a must when drafting an employee social media use policy.
It used to be that a person’s activity on a given Internet application was monitored solely on, and for the purpose of, that platform. That day is quickly fading away, hastened by recent action by Google.
Google plans to create and maintain essentially a single pool of information regarding any given individual, which will contain information gathered from that person’s use of any Google application. This means that information from a user’s interaction with, for example, an Android phone, Gmail, Google Search, Google Analytics and YouTube will all be conflated into a single profile about that user. The benefits to Google (and its current and potential trade partners) of adopting this approach are readily apparent, most prominently existing in the possibility of delivering highly targeted advertising and “reminders.”
The legal implications for the public and other like industry players, however, are unlikely to be regarded as favorably. At present, no opt-out from this system is contemplated. Regardless of your personal preference, you will be treated as a single user across all Google products — more importantly, one associated with a cross-disciplinary mine of valuable consumer information. This lack of opt-out choice is contrary to the privacy law rubric to which e-commerce has been increasingly subscribing for years.
If there is any party with the leverage to attempt this, it is Google, but there will certainly be significant push-back. In addition to Internet law privacy concerns, antitrust issues are also raised by Google’s proposed activity. The policy is set to take effect on March 1, so look out for imminent hand-throwing.
We in the U.S. tend to have a limited field of vision when it comes to nascent legal concepts. Other countries are dealing with many of the same matters in their jurisprudence, but our citizens and legislators are either unaware of their efforts or fail to see their relevance. A great recent example is the European analog of the American Stop Online Piracy Act (SOPA) and Protect Intellectual Property Act (PIPA). Known as the Anti-Counterfeiting Trade Agreement (ACTA), the measure was executed by Poland in Tokyo, Japan today, setting off anti-government hacking and massive protests.
Until the footage of uprisings in the streets hit American media, ACTA was not a known quantity to hardly anyone in the U.S. The Agreement is designed to set international standards for the protection of intellectual property and, as its name would imply, to address rampant counterfeiting. Of note is the fact that ACTA has less to do with copyright infringement prosecution than most hypothetical examples cited by those opposing the legislation. As with the U.S. legislation, detractors suggest enacting ACTA would amount to condonation of censorship and would shortcut due process in many cases of alleged infringement.
Other nations executing the Agreement this week included Finland, France, Ireland, Italy, Portugal, Romania and Greece. In what will come as a surprise to many, the U.S. executed the Agreement, as well – last year (as did Australia, Canada, Japan, Morocco, New Zealand, Singapore and South Korea).
The point: multiple nations are recognizing that they have aligned economic interests when it comes to intellectual property. They are centered on incenting creative activity by ensuring that the profit of such endeavors actually reaches the creator or rightsholder, rather than being diverted by intellectual property infringers. Proponents of the various anti-piracy legislative schemes suggest that many jobs and significant commerce across many industries are at stake.
Other nations are keenly aware of developments in U.S. lawmaking. Our collective intelligence and legislative efficacy would be enhanced if we would maintain like awareness of happenings in other global economies.
As of Thursday, the Internet Corporation for Assigned Names and Numbers (ICANN), the primary governance organization for World Wide Web IP address infrastructure, opened the application process to register any number of additional generic Top-Level Domains (gTLDs). The top-level portion of the domain name corresponds to the .com, .net, etc., portion of a site’s address. Under the imminent process, one could attempt to substitute almost anything (think “.financial” or ”.grocerystore”) for “.com.” But is this a prospect people are excited about?
The diffusion created by the indiscriminate registration and usage of numerous gTLDs would remove significant commonality and shared understanding that we as Internet users have come to rely upon. If the taxonomy of finding things on the Web on a nearly intuitive basis (by associating a given entity or site with a certain gTLD) is altered in a meaningful way now (after many years of people becoming accustomed to current Internet architecture), it would probably be more a detriment to individuals and businesses connecting with one another than an Internet growth generator.
If you, as an individual or entity, however, decide you want to apply for a new gTLD, you have until March 29, 2012 to formally reserve that ability. You then have to complete a cumbersome application by April 12, 2012 (expect it to require enough effort that you might want to get started on it tomorrow). As of yet, ICANN has not announced any other subsequent registration periods. Not sure they will be necessary unless somehow the idea of rapidly expanding the number of gTLDs gains momentum in a way that we have not seen in the days since last summer when the initiative was approved.
The portability of intellectual property is increasingly a competitive issue in business, and therefore an important subject of legal debate. A corporation expends a lot of capital providing its employees with the resources and compensation necessary to create, all the while tempering its hopes with the reality that a key employee may be lured elsewhere and have to be replaced (along with his or her knowledge, both technical and of the company).
This creates some amazing tension when the Internet and one of its greatest platforms, Twitter, become involved. A great deal of publicity has attended the story of Noah Kravitz, an employee who amassed about 17,000 Twitter followers while micro-blogging for PhoneDog, a South Carolina company that reviews mobile devices and apps. Mr. Kravitz departed his employer in 2010, joining another company in essentially the same market space and changing his Twitter handle, effectively porting the 17,000 followers with him.
PhoneDog has sued Kravitz, seeking $340,000 from him on the theory that the followers constituted a customer list. The primary legal questions arising are:
Were the Twitter posts made on behalf of PhoneDog? With the company’s authorization? With the attendant business benefit intended to accrue to PhoneDog? Also, were the Tweets made using company equipment and on “company time”? The answers to some of these questions should be fairly straightforward, but others can be amorphous in the employment context.
The clearest path to avoiding a dispute like this: hire a good e-commerce lawyer to draft an Internet and social media use policy your company can implement. This is secondary, however, to having each hire execute a solid employee agreement that clearly lays out the ownership of intellectual property created during the working relationship and addresses the assignment of rights that are either ancillary or could be unclear.
Most people are not out to cause any kind of fight or overthrow at work, but they have to know what the rules are beforehand so they can be accountable for following them. Social media is quickly creating a world where the professional and personal blend, and where both are conducted on the fly. About one-half of companies have yet to issue a policy giving guidance in these spheres, and that is creating some major fault zones in the employment law and intellectual property law landscapes.
Links: Fortune CNN and WRAL Tech Wire articles on the controversy
First, welcome to the 2012 installments of Georgia Internet Law, where an Atlanta e-commerce law firm provides information, resources and commentary, but not individualized legal advice (nod to attorney regulators), on technology law matters.
Second, let’s go back to the future by re-visiting a 2011 Sixth Sense Law post concerning the liability of web hosting companies for copyright violations. Here, we delve further by peeling one more layer and discussing Internet service providers (“ISPs,” who are primarily cable companies at this stage) and their exposure in matters of copyright infringement occurring on their watch by virtue of their customers’ actions.
There are really two primary content-creator trade groups: the Recording Industry Association of America (RIAA); and the Motion Picture Association of America (MPAA). By applying a lot of heat about rampant theft of copyrighted material, these organizations caused ISPs to agree to the creation of a Center for Copyright Information. The Center (a) educates subscribers about copyright protection and lawful ways to obtain movies and music via the Web, and (b) implements a system whereby the ISP issues an escalating series of warnings called “Copyright Alerts” to parties that are infringing rightsholders’ intellectual property.
Interestingly, France, where there is not a lot of baseball being played to the knowledge of Sixth Sense Law, wanted ISPs to be subject to a three-strikes rule whereby a given service provider would be required to terminate access to its customer upon an incident requiring a third Copyright Alert to that customer. In the U.S., it is possible for ISPs to achieve safe harbor relief under the U.S. Copyright Act as to their customers’ infringement if they have a copyright violation termination of service procedure in place, but the Copyright Alert system itself does not have a lot of teeth. Here, it is more like five strikes, and “Mitigation Measures” under the Alert system generally consist of screen pop-up warnings and requests that the end user contact the ISP when infringing activity is noticed.
More interestingly, ISPs are all of a sudden getting more invested in participating in infringement reduction of their own volition. The reason? Since, as noted, they are primarily comprised as a class by cable companies, they have a huge interest in the recent tidal wave of commerce in the legal downloading of video and music content. Note, for example, Comcast’s business combination with NBC Universal last year. As you know, the legal avenues for procuring content have only of late become commercially viable on a serious level. They are now driving changes in ISP copyright compliance, while illegal downloaders have effectively become enemies of the supply of legitimate bandwidth for legal downloads.
The securities laws of the U.S. (the rules governing the functioning of the stock markets and the issuance of corporate stock and debt instruments) are predicated on accessibility to the general public of information that would inform a decision as to whether to buy or sell an interest in a given enterprise. It has recently been in the news that members of Congress are currently permitted to make investment trades in a way that is clearly violative of these ideals and essentially constitutes legalized insider trading (making investment decisions about a company on the basis of information gained from personal relationships within that company or access to its confidential information). The Congressional situation has raised so much ire that significant legislative changes are likely to soon be made.
Another topic receiving legislative attention in this arena is the interaction of social media and securities regulation. Again, returning to the desired baseline of equal public access to material investment information, let’s look at a few of the salient issues.
While social media constitutes an increasing portion of companies’ general communication (and the public’s, of course), it hasn’t supplanted ordinary press releases, TV and radio appearances, interviews with print journalists from financial media, etc. The securities laws thus currently prohibit, for example, a CEO’s use of Twitter to deliver information that needs to be disclosed to the investing public (unless after the information has already been disseminated in a more public way, with tremendous emphasis on “after”). My post referencing the problems experienced by Groupon in its IPO because of reckless Tweeting highlighted the most notable example of late.
These examples concern an executive officer who should know all of the relevant information and how to disclose it. What happens, however, if the person who is responsible for the company’s Facebook posts is someone in the marketing department or perhaps even a summer intern? A momentous post from that company about major investment news is an absolute minefield from an investor relations compliance perspective. Even if instructions about that release are coming from senior management, simply the way the event is hyped and spun by the eventual distributor can put a business into fraud-and-misrepresentation territory in an instant. We could now extend the discussion to unofficial social media posts about a company randomly issued of a given employee’s volition, but suffice it to say that situation only amplifies and broadens the concerns already raised above if those posts are potentially material to any investment.
We are at a place where a CNBC broadcast of noteworthy company activity revealed by its leader may suffice as adequate public distribution when followed by Internet syndication by reputable sources. The uneasy fit right now between social media and securities law, however, is perhaps best summarized as follows: it’s awfully hard to say something meaningful to investors AND include your “forward-looking statements” and “past results do not guarantee future performance” disclaimers in an aggregate of 140 characters!
It is frequently noted that, while Charlotte is a banking capital, Atlanta is a banking software capital. Viewed more panoramically in terms of “FinTech” (product and service companies that support the technology needs of the financial services and payment-processing industries), Georgia FinTech companies have revenue greater than $34 billion annually (behind only those headquartered in New York and California).
For the seventh consecutive year, Atlanta-based Equifax was named to the FinTech 100 list of the best companies deriving more than one-third of their revenue from the financial services industry (compiled by Bank Technology News publication and by Financial Insights). A top-20 honoree, Equifax is now emphasizing InterConnect, a technology and analytical services platform that automates application processing, credit decisions and analytics. To further expand this segment of Equifax’s business and increase its participation in the healthcare and government sectors, last year Equifax acquired Anakam, a leader in identity authentication solutions.
While Equifax is an obvious big-name presence, Atlanta is also home to a number of other significant FinTech enterprises. Another major example is S1 Corporation (now an acquisition target of ACI Worldwide), which has 3,000 major customers using its online banking, mobile banking, voice banking, branch banking and lending solutions. S1 also handles the full spectrum of payment types, from any delivery channel to any destination, clearing billions of transactions annually in more than 50 countries.
For the sake of brevity, it is worth noting the general categories of FinTech for which Georgia serves as a significant hub, citing examples in each specialty.* They are:
• Point-of-Service Payment and Card Processing
First Data; Radiant Systems (NCR)
• Capital Markets
eRollover; Interactive Advisory Software or “IAS”
• Trade Payment
Advance Me; FTRANS
• Electronic Billing and Presentment
Digital Insights (Intuit); Harbor Payments
ChoicePoint (Reed Elsevier); Vendormate
• Alternative Payments
• Retail Banking
Banker’s Dashboard; CheckFree (Fiserv)
• Pre-paid, Points and Loyalty Services
*All credit for the categorization and examples goes to Melanie Brandt of the Technology Association of Georgia (“TAG”), who has assembled this terrific interactive map of FinTech companies in the Atlanta area, which contains many more individual exemplars.
It is great to see the proliferation of financial services technology in Atlanta and Georgia. There is not a lot of certainty surrounding financial services in this economic climate, but it is a given that the services these companies are pioneering will immediately become increasingly critical to the way we all transact business.
Akanoc Solutions, Inc. (“Akanoc”) provided web-hosting services to the purveyors of websites selling counterfeit Louis Vuitton (“LV”) goods. In 2006 and 2007, LV sent Akanoc 18 notices documenting trademark and copyright infringement on Akanoc-hosted sites that sold counterfeit LV goods, demanding that Akanoc remove the infringing content. Akanoc neither responded nor removed the infringing content. That was a mistake.
LV sued Akanoc in federal district court for contributory trademark infringement, counterfeiting, and copyright infringement. The jury found Akanoc liable for willful contributory trademark and copyright infringement, awarding $10,500,000 to LV. Two other defendants were hit with the same award, for an aggregate total of $31,500,000. Akanoc, of course, appealed. In that proceeding, the Ninth Circuit (centered in California) affirmed the jury’s findings, but Akanoc caught a small break when the court interpreted the applicable statute as permitting “an” award and not “multiple awards,” thus assessing $10,500,000 as the total award across all defendants.
The primary lesson: if you are aware, or have reason to be aware, that a party to whom you are providing services is engaging in trademark (or other kinds of) infringement, you cannot continue to supply services to them without being found liable for contributing to the infringement. This is particularly the case if you have “direct control and monitoring of the instrumentality” used to infringe (in this case, the counterfeiting websites), because that is the Internet equivalent of holding a “master switch” that can either stop the infringing activity or allow it to continue. In this situation, it doesn’t matter whether you, yourself, infringed or intended to infringe another party’s intellectual property rights. You can be on the hook, regardless.
Here is the opinion of the Appeals Court.