Net News

Amazon Surrenders on California Tax Law, Still Fights Nationally

In the escalating war over online-shopping sales taxes, Amazon is fielding the biggest army and wielding the biggest guns. But with a new compromise deal Amazon has cut with the California state government, it's not entirely clear which side has scored the strategic victory. (For background, see, “Taxing Online Sales” in the June 2011 issue of Internet Law & Strategy, http://bit.ly/qpXCKY.)

According to Reuters, Amazon and California have forged a tentative deal that “would allow Amazon to postpone collecting sales tax from California consumers until September 2012.” http://reut.rs/qQjp5T. The postponement is in the face of a recently enacted CA law that “would force retailers like Amazon to collect sales tax. The California law mandates sales tax collection for companies that have workers, warehouses, or other offices in California.”

Currently, Amazon and other online retailers take advantage of a loophole in national sales-tax policy that requires a “physical presence” in a state to compel the collection of taxes. As part of its public campaign against the new law, the Seattle-based Amazon has claimed that the locations of its various warehouses, subsidiaries, and other operations do not constitute a physical presence in California.

Writing about the deal in The New York Times, David Streitfeld says: “Some observers speculated that the company was merely buying time and would move its subsidiaries out of California, letting it once again sell in the state without charging the tax ' [Amazon] has repeatedly said it wants one federal law rather than individual tax provisions in every state.” http://nyti.ms/ow18Tl. Amazon has been engaged in a costly effort to overturn the California law via the state's public ballot-initiative system.

The online exception for the collection of sales tax has long given a sales edge to companies like Amazon, which can sell the same goods as brick-and-mortar retailers for the same price but present the customer with a lower bill at checkout. According to The Los Angeles Times: “Big-box stores and other retailers had supported the new law, saying that online companies that didn't have to collect taxes had an unfair competitive advantage.” http://lat.ms/nYpW0r.

The new law is also an important bottom-line move for California. The Los Angeles Times points out that the new law “was a key part of the state's $86-billion budget that [Governor Jerry] Brown signed in late June. It was forecast to bring in $200 million annually.” Reporters Anthony York and Marc Lifsher also quote the governor as saying: “I'm concerned about anything that would reduce revenues going forward because we're in a very uncertain economy. ' We need more revenues unless we're going to keep curbing schools, courts, corrections.”

But all sides note that the new agreement is still tentative, and larger battles loom. According to the San Jose Mercury News, Amazon can now use the one-year cease-fire period to try and persuade the U.S. Congress to update the tax exception for online sales, as a “federal deal would supersede any agreement with California.” http://bit.ly/olPemo.

' Brian Glaser, Corporate Counsel

The U.S. Court of Appeals for the First Circuit reinstated a $675,000 damages award against Boston University graduate student Joel Tenenbaum for illegal music downloading, but remanded the case for review of whether the verdict was excessive.

The Sept. 16 ruling in Sony BMG Music Entertainment v. Tenenbaum (http://1.usa.gov/r32L4a) reinstated the original District of Massachusetts July 2009 copyright infringement verdict, which boiled down to $22,500 for each of 30 songs.

The First Circuit found that U.S. District Judge Nancy Gertner erred in July 2010 by cutting the verdict by 90% to $67,500 on the ground that it was excessive enough to violate Tenenbaum's due-process rights.

The First Circuit said Gertner should have first considered Tenenbaum's common law remittitur argument that the statutory damages award was disproportionate. The court remanded the case for review on that ground.

Chief Judge Sandra Lynch wrote the opinion, joined by judges O. Rogeriee Thompson and Juan Torruella.

“A decision on a constitutional due process question was not necessary, was not inevitable, had considerable impermissible consequences, and contravened the rule of constitutional avoidance,” Lynch wrote.

That rule, which requires courts to avoid deciding constitutional questions before they must, “had more than its usual import in this case because there were a number of difficult constitutional issues which should have been avoided but were engaged,” Lynch wrote.

The Recording Industry Association of America, which has taken a lead role in filing and commenting on the music downloading cases, was “pleased the Court agreed with us that the finding of liability was correct and that the District Court erred in finding the verdict unconstitutional,” said Jennifer Pariser, senior vice president for litigation and legal affairs.

Paul Clement, a partner at Washington's Bancroft law firm and a former U.S. solicitor general, argued the case for the music companies while he was a partner at Atlanta's King & Spalding.

The U.S. Department of Justice, which intervened in the case to argue that Gertner should have avoided the constitutional questions, did not respond to requests for comment.

Tenenbaum's trial lawyer, Harvard Law School professor Charles Nesson, one of three people who argued for him before the First Circuit, declined to comment.

Julie Ahrens, a representative of amicus the Electronic Frontier Foundation, and Jason Harrow, a Harvard Law student at the time of the April oral argument, also argued for Tenenbaum.

Ahrens says the First Circuit's decision on the remand issue “seems to ignore the real costs that that process will impose on everyone.”

Tenenbaum, a 27-year-old graduate student, says he can't afford to pay $67,500, let alone $675,000.

“We'll continue to take this as far as it goes,” Tenenbaum says. “We definitely aren't done yet.”

' Sheri Qualters, National Law
Journal

In the long-running copyright dispute over Google's use of thumbnail images of nude women on the site Perfect 10, the Ninth Circuit U.S. Court of Appeals sided with Google in rejecting an injunction. See, Perfect 10, Inc. v. Google, Inc., No. 10-56316 (9th Cir. 2011) (http://1.usa.gov/nKx6Up).

A unanimous panel found Perfect 10 hasn't shown it would likely suffer irreparable harm absent a preliminary injunction and backed U.S. District Judge A. Howard Matz of Los Angeles.

Perfect 10 creates and copyrights pictures of nude models, or as the pay subscription site proclaims, “the world's most beautiful women.” Thumbnail images pop up on Google Inc.'s Web and image search.

Perfect 10 argues its revenue has declined as more of its images became available on Google, pushing it toward bankruptcy.

The court said that while looming bankruptcy qualifies as a form of irreparable harm, Perfect 10 hasn't established an injunction would prevent that.

“Perfect 10 has not alleged that it was ever in sound financial shape,” Judge Sandra Ikuta wrote for the panel. She was joined by Chief Judge Alex Kozinski and Judge Michael Daly Hawkins.

Relying on eBay v. MercExchange LLC, 547 U.S. 388 (2006), a Supreme Court opinion in a patent infringement case, the panel rejected Perfect 10's argument that the district court should have presumed it would suffer irreparable harm. The propriety of injunctive relief in disputes under the Copyright Act, the panel said, “must be evaluated on a case-by-case basis in accord with traditional equitable principles and without the aid of presumptions or a 'thumb on the scale' in favor of issuing such relief.”

Andrew Schapiro of Mayer Brown argued at the Ninth Circuit on behalf of Google, which was also represented by a bevy of attorneys from Quinn Emanuel Urquhart & Sullivan.

David Schultz of Law Offices of Jeffrey Mausner in Woodland HIlls argued for Perfect 10.

' Ginny LaRoe, The Recorder

Amazon Surrenders on California Tax Law, Still Fights Nationally

In the escalating war over online-shopping sales taxes, Amazon is fielding the biggest army and wielding the biggest guns. But with a new compromise deal Amazon has cut with the California state government, it's not entirely clear which side has scored the strategic victory. (For background, see, “Taxing Online Sales” in the June 2011 issue of Internet Law & Strategy, http://bit.ly/qpXCKY.)

According to Reuters, Amazon and California have forged a tentative deal that “would allow Amazon to postpone collecting sales tax from California consumers until September 2012.” http://reut.rs/qQjp5T. The postponement is in the face of a recently enacted CA law that “would force retailers like Amazon to collect sales tax. The California law mandates sales tax collection for companies that have workers, warehouses, or other offices in California.”

Currently, Amazon and other online retailers take advantage of a loophole in national sales-tax policy that requires a “physical presence” in a state to compel the collection of taxes. As part of its public campaign against the new law, the Seattle-based Amazon has claimed that the locations of its various warehouses, subsidiaries, and other operations do not constitute a physical presence in California.

Writing about the deal in The New York Times, David Streitfeld says: “Some observers speculated that the company was merely buying time and would move its subsidiaries out of California, letting it once again sell in the state without charging the tax ' [Amazon] has repeatedly said it wants one federal law rather than individual tax provisions in every state.” http://nyti.ms/ow18Tl. Amazon has been engaged in a costly effort to overturn the California law via the state's public ballot-initiative system.

The online exception for the collection of sales tax has long given a sales edge to companies like Amazon, which can sell the same goods as brick-and-mortar retailers for the same price but present the customer with a lower bill at checkout. According to The Los Angeles Times: “Big-box stores and other retailers had supported the new law, saying that online companies that didn't have to collect taxes had an unfair competitive advantage.” http://lat.ms/nYpW0r.

The new law is also an important bottom-line move for California. The Los Angeles Times points out that the new law “was a key part of the state's $86-billion budget that [Governor Jerry] Brown signed in late June. It was forecast to bring in $200 million annually.” Reporters Anthony York and Marc Lifsher also quote the governor as saying: “I'm concerned about anything that would reduce revenues going forward because we're in a very uncertain economy. ' We need more revenues unless we're going to keep curbing schools, courts, corrections.”

But all sides note that the new agreement is still tentative, and larger battles loom. According to the San Jose Mercury News, Amazon can now use the one-year cease-fire period to try and persuade the U.S. Congress to update the tax exception for online sales, as a “federal deal would supersede any agreement with California.” http://bit.ly/olPemo.

' Brian Glaser, Corporate Counsel

The U.S. Court of Appeals for the First Circuit reinstated a $675,000 damages award against Boston University graduate student Joel Tenenbaum for illegal music downloading, but remanded the case for review of whether the verdict was excessive.

The Sept. 16 ruling in Sony BMG Music Entertainment v. Tenenbaum (http://1.usa.gov/r32L4a) reinstated the original District of Massachusetts July 2009 copyright infringement verdict, which boiled down to $22,500 for each of 30 songs.

The First Circuit found that U.S. District Judge Nancy Gertner erred in July 2010 by cutting the verdict by 90% to $67,500 on the ground that it was excessive enough to violate Tenenbaum's due-process rights.

The First Circuit said Gertner should have first considered Tenenbaum's common law remittitur argument that the statutory damages award was disproportionate. The court remanded the case for review on that ground.

Chief Judge Sandra Lynch wrote the opinion, joined by judges O. Rogeriee Thompson and Juan Torruella.

“A decision on a constitutional due process question was not necessary, was not inevitable, had considerable impermissible consequences, and contravened the rule of constitutional avoidance,” Lynch wrote.

That rule, which requires courts to avoid deciding constitutional questions before they must, “had more than its usual import in this case because there were a number of difficult constitutional issues which should have been avoided but were engaged,” Lynch wrote.

The Recording Industry Association of America, which has taken a lead role in filing and commenting on the music downloading cases, was “pleased the Court agreed with us that the finding of liability was correct and that the District Court erred in finding the verdict unconstitutional,” said Jennifer Pariser, senior vice president for litigation and legal affairs.

Paul Clement, a partner at Washington's Bancroft law firm and a former U.S. solicitor general, argued the case for the music companies while he was a partner at Atlanta's King & Spalding.

The U.S. Department of Justice, which intervened in the case to argue that Gertner should have avoided the constitutional questions, did not respond to requests for comment.

Tenenbaum's trial lawyer, Harvard Law School professor Charles Nesson, one of three people who argued for him before the First Circuit, declined to comment.

Julie Ahrens, a representative of amicus the Electronic Frontier Foundation, and Jason Harrow, a Harvard Law student at the time of the April oral argument, also argued for Tenenbaum.

Ahrens says the First Circuit's decision on the remand issue “seems to ignore the real costs that that process will impose on everyone.”

Tenenbaum, a 27-year-old graduate student, says he can't afford to pay $67,500, let alone $675,000.

“We'll continue to take this as far as it goes,” Tenenbaum says. “We definitely aren't done yet.”

' Sheri Qualters, National Law
Journal

In the long-running copyright dispute over Google's use of thumbnail images of nude women on the site Perfect 10, the Ninth Circuit U.S. Court of Appeals sided with Google in rejecting an injunction. See, Perfect 10, Inc. v. Google, Inc., No. 10-56316 (9th Cir. 2011) (http://1.usa.gov/nKx6Up).

A unanimous panel found Perfect 10 hasn't shown it would likely suffer irreparable harm absent a preliminary injunction and backed U.S. District Judge A. Howard Matz of Los Angeles.

Perfect 10 creates and copyrights pictures of nude models, or as the pay subscription site proclaims, “the world's most beautiful women.” Thumbnail images pop up on Google Inc.'s Web and image search.

Perfect 10 argues its revenue has declined as more of its images became available on Google, pushing it toward bankruptcy.

The court said that while looming bankruptcy qualifies as a form of irreparable harm, Perfect 10 hasn't established an injunction would prevent that.

“Perfect 10 has not alleged that it was ever in sound financial shape,” Judge Sandra Ikuta wrote for the panel. She was joined by Chief Judge Alex Kozinski and Judge Michael Daly Hawkins.

Relying on eBay v. MercExchange LLC, 547 U.S. 388 (2006), a Supreme Court opinion in a patent infringement case, the panel rejected Perfect 10's argument that the district court should have presumed it would suffer irreparable harm. The propriety of injunctive relief in disputes under the Copyright Act, the panel said, “must be evaluated on a case-by-case basis in accord with traditional equitable principles and without the aid of presumptions or a 'thumb on the scale' in favor of issuing such relief.”

Andrew Schapiro of Mayer Brown argued at the Ninth Circuit on behalf of Google, which was also represented by a bevy of attorneys from Quinn Emanuel Urquhart & Sullivan.

David Schultz of Law Offices of Jeffrey Mausner in Woodland HIlls argued for Perfect 10.

' Ginny LaRoe, The Recorder