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    Wisconsin Lawyer
    June 01, 1999

    Wisconsin Lawyer June 1999: Regulating Electronic Commerce 2

     

    Wisconsin Lawyer June 1999

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    Vol. 72, No. 6, June 1999

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    Regulating Electronic Commerce

    Taxation

    Cube HoleThe Internet Tax Freedom Act,10 passed by Congress last fall, has these principal features, according to its sponsor:

    Three-year moratorium on special taxation of the Internet. Bars state or local governments from taxing Internet access (that is, the $19.95 or so that many Americans pay monthly to America Online, CompuServe, Erol's, or other similar services to access the Internet) from Oct. 1, 1998, until Oct. 21, 2001. A limited grandfather clause permits the handful of states already taking steps to tax Internet access - Connecticut, Wisconsin, Iowa, North Dakota, South Dakota, New Mexico, South Carolina, Tennessee, Texas, and Ohio - to continue to do so if they can demonstrate that their taxes had already been "generally imposed and actually enforced" on Internet access providers prior to Oct. 1, 1998.

    Three-year moratorium on multiple and discriminatory taxes on electronic commerce. Bars state or local governments from imposing taxes that would subject buyers and sellers of electronic commerce to taxation in multiple states. Also protects against the imposition of new tax liability for consumers and vendors involved in commercial transactions over the Internet, including the application of discriminatory tax collection requirements imposed on out-of-state businesses through strained interpretations of "nexus." It also protects from taxation, for the duration of the moratorium, goods or services that are sold exclusively over the Internet with no comparable offline equivalent.

    Establish commission to study question of remote sales. A temporary Advisory Commission on Electronic Commerce will study electronic commerce tax issues and report back to Congress after 18 months on whether electronic commerce should be taxed, and if so, how it can be taxed in a manner that ensures such commerce won't be subject to special, multiple, or discriminatory taxes. State and local elected officials will be given a prominent voice on this commission. Congress, of course, retains full authority to change or discard the commission's proposals.

    No federal taxes. The sense of Congress is that there should be no federal taxes on Internet access or electronic commerce. Declares that the Internet should be a tariff-free zone. Calls on the Clinton Administration to work aggressively through the E.U. and World Trade Organization (WTO) to keep electronic commerce free from tariffs and discriminatory taxes. Asks Commerce Department to "report to Congress on barriers hindering the competitiveness of U.S. businesses engaged in electronic commerce abroad."11

    Significant questions concerning foreign taxes and tariffs on electronic commerce also will have to be addressed in the months and years ahead. The United States and European Union issued a Joint Statement on global electronic commerce that includes a commitment to "duty-free cyberspace."12 The Internet Tax Freedom Act and U.S./E.U. Joint Statement reflect the administration's priority to encourage electronic commerce by protecting it from additional government-imposed costs.

    Jurisdiction

    A growing number of cases have addressed the relationship between sponsoring a Web site through which electronic commerce is conducted and subjecting oneself to personal jurisdiction in states from which the site may be accessed. One federal court recently described the state of the law in these terms:

    The goal of electronic commerce is to create a commercial environment that electronically integrates and automates the 'steps' in a commercial transaction, thus minimizing transaction costs.

    "At one end of the scale are circumstances where a defendant 'conducts business' over the Internet with residents of the forum, allowing for the assertion of personal jurisdiction in most cases. In such situations, the assertion of jurisdiction is almost always proper. At the opposite end are situations where a defendant simply posts information on a Web site which is accessible to users in the forum state as well as others. 'A passive Web site that does little more than make information available to those who are interested in it is not grounds for the exercise of personal jurisdiction.' In the middle are situations where a defendant operates an interactive Web site, allowing a user to exchange information with the host computer. In such a case, a court must review the 'level of interactivity and commercial nature of the exchange of information' to determine whether jurisdiction should be exercised."13

    Electronic Marketing

    Legal issues involving electronic marketing often are novel and complex. An excellent example is found in Niton Corp. v. Radiation Monitoring Devices Inc.,14 in which the plaintiff alleged that the defendant designed its Web site so that efforts to find the plaintiff's Web site would result in the consumer being directed to defendant's Web site instead. Web sites are identified by keywords that provide a description for the site. Web browsers search out sites with keywords that match the consumer's inquiry. Niton Corp. alleged that the keywords used by Radiation Monitoring Devices (RMD) to describe several of its Web pages included the phrase, "The Home Page of Niton Corporation." On the basis of this and other evidence, District Judge Robert Keeton issued a preliminary injunction restraining RMD from such deceptive marketing strategies.

    Authors

    Michael McChrystal, top, Marquette 1975, is a professor of law at the Marquette University Law School.

    William Gleisner, middle, Marquette 1974, both a practicing attorney and computer consultant, maintains a law firm-based litigation support service bureau in Milwaukee.

    Michael Kuborn, bottom, Marquette 1998, is with Olsen, Kloet, Gundersen & Conway, and is trained in computer recovery and computer search and seizure techniques. Products and services mentioned in this article should not be construed as an endorsement.

    Another set of legal issues concerns email marketing strategies. Email marketing, often called "spam," can burden recipients and the email servers they rely upon by clogging up the system. Efforts to block spam have resulted in suits both by senders15 and recipients.16 Although legislative assaults on email marketing face considerable First Amendment hurdles, statutes designed to regulate such marketing have been enacted in a handful of states17 and bills are pending in Congress and in many state legislatures.18 In Wisconsin, Senate Bill 33 would significantly restrict email marketing and, as this is being written, the bill was passed unanimously by the Senate and is pending before the Assembly.

    Conclusion

    Electronic commerce fits more or less uneasily into legal rules designed for face-to-face, written (and signed) or voice communications. The court of appeals decision in Walgreen illustrates the problem. Email is neither a telephone/voice communication nor a written (and signed) communication, although it shares features with each. Yet the Walgreen court was forced by the statute before it to decide the case on the basis of which of these different forms of communication email resembled more. The court made its decision, which may have been a good one in that it fosters the development of electronic commerce. But the best solution is probably a rule that considers the strengths and weaknesses of transmitting prescriptions by email, rather than the strengths and weaknesses of analogies of email to other forms of communication.

    The fact is, electronic commerce is here and the law is going to have to catch up.

    Endnotes

    1 "Class of '98: A boom in e-commerce in record year," San Jose Mercury News.

    2 The President's remarks are published at the White House Web site. See "A Framework for Global Electronic Commerce," the government's strategy statement.

    3 No. 97-1513 (Wis. Ct. App. 2/19/98).

    4 Wis. Stat. § 450.11(1). "Dispensing. No person may dispense any prescribed drug or device except upon the prescription order of a [physician]. All prescription orders shall specify the date of issue, the name and address of the patient, the name and address of the [physician], the name and quantity of the drug prescribed, directions for the use of the drug and, if the order is written by the [physician], the signature of the [physician]. Any oral prescription order shall be immediately reduced to writing by the pharmacist and filed."

    5 The definition is found at a Web site maintained by the Secretariat for Electronic Commerce, United States Department of Commerce.

    6 As reported on April 9, 1999, by internet.com, which calls itself "the e-business and internet technology network". The concern of consumers about privacy is well documented in surveys conducted by Louis Harris & Associates and Alan F. Westin and reported in December 1998 at PrivacyExchange, a Web site on consumer privacy, e-commerce, and data protection that serves as an online global information resource and forum.

    7 1997 Wis. Act 306.

    8 See compilation of state legislation.

    9 Junger v. Christopher/Junger v. Daley, 8 F. Supp. 2d 708 (N.D. Oh. 7/2/98) (upholding 15 C.F.R. 734.2(b)(9)(ii)(B) against challenges on First Amendment grounds).

    10 Public Law 105-277 (Oct. 21, 1998).

    11 Comments of Rep. Christopher Cox (R - Calif.) at his Web site.

    12 See text of Joint Statement.

    13 Millenium Enterprises Inc. v. Millenium Music Inc., Civ. No. 98-1058-AA (D. Ore. 1/4/99), quoting Zippo Manufacturing Co. v. Zippo Dot Com Inc., 952 F. Supp. 1119, 1124 (W.D. Penn. 1997).

    14 27 F. Supp. 2d 102 (D. Mass. 1998).

    15 Hartford House Ltd. v. Microsoft Corp., CV778550 (Santa Clara Supr. Ct. 1/28/99); (see description of litigation: "plaintiff alleged that Microsoft modified its Internet Explorer email software to filter plaintiff's competing electronic greeting cards, treating plaintiff's product as spam and sending it to the junk mail folder").

    16 See, e.g., America Online Inc. v. LCGM Inc., 1998 U.S. Dist. LEXIS 20144 (E.D. Va. 11/10/98); (see description of litigation: "defendants sent unsolicited bulk emails, used AOL computer systems in excess of their authority, harvested email addresses of AOL customers, and deceptively used 'aol.com' in its spam headers").

    17 Including California, Maryland, Nevada, and Washington.

    18 John Marshall Law School Center for Information Technology & Privacy Law maintains a Web site that tracks such legislation.


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