On April 4, 2013, Kentucky Governor Steve Beshear signed into law HB 440. The bill includes an amendment to Kentucky’s tax code which will impose a new requirement on every retailer that makes sales into Kentucky from outside the state and that is not required to collect Kentucky use tax. The law requires that these retailers provide a notice to their customers that Kentucky purchasers are required to report and pay use tax directly to the Kentucky Department of Revenue. A similar provision enacted in Colorado in 2010 as part of a broader notification and reporting bill was declared unconstitutional by a federal judge in Direct Marketing Association v. Huber, a case now on Appeal before the 10th Circuit Court of Appeals. Brann & Isaacson is counsel to the DMA in the Colorado litigation.
While three other states—Oklahoma, South Dakota, and Vermont—have similar consumer use tax notification requirements on the books, Kentucky’s new law is more aggressive:
First, on its face, Kentucky’s law requires retailers to use “the exact required use tax notification language” set forth in the statute concerning compliance with Kentucky law, and does not include a substantial compliance provision likes other states. According to the statute, even if a seller already has a notice provision for other states, that notice provision is only adequate for purposes of Kentucky law “if the consolidated notification meets the requirements of this section.” In other words, only the “exact” language of the Kentucky law, and not something substantially similar that a retailer adopts in response to another state’s notification law, appears to be allowed.
Second, the Kentucky statute expressly applies to “online auction Web sites.” It is not clear whether the requirement is meant to apply to the auction site itself, or whether it means that retailers selling through an auction site must arrange for display of the notice with respect to their own sales. But note that there is a small seller exemption that exempts any retailer with sales of less than $100,000 to Kentucky residents from having to comply with the statute. This may lessen the impact of the Kentucky law on Internet auction sites.
Third, while South Dakota and Vermont each provide that there can be no civil or criminal penalties for a retailer’s failure to comply with the use tax notification provision, Kentucky has no such non-enforcement clause. The Oklahoma statute is likewise silent on enforcement and, in practice, the Oklahoma notice law has not been enforced by the state’s Tax Commission. It remains to be seen whether the Kentucky Department of Revenue will bring enforcement actions, but nothing in the new law appears to prevent it.
For more details on the new Kentucky consumer use tax notification statute and how it might affect an out-of-state retailer’s website check-out screens and catalog order forms, ecommerce vendors and other remote sellers should consult their tax advisors.
Tuesday, April 9, 2013
Thursday, April 4, 2013
New Best Practices for Trademark Owners in an Era of Ever Increasing gTLDs
As new domains become available, trademark owners with an internet presence should consider adopting new best practices to protect their marks. By way of background, a generic top level domain (“gTLD”) is the alpha numeric string that appears after the “dot” in a web site URL. The most ubiquitous such creature is the well-known “.com.” In the 1980s, the Internet Corporation for Assigned Names and Numbers (ICANN)–the mysterious not-for-profit corporation under contract with the US Department of Commerce to see to the proper functioning of the Internet’s system of addresses–created seven gTLDs: .com, .edu, .gov, .int, .mil, .net, and .org.. In years following the creation of the original gTLDs, discussions concerning additional gTLDs led to the selection in November 2000 of seven new gTLDs for introduction: .biz, .info, .name, .pro, .aero, .coop, and .museum. In 2003, ICANN initiated a process that resulted in the introduction of six new gTLDs (.asia, .cat, .jobs, .mobi, .tel and .travel). Most recently, .xxx has been added to the mix.
At each step along the way, the introduction of new gTLDs created anxiety for trademark owners concerned that each new gTLD opened up opportunities for domain name brokers to hijack or cybersquat on second level domains consisting of valuable trademarks. For instance, acme.com might find that there are cybersquatters hosting sites at acme.org or acme.asia. In response to these concerns, at each launch of a new set of gTLDs, ICANN implemented a so-called “sunrise” period, enabling trademark owners to get first dibs on any new domain name consisting of a trademark owner’s trademark.
During the late 1990’s and early 2000’s, this led to a “best practices” regime of domain name management that consisted primarily of trademark owners registering thousands of domain names consisting of their trademarks in an effort to prevent others from doing so.
Given developments in the gTLD area in the last two years, however, this approach is no longer workable.
In late 2013, ICANN is set to launch, at last count, 1,930 additional gTLDs. The process will include an enhanced version of the sunrise period, permitting trademark owners to register their trademarks in a clearing house system. Even so, the costs associated with registering even a single trademark in each new gTLD will geometrically multiply the domain name portfolio budgets of many brands.
So what is a diligent trademark owner to do? How about nothing? With the caveat that this suggestion is likely to be viewed as heretical among my fellow IP/Internet law attorneys, it is a notion that bears some consideration. At the beginning of the Internet era, the business community lacked insight into the manner in which users would come to navigate the web. In addition, few could have anticipated the sophistication that has now been achieved by search engines in matching user queries with relevant search results.
As a result of emerging user patterns, for example, virtually no user navigates to a website by entering the URL in the location bar of a browser, even if the user knows the URL. Rather, the user enters the common name for the brand or other item in the search box of a search engine. In turn, search engines ruthlessly index web sites based on relevance criteria that make it virtually impossible for a user seeking the Acme web site, for example, to be directed anyplace else. The massive proliferation of gTLDs will only accelerate the emphasis on this relevance analysis. Accordingly, it seems likely that the increasing proliferation of gTLDs will actually make it less important, not more, for brand owners to lock up every possible variation of their marks in connection with every gTLD. If so, brand owners may derive an unexpected benefit from the additional gTLDs in the form of smaller domain name registration budgets—not larger.
At each step along the way, the introduction of new gTLDs created anxiety for trademark owners concerned that each new gTLD opened up opportunities for domain name brokers to hijack or cybersquat on second level domains consisting of valuable trademarks. For instance, acme.com might find that there are cybersquatters hosting sites at acme.org or acme.asia. In response to these concerns, at each launch of a new set of gTLDs, ICANN implemented a so-called “sunrise” period, enabling trademark owners to get first dibs on any new domain name consisting of a trademark owner’s trademark.
During the late 1990’s and early 2000’s, this led to a “best practices” regime of domain name management that consisted primarily of trademark owners registering thousands of domain names consisting of their trademarks in an effort to prevent others from doing so.
Given developments in the gTLD area in the last two years, however, this approach is no longer workable.
In late 2013, ICANN is set to launch, at last count, 1,930 additional gTLDs. The process will include an enhanced version of the sunrise period, permitting trademark owners to register their trademarks in a clearing house system. Even so, the costs associated with registering even a single trademark in each new gTLD will geometrically multiply the domain name portfolio budgets of many brands.
So what is a diligent trademark owner to do? How about nothing? With the caveat that this suggestion is likely to be viewed as heretical among my fellow IP/Internet law attorneys, it is a notion that bears some consideration. At the beginning of the Internet era, the business community lacked insight into the manner in which users would come to navigate the web. In addition, few could have anticipated the sophistication that has now been achieved by search engines in matching user queries with relevant search results.
As a result of emerging user patterns, for example, virtually no user navigates to a website by entering the URL in the location bar of a browser, even if the user knows the URL. Rather, the user enters the common name for the brand or other item in the search box of a search engine. In turn, search engines ruthlessly index web sites based on relevance criteria that make it virtually impossible for a user seeking the Acme web site, for example, to be directed anyplace else. The massive proliferation of gTLDs will only accelerate the emphasis on this relevance analysis. Accordingly, it seems likely that the increasing proliferation of gTLDs will actually make it less important, not more, for brand owners to lock up every possible variation of their marks in connection with every gTLD. If so, brand owners may derive an unexpected benefit from the additional gTLDs in the form of smaller domain name registration budgets—not larger.
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