Supreme Court Rules Retailer Physical Presence No Longer Required For States to Tax Sales in Wayfair Decision

In a highly anticipated decision issued today, the Supreme Court overruled decades of its own precedent and held that states can require out-of-state retailers to collect and remit sales tax proceeds, even if the business has no physical presence in the state.  The Court’s decision in South Dakota v. Wayfair, No. 17-494 (2018), could have a significant impact on retailers who sell goods or services through the internet, as states rush to enact legislation forcing online sellers to collect and remit sales tax for transactions within those states.

The case was a challenge by Wayfair and other on-line retailers to a South Dakota law requiring large out-of-state sellers to collect and remit sales tax as if the seller had a physical presence in the state.  In two previous cases – National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 (1967) and Quill Corp. v. North Dakota, 504 U.S. 298 (1992) the Supreme Court had ruled that states could not require sellers to collect and remit sales taxes if they had no physical presence in the state.  In those situations, states were forced to rely on their residents to voluntarily pay sales tax owed on purchases.  The Court noted that consumer compliance is as low as 4%, causing states to lose as much as $33 billion in combined sales tax revenue every year.

Referring to the “internet revolution” and the modern dynamics of the national economy, Justice Kennedy writing for a majority of the Court overruled Bellas Hess and Quill, finding that the rule in those cases amounted to a judicially-created tax shelter for businesses with no physical presence in a state.  The Court noted that modern e-commerce does not analytically align with a test based on the physical location of brick-and-mortar stores.  Instead of the physical location test, the Court concluded, to be subject to a state’s tax, there must be a “substantial nexus” between the state and the taxed activity.  Just how substantial a nexus remains to be seen and will likely result in future litigation.

The dissenting opinion, authored by Chief Justice Roberts and joined by Justices Breyer, Sotomayor, and Kagan, agreed that the Court’s older decisions were wrong, but contended that Congress, not the Court, should fix the problem and determine the extent to which states may burden interstate sellers with the duty to collect sales or use taxes.

For more information on the implications of Wayfair, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at keinhorn@genovaburns.com, or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com.

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Monkey See, Monkey Sue: Ninth Circuit Finds Naruto Cannot Sue Under Copyright Act

Last week, the Ninth Circuit Court of Appeals panel affirmed dismissal of copyright infringement claims brought on behalf of a macaque monkey, Naruto, against a wildlife photographer. The Court found that Naruto had Constitutional standing to file suit, but that he could not maintain an action under the Copyright Act. Naruto v. Slater, No. 16-15469.

In 2011, Naruto, then a seven-year-old crested macaque living in Indonesia, took several pictures of himself with a camera that had been left unattended by wildlife photographer David Slater.  Slater subsequently published these “monkey selfies” in a book.  In 2015, PETA filed a complaint on Naruto’s behalf alleging copyright infringement, which a district court in California dismissed.

Affirming dismissal, the Ninth Circuit found that PETA did not have standing as “next-friend” of Naruto because animals cannot be represented by “next friends” absent express statutory authorization and PETA had failed to allege that it had a significant relationship with Naruto.  The Court also criticized PETA for seeking dismissal of Naruto’s appeal after PETA entered into a settlement agreement with the photographer following oral argument in the case.  Since the settlement did not include Naruto as a party, the settlement and subsequent motion gave the appearance that Naruto was being used for PETA’s institutional interests, which undermined PETA’s attempt to establish itself as Naruto’s next friend.

Relying on a prior decision of the Ninth Circuit from 2004, Cetacean Community v. Bush however, the court held that Naruto had Constitutional standing on his own to sue.  In Catacean Community, the Ninth Circuit found that the world’s whales, dolphins, and porpoises, had standing to sue through their self-appointed attorney.  The panel in Naruto’s case criticized that earlier decision as “wrongly decided,” but ruled that they were bound by it until the full Ninth Circuit or the Supreme Court revisited it.

Ultimately, however, the Court found that the language of the Copyright Act did not authorize animals to file copyright infringement suits.  The Court emphasized that a lawsuit by an animal is only allowable if the statute specifically permits it –  a rule meant to prevent monkey business.

For more information on animal law, intellectual property, constitutional or statutory standing, or the implications of Naruto, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at keinhorn@genovaburns.com, or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com.

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Federal Circuit Paves Way for Additional Discovery in Autonomous Car Case

The Federal Circuit reinforced limits on its own jurisdiction by rejecting an appeal brought by intervenor Anthony Levandowski in the much-publicized case Waymo LLC v. Uber Technologies, Inc., et al., No. 17-cv-00939-WHA (N.D. Cal.). The Federal Circuit’s September 13, 2017, decision relies heavily on – and leaves intact – two District Court rulings compelling the production of certain potentially important discovery materials.

According to Waymo’s allegations, Levandowski, its former employee, improperly downloaded information relating to Waymo’s driverless vehicle technology, and then left Waymo to found Ottomoto (“Otto”), which was subsequently acquired by Uber.  Before Uber’s acquisition was complete, attorneys for Otto and Uber jointly retained Stroz Friedberg, LLC (“Stroz”) to investigate Otto employees who had previously worked for Waymo, including Levandowski.  The resulting report by Stroz is at the heart of the discovery dispute at issue.

During discovery, the Magistrate Judge granted Waymo’s motion to compel Otto and Uber to produce the Stroz report, and also refused to quash Waymo’s subpoena to Stroz seeking the report and related documents.  Both rulings were affirmed by the District Court.  His subsequent appeal to the Federal Circuit acknowledged that the appellate court’s two main avenues to jurisdiction – final judgments relating to patents and certain special categories of interlocutory orders – would not apply in this case.  Instead, Levandowski argued that his appeal should be treated as a petition for a writ of mandamus pursuant to 28 U.S.C. 1651(a), a general statute that grants all courts created by Congress the power to issue “all writs necessary or appropriate in aid of their jurisdictions[.]”  Levandowski argued that such a writ was necessary because disclosure of the Stroz report would violate his Fifth Amendment right against self-incrimination.  He also argued that the Perlman doctrine, which permits a privilege-holder to immediately appeal a discovery order aimed at a disinterested third-party custodian, should apply.

In rejecting each of Levandowski’s arguments, the Federal Circuit first noted that a writ of mandamus was only appropriate if, among other things, the petitioner had no other adequate means of relief, and could show a clear and indisputable right to issuance of the writ.  According to the court, a post-judgment appeal would suffice to protect Levandowski’s rights.  Additionally, he failed to establish a clear right to issuance of the writ, as the District Court’s legal conclusions were proper, including the findings that Levandowski couldn’t invoke the attorney-client privilege, work-product doctrine, common interest doctrine, or Fifth Amendment to prevent disclosure of the Stroz report.  Lastly, the court rejected the doctrine’s application in this case because Uber is not a disinterested third-party, but is instead a defendant in the case.

For more information on intellectual property law, trade secret issues, or the implications of Waymo, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at keinhorn@genovaburns.com, or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com.

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Supreme Court Narrows Choice of Court to File Patent Infringement Actions

The Supreme Court used a dispute over flavored drink mix to settle a question regarding the proper venue for patent infringement actions, unanimously ruling in TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16-341, that such actions, when brought in the venue where a defendant corporation “resides”, may only be brought in the judicial district where the corporation is incorporated.

The patent venue statute, 28 U.S.C. §1400(b), provides that patent infringement actions may be brought in “the judicial district where the defendant resides or where the defendant has committed acts of infringement and has a regular and established place of business.”  Interpreting that law in Fourco Glass Co. v. Transmirra Prods. Corp., the Supreme Court held that a domestic corporation “resides” only in its state of incorporation for patent venue– differing from the general venue statute, 28 U.S.C. §1391(c), which provided that a corporate defendant “resides” in any state in which it is subject to personal jurisdiction, including any state in which the corporation conducts a sufficient amount of business.  A 1988 congressional amendment to the general venue statute appeared to expand its scope and undermine the holding in Fourco.  Indeed, in 1990, the Court of Appeals for the Federal Circuit held that the general venue statute had generally supplanted the patent venue statute, and that corporations could be sued for patent infringement in any venue where the corporation was subject to personal jurisdiction.

However, the Supreme Court held in TC Heartland that Congress did not intend to supplant or change the meaning of the patent venue statute as set forth in Fourco.  The Court noted, among other things, that congressional amendments to the general venue statute in 2011 clarified that it does not apply when venue is “otherwise provided by law,” and deleted statutory language broadening the scope of the law.

Although the Court’s ruling is technical in nature, it will have a real effect on where patent infringement plaintiffs can file lawsuits.  Commentators have predicted that the decision will increase litigation in Delaware, New York, and California.

For more information on intellectual property law or the implications of TC Heartland, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at keinhorn@genovaburns.com, or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com.

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