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“The world has changed dramatically in the last two decades… An entity may now have a profound impact upon a foreign jurisdiction solely through its virtual projection via the Internet.”

This statement from the New York Court of Appeals in the recent decision in Overstock v. New York Taxation and Finance (PDF) paved the way for an interesting conclusion on the taxing power of New York State – and by extension, the sales tax that may be applied to many online sales, including sales by Canadian online business into the US market.

Traditionally, a state’s taxing authority was based on “economic activities” by the seller, for example, through its employees or sales agents in that state. The question faced by the court in this case was whether click-through links on a “local website” (that is, a website owned by a local state owner) would qualify to establish “economic activities” in that state. For example, a link to Amazon from a local New York State website has the effect of driving sales to Amazon. The court decided that by compensating the local New York State website owner who has signed-on to an affiliate agreement, Amazon is deemed to have established an “in-state sales force”.  The site which hosts the link is paid a commission, flat fee or price-per-click, and this was considered enough to create a “substantial nexus” to the state. Passive advertisements, by contrast, would not by themselves create a substantial nexus.

It is not clear whether Overstock.com and Amazon will appeal the decision.

In other news, the U.S. Senate voted 74-20 to put The Marketplace Fairness Act of 2013 to a final vote, an Act which would allow states to collect online sales taxes. The OECD is also preparing guidelines on how to handle international value-added taxes, to deal with the current “uncertainty and risks of double taxation and unintended non-taxation”. The 2013 draft of the OECD Guidelines derives from the “neutrality” principle (the notion that value-added tax is a tax on final consumption that should be neutral for business), and the so-called “destination” principle (that tax should be paid in the jurisdiction of consumption).

In the meantime, Canadian online retailers selling into the US marketplace should consider reviewing their affiliate click-through agreements and assess sales-tax collection policies with tax advisors.

Related Reading: New York’s Highest Court Affirms Constitutionality of Click-Through Nexus

Calgary- 07:00 MDT

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Field Law is proud to host the Spring 2013 meeting of the Calgary Chapter of the Licensing Executives Society on May 16, 2013 on the topic of licensing negotiations between members of Canada’s Oil Sands Innovation Alliance (COSIA).

Calgary – 07:00 MDT

When is one trade-mark too close to another? This is a question that we work through collaboratively with our trade-mark clients. The short answer is: “It depends…” The long answer is illustrated by these two recent cases. A trade-mark owner can apply for registration of the trade-mark, and part of the application process involves an opportunity for competitors to oppose the application. Most applications proceed without any opposition. If a trade-mark does face opposition, it is handled through a proceeding that is ultimately decided by the Trade-marks Opposition Board (TMOB). Here are two examples:

1. POMEPURE vs. POM WONDERFUL, both for beverages. In the case of Opposition by PomWonderful LLC to application No. 1,389,758 for the trade-mark POMEPURE & Design in the name of Rash Nagar, the TMOB considered the mark POMEPURE, for a range of beverages. The application was opposed by the owners of the POM WONDERFUL marks for fruit beverages. The Board decided that both marks were weak marks lacking inherent distinctiveness. Thus, neither mark was entitled to a wide scope of protection. Using so-called state-of-the-register evidence, the applicant showed at least 10 other POM-related marks for various fruit-based beverages, all owned by different owners. The Board concluded that ”consumers would be accustomed to some extent to seeing marks made up of the prefix ‘POM’ in the marketplace for alcoholic and/or non-alcoholic beverages. Accordingly, those consumers would be likely to distinguish such marks by focusing on their other components.” For that reason, the opposition failed and the mark was allowed to proceed.
2. CAMILION vs. CAMÉLÉON & Design, both for software. In Opposition by Cameleon Software SA to application No. 1,422,576 for the trade-mark CAMILION in the name of Camilion Solutions Inc. a software company applied for the trade-mark CAMILION, but was opposed by the owner of the registered mark CAMÉLÉON & Design. An applicant has to prove that the absence of confusion is more probable than its existence. After weighing the Section 6(5) factors, the TMOB decided that the two marks were too close. The applicant’s mark was refused due to confusion with the existing registered CAMÉLÉON & Design mark.

Calgary – 07:00 MDT

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When a cloud privacy breach occurs in Canada, what happens? In some cases, businesses are subject to mandatory breach notification requirements. This means that a privacy breach – whether as a result of a hacker, a lost USB or some other human error – must by law be reported to the commissioner and to affected individuals. Ontario has implemented mandatory breach notification under its Personal Health Information Protection Act. In Alberta, organizations subject to the Personal Information Protection Act (PIPA) are required to report a breach to the commissioner “without unreasonable delay” where a “reasonable person would consider that there exists a real risk of significant harm to an individual as a result of the loss or unauthorized access or disclosure”.

The “real risk of significant harm” requires some analysis in the event of a breach and the Alberta commissioner’s Mandatory Breach Reporting Tool (PDF) has been released recently, to assist organizations determine if they are required to report a breach under section 34.1 of PIPA. This area of law may be changing further: a private members bill  was recently introduced in Parliament to implement mandatory data breach reporting in the federal personal information protection law.

Here’s a recent case that illustrates the pitfalls of a cloud privacy breach in Canada:

• In the recently released decision relating to WhatsApp (Report of Findings: Investigation into the personal information handling practices of WhatsApp Inc.), the Canadian and Dutch privacy authorities investigated WhatsApp Inc. a US company operating “WhatsApp Messenger”, a cloud-based cross-platform mobile messaging app allowing the exchange of messages for iOS, BlackBerry, and Android platforms.
• The Commissioner launched an exhaustive review of the privacy aspects of the service after complaints regarding WhatsApp’s information-handling procedures, including the collection of more information than was necessary, the potential for privacy breach, the lack of encryption.
• While the story generated damaging headlines, WhatsApp did work with the Commissioner to resolve many of the privacy concerns.
• This investigation also shows the extent to which international privacy watchdogs will work together to launch an investigation that concerns personal information that crosses international borders.

The privacy lessons are clear: get advice on privacy implications of the cloud-based service, and don’t underestimate the importance of well-drafted privacy policies and user terms. Cloud service providers should also take time to understand the breach notification protocols that would apply in the event of a privacy breach.

Calgary – 07:00 MDT

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ICANN’s new gTLD process has taken another step forward. The period for filing formal objections against new generic top-level domains (gTLDs) has now been closed, and the Trademark Clearinghouse has been opened. The Clearinghouse is a global database of trade-marks to permit trade-mark owners to verify trade-mark information and use it to support trade-mark claims as the new gTLDs are rolled out. ICANN has announced that verification services are available now.

Watch for more updates in this area and if you are a Canadian trade-mark owner, check back as we will post details about how to submit your trade-mark to the Clearinghouse.

Related Reading: Another Update on the New gTLDs

Calgary – 10:00 MDT