Telecommuting Can Be Taxing

A Tennessee employee worked for a Tennessee company in Tennessee and all was right with the world. But then the company dissolved, and the individual was hired by a client of his former company—the client is a New York company. Although he traveled to New York on business (and dutifully reported the 25 percent of his time he spent in New York), the rest of his time he earned his living from Tennessee, working by computer and telephone. The individual paid the New York taxing authority (and never disputed) the pro rata portion of his income for the time he spent in New York, but the remainder of his work was done in Tennessee and not (so he thought) subject to New York tax.

A few months ago, a divided Court of Appeals in New York ruled that the 25 percent connection to New York supported the argument that this “minimal connection” allows New York to tax everything the taxpayer earns because it is earned from a New York company! “Foul,” cries the dissent—what about the secretary working in the Boston office of a New York-based law firm? A sales manager for a New York company working in California? This was a very close decision (4–3) but the court ruled that tax was payable to New York on 100 percent of the income earned from the New York company.

Would You Like Fries With That Game Card?

A woman buying french fries at a McDonald’s drive-through window received a game card which she thought was worth a million dollars. However, when she submitted the card to the McDonald’s redemption center, security codes revealed the card only entitled her to a relatively low dollar amount as a prize winner. Didn’t win. No problem—file a lawsuit: simply allege McDonald’s induced her to purchase the food item knowing that crooks were afoot trying to steal prize-winning game cards. That, she alleged, gave her worse odds to win the million dollars than those advertised. Therefore, she should be declared a winner of $1 million…are you actually following this logic?

But there is a happy (and, fortunately, rational) ending to this story. McDonald’s actually had “official rules” for its promotion. Those rules, among other things, had an arbitration clause which, if enforceable, would preclude her from bringing the lawsuit into court. So McDonald’s moved to dismiss the lawsuit. In addition to upholding the enforceability of the arbitration clause, this past August the U.S. Court of Appeals (7th Circuit) dismissed the woman’s argument that she could not be bound by a contract (the “official rules”) that she had never read, having gone through the drive-through window. The rules were posted near the food counter, the rules were on the reverse side of tray liners inside the restaurant, and were also posted near the drive-through window. Even the french fry containers which had the game cards attached to them mentioned that Official Rules governed participation in the game.

She was alerted that there were Official Rules, she had ample opportunity to read the Official Rules, the Official Rules were openly and conspicuously available for inspection, and it would be “unreasonable and unworkable” to require that each customer be afforded a personal reading of a lengthy set of game rules, and require each one read and then sign an agreement to be bound by their terms. Put that in your sesame seed bun for starters. A valid contract existed (and the customer is bound by the Official Rules—including the arbitration clause) because a contract does not have to be actually read to be enforceable. Here, the consumer knew and had every reason to know there were detailed rules that governed the promotion. The presence of Official Rules was clearly part of the game card promotion. The Official Rules were available and easily obtainable for inspection and review. To create a valid contract, it is enough that the Official Rules were identified to her as part of the contest and that she had an opportunity to read them.

Promotions such as sweepstakes and contests are regulated. States often have detailed regulations—some general and some targeted at categories of promotion (e.g., retail, online), others at particular industries, some relating to the target audience (e.g., children, senior citizens, cause-related charitable promotions), and yet others related to prizes (e.g., travel prizes, motor vehicles). There are regulations requiring registration and bonding in a few states (New York, Rhode Island and Florida in some circumstances), prize notification and disclosure statutes, and a variety of laws, regulations and judicial pronouncements on differentiating promotions involving chance versus those that involve skill and those that combine both—in stores, at county fairs and online. But by making sure you stay within the boundaries of the law and by ensuring your “Official Rules” are crafted and drafted properly, you can run successful promotions and withstand challenges like the one brought by our french fry purchaser in this case. Need help, call Rimon. Nobody does it better!

File-Swapping Down Under Gets the Boot

A federal court in Sydney, Australia has ruled that Kazaa, a popular Internet file-swapping network, infringed copyrights—a ruling that reinforces the recent U.S. Supreme Court decision in MGM v. Grokster that recently held that those who encourage the theft of copyrighted music, films and other media can also be held liable. The ruling in Australia requires Kazaa to modify its programs within two months to include technology that will exclude or filter out copyrighted content. For those avid readers of Useless But Compelling Facts, it may interest you to know that Kazaa’s official business domicile is in Vanuatu, a remote Pacific Island. Why would they be located there? Perhaps time-sharing on an idyllic beach in the South Pacific is in the cards. Someone stealing your content? Infringing your copyright? Downloading music or films without authorization? Rimon can help—we have intellectual property lawyers and litigators, Internet and e-Commerce lawyers, and technology litigators. Let us worry about protecting your websites, your proprietary rights and your interests.

Big Brother Has Indeed Been Watching

The FTC has been checking compliance with its e-mail opt-out requirements promulgated under CAN-SPAM, and recently announced the results of a compliance survey it undertook with e-Tailers. The survey indicates that 89 percent of those online merchants who participated in the survey were complying with consumer requests to opt-out of future commercial e-mail. The FTC essentially selected 100 merchants that are big users of the Internet in retail sales and then visited their websites, created test e-mail accounts and registrations, and signed up for promotions—using the retailers systems to prompt both an initial message and their ability to reply with an “opt-out” request. All of the merchants selected did provide clear notice to consumers of their opt-out rights and a relatively easy means to do so. After six weeks of monitoring, about 89 percent of the merchants honored all opt-out requests, with 93 percent honoring some. In case you were thinking the FTC doesn’t take CAN-SPAM enforcement seriously or can’t possibly monitor and track your compliance efforts, think again. Use e-mail/e-Tail advertising and marketing? Need to understand your obligations? Need to develop policies and practices for compliance? How quickly and with what level of accuracy do you honor the requests? Need help in understanding when and to what CAN-SPAM applies? Contact either Joe Rosenbaum or Doug Wood at Rimon. We can help.

Waive Your Right to Jury Trial–California Weighs In

A recent California Supreme Court decision (Grafton Partners v. Pricewaterhouse Coopers) held that the California Constitution prohibits pre-dispute waiver agreements when it comes to jury trials. In other words, jury trial waiver provisions in many commercial and consumer contracts may now be unenforceable in California. The decision indicates that a party may not be able to contractually waive its rights to a jury trial because the California Code of Civil Procedure limited enforceability of jury waiver agreements to only those agreements that were entered into after the filing of a lawsuit, not in advance. This is likely to be appealed. We will keep you posted.

In Memoriam–An Era Comes to an End

Truly marking the end of an era, Jack Kilby and Robert Moog passed away recently. We thought it fitting to honor them, given that their innovations and inventions have transformed our lives, our societies and our global economy in the last 30 years, and are likely to continue to do so for decades to come. Many of you, before reading this, may have never heard their names, but their inventions rank alongside those of Thomas Edison, Alexander Graham Bell and Henry Ford in their impact. Each in his own way, has enriched our lives in ways neither they, nor anyone, could possibly have foreseen. We take a moment to mourn their passing and thank them for their contributions.

On June 20, at the age of 81, Jack Kilby, passed away. Although few people outside the engineering field may know his name, he is credited with the invention of the integrated circuit while working at Texas Instruments—the seemingly simple notion that transistors could be miniaturized onto a block of silicon—about the size of a paper clip back then. Together with Robert Noyce, who figured out how to mass produce them, his invention led the way for a multi-trillion-dollar industry and an information and processing revolution unrivaled in the history of the world. You may recall that Mr. Noyce and Gordon Moore went on to found Intel! Mr. Kilby won the Nobel Prize in Physics in 2000, the Draper Award in engineering, and the National Medal of Science, and has more than 60 patents credited to his name; yet throughout his life, he remained down-to-earth, although proud of his invention. He is credited with noting that “…scientists get the theories. But engineers make them work. And the engineer has the added challenge of cost, because if your solution works but it costs too much, there will never be any application.” Amen.

On Sunday, August 21, Robert Moog passed away at age 71. Although you may also not recognize his name, his synthesizer was well known to musicians around the world. From the Monkees in 1967 and The Beatles in 1969, to RadioHead, The Beastie Boys and Moby today. The Doors, Jan Hammer and Herbie Hancock, Yes, Emerson, Lake and Palmer, The Byrds, The Rolling Stones and even the score of Stanley Kubrik’s classic A Clockwork Orange all used the “Moog Synthesizer.” Moog was awarded the Polar Prize in music for his 1970 invention of the “mini-moog,” won a Grammy for technical merit (he shared that prize with Steve Jobs for the Apple Macintosh), and is generally credited with being the father of electronic musical sound. Oh, and in case you are wondering, those cell phone ringtones, file-sharing MP3s, and yes, even the iPod—with chip-size synthesizers—owe homage to the inventive genius of Mr. Moog—an engineer, inventor and patron saint of Rock and Roll.

Black Forest Group Conference

The Black Forest Group is hosting a high-level conference in Valencia, Spain, in conjunction with its Fall 2005 meeting. The BFG is a non-profit membership association of international end-user information technology and strategic planning senior executives and high-level academic and support professionals, dedicated to providing its members with sustainable competitive value in their professional capabilities and commercial responsibilities. On the Agenda for Valencia: Healthcare Systems in Europe and the U.S. for Global Employers; Record Management Across International Boundaries; Compliance, Security and Privacy—The Changing Role of the CIO/CTO; Global Collaboration, Off-shoring and Outsourcing, and more. For more information about the conference or BFG membership, contact Joe Rosenbaum.

What a Jam(ster!) You’ve Gotten Us Into

Charles Ford has sued Verisign, Jamster!, Jamba! (the European version of Jamster!), T-Mobile USA, AT&T Wireless, and Cingular, hoping to turn his lawsuit into a worldwide class action. The problem: his daughter responded to a TV ad promising her a free ring tone. Although she claims never to have downloaded any songs the company sent her, Ford was billed $1.99, plus another 5 cents for each text message she received and read over her monthly limit—to the tune of $80. Ford is alleging fraud, negligent misrepresentation, false advertising, and unfair competition, and is claiming that by targeting children who often don’t understand, they are using this as a means to keep sending text messages which are read—costing consumers money. Stay tuned.

Fine Tuning Financial Privacy

This June, the Ninth Circuit, overturning a lower court ruling, held that the Fair Credit Reporting Act (FCRA) does preempt some part of the California Financial Information Privacy Act (aka SB1). The court held that the FCRA does, in fact, preempt state affiliate sharing laws insofar as a “consumer report” is concerned. Where affiliate sharing does not involved a “consumer report” as defined in the FCRA, state laws are not preempted. What this means if you do business in California: (a) SB1 opt-out will not apply when affiliates share consumer report information; (b) SB1 opt-out will apply when affiliates share information that isn’t a consumer report; and (c) SB1 “opt-in” relevant to disclosures of information to non-affiliates will continue to be applicable and enforceable.

Data Miners Can’t Market to Minors?

Just last month (June was a busy month), Utah and Michigan laws came into force which prohibit sending commercial e-mail to children for products a minor can’t legally own there—but the children must be signed up in the newly created Child Protection registries to be covered by the protection. That means not just gambling or alcohol, but tobacco, prescription drugs and a host of other items which children are not permitted to own in those states. Michigan and Utah will both impose fines for violations , and in Utah, sending a message or a web link could also land you in jail for up to three years. And you thought CAN-SPAM was tough—in both states, the penalties apply even if a parent requested the e-mail. Although likely to be challenged, at this point, if you are using e-mail or web-based links to market in these states, the time to worry about doing a merge-purge against the registries before you e-mail is now.