I moderated a very special online chat panel session during eM+C’s recent All About eCommerce Virtual Conference & Expo. It tackled such urgent legal issues as the unauthorized sale of goods on eBay, CAN-SPAM and class-action lawsuits for data breaches.
The expert panel included attorneys Jamie Hastings, the general counsel for Vermont Country Store, and David Bertoni, a partner at the law firm Brann & Isaacson, which has handled numerous tax and direct marketing matters. Below are highlights from the session.
(For more, check out the on-demand replay of the All About eCommerce Virtual Conference & Expo.)
Q: David, anything new regarding CAN-SPAM (including the Federal Trade Commission's regulations) we all should be aware of?
Bertoni: What's interesting is a tremendous amount of silence from the Federal Trade Commission. One thing that's happened is that the Federal Communications Commission has chimed in with rather strict limits on messaging to wireless accounts. But the FTC hasn't taken a lead in answering some tough questions. For example, certain communications are arguably “noncommercial,” but also not “transactional” or “relationship” messages.
Q: Double opt-in … do you see that coming down the pipeline?
Bertoni: Clients are struggling with determining just how these fit under the rules.
Q: Affiliate laws?
Bertoni: It's hard to tell — but that certainly is the kind of legal trend we're seeing. In the new FTC telemarketing amendment, “permission” is being required. Permission is also being required for wireless email marketing.
Q: Any best practices for protecting downloadable content as a product, such as a podcast?
Hastings: Really a dual issue: One is legal with regard to copyright; the other best practices involve security.
Bertoni: Let's talk about the Amazon case. Lurking out there for the last 15 years was the fear that states would seize on “affiliate referral” relationships to create nexus. Amazon pioneered the approach. It involves having links on other websites and paying commissions for sales generated through those links.
Lurking out there was the theory that these referrers constitute in-state agents/representatives that give rise to nexus — and thus sales and use tax obligations. The New York Supreme Court — their trial court, ironically — said they can with some reservations. Although it looks to me that the case is strong enough on its own to make affiliate relationships of any kind quite risky. Tennessee is considering adopting the same law, by the way.
Hastings: Many multichannel merchants are now reconsidering affiliate marketing and scaling back.
Bertoni: The problem is that Amazon led with its chin on this one. If you look at their affiliate agreements, they look like commissioned sales rep agreements.
I always scratched my head about that one. If you're going to have those, DON'T call the payments commissions. Pretty easy. Structure the compensation so it isn't based upon a percentage of sales. A per impression approach would be better.
Hastings: Best to also ask the tough questions of your affiliate's in-house counsel.
Bertoni: Make clear that your contract STRICTLY FORBIDS any in-state marketing activity. Try to make it as pure an “advertising” agreement as you can.
Q: Has Vermont Country Store encountered the unauthorized sale of its proprietary brands/products on eBay or other third-party sites in which your copy and photographs were used without permission?
Hastings: Always a big problem. Two issues: trademark and copyright. Ironically, individual sellers are allowed to market branded products on eBay under the first-sale doctrine. What they can’t do, however, is use any copy of the original brand owner or original photos/descriptions of the products. For enforcement purposes, we often make a purchase and send a cautionary cease and desist letter.
Q: Have you had many such cases?
Hastings: Yes, all resolved peacefully! A more disturbing new trend is coming from activities of eBay directly. They now have cookies so that when I sign back in it states on the homepage, “Snag a deal on Vermont Country Store products.” It proceeds to list our branded products that are being offered by resellers with a splash “40% off,” “20% off,” etc.
Q: Whoa, how have you reacted to that?
Hastings: We're proceeding to deal with eBay directly on this matter. I'd advise everyone to keep an eye out for this. This goes into the realm of contributory infringement, unfair trade practices, etc.
Bertoni: Policing eBay is important for other reasons, too. We were able to discover that one of our clients' vendors was selling labeled, rejected goods to an eBay seller in breach of contract. You might want to make sure that your vendor agreements prohibit the sale of goods to third parties without defacing the labels.
Hastings: It’s also not great to lose control of your brand if someone is selling inferior seconds of your products. Vendors overseas do what David is referring to more often than you think.
Check back next week for the final part of this two-part article.