Thursday, June 11, 2009

Nothing Nice on This List — iAwful State Legislation

internet laws


Sometimes legislation is so bad, it’s awful! or iAWFUL (the Internet Advocates’ Watchlist for Ugly Laws).

I’m happy to announce that NetChoice just created a top ten list where we’ll keep track of the worst of the worst. iAWFUL identifies the 10 worst legislative and regulatory proposals targeted at the Internet. We’ll continually update to reflect the most immediate dangers, based on regulatory severity and likelihood of passage.

While misguided Internet legislation is nothing new, the threat that such legislation poses has increased dramatically. The latest breed of legislative proposals are among the most restrictive we’ve ever seen, and they can crop up anywhere, as state lawmakers increasingly take the lead.

Bad Internet bills unfortunately take many forms, but we see 4 broad categories:

1. Misguided efforts to ‘child-proof’ the Internet

New Jersey Social Networking Bill (A 3757) – What’s wrong? It turns social networking sites into social networking police. It requires social networking websites to promptly review user allegations of harassment and abusive language, and to provide a report of the result of any review “upon request” from the user (blog post here).

California Social Networking Bill (AB 632) – What’s wrong? It can be abused to stifle free speech. It should seem obvious that if you post a photo onto a social networking site, it’s a public image. California doesn’t think so, so it’s micromanaging website terms of service. It started as a tech mandate, and would have imposed civil liability on websites that failed to implement technologies that would prevent copying or saving of images. This bill was recently amended to require social networking websites to disclose to its users that uploaded photos can be copied without consent by persons who view the image. The definition of a “social networking Internet Web site” is broad, so this would apply to a large number of sites on the Internet (previous blog post here).

2. There’s a tax for that!

Connecticut Tax Bill (SB 806) – What’s wrong? It confuses Web 2.0 advertising for a traditional sales force. This bill would create nexus for sales tax purposes over any person who enters an agreement with a resident that pays any consideration or commission for referring potential customers to the retailer. Connecticut business that depend on Internet ad revenue better watch out—the money will dry out if this passes. Here’s more information.

North Carolina Tickets Bill (SB 99) What’s wrong? Taxes the Internet (and only the Internet) resale of tickets. SB 99 violates federal law because it explicitly targets Internet—and only Internet—ticket sales. The Internet Tax Freedom Act Amendment Acts of 2007 (Public Law No: 110-108) provides a moratorium through November 1, 2014 on any “multiple or discriminatory taxes on electronic commerce.” This law bars federal, state and local governments from imposing discriminatory Internet-only taxes such as bit taxes, bandwidth taxes, and email taxes. It also prohibits the sort of prima facie discrimination exhibited by SB 99—“Reselling or offering to resell admission tickets on the Internet…”). For more information, go here.

New York Online Employment Services Taxation Issue – What’s wrong? Discriminates against Internet services. The New York Tax Dept asserts that online job-seeking and resume services may be subject to sales taxation. New York currently taxes “information services” and believes that the providing of employment information falls within this definition. However, online companies fulfill the traditional role of a “headhunter” (which is a non-taxable service) only using non-traditional means. The fact that information is provided or utilized digitally does not change the fact that their service is designed to establish an employment relationship between an employer and a job seeker.

North Carolina Digital Downloads Tax Bill (HB 558/S 487) – What’s Wrong? Discourages the Greenest Way to Purchase Music and Other Content. This bill would discourage the most environmentally friendly way for consumers to purchase movies, music, and software by applying a sales tax to the digital download of these goods. The bills would also place local businesses in those states selling these goods at a disadvantage to out-of-state competitors. Here for more info.

3. Imposing liability on platforms and intermediaries

Connecticut Internet Resellers Amendment (SB 1002)– What’s wrong? It discriminates against the Internet (only) and allows unwarranted search of people’s homes. An amendment to SB 1002 requires Internet sellers to maintain an elaborate record-keeping system (in English, by the way) whenever they purchase and resell goods obtained from someone who is “not regularly engaged in the business of dealing in such goods.” The bill requires that the physical location of these records—often someone’s own house—to be open to the public for inspection!

Federal Bills on Organized Retail Crime – What’s wrong? They create extraordinary burdens on online marketplaces. The Combating Organized Retail Crime Act of 2009 (S 470), the Organized Retail Crime Act of 2009 ((HR 1173)) and the E-Fencing Enforcement Act of 2009 (HR 1166). Together, the bills would mandate online and off-line marketplaces to investigate suspicious sales, place disclosure requirements on online marketplaces, impose obligations upon online marketplaces known to be used by high volume sellers of stolen merchandise and force online marketplaces to collect information that law enforcement can use to prosecute those that fence goods on their websites. More information.

4. Tech Mandates

Nevada Encryption Bill (SB 227) – What’s wrong? Mandates a one-size fits all tech standard. This bill thinks that encryption is the answer…for everything! It would impose a hard encryption mandate that would require businesses to implement encryption technology that has been adopted by an established standards setting body. The bill prohibits any business from (1) transmitting personal information outside of the secure system of the business or (2) moving any data storage device beyond the logical or physical boundaries of the business, unless secured by encryption.

Texas Security Breach Bill (HB 345 & SB 327)What’s wrong? Transforms business and technology standards into legislative mandates, harming innovation and the next generation of security technology. This bill seeks to impose Payment Card Industry (PCI)-like data security standards, and, in the event of a security breach, liability on businesses that failed to meet such data security standards. It enables the Attorney General to seek reimbursement for costs incurred by a financial institution in the aftermath of a security breach.

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