Bernstein Shur Business and Commercial Litigation Newsletter #78

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Daniel J. Murphy, Paul McDonald

March 2018 | Issue 78

Our March recap highlights cases addressing a Supreme Court challenge of the tax rules for online retailers, a significant copyright victory for Oracle, settlement of a privacy class action involving Apple, and other news that will have an impact on business and litigation.

The U.S. Supreme Court in April will hear oral arguments on a case seeking to overturn the rule that states may not require online retailers to collect sales tax unless they have a physical presence in the state.

The rule is based on Quill Corp. v North Dakota, 504 U.S. 298 (1992) held that the Dormant Commerce Clause of the U.S. Constitution limits states’ ability to burden interstate commerce or discriminate against out-of-state economic interests. In Quill, the Supreme Court held that North Dakota was prohibited from requiring an out-of-state mail order house to collect and remit state taxes on goods purchased for use in the state. However, in recent years, the rule set forth in Quill has come under fire. More recently, in Direct Marketing Association v. Brohl, 575 U.S.___, 135 S.Ct. 1124 (2015), Justice Anthony Kennedy noted the “tenuous nature” of Quill rule, and extended an invitation for cases that would challenge the rule. With South Dakota v. Wayfair, Inc., the Supreme Court will revisit the Quill rule and determine whether states may require online retailers to collect state sales tax even where they lack a significant physical presence. At issue in Wayfair is South Dakota’s enactment in 2016 of a law that took square aim at Quill, requiring all sellers, including those with no physical presence in South Dakota, to collect and remit sales tax to the state. According to federal government estimates, state governments stand to gain a total of $13 billion in additional tax revenue from online retailers if the Qull rule is overturned.

Access Quill and Direct Marketing Association here and here.

The U.S. Court of Appeals for the Federal Circuit has held that Google may be liable to Oracle for billions of dollars in damages based on copyright infringement involving its Android operating system.

In 2010, Oracle sued Google for copyright infringement, alleging that Google improperly copied Oracle’s Java code verbatim in its Android operating system for mobile phones. At the trial court level, Google initially prevailed, with a jury finding a lack of infringement on the part of Google. However, following appeal and remand for a retrial, a second jury determined that Google infringed Java’s code, but was not liable for damages based on the “fair use” exception to copyright protection. On appeal, the Federal Circuit held that Google’s use of Java code could not qualify for “fair use” as a matter of law, remanding the case to the trial court to conduct a hearing on damages. When analyzing “fair use,” courts generally analyze the following four factors: 1) the purpose and character of the use, including whether it is for commercial or non-profit educational purposes and whether it is “transformative”; 2) the nature of the work, including whether it is informational or creative; 3) the amount of the copyrighted work included in the new use; and 4) the effect of the use on the market for copyrighted works. The Federal Circuit concluded that Google’s use of Java code was not a permitted “fair use” of copyrighted material because, among other things, it was highly commercial, non-transformative, and had a “substantially adverse impact on the potential market for the original.” On remand for a hearing on damages, a jury will determine whether Oracle should be awarded claimed damages totaling nearly $9 billion.

A federal court has approved the final settlement of consolidated privacy class actions pending against Apple and numerous other software companies addressed to claims of improper access to iPhone users’ personal information.

In the underlying class actions, numerous software developers were accused of uploading address book data from Apple users’ devices without consent. Plaintiffs also alleged that Apple aided and abetted such conduct, which centers on the “find friends” feature contained in various apps. Settling class defendants include Yelp, Twitter, Kong, and Instagram. As part of the settlement of claims, eligible claimants within the class of nearly 500,000 users will be eligible to obtain compensation from a common fund totaling $5.32 million. Prior to final approval of the settlement, U.S. District Judge Jon Tigar also requested the U.S. Attorney’s Office to investigate nearly 6,000 suspicious claims submitted by asserted class members.

A former math teacher has pleaded guilty to running a $60 million Ponzi scheme where individuals and firms were misled into believing that they were investing in a highly profitable ticket reselling business.

Since 2012, Jason Nissen raised millions of dollars from investors by falsely representing that he was using proceeds to buy and resell tickets at a profit for major events, such as the Super Bowl, the U.S. Open, Hamilton, the musical, and others. Nissen in fact was operating a Ponzi scheme, channeling investor funds into his own accounts and to affiliates. In one instance, a victim provided $1.9 million to Nissen to purchase Ultimate Fighting Championship event tickets. From that amount, $1.5 million ended up in Nissen’s personal account, while more than $350,000 was transferred to an affiliated insolvent company. A private equity firm that invested $40,000,000 also was among the victims. This week, Nissen pleaded guilty in federal court in New York on federal wire fraud charges.