Controlling Internet Tobacco Sales:

Legal and Practical Challenges

D. Douglas BlankeExecutive DirectorTobacco Control Legal ConsortiumDecember 12, 2003

Controlling Internet Tobacco Sales:

Conceptual Challenges Existing laws are based on

paradigms that do not fit online

E.g., sales-to-minors laws assume a face-to-face transaction

Controlling Internet Tobacco Sales:

Conceptual ChallengesWho is the online counterpart to the cashier in a traditional, bricks-and-mortar sale?

The owner of the site?Staff?The payment processing center?The fulfillment house?A delivery person?

Controlling Internet Tobacco Sales:

Conceptual Challenges

Where does the online sale “take place”? Where the purchaser is located when

the order is placed? Where the owner of the site is located? Where the server is located? Where the delivery is made? Where the payment is processed?

Legal Challenges:

Personal Jurisdiction

Legal Challenges: Personal Jurisdiction

A state has no jurisdiction over a distant business unless the business has sufficient “minimum contacts” with the state to justify subjecting defendant to the state’s laws and authority

Legal Challenges: Personal Jurisdiction

The business’s links to the state must be sufficient that compelling the business to appear in the state’s courts does not offend notions of fairness:

As a matter of state lawAs a matter of constitutional law

Legal Challenges: Personal Jurisdiction

Most states assert jurisdiction very broadly, under state “long-arm” statutes. These laws generally assert state jurisdiction over any business that:

Conducts business in the state;Enters into, or performs, contracts in the state; or

Commits a tort or a tortious injury in the state.

Legal Challenges: Personal Jurisdiction

In addition, a state’s exercise of jurisdiction must not offend the due process clause of the Fourteenth Amendment to the Constitution:

“No state shall . . . deprive any person of life, liberty, or

property, without due process of law . . ..”

Legal Challenges: Personal Jurisdiction

Due process of law rests on notions of fundamental fairness:

Was the business reasonably “on notice” that it could end up in the state’s courts?

Did the business intentionally avail itself of the state’s market?

Does the business have sufficient contact with the state that it is fair to force it to appear there?

Legal Challenges: Personal Jurisdiction

How are these standards applied to Web sites?

Courts consider the nature of each site and business

Interactive sites versus passive sites

Actual salesOther contacts

Legal Challenges: Personal Jurisdiction

Online tobacco sellers: Law is unsettled. Interactive nature of sites and physical

delivery of products into the state make jurisdiction reasonably likely.

Washington v. www.dirtcheapcig.com,Inc. (W. D. Wash., No. CO2-2438L, May 2, 2003); cf. State by Humphrey v. Granite Gate Resorts, Inc., 568 N.W.2d 715 (Minn. Ct. App. 1997) aff’d without opinion, 576 N.W.2d 747 (1998).

Legal Challenges: Interstate Commerce Clause Gives Congress exclusive power “[t]o

regulate commerce. . . among the several states, and with the Indian tribes. . . .” U.S. Constitution, Art. 1, Sec. 8, Clause 3.

States can’t regulate interstate commerce, per se, but can use their police powers to protect public health and welfare, even if there is an incidental effect on interstate commerce.

Legal Challenges: Interstate Commerce Clause

States cannot impose rules that so burden business transactions that they impair the flow of commerce.

This means, among other things, that states can’t force distant mail-order companies to collect the states’ sales taxes, where the sellers have no presence in the state. Quill Corp. v. Heitkamp, 504 U.S. 298 (1992).

Legal Challenges: Interstate Commerce Clause

States cannot use their laws to impose economic protectionism by discriminating against out-of-state businesses.

Laws that discriminate against interstate sellers are subject to strict scrutiny.

Legal Challenges: Interstate Commerce Clause Can a state ban all online sales? Or

would a ban discriminate unconstitutionally against out-of-state businesses, while protecting in-state bricks-and-mortar retailers?

New York Public Health Law, §1399-11, enacted in August 2000, prohibited cigarette sellers and common carriers from shipping cigarettes directly to consumers, thereby limiting retail sales to face-to-face transactions.

Legal Challenges: Interstate Commerce Clause Brown & Williamson Tobacco Corp. v. Pataki,

2001 WL 63441 (S.D.N.Y., June 8, 2001) overturned the law as a discriminatory burden on commerce.

On appeal, the Second Circuit Court of Appeals reversed, holding the law constitutional in all respects. Brown & Williamson Tobacco Corp. v. Pataki, (Nos. 01-7806, 01-7813)(2d Cir., February 13, 2003), http://tobacco.neu.edu/internet/CCA2ruling.pdf

Legal Challenges: Tribal Sovereignty

Tribal governments are sovereign nations, and state authority over their activities is limited.

States have jurisdiction, at least in theory, to tax cigarette sales by tribes to non-Indians, but cannot tax sales by tribes or on tribal land to tribal members. Oklahoma Tax. Comm. V. Potawatomi Tribe, 498 U.S. 505 (1991).

But tribal governments have sovereign immunity, and states cannot sue tribal governments to collect state tax revenues.

Legal Challenges: Tribal Sovereignty

Because tribes are sovereign, states probably cannot regulate the sale of cigarettes to tribal members on Indian lands, or to tribes or Indian-run businesses on tribal lands.

Pending litigation involving the Seneca Nation asserts that tribal sovereignty bars the State of New York from restricting tobacco shipments to non-members. OLTRA v. Pataki, 273 F. Supp. 2d 265 (W.D. N.Y. 2003).

Legal Challenges: Mail Deliveries

The Postal Service is an instrumentality of the federal government beyond the general regulatory power of states.

States lack authority to prescribe what can and cannot be transported through the U.S. mail.

Practical Challenges:

Proof:Which sites are making sales?

How are deliveries detectable?

Who has criminal intent?

Practical Challenges:Cost of enforcement: Limited number of sales in any

given jurisdiction makes prosecution difficult to justify.

Offshore defendants are difficult to reach.

Extradition and cross-country enforcement of judgments are costly and difficult, especially with fly-by-night vendors.

Practical Challenges:

The numbers: Several hundred sites today Half on Indian lands Increasing number offshore Low barriers to entry

Possible Leverage PointsPossible Leverage Points

Payment systems Delivery services

ConclusionConclusion

Many legal and practical difficultiesMany legal and practical difficulties All the “solutions” are imperfectAll the “solutions” are imperfect State solutions are better than local; State solutions are better than local;

a national solution is better stilla national solution is better still International cooperation will be International cooperation will be

neededneeded The goal should be a complete The goal should be a complete

prohibition on Internet salesprohibition on Internet sales

http://www.wmitchell.edu/tobaccolaw/http://www.wmitchell.edu/tobaccolaw/tlp_internet_report.pdftlp_internet_report.pdf

Doug BlankeExecutive DirectorWilliam Mitchell College of Law875 Summit AvenueSaint Paul, MN 55105(651)-290-7506tobaccolaw@wmitchell.eduwww.TCLConline.org (under construction)