The Latest on Online Copyright Theft

Last week, USA Today provided an informative update as to what’s going on with online copyright infringement – i.e., theft – lately.

The entire article is worth reading, but four key points are worth highlighting here:

• In the spring, while pirates off the coast of Somalia were getting all the high-seas attention, four Swedish pirates of a totally different sort were being sentenced to pay more than $3 million in fines and serve a year in the brig. Their crime: running The Pirate Bay, one of the Web's most-visited file-sharing communities. The Pirate Bay is part of the trend of peer-to-peer technologies used to illegally swap music, videos and applications. Public sites such as Pirate Bay, IsoHunt and Mininova index and track BitTorrent files, which allow computers to connect and download content. People go to these sites to search for and grab music or videos.

• The legal ramifications of peer-to-peer file-sharing are still being worked out, but copyright infringement is a crime. Anyone who widely distributes copyrighted material runs a risk of being fined — or worse. Part of the appeal of peer-to-peer file-sharing is that it is difficult to shut down because pirated files are never kept on a single server that can easily be targeted by law enforcement.

• While The Pirate Bay and other public sites get the most news coverage, the momentum now is toward the private torrent communities: Websites that are accessible by invitation only, have strict rules about sharing and etiquette and usually focus on a single type of pirated content, such as music or films.

• And despite growing popularity of legal media sites such as iTunes, Hulu and Rhapsody, worldwide media piracy still looms large. Scott Harrer, brand director at P2P intelligence and security firm Tiversa, said his company monitors more than 1.5 billion peer-to-peer searches a day, up from 500 million just one year ago.

It is critical to keep in mind which groups get hurt in terms of copyright infringement. It’s not just big businesses. It’s individual creators, innovators and the many small businesses that work in or are tied to industries such as music, publishing and movies.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

The Amazon Tax

Many state lawmakers seem to be willing to do anything these days to rake in bigger bucks from the private sector – no matter what might be the impact on the economy. I believe it’s called “cutting off your nose to spite your face.”

Consider what’s become known as the “Amazon Tax.”

North Carolina is poised to force out-of-state online retailers to collect sales taxes if they have in-state online marketing affiliates. What is an in-state online marketing affiliate? Quite simply, if you have a website and happened to be an Amazon.com affiliate – that is, run Amazon.com ads on your site – then you are a marketing affiliate. That means Amazon.com would have to collect sales taxes on any purchases made through those links.

In reaction to this looming tax increase, Amazon.com eliminated its affiliate program in North Carolina on June 26. Amazon.com also announced it was ending its relationship with affiliates in Rhode Island on June 29 and with affilitates in Hawaii on June 30, due to similar forced tax collections.

And according to the Wall Street Journal, Maryland, Minnesota and Tennessee have rejected such laws.

New York passed an Internet sales tax law that is being challenged in the courts.

Based on the U.S. Supreme Court’s 1992 Quill decision, any sales tax imposed on out-of-state retailers without a nexus in state does not pass constitutional muster. And the idea that individuals and businesses setting up ad links with Amazon.com qualify as in-state operations is preposterous.

In the end, guess who gets hurt most? That’s right – entrepreneurs and small businesses. As the June 27-28 Wall Street Journal reported: “‘The sad irony of this issue is that the “Amazon Tax,” as the North Carolina General Assembly calls it, will not collect any taxes – it will only cause lost revenue for North Carolina businesses,’ said Bob Butler, the chief executive of BestThinking.com, a former Amazon Affiliate based in Cary, N.C.”

The small businesses that earned revenue from Amazon.com’s advertising affiliates program will lose those earnings.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

More Tax Hikes in Massachusetts

Lawmakers in Massachusetts have been working quite hard in recent years to make it increasing inhospitable to live, work, invest, and build and run a business in the state.

Most glaring in recent years was the massive and misguided government intrusion into health care. (See, for example, a recent SBE Council analysis.)

But there was more last week. With the new state budget year starting this Wednesday (July 1), Governor Deval Patrick (D) declared on Friday that he would sign a massive tax increase.

The tax hikes include – as reported by the June 27 Boston Globe – an increase in the state’s sales tax from 5% to 6.25%. The state’s meals tax will rise by the same amount, with localities empowered to jack up the rate further to 7%. Local governments also will be allowed to increase the hotel tax by 2 percentage points. And there will be higher levies on satellite television, and on alcohol sold at retail stores.

Patrick actually said: “I will approve the new revenues we need to bring our budget into balance, offset the need for even more difficult cuts, and expand opportunity in the Commonwealth?”

Excuse me? Was that “expand opportunity in the Commonwealth”?

True opportunity, however, springs from private-sector entrepreneurship, investment and job creation. Those critical endeavors certainly are not helped by these tax increases. Instead, opportunity is dampened due to higher tax costs for consumers and businesses.

Bad news from government just keeps coming in Massachusetts.

Raymond J. Keating

Chief Economist

Small Business & Entrepreneurship Council

U.S. Supreme Court Reverses Sotomayor

In a recent SBE Council Cybercolumn looking at how business should view President Barack Obama’s selection for the U.S. Supreme Court – Judge Sonia Sotomayor – I noted:

“And in the 2008 Ricci v. DeStefano case of white firefighters fighting the city of New Haven’s decision to toss out a promotion test upon which blacks and Hispanics disproportionately scored lower than whites, Sotomayor joined the opinion rejecting the firefighters case. The Supreme Court will decide that case this summer, before she would join the Court, and most analyses point to the justices being skeptical of the city’s case.”

The Court in fact was skeptical – or at least five of the nine justices were – as the Court announced today that is was reversing the decision that Sotomayor joined.

The Associated Press reported:

The Supreme Court ruled Monday that white firefighters in New Haven, Conn., were unfairly denied promotions because of their race, reversing a decision that high court nominee Sonia Sotomayor endorsed as an appeals court judge.

New Haven was wrong to scrap a promotion exam because no African-Americans and only two Hispanic firefighters were likely to be made lieutenants or captains based on the results, the court said Monday in a 5-4 decision. The city said that it had acted to avoid a lawsuit from minorities.

The ruling could alter employment practices nationwide and make it harder to prove discrimination when there is no evidence it was intentional.

"Fear of litigation alone cannot justify an employer's reliance on race to the detriment of individuals who passed the examinations and qualified for promotions," Justice Anthony Kennedy said in his opinion for the court. He was joined by Chief Justice John Roberts and Justices Samuel Alito, Antonin Scalia and Clarence Thomas.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council