WASHINGTON, Jan. 31 (UPI) -- The latest government attempts to get a grasp on the slippery Internet have met with mixed results.
The U.S. Supreme Court rebuffed an attempt by New York City to recover tens of millions in tax dollars lost to online cigarette sales, but China has found an ally in its battle with Google over censorship -- Microsoft and Chairman Bill Gates.
Governments and the courts are still feeling their way in the Information Age. Will U.S. plaintiffs, such as stockholders, have standing to file suit in the United States for actions by an online company overseas? If so, where is the "nexus" -- the connection -- that U.S. courts would require? What would be the definition of a nexus in a virtual world without geographical or even national boundaries?
And has an "information curtain," the modern version of the iron curtain, descended on the Internet?
Shortly after she was tapped for the high court in 1993, Justice Ruth Bader Ginsburg predicted from the bench -- in a case involving a glitch in a police computer -- the Supreme Court might have to develop a whole new line of jurisprudence for cyberspace.
But cyberguidance from the high court since then has been occasional at best, usually involving cases of federal laws banning child pornography online.
Last week, however, the Supreme Court made it harder for state and local governments to collect taxes for online sales using federal racketeering law.
Federal law, of course, bans government at all levels from collecting taxes for Internet access or from imposing Internet-only taxes. Amended in 2007 to extend its provisions to 2014, the Internet Tax Freedom Act does allow a sales tax or use tax for online sales.
Moreover, the federal Jenkins Act says a company selling cigarettes online does not have to pay the taxes, but must provide a state the names and addresses of those ordering the smokes, so a state and a city can then collect taxes. Failure to disclose sales is a misdemeanor, punishable by a fine of up to $1,000, a jail term of up to six months or both.
In last week's case, New York City filed suit under the civil provisions of the Racketeer Influenced and Corrupt Organizations Act, better known as RICO, against New Mexico's Hemi Group LLC, which sells cigarettes online.
The city said Hemi's failure to file reports about who was buying cigarettes online was fraud, a "predicate act" under RICO that caused the city to lose tens of millions in cigarette taxes. RICO's civil provisions provide for triple damages.
A federal judge dismissed the suit, but the 2nd U.S. Circuit Court of Appeals in New York threw out that ruling and said the city had a valid RICO claim.
The Supreme Court reversed the appeals court, ruling for Hemi. Citing precedent in the majority opinion, Chief Justice John Roberts said there had to be a more direct connection for a RICO injury.
Roberts pointed out that there were four parties involved in the case: The plaintiff, the city; the defendant, Hemi; a third party, the state, which was due the reports under the Jenkins Act; and a fourth party, the taxpayer, who is obliged to pay the taxes under the Jenkins Act.
"The city's theory thus requires that we extend RICO liability to situations where the defendant's fraud on the third party (the state) has made it easier for a fourth party (the taxpayer) to cause harm to the plaintiff (the city)," Roberts said. "Indeed, the fourth-party taxpayers here only caused harm to the city in the first place if they decided not to pay taxes they were legally obligated to pay. Put simply, Hemi's obligation was to file the Jenkins Act reports with the state, not the city, and the city's harm was directly caused by the customers, not Hemi. We have never before stretched the causal chain of a RICO violation so far, and we decline to do so today."
Three other justices joined Roberts opinion, and Ginsburg joined it in part, filing a separate opinion concurring in the judgment. The five made up the majority. Justice Stephen Breyer filed a dissent and was joined by two other justices.
Justice Sonia Sotomayor, who was on the 2nd Circuit bench when it made the Hemi ruling, did not take part in the case on the Supreme Court level.
While the Supreme Court was forming the legal victory for online commerce -- and a defeat for the New York City treasury -- big online trouble was brewing in China.
Mountain View, Calif.'s Google Inc. announced Jan. 12 a sophisticated effort to access the Gmail accounts of human rights activists and confidential Google server data had been made in December. Google pointed the finger at China.
Chief Google legal officer David Drummond said the cyberattacks caused the company to "review the feasibility of our business operations in China,"' and Google would no longer censor the results on Google.cn, its Chinese search portal, as required by Chinese officials, Business Times reported.
The Times said Google claimed it was one of 20 large companies targeted by the attacks. Other security researchers said as many as 33 companies were targeted.
The attacks brought on a serious rebuke from U.S. Secretary of State Hillary Clinton, who told an audience in Washington's Newseum Jan. 21: "In the last year, we've seen a spike in threats to the free flow of (online) information. China, Tunisia and Uzbekistan have stepped up their censorship of the Internet. In Vietnam, access to popular social networking sites has suddenly disappeared. And last Friday in Egypt, 30 bloggers and activists were detained."
Clinton tried to put the weight of the U.S. government behind Internet freedom -- or at least the idea of it.
"On their own, new technologies do not take sides in the struggle for freedom and progress, but the United States does," she said. "We stand for a single Internet where all of humanity has equal access to knowledge and ideas. And we recognize that the world's information infrastructure will become what we and others make of it. ... As I speak to you today, government censors somewhere are working furiously to erase my words from the records of history. ...
"With the spread of these restrictive practices," Clinton said, "a new Information Curtain is descending across much of the world."
The reaction from Chinese media was immediate, The Wall Street Journal reported last week. Chinese media "have mounted a concerted effort to discredit" Clinton's speech, as well as Google's allegations, the report said. U.S. criticism is hypocritical, and Google is a pawn of Washington, Chinese media said.
In contrast, Chinese state media have hailed comments by Gates, who soft-pedaled China's Internet restrictions, the Journal said.
Gates told ABC's "Good Morning America" last week China's attempts "to censor the Internet have been very limited," and said the Chinese restrictions resemble those of other countries, the Journal report said.
Microsoft has been having a tough time establishing an Internet business in China, the report said, where Baidu.com Inc. and Google had locked up a combined 94 percent of the search portal market in the fourth quarter of 2009.
Microsoft released the Chinese version of its Bing search engine in June. Bing, like other search engines in the country, blocks "politically sensitive links" from its results, the Journal said.
If a U.S. company in China blocks a U.S. Web site -- say one selling anti-censorship software -- from appearing on search portal results in that country, can the owners of the Web site sue in the United States? The answer might lie in that future cyberjurisprudence Ginsburg predicted.
