The Kirtsaeng Case and the Future of “Retail Arbitrage”

Ciff Ennico Headshot

 

Last week the U.S. Supreme Court handed down a much-anticipated ruling in the case of Kirtsaeng v. Wiley Publishing.  The ruling will have a major impact on eBay, Amazon and other online merchants, but will have a particularly significant impact on the practice of “retail arbitrage” – buying something in a brick-and-mortar store at retail, and then reselling it online for an even higher retail price.

Here’s what happened.

For many years, textbook publishers such as Wiley Publishing and McGraw-Hill have sold the same English-language college textbooks in foreign countries for lower prices than they do in the United States.  Supap Kirtsaeng, a U.S. immigrant from Thailand, started an online business buying these “foreign editions” from retailers in Thailand and other Asian countries, importing them to the U.S., and then reselling them on eBay to U.S. students who were looking to pay less than the U.S. sticker price for the same books.  These resales cut  significantly into the profit margins of textbook publishers like Wiley, who sued.

Copyright law in the U.S. has long held that once a company sells a copyrighted product, the purchaser has the right to resell it later.  Kirtsaeng argued that this “first sale” rule, which allows the resale of U.S. products, should also protect the resale of foreign-made goods.  The Supreme Court agreed with Kirtsaeng.

Since the dawn of the Internet, manufacturers of high-margin goods have been trying to block resales of their merchandise on eBay, Amazon and other online retail sites.  The Kirtsaeng case removes one of their biggest weapons – the argument that such resales somehow constitute “copyright infringement” or “trademark infringement”, and that websites (such as eBay and Amazon) that facilitate such sales are therefore engaging in “contributory infringement” of the manufacturer’s copyrights or trademarks.

So is it safe to say that “resale arbitrage” – the buying of goods at retail and reselling them online at a higher retail price – is now officially legal?

Not so fast . . .

An important point in the Kirtsaeng case was the fact that Kirtsaeng’s overseas textbook purchases were perfectly legal.  A U.S. college student hitting the beaches on Phuket Island in Thailand over spring break could easily purchase a textbook there and bring it back to the U.S. without any hassle from the Customs Department.

But what if the purchase violates other U.S. laws?  Certainly the Kirtsaeng case would not allow an eBay or Amazon seller to buy goods overseas that turn out to be counterfeit, or which cannot be imported legally into the U.S.

A more difficult case – and one I think we will be seeing lots of in coming years – is the situation where a manufacturer prohibits its retailers from engaging in wholesale transactions at all.  For example:

  • what if a manufacturer’s contract with a retailer specifically prohibits them from selling to eBay and Amazon merchants?
  • what if a manufacturer’s contract with a retailer prohibits them from selling at wholesale, or to someone they have reason to believe has the intent to resell them at the time of purchase (for example, someone buying five diamond bracelets from a jewelry store every week)?

If you think such contracts don’t exist, try going to your local McDonald’s and asking to buy 100 Happy Meals toys promoting the new animated movie “The Croods” (perfect merchandise for an eBay seller) without actually buying 100 Happy Meals – see what happens.  Even if you buy 100 Happy Meals, the store manager is bound to ask you some pointed questions.

It is illegal for a manufacturer to prohibit a wholesaler or retailer from reselling their goods below a minimum price, or (in some cases) over a maximum price.  This is called “resale price maintenance” and is prohibited by U.S. antitrust laws.

But the antitrust laws are fuzzier when it comes to manufacturers prohibiting retailers from engaging in wholesale transactions at all, without regard to price.

At one time (pre-1980), the Supreme Court took the position that “resale price maintenance” by manufacturers was “per se illegal” under the antitrust laws – they simply couldn’t do it.  Under more recent cases, however, the Court has softened its position and said that “resale price maintenance” cases are subject to a “rule of reason” – whether or not it is illegal depends upon the facts and circumstances of each individual case.

So my personal prediction is that the Kirtsaeng case, while extremely favorable for online retailers, does not resolve once and for all the legality of “retail arbitrage”.  It merely shifts the legal arena from the field of trademark and copyright law – where the manufacturers’ positions were weak anyway – to the field of antitrust and trade regulation law.  A Supreme Court sympathetic to big business – especially if it can be shown that “retail arbitrage” activities are costing jobs and putting U.S. manufacturers at a disadvantage to foreign competitors – might be more sympathetic to big companies that want to keep their merchandise off of eBay and Amazon.

Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.

EBay Spring Seller Release is Here! GREAT news for eBay Store Owners

I remember back in the ‘olden days’ as my mother would say we would sit up all night eager to catch the first news of eBay’s releases. Then there would be loud weeping, wailing, and gnashing of teeth across the eBay community. After the first few years when I listened to all the Chicken Littles, ‘The Sky is Falling, the eBay Sky is Falling!” I started realizing life (and eBay) went on and all was well. Then I joined Janelle Elm‘s OSI Rockstar group and learned that if I ran my business AS a business. Using Internet business ‘Best Practices’ I wouldn’t have this stress and worry at all. It was a real relief. The changes still came but I knew I would find the upside and how to make them work for my business and move on.

I was surprised and excited to get a call from eBay yesterday and some heads up about today’s release so I’ve had a few hours to think about what I was told and I am _SO_ excited! For years, Uncle Griff on eBay Radio has hinted that eBay is moving to zero insertion fees and just in the last few months he has been dropping hints about how some GREAT news was coming for eBay store owners. Well, it’s here!

How about FREE listings for store owners!  WooHoo! I can’t wait to spread this news!  I’ve been a big proponent of eBay stores for several years as I feel they are a remarkable marketing opportunity for an incredibly low price. Now they are even better.

Short updates!

Coming soon to eBay stores

  • Basic Stores will have 150 free listings – your choice of auction of fixed price!
  • Premium Stores will get 500 free!
  • Anchor stores 2500!

In addition, eBay is simplifying the math! Casual Sellers with no store will get 50 free listings and a flat 10% FVF. Store sellers will NEVER pay more than a 9% fee, and some categories (computers, tech & musical instruments) will be only 4%.

How will this work for YOU? Well, coming soon will be a tool that you can use to analyze your particular store and find out. My store, The Kat’s Boutique, was put through the analysis and I will save 36% on fees from this change! Did I tell you I’m happy? Well, I’m actually almost ecstatic to see these long-awaited changes come to my beloved eBay! 🙂

Other improvements coming soon are to Seller Protection and consist of making a HUGE improvement in reducing UPI (Unpaid Items). In the future, when someone makes a best offer that is accepted or purchases a fixed price item, that item WILL REMAIN FOR SALE until they pay. The buyers will be messaged about this and warned that they could lose the item if they don’t pay. I asked about this and was assured that if someone else comes along and buys the item, the first buyer, who never paid, will not be able to leave any feedback or DSRs as there was no transaction!

ebay-logo-640Another GREAT improvement is being made to feedback. Coming soon, if a transaction results in a case that is decided in the seller’s favor, ALL feedback AND DSRs will be removed!

More! Photo requirements will start to be enforced in July. So if you have photos with text or borders, get those cleaned up, you’ve been given a few more months.

More! More! Same Day Handling – you can CHOOSE to offer this and set your own cut off time.

All in All I am very excited about the 2013 eBay Spring Updates! How do YOU feel?

 

That Kat Radio Episode 15 FBA Tools

March Monthly Focus – Tools And Show Reports

 

1 – Guests This Week

 Justin Jacobs from FBAManager – http://www.FBAManager.com Justin drops in and shares the new updates to the software, and shares the new fee structure.

Mark Faggiano from Taxjar  – http://www.taxjar.com. Mark is a web entrepreneur and has a passion to seeing small businesses reach their full potential. Mark noticed that one area small businesses needed help with was in the area of taxes and over the years he started some very successful business in the tax nichie. Today he talks about his latest business Taxjar.

 

2 – Chat Room Chatter:

 

  • There was some chat before show began about the different trade shows and how at some of them you need to be members of the Trade Association
  • There was some chat about snow coming to some States.
  • There was some chat around the fact that Amazon had so many different types of accounts, and how FBA Manager was being updated all the time when they came across a new type of account
  • And towards the end of the call Charlene called in with some great news.to find out her news listen into the radio show

3 – Chat Room Links

 

Other Links & Resources:

  • That Kat Facebook Group: http://Facebook.com/groups/ThatKat – click on the “Join” button and I’ll add you to the group right away
  • That Kat Blog http://ThatKat.com Sign up for my newsletter here!
  • Do you have a question about selling on Amazon, FBA or any of the topics discussed in this podcast?  Best place to ask is on the Facebook group – see the link above. Over 400 folks willing to help!

Next week, There is no call next week as Kat is on the road.See more at: https://www.thatkat.com/#sthash.Eh139i87.dpuf

Dealing With “Internet Gambling” Issues in a Social Games Website

cliff ennico

“Some friends and I are setting up a website where people will be able to play a certain type of board game online.

We plan to sponsor tournaments on this website, and are encouraging players to place bets on individual games, players and tournaments using a virtual currency that will have no value in the real world.  People can use this virtual currency to pay for their subscriptions to the website, and eventually we will have an online ‘store’ where people can use their virtual currency to buy goods in the real world as well as virtual goods on the website.

Our attorney has told us he’s a little concerned that what we are doing may be viewed as ‘Internet gambling,’ which apparently is illegal.  We did some online research and it seems that the prohibition on Internet gambling applies only to ‘games of chance’ – like roulette or dice games – and not ‘games of skill’ like the board game we are bringing online.

How concerned should we be about this, and how should we set up our website so it’s clear that no ‘real’ gambling is going on there?”

First of all, make sure you have the legal right to bring this board game online.  If we’re talking about chess or checkers, you’re probably okay.  If the game is trademarked or copyrighted, however – think “Monopoly” or “Risk” – you will need permission from the board game’s owners to do anything with their game online.

In the United States, the federal Unlawful Internet Gambling Enforcement Act of 2006 (the “2006 Act”) prohibits businesses from “knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.”  Many states in the United States have similar laws restricting online gambling activities.

Generally, laws prohibiting Internet gambling make a marked distinction between “games of chance” and “games of skill”.  While online betting on “games of chance” are generally prohibited, betting on “games of skill” is often permitted.  Neither the 2006 Act nor any U.S. gaming law has defined these terms clearly, and there is currently much confusion about whether particular games – such as baseball, poker or chess – are considered “games of skill” or “games of chance” under these laws.

The 2006 Act defines a bet or wager to include risking something of value on the outcome of a contest, sports event, “or a game subject to chance.” The “game subject to chance” restriction is designed to include Internet poker and other card games. The 2006 Act then confuses the issue of skill by stating that betting includes purchasing an “opportunity” to win a lottery, which must be predominantly subject to chance. The 2006 Act expressly prohibits lotteries based on sports events.

Recent court cases interpreting the 2006 Act have focused on so-called “fantasy baseball” websites, which allow users to wager thousands of dollars on the performance of professional athletes.  While the 2006 Act specifically exempted these websites, because the winners were not determined by the outcome of a single game or the performance of a single player, there is growing concern that daily fantasy games have a fundamentally different relationship to chance than season-long fantasy games. On a given day an injury, a hailstorm or a ball bouncing strangely could affect a result, making daily fantasy games seem very similar to placing a bet with a bookmaker.

As for a board game, who knows?

You should check with a lawyer familiar with gambling law to find out if there are any specific cases dealing with your board game.  If there aren’t (and there probably aren’t), you should ask the attorney to draft a short disclaimer and post it both on your website’s home page and in your “Terms and Conditions of Service” or user’s agreement.

Here’s what the disclaimer should say:

  • that U.S. laws prohibiting Internet gambling do not provide clear guidance as to what is a “game of chance” versus a “game of skill”;
  • that you believe your board game is a “game of skill,” and your reasons for believing so;
  • that if at any time you are advised by legal counsel, or by a government agency, that any activity conducted on your website violates federal or state law, you will cease that activity immediately and refund the players’ virtual currency wagered on a game or tournament;
  • a statement in bold-faced type prohibiting cash wagering on the website (for example, in a “chat room”), punishable by a one-year banishment from the site; and
  • a statement that online betting, even using virtual currency, may be prohibited by the laws of countries other than the United States.

It’s not a perfect solution, but it may be the best you can do until Congress or the courts clarify the scope of the 2006 Act and what it was intended to prohibit.

Cliff Ennico, a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.

What You Need to Know About Ebay’s User Agreement Updates

What do eBay and Facebook have in common? Both have a bad little habit of changing their websites and User Agreements with little to no warning.

Okay, to be fair — they usually do make an announcement of some sort, but the problem is that a lot of people don’t really pay attention to all those announcements and even when they do, sometimes there is so much legal gibbly-gook that you really have to break it down into small sections to understand what the change is all about. How many people have time to do that?

Screen-Shot-2012-09-13-at-1.03.30-PM

As Facebook prepares to once again change its page with a new and improved News Feed, eBay’s change to their User Agreement went mostly unnoticed when it was changed and updated on February 4, 2013. These updates are in effect immediately for new users and for those who have been members for a while, the changes become official on March 26, 2013.

While there are no really big changes, there is one that has slipped in that you may not know about. It’s an update relating to eBay’s contacts with members. In an announcement eBay states:

Updates relating to eBayÆs contacts with members. We updated provisions of the User Agreement to provide further clarity regarding the purposes for and circumstances under which eBay or its service providers may contact members using autodialed or prerecorded voice message calls and/or text messages and the circumstances under which eBay may share membersÆ contact information with members of the eBay corporate family or other parties.

kat5 (1)

While this innocuous statement may not seem like that big of a deal, for those of you who don’t like being disturbed by phone calls and value your privacy this is one you might ought to pay attention too. See, when eBay updated their agreement, they also updated your settings. Yep, your ôCommunication Preferencesö were changed to include that you wish to receive eBay’s prerecorded phones calls and texts. Fortunately, if you are not happy with this you can change it by going to your dashboard and un-clicking one single little box. Here’s how:

Go to “Account” on the left side of your dashboard and access the drop-down menu.

Select “Communication Preferences.”

Scroll to the bottom and access “Promotions and Surveys.”

Look for “Phone updates and promotions.”

Remove the check mark from the little box to the right.

Click on the “Save” button to update your settings.

While you’re there, you may also want to double-check the rest of your settings. As I mentioned recently, “Seller Email Promotions” is also under Promotions and Surveys and you do want that to be checked or you may not receive an email about any of the private listings invites that eBay has been sending out.

First Year Filing Taxes as an Online Seller? Let us Calm Your Nerves!

First Year Filing Taxes as an Online Seller? Let us Calm Your Nerves!

This guest post is brought to you by Outright.com, the alternative to Mint for business. Sign up today, import your business financial accounts, and enjoy a less taxing tax time!

Well, it’s about that time again. Time to whip out the tax forms, your calculator and a strong cup of coffee. Taxes are due in about a month and a half so you might as well go ahead and get started on them.

Oh, but wait! Everything is different this year because you started your online selling profession last year. That means your entire process for doing taxes is totally different. Here you were all geared up to do things the normal way but now you see a long road ahead.

If you’re like the vast majority of new online sellers, you’re in a bit of a panic mode right now. Your taxes seem almost insurmountable and you have no idea where to start. To help get you in the right mindset, here are a few things you definitely should keep in mind.

Keep Calm, it Can Be Fixed

Worrying absolutely will not help you! Of course, that’s easier said than done. But freaking out may just cause you to make a mistake you’ll have to go back and fix. That’s right, fix – the IRS isn’t going to bury you in the desert if you goof up a little bit. If you totally botch your 1040 you can send in a 1040X to fix it. That being said, try to get it right the first time!

Keep Everything & Stay Organized

The more organized you are the easier your life will be. It’s true in day to day business activities and it’s certainly true with your taxes. Whether you’re figuring out your deductions, sales tax, or quarterly estimated taxes, you want everything in one place and easily accessed.

Also, make sure you keep everything that has anything remotely to do with your business. That goes for receipts, IRS correspondence, and invoices. Either put everything in its respective folder or digitize it for easy storage. You will likely need it later at some point, no matter what it is.

Get in a Routine

Another tip that will make your life significantly simpler over time is to develop a tax routine. As a small business owner, you will be dealing with some form of taxes all the time, be it federal taxes, sales taxes, or quarterly estimated taxes. If you don’t establish some form of routine, you’re going to get bogged down.

That’s why it’s important to get organized as detailed above. This can help you file everything on time so you’re not always constantly looking over your shoulder for another late fee to come rolling in.

Things Will Change but You Can Handle It

Recently a new tax form came out: the 1099-K. It caused uproar in the online seller community as they really didn’t want to have to deal with any new paperwork. Plus, it was going to mess with their established routines (see above) and cause them tons of headaches.

Thankfully, the 1099-K turned out to be a fairly harmless tax form. And like most scenarios it ended with the online sellers just dealing with the changes. You’ll get to this point as well – the IRS will send out some new wacky form and you just have to roll with it. The best you can hope for is it makes filing a little easier.

If you need more advice, advice, and encouragement about your taxes, head over to the Outright Community and ask away! IF this is your first time at the rodeo, we recommend you read our “Online Sellers Guide to Taxes.” It’s a quick read, but it orients you to your new reality of filing taxes as a small business owner. If you have a vital question specific to your business, make sure to talk to your local tax professional.

That Kat Radio Episode 14 FBA Tools And Amazon CE Show

March Monthly Focus – Tools And Show Reports

 

1 – Guests This Week

 Rob from Dollar Moves – http://www.dollarmoves.com  Rob Anderson gives us insight in how he got started selling online and where he is now with his business. Also Rob shares about his new business and how it will help people with their FBA business.

Paul from Seller Engine  – http://www.sellerengine.com. Paul from Seller Engine shares with us why he was at the Amazon Electronics Show, what he learned and was it worth the investment of time and money. Listen in for much more.

 

2 – Chat Room Chatter:

  • To start the call off there was some banter going around on the time change.
  • Ramon76 highlighted some issue of spam with aweber subscriptions
  • Everyone in chat said well done to Rob for his new website over at dollormoves.com
  • Charlene highlighted the need to do product sourcing on a daily basis
  • It was also mentioned the need to have multi-platform businesses

 

3 – Chat Room Links

 

4 – News of the Week Discussed:

  • eBay – Last call for Neiman Marcus’s eBay store – http://news.yahoo.com/last-call-neiman-marcuss-ebay-store-231827470–sector.html Luxury department store operator Neiman Marcus is shutting its eBayInc store, a setback for the e-commerce company, which has been trying to lure large retailers to its online marketplace. Neiman launched a store on eBay.com in 2011 for its Last Call outlet brand. It was one of a slew of large retailers that eBay has attracted to its online marketplace in recent years, an important part of the e-commerce company’s effort to compete more with Amazon.com Inc.
  • Amazon – News: Apple, Amazon File Patents for Handling Used Digital Goods http://www.ign.com/videos/2013/03/08/news-apple-amazon-file-patents-for-handling-used-digital-goods
  • Meetings and Events  – Last chance to register for TES Confernce – ends March 14th Join us for classes – the basics and advanced. eBay experts (sellers, staffers and sponsors) will be available all day teaching and conferring to help you build your eBay business.  http://TESConference.com

Other Links & Resources:

  • That Kat Facebook Group: http://Facebook.com/groups/ThatKat – click on the “Join” button and I’ll add you to the group right away
  • That Kat Blog http://ThatKat.com Sign up for my newsletter here!
  • Do you have a question about selling on Amazon, FBA or any of the topics discussed in this podcast?  Best place to ask is on the Facebook group – see the link above. Over 400 folks willing to help!

Next week, March 18th, I will have the guys from Taxjar.com and Shawna Seigal talks about getting seen of Google.– See more at: https://www.thatkat.com/#sthash.Eh139i87.dpuf

When You’re Sued in a Faraway Place by Cliff Ennico

Cliff Ennico

“I have a brick and mortar retail business in Pennsylvania.  A couple of years ago I started selling my merchandise online, and have had a really great experience with that, until now.

Most of my online sales come through a third-party retailer.  I send my stuff to their warehouse in California, and they fulfill all orders from my company website.  It’s a great deal – they take care of shipping, sales tax and other costs on each transaction and remit the balance to me each month.

Last month, however, I received a summons to appear in court in California.  Apparently someone ordered a movie DVD on my website which turned out to be a counterfeit copy.  They reported it to the movie producer, who is now suing me.

Now, before I ship any merchandise I always check carefully to make sure everything’s genuine.  When I told the warehouse company about the lawsuit, they told me that ‘occasionally’ they combine inventories from multiple sellers who are selling similar merchandise.  What must have happened here is that they sent someone else’s (counterfeit) DVD to the customer who ordered from my website.  I told them never to do that anymore, and they said they wouldn’t.

But I still have to deal with this lawsuit.  There’s a hearing scheduled in California in a couple of weeks.  Should I plan to attend?”

Four words for you:  GET A LAWYER, NOW!!!

Whenever you are served with lawsuit papers, even if it’s in a faraway place, you should never just close your eyes and hope it will go away.  It won’t.  You need to hire a California lawyer who specializes in counterfeiting cases – search online for “California lawyer counterfeiting” followed by the city and state in which the hearing will be held and you probably will come up with a few law firm websites you can contact.

First, you need to find out if this is a criminal case (where you will be hit with a fine) or a civil case (where you will be sued for damages).  There’s a big difference, which your lawyer will explain.  A criminal conviction against your business will have big negative consequences for you, and you don’t want to risk that happening “by default” if you don’t show up.  You are better off defending the suit as best you can.

Hopefully the warehouse company will be able to trace the counterfeit DVD back to the company that originally shipped it to them (via barcode or sticker data).  If they can, that should be enough to get you off the hook.

If they can’t, you will be fighting an uphill battle to prove to the California court that you weren’t at fault here.  California has some of the toughest anti-counterfeiting statutes in the country (because just about all of the major media companies are headquartered there), and they really play hardball with violators, even innocent ones like yourself.

If this is a civil case (you are being sued for damages), you have a choice:  you can hire a California lawyer to appear in the case, or you can decide not to attend the hearing, let the movie producer get a default judgment against you (which they probably will), and then wait for them to try to enforce their judgment against you in Pennsylvania.

Under the “full faith and credit clause” of the federal Constitution, state courts are obligated to honor judgments that have been rendered in other states.  But there’s a big loophole for “default judgments” where the defendant doesn’t show up.  Many state court judges do not like to enforce “default judgments” from other states, because an in-state resident (a taxpayer and voter) was denied his day in court.  Instead, they will order a new trial.  This will give you a chance to defend the case in Pennsylvania, on your home turf.  Every sports fan knows about the “home court advantage,” and it applies here as well.

You should talk to a local lawyer in Pennsylvania about the likelihood of a local judge throwing out a California default judgment.  If he feels it’s worth the risk, you can then sit back and wait to see what happens.

If you do make an appearance in the California case, however, and the judge out there rules against you, that will not be considered a “default judgment” – you have had your day in court, and a Pennsylvania judge will be duty-bound under the federal Constitution to honor that judgment.

In any case, it sounds like you have one heck of a case against the warehouse company that messed up here, especially if you can prove that all merchandise shipped to them was 100% genuine when it left your company.  Whether you talk to a California or a Pennsylvania lawyer, you should ask him or her about “impleading” the warehouse company (bringing them in as a co-defendant) in the lawsuit.   And maybe also the seller of the counterfeit DVD.

Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.

#springcleaning Twitter Party RIGHT NOW!

springcleaning

 

Join me for my first ever Twitter Party at 8 PM ET tonight

Hashtag is #springcleaning

The easiest way I know to attend a Twitter party is to use your twitter account to log in at TweetChat  and then enter the hashtag springcleaning

Let’s have some fun – grab a coffee (or a Dr. Pepper!) and join us!