Group Highlights 10 Worst Internet Bills

From coast-to-coast, state legislatures are proposing bills that possibly violate federal law or create new ways to single out the Internet for discriminatory treatment or taxation.

From California to Connecticut states are conjuring up laws that would impact the Internet in more bad ways than good, according to the advocacy group NetChoice. To highlight what it considers bad laws in the making, NetChoice created Internet Advocates Watchlist For Ugly Laws, or iAWFUL, and June 9 issued its first top 10 list.

State legislation and regulation account for the majority of iAWFUL's least-wanted list. NetChoice Executive Director Steve DelBianco said the focus is a stark indication of the growing push in states to regulate and tax nearly every aspect of online behavior. DelBianco added that's nothing new, but the number of state initiatives aimed at the Internet has grown in frequency and severity in recent years.

"It's starting to smell systemic," DelBianco said. "In many state legislatures, a bad idea can become the law in just a few weeks, without any opportunity for the Internet community to comment and raise concerns, Too many laws are proposed without considering unintended harms they may cause to thousands of Internet companies and millions of Internet users."

DelBianco added he hopes the iAWFUL list "will draw attention to [the] worst of what's still moving through state capitals."

Connecticut and North Carolina led the list with two entries each, while five more are also state initiatives. Only one federal bill-an effort to regulate online marketplace fraud-made the list.

"Some of the most serious threats to the Internet arise when lawmakers try to 'fix' it,'" DelBianco said. "Knee-jerk, overly prescriptive laws can destroy whole business models or stifle innovations in e-commerce and communication before they even have a chance to prove themselves.

The iAWFUL Top 10:

1. New Jersey Social Networking Bill (A 3757). As NetChoice puts it, what's AWFUL? It turns social networking sites into social networking police. The bill imposes civil and Consumer Fraud Act penalties on social networking Websites for failure to promptly investigate and report to law enforcement a user's complaint of sexually offensive and harassing communications.

Sounds good, you say? Not so fast.

The bill would apply to any Website located on the Internet where users located in New Jersey can create a searchable personal profile, page or similar account that is accessible to other users. This creates new legal liabilities for any Website on the Internet, including many medical, travel and community sites that have user profile functionality.

NetChoice also notes the bill would be "contrary to the spirit of existing federal law that does not hold Websites liable as publishers."

2. California Social Networking Bill (AB 632). What's AWFUL? Not too much, apparently. Efforts by NetChoice and other activist groups forced California lawmakers to drop bill language that would have placed affirmative requirements on social networking Websites to: (1) prevent a user from copying or reproducing an image that appears on the social networking Website without the permission of the user who posted the image; and (2) establish a mechanism for a person to flag an image for removal from the social networking Website.

The new version would require social networking Websites to disclose to users that uploaded photos can be copied without consent by persons who view the image.

3. Connecticut Tax Bill (SB 806). What's AWFUL? NetChoice says the proposed bill confuses Web 2.0 advertising for a traditional sales force. This bill would create nexus for sales tax purposes over any person who enters an agreement with a resident that pays any consideration or commission for referring potential customers to the retailer. NetChoice warns that Connecticut businesses that depend on Internet ad revenue better watch out-the money will dry out if this passes.

4. North Carolina Tickets Bill (SB 99). What's AWFUL? The proposed bill taxes the Internet (and only the Internet) resale of tickets. The Internet Tax Freedom Act Amendment Acts of 2007 provides a moratorium through Nov. 1, 2014, on any "multiple or discriminatory taxes on electronic commerce." This law bars federal, state and local governments from imposing discriminatory Internet‐only taxes such as bit taxes, bandwidth taxes and e-mail taxes. The North Carolina lawmakers apparently think the federal law doesn't apply to the resale of tickets to sporting events, concerts and the like.

5. Connecticut Internet Resellers Amendment (SB 1002). What's AWFUL? It discriminates against the Internet (only) and allows unwarranted search of people's homes. An amendment to SB 1002 requires Internet sellers to maintain an elaborate record‐keeping system (in English, by the way) whenever they purchase and resell goods obtained from someone who is "not regularly engaged in the business of dealing in such goods." The bill requires the physical location of these records-often someone's own house-to be open to the public for inspection.

6. Federal Bills on Organized Retail Crime. What's AWFUL? They create extraordinary burdens on online marketplaces. The Combating Organized Retail Crime Act of 2009 (S 470), the Organized Retail Crime Act of 2009 (HR 1173) and the E‐Fencing Enforcement Act of 2009 (HR 1166) would collectively mandate online and off‐line marketplaces to investigate suspicious sales, place disclosure requirements on online marketplaces, impose obligations upon online marketplaces known to be used by high volume sellers of stolen merchandise and force online marketplaces to collect information that law enforcement can use to prosecute those that fence goods on their Websites.

7. Nevada Encryption Bill (SB 227). What's AWFUL? Mandates a one‐size-fits-all tech
standard. Moreover, this bad boy is the only bill on the list that has actually become law. This bill thinks that encryption is the answer ... for everything! It would impose a hard encryption mandate that would require businesses to implement encryption technology that has been adopted by an established standards-setting body. The bill prohibits any business from (1) transmitting personal information outside of the secure system of the business; or (2) moving any data storage device beyond the logical or physical boundaries of the business, unless secured by encryption.

8. Texas Security Breach Bill (HB 345 & SB 327). What's AWFUL? Nothing, for the time being, as the Texas legislature passed on the bill. That doesn't mean, though, that Texas won't take it up again. The bill transforms business and technology standards into legislative mandates, harming innovation and the next generation of security technology. This bill seeks to impose PCI (Payment Card Industry)-like data security standards, and, in the event of a security breach, liability on businesses that failed to meet such data security standards. It enables the Attorney General to seek reimbursement for costs incurred by a financial institution in the aftermath of a security breach.

9. New York Online Employment Services Taxation Issue. What's AWFUL? Discriminates against Internet services. The New York tax department asserts that online job‐seeking and resume services may be subject to sales taxation. New York currently taxes "information services" and believes that the providing of employment information falls within this definition. However, online companies fulfill the traditional role of a "headhunter" (which is a non‐taxable service) only using non‐traditional means. The fact that information is provided or utilized digitally does not change the fact that their service is designed to establish an employment relationship between an employer and a job seeker.

10. North Carolina Digital Downloads Tax Bill (HB 558/S 487). What's AWFUL? Discourages the greenest way to purchase music and other content. This bill would discourage the most environmentally friendly way for consumers to purchase movies, music and software by applying a sales tax to the digital download of these goods. The bills would also place local businesses in those states selling these goods at a disadvantage to out‐of‐state competitors.