1. Controlling Internet Tobacco Sales: Legal and Practical Challenges D. Douglas Blanke Executive Director Tobacco Control Legal Consortium December 12, 2003

2. 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

3. Controlling Internet Tobacco Sales: Conceptual Challenges Who 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?

4. 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?

5. Legal Challenges: Personal Jurisdiction

6. 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

7. 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 law As a matter of constitutional law

8. 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.

9. 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....”

10. 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?

11. 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 sales Other contacts

12. 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).

13. 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.

14. 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).

15. 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.

16. 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.

17. 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 http://tobacco.neu.edu/internet/CCA2ruling.pdf

18. 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.

19. 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).

20. 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.

21. Practical Challenges: Proof: Which sites are making sales? How are deliveries detectable? Who has criminal intent?

22. 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.

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

24. Possible Leverage Points Payment systems Delivery services

25. Conclusion Many legal and practical difficulties Many legal and practical difficulties All the “solutions” are imperfect All the “solutions” are imperfect State solutions are better than local; a national solution is better still State solutions are better than local; a national solution is better still International cooperation will be needed International cooperation will be needed The goal should be a complete prohibition on Internet sales The goal should be a complete prohibition on Internet sales

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

27. Doug Blanke Executive Director William Mitchell College of Law 875 Summit Avenue Saint Paul, MN 55105 (651)-290-7506 tobaccolaw@wmitchell.edu www.TCLConline.org (under construction) tobaccolaw@wmitchell.edu