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2003: The Year in Web Host Law
By Jeff Sanford
From Web Hosting Monthly, December 2003 edition
December 22, 2003 -- (WEB HOST INDUSTRY REVIEW) -- With each passing year, the days of the Web as Wild West fade further as lawmakers forge new rules and regulations that formalize the role and function of the business of Web hosting and Internet commerce in general, a trend that continued unabated in 2003.
From ongoing patent challenges to the fallout from new health care legislation to taxes on e-commerce, the year in Web hosting law saw a spate of new developments that Web hosts everywhere will have to consider.
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One of the biggest legal issues according to Paul Madison, a lawyer with Kelley Drye & Warren LLP (kelleydrye.com), was new legislation defining the way medical data is to be handled in the US.
The introduction of new clauses into the Health Insurance Portability and Accountability Act in April of this year kept Madison busy. "In 2003 we had big fights over this," he says of the act, better known by its acronym HIPAA.
Although the act first passed years ago, the US Department of Health and Human Services added new regulations around access to health records. The purpose was to provide new privacy standards to protect patient's medical records and other health information held by hospitals, health care providers and insurance companies.
The problem for hosts is that much of that data is now digital and many of the companies that collect the data are trying to push responsibility for maintaining the standards of the act onto the people that host the data.
"I've been handling cases where insurance companies are trying to push down onto Web hosts responsibility for ensuring confidentially under the act," says Madison. "It's a big issue for hosts. If you host for those entities you may find they're going to try to push responsibility onto your business."
That's not surprising. The liabilities that could follow from medical data mishaps are huge, and they have companies worried about who would pay for any incidents. For that reason, says Madison, Web hosts need to make sure they're not taking on any undue responsibility for data owned, used and manipulated by their clients.
"They'll want to say you're responsible. But you don't want that," says Madison. "You're taking on more liability than your company is worth."
The trend, hopefully, may be short-lived. Madison is confident that when the new legislation has had a chance to be defined in courts, Web hosts will be cut out of the responsibility loop.
"We think there's a clause in HIPAA that says Web hosts aren't covered under the legislation," says Madison. "But it hasn't been defined in court yet and until it is, it's something to watch out for. Until we defend it we won't know for sure."
On the legal agenda this year, as usual, were many and various patent challenges by companies claiming to have far-reaching general patents that, if supported by the courts, could cut them deep into the revenue streams of Internet commerce.
One such case is a legal challenge launched by Acacia Media Technologies (acaciaresearch.com) that the company hopes will give it a right to royalties from all forms of streaming media, a particular concern for companies hosting adult material, which have found themselves the target of numerous letters from Acacia seeking payment of royalties.
The company claims it has a patent on streaming media and has been demanding one percent of gross revenues from virtually any company that makes use of streaming technology. But Spike Goldberg, president of HomeGrown Video, has been leading a legal challenge against Acacia and, although Acacia continues to press its case, he thinks his challenge will be successful.
"I think they're getting a little desperate," says Goldberg. "I don't think they're getting as many people as they thought signing licensing agreements and now they're beginning to drop the cost of the license and negotiating fees. I think they're getting desperate," says Goldberg, who expects the trial to get underway in the spring of 2004.
In a similar vein small US company E-Data (e-data.com) launched a lawsuit in September of this year against HMV Group and OD2, which together operate a music download site. E-Data claims it owns a patent that gives it a right to Internet downloads that are reproduced on physical media such as CD. The suit marks the return of the E-Data case, first launched in the mid-nineties. The company's claims were waylaid in 1999 when the US District Court for the Southern District of New York ruled against E-Data, saying that the patents were to narrow to apply to downloads in general. But in 2000 a successful appeal revived the case and the latest lawsuit sees the company attempting to press it. One lawyer commenting on the lawsuit called it the patent case that "refuses to die" and could presumably make the company incredibly wealthy while cutting into the revenue streams of anyone doing that kind of business on the Web.
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One legal development this year is the continuing press by corporations and governments to begin collecting taxes on e-commerce. Many will remember fondly the idealism (some would now say the naiveté) of the nineties, when it was taken as a matter of faith that the Internet would be granted special immunity from taxes, a notion that became a kind of mantra among new media types. That era, sadly to say, may be coming to an end.
Although the US Congress passed a bill extending permanently the moratorium on taxes on Internet connections, there seems to be growing support for another bill currently before Congress that would see states begin collecting sales taxes on sales over the Internet, which is something states have been able to do legally but haven't done practically to any large degree because of the difficulty in collecting taxes on e-commerce. The bill would facilitate the ability of individual states to collect taxes due, which would presumably make it more expensive to do business on the Web.
"If the effect is more tax for a Web host and you can't pass through the taxes to your clients you may have to get ready to take a hit," says Madison.
Australia has also warned that it will be cracking down hard this year on Christmas gifts ordered offshore and then shipped to the continent without paying tax. According to Madison, these various initiatives add up to a new movement to bring the world of e-commerce into the tax world. "The idea that there would be no taxes on the Internet seems to be eroding," says Madison.
Does this mean the Web hosting business is finally maturing? "Well maybe not quite maturing. But it is entering adolescence," he says.
