Goodman, Jordan M.

Reach, Catherine Sanders

Sandeen, Sharon K.

Sarnoff, Joshua

English

Via Sapientiae: The Institutional Repository at DePaul University

DePaul Business and Commercial Law Journal Volume 12 Issue 4 Summer 2014: Symposium - The Cloud: Emerging Issues in Business and Intellectual Property Law Article 6 Panel Discussion: The Cloud and Emerging Issues in Business and Intellectual Property Law Jordan M. Goodman Sharon K. Sandeen Catherine Sanders Reach Joshua Sarnoff Follow this and additional works at: https://via.library.depaul.edu/bclj Recommended Citation Jordan M. Goodman, Sharon K. Sandeen, Catherine S. Reach & Joshua Sarnoff, Panel Discussion: The Cloud and Emerging Issues in Business and Intellectual Property Law, 12 DePaul Bus. & Com. L.J. 471 (2014) Available at: https://via.library.depaul.edu/bclj/vol12/iss4/6 This Article is brought to you for free and open access by the College of Law at Via Sapientiae. It has been accepted for inclusion in DePaul Business and Commercial Law Journal by an authorized editor of Via Sapientiae. For more information, please contact digitalservices@depaul.edu. Panel Discussion: The Cloud and Emerging Issues in Businessand Intellectual Property LawJordan M. GoodmanSharon K. SandeenCatherine Sanders ReachJoshua Sarnoff (Moderator)Janet A. StivenMarilyn A. WethekamDESALINA WILLIAMS: We are now going to do a panel discus-sion with all of our presenters from today. You already know thepanel. But to introduce Professor Sarnoff quickly, he is a professorhere at DePaul. He got his bachelor's degree at MIT and his JD atStanford. He is the ethical advisor to the Journal of Intellectual Prop-erty Law. Without further ado, we will hand it over to ProfessorSarnoff.JOSHUA SARNOFF: Obviously I am on cloud nine after thispresentation. I want to open it up to questions, but I thought I wouldstart with one basic thing that seems to be underlying a lot of this; andthat is the fact that there is such unequal bargaining power involved inall of these situations that it really raises a number of questions abouthow people can meaningfully contract even if they are willing to spendthe money to hire people like you guys to write these things, whichthen presumably the service can say we are not going to say yes to.Let me start with Sharon. Say you have user generated content(UGC) liability. How does the service provider tell the UGC personget off my Cloud? And, conversely, how does that person try to pro-tect their own rights and material, which if they are kicked off they donot know what to do?SHARON SANDEEN: When you talk about rights, which rightsare you talking about?JOSHUA SARNOFF: Principally, copyrights.SHARSON SANDEEN: Principally, copyrights. I do not know.As I commented on earlier, it is not only a difficult problem; it is anever-evolving problem because I think the Cloud providers figuredout that they were all excited to do this new thing. Then they quicklyfigured out that once they started doing it there would be some471472 DEPAUL BUSINESS & COMMERCIAL LAW JOURNAL [Vol. 12:471pushback. So what you see are things changing as we are going. I amhopeful that-particularly with Janet's comments-that there will bemore of an ability to negotiate.JOSHUA SARNOFF: Okay.JANET STIVEN: To comment on that, remember we talked aboutthe fact we had the consumer Cloud. That is probably where you seea lot of the issues. And then I'll say the business Cloud, which is reallystill emerging. In the consumer setting, you have the bargaining situa-tion, and I guess you are getting products or whatever. The businessside is probably more of a level playing field, and people are choosingnot to go to the Cloud until they are ready. That is where there is thislower adoption except for non-essential services. I think you want tokeep that distinction in mind even as you review the contracts.JOSHUA SARNOFF: Another question that comes up is you cantry to adopt through these contracts obligations to keep these confi-dential. Could the service providers agree to obligations of confiden-tiality but disclaim any liability to the breach?JANET STIVEN: That is the issue I pointed out. If you do not tryto reconcile the provisions, I can get it in one place and take it away inthe other.JOSHUA SARNOFF: What would happen in that case? Would itactually be re-characterized as not a meaningful obligation ofconfidentiality?JANET STIVEN: Sharon, I'll let you speak. I do find the issue ofmaking the distinction between the confidentiality and privacy. Whilethey seem related, I think under trade secret law they are different. Iwill let you speak to that point.SHARON SANDEEN: There is an idea submission case involvingMilton Bradley where basically an idea was submitted, and MiltonBradley knew well enough that they should control that situation. Sothey tried to get an agreement and disclaim liability, but they did notuse the magic words of disclaiming confidentiality. The court saidthere could still be an implied-at-law duty of confidentiality in thatsituation. So that is the case I am referring to, suggesting you have touse the correct magic words ...JANET STIVEN: To disclaim liability, right?SHARON SANDEEN: To disclaim liability, to impose a duty. Butthe other point I think you alluded to Janet-and I wrote an earlierarticle on terms of service agreements'-is that it seems to me the1. Sharon K. Sandeen, The Sense and Nonsense of Internet Terms of Use Agreements, 26 HAM-LINE L. REv. 499 (2003).2014] PANEL DISCUSSION: THE CLOUD AND EMERGING ISSUESprovisions in terms of service agreements are inconsistent with oneanother in a lot of places, almost as if there were multiple peopledrafting them and they were not talking to each other. That problempersists today as you pointed out. It is almost comical. In one placethey will say we have a duty of security, and in the next they will sayno, we do not.JOSHUA SARNOFF: Another question for you, Catherine: isthere possible technological solutions to some of these problems evenif the law or a contract doe snot get you there?CATHERINE SANDERS REACH: Encryption. You encrypt it.You hold the keys. The provider does not have access to the data andcannot get at it, and no one can subpoena it. No one can get access toit unless they have the keys, and that would come to you.JANET STIVEN: The issue related to encryption and holding thekeys is management. You have to have people trained in how to dealwith keys otherwise you are back in the same fate of people havingaccess to information that you do not intend to have access.JOSHUA SARNOFF: One last question for the tax people. Whathappens when four states say we all have tax liabilities?MARILYN WETHEKAM: Negotiation now comes in to play.JORDAN GOODMAN: It is a very real-life situation. That is anactual situation, and it is not only the same transaction. What the Su-preme Court has told us is that each state can have their own methodof looking at a transaction. One state might say it is where the seller islocated. One state says it is where the buyer is located. And they areboth right under state law.So the question is, is there some kind of unfairness that you canargue. In some situations you owe a tax in both places. The oppositeis true also. You can have a transaction that is the opposite, and theyboth disclaim having the tax. The sale is not occurring in either state.JOSHUA SARNOFF: Any way to protect against that?SHARON SANDEEN: I have an idea. It IS very interesting whendifferent people in different fields get together. Because, as you weretalking, I thought we need a collective rights organization model fortaxes where you just dump all the money-this is what we use forcopyrights in the music industry where you dump all the money into apot and then you divvy it out to the stakeholders.JORDAN GOODMAN: That is great. That has been talked about,putting in a federal sales tax pool and getting rid of all the state taxand divvying it up. They thought about that. Just look at our State ofIllinois here. The state level is one thing. Then you got the local. You473474 DEPAUL BUSINESS & COMMERCIAL LAW JOURNAL [Vol. 12:471got Cook County, the City of Chicago, the RTA. They all want theirpiece. How do you do that? It goes back to the 1700s when they saidwe gave enough power to the feds. This is our divine right as a stateas a sovereign government to impose taxes and collect it. It is a greatidea, but then there is obviously the mechanics of getting it doneMARILYN WETHEKAM: There is an organization that if youend up with five or six depending on how many states are trying to taxthe same thing that will work with you to mediate or resolve it. It maynot be the best answer, but that is basically what happens. It happensmore-you see it sometimes more on the income tax side than thesales tax side.JANET STIVEN: From the Cloud provider contact, mostly it iscoming out that they haven't collected the tax.MARILYN WETHEKAM: Yes.JANET STIVEN: It comes up in an audit.MARILYN WETHEKAM: In an audit. We are talking about com-panies with a national name. So they are easily recognized when theDepartment of Revenue of any state walks in the door. So sometimeswhat you will see is that they have been in and audited the customerand found an invoice, and then make their way in to the provider.JORDAN GOODMAN: In the acquisition world we see it comeup when people buy the latest and greatest website. The buyer doesthe due diligence, where have you collected, what have you done,have you collected anywhere, and do you have an agreement withAmazon. They want to check in to it, and that's a lot of times where itcomes up, too, is on the merger and acquisition side.MARILYN WETHEKAM: If you going in to a merger and acqui-sition, you need to protect yourself on whatever your sales contract is.I know you have reps and warranties and corporate guys say we havereps and warranties. You need a taxes reserve.JOSHUA SARNOFF: Yes? From the audience, please.AUDIENCE MEMBER: You had mentioned solving the incometax problems through contracts. I was just kind of wondering-I un-derstand the sales tax and how they are kind of-and how you candeal with that. For income tax how do you put a business in charge ofwhether they owe taxes? I feel from a public policy standpoint thatgives them too much power.MARILYN WETHEKAM: The way the states have been trying tofigure out how to source the receipts from, say, a Cloud is they wouldlook at where the benefit was received. So that is point one, wherethe benefit is received; and there are a couple of other triggers de-2014] PANEL DISCUSSION: THE CLOUD AND EMERGING ISSUESpending upon the state. If you write that trigger in to the contract,like we are going to source everything to where the accounts payableunit is, or however you want to trigger it, that is one way to workaround it and maybe limit or mitigate any liability you have from anincome tax.JODRAN GOODMAN: The states are making stuff up as towhere these transactions occur because they do not know. I am anadvocate of why can't the taxpayers do the same thing. You see air-crafts or large vessels with a lot of tax liability. They structure themsaying delivery is going to occur twenty-seven miles offshore in noman's land to avoid taxes-or to legally avoid taxes. So I think evenon the income tax concept you can say where a product is being deliv-ered or utilized and go with it.JANET STIVEN: All because the lawyer would write that twenty-seven mile offshore delivery, in practical effect is it upheld by thecourts?MARILYN WETHEKAM: Pretty much if you can show it on au-dit. I won't say the Department of Revenue is going to love that be-cause they know what you are doing.JORDAN GOODMAN: Great question, because if I am deliveringa truck or a plane I can prove that the plane was there at this time andwe exchanged via contracted ownership of it. It is a little bit moredifficult when we were in the Cloud because of the proof. The proofmight be that I have one server in one location. That might be theproof that it stays there. But to the extent it is a pretty integratedinterest Cloud functionary, it is going to be in one of many places.MARILYN WETHEKAM: I think if you have two contracting par-ties who mutually agree, the state may not be happy; but I think youwill get there.JORDAN GOODMAN: Yes?AUDIENCE MEMBER: I wonder if the panel is familiar with theAereo case going up to the Supreme Court where they are saying thatwould have some far-reaching effects for the Cloud computing indus-try. I personally do not think so. I wonder if anybody on the panelhas news on that.JOSHUA SARNOFF: As far as the definition of public perform-ance, I have not thought it through.JORDAN GOODMAN: There is a case that was just decided bythe U.S. Supreme Court called Daimler Chrysler, which is not a taxcase. It is a personal jurisdiction case for the liability. Daimler gotsued by some Argentinians for war crimes, and they brought the suit475476 DEPAUL BUSINESS & COMMERCIAL LAw JOURNAL [Vol. 12:471in California where Daimler Chrysler has subsidiaries performingsales. The question was do the California courts have personal juris-diction over that litigation because its subsidiaries are operating there,and the U.S. Supreme Court said no because they said they are notphysically located there, they did not purposefully avail themselves tothe marketplace.Yes, we turn that into a tax case by saying, Clouds, if you are broad-casting on to the web, are you purposefully availing yourself to anyspecific market or are you just putting yourself in the stream of com-merce? It does not mean that you are being brought in to any particu-lar state just because you have a customer there.JANET STIVEN: In early days of the Internet, whether it is a staticor dynamic site, would you apply the same analytics to that?JODRAN GOODMAN: Absolutely.JOSHUA SARNOFF: The premise there, if I recall the facts cor-rectly, is that you had people controlling and uploading their own con-tent and downloading it from a portion of a server, and you could seethat the way that the court comes out, not only would have copyrightimplications, but it could affect all sorts of questions about how muchcontrol would then be imposed by the servers themselves in order toavoid copyright liabilities, which could then affect some of these otherissues.Further questions? They are speechless. Well obviously we havehad lots of light shed through this Cloud. So let us thank ourpanelists.DESALINA WILLIAMS: I would like to give another round ofapplause to our panelists, and thank you for coming.

Panel Discussion: The Cloud and Emerging Issues in Business and Intellectual Property Law

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