Friday, November 21, 2008

eBay "PowerSeller" data is "both here and there"

In a decision that is bound to resound in realms of income tax, copyright, privacy, defamation, e-commerce generally, GST/PST/HST collection and just about anything else in the law that involves the internet, the Federal Court of Appeal in a decision dated November 7, 2008 has upheld a decision of Justice Hughes of the Federal Court that requires eBay Canada to disclose the identity to the Canadian income tax collectors of Canadian eBay “PowerSellers”, where that info is stored on US computers but can be readily downloaded by the a Canadian entity under the Court’s jurisdiction - i.e. eBay Canada.

EBay Canada is part of a worldwide network of subsidiaries of eBay Inc., a US company. In fact, eBay Canada is a subsidiary of eBay AG, a Swiss subsidiary of the American eBay. There are no eBay servers in Canada.

In the words of the FCA:
4] In my view, Justice Hughes made no reversible error in concluding on the facts before him that the information sought was not “foreign-based information”; even though stored on servers outside Canada, it was also located in Canada because of its ready accessibility to and use by the appellants. Consequently, it was open to the Minister to seek its production by a requirement imposed on the appellants under section 231.2, without regard to any possible limitations on those powers flowing from the presence of section 231.6. Since the Judge properly authorized the imposition of the requirement under section 231.2, I would dismiss the appeal.
(emphasis added)
Some questions now will be asked:
• When will a multinational really need to have a Canadian subsidiary if it doesn't need a "bricks and mortar" presence in Canada?
• What effect will this decision have on future decisions of multinationals to have a legal presence in Canada and thereby be easily subject to Canadian law?
• Extraterritoriality is great stuff and will sometimes serve the interests of Canadian justice where there is a “real and substantial” connection - but given that what goes around tends to come around - how far should Canada go down this road?
• How will this decision affect other areas of law?

Just asking - no answers yet.

Not surprisingly, there are numerous references to the Supremes’ 2004 SOCAN Tariff 22 Music on the Internet decision, which extended the concept of extraterritorial application of the law in the internet age.

Will leave to appeal to the Supremes be sought in the eBay case? Will there be interveners?

Justice Hughes suggests the potential reach and importance of the issue when he states at para. 17 of his judgment that:
[17] The old maxim that taxing statutes are to be strictly construed must give way to the modern approach in interpretation of statutes generally which is to construe legislation reasonably, having regard to its object and purpose.
This is both profound and provocative. If information can be “both here and there” and more readily subject to Canadian jurisdiction, what impact will this have on other litigation in other arenas? Should the internet change fundamental values in the law, including principles of statutory interpretation, such the strict construction of statutes dealing with tax, criminal, competition and - yes - copyright law? Does Mr. Justice Hughes’ decision, as upheld, do this?

And what if eBay does not seek leave to appeal, or leave is sought but declined? Then we shall have many unanswered questions.

It is notable that, in keeping with the importance and public interest of this case, the Courts moved very quickly. Mr. Justice Hughes heard the case on September 13, 2007 and rendered an 18 page partial judgment five days later. Justice Hughes’ final judgment was delayed on consent by about five months only because of a pending relevant judgment from the Federal Court of Appeal as to whether the Minister must show that there exists “a genuine and serious inquiry.” The FCA said that the Minister did not and Justice Hughes followed that ruling, but found that, even if this were to be the test, the Minister would have passed it. So the subsequent decision did not affect Justice Hughes’ original “partial” judgment.

The Federal Court of Appeal heard arguments on October 8, 2008 and delivered a 28 page judgment 30 days later on November 7, 2008 written by Justice Evans Thus, the process took just 14 months from first hearing in the Federal Court to final judgment by the Federal Court of Appeal - and might even have been several months shorter but for the unusual step of waiting for another relevant appellate judgment and an unsuccessful stay application by eBay on the way resulting in a 17 page judgment.

Both the Federal Court and Federal Court of Appeal are very fast and decisive these days in any event and particularly when necessary. This is very useful and productive for all concerned - and especially the public.


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