Consumer Privacy Protection Reaches the Highest Court in the Land

The Supreme Court of the United States (SCOTUS) will review a legal point on federal versus state jurisdiction this December that will have significant impact on both consumer privacy protection and interstate commerce for every retailer and data-driven marketer in the country.

It’s a current example of how things that seem distant from our quotidian marketing lives actually have a great impact on our ability to connect with customers, respect their privacy, and grow our business.  

Here’s a quick primer on what you need to know, according to Christopher Oswald, VP of state affairs for the Direct Marketing Association (DMA) who is stewarding this case for the industry:

What’s happening:

In DMA vs. Brohl, scheduled to be heard on December 8, DMA is going to the Supreme Court to preserve federal court jurisdiction over cases challenging the constitutionality of state laws and regulations. Specifically, the DMA’s case asserts that federal courts should rightfully continue to determine whether Colorado’s “notice and reporting” regulations are constitutional.

Wonky legal issue:

The issue presented in DMA v. Brohl focuses on whether the Tax Injunction Act (TIA), which bars against federal court jurisdiction to hear taxpayers’ challenges to state tax assessments, applies to a state law that doesn’t impose any tax but creates regulatory obligations that are only indirectly related to state taxes.

Impact on interstate commerce:

This is about the right to access the neutral forum of federal court to challenge the constitutionality of state laws. For a business to be forced to challenge a state’s tax regulations in that state’s own court, particularly when they have no physical presence in the state, puts that business at an unfair disadvantage regardless of the merits of its case. SCOTUS’s ruling will determine whether state tax notification regulations may be challenged in federal court.

It’s vital that businesses have the ability to access federal courts when challenging state actions that violate the U.S. Constitution. Federal courts are, by definition, experts in constitutional issues and serve as proper neutral arbiters through which businesses can challenge states in which they have no physical presence.  

Impact on consumer privacy:

The origin of the SCOTUS case is a proposed Colorado law that would require out-of-state businesses to share consumer purchasing data with the state. In July 2010 DMA filed a lawsuit in U.S. District Court in Colorado challenging the constitutionality of a new Colorado notice and reporting law. The law requires out-of-state merchants to turn over confidential purchase history information regarding their Colorado customers to the Department of Revenue (DOR). In the lawsuit DMA contends that the Colorado law constitutes an unprecedented invasion of consumer privacy and unfairly discriminates against interstate commerce by targeting solely out-of-state merchants.

If allowed to move forward, the Colorado law would require any out-of-state business that sold products in Colorado to turn over customer purchase records to the state, betraying the trust customers have when they shop and directly compromising their privacy. Also, Colorado imposes this onerous new legal obligation on only out-of-state sellers, therefore violating the U.S. Constitution commerce clause in that it treats Colorado and non-Colorado sellers differently.

Substance of the DMA argument:

1. The Colorado Tax Injunction Act (TIA) doesn’t prohibit challenges brought on by non-taxpayers who aren’t contesting state tax liability—either their own or anyone else’s.

2. The Tenth Circuit misconstrues the Colorado Act’s notice and reporting requirements by referring to them as “collection methods”; however, out-of-state retailers affected by the requirements aren’t required to collect, report, or pay any state tax.

3. State courts are capable of protecting federal rights. Yet, access to federal courts by non-resident companies and individuals when federal constitutional rights are at issue is a significant factor in promoting confidence in our nation’s judicial system.

Risk and value to the data-driven marketing community:

A victory will allow DMA to challenge the Colorado regulation in the lower federal courts. DMA’s previous win in the Federal District Court gives us a good case against the regulation when the case is reconsidered.

If our case is not successful, remote retailers could be forced to challenge state tax regulations in the courts of those states, denying them a fair and neutral forum.

For more information, see the full DMA opening brief and a summary of the Road to the Supreme Court on the DMA website.