“Patent trolls are increasingly targeting Main Street retailers,” the White House said, specifically citing infringement claims over retail point of sale software and business methods. “End-users should not be subject to lawsuits for simply using a product as intended.”

When the most recent patent reform law was passed just two years ago, frivolous lawsuits over dubious patent claims were a problem mostly for the high-tech industry and were rarely seen by retailers. Since then, patent trolls – companies that buy obscure patents from inventors and then make millions threatening to sue innocent users of the technology – have gone after merchants on a large scale. NRF has fielded complaints from more than 200 member companies – and those are just the ones we’ve heard from. More than 75 representatives from three dozen companies and organizations threatened by patent trolls – ranging from retailers to bankers to the entertainment industry – turned out for a meeting at NRF headquarters this week.

NRF Senior Vice President and General Counsel Mallory Duncan, speaking at a Capitol Hill event on patent trolls, said retailers using off-the-shelf products don’t necessarily know what patents are involved.

“As retailers, we are not patent experts,” Duncan said. “Retailers know no more about what is inside their point-of-sale systems than consumers know about what’s inside their cell phones, yet they’re being sued.”

NRF Senior Director for Federal Relations Beth Provenzano took a slightly different approach in a newspaper interview, telling a reporter “so much of retail is tech now that we’re being targeted by the patent trolls in a much more aggressive way.” You can read more on Duncan’s remarks in the Wall Street Journal and Provenzano’s in The Hill.

Both statements are true – retailers today are clearly on the cutting edge of technological innovation. But retailers are shopkeepers and merchants first, computer geeks second. Our industry recognizes challenges and finds solutions, but we partner with third parties who are responsible for what goes inside the magic boxes that make it all work. Just look at ads in NRF’s STORES magazine to see offerings on issues from digital signage to wireless video surveillance to supply chain management.

NRF is still reviewing the White House proposal, but officials there got at least one thing right – patent troll threats and lawsuits are a “drain on the American economy” that need to be stopped in order to protect American jobs and innovation.

I’ll moderate a webinar for the retail community on June 10, when government and industry officials will cover these issues and provide an update of what’s being done. I asked State Department Assistant Secretary for Economic and Business Affairs Jose Fernandez to preview the discussion and provide an overview of the Kimberley Process, which specifically addresses the sourcing of “conflict” diamonds, and to discuss broader issues affecting the diamond supply chain.

Responsible sourcing of diamonds and other minerals is an important process for retailers to satisfy their customers’ needs. Can you discuss the role of the State Department in this process and what progress you have seen over the years?

Jose Fernandez, U.S. State Department, Assistant Secretary for Economic and Business Affairs

As the lead agency on foreign policy and a primary advocate for American business overseas, the Department of State engages with these issues on a number of levels, from specific engagement in countries and regions where responsible sourcing plays a particularly critical role to general outreach on how American businesses can both promote and benefit from responsible sourcing throughout their supply chains. As Assistant Secretary, I have focused on the concept of “doing well by doing good,” and I am pleased to say that working together with my colleagues at State and the Administration we have succeeded in making great strides in this area. In the last few years, we have seen significant progress through the development of international tools such as the U.N. Guiding Principles on Business and Human Rights, the Organization for Economic Cooperation and Development Due Diligence Guidance for Responsible Sourcing of Minerals, an update of the OECD Guidelines for Multinational Enterprises, and industry-led resources such as the Diamond Source Warranty Protocol.

The Kimberley Process has been in place for about 10 years now. What have we learned over the past decade? What are the next steps that companies can take?

The achievements of the Kimberly Process must be recognized. No other commodity has a certification scheme applicable to all cross-border shipments anywhere in the world, and the KP’s effectiveness has relied on a unique and diligent collaboration between the public and private sector. The KP has not only limited the ability of rebel movements to finance efforts to overthrow legitimate governments through diamonds, it has helped foster improved monitoring in the vast range of producing, trading, and consuming countries. In doing so, it has become a platform for focusing on the specific needs and challenges associated with artisanal diamond mining. We look to all U.S. companies that work in the diamond supply chain to understand what the KP is – and isn’t – and how they can continue to ensure compliance with relevant laws in KP participating countries.

The KP does have a very specific scope, however, which is preventing rebel groups from using rough diamonds to finance violence aimed at undermining legitimate governments. An effort to modernize that mandate is ongoing, but regardless of the outcome of these discussions there are a range of issues that confront diamond supply chains that fall outside the KP’s writ, at least with respect to certification. As such, we look to businesses to engage with their suppliers on these concerns.

What resources (groups, organizations or other programs) can retailers utilize to educate themselves on responsible mineral sourcing issues?

As I mentioned, the U.N. Guiding Principles and OECD Due Diligence Guidance provide excellent starting points as frameworks for understanding how to approach responsible supply chains. With respect to diamonds, I would point to the work of the Responsible Jewelery Council on its Code of Practices and related Chain of Custody standards, the combined initiative of the Jewelers of America/Jewelers Vigilance Committee and the Diamond Manufacturers and Importers Association to develop the Diamond Source Warranty Protocol, and the Diamond Development Initiative’s project on identifying and implementing development diamond standards. More recently, a Multi-Stakeholder Working Group has formed to investigate whether there should be additional due diligence guidance developed for industry in the precious stones sector. This working group is eager to have broader participation from all aspects of the trade including retailers. In all cases, we urge companies also to consider how these efforts include the artisanal mining sector as we believe promoting development here is an essential element of responsible sourcing.

Responsible business conduct plays an increasingly important role in consumers’ shopping decisions. How would you suggest companies approach issues concerning the impact of their operations, including their sourcing practices?

Companies should start by establishing appropriate policies, designating senior personnel to oversee those policies, and then truly implement them. The recently launched U.S. Government Approach on Business and Human Rights articulates what we think companies should know when it comes to responsible business conduct in their global operations. We believe strongly this does not mean steering business away from potentially difficult regions but rather ensuring that sourcing in these areas happens in a responsible way that promotes development, rather than fueling human rights abuse or other issues.

As you have referred a few times, there is often a concern that moving toward responsible sourcing automatically means moving away from certain areas, usually those involving small “artisanal” miners. What is the State Department doing to ensure that diamonds improve the well being of artisanal miners and their communities?

This was a significant focus during our tenure as chair of the KP in 2012. In the first half of the year we worked with the World Bank, the Diamond Development Initiative and the U.S. Agency for International Development to sponsor the first-ever KP-focused development conference. We then worked closely with Angola, which chairs the KP’s Working Group on Artisanal and Alluvial Production and South Africa to craft the “Washington Declaration,” which recommitted the KP to a number of policy goals concerning economic development in the artisanal mining sector. We are hosting a workshop at the next KP meeting in South Africa to discuss the design and application of a self-assessment tool, which will enable countries to better understand what the development needs in the artisanal mining sector.

More specifically, the State Department, USAID and the U.S. Geological Survey have undertaken efforts to promote the formalization of artisanal mining and sustainability of such mining as a livelihood. The focus is on property rights and land tenure and improved understanding of the geologic deposits that miners are exploiting.

But finding a good quote wasn’t a problem this week as I drafted a news release on NRF’s brief objecting to the proposed settlement of a federal antitrust lawsuit over credit card swipe fees charged by Visa, MasterCard and their member banks.

The brief called the settlement a “surrender” that fails to address the “core evil” of price fixing. It said “retailers simply cannot understand how the American system of justice” could consider allowing current practices to continue. And it added that “there is nothing that the credit card networks could give that is worth this unbridled loss of control.”

Phrases like those and many others in the 188-page document reflect the passion and emotion retailers feel over swipe fees. At a time when the economy is still recovering and many retailers are struggling to keep the doors open and their workers employed, swipe fees cost retailers $30 billion a year that could be used to better serve customers, reduce prices, open new stores or create new jobs. To put it in perspective, that’s as much as merchants lose each year to organized retail crime. And since the amount is too much for retailers to simply “eat,” the fees get passed on to customers and drive up costs more than $250 a year for the average U.S. household.

NRF filed its brief on Tuesday, the deadline for retailers to opt out of the settlement. So many retailers opted out that the court was still counting yesterday and it could be days before the tally is known. NRF’s brief was accompanied by statements from a broad cross-section of U.S. retailers representing almost every segment of the industry including luxury brands, department stores, apparel stores, specialty retailers, restaurants and every size from independent Main Street stores to national chains.

The opt-outs aren’t the only challenge to the settlement.

Attorneys general from nine states filed an objection to the settlement, also on Tuesday, with 48 states and the District of Columbia signing the brief in support. When attorneys general from across the country – respected legal authorities who come from a variety of backgrounds, political affiliations and geographic locations – agree that a settlement is a bad deal, that’s difficult to ignore.

In addition, a group of 17 large retailers including Macy’s, Target and J.C. Penney last week went beyond opposing the current settlement and filed a new lawsuit against Visa and MasterCard over the same swipe fees.

A decision on final approval of the settlement won’t come until a court hearing scheduled for September. But from the past week’s activities one thing should be clear: this “settlement” is far from settled.

Patent trolls – companies that buy about-to-expire patents and go after companies using, inventing, or patenting similar software – are no longer only a tech industry concern. In fact, more non-tech than tech companies were targeted by patent trolls in 2012, and trolls are marching onto new targets every day with their operations funded by settlements and licensing arrangements achieved through the threat of litigation.

Patent trolls quickly figured out that casting a wider net than just tech companies could be more fruitful, and retailers and other end users are feeling the pinch of this new strategy. Trolls allege infringement not only on specific software but also on methods of doing business. For example, MacroSolve Inc. has filed numerous suits related to violating U.S. Patent No. 7,822,816, a “business method” patent that covers the process many businesses have used to develop their mobile apps. As retailers innovate and evolve, claims based on abstract ideas and general processes cut at this growth and ingenuity.

Trolls don’t just target national brands. Independent and smaller retailers are also receiving demand letters and being sued. These smaller businesses, just like national retailers, lack the resources (capital and manpower) and expertise in patent litigation to fight trolls and will often settle to avoid a lengthy and costly battle.

Although Democrats and Republicans don’t agree on much these days, there is bipartisan recognition on Capitol Hill that patent trolls are a problem. On Wednesday, the House Small Business Committee examined “patent reform implementation and new challenges”, with NRF and Shop.org providing comments for Wednesday’s meeting. Even the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet has already held two hearings on abusive patent litigation practices.

Lawmakers have also introduced legislation aimed at curbing the problem.  In February, Representatives Peter DeFazio, D-Ore. and Jason Chaffetz, R-Utah, introduced the Saving High Tech Inventors from Egregious Disputes Act, or SHIELD Act, which would require patent trolls to pay litigation costs when they lost in court.  Last week, Senator Charles Schumer, D-N.Y., introduced the Patent Quality Improvement Act, which would allow retailers to ask the Patent and Trademark Office to conduct a post-grant review of a patent involved in litigation. And on Thursday, Representative Ted Deutch, D-Fla., introduced the End Anonymous Patents Act. These are important first steps in combating patent trolls.

NRF supports the bipartisan approach Congress is taking to address this problem and is actively engaged with lawmakers to find a solution that alleviates the burden that retailers face.

But that wasn’t the case with NRF’s annual Washington Leadership Conference this week.

Retailers from across the country arrived Monday evening just in time to watch the Senate overwhelmingly pass the Marketplace Fairness Act – landmark sales tax fairness legislation NRF has had at the top of its priority list for more than a decade. And they were able to spend the next two days walking the halls of Congress to urge members of the House to follow the Senate’s example in voting to require online sellers to collect sales tax the same as local stores.

Rather than just another conference, WLC quickly turned into a combined victory celebration, pep rally and annual reunion of familiar faces in the long-fought battle to level the playing field between online and brick-and-mortar retailers.

Senator Michael Enzi, R-Wyo., sponsor of the Senate legislation, joined the party, as did Representative Steven Womack, R-Ark., sponsor of the House version. Both thanked retailers for their support, urged them to keep the momentum going, and emphasized that personal examples of how untaxed online sales are harming local stores and jobs will be the best ammunition to overcome objections expected in the House.

But as important as the sales tax victory was, it wasn’t the only part of the conference to get excited about.

Hundreds of retailers ranging from Main Street store owners to CEOs of some of the nation’s best-known brands turned out this year. Thirty-one states from across the country were represented, with Vermont sending the most retailers (five people from four businesses) and Washington State getting credit for the longest distance traveled (2,400 miles).

Retailers heard Cokie Roberts, veteran analyst for ABC television and National Public Radio, offer an overview of the polarized political scene in Washington, got lobbying tips from former Senator Blanche Lincoln, D-Ark., and former Representative Billy Tauzin, R-La., and participated in more than 80 meetings with lawmakers and staff in both the House and Senate. Committee meetings ranged from the NRF Board of Directors to sessions on loss prevention, retail technology standards and restaurant food supply chains.

NRF is already planning the 2014 Washington Leadership Conference. While it’s too early to say what next year’s “big bill” will be, we certainly hope any retailers who show up expecting to lobby on sales tax fairness will find out they’re too late – if this spring’s momentum can be maintained, the Marketplace Fairness Act could be a law that’s already on the books by then.

To see WLC 2013 in photos, watch NRF’s Flickr slideshow below.

“How could somebody walk into a business and order online right in front of them? That’s a slap in the face!” Womack said. “They ought to have the decency to at least walk outside.”

The Arkansas Republican spoke late Tuesday afternoon at NRF’s annual Washington Leadership Conference, less than 24 hours after the Senate overwhelmingly passed the Marketplace Fairness
Act, legislation that would allow states to require online sellers to collect sales tax the same as local stores.

Womack is the lead sponsor of an identical bill in the House, where the battle will now shift. And he urged retailers to use personal stories like his example of “showrooming” to keep the momentum building and convince House members it’s time to level the playing field between online and brick-and-mortar retailers.

“They have marched this ball down the field in an extraordinary way,” Womack said of Senate sponsors of the legislation. “If we’re not successful at marching this through the House, we’d might as well put up a billboard and say ‘shop on the Internet because it’s tax free and always will be tax free.’ ”

Sales tax fairness is expected to face a tougher fight in the House, where Speaker John Boehner, R-Ohio, told Bloomberg Television Tuesday night he will “probably not” support the measure because “you’re putting a big burden on some very small businesses.” (Despite those concerns, online sellers with less than $1 million in out-of-state sales each year would be exempt, and collection would be handled by software paid for by the states.)

Unlike the Senate, which skipped the committee process in considering the bill, the House plans to send the bill to the Judiciary Committee for hearings, debate and a vote rather than going directly to the floor.

Womack was undaunted by the potential obstacles, saying he welcomes the full committee process so no one can claim that the bill was rushed through.

First elected to the House in 2011, Womack is an admitted newcomer to the congressional debate over sales tax, which has been waged by Senate advocates like Mike Enzi, R-Wyo., and Richard Durbin, D-Ill., for more than a decade. But that doesn’t mean that he’s new to the issue – as mayor of Rogers, Ark., he presided over development of a $250 million shopping center that opened in 2006 and brought new retail stores to the city of 55,000. Even then, “I knew if we didn’t come up with a solution for (sales tax fairness) what would be done to our retailers.” Having fought the sales tax fight in Congress, “I’m even more motivated now.”

Newcomer or not, Womack is pursuing his goal with the fervor of a true believer: “I believe in my heart that this bill is going to pass,” he promised. “If not, we as Congress will have presided over the destruction of retail as we know it.”

After more than a decade of patience, persistence and a good dose of perspiration, the United States Senate approved the Marketplace Fairness Act by a bipartisan vote of 69 – 27, sending a powerful statement that lawmakers understand the need to level the playing field for sales tax collection. The vote happened to overlap with NRF’s Washington Leadership Conference, as we welcomed hundreds of retail executives to our nation’s capital for retail’s yearly fly-in.

Sales tax fairness is only one of a handful that top NRF’s policy agenda, each of importance to the future growth of the retail industry. From sales tax fairness and corporate tax reform to economic policies that drive capital investment and the fiscal certainty needed to help spur job creation, NRF is committed to working with lawmakers and opinion leaders in shaping a policy agenda that will help retailers recognize the success they are working daily to achieve.

Through the “This is Retail: Careers, Community and Innovation” campaign, our retailers are telling compelling stories on Capitol Hill and beyond that are helping to shift the perception about the role retail plays in every community across the country. And as the largest private employer of any industry sector, we cannot be ignored and our voices will be heard.

NRF Senior Vice Presidents David French and Ellen Davis, and Vice President Rachelle Bernstein appeared on CNBC, CNN, and MSNBC, respectively, to explain the need to level the playing field between online and brick-and-mortar retailers. Watch each video below.

After the 69-27 vote to approve the Marketplace Fairness Act, NRF President and CEO Matthew Shay praised senators for “standing with local retailers and America’s small business owners in a strong, bi-partisan vote … despite a highly-funded misinformation campaign by the legislation’s opposition.”

“Today’s action in the Senate is a significant step for sales tax fairness and we look forward to a robust debate in the U.S. House of Representatives,” Shay said.

After all these years, consensus seems to have finally been reached – at least in the Senate – on the need to level the playing field between online and local retailers. A series of procedural votes leading up to tonight’s action have all passed by overwhelming margins. State retail associations have been very vocal in calling on senators for passage, cutting through misguided claims from opponents that the legislation would create a new tax. Stories from Main Street have helped explain to lawmakers the impact that untaxed Internet sales are having on local stores, jobs and the economy.

In a very fortuitous bit of timing, the vote comes as hundreds of retailers from across the country are arriving in town for NRF’s annual Washington Leadership Conference. Sales tax fairness is one of the top issues for the conference, and being in Washington for the vote will help boost retailers’ resolve to see this measure become law. Senate passage, of course, is only half the battle. If the bill passes tonight, the battle then heads to the House, where weeks or months of debate remain ahead.

Despite all the well-known brand names that dominate most people’s image of retail, the truth is that retail is an industry of small businesses – 96 percent of retailers own and operate a single store. Yet retailers are the most innovative, job-creating, community-oriented industry our nation has. Local retailers are willing to compete on price, service, quality and any other measurement their customers demand. But that’s not easy when they are handicapped by government policy that gives online, out-of-state competitors an unfair price advantage. It’s time to give brick-and-mortar retailers the one thing all businesses deserve – a level playing field.

]]> http://blog.nrf.com/2013/05/06/today-is-a-big-day-for-sales-tax-fairness/feed/ 0 http://blog.nrf.com/2013/05/06/today-is-a-big-day-for-sales-tax-fairness/ http://feeds.nrf.com/~r/RetailsBigBlog/public-policy/~3/TakspROu16s/ http://blog.nrf.com/2013/05/03/retail-association-op-eds-call-on-senators-to-pass-sales-tax-fairness-bill/#comments Fri, 03 May 2013 17:30:39 +0000 J. Craig Shearman, VP, Government Affairs PR http://blog.nrf.com/?p=18429 The Senate is set to take a final vote next week on one of the biggest high-tech public policy questions of our times – whether Internet retailers should be required to collect sales tax the same as local stores. But retail trade associations from across the country are using one of the most low-tech traditions in our country’s history as they demand that lawmakers finally level the playing field – the op-ed pages of their local newspapers.

“Local businesses fight an uphill battle against online sellers who unfairly receive an automatic pricing advantage because of the Internet sales tax loophole,” Utah Retail Merchants Association President David Davis wrote in an op-ed published in the Salt Lake Tribune. “Sales lost to online businesses mean less money to hire workers, expand product offerings or upgrade services and facilities. All of those things hurt not only local businesses but also consumers and communities.”

“Main Street brick-and-mortar retail businesses in Wyoming, whose stores employ thousands of Wyoming residents, have endured a competitive disadvantage to online retailers for many years,” Wyoming Retail Association Executive Director Chris Brown said in the Casper Star-Tribune. “The Senate’s support for e-fairness represents a significant step in the right direction.”

“Folks, this is not a new tax,” North Carolina Retail Merchants Association President Andy Ellen wrote in an opinion piece published in Raleigh. “This legislation is simply bringing tax laws into the 21^st Century.”

Those and other op-eds and letters to the editor have begun popping up almost daily in the past week as the Senate prepares to vote Monday on the Marketplace Fairness Act. The legislation would allow states to require all online sellers to collect sales tax the same as local stores, effectively overturning a 1992 U.S. Supreme Court ruling that online sellers only have to collect in states where they have a physical presence such as a store, office or warehouse. The vote will come as retailers arrive for NRF’s annual Washington Leadership Conference.

The articles have explained issues such as showrooming, where shoppers come to local stores to browse but go online to buy in order to save sales tax, talked about tax revenue lost to state and local governments, and emphasized how many Main Street retailers are struggling to keep their doors open in face of the competition. All the writers call on their members of the Senate to approve the legislation.

In the Idaho Business Review, Idaho Retailers Association President Pam Eaton said her organization “fully supports online shopping” but that the lack of sales tax amounts to “a massive, government-mandated pricing advantage.”

The banter has been plentiful on both sides of the debate, and the discussion is far from over. But as these and several other retail associations have emphasized, now that e-commerce is all grown up, it’s time for all retailers to play fair.